Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-228936
Pacific
Ventures Group, Inc.
400,000
Shares of 11% Series G Cumulative Redeemable Perpetual Preferred Stock
$25.00
Per Share
Liquidation
Preference $25.00 Per Share
We
are offering to the public on a self-underwritten, best-efforts basis a total of 400,000 shares of our 11% Series G Cumulative
Redeemable Perpetual Preferred Stock, also referred to as “Series G Preferred Stock” (the “Offering”).
There is no minimum number of shares of Series G Preferred Stock required in order the close the Offering. The Offering will end
180 days after the effective date of this registration statement, subject to one extension of up to 90 additional days.
The
Offering will be made using the services of our management, who will not be compensated for their services and efforts related
to the Offering of our Series G Preferred Stock. We also contemplate utilizing the services of one or more placement agents (collectively,
the “Placement Agents”), which means our management and Placement Agent(s) will attempt to sell the Series G Preferred
Stock being offered hereby on behalf of the Company. There is no underwriter for this Offering. To date, we have not yet retained
any Placement Agent nor are we in negotiations with any Placement Agent but expect that we will utilize one or more Placement
Agent(s) and expect that will enter into a Placement Agent Agreement in the form attached as Exhibit 10.17 hereto prior to the
commencement of the Offering. Reference is also made to the disclosure under “The Offering” and “Plan of Distribution”
below.
Pursuant
to the terms of the Placement Agent Agreement, we will pay the Placement Agents a cash fee equal to 7% of the gross proceeds received
by the Company from qualified investors from such closing of the sale of Series G Preferred Stock as a direct result of the selling
efforts and introductions of each respective Placement Agent; and (ii) issue to each such Placement Agent warrants (the “Placement
Agent Warrants”) to purchase a number of shares of the Company’s Series G Preferred Stock equal to 7% of the number
of shares of Series G Preferred Stock sold in the Offering as a direct result of the selling efforts and introductions of each
respective Placement Agent, exercisable during the period of thirty-six (36) months from the final Closing of the Offering an
exercise price of $25.00 per share of Series G Preferred Stock.
Any
Placement Agent(s) that we engage will not have any obligation to buy the Series G Preferred Stock subject to this Offering from
us or to arrange for the purchase or sale of any specific number or dollar amount of the Series G Preferred Stocks. If we sell
all 400,000 shares of Series G Preferred Stock subject to the Offering pursuant to this prospectus, at the Offering price of $25.00
per share, we will receive approximately $10,000,000 in gross proceeds and approximately $9,150,000 in net proceeds, after deducting
the placement agent fees after deducting placement agent fees and estimated offering expenses of $150,000 payable by us, assuming
all of the 400,000 shares of Series G Preferred Stock are sold through the direct efforts of Placement Agents, and estimated offering
expenses payable by us.
Dividends
on the Series G Preferred Stock are cumulative from the date of original issue and will be payable on the fifteenth day of each
calendar month commencing _____, 2019 when, as and if declared by our board of directors. Dividends will be payable out of amounts
legally available therefore at a rate equal to 11% per annum per $25.00 of stated liquidation preference per share, or $2.75 per
share of Series G Preferred Stock per year. We will place from the proceeds of the Offering an amount equal to 18 months of dividends
into a separate bank account to be used solely to pay the cash dividends on the shares of Series G Preferred Stock.
Commencing
on March 31, 2023, a date 36 months from the date of original issue of the Series G Preferred Stock, we may redeem, at our option,
the Series G Preferred Stock, in whole or in part, at a cash redemption price of $25.00 per share, plus all accrued and unpaid
dividends to, but not including, the redemption date, upon not less than 30 nor more than 60 days’ written notice (the “Redemption
Notice”) to the holders of the Series G Preferred Stock (the “Holders”). The Series G Preferred Stock has no
stated maturity, will not be subject to any sinking fund or other mandatory redemption, and will not be convertible into or exchangeable
for any of our other securities.
Holders
of the Series G Preferred Stock generally will have no voting rights except for limited voting rights if dividends payable on
the outstanding Series G Preferred Stock are in arrears for eighteen or more consecutive or non-consecutive monthly dividend periods.
Our
shares of common stock, par value $0.001 (the “Common Stock”) is currently subject to quotation on the OTC Market,
with the trading symbol “PACV.” There is no established trading market for the Series G Preferred Stock, nor can there
be any assurance that a trading market will develop or be sustained for the shares of Series G Preferred Stock subject to the
Offering. Subject to the successful completion of the Offering and the issuance of the shares of our Series G Preferred Stock,
we intend to apply to NASDAQ to have our Common Stock and our Series G Preferred Stock to be listed on the NASDAQ Capital Market.
We may also determine to apply of listing on NASDAQ if we raise sufficient proceeds from the Offering together with revenues from
operations that we qualify for NASDAQ Listing for both our Common Stock and Series G Preferred Stock, as discussed below. Reference
is also made to the disclosure under “Use of Proceeds” and “Plan of Distribution” below.
As
of December 20, 2018, the executive officers and directors beneficially own 79,045,234 of the outstanding shares of our Common
Stock and 1,000,000 of the Series E Preferred Shares, representing approximately 55.9% of the outstanding voting shares.
We
believe that we will qualify for the listing of both our Common Stock and Series G Preferred Stock upon the successful sale of
all of the shares of Series G Preferred Stock that are the subject of the Offering. We do not intend to close the Offering (the
“Closing”) until the earlier of: (i) the sale of a sufficient number of shares of Series G Preferred Stock necessary
for us to meet the listing requirements for the NASDAQ Capital Markets for both our Common Stock and Series G Preferred Stock;
(ii) the sale of a sufficient number of shares of Series G Preferred Stock together with the revenues we generate from our operations
necessary for us to meet the listing requirements for the NASDAQ Capital Markets for both our Common Stock and Series G Preferred
Stock; or (iii) as noted above, on a date 180 days after the effective date of this registration statement, subject to one extension
of up to 90 additional days.
Until
we qualify for listing of our Common Stock and Series G Preferred Stock on the NASDAQ Capital Market, whether as a result of:
(i) the receipt of sufficient Offering Proceeds from the issuance and sale of the Series G Preferred Stock subject to this Offering;
or (ii) receipt of Offering Proceeds together with revenues from our operations, our plan is to place the Offering Proceeds in
an account established for the purpose the holding the proceeds from the sale of Series G Preferred Stock pursuant to this Offering,
whether in an escrow, trust or similar account, until we qualify for listing on the NASDAQ Capital Market, of which there can
be no assurance, at which time the Offering Proceeds will be released to the Company and the Closing of the Offering will occur.
See
“Use of Proceeds” in this prospectus. We expect the Series G Preferred Stock will be ready for delivery in book-entry
form through The Depositary Trust Company on or about March 31, 2019.
Investing
in our Series G Preferred Stock involves significant risks. You should carefully consider the risk factors beginning on page 9
of this prospectus before purchasing any of the Series G Preferred Stock offered by this prospectus.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Per Share
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Public Offering price
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$
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25.00
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Placement agent fees
(1)
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$
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1.75
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Proceeds, before expenses, to Pacific Ventures
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$
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23.25
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(1)
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See
“Plan of Distribution” for a description of the compensation payable to any participating Placement Agent, including
cash fees and Placement Agent Warrants.
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The
date of this prospectus is March 14, 2019
You
should rely only on the information contained or incorporated into this prospectus. Neither we nor the underwriters have authorized
anyone to provide any information or to make any representations other than those contained in this prospectus or in any free
writing prospectuses we have prepared. We take no responsibility for and can provide no assurance as to the reliability of, any
other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as
of its date. You should also read this prospectus together with the additional information described under “Where You Can
Find More Information” and “Incorporation of Information by Reference.”
Unless
the context otherwise requires, we use the terms “PACV,” “we,” “us,” the “Company,”
the “Registrant” and “our” to refer to Pacific Ventures Group, Inc. and its wholly-owned subsidiaries.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the
meaning of the federal securities laws. These statements relate to anticipated future events, future results of operations or
future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,”
“might,” “will,” “should,” “intends,” “expects,” “plans,”
“goals,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential,” or “continue” or the negative of these terms or other comparable terminology. These forward-looking
statements include, but are not limited to:
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our
ability to manage our growth, including acquiring and effectively integrating other businesses into our infrastructure;
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our
ability to retain our customers, including effectively migrating and keeping new customers acquired through business acquisitions;
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our
ability to attract and retain key officers and employees, including Shannon Masjedi, our CEO, and personnel critical to the
transitioning and integration of our newly acquired businesses;
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our
ability to raise capital and obtain financing on acceptable terms;
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our
ability to compete with other companies developing products and selling products competitive with ours, and who may have greater
resources and name recognition than we have;
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our
ability to maintain operations in a manner that continues to enable us to offer competitively-priced products;
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our
ability to keep and increase market acceptance of our products;
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our
ability to keep pace with a changing industry and its rapidly evolving technology demands and regulatory environment;
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our
ability to protect and enforce intellectual property rights; and
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our
ability to maintain and protect the privacy of customer information.
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These
forward-looking statements are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties
and other factors which may cause our (or our industry’s) actual results, levels of activity or performance to be materially
different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
The “Risk Factors” section of this prospectus sets forth detailed risks, uncertainties and cautionary statements regarding
our business and these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing regulatory
environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and
uncertainties that could have an impact on the forward-looking statements contained in this prospectus.
We
cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus. These cautionary statements should be considered with any written
or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities
laws of the U.S., we do not intend to update any of the forward-looking statements to conform these statements to reflect actual
results, later events or circumstances or to reflect the occurrence of unanticipated events. Our forward-looking statements do
not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or other investments or strategic
transactions we may engage in.
THE
OFFERING
The
following summary contains basic terms about this Offering and the Series G Preferred Stock and is not intended to be complete.
It may not contain all of the information that is important to you. For a more complete description of the terms of the Series
G Preferred Stock, see “Description of the Series G Preferred Stock.”
Issuer
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Pacific
Ventures Group, Inc.
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Series
G Preferred Stock to be outstanding after this Offering if the maximum number of shares are sold
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400,000
shares of 11% Series G Cumulative Redeemable Perpetual Preferred Stock (or “Series G Preferred Stock”)
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Offering
Price
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$25.00
per share of Series G Preferred Stock
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Dividends
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Holders
of the Series G Preferred Stock will be entitled to receive cumulative cash dividends at a rate of 11% per annum of the
$25.00 per share liquidation preference (equivalent to $2.75 per annum per share). We will place proceeds equal to 18
months of dividends into a separate bank account to be used to pay Series G Preferred Stock dividends.
Dividends
will be payable monthly on the 15th day of each month (each, a “dividend payment date”), provided that if
any dividend payment date is not a business day, then the dividend that would otherwise have been payable on that dividend
payment date may be paid on the next succeeding business day without adjustment in the amount of the dividend. Dividends
will be payable to holders of record as they appear in our stock records for the Series G Preferred Stock at the close
of business on the corresponding record date, which shall be the last day of the calendar month, whether or not a business
day, in which the applicable dividend payment date falls (each, a “dividend record date”). As a result, holders
of shares of Series G Preferred Stock will not be entitled to receive dividends on a dividend payment date if such shares
were not issued and outstanding on the applicable dividend record date.
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Escrow
of Offering Proceeds Until Nasdaq CapitalMarket Listing Qualification
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Until
we qualify for listing of our Common Stock and Series G Preferred Stock on the NASDAQ Capital Market, whether as a result
of: (i) the receipt of sufficient Offering Proceeds from the issuance and sale of the Series G Preferred Stock subject to
this Offering; or (ii) receipt of Offering Proceeds together with revenues from our operations, our plan is to place the Offering
Proceeds in an account established for the purpose the holding the proceeds from the sale of Series G Preferred Stock pursuant
to this Offering, whether in an escrow, trust or similar account, until we qualify for listing on the NASDAQ Capital Market,
of which there can be no assurance, at which time the Offering Proceeds will be released to the Company and the Closing of
the Offering will occur.
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No
Maturity, Sinking Fund or Mandatory Redemption
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The
Series G Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption. Shares
of the Series G Preferred Stock will remain outstanding indefinitely unless we decide to redeem or otherwise repurchase them.
We are not required to set aside funds to redeem the Series G Preferred Stock.
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Optional
Redemption
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The
Series G Preferred Stock is not redeemable by us prior to ________, 2021. On and after February 13, 2022, a date 36 months
from the date of original issue of the Series G Preferred Stock, we may, at our option, redeem the Series G Preferred Stock,
in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days’ written notice (the
“Redemption Notice”), for cash at a redemption price equal to $25.00 per share, plus any accumulated and unpaid
dividends to, but not including, the redemption date. Please see the section entitled “Description of the Series G Preferred
Stock — Redemption — Optional Redemption.”
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Placement
Agent Agreement
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The
Offering will be made using the services of our management, who will not be compensated for their services and efforts
related to the Offering of our Series G Preferred Stock. We also contemplate utilizing the services of one or more placement
agents (collectively, the “Placement Agents”), which means our management and Placement Agent(s) will attempt
to sell the Series G Preferred Stock being offered hereby on behalf of the Company. There is no underwriter for this Offering.
To date, we have not yet retained any Placement Agent nor are we in negotiations with any Placement Agent but expect that
we will utilize one or more Placement Agent(s) and expect that will enter into a Placement Agent Agreement in the form
attached as Exhibit 10.17 hereto prior to the commencement of the Offering. Reference is also made to the disclosure under
“The Offering” and “Plan of Distribution” below.
Pursuant
to the terms of the Placement Agent Agreement, we will pay the Placement Agents a cash fee equal to 7% of the gross proceeds
received by the Company from qualified investors from such closing of the sale of Series G Preferred Stock as a direct
result of the selling efforts and introductions of each respective Placement Agent; and (ii) issue to each such Placement
Agent warrants (the “Placement Agent Warrants”) to purchase a number of shares of the Company’s Series
G Preferred Stock equal to 7% of the number of shares of Series G Preferred Stock sold in the Offering as a direct result
of the selling efforts and introductions of each respective Placement Agent, exercisable during the period of thirty-six
(36) months from the final Closing of the Offering an exercise price of $25.00 per share of Series G Preferred Stock.
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Special
Optional Redemption
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Upon
the occurrence of a Change of Control, we may, at our option, redeem the Series G Preferred Stock, in whole or in part, within
120 days after the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share,
plus any accumulated and unpaid dividends to, but not including, the redemption date. A “Change of Control” is
deemed to occur when, after the original issuance of the Series G Preferred Stock, the following have occurred and are continuing:
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the
acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of
the “Exchange Act (other than Mrs. Shannon Masjedi, the CEO, a directors and our principal shareholder, any member of
his immediate family, and any “person” or “group” under Section 13(d)(3) of the Exchange Act, that
is controlled by Mrs. Masjedi or any member of his immediate family, any beneficiary of the estate of Mrs. Masjedi, or any
trust, partnership, corporate or other entity controlled by any of the foregoing), of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions
of our stock entitling that person to exercise more than 50% of the total voting power of all our stock entitled to vote generally
in the election of our directors (except that such person will be deemed to have beneficial ownership of all securities that
such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition).
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Liquidation
Preference
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If
we liquidate, dissolve or wind up, holders of the Series G Preferred Stock will have the right to receive $25.00 per share,
plus any accumulated and unpaid dividends to, but not including, the date of payment, before any payment is made to the holders
of our common stock. Please see the section entitled “Description of the Series G Preferred Stock — Liquidation
Preference.”
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Ranking
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The
Series G Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon
our liquidation, dissolution or winding up, (1) senior to all classes or series of our common stock and to all other equity
securities issued by us other than equity securities referred to in clauses (2) and (3); (2) on a parity with all equity securities
issued by us with terms specifically providing that those equity securities rank on a parity with the Series G Preferred Stock
with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding
up; (3) junior to all equity securities issued by us with terms specifically providing that those equity securities rank senior
to the Series G Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up; and (4) effectively junior to all of our existing and future indebtedness (including
indebtedness convertible into our common stock or preferred stock) and to the indebtedness and other liabilities of (as well
as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries. Please see the
section entitled “Description of the Series G Preferred Stock — Ranking.”
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Limited
Voting Rights
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Holders
of Series G Preferred Stock will generally have no voting rights. However, if we do not pay dividends on the Series G Preferred
Stock for eighteen or more monthly dividend periods (whether or not consecutive), the holders of the Series G Preferred Stock
(voting separately as a class with the holders of all other classes or series of our preferred stock we may issue upon which
like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series G Preferred
Stock in the election referred to below) will be entitled to vote for the election of two additional directors to serve on
our board of directors until we pay, or declare and set aside funds for the payment of, all dividends that we owe on the Series
G Preferred Stock, subject to certain limitations described in the section entitled “Description of the Series G Preferred
Stock — Voting Rights.” In addition, the affirmative vote of the holders of at least two-thirds of the outstanding
shares of Series G Preferred Stock is required at any time for us to authorize or issue any class or series of our capital
stock ranking senior to the Series G Preferred Stock with respect to the payment of dividends or the distribution of assets
on liquidation, dissolution or winding up, to amend any provision of our articles of incorporation so as to materially and
adversely affect any rights of the Series G Preferred Stock or to take certain other actions. If any such amendments to our
articles of incorporation would be material and adverse to holders of the Series G Preferred Stock and any other series of
parity preferred stock upon which similar voting rights have been conferred and are exercisable, a vote of at least two-thirds
of the outstanding shares of Series G Preferred Stock and the shares of the other applicable series materially and adversely
affected, voting together as a class, would be required. Please see the section entitled “Description of the Series
G Preferred Stock — Voting Rights.”
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Information
Rights
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During
any period in which we are not subject to Section 13 or 15(d) of the Exchange Act and any shares of Series G Preferred Stock
are outstanding, we will use our best efforts to (i) transmit by mail (or other permissible means under the Exchange Act)
to all holders of Series G Preferred Stock, as their names and addresses appear on our record books and without cost to such
holders, copies of the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that we would have been required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject thereto (other than any exhibits
that would have been required) and (ii) promptly, upon request, supply copies of such reports to any holders or prospective
holder of Series G Preferred Stock, subject to certain exceptions described in this prospectus. We will use our best efforts
to mail (or otherwise provide) the information to the holders of the Series G Preferred Stock within 15 days after the respective
dates by which a periodic report on Form 10-K or Form 10-Q, as the case may be, in respect of such information would have
been required to be filed with the SEC, if we were subject to Section 13 or 15(d) of the Exchange Act, in each case, based
on the dates on which we would be required to file such periodic reports if we were a “non-accelerated filer”
within the meaning of the Exchange Act.
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Quotation
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Our
Common Stock is currently subject to quotation on the OTC Market under the symbol “PACV.” We intend to apply for
listing on the NASDAQ Capital Markets (“NASDAQ Listing”) of our Common Stock and Series G Preferred Stock upon
the earlier of: (i) receipt of sufficient proceeds from the Offering of Series G Preferred Stock; or (ii) receipt to sufficient
proceeds from the Offering together with revenues from operations that we qualify for NASDAQ Listing.
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Use
of Proceeds
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We
plan to use the net proceeds from this Offering for acquisitions, to fund organic growth initiatives and general corporate
purposes. We also will place proceeds equal to 18 months of dividends ($1,650,000 based on an Offering of $10,000,000 or 100%
of Series G Preferred), into a separate bank account to be used to pay Series G Preferred Stock dividends. Reference is made
to the disclosure the section entitled “Use of Proceeds.”
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Risk
Factors
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Please
read the section entitled “Risk Factors” beginning on page 9 for a discussion of some of the factors you should
carefully consider before deciding to invest in our Series G Preferred Stock.
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Transfer
Agent
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The
registrar, transfer agent and dividend and redemption price disbursing agent in respect of the Series G Preferred Stock will
be VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598.
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Material
U.S. Federal Income Tax Considerations
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For
a discussion of the federal income tax consequences of purchasing, owning and disposing of the Series G Preferred Stock, please
see the section entitled “Material U.S. Federal Income Tax Considerations.” You should consult your tax advisor
with respect to the U.S. federal income tax consequences of owning the Series G Preferred Stock in light of your own particular
situation and with respect to any tax consequences arising under the laws of any state, local, foreign or other taxing jurisdiction.
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Book
Entry and Form
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The
Series G Preferred Stock will be represented by one or more global certificates in definitive, fully registered form deposited
with a custodian for, and registered in the name of, a nominee of The Depository Trust Company (“DTC”).
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PROSPECTUS
SUMMARY
This
summary highlights selected information contained elsewhere in this Prospectus. This summary does not contain all the information
that you should consider before investing in the Common Stock. You should carefully read the entire Prospectus, including “Risk
Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
the Financial Statements, before making an investment decision. In this Prospectus, the terms “Pacific Ventures Group, Inc.,”“Company,”“Registrant,”“we,”“us”
and “our” refer to Pacific Ventures Group, Inc., a Delaware corporation.
Business
Plan
Pacific
Ventures was incorporated under the laws of the State of Delaware on October 3, 1986, under the name AOA Corporation. On November
12, 1991, the Company changed its name to American Eagle Group, Inc. On October 22, 2012, the Company changed its name to Pacific
Ventures Group, Inc.
The
current structure of Pacific Ventures resulted from a share exchange with Snöbar Holdings, Inc. (“Snöbar”),
which was treated as a reverse merger for accounting purposes. As the result of the Share Exchange, Snöbar Holdings became
Pacific Venture’s wholly owned operating subsidiary and the business of Snöbar Holdings became the Company’s
sole business operations, and Snöbar Holdings’ majority owned subsidiary, MAS Global Distributors, Inc., a California
corporation (“MGD”), became indirect subsidiary of Pacific Ventures.
Snöbar
Holdings was formed under the laws of the State of Delaware on January 7, 2013.
Snöbar
Holdings is the trustor and sole beneficiary of
Snöbar
Trust, a California
trust (“Trust”), which was formed in June 1, 2013. The current trustee that holds legal title to the Trust is Clark
Rutledge, who is the father of Shannon Masjedi, who is the Company’s President, Chief Executive Officer and majority stockholder
.
The Trust owns 100% of the shares of 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”. As such,
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”). MGD is in the business
of selling
and leasing freezers and providing
marketing services. As a result of the foregoing,
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.
MGD,
a majority owned subsidiary of Snöbar Holdings, is the sole marketer for SnöBar ice cream and SnöBar ice pops.
MGD handles all the marketing and promotional aspect for the SnöBar product line.
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., a California Corporation. San Diego Farmers
Outlet provides primarily restaurants 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
September 24, 2018, the Company signed a definitive Asset Purchase Agreement to acquire a Florida-based wholesale distributor
for general merchandise (“WHOLESALER”).
The
potential acquisition is a standard and registered distribution company that is involved in the distribution of food, beverages
and general merchandise to retailers, households, hotels, restaurants, mom and pop markets, liquor stores, gas stations and others.
Since 1996, The potential acquisition has provided quality merchandise at discounted prices to local customers in and surrounding
areas of the east coast. Deliveries are made on a daily basis through its own trucks and outside trucking companies.
The
WHOLESALER’s corporate warehouse and administrative offices are located in Florida, and comprises a 50,000 square foot warehouse
facility that is large enough to fit all inventory under one roof and has multiple docks for loading and unloading merchandise.
Upon
completion of the acquisition, our marketing strategy will include selling our product line to high-end restaurants, resorts,
cruise lines and hotels. We plan to sell our product line in grocery stores such as Kroger, Wal-Mart and others, and thereafter
to begin a national marketing program to all U.S. retailers. Our sales strategy is based on a top-down marketing plan where products
are placed with the largest retailer then trickle down to the smallest seller in each market area.
Plan
of Operations
As
of the date of this S-1 Registration, 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 San Diego Farmers Outlet (SDFO) acquisition has increased sales of its wholesale business, and still plan on expanding
our current delivery territory from 25 miles to a 40-mile radius. SDFO is also in the process of obtaining 2 new delivery trucks
to add to the current fleet of trucks. The Company has begun marketing to new restaurants in the area, most notably Asian and
Italian restaurants, and have let restaurants know that SDFO can deliver the finest produce in market.
SDFO
installed new signage around the retail market, added additional landscaping to enhance the appearance of the market, and purchased
a new Point of Sale system to improve efficiency and ordering processes.
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.
Upon
completion of the acquisition of WHOLESALER, our marketing strategy will subsequently include selling our product lines to retailers,
households, hotels, restaurants, mom and pop markets, liquor stores, gas stations and others in the State of Florida.
Summary
of Risk Factors
This
offering involves substantial risk. Our ability to execute our business strategy is also subject to certain risks. The risks described
under the heading “Risk Factors” included elsewhere in this prospectus may cause us not to realize the full benefits
of our business plan and strategy or may cause us to be unable to successfully execute all or part of our strategy.
There
are a number of potential difficulties that we might face, including the following:
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Competitors
may develop alternatives that render our products redundant or unnecessary;
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We
may not obtain and maintain sufficient protection of our SnöBar product line;
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Our
products may not become widely accepted by consumers and merchants; and
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Strict,
new government regulations and inappropriate policies, especially in food and beverages business, may hinder the growth of
our business; and
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We
may not be able to raise sufficient additional funds to fully implement our business plan and grow our business.
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During
the nine months ended September 30, 2018 and the year ended 2017, we raised $3,548,642 from the private sale of equity and debt
securities and we may be expected to require up to an additional $5.5 million in capital during the next 12 months to fully implement
our business plan and fund our operations.
Some
of the most significant challenges and risks include the following:
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Our
Auditor has expressed substantial doubt as to our ability to continue as a going concern.
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Our
limited operating history does not afford investors a sufficient history on which to base an investment decision.
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Our
revenues will be dependent upon acceptance of our SnöBar product line by consumers and distributors. The failure of such
acceptance will cause us to curtail or cease operations.
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We
are seeking to market and advertise alcohol infused frozen products and may not be able to accomplish our goal; the alcohol
and dessert industries are highly competitive and if we are unable to compete successfully, our business will be harmed.
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We
rely on the performance of wholesale distributors and other marketing arrangements and could be adversely affected by consolidation,
poor performance or other disruptions in our distribution channels and customers.
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Our
business is subject to extensive regulatory requirements regarding distribution, production, labeling, and marketing. Changes
to regulation of the alcohol industry could include increased limitations on advertising and promotional activities or other
non-tariff measures that could adversely impact our business.
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We
cannot be certain that we will obtain patents for our product line or that such patents will protect us. We use alcohol products
from other companies in the making of our alcohol infused frozen desserts. Infringement or misappropriation claims (or claims
for indemnification resulting from such claims) against us may be asserted or prosecuted, regardless of their merit, and any
such assertions or prosecutions may adversely affect our business and/or our operating results.
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The
availability of a large number of authorized but unissued shares of Common Stock may, upon their issuance, lead to dilution
of existing stockholders.
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Our
stock is thinly traded, sale of your holding may take a considerable amount of time.
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Before
you invest in our common stock, you should carefully consider all the information in this prospectus, including matters set forth
under the heading “Risk Factors.”
Where
You Can Find Us
The
Company’s principal executive office and mailing address is at 117 West 9
th
Street Suite 316, Los Angeles California
90015.
Telephone:
310-392-5606
.
Our
Filing Status as a “Smaller Reporting Company”
We
are a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned
subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual
revenues of less than $50 million during the most recently completed fiscal year. As a “smaller reporting company,”
the disclosure we will be required to provide in our SEC filings are less than it would be if we were not considered a “smaller
reporting company.” Specifically, “smaller reporting companies” are able to provide simplified executive compensation
disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring that
independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial
reporting; are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21,
2013; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, being permitted
to provide two years of audited financial statements in annual reports rather than three years. Decreased disclosures in our SEC
filings due to our status as a “smaller reporting company” may make it harder for investors to analyze the Company’s
results of operations and financial prospects.
Implications
of Being an Emerging Growth Company
We
qualify as an emerging growth company as that term is used in the JOBS Act. An emerging growth company may take advantage of specified
reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
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A
requirement to have only two years of audited financial statements and only two years of related MD&A;
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Exemption
from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”);
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Reduced
disclosure about the emerging growth company’s executive compensation arrangements; and
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No
non-binding advisory votes on executive compensation or golden parachute arrangements.
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We
have already taken advantage of these reduced reporting burdens in this Prospectus, which are also available to us as a smaller
reporting company as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Act”) for complying with new
or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or
revised accounting standards, which allows us to delay the adoption of new or revised accounting standards that have different
effective dates for public and private companies until those standards apply to private companies. As a result of this election,
our financial statements contained in this Form S-1 may not be comparable to companies that comply with public company effective
dates. The existing scaled executive compensation disclosure requirements for smaller reporting companies will continue to apply
to our filings for so long as our Company is an emerging growth company, regardless of whether the Company remains a smaller reporting
company.
We
could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year
in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as
defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Common Stock that is held by non-affiliates
exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which
we have issued more than $1 billion in non-convertible debt during the preceding three year period.
For
more details regarding this exemption, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Critical Accounting Policies.”
RISK
FACTORS
An
investment in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described
in this prospectus and the documents incorporated by reference into this prospectus. The risks and uncertainties described in
this prospectus are not the only ones we face. Additional risks and uncertainties that we do not presently know about or that
we currently believe are not material may also adversely affect our business, business prospects, results of operations or financial
condition. If any of the risks and uncertainties described in this prospectus or the documents incorporated by reference into
this prospectus actually occurs, then our business, results of operations and financial condition could be adversely affected
in a material way. This could cause the market price of the Series G Preferred Stock to decline, perhaps significantly, and you
may lose part or all of your investment.
Risks
Related to this Offering and Ownership of Shares of Our Series G Preferred Stock
Closing
of the offering and escrow of offering proceeds subject to satisfying NASDAQ Listing Requirements.
Until
we qualify for listing of our Common Stock and Series G Preferred Stock on the NASDAQ Capital Market, whether as a result of:
(i) the receipt of sufficient Offering Proceeds from the issuance and sale of the Series G Preferred Stock subject to this Offering;
or (ii) receipt of Offering Proceeds together with revenues from our operations, our Offering will not close and our Offering
Proceeds will be held in an account established for the purpose the holding the proceeds from the sale of Series G Preferred Stock
pursuant to this Offering, whether in an escrow, trust or similar account, until we qualify for listing on the NASDAQ Capital
Market, of which there can be no assurance, at which time the Offering Proceeds will be released to the Company and the Closing
of the Offering will occur. Reference is made to the disclosure under “The Offering” and specifically to the subcaption
“NASDAQ Capital Markets Listing Requirements,” above.
The
Series G Preferred Stock ranks junior to all of our indebtedness and other liabilities.
In
the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations
on the Series G Preferred Stock only after all of our indebtedness and other liabilities have been paid. The rights of holders
of the Series G Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current
and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series G Preferred
Stock. Also, the Series G Preferred Stock effectively ranks junior to all existing and future indebtedness and to the indebtedness
and other liabilities of our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are, and future subsidiaries
would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series
G Preferred Stock. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts
due on any or all of the Series G Preferred Stock then outstanding. We have incurred and may in the future incur substantial amounts
of debt and other obligations that will rank senior to the Series G Preferred Stock. At September 30, 2018, we had total liabilities
of $4,112,245.
Certain
of our existing or future debt instruments may restrict the authorization, payment or setting apart of dividends on the Series
G Preferred Stock. There can be no assurance that we will always remain in compliance with certain of our existing or future debt
instruments, and if we default, we may be contractually prohibited from paying dividends on the Series G Preferred Stock. Also,
future offerings of debt or senior equity securities may adversely affect the market price of the Series G Preferred Stock. If
we decide to issue debt or senior equity securities in the future, it is possible that these securities will be governed by an
indenture or other instruments containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable
securities that we issue in the future may have rights, preferences and privileges more favorable than those of the Series G Preferred
Stock and may result in dilution to owners of the Series G Preferred Stock. We and, indirectly, our shareholders, will bear the
cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering
will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature
of our future offerings. The holders of the Series G Preferred Stock will bear the risk of our future offerings, which may reduce
the market price of the Series G Preferred Stock and will dilute the value of their holdings in us.
There
is no existing market for our Series G Preferred Stock and a trading market that will provide you with adequate liquidity may
not develop for our Series G Preferred Stock.
The
Series G Preferred Stock is a new issue of securities and currently no market exists for the Series G Preferred Stock. We intend
to apply to have our Series G Preferred Stock become listed on the NASDAQ Capital Market and, at the same time, apply for NASDAQ
Listing for our Common Stock, which is currently subject to quotation of the OTC Markets under the symbol “PACV.”
However, a trading market for the Series G Preferred Stock may never develop or, even if one develops, may not be maintained and
may not provide you with adequate liquidity. The liquidity of any market for the Series G Preferred Stock that may develop, assuming
that we qualify for our planned NASDAQ Listing for our Common Stock and Series G Preferred Stock , of which there can be no assurance,
will depend on a number of factors, including prevailing interest rates, our financial condition and operating results, the number
of holders of the Series G Preferred Stock, the market for similar securities and the interest of securities dealers in making
a market in the Series G Preferred Stock. We cannot predict the extent to which investor interest in our company will lead to
the development of a trading market in our Series G Preferred Stock, or how liquid that market might be. If an active market does
not develop, you may have difficulty selling your shares of our Series G Preferred Stock. The price of our Series G Preferred
Stock was determined by the negotiations between us and the representatives of the underwriters and may not be indicative of prices
that will prevail in the open market following the completion of this offering.
We
may issue additional shares of Series G Preferred Stock and additional series of preferred stock that rank on parity with the
Series G Preferred Stock as to dividend rights, rights upon liquidation or voting rights.
We
are allowed to issue additional shares of Series G Preferred Stock and additional series of preferred stock that would rank equally
to or above the Series G Preferred Stock as to dividend payments and rights upon our liquidation, dissolution or winding up of
our affairs pursuant to our articles of incorporation and the articles of amendment relating to the Series G Preferred Stock without
any vote of the holders of the Series G Preferred Stock. The issuance of additional shares of Series G Preferred Stock and additional
series of preferred stock could have the effect of reducing the amounts available to the Series G Preferred Stock issued in this
offering upon our liquidation or dissolution or the winding up of our affairs. It also may reduce dividend payments on the Series
G Preferred Stock issued in this offering if we do not have sufficient funds to pay dividends on all Series G Preferred Stock
outstanding and other classes or series of stock with equal priority with respect to dividends.
Also,
although holders of Series G Preferred Stock are entitled to limited voting rights, as described in “Description of the
Series G Preferred Stock — Voting Rights,” with respect to the circumstances under which the holders of Series G Preferred
Stock are entitled to vote, the Series G Preferred Stock will vote separately as a class along with all other series of our preferred
stock that we may issue upon which like voting rights have been conferred and are exercisable. As a result, the voting rights
of holders of Series G Preferred Stock may be significantly diluted, and the holders of such other series of preferred stock that
we may issue may be able to control or significantly influence the outcome of any vote.
Future
issuances and sales of senior or pari passu preferred stock, or the perception that such issuances and sales could occur, may
cause prevailing market prices for the Series G Preferred Stock and our common stock to decline and may adversely affect our ability
to raise additional capital in the financial markets at times and prices favorable to us.
Market
interest rates may materially and adversely affect the value of the Series G Preferred Stock.
One
of the factors that will influence the price of the Series G Preferred Stock will be the dividend yield on the Series G Preferred
Stock (as a percentage of the market price of the Series G Preferred Stock) relative to market interest rates. An increase in
market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of the
Series G Preferred Stock to expect a higher dividend yield (and higher interest rates would likely increase our borrowing costs
and potentially decrease funds available for dividend payments). Thus, higher market interest rates could cause the market price
of the Series G Preferred Stock to materially decrease.
We
may not be able to pay dividends on the Series G Preferred Stock.
Our
ability to pay cash dividends on the Series G Preferred Stock will require us to have either net profits or positive net assets
(total assets less total liabilities) over our capital, and to be able to pay our debts as they become due in the usual course
of business. The foregoing limitation will apply even if there are remaining proceeds from this offering that have been set aside
to pay Series G Preferred Stock dividends.
Further,
notwithstanding these factors, we may not have sufficient cash to pay dividends on the Series G Preferred Stock. Our ability to
pay dividends may be impaired if any of the risks described in this prospectus or documents incorporated by reference in this
prospectus, were to occur. Also, payment of our dividends depends upon our financial condition and other factors as our board
of directors may deem relevant from time to time. We cannot assure you that our businesses will generate sufficient cash flow
from operations or that future borrowings will be available to us in an amount sufficient to enable us to make distributions on
our common stock, if any, and preferred stock, including the Series G Preferred Stock to pay our indebtedness or to fund our other
liquidity needs.
Holders
of the Series G Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential
tax rates applicable to “qualified dividend income”.
Distributions
paid to corporate U.S. holders of the Series G Preferred Stock may be eligible for the dividends-received deduction, and distributions
paid to non-corporate U.S. holders of the Series G Preferred Stock may be subject to tax at the preferential tax rates applicable
to “qualified dividend income,” if we have current or accumulated earnings and profits, as determined for U.S. federal
income tax purposes. We do not currently have accumulated earnings and profits. Additionally, we may not have sufficient current
earnings and profits during future fiscal years for the distributions on the Series G Preferred Stock to qualify as dividends
for U.S. federal income tax purposes. If the distributions fail to qualify as dividends, U.S. holders would be unable to use the
dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.”
If any distributions on the Series G Preferred Stock with respect to any fiscal year are not eligible for the dividends-received
deduction or preferential tax rates applicable to “qualified dividend income” because of insufficient current or accumulated
earnings and profits, it is possible that the market value of the Series G Preferred Stock might decline.
Our
revenues, operating results and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which
may cause the price of our Series G Preferred Stock to decline.
Variations
in our quarterly and year-end operating results are difficult to predict and our income and cash flow may fluctuate significantly
from period to period, which may impact our board of directors’ willingness or legal ability to declare a monthly dividend.
If our operating results fall below the expectations of investors or securities analysts, the price of our Series G Preferred
Stock could decline substantially. Specific factors that may cause fluctuations in our operating results include:
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competition;
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need
for acceptance of our products;
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ability
to develop a brand identity;
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ability
to anticipate and adapt to a competitive market;
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ability
to effectively manage rapidly expanding operations;
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amount
and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure;
and
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dependence
upon key personnel to market our product and the loss of one of our key managers may adversely affect the marketing of our
product.
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We
may redeem the Series G Preferred Stock.
On
or after February 4, 2022, 36 months from the date of original issue of our Series G Preferred Stock, we may, at our option, redeem
the Series G Preferred Stock, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days
prior written notice to the Holders (the “Redemption Notice”). Also, upon the occurrence of a Change of Control, we
may, at our option, redeem the Series G Preferred Stock, in whole or in part, within 120 days after the first date on which such
Change of Control occurred, also with 30 days written Redemption Notice to Holders. We may have an incentive to redeem the Series
G Preferred Stock voluntarily, if market conditions allow us to issue other preferred stock or debt securities at a rate that
is lower than the dividend on the Series G Preferred Stock. If we redeem the Series G Preferred Stock, then from and after the
redemption date, your dividends will cease to accrue on your shares of Series G Preferred Stock, your shares of Series G Preferred
Stock shall no longer be deemed outstanding and all your rights as a holder of those shares will terminate, except the right to
receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption.
The
market price of the Series G Preferred Stock could be substantially affected by various factors.
The
market price of the Series G Preferred Stock depends on many factors, which may change from time to time, including:
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prevailing
interest rates, increases in which may have an adverse effect on the market price of the Series G Preferred Stock;
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trading
prices of similar securities;
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our
history of timely dividend payments;
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the
annual yield from dividends on the Series G Preferred Stock as compared to yields on other financial instruments;
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general
economic and financial market conditions;
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government
action or regulation;
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the
financial condition, performance and prospects of us and our competitors;
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changes
in financial estimates;
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our
issuance of additional preferred equity or debt securities; and
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actual
or anticipated variations in quarterly operating results of us and our competitors.
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As
a result of these and other factors, investors who purchase the Series G Preferred Stock in this offering may experience a decrease,
which could be substantial and rapid, in the market price of the Series G Preferred Stock, including decreases unrelated to our
operating performance or prospects.
As
a holder of Series G Preferred Stock, you will have extremely limited voting rights.
Your
voting rights as a holder of Series G Preferred Stock will be limited. Our shares of common stock and our Series E Preferred Stock
are the only voting securities that carry full voting rights, and Mrs. Shannon Masjedi, our Chief Executive Officer, beneficially
owns 21.9% of our outstanding voting shares. As a result, Mrs. Masjedi exercises a significant level of control over all matters
requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation, and approval
of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our
company or changes in management, and will make the approval of certain transactions difficult or impossible without his support,
which in turn could reduce the price of our Series G Preferred Stock.
Voting
rights for holders of Series G Preferred Stock exist primarily with respect to the ability to elect, voting together with the
holders of any other series of our preferred stock having similar voting rights, two additional directors to our board of directors,
subject to limitations described in the section entitled “Description of the Series G Preferred Stock — Voting Rights,”
in the event that eighteen monthly dividends (whether or not consecutive) payable on the Series G Preferred Stock are in arrears,
and with respect to voting on amendments to our articles of incorporation or articles of amendment relating to the Series G Preferred
Stock that materially and adversely affect the rights of the holders of Series G Preferred Stock or authorize, increase or create
additional classes or series of our capital stock that are senior to the Series G Preferred Stock. Other than the limited circumstances
described in this prospectus and except to the extent required by law, holders of Series G Preferred Stock do not have any voting
rights. Please see the section entitled “Description of the Series G Preferred Stock — Voting Rights.”
If
our common stock is delisted, your ability to transfer or sell your shares of the Series G Preferred Stock may be limited and
the market value of the Series G Preferred Stock will likely be materially adversely affected.
The
Series G Preferred Stock does not contain provisions that are intended to protect you if our common stock ceased to be subject
to quotation on the OTCBQ Market. Since the Series G Preferred Stock has no stated maturity date, you may be forced to hold your
shares of the Series G Preferred Stock and receive stated dividends on the Series G Preferred Stock when, as and if authorized
by our board of directors and paid by us with no assurance as to ever receiving the liquidation value thereof. Also, if our common
stock ceased to be subject to quotation on the OTCBQ Market, it is likely that the Series G Preferred Stock will also ceased to
be subject to quotation on the OTCBQ Market. Accordingly, if our common stock ceased to be subject to quotation on the OTCBQ Market,
your ability to transfer or sell your shares of the Series G Preferred Stock may be limited and the market value of the Series
G Preferred Stock will likely be materially adversely affected.
We
will have broad discretion in using the proceeds of this offering, and we may not effectively spend the proceeds.
We
intend to use a portion of the net proceeds of this offering to fund acquisitions and initiatives to drive additional growth.
We will use the balance for working capital and general corporate purposes, which may include, developing new products and funding
capital expenditures and investments. We will have significant flexibility and broad discretion in applying the net proceeds of
this offering, and we may not apply these proceeds effectively. Our management might not be able to yield a significant return,
if any, on any investment of these net proceeds, and you will not have the opportunity to influence our decisions on how to use
our net proceeds from this offering.
The
Series G Preferred Stock is not convertible, and investors will not realize a corresponding upside if the price of the common
stock increases.
The
Series G Preferred Stock is not convertible into the common stock and earns dividends at a fixed rate. Accordingly, an increase
in market price of our common stock will not necessarily result in an increase in the market price of our Series G Preferred Stock.
The market value of the Series G Preferred Stock may depend more on dividend and interest rates for other preferred stock, commercial
paper and other investment alternatives and our actual and perceived ability to pay dividends on, and in the event of dissolution
satisfy the liquidation preference with respect to, the Series G Preferred Stock.
Delaware
law contains provisions that could discourage, delay or prevent a change in control of our Company, prevent attempts to replace
or remove current management and reduce the market price of our stock.
Provisions
in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our
stockholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue
up to ten million shares of “blank check” preferred stock without further stockholder approval. The board of directors
has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights,
preferred stockholders could make it more difficult for a third party to acquire us.
We
are also subject to the anti-takeover provisions of the DGCL. Under these provisions, if anyone becomes an “interested stockholder,”
we may not enter into a “business combination” with that person for three years without special approval, which could
discourage a third party from making a takeover offer and could delay or prevent a change in control of us. An “interested
stockholder” is, generally, a stockholder who owns 15% or more of our outstanding voting stock or an affiliate of ours who
has owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described
in the DGCL.
We
are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a
timely manner, our business could be adversely effected and the price of our Preferred Stock could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls
over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered
public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting
as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed
standards.
We
expect to incur expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict
how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial
reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may
not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements
by our independent registered public accounting firm are not presently applicable to us, we could become subject to these requirements
in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls
over financial reporting. In the event that our Chief Executive Officer or Chief Financial Officer determine that our internal
control over financial reporting is not effective as defined under Section 404, we cannot predict how the market prices of our
shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.
If
we fail to maintain effective internal controls over financial reporting, the price of our Preferred Stock may be adversely affected.
Our
internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the
disclosure of which may have an adverse impact on the price of our Common Stock. We are required to establish and maintain appropriate
internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established,
could adversely affect our public disclosures regarding our business, financial condition or results of operations. In addition,
management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to
be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual
or perceived weaknesses that need to be addressed in our internal control over financial reporting or disclosure of management’s
assessment of our internal controls over financial reporting may have an adverse impact on the price of our Common Stock.
The
JOBS Act allows us to postpone the date by which we must comply with certain laws and regulations and to reduce the amount of
information provided in reports filed with the SEC. We cannot be certain if the reduced disclosure requirements applicable to
emerging growth companies will make our Series G Preferred Stock less attractive to investors.
We
are and we will remain an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal
year during which our total annual revenues equal or exceed $1 billion (subject to adjustment for inflation), (ii) the last day
of the fiscal year following the fifth anniversary of our IPO (iii) the date on which we have, during the previous three-year
period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a “large accelerated
filer” under the Securities and Exchange Act of 1934, as amended, or the Exchange Act. For so long as we remain an “emerging
growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not “emerging growth companies” including, but not limited
to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements
of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not
previously approved.
Under
the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, will therefore be subject
to the same new or revised accounting standards at the same time as other public companies that are not emerging growth companies.
We
cannot predict if investors will find our Series G Preferred Stock less attractive because we rely on some of the exemptions available
to us under the JOBS Act. If some investors find our Series G Preferred Stock less attractive as a result, there may be a less
active trading market for our Series G Preferred Stock and our stock price may be more volatile. If we avail ourselves of certain
exemptions from various reporting requirements, our reduced disclosure may make it more difficult for investors and securities
analysts to evaluate us and may result in less investor confidence.
Risks
Associated With Our Business
Our
Independent Registered Public Accounting Firm expressed substantial doubt as to our ability to continue as a going concern in
2017.
The
audited financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments
that might result if we cease to continue as a going concern.
During
the nine-month period ended September 30, 2018 and the year ended December 31, 2017, we raised $4,112,245 from the private sale
of equity and debt securities. We expect to raise an additional $7.5 million during 2019.
As
noted in our consolidated financial statements, we had an accumulated stockholders’ deficit of $5,970,024 and recurring
losses from operations as of December 31, 2017. Our net loss for the fiscal year ended December 31, 2017 was $590,059. We also
had a working capital deficit of approximately $1,306,103 as of December 31, 2017. We intend to fund operations through raising
additional capital through debt financing and/or equity issuances and increased lending activities which may be insufficient to
fund our capital expenditures, working capital or other cash requirements for the year ending December 31, 2017. We are continuing
to seek additional funds to finance our immediate and long term operations. The successful outcome of future financing activities
cannot be determined at this time and there is no assurance that if achieved, we will have sufficient funds to execute our intended
business plan or generate positive operating results. These factors, among others, raise substantial doubt about our ability to
continue as a going concern. The audit report for the fiscal years ended December 31, 2017 and 2016 contain a paragraph that emphasizes
the substantial doubt as to our continuance as a going concern. This is a significant risk that we may not be able to remain operational
for an indefinite period of time.
We
are seeking to market and advertise alcohol infused frozen products and may not be able to accomplish our goal.
A
key feature of our growth strategy is to engage in the marketing and advertising of alcohol infused frozen products. Doing so
presents significant challenges and subjects our business to significant risks. For example, we face substantial competition in
these areas, and do not have as extensive a history of operating in these areas as some of our competitors. If we are unsuccessful
in marketing and advertising alcohol infused frozen products, our ability to grow our business could be significantly limited.
The
alcohol and dessert industries are highly competitive and if we are unable to compete successfully, our business will be harmed.
The
alcoholic beverage industry and the dessert industry are extremely competitive. If we are unable to compete successfully against
current or future competitors in such industries, our revenues, margins and market share could be adversely affected, any of which
could significantly harm our business, operating results or financial condition.
Our
success depends on certain key personnel.
Our
performance to date has been and will continue to be largely dependent on the talents, efforts and performance of our senior management
and key technical personnel. It is anticipated that our executive officers will enter into employment agreements. However, while
it is customary to use employment agreements as a method of retaining the services of key personnel, these agreements do not guarantee
us the continued services of such employees. In addition, we have not entered into employment agreements with most of our key
personnel. The loss of our executive officers or our other key personnel, particularly with little or no notice, could cause delays
on projects and could have an adverse impact on our client and industry relationships, our business, operating results or financial
condition.
We
rely on highly skilled and qualified personnel, and if we are unable to continue to attract and retain such qualified personnel
it will adversely affect our businesses.
Our
success depends to a significant extent on our ability to identify, attract, hire, train and retain qualified creative, technical
and managerial personnel. We expect competition for personnel with the specialized creative and technical skills needed to create
our products and provide our services will continue to intensify. We often hire individuals on a project-by-project basis, and
individuals who work on one or more projects for us may not be available to work on future projects. If we have difficulty identifying,
attracting, hiring, training and retaining such qualified personnel, or incur significant costs in order to do so, our business
and financial results could be negatively impacted.
Risks
associated with commodity price volatility and energy availability could adversely affect our business.
We
are exposed to risks associated with commodity price volatility arising from supply conditions, geopolitical and economic variables,
weather, and other unpredictable external factors. We buy commodities such as corn and other grains, molasses, grapes, sticks
and plastic for the production, packaging and distribution of our products. Availability, increases and volatility in the prices
of these commodities, as well as products sourced from third parties and energy used in making, distributing and transporting
our products, could increase the manufacturing and distribution costs of our products. While in the past we have been able to
mitigate the impact of these cost increases through productivity improvements and pricing adjustments, there is no assurance that
we will be able to offset such cost increases in the future.
We
rely on the performance of wholesale distributors and other marketing arrangements and could be adversely affected by consolidation,
poor performance or other disruptions in our distribution channels and customers.
Our
alcohol-infused popsicles and ice cream products are sold principally through wholesale distributors for resale to retail outlets.
The replacement, poor performance or financial default of a major distributor or one of its major customers could adversely affect
our business. Industry consolidation could also adversely affect our margins and profitability. Though large customers can offer
efficiencies and unique opportunities, they can also seek to make significant changes in their volume of purchases, represent
a large number of competing products, negotiate more favorable terms and seek price reductions, which could negatively impact
our financial results.
Our
operations may be adversely affected by failure to maintain or renegotiate distribution, supply, manufacturing or license agreements
on favorable terms.
We
have a number of distribution, supply, manufacturing and license agreements for our supplies and products. These agreements vary
depending on the particular supply and/or product, but tend to be for a fixed number of years. There can be no assurance that
we will be able to renew these agreements on favorable terms or that these agreements will not be terminated. Termination of these
agreements or failure to renew these agreements on favorable terms could have a negative effect on our results of operations and
financial condition.
If
we are unable to effectively manage organizational productivity and global supply chain efficiency and flexibility, then our business
could be adversely affected.
We
need to continually evaluate our organizational productivity and supply chains and assess opportunities to reduce costs. We must
also enhance quality, speed and flexibility to meet changing and uncertain market conditions. Our success also depends in part
on refining our cost structure and supply chains so that we have flexibility and are able to respond to market pressures to protect
profitability and cash flow or ramp up quickly and effectively to meet demand. Failure to achieve the desired level of quality,
capacity or cost reductions could adversely affect our financial results. Despite our efforts to control costs and increase efficiency
in our facilities, increased competition could still cause us to realize lower operating margins and profitability.
Our
operating results may fluctuate significantly, which may cause the market price of our common stock to decrease significantly.
Our
operating results may fluctuate as a result of a number of factors, many of which are outside of our control. As a result of these
fluctuations, financial planning and forecasting may be more difficult and comparisons of our operating results on a period-to-period
basis may not necessarily be meaningful. Accordingly, you should not rely on our annual and quarterly results of operations as
any indication of future performance. Each of the risk factors described in this “Risks Related to Our Business” section,
and the following factors, may affect our operating results:
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our
ability to continue to attract clients for our services and products;
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the
amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our businesses,
operations and infrastructure;
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our
focus on long-term goals over short-term results;
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the
results of our investments in high risk products;
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general
economic conditions and those economic conditions specific to our industries;
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changes
in business cycles that affect the markets in which we sell our products and services; and
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geopolitical
events such as war, threat of war or terrorist actions.
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In
response to these fluctuations, the value of our common stock could decrease significantly in spite of our operating performance.
In addition, our business, and the alcoholic beverage business, has historically been cyclical and seasonal in nature, reflecting
overall economic conditions as well as client budgeting and buying patterns.
The
cyclicality and seasonality in our business could become more pronounced and may cause our operating results to fluctuate more
widely.
We
have a history of losses, have generated limited revenue to date, and may continue to suffer losses in the future.
We
have a history of losses and have generated limited revenue to date. We expect to continue to incur losses for the foreseeable
future. If we cannot become profitable, our financial condition will deteriorate, and we may be unable to achieve our business
objectives, including without limitation, having to cease operations due to a lack of capital.
We
will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available
may require us to delay, scale back or cease our marketing or product development activities and operations.
We
will require substantial additional capital in order to continue the marketing of our existing products and complete the development
of our contemplated products. Raising funds in the current economic climate may be difficult and additional funding may not be
available on acceptable terms, or at all.
The
amount and timing of our future funding requirements, both near- and long-term, will depend on many factors, including, but not
limited to:
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the
number and characteristics of products that we pursue;
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our
potential need to expand operations, including the hiring of additional employees;
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the
costs of licensing, acquiring or investing in complimentary businesses, products and technologies;
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the
effect of any competing technological or market developments;
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the
need to implement additional internal systems and infrastructure, including financial and reporting systems;
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obtaining
market acceptance of our alcohol-infused popsicles and ice cream; and
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the
economic and other terms, timing of and success of our co-branding, licensing, collaboration or marketing relationships into
which we have entered or may enter in the future.
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Some
of these factors are outside of our control. We will require an additional capital infusion in order to expand the marketing of
our alcohol-infused popsicles and ice cream to all 50 states. Such additional fundraising efforts may divert our management from
our day-to-day activities, which may adversely affect our ability to develop and market our alcohol-infused products. In addition,
we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If
we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale
back or discontinue the development or marketing of one or more of our products or product candidates or curtail our operations,
which will have a Material Adverse Effect on our business, operating results and prospects.
We
may sell additional equity or debt securities or enter into other arrangements to fund our operations, which may result in dilution
to our stockholders and impose restrictions or limitations on our business.
We
may seek additional funding through a combination of equity offerings, debt-financings, or other third party funding or other
collaborations, strategic alliances or licensing arrangements. These financing activities may have an adverse impact on our stockholders’
rights as well as our operations. For instance, any debt financing may impose restrictive covenants on our operations or otherwise
adversely affect the holdings or the rights of our stockholders. In addition, if we seek funds through arrangements with partners,
these arrangements may require us to relinquish rights to some of our technologies, products or product candidates or otherwise
agree to terms unfavorable to us.
Acquisitions
we pursue in our industry and related industries could result in operating difficulties, dilution to our stockholders and other
consequences harmful to our business.
As
part of our growth strategy, we may selectively pursue strategic acquisitions in our industry and related industries. We may not
be able to consummate such acquisitions, which could adversely impact our growth. If we do consummate acquisitions, integrating
an acquired company, business or technology may result in unforeseen operating difficulties and expenditures, including:
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increased
expenses due to transaction and integration costs;
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potential
liabilities of the acquired businesses;
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potential
adverse tax and accounting effects of the acquisitions;
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diversion
of capital and other resources from our existing businesses;
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diversion
of our management’s attention during the acquisition process and any transition periods;
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loss
of key employees of the acquired businesses following the acquisition; and
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inaccurate
budgets and projected financial statements due to inaccurate valuation assessments of the acquired businesses.
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Foreign
acquisitions also involve unique risks related to integration of operations across different cultures and languages, currency
risks and the particular economic, political and regulatory risks associated with specific countries.
Our
evaluations of potential acquisitions may not accurately assess the value or prospects of acquisition candidates, and the anticipated
benefits from our future acquisitions may not materialize. In addition, future acquisitions or dispositions could result in potentially
dilutive issuances of our equity securities, including our common stock, the incurrence of debt, contingent liabilities or amortization
expenses, or write-offs of goodwill, any of which could harm our financial condition.
Interruption
or failure of our information technology systems could impair our ability to effectively and timely provide our services and products,
which could damage our reputation and have an adverse impact on our operating results.
Our
systems are vulnerable to damage or interruption from earthquakes, hurricanes, terrorist attacks, floods, fires, power loss, telecommunications
failures, computer viruses or other attempts to harm our systems, and similar events. Our facilities are located in areas with
a high risk of major earthquakes and are also subject to break-ins, sabotage and intentional acts of vandalism. Some of our systems
are not fully redundant, and our disaster recovery planning cannot account for all eventualities. The occurrence of a natural
disaster or other unanticipated problems at our Santa Monica, California facility or manufacturing facility located in Orange
County, California could result in lengthy interruptions in our projects and our ability to deliver services. An error or defect
in the software, a failure in the hardware, a failure of our backup facilities could delay our delivery of products and services
and could result in significantly increased production costs, hinder our ability to retain and attract clients and damage our
brand if clients believe we are unreliable. Given our reliance on our industry relationships, it could also result in a decrease
in our revenues and otherwise adversely affect our business and operating results.
We
cannot predict the effect that rapid changes in consumer taste may have on our business or industry.
The
alcoholic beverage and dessert industries are rapidly evolving, primarily due to changing consumer preferences and technological
developments. The rapid growth of technology and shifting consumer tastes prevent us from being able to accurately predict the
overall effect that changing consumer preferences may have on our potential revenue and profitability. If we are unable to develop
and effectively market new products that adequately or competitively address the needs of these changing consumer preferences,
it could have an adverse effect on our business and growth prospects.
Changes
in regulatory standards could adversely affect our business.
Our
business is subject to extensive domestic and international regulatory requirements regarding distribution, production, labeling,
and marketing. Changes to regulation of the alcohol industry could include increased limitations on advertising and promotional
activities or other non-tariff measures that could adversely impact our business. In addition, we face government regulations
pertaining to the health and safety of our employees and our consumers as well as regulations addressing the impact of our business
on the environment, domestically as well as internationally. Compliance with these health, safety and environmental regulations
may require us to alter our manufacturing processes and our sourcing. Such actions could adversely impact our results of operations,
cash flows and financial condition, and our inability to effectively and timely comply with such regulations could adversely impact
our competitive position.
Changes
in excise taxes, incentives and customs duties related to products containing alcohol could adversely affect our business.
Products
containing alcohol are subject to excise taxation in many markets at the federal, state and/or local level. Any increase in federal,
state or local excise taxes could have an adverse effect on our business by increasing prices and reducing demand, particularly
if excise tax levels increase substantially relative to those for beer and wine. In addition, products containing alcohol are
the subject of customs duties in many countries around the world. An unanticipated increase in customs duties in the markets where
we may sell our products could also adversely affect our results of operations and cash flows.
Our
insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured
liabilities.
We
do not carry insurance for all categories of risk that our business may encounter. Some of the policies that we generally maintain
include general liability, automobile and property insurance. We do not know, however, if we will be able to maintain insurance
with adequate levels of coverage. In addition, we do not know if we will be able to obtain and maintain coverage for the business
in which we engage. No assurance can be given that an insurance carrier will not seek to cancel or deny coverage after a claim
has occurred. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our
business, financial condition and business results.
We
face potential product liability and, if successful claims are brought against us, we may incur substantial liability costs. If
the use of our products harm customers or third parties or is perceived to harm such persons even when such harm is unrelated
to our products, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly
and damaging product liability claims.
The
sale and use of our products may expose us to the risks of product liability claims. Product liability claims may be brought against
us by consumers or other third parties. In addition, there is a risk that the use of our products could cause our customers to
have an adverse health event. If we cannot successfully defend our product liability claims, we could incur substantial liability
and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in: impairment of our business
reputation; costs due to related litigation; distraction of management’s attention from our primary business; substantial
monetary awards to customers or other claimants; the inability to commercialize our products; and/or decreased demand for our
products.
We
believe our product liability insurance coverage as supplemented by our umbrella insurance policy is sufficient in light of our
current financial condition; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient
amounts to protect us against losses due to liability.
We
rely on a third-party copacker, with whom we co-developed our proprietary freezing technology, to manufacture our alcohol infused
frozen products.
The
Company developed its proprietary technology with a third party who is also solely responsible for manufacturing all of our products.
The Company is subject to all of the risks inherent in relying upon a third party for all of its products, including the fact
that the manufacturer only has facilities in Southern California and is subject to the risk of earthquakes and other disasters.
We do not have any other supplier for our products and if anything were to happen to this supplier, including such supplier’s
business failure, our own business could be materially adversely affected.
Our
business is subject to the risks of earthquakes, fires, floods, power outages and other catastrophic events, and to interruption
by manmade problems such as terrorism. A disruption at our production facility could adversely impact our results of operations,
cash flows and financial condition.
All
of our products are produced in one location, which is located in Southern California. A significant natural disaster, such as
an earthquake, fire or a flood or a significant power outage could have a material adverse impact on our business, financial condition
or operating results. If there were a catastrophic failure at our major production facility, our business would be adversely affected.
The loss of a substantial amount of inventory – through fire, other natural or man-made disaster, contamination, or otherwise
– could result in a significant reduction in supply of the affected product or products. Similarly, if we experienced a
disruption in the supply of our products, our business could suffer. A consequence of any of these supply disruptions could be
our inability to meet consumer demand for the affected products for a period of time. In addition, there can be no assurance that
insurance proceeds would cover the replacement value of our products or other assets if they were to be lost. In addition, if
a catastrophe such as an earthquake, fire, flood or power loss should affect one of the third parties on which we rely, our business
prospects could be harmed. Moreover, acts of terrorism could cause disruptions in our business or the business of our third-party
service providers, partners, customers or the economy as a whole.
Others
may assert intellectual property infringement claims against us.
We
use alcohol products from other companies in the making of our alcohol infused frozen desserts. Infringement or misappropriation
claims (or claims for indemnification resulting from such claims) against us may be asserted or prosecuted, regardless of their
merit, and any such assertions or prosecutions may adversely affect our business and/or our operating results. Irrespective of
the validity or the successful assertion of such claims, we would incur significant costs and diversion of resources relating
to the defense of such claims, which could have an adverse effect on our business and/or our operating results.
The
inability to successfully manage the growth of our business may have an adverse effect on our operating results.
We
expect to experience growth in the number of employees and the scope of our operations. Such growth will result in increased responsibilities
for our management. If our management is unable to successfully manage expenses in a manner that allows us to both improve operations
and at the same time pursue potential market opportunities, the growth of our business could be adversely impacted, which may,
in turn, negatively affect our operating results or financial condition. In addition, we believe that a critical contributor to
our success has been our creative culture. As we attempt to grow, we may find it difficult to maintain important aspects of our
corporate culture, which could negatively affect our future success.
We
operate in a highly regulated area.
The
alcohol industry is highly regulated on the national and state levels. These regulations are highly complex and, at times, may
even be contradictory. Our failure to comply with these overlapping regulatory structures could materially adversely affect our
business, financial condition and results of operation.
Changes
in U.S., regional or global economic conditions could adversely affect our profitability.
A
decline in economic conditions in the United States or in other regions of the world could lead to a decrease in discretionary
consumer spending, which in turn could adversely affect alcoholic type products. In addition, an increase in price levels generally,
or in price levels in a particular sector such as the energy sector, could result in a shift in consumer demand away from alcohol
type products.
Current
global economic challenges may continue, and a recovery may be slow or reverse, adversely impacting our results of operations,
cash flows and financial condition.
Stable
economic conditions globally, including strong employment, consumer confidence and credit availability, are important not only
to the basic health of our consumer markets, but also to our own financial condition. There are presently significant challenges
in the global economy, including high unemployment rates, low consumer confidence, record budget deficits and levels of government
debt, and fragile credit and housing markets. In addition, instability in the global credit markets, including the recent European
economic and financial turmoil related to sovereign debt issues in certain countries, the instability in the geopolitical environment
in many parts of the world and other disruptions, may continue to put pressure on global economic conditions. As a result, consumers’
increased price consciousness may endure, which may affect consumers’ willingness to pay for premium brands as well as the
overall level of consumption of products containing alcohol, particularly in bars, restaurants, nightclubs and other public environments
where consumers drink spirits. Furthermore, our suppliers and customers could experience cash flow problems, increased costs or
reduced availability of financing, credit defaults, and other financial hardships. These factors may increase our bad debt expense,
cause us to reduce the levels of unsecured credit that we may provide to customers and otherwise adversely impact our results
of operations, cash flows and financial condition. A prolonged global economic stagnation may impact our access to capital markets,
result in increased interest rates on debt that we may take on to expand operations, and weaken operating cash flow and liquidity.
Decreased cash flow and liquidity could potentially impact our ability to finance operations.
Demand
for our alcohol-infused products may be adversely affected by many factors, including changes in consumer preferences and trends.
Consumer
preferences may shift due to a variety of factors including changes in demographic and social trends, public health initiatives,
product innovations, changes in travel, vacation or leisure activity patterns and a downturn in economic conditions, which may
reduce consumers’ willingness to purchase products that contain alcohol or cause a shift in consumer preferences toward
non-alcoholic alternatives. In addition, concerns about health issues relating to alcohol consumption, dietary effects, regulatory
action or any litigation against companies in the industry may have an adverse effect on our business. Our success depends in
part on fulfilling available opportunities to meet consumer needs and anticipating changes in consumer preferences with successful
new products and product innovations. While we devote significant focus to the development of new products, we may not be successful
in their development or these new products may not be commercially successful. In addition, global economic conditions or market
trends could cause consumer preferences to trend away from our premium alcohol-infused popsicles and ice cream alternatives, which
may also adversely impact our results of operations and cash flows.
We
face substantial competition in our industry and many factors may prevent us from competing successfully.
We
compete on the basis of product taste and quality, brand image, price, service and ability to innovate in response to consumer
preferences. It is possible that our competitors may either respond to industry conditions or consumer trends more rapidly or
effectively or resort to price competition to sustain market share, both of which could adversely affect our sales and profitability.
Further, while we believe that our scale, portfolio breadth and entrepreneurial organization relative to that of our competitors
gives us the ability to outperform our market, we nevertheless face a risk that a continuing consolidation of the large distilled
spirits companies could cause us to experience competitive disadvantages. Our inability to manage these and other competitive
factors successfully could adversely affect our results of operations, cash flows and financial condition.
Future
tax law changes and/or interpretation of existing tax laws may adversely affect our effective income tax rate and the resolution
of unrecognized tax benefits.
We
are subject to income taxation in the U.S. It is possible that future income tax legislation may be enacted that could have a
material impact on our income tax provision. We believe that our tax estimates are reasonable and appropriate, however, there
are inherent uncertainties in these estimates. As a result, the ultimate outcome from any potential audit could be materially
different from amounts reflected in our income tax provisions and accruals. Future settlements of income tax audits may have a
material effect on earnings between the period of initial recognition of tax estimates in the financial statements and the timing
of ultimate tax audit settlement.
Some
provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us
by others, even if an acquisition would be beneficial to our stockholders.
Provisions
in our charter documents, as well as provisions of Delaware law, could make it more difficult for a third-party to acquire us,
even if doing so would benefit our stockholders.
Potential
liabilities and costs from litigation and other legal proceedings could adversely affect our business.
From
time to time we may be subject to various lawsuits, claims, disputes and investigations in the normal conduct of our operations.
These include, but are not limited to, commercial disputes, including purported class actions, employment claims, actions by tax
and customs authorities, and environmental matters. Some of these legal proceedings may include claims for substantial or unspecified
damages. It is possible that some of the actions could be decided unfavorably and could adversely affect our results of operations,
cash flows or financial condition. In addition, because litigation and other legal proceedings can be costly to defend, even actions
that are ultimately decided in our favor could have a negative impact on our results of operations and cash flows. If Tara Spencer
enforces the Labor Commission judgment against the Company for the amount owed, this may result in a material adverse effect on
our financial condition.
Historical
financial statements may not be reflective of our future results of operations, cash flows, and financial condition.
Although
we believe that you have been provided access to all material information necessary to make an informed assessment of our assets
and liabilities, financial position, profits and losses and prospects, historical financial statements do not represent what our
results of operations, cash flows, or financial position will be in the future.
Risks
Related to Our Common Stock
There
currently is only a minimal public market for our common stock. Failure to develop or maintain a trading market could negatively
affect the value of our common stock and make it difficult or impossible for you to sell your shares.
There
currently is only a minimal public market for shares of our common stock and an active market may never develop. Our common stock
is currently subject to quotation on the OTC Pink Market operated by the OTC Market’s Group, Inc. under the symbol “PACV”.
While we plan in connection with the Closing of the Offering of our Series G Preferred Stock to apply for listing of such Preferred
Stock on the NASDAQ Capital Market and at the same time apply to the NASDAQ Capital Market for listing our Common Stock, we may
not be able to satisfy the listing requirements for our Common Stock to be listed on the NASDAQ Capital Market which are often
more widely-traded and liquid markets. Some, but not all, of the factors which may delay or prevent the listing of our Common
Stock on a more widely-traded and liquid market include the following: our stockholders’ equity may be insufficient; the
market value of our outstanding securities may be too low; our net income from operations may be too low; our common stock may
not be sufficiently widely held; we may not be able to secure market makers for our common stock; and we may fail to meet the
rules and requirements mandated by, any of the several exchanges and markets to have our common stock listed. Reference is made
to the disclosure under “The Offering” and specifically to the subcaption “NASDAQ Capital Markets Listing Requirements,”
above.
The
market price for our common stock is particularly volatile given our status as a relatively unknown company with a small and thinly
traded public float, limited operating history and lack of profits which could lead to wide fluctuations in our share price. You
may be unable to sell your common stock at or above your conversion price, which may result in substantial losses to you.
The
market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect
that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our
share price is attributable to a number of factors. First, as noted above, our common stock are sporadically and thinly traded.
As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately
influence the price of those shares in either direction. Notwithstanding our plan to implement a reverse split at a ratio to be
determined by our Board of Directors (reference is made to our Definitive Information Statement on Schedule 14C filed with the
SEC on November 26, 2018 [
https://www.sec.gov/Archives/edgar/data/882800/000121390018016491/def14c112318_pacificventures.htm
],
we have not yet determined the ratio or basis for the reverse split nor can we predict, with any certainty, whether the reverse
split will result in a corresponding increase in the price of our Common Stock on the OTC Market and any increase in level of
trading, which are the primary reasons why we decided to approve a reverse split. The price for our shares could, for example,
decline, precipitously or otherwise, in the event that a large number of our common stock are sold on the market without commensurate
demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly,
we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty
of future market acceptance for our potential products and services. As a consequence of this enhanced risk, more risk-adverse
investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be
more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of
a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common stock, regardless
of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common
stock will be at any time, including as to whether our common stock will sustain their current market prices, or as to what effect
that the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.
The
application of the “penny stock” rules could adversely affect the market price of our common stock and increase your
transaction costs to sell those shares.
The
SEC has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:
|
●
|
that
a broker or dealer approve a person’s account for transactions in penny stocks, and
|
|
●
|
the
broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity
of the penny stock to be purchased.
|
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
|
●
|
obtain
financial information and investment experience objectives of the person, and
|
|
●
|
make
a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:
|
●
|
sets
forth the basis on which the broker or dealer made the suitability determination, and
|
|
●
|
that
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
The
application of Rule 144 creates some investment risk to potential investors; for example, existing shareholders may be able to
rely on Rule 144 to sell some of their holdings, driving down the price of the shares you purchased.
The
SEC adopted amendments to Rule 144 which became effective on February 15, 2008 that apply to securities acquired both before and
after that date. Under these amendments, a person who has beneficially owned restricted shares of our common stock for at least
six months would be entitled to sell their securities provided that: (i) such person is not deemed to have been one of our affiliates
at the time of, or at any time during the three months preceding a sale, (ii) we are subject to the Exchange Act periodic reporting
requirements for at least 90 days before the sale and (iii) if the sale occurs prior to satisfaction of a one-year holding period,
we provide current information at the time of sale.
Persons
who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time
of, or at any time during the three months preceding a sale, would be subject to additional restrictions, by which such person
would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either
of the following:
|
●
|
1%
of the total number of securities of the same class then outstanding (shares of common stock as of the date of this Report);
or
|
|
●
|
the
average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144
with respect to the sale;
|
provided,
in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.
Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.
Shannon
Masjedi, our majority stockholder, director and chief executive officer, owns a large percentage of our voting stock, which allows
her to exercise significant influence over matters subject to stockholder approval.
Shannon
Masjedi, our majority stockholder, director and chief executive officer, will have substantial influence over the outcome of corporate
actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially
all of our assets or any other significant corporate transaction. In particular, because our President, Chief Executive Officer,
Interim Chief Financial Officer, Treasurer, Secretary and a director, Mrs. Masjedi, who owns 13,864,369 shares of our common stock
and 1,000,000 shares of Series E Preferred Stock (with 10 votes per share) as a result of which she will be to exert such influence.
This shareholder may also delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to
obtain control of us, even if such a change of control would benefit our other shareholders. This significant concentration of
stock and voting ownership may adversely affect the value of our common stock due to investors’ perception that conflicts
of interest may exist or arise.
We
do not intend to pay dividends on our common stock.
We
do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently anticipate that we will
retain all of our available cash, if any, for use as working capital and for other general corporate purposes. Any payment of
future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial
condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends
and other considerations that the Board of Directors deems relevant. Investors must rely on sales of their common stock after
price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends
should not purchase our common stock.
Compliance
with changing regulations concerning corporate governance and public disclosure may result in additional expenses.
In
recent years, there have been several changes in laws, rules, regulations and standards relating to corporate governance and public
disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Sarbanes-Oxley
Act of 2002 (“Sarbanes-Oxley”) and various other new regulations promulgated by the SEC and rules promulgated by the
national securities exchanges. The Dodd-Frank Act, enacted in July 2010, expands federal regulation of corporate governance matters
and imposes requirements on publicly-held companies, including us, to, among other things, provide stockholders with a periodic
advisory vote on executive compensation and also adds compensation committee reforms and enhanced pay-for-performance disclosures.
While some provisions of the Dodd-Frank Act were effective upon enactment, others will be implemented upon the SEC’s adoption
of related rules and regulations. The scope and timing of the adoption of such rules and regulations is uncertain and accordingly,
the cost of compliance with the Dodd-Frank Act is also uncertain.
In
addition, Sarbanes-Oxley specifically requires, among other things, that we maintain effective internal control over financial
reporting and disclosure of controls and procedures.
These
and other new or changed laws, rules, regulations and standards are, or will be, subject to varying interpretations in many cases
due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations
and standards are likely to continue to result in increased general and administrative expenses and a diversion of management
time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws,
rules, regulations and standards may make it more difficult and expensive for us to maintain director and officer liability insurance,
and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board
of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability
in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors
and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot
estimate the timing or magnitude of additional costs we may incur as a result.
Risks
Related to Our Acquisition Strategy
We
are dependent upon our ability to successfully complete acquisitions to grow our business.
We
intend to continue to build our business through strategic acquisitions. During the second quarter of 2018, we closed the acquisition
of San Diego Farmers Outlet, Inc., a California corporation (“SDFO”). Reference is made to the disclosure under “Description
of Business — Recent Developments and Initiatives,” below.
We
also intend to pursue and consummate one or more additional acquisitions and to use part of the Offering Proceeds from the sale
of our Series G Preferred Stock as well as other funding sources, which have not yet been determined, if any, to fund any cash
portion of the consideration we will pay in connection with those acquisitions, including the recently announced agreement to
acquire a wholesale food distribution business based in Florida. However, such additional acquisitions may also be subject to
conditions and other impediments to closing, including some that are beyond our control, and we may not be able to close any of
them successfully, in a timely manner. In addition, our future acquisitions will be required to be closed within certain timeframes
as negotiated between us and the acquisition target, and if we are unable to meet the closing deadlines for a given transaction,
we may be required to forfeit payments we have made, if any, be forced to renegotiate the transaction on less advantageous terms
and could fail to consummate the transaction at all.
While
we were able to close the SDFO acquisition, there can be no assurance that we will be able to successfully close any planned or
future acquisitions. This could significantly alter our business strategy and impede our prospects for growth. Further, we may
not be able to identify suitable acquisition candidates to replace these acquisitions, and even if we were to do so, we may only
be able to consummate them on less advantageous terms. In addition, some of the businesses we acquire may incur significant losses
from operations, which, in turn, could have a material and adverse impact on our business, results of operations and financial
condition.
We
may face unforeseen difficulties in the future in fully-integrating the operations of SDFO or any other businesses we have acquired
and may acquire in the future. As shown by our acquisition of Snöbar Holdings, acquisitions have been and will continue to
be an important component of our growth strategy; however, we will need to integrate these acquired businesses successfully in
order for our growth strategy to succeed and for us to become profitable. We expect that the management teams of the acquired
businesses will adopt our policies, procedures and best practices, and cooperate with each other in scheduling events, booking
talent and in other aspects of their operations. We may face difficulty with the integration of SDFO and any other business we
acquire, such as coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds
and combining different corporate cultures, the diversion of management’s attention from other business concerns, the inherent
risks in entering markets or lines of business in which we have either limited or no direct experience; and the potential loss
of key employees, individual service providers, customers and strategic partners of acquired companies.
Further,
we expect that future target companies may have material weaknesses in internal controls relating to the proper application of
accrual based accounting under the accounting principles generally accepted in the United States of America (“GAAP”)
prior to our acquiring them. The Public Company Accounting Oversight Board (the “PCAOB”) defines a material weakness
as 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 annual or interim financial statements will not be prevented or detected on a timely
basis. We will be relying on the proper implementation of our policies and procedures to remedy any such material weaknesses and
prevent any potential material misstatements in our financial reporting. Any such misstatement could adversely affect the trading
price of our common stock, cause investors to lose confidence in our reported financial information, and subject us to civil and
criminal fines and penalties. If our acquired companies fail to integrate in these important ways, or we fail to adequately understand
the business operations of our acquired companies, our growth and financial results could suffer.
We
may enter into acquisitions and take actions in connection with such transactions that could adversely affect our business and
results of operations.
Our
future growth rate depends in part on our selective acquisition of additional businesses and assets. We may be unable to identify
suitable targets for acquisition or make further acquisitions at favorable prices. If we identify a suitable acquisition candidate,
our ability to successfully complete the acquisition would depend on a variety of factors and may include our ability to obtain
financing on acceptable terms and requisite government approvals. In addition, any credit agreements or credit facilities that
we may enter into in the future may restrict our ability to make certain acquisitions. In connection with future acquisitions,
we could take certain actions that could adversely affect our business, including:
|
●
|
using
a significant portion of our available cash;
|
|
●
|
issuing
equity securities, which would dilute current stockholders’ percentage ownership;
|
|
●
|
incurring
substantial debt;
|
|
●
|
incurring
or assuming contingent liabilities, known or unknown;
|
|
●
|
incurring
amortization expenses related to intangibles; and
|
|
●
|
incurring
large accounting write-offs or impairments.
|
We
may also enter into joint ventures, which involve certain unique risks, including, among others, risks relating to the lack of
full control of the joint venture, potential disagreements with our joint venture partners about how to manage the joint venture,
conflicting interests of the joint venture, requirement to fund the joint venture and its business not being profitable.
In
addition, we cannot be certain that the due diligence investigation that we conduct with respect to any investment or acquisition
opportunity will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity.
For example, instances of fraud, accounting irregularities and other deceptive practices can be difficult to detect. Executive
officers, directors and employees may be named as defendants in litigation involving a company we are acquiring or have acquired.
Even if we conduct extensive due diligence on a particular investment or acquisition, we may fail to uncover all material issues
relating to such investment, including regarding controls and procedures of a particular target or the full scope of its contractual
arrangements. We rely on our due diligence to identify potential liabilities in the businesses we acquire, including such things
as potential or actual lawsuits, contractual obligations or liabilities imposed by government regulation. However, our due diligence
process may not uncover these liabilities, and where we identify a potential liability, we may incorrectly believe that we can
consummate the acquisition without subjecting ourselves to that liability. Therefore, it is possible that we could be subject
to litigation in respect of these acquired businesses. If our due diligence fails to identify issues specific to an investment
or acquisition, we may obtain a lower return from that transaction than the investment would return or otherwise subject ourselves
to unexpected liabilities. We may also be forced to write-down or write-off assets, restructure our operations or incur impairment
or other charges that could result in our reporting losses. Charges of this nature could contribute to negative market perceptions
about us or our shares of common stock.
USE
OF PROCEEDS
We
estimate that the net proceeds to us from the sale of our Series G Preferred Stock in this offering will be $9,150,000, based
on the public offering price of $25.00 per share, after deducting Placement Agent fees of $700,000, assuming all of the shares
of Series G Preferred Stock are sold as a result of the efforts of the Placement Agents, and estimated Offering expenses. Until
we qualify for listing of our Common Stock and Series G Preferred Stock on the NASDAQ Capital Market, whether as a result of:
(i) the receipt of sufficient Offering Proceeds from the issuance and sale of the Series G Preferred Stock subject to this Offering;
or (ii) receipt of Offering Proceeds together with revenues from our operations, our plan is to place the Offering Proceeds in
an account established for the purpose the holding the proceeds from the sale of Series G Preferred Stock pursuant to this Offering,
whether in an escrow, trust or similar account, until we qualify for listing on the NASDAQ Capital Market, of which there can
be no assurance, at which time the Offering Proceeds will be released to the Company and the Closing of the Offering will occur.
We
intend to use the net proceeds of this offering to grow our business. We will use approximately 80% of the net proceeds of the
Offering for financing acquisitions and will use the remaining 20% of the net proceeds for working capital and general corporate
purposes to support our product line growth. We will also use the proceeds to pay the legal, accounting and other fees associated
with this offering of approximately $100,000. Although we may have to adjust the amounts we will be able to pay for these items
and our working capital would be less if we sold less than the maximum amount offered, we do not believe our inability to raise
any minimum amount in this offering will have a material impact on us.
We
will place proceeds equal to 18 months of dividends ($1,650,000 based on gross Offering proceeds of $10,000,000 or 100% of Series
G Preferred, $1,105,500 based on gross Offering proceeds of $6,666,667 or 67% of Series G Preferred and $544,500 or 33% based
on gross Offering proceeds of $3,333,333 of Series G Preferred) into a separate bank account to be used to pay Series G Preferred
Stock dividends, however.
Other
than the items specified above, we have not allocated any specific portion of the net proceeds to any particular purpose, and
our management will have the discretion to allocate the proceeds as it determines. Furthermore, the amount and timing of our actual
expenditures will depend on numerous factors, including the cash used in or generated by our operations, the pace of the integration
of acquired businesses, the level of our sales and marketing activities and the attractiveness of any additional acquisitions
or investments.
CAPITALIZATION
Set
forth below is our cash and capitalization as of September 30, 2018:
|
●
|
on
an actual basis;
|
|
●
|
on
a pro forma as adjusted basis, reflecting the issuance of 400,000 shares of Series G Preferred Stock offered by this prospectus,
at $25.00 per share, assuming net proceeds of approximately $9,150,000, after deducting placement agent fees and estimated
offering expenses of $150,000 payable by us. If we sold 67% or 33% of the maximum amount offered, our net proceeds would be
approximately $6,081,000 or $2,919,000, respectively.
|
The
information below should be read in conjunction with our unaudited consolidated financial statements for the nine months ended
September 30, 2018. These financial statements should also be read with the “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
As of September 30, 2018 (unaudited)
|
|
|
|
|
Pro Forma As Adjusted
|
|
|
|
Actual
|
|
|
33% of Maximum
|
|
|
67% of Maximum
|
|
|
Maximum
|
|
Cash
|
|
$
|
419,214
|
|
|
$
|
3,338,214
|
|
|
$
|
6,500,214
|
|
|
$
|
9,569,214
|
|
Current liabilities
|
|
|
1,879,966
|
|
|
$
|
1,879,966
|
|
|
$
|
1,879,966
|
|
|
$
|
1,879,966
|
|
Long-term debt, net of current portion
|
|
|
2,232,279
|
|
|
$
|
2,232,279
|
|
|
$
|
2,232,279
|
|
|
$
|
2,232,279
|
|
Total liabilities
|
|
|
4,112,245
|
|
|
$
|
4,112,245
|
|
|
$
|
4,112,245
|
|
|
$
|
4,112,245
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E Convertible Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding, 1,000,000 shares actual and 1,000,000 pro forma as adjusted
|
|
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Series G Preferred stock, $0.001 par value, authorized 2,000,000 shares; Series C Preferred Stock issued and outstanding, 0 shares actual and 132,000, 268,000 and 400,000 pro forma as adjusted at 33%, 67% and 100% of maximum offering
|
|
|
0
|
|
|
|
132
|
|
|
|
268
|
|
|
|
400
|
|
Common stock, $0.001 par value - authorized, 500,000,000 shares; 98,963,753 shares actual outstanding
|
|
|
98,138
|
|
|
$
|
98,138
|
|
|
$
|
98,138
|
|
|
$
|
98,138
|
|
Additional paid-in capital
|
|
|
4,641,674
|
|
|
$
|
7,560,542
|
|
|
$
|
10,722,406
|
|
|
$
|
13,791,274
|
|
Accumulated deficit
|
|
|
(7,023,467
|
)
|
|
$
|
(7,023,467
|
)
|
|
$
|
(7,023,467
|
)
|
|
$
|
(7,023,467
|
)
|
Total shareholders’ equity (deficit)
|
|
|
(2,282,655
|
)
|
|
$
|
636,345
|
|
|
$
|
3,798,345
|
|
|
$
|
6,867,345
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,829,590
|
|
|
$
|
4,748,590
|
|
|
$
|
7,910,590
|
|
|
$
|
10,979,590
|
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
PACIFIC
VENTURES GROUP, INC.
Condensed
Consolidated Balance Sheets
|
|
For the nine
|
|
|
|
|
|
|
months ended
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets :
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
419,214
|
|
|
$
|
69
|
|
Accounts receivable
|
|
|
164,237
|
|
|
|
6,589
|
|
Inventory Asset
|
|
|
162,326
|
|
|
|
-
|
|
Other Current Asset
|
|
|
1,600
|
|
|
|
|
|
Deposits
|
|
|
1,500
|
|
|
|
1,500
|
|
Total Current Assets
|
|
|
748,877
|
|
|
|
8,158
|
|
Fixed Assets
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
$
|
119,192
|
|
|
$
|
27,843
|
|
Total Fixed Assets
|
|
|
119,192
|
|
|
|
27,843
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Intangible Assets
|
|
$
|
950,000
|
|
|
$
|
-
|
|
Rent and Utilities Deposit
|
|
|
11,520
|
|
|
|
-
|
|
|
|
|
961,520
|
|
|
|
-
|
|
TOTAL ASSETS
|
|
$
|
1,829,590
|
|
|
$
|
36,001
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
$
|
-
|
|
|
$
|
-
|
|
Accounts payable
|
|
|
501,447
|
|
|
|
171,085
|
|
Accrued expenses
|
|
|
393,904
|
|
|
|
332,503
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
Current portion, notes payable
|
|
|
646,199
|
|
|
|
456,914
|
|
Current portion, notes payable - related party
|
|
|
249,520
|
|
|
|
353,759
|
|
Current portion, leases payable
|
|
|
88,896
|
|
|
|
|
|
Total Current Liabilities
|
|
|
1,879,966
|
|
|
|
1,314,261
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
2,190,279
|
|
|
$
|
311,821
|
|
Notes payable - related party
|
|
|
42,000
|
|
|
|
42,000
|
|
Total Long-Term Liabilities
|
|
|
2,232,279
|
|
|
|
353,821
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
4,112,245
|
|
|
$
|
1,668,082
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 10,000,000 shares authorized, 1,000,000 Series E, issued and outstanding
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Common stock, $.001 par value, 500,000,000 shares authorized, 98,963,753 and 36,430,248 issued and outstanding, respectively
|
|
|
98,138
|
|
|
|
36,430
|
|
Additional paid in capital
|
|
|
4,641,674
|
|
|
|
4,300,514
|
|
Accumulated deficit
|
|
|
(7,023,467
|
)
|
|
|
(5,970,024
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity (Deficit)
|
|
$
|
(2,282,655
|
)
|
|
$
|
(1,632,080
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
1,829,590
|
|
|
$
|
36,001
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
PACIFIC
VENTURES GROUP, INC.
Condensed
Consolidated Statements of Operations
(unaudited)
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, net of discounts
|
|
$
|
1,218,680
|
|
|
$
|
-
|
|
|
$
|
1,908,674
|
|
|
$
|
-
|
|
Cost of Goods Sold
|
|
|
913,385
|
|
|
|
-
|
|
|
|
1,397,983
|
|
|
|
-
|
|
Gross Profit
|
|
|
305,294
|
|
|
|
-
|
|
|
|
510,690
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
171,123
|
|
|
|
90,951
|
|
|
|
484,996
|
|
|
|
296,676
|
|
Marketing and Advertising
|
|
|
38,579
|
|
|
|
|
|
|
|
93,474
|
|
|
|
|
|
Penalty on Payroll Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,807
|
|
Depreciation expense
|
|
|
9,630
|
|
|
|
1,000
|
|
|
|
11,227
|
|
|
|
2,997
|
|
Financing Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
Professional fees
|
|
|
122,929
|
|
|
|
|
|
|
|
388,298
|
|
|
|
-
|
|
Salaries and wages
|
|
|
123,033
|
|
|
|
|
|
|
|
179,230
|
|
|
|
6,437
|
|
Operating Expenses
|
|
|
465,294
|
|
|
|
91,951
|
|
|
|
1,157,226
|
|
|
|
341,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(160,000
|
)
|
|
|
(91,951
|
)
|
|
|
(646,535
|
)
|
|
|
(341,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Non-Operating Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest expense
|
|
|
(146,969
|
)
|
|
|
(16,439
|
)
|
|
|
(402,082
|
)
|
|
|
(34,231
|
)
|
Forgiveness of Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,849
|
|
Extraordinary Items
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
15,042
|
|
Net Loss before Income Taxes
|
|
|
(306,969
|
)
|
|
|
(108,390
|
)
|
|
|
(1,048,617
|
)
|
|
|
(353,758
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net Ordinary Loss
|
|
|
(306,969
|
)
|
|
|
(108,390
|
)
|
|
|
(1,048,617
|
)
|
|
|
(353,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income / Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income - Other
|
|
|
59
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
Net Loss
|
|
$
|
(306,910
|
)
|
|
|
(108,390
|
)
|
|
$
|
(1,048,559
|
)
|
|
|
(353,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Share - Common Stock
|
|
$
|
(0.00310
|
)
|
|
$
|
0.00000
|
|
|
$
|
(0.01060
|
)
|
|
$
|
0.00000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Class A Common Stock
|
|
|
98,963,753
|
|
|
|
33,685,624
|
|
|
|
98,963,753
|
|
|
|
29,931,607
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
PACIFIC
VENTURES GROUP, INC.
Condensed
Consolidated Statements of Cash Flows
(unaudited)
|
|
For the nine months ended
|
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,048,559
|
)
|
|
$
|
(353,758
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
65,550
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
(24,998
|
)
|
|
|
2,996
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(164,048
|
)
|
|
|
(5,406
|
)
|
Inventory
|
|
|
(162,326
|
)
|
|
|
|
|
Trucks
|
|
|
88,896
|
|
|
|
|
|
Deposits
|
|
|
(11,520
|
)
|
|
|
|
|
Accounts payable
|
|
|
233,820
|
|
|
|
(2,479
|
)
|
Accrued expenses
|
|
|
61,402
|
|
|
|
|
|
Repayment of notes payable
|
|
|
(208,500
|
)
|
|
|
88,047
|
|
Retirement of fixed assets
|
|
|
85,488
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(1,084,797
|
)
|
|
|
(270,599
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Loan Receivable
|
|
|
(1,600
|
)
|
|
|
|
|
Computers
|
|
|
(10,426
|
)
|
|
|
|
|
Purchase of equipment, building & improvements
|
|
|
(141,413
|
)
|
|
|
0
|
|
Goodwill and Intangible Assets
|
|
|
(950,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Investing Activities
|
|
|
(1,103,439
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
2,547,785
|
|
|
|
158,000
|
|
Proceeds from notes payable - Related
|
|
|
|
|
|
|
7,500
|
|
Repayment of notes payable
|
|
|
(175,000
|
)
|
|
|
(377,333
|
)
|
Repayment of notes payable - Related
|
|
|
(104,239
|
)
|
|
|
(8,500
|
)
|
Shares issued for debt conversion
|
|
|
343,717
|
|
|
|
412,333
|
|
Common stocks issued for cash
|
|
|
|
|
|
|
76,863
|
|
Prior period adjustment to retained earnings
|
|
|
(4,884
|
)
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
2,607,380
|
|
|
|
268,863
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
419,144
|
|
|
|
(1,736
|
)
|
CASH AT BEGINNING OF PERIOD
|
|
|
69
|
|
|
|
25,284
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
419,214
|
|
|
$
|
23,549
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR DURING THE QUARTER:
|
|
|
|
|
|
|
|
|
Interest and penalty fees
|
|
$
|
90,063
|
|
|
$
|
0
|
|
NON CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Issuance of shares for debt conversion
|
|
$
|
119,621
|
|
|
$
|
0
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Pacific
Ventures Group, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(Unaudited)
1.
NATURE OF OPERATIONS
The
Company and Nature of Business
Pacific
Ventures Group, Inc. (the “Company,” “we,” “us” or “our”) was incorporated under
the laws of the state of Delaware on October 3, 1986, under the name AOA Corporation. On November 12, 1991, the Company changed
its name to American Eagle Group, Inc. On October22, 2012, the Company changed its name to “Pacific Ventures Group, Inc.”.
The
current structure of the Company resulted from a share exchange with Snöbar Holdings, Inc. (“Snöbar Holdings”),
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, 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, while simultaneously issuing 2,500,000 restricted shares of the Company’s common stock
to certain other persons, including for services provided and to a former officer of the Company (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 and MAS Global Distributors, Inc., a California corporation
(“MGD”), became an indirect subsidiary of the Company.
Prior
to the Share Exchange, the Company operated as an insurance holding company and through its subsidiaries, which marketed and underwrote
specialized property and casualty coverage in the general aviation insurance marketplace. However, in 1997, after selling several
of its divisions, the Company’s remaining insurance operations were placed into receivership and the Company ceased operating
its insurance business.
Since
the Share Exchange represents a change in control of the Company and a change in business operations, the business operations
changed to that of Snöbar Holdings and the discussions of business operations accompanying this filing are solely that of
Snöbar Holdings and its affiliates and subsidiaries comprising of Snöbar Trust, International Production Impex Corporation,
a California corporation (“IPIC”), and MGD.
Snöbar
Holdings was formed under the laws of the State of Delaware on January 7, 2013. Snöbar Holdings is the trustor and sole beneficiary
of Snöbar Trust, a California trust (“Trust”), which was formed in June 1, 2013. The current trustee that holds
legal title to the Trust is Azita Davidiyan. The Trust owns 100% of the shares of 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”. As such, 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 MGD. MGD is in the
business of selling and leasing freezers and providing marketing services. As a result of the foregoing, 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.
The
Trust and IPIC are considered variable interest entities (“VIEs”) and Snöbar Holdings is identified as the primary
beneficiary of the Trust and IPIC. Under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 810, Snöbar Holdings performs ongoing reassessments of whether it is the primary beneficiary of a VIE.
As the assessment of Snöbar Holdings’ management is that Snöbar Holdings has the power to direct the activities
of a VIE that most significantly impact the VIE’s activities (it is responsible for establishing and operating IPIC), and
the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits
from the VIE that could potentially be significant to the VIE’s economic performance, it was therefore concluded by management
that Snöbar Holdings is the primary beneficiary of the Trust and IPIC. As such, the Trust and IPIC were consolidated in the
financial statements of Snöbar Holdings since the inception of the Trust, in the case of the Trust, and since the inception
of Snöbar Holdings, in the case of IPIC.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company, Snöbar Holdings and its subsidiaries, in which Snöbar
Holdings has a controlling voting interest and entities consolidated under the variable interest entities (“VIE”)
provisions of ASC 810, “Consolidation” (“ASC 810”). Inter-company balances and transactions have been
eliminated upon consolidation.
The
Company applies the provisions of ASC 810 which provides a framework for identifying VIEs and determining when a company should
include the assets, liabilities, non-controlling interests and results of activities of a VIE in its consolidated financial statements.
In
general, a VIE is a corporation, partnership, limited-liability corporation, trust, or any other legal structure used to conduct
activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional
subordinated financial support, (2) has a group of equity owners that is unable to make significant decisions about its activities,
(3) has a group of equity owners that does not have the obligation to absorb losses or the right to receive returns generated
by its operations or (4) the voting rights of some investors are not proportional to their obligations to absorb the expected
losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the
entity’s activities (for example, providing financing or buying assets) either involve or are conducted on behalf of an
investor that has disproportionately fewer voting rights.
ASC
810 requires a VIE to be consolidated by the party with an ownership, contractual or other financial interest in the VIE (a variable
interest holder) that has both of the following characteristics: a) the power to direct the activities of a VIE that most significantly
impact the VIE’s economic performance and b) the obligation to absorb losses of the VIE that could potentially be significant
to the VIE, or the right to receive benefits from the VIE that could potentially be significant to the VIE.
A
variable interest holder that consolidates the VIE is called the primary beneficiary. If the primary beneficiary of a variable
interest entity (VIE) and the VIE are under common control, the primary beneficiary shall initially measure the assets, liabilities,
and non-controlling interests of the VIE at amounts at which they are carried in the accounts of the reporting entity that controls
the VIE (or would be carried if the reporting entity issued financial statements prepared in conformity with generally accepted
accounting principles). ASC 810 also requires disclosures about VIEs in which the variable interest holder is not required to
consolidate but in which it has a significant variable interest.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the Company, Snöbar Holdings, MGD, IPIC, and the Trust, which was established to
hold IPIC, which in turn holds liquor licenses. All inter-company accounts have been eliminated during consolidation. See the
discussion in Note 1 above for variable interest entity treatment of the Trust and IPIC.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities,
at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue
Recognition
Sales
revenues are generally recognized in accordance with the SAB 104 Public Company Guidance, when an agreement exists and price is
determinable, the products are shipped to the customers or services are rendered, net of discounts, returns and allowance and
collectability is reasonably assured. We are often entitled to bill our customers and receive payment from our customers in advance
of recognizing the revenue. In the instances in which we have received payment from our customers in advance of recognizing revenue,
we include the amounts in deferred or unearned revenue on our consolidated balance sheet.
Unearned
Revenue
Certain
amounts are received pursuant to agreements or contracts and may only be used in the conduct of specified transactions or the
related services are yet to be performed. These amounts are recorded as unearned or deferred revenue and are recognized as revenue
in the year/period the related expenses are incurred or services are performed. As of September 30, 2018, the Company has $0 in
deferred revenues. As of December 31, 2017, the Company also had $0 deferred revenue.
Shipping
and Handling Costs
The
Company’s shipping costs are all recorded as operating expenses for all periods presented.
Disputed
Liabilities
The
Company is involved in a variety of disputes, claims, and proceedings concerning its business operations and certain liabilities.
We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and
can be reasonably estimated. We assess our potential liability by analyzing our litigation and regulatory matters using available
information. We develop our views on estimated losses in consultation with outside counsel handling our defense in these matters,
which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should developments
in any of these matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a
material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts, they
could have a material adverse effect on our results of operations, cash flows and financial position in the period or periods
in which such change in determination, judgment or settlement occurs. As of September 30, 2018, the Company has $31,858 in disputed
liabilities on its balance sheet.
In
addition, on January 28, 2016, a labor dispute between IPIC and a former employee was ruled in favor of the former employee by
the Labor Commissioner of the State of California. This finding resulted in compensation expenses of $29,103 and an accrued liability
of the same amount on IPIC books. The amount was settled during the second quarter of 2018.
Cash
Equivalents
The
Company considers highly liquid instruments with original maturity of nine months or less to be cash equivalents. As of September
30, 2018, the Company has a cash balance of $419,214 in cash and cash equivalents, compared to $69 at December 31, 2017.
Accounts
Receivable
As
of September 30, 2018 the Company had $164,237 in Accounts Receivable. Accounts receivable are stated at net realizable value.
This value includes an appropriate allowance for estimated uncollectible accounts. The allowance is calculated based upon the
level of past due accounts and the relationship with and financial status of our customers. The Company did not write off any
bad debts in 2017 but wrote off $3,820.38 of bad debts during the nine months ended September 30, 2018. The Company will set an
allowance for doubtful accounts for any material amount anticipated.
Inventories
Inventories
are stated at the lower of cost or market value. Cost has been determined using the first-in, first-out method. Inventory quantities
on-hand are regularly reviewed, and where necessary, reserves for excess and unusable inventories are recorded. Inventory consists
of finished goods and includes ice cream, popsicles and the related packaging materials. Inventory also consists food products
as a result of the acquisition of San Diego Farmers Outlet. As of September 30, 2018, the Company has $162,326 in inventories.
Income
Taxes
Deferred
taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences
and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Net
Income/(Loss) Per Common Share
Income/(loss)
per share of common stock is calculated by dividing the net income/(loss) by the weighted average number of shares of common stock
outstanding during the period. The Company has no potentially dilutive securities. Accordingly, basic and dilutive income/(loss)
per common share are the same.
Property
and Equipment
Property
and equipment are carried at cost less accumulated depreciation and includes expenditures that substantially increase the useful
lives of existing property and equipment. Maintenance, repairs, and minor renovations are expensed as incurred. Upon sale or retirement
of property and equipment, the cost and related accumulated depreciation are eliminated from the respective accounts and the resulting
gain or loss is included in the results of operations. The Company provides for depreciation of property and equipment using the
straight-line method over the estimated useful lives or the term of the lease, as appropriate. The estimated useful lives are
as follows: vehicles, five years; office furniture and equipment, three to fifteen years; equipment, three years.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s financial instruments, which include cash, accounts receivable, accounts payable, and
accrued expenses are representative of their fair values due to the short-term maturity of these instruments. The Company performed
an independent valuation of San Diego Farmers Outlet (SDFO), in which it was determined that $950,000 if goodwill could be realized
by the Company.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable.
The Company maintains cash balances at financial institutions within the United States which are insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to limits of approximately $250,000. The Company has not experienced any losses
with regard to its bank accounts and believes it is not exposed to any risk of loss on its cash bank accounts.
Critical
Accounting Policies
The
Company considers revenue recognition and the valuation of accounts receivable, allowance for doubtful accounts, and inventory
and reserves as its significant accounting policies. Some of these policies require management to make estimates and assumptions
that may affect the reported amounts in the Company’s financial statements.
Recent
Accounting Pronouncements
In
June 2009, the FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the
source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation
of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).
Rules and interpretive releases of the Securities and Exchange Commission (the “SEC”) issued under authority of federal
securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the
Codification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is
organized and presented.
In
April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest – Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”, to simplify presentation of debt issuance costs
by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition and measurement
guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for fiscal years
beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted.
In
April 2015, FASB issued ASU No. 2015-04, “Compensation – Retirement Benefits (Topic 715): Practical Expedient for
the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets”, which permits the entity to measure
defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply
that practical expedient consistently from year to year. The ASU is effective for public business entities for financial statements
issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is
permitted.
In
April 2015, FASB issued ASU No. 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”, which provides guidance to customers
about whether a cloud computing arrangement includes a software license. If such includes a software license, then the customer
should account for the software license element of the arrangement consistent with the acquisition of other software licenses.
If the arrangement does not include a software license, the customer should account for it as a service contract. For public business
entities, the ASU is effective for annual periods, including interim periods within those annual periods, beginning after December
15, 2015. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be
any impact on our results of operations, cash flows or financial condition.
In
April 2015, FASB issued ASU No. 2015-06, “Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master
Limited Partnership Dropdown Transactions”, which specifies that, for purposes of calculating historical earnings per unit
under the two-class method, the earnings (losses) of a transferred business before the date of a drop down transaction should
be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners
(which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown
transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction
occurs for purposes of computing earnings per unit under the two-class method also are required. The ASU is effective for fiscal
years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier application is permitted.
In
June 2014, FASB issued ASU No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The update removes
all incremental financial reporting requirements from GAAP for development stage entities, including the removal of Topic 915
from the FASB Accounting Standards Codification. In addition, the update adds an example disclosure in Risks and Uncertainties
(Topic 275) to illustrate one way that an entity that has not begun planned principal operations could provide information about
the risks and uncertainties related to the company’s current activities. Furthermore, the update removes an exception provided
to development stage entities in Consolidations (Topic 810) for determining whether an entity is a variable interest entity-which
may change the consolidation analysis, consolidation decision, and disclosure requirements for a company that has an interest
in a company in the development stage. The update is effective for the annual reporting periods beginning after December 15, 2014,
including interim periods therein. Early application is permitted with the first annual reporting period or interim period for
which the entity’s financial statements have not yet been issued (Public business entities) or made available for issuance
(other entities). Our company adopted this pronouncement.
In
June 2014, FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718); Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”.
The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms
of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The
amendments require that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards
with performance conditions that affect vesting to account for such awards. For all entities, the amendments in this ASU are effective
for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted.
Entities may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date
or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual
period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted,
the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements
should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition
is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This updated guidance is not expected
to have a material impact on our results of operations, cash flows or financial condition.
In
August 2014, the FASB issued ASU 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) –
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance
in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability
to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance.
In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments
require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain
principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial
doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the
mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result
of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is
not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued
(or available to be issued).
All
other newly issued accounting pronouncements which are not yet effective have been deemed either immaterial or not applicable.
We
reviewed all other recently issued accounting pronouncements and determined these have no current applicability to the Company
or their effect on the financial statements would not have been significant.
3.
GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown
in the accompanying consolidated financial statements, the Company has incurred a net loss of $1,048,559 for the nine months ended
September 30, 2018, and has an accumulated deficit of $7,023,467 as of September 30, 2018.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is
significantly dependent upon its ability, and will continue to attempt, to secure equity and/or additional debt financing. There
are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to
continue as a going concern.
The
unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue
in existence. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These
unaudited consolidated financial statements do not include any adjustments that might arise from this uncertainty.
4.
INVENTORIES
As
of September 30, 2018, the Company has $162,326 in inventories. Inventories are stated at the lower of cost or market value. Cost
has been determined using the first-in, first-out method. Inventory quantities on-hand are regularly reviewed, and where necessary,
reserves for excess and unusable inventories are recorded. Inventory consists of finished goods and includes ice cream, popsicles
and the related packaging materials.
5.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment at September 30, 2018 and December 31, 2017, consisted of:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Computers
|
|
$
|
11,788
|
|
|
$
|
15,986
|
|
Freezers
|
|
|
|
|
|
|
39,153
|
|
Office Furniture
|
|
|
|
|
|
|
15,687
|
|
Rugs
|
|
|
|
|
|
|
6,000
|
|
Software-Accounting
|
|
|
|
|
|
|
2,901
|
|
Telephone System
|
|
|
|
|
|
|
5,814
|
|
Video camera
|
|
|
218
|
|
|
|
1,528
|
|
Building & Improvement
|
|
|
25,000
|
|
|
|
|
|
Forklift 1
|
|
|
3,000
|
|
|
|
|
|
Forklift 2
|
|
|
2,871
|
|
|
|
|
|
Truck 2004 Hino 1
|
|
|
10,000
|
|
|
|
|
|
Truck 2004 Hino 2
|
|
|
10,000
|
|
|
|
|
|
Truck 2018 Hino 155 5347
|
|
|
30,181
|
|
|
|
|
|
Truck 2018 Hino 155 5647
|
|
|
30,181
|
|
|
|
|
|
Truck 2018 Hino 155 5680
|
|
|
30,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
(34,227
|
)
|
|
|
(59,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
119,192
|
|
|
$
|
27,843
|
|
Depreciation
expense for the nine months ended September 30, 2018 was $11,227 compared to $2,997 for the same period of September 30, 2017.
6.
ACCRUED EXPENSE
As
of September 30, 2018, the Company had accrued expenses of $393,904 compared to $332,503, for the year-end December 31, 2017.
7.
INCOME TAX
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under
this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse.
8.
RELATED PARTY TRANSACTIONS
The
following table presents a summary of the Company’s promissory notes issued to related parties as of September 30, 2018:
Note holder
|
|
Note
Amount
|
|
|
Issuance
Date
|
|
Unpaid
Amount
|
|
S. Masjedi
|
|
|
150,000
|
|
|
12/10/2010
|
|
$
|
122,692
|
|
A. Masjedi
|
|
|
500,000
|
|
|
6/1/2013
|
|
|
126,828
|
|
M. Shenkman
|
|
|
10,000
|
|
|
2/21/2012
|
|
|
10,000
|
|
M. Shenkman
|
|
|
10,000
|
|
|
2/23/2012
|
|
|
10,000
|
|
M. Shenkman
|
|
|
10,000
|
|
|
3/14/2013
|
|
|
6,000
|
|
M. Shenkman (Entrust)
|
|
|
16,000
|
|
|
9/9/2014
|
|
|
16,000
|
|
|
|
$
|
696,000
|
|
|
|
|
$
|
291,520
|
|
The
following description represent note payable-related party transaction pre-Share Exchange that were assumed by the Company as
a condition to the Share Exchange:
On
February 21, 2012, Snöbar Holdings entered into an unsecured promissory note with Mr. Shenkman, who is Chairman of the Board
of Directors and a shareholder of the Company. The note had a principal balance of $10,000 with an interest rate of 5% and is
due on demand. The note’s maturity date has subsequently been extended to December 31, 2020. Interest against the note was
extinguished in a subsequent extension of the term. The note had a principal balance of $10,000 as of September 30, 2018.
On
February 23, 2012, Snöbar Holdings entered into a promissory note with Mr. Shenkman for $10,000, maturing in one year at
an interest of 8%. The note has subsequently been extended to December 31, 2020. Interest under the note was extinguished in a
subsequent extension of the term. The note had an outstanding balance of $10,000 as of September 30, 2018.
On
March 14, 2013, Snöbar Holdings entered into an unsecured promissory note with a Mr. Shenkman, the Company’s Chairman
of the Board of Directors. The note had a principal balance of $10,000 with an interest rate of 5% and an original maturity date
of March 14, 2014, subsequently extended to December 31, 2020 with a lower interest rate of 2%/year. Mr. Shenkman also agreed
to make all interest retroactive and deferred. The note had an outstanding balance of $6,000 as of September 30, 2018.
On
June 1, 2013, Snöbar Holdings entered into a promissory note with Azizolla Masjedi, father-in-law to Shannon Masjedi who’s
the Company’s President, Chief Executive Officer, Interim Chief Financial Officer, director and majority stockholder, in
an amount of $500,000 to purchase all the shares and interests of IPIC. The note matured on June 31, 2017. As of September 30,
2018, the outstanding balance under this note was $231,067, which includes interest and penalty charges. The current balance is
$215,653.
On
September 9, 2014, Snöbar Holdings entered into a second unsecured promissory note with Mr. Shenkman, through his affiliate
company Entrust Group for a total amount of $6,000 and a third unsecured promissory note for a total amount of $10,000, both at
an annual interest rate of 2%. No term was provided for in each note, but Mr. Shenkman has agreed to a maturity date of December
31, 2020 and the accrual of interest rates and deferral to maturity. The notes had an aggregate outstanding balance of $16,000
as of September 30, 2018.
As
of September 30, 2018, the Company had related party current and long-term notes payable of $249, and $42,000, respectively.
The
following table presents a summary of the Company’s promissory notes issued to unrelated
|
|
Note
Amount
|
|
|
Issuance
Date
|
|
Balance
|
|
A. Rodriguez
|
|
$
|
86,821
|
|
|
3/14/2013
|
|
$
|
86,821
|
|
A. Rodriguez
|
|
|
15,000
|
|
|
7/22/2013
|
|
|
15,000
|
|
A. Rodriguez
|
|
|
10,000
|
|
|
2/21/2014
|
|
|
10,000
|
|
TRA Capital
|
|
|
106,112
|
|
|
3 loans
|
|
|
106,112
|
|
BNA Inv
|
|
|
223,499
|
|
|
6 loans
|
|
|
223,499
|
|
Morning View
|
|
|
35,000
|
|
|
10/26/2017
|
|
|
-
|
|
Brian Berg
|
|
|
30,000
|
|
|
2/1/2012
|
|
|
25,000
|
|
Classic Bev
|
|
|
73,473
|
|
|
5/1/2017
|
|
|
82,673
|
|
Crown Bridge
|
|
|
33,000
|
|
|
2/22/2018
|
|
|
7,996
|
|
JSJ, Investments
|
|
|
75,000
|
|
|
7/12/2017
|
|
|
55,000
|
|
PowerUp
|
|
|
119,000
|
|
|
7/25/2017
|
|
|
130,919
|
|
Tiger Trout Capital
|
|
|
80,000
|
|
|
8/8/2018
|
|
|
40,000
|
|
TCA Global fund
|
|
|
1,750,000
|
|
|
5/1/2018
|
|
|
2,150,000
|
|
|
|
$
|
2,636,905
|
|
|
|
|
$
|
2,933,020
|
|
The
following description represent unrelated notes payable transactions pre-reverse merger between Snöbar and the Company that
were assumed by the Company as a condition to the Share Exchange Agreement:
In
February, 2012, MGD entered into an unsecured promissory note with a certain unrelated party, now a shareholder of the Company
for a principal balance of $30,000 at in interest rate of 8% per year and maturity date of August 1, 2014. The note’s maturity
date has been extended to December 31, 2020 and the interest rate under the extinguished as part of the extension. The note had
an outstanding balance of $25,000 as of September 30, 2018.
On
March 14, 2013, Snöbar Holdings entered into an unsecured promissory note with a certain unrelated third party, now a shareholder
of the Company. The note had a principal balance of $86,821 with an interest rate of 5% and had a maturity date of March 14, 2014.
The note’s maturity date has subsequently been extended to February 1, 2020. Interest under the note was extinguished in
a subsequent extension of the term. The note is current and the entire balance is owed and outstanding as of September 30, 2018.
On
July 22, 2013, Snöbar Holdings entered into an unsecured promissory note with a certain unrelated third party. The note had
a principal balance of $15,000 with an original interest rate of 5%. On February 22, 2014 Snöbar Holdings also entered into
another note with the same party for $10,000. Maturity dates have been extended to December 31, 2018, and interest rates has been
reduced to 2%, and lender agreed to make all interest retroactive and deferred. The balance of the note was $15,000 and $10,000
as of September 30, 2018.
In
February 2014, MGD entered into a secured promissory note with a certain unrelated third party for $10,000. The note was secured
by interests in tangible and intangible property of MGD. The Company is to make payments of $181 each business day (Monday through
Friday) until the loan is paid off. The effective interest rate on the note is 137%. The outstanding balance of the note is $1,000
as of September 30, 2018.
On
May 19, 2014, Snöbar Holdings entered into a secured convertible promissory note with a principal balance of $500,000. The
note was secured by interests in cash, accounts receivable, other receivables, inventory, supplies, other assets of Snöbar
Holdings including general intangibles and rights of each liquor license owned by Snöbar Trust. The note has an interest
rate of 10% and an original maturity date of December 31, 2015. The Company was to make interest only payments beginning July
1, 2014. The lender determined Snöbar Holdings to be in default and on January 29, 2015, entered into a mutually agreed loan
modification. The agreement increased the principal balance of the note as of December 31, 2014 to $527,333 and all interest due
and payable was deemed to have been paid and the conversion rights of the note were removed. The modification also removed and
deleted, in its entirety, all secured interests in cash, accounts receivable, other receivables, inventory, supplies, and other
assets of Snöbar Holdings, including intangibles, and rights of each liquor license owned by Snöbar Trust. The maturity
date was December 31, 2015 if Snöbar Holdings is not in default, the maturity date of the note should automatically be extended
to December 31, 2016 (“First Extended Maturity Date”). Commencing on January 1, 2016, Snöbar Holdings was to
make monthly payments of $15,000 until the First Extended Maturity Date. Assuming Snöbar Holdings was not in default with
respect to its obligations as of the First Extended Maturity Date, the note would have automatically been extended to December
31, 2017 (“Second Extended Maturity Date”). Commencing on January 1, 2017, the monthly payments increased to $25,000
for every month until the Second Extended Maturity Date. All accrued but unpaid interest, charges and the remaining principal
balance of the note was fully due and payable on the Second Extended Maturity Date. In January of 2016 the company decided to
enter into renegotiation period for the repayment terms of the modification dated January 29, 2015.
The
following description represents unrelated note payable transactions post-merger between Snöbar and the Company:
On
February 13, 2017, Pacific Ventures entered settlement with one of its creditors for $527,333 of its long-term notes payable.
The agreement called for issuance of 400,000 shares of PACV restricted common stocks and $200,000 in future cash payment comprising
of $25,000 on March 31, 2017, $25,000 on March 31, 2018, $25,000 on March 31, 2019, and $125,000 on March 31, 2020. As of March
10, 2017, Pacific Ventures has issued to the creditor, 400,000 shares of PACV restricted common stocks, and has also paid the
$25,000 for the required March 31, 2017 cash payment. The balance of the note as of March 31, 2017 is $175,000 compared to December
31, 2016 balance of $527,333.
Effective
September 30, 2017, the Company entered into amended promissory notes with a certain unrelated third party in an amount of $372,500,
one for $172,500, and four others for $50,000 each. All of the notes have an interest rate of 8% and had a maturity date of August
13, 2017, but have been extended to November 15, 2017 for a fee of $15,000. The notes had a principal outstanding balance of $348,601
as of September 30, 2018, including the $15,000 extension fee.
In
late July, August, and September of 2017, the Company entered into a financing arrangements with Power Up Lending pursuant to
which the Company borrowed a total principal of $129,000 secured by shares of the Company’s common stock. The notes were
subject to a 6 month hold before any stock was issued. The current balance is $37,919.
On
January 11, 2018, the Company issued a Convertible Redeemable Note with a certain unrelated party. for total gross proceeds of
$30,000. The note bears an interest of 10% and matures on January 3, 2019. The current principal balance is $30,000.
On
February 7, 2018, the Company issued a Convertible Promissory Note with a certain unrelated party. for total gross proceeds of
$105,000. The note bears an interest of 2%. The Company received the first tranche of the note and has a current principal balance
of $33,000 as of September 30, 2018.
Over
the past year Classic Beverage has periodically issued loans to the Company. The Company has agreed to pay interest 10% per year
and has agreed on penalty fees if late on payments. The note is due on demand. The current balance is $82,673.
On
2018, the company entered into a promissory note to pay off aged debt on the books of PACV. The amount was $56,066 and the total
amount that has converted into stock during the first quarter is $37,184. The current principal balance as of September 30, 2018
is $18,882. That remaining balance converted into common stock in April of 2018.
On
May 1, 2018, Pacific Ventures Group entered into a secured promissory note with TCA Global Fund for $1,750,000. The note was secured
by interests in tangible and intangible property of Pacific Ventures Group. The Company is to make interest only payments of $24,462
for 2 month; $10,000 for the next 4 months; subsequent payments of $45,500 until the loan is paid off. The effective interest
rate on the note is 16%. On July 26, 2018, the Company entered into a second loan with TCA Global Fund for $400,000. The outstanding
balance of the notes with TCA Global Fund is $2,150,000 as of September 30, 2018.
As
of September 30, 2018, the Company had total short-term notes payable of $646,199 and long-term notes payable of $2,286,821.
9.
STOCKHOLDERS’ EQUITY
Share
Exchange
On
August 14, 2015, Snöbar Holdings entered into the Share Exchange Agreement with the Company and Snöbar Holdings’
shareholders (the “Snöbar Shareholders”) who held of record (i) at least 99% and up to 100% of the total issued
and outstanding shares of Class A Common Stock and (ii) 100% of the total issued and outstanding shares of Class B Common Stock,
of Snöbar Holding. In accordance with the terms and provisions of the Share Exchange Agreement, the Company acquired all
of the issued and outstanding shares of Snöbar Holdings’ Class A and Class B Common Stock from Snöbar Shareholders,
with Snöbar Holdings becoming a wholly owned subsidiary of the Company, in exchange for the issuance to the Snöbar Shareholders
of 22,500,000 shares of restricted common stock of the Company and the issuance of 2,500,000 restricted shares of the Company’s
common stock to certain other persons (as set forth below).
The
2,500,000 restricted shares of the Company’s common stock were issued for the following: 600,000 shares were issued for
services for a total of $326,900 of non-cash expenses; a former officer of the Company received 1,000,000 shares in exchange for
his 1,000,000 shares of Series E Preferred Stock; and 900,000 shares were issued to extinguish $21,675 of debt due to a former
officer and shareholder of the Company.
Common
Stock and Preferred Stock
The
Company is authorized to issue up to 10,000,000 shares of its preferred stock, $0.001 par value per share. Effective as of October
2016, the Company designated 1,000,000 shares of preferred stock as Series E Preferred Stock (the “Series E Preferred Stock”).
Under the rights, preferences and privileges of the Series E Preferred Stock, for every share of Series E Preferred Stock held,
the holder thereof has the voting rights equal to 10 shares of common stock. The Series E Preferred Stock is not convertible into
any class of stock of the Company and has no preferences to dividends or liquidation rights. As of September 30, 2018 and December
31, 2017, there were 1,000,000 shares of Series E Preferred Stock issued and outstanding.
From
July 1, 2018 through September 30, 2018, the Company issued 15,511,066 shares of its common stock to various investors for services
or debt conversion. The Company also issued 826,296 shares of its common stock as a result of stock dividends.
On
July 23, 2018, the Company amended the total number of common stock shares it is authorized to issue from 100,000,000 to 500,000,000.
The Company is authorized to issue up to 500,000,000 shares of its common stock, $0.001 par value per share. Holders of common
stock hold one vote per share. As of September 30, 2018, there were 98,963,753 shares of common stock issued and outstanding,
respectively.
10.
COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES
Operating
Lease
The
Company is currently obligated under two operating leases for office spaces and associated building expenses. Both leases are
on a month-to-month basis.
San
Diego Farmers Outlet has a 5 years lease at $6,000 per month with two (5) year options to extend the lease.
11.
SUBSEQUENT EVENTS
ASC
855-16-50-4 establishes accounting and disclosure requirements for subsequent events. ASC 855 details the period after the balance
sheet date during which we should evaluate events or transactions that occur for potential recognition or disclosure in the financial
statements, the circumstances under which we should recognize events or transactions occurring after the balance sheet date in
its financial statements and the required disclosures for such events.
The
Company has evaluated all subsequent events through the date these consolidated financial statements were issued and determined
that there are no material subsequent events to disclose.
Report
of Independent Registered Public Accounting Firm
To
the Shareholders and the Board of Directors
Pacific
Ventures Group Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Pacific Ventures Group Inc. (the “Company”) as of December
31, 2017 and 2016, the related statements of operations, changes in stockholders’ deficit, for each of the three years in
the period ended December 31, 2017, and the related notes [and schedules] (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
There
are no critical audit matters.
The
Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern,
which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has
an accumulated deficit of $5,970,024 and a negative cash flow from operations amounting to $590,059 for the year ended December
31, 2017. These factors as discussed in Note 3 of the financial statements raise substantial doubt about the Company’s ability
to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated
financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/
Albert Garcia, CPA
DylanFloyd
Accounting & Consulting
We
have served as the Company’s auditor since 2016.
Newhall,
California
March
29, 2018
PACIFIC
VENTURES GROUP, INC.
Consolidated
Balance Sheets
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
69
|
|
|
$
|
25,284
|
|
Accounts receivable
|
|
|
6,589
|
|
|
|
983
|
|
Inventory, net
|
|
|
-
|
|
|
|
-
|
|
Deposits
|
|
|
1,500
|
|
|
|
1,500
|
|
Total Current Assets
|
|
|
8,158
|
|
|
|
27,767
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
27,843
|
|
|
|
31,838
|
|
Total Fixed Assets
|
|
|
27,843
|
|
|
|
31,838
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
36,001
|
|
|
$
|
59,605
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
$
|
-
|
|
|
$
|
-
|
|
Accounts payable
|
|
|
171,085
|
|
|
|
177,475
|
|
Accrued expenses
|
|
|
332,503
|
|
|
|
231,060
|
|
Deferred revenue
|
|
|
|
|
|
|
15,042
|
|
Current portion, notes payable
|
|
|
456,914
|
|
|
|
1,000
|
|
Current portion, notes payable - related party
|
|
|
353,759
|
|
|
|
-
|
|
Current portion, leases payable
|
|
|
|
|
|
|
-
|
|
Total Current Liabilities
|
|
|
1,314,261
|
|
|
|
424,577
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
311,821
|
|
|
|
527,333
|
|
Notes payable - related party
|
|
|
42,000
|
|
|
|
684,048
|
|
Total Long-Term Liabilities
|
|
|
353,821
|
|
|
|
1,211,381
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
1,668,082
|
|
|
$
|
1,635,958
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 1,000,000 Series E, issued and outstanding
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Common stock, $0.001 par value, 100,000,000 shares authorized, 36,430,248 and 27,297,364 issued and outstanding, respectively
|
|
|
36,430
|
|
|
|
27,297
|
|
Additional paid in capital
|
|
|
4,300,514
|
|
|
|
3,722,452
|
|
Accumulated deficit
|
|
|
(5,970,024
|
)
|
|
|
(5,327,102
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity (Deficit)
|
|
|
(1,632,080
|
)
|
|
|
(1,576,353
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
36,001
|
|
|
$
|
59,605
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
PACIFIC
VENTURES GROUP, INC.
Consolidated
Statements of Operations
|
|
For the Year Ended,
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Sales, net of discounts
|
|
$
|
-
|
|
|
$
|
4,763
|
|
Cost of Goods Sold
|
|
|
-
|
|
|
|
(2,020
|
)
|
Gross Profit
|
|
|
-
|
|
|
|
2,743
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
463,749
|
|
|
|
358,007
|
|
Penalty on payroll taxes
|
|
|
12,807
|
|
|
|
-
|
|
Depreciation expense
|
|
|
3,995
|
|
|
|
3,993
|
|
Salaries and wages
|
|
|
6,437
|
|
|
|
11,845
|
|
Operating Expenses/(Loss)
|
|
|
486,988
|
|
|
|
373,845
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(486,988
|
)
|
|
|
(371,102
|
)
|
|
|
|
|
|
|
|
|
|
Other Non-Operating Income and Expenses
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(124,963
|
)
|
|
|
(32,063
|
)
|
Forgiveness of debt
|
|
|
6,849
|
|
|
|
-
|
|
Extraordinary items
|
|
|
15,042
|
|
|
|
(87,577
|
)
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss) before income taxes
|
|
|
(590,059
|
)
|
|
|
(490,742
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss)
|
|
$
|
(590,059
|
)
|
|
$
|
(490,742
|
)
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Share - Common Stock
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic and Diluted Common Stock
|
|
|
36,430,248
|
|
|
|
27,297,364
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
PACIFIC
VENTURES GROUP, INC.
Consolidated
Statement of Stockholders’ Equity (Deficit)
For
the Years Ended December 31, 2017 and 2016
|
|
Class A
Common Stock
|
|
|
Series E
Preferred Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance, December 31, 2014
|
|
|
384,031
|
|
|
|
384
|
|
|
$
|
1,000,000
|
|
|
$
|
1,000
|
|
|
|
3,155,072
|
|
|
$
|
(4,806,093
|
)
|
|
$
|
(1,649,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Shares issued for reverse merger
|
|
|
24,974,000
|
|
|
|
24,974
|
|
|
|
|
|
|
|
|
|
|
|
(24,974
|
)
|
|
|
|
|
|
|
-
|
|
Note conversion
|
|
|
441,000
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
325,648
|
|
|
|
|
|
|
|
326,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net loss for the year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,552
|
)
|
|
|
(64,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
25,799,031
|
|
|
$
|
25,799
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
3,455,746
|
|
|
$
|
(4,870,645
|
)
|
|
$
|
(1,388,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note conversion
|
|
|
1,498,333
|
|
|
|
1,498
|
|
|
|
|
|
|
|
|
|
|
|
266,706
|
|
|
|
|
|
|
|
268,204
|
|
Prior period adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,286
|
|
|
|
34,286
|
|
Net loss for the year ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(490,743
|
)
|
|
|
(490,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
27,297,364
|
|
|
$
|
27,297
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
3,722,452
|
|
|
$
|
(5,327,102
|
)
|
|
$
|
(1,576,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior period adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,863.00
|
)
|
|
|
(52,863.00
|
)
|
Note conversion
|
|
|
2,849,551
|
|
|
|
2,850
|
|
|
|
|
|
|
|
|
|
|
|
334,369
|
|
|
|
|
|
|
|
337,219
|
|
Shares Issued
|
|
|
11,243,333
|
|
|
|
11,243
|
|
|
|
|
|
|
|
|
|
|
|
243,693
|
|
|
|
|
|
|
|
254,936
|
|
Cancelled shares
|
|
|
(4,960,000
|
)
|
|
|
(4,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,960
|
)
|
Net loss for the year ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(590,059
|
)
|
|
|
(590,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
36,430,248
|
|
|
$
|
36,430
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
4,300,514
|
|
|
$
|
(5,970,024
|
)
|
|
$
|
(1,632,080
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
PACIFIC
VENTURES GROUP, INC.
Consolidated
Statements of Cash Flows
|
|
For the Year Ended,
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(590,059
|
)
|
|
$
|
(490,743
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
-
|
|
|
|
-
|
|
Depreciation
|
|
|
3,995
|
|
|
|
3,993
|
|
Changes in operating assets and liabilities
|
|
|
-
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,606
|
)
|
|
|
(983
|
)
|
Inventory
|
|
|
-
|
|
|
|
2,020
|
|
Deposits
|
|
|
3,000
|
|
|
|
4,880
|
|
Accounts payable
|
|
|
(19,238
|
)
|
|
|
(39,108
|
)
|
Accrued expenses
|
|
|
95,874
|
|
|
|
(39,253
|
)
|
Net Cash Used in Operating Activities
|
|
|
(512,034
|
)
|
|
|
(559,194
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Disposal of fixed asset
|
|
|
-
|
|
|
|
-
|
|
Net Cash Provided by (Used in) Investing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
465,914
|
|
|
|
10,000
|
|
Proceeds from notes payable - Related
|
|
|
747
|
|
|
|
261,577
|
|
Repayment of notes payable
|
|
|
(352,333
|
)
|
|
|
-
|
|
Repayment of notes payable - Related
|
|
|
(161,705
|
)
|
|
|
|
|
Common stock issued for cash
|
|
|
534,196
|
|
|
|
361,976
|
|
Prior period adjustment to retained earnings
|
|
|
-
|
|
|
|
(49,285
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
486,820
|
|
|
|
584,268
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(25,215
|
)
|
|
|
25,074
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
25,284
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
69
|
|
|
$
|
25,284
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
49,167
|
|
|
$
|
80,619
|
|
NON CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Issuance of shares for debt conversion
|
|
$
|
2,850
|
|
|
$
|
-
|
|
Pacific
Ventures Group, Inc.
Notes
to Condensed Consolidated Financial Statements
For
the years ended December 31, 2017 and 2016
1.
NATURE OF OPERATIONS
The
Company and Nature of Business
Pacific
Ventures Group, Inc. (the “Company,”“we,”“us” or “our”) was incorporated under
the laws of the state of Delaware on October 3, 1986, under the name AOA Corporation. On November 12, 1991, the Company changed
its name to American Eagle Group, Inc. On October 22, 2012, the Company changed its name to “Pacific Ventures Group, Inc.”.
The
current structure of the Company resulted from a share exchange with Snöbar Holdings, Inc. (“Snöbar Holdings”),
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, 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, while simultaneously issuing 2,500,000 restricted shares of the Company’s common stock
to certain other persons, including for services provided and to a former officer of the Company (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 and MAS Global Distributors, Inc., a California corporation
(“MGD”), became an indirect subsidiary of the Company.
Prior
to the Share Exchange, the Company operated as an insurance holding company and through its subsidiaries, which marketed and underwrote
specialized property and casualty coverage in the general aviation insurance marketplace. However, in 1997, after selling several
of its divisions, the Company’s remaining insurance operations were placed into receivership and the Company ceased operating
its insurance business.
Since
the Share Exchange represented a change in control of the Company and a change in business operations, the Company’s business
operations changed to that of Snöbar Holdings and the discussions of business operations accompanying this filing are solely
that of Snöbar Holdings and its affiliates and subsidiaries comprising of Snöbar Trust , International Production Impex
Corporation, a California corporation (“IPIC”) , and MGD.
Snöbar
Holdings was formed under the laws of the State of Delaware on January 7, 2013. Snöbar Holdings is the trustor and sole beneficiary
of Snöbar Trust, a California trust (“Trust”), which was formed in June 1, 2013. The current trustee that holds
legal title to the Trust is Clark Rutledge, the father of Shannon Masjedi, the Company’s President, Chief Executive Officer,
Interim Chief Financial Officer, Treasurer, and majority stockholder. The Trust owns 100% of the shares of 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”. As such, 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 MGD. MGD is in the business of selling and leasing freezers and providing marketing services. As a result of the foregoing,
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.
The
Trust and IPIC are considered variable interest entities (“VIEs”) and Snöbar Holdings is identified as the primary
beneficiary of the Trust and IPIC. Under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 810, Snöbar Holdings performs ongoing reassessments of whether it is the primary beneficiary of a VIE.
As the assessment of Snöbar Holdings’ management is that Snöbar Holdings has the power to direct the activities
of a VIE that most significantly impact the VIE’s activities (it is responsible for establishing and operating IPIC), and
the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits
from the VIE that could potentially be significant to the VIE’s economic performance, it was therefore concluded by management
that Snöbar Holdings is the primary beneficiary of the Trust and IPIC. As such, the Trust and IPIC were consolidated in the
financial statements of Snöbar Holdings since the inception of the Trust, in the case of the Trust, and since the inception
of Snöbar Holdings, in the case of IPIC.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company, Snöbar Holdings and its subsidiaries, in which Snöbar
Holdings has a controlling voting interest and entities consolidated under the variable interest entities (“VIE”)
provisions of ASC 810, “Consolidation” (“ASC 810”). Inter-company balances and transactions have been
eliminated upon consolidation.
The
Company applies the provisions of ASC 810 which provides a framework for identifying VIEs and determining when a company should
include the assets, liabilities, non-controlling interests and results of activities of a VIE in its consolidated financial statements.
In
general, a VIE is a corporation, partnership, limited-liability corporation, trust, or any other legal structure used to conduct
activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional
subordinated financial support, (2) has a group of equity owners that is unable to make significant decisions about its activities,
(3) has a group of equity owners that does not have the obligation to absorb losses or the right to receive returns generated
by its operations or (4) the voting rights of some investors are not proportional to their obligations to absorb the expected
losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the
entity’s activities (for example, providing financing or buying assets) either involve or are conducted on behalf of an
investor that has disproportionately fewer voting rights.
ASC
810 requires a VIE to be consolidated by the party with an ownership, contractual or other financial interest in the VIE (a variable
interest holder) that has both of the following characteristics: a) the power to direct the activities of a VIE that most significantly
impact the VIE’s economic performance and b) the obligation to absorb losses of the VIE that could potentially be significant
to the VIE, or the right to receive benefits from the VIE that could potentially be significant to the VIE.
A
variable interest holder that consolidates the VIE is called the primary beneficiary. If the primary beneficiary of a variable
interest entity (VIE) and the VIE are under common control, the primary beneficiary shall initially measure the assets, liabilities,
and non-controlling interests of the VIE at amounts at which they are carried in the accounts of the reporting entity that controls
the VIE (or would be carried if the reporting entity issued financial statements prepared in conformity with generally accepted
accounting principles). ASC 810 also requires disclosures about VIEs in which the variable interest holder is not required to
consolidate but in which it has a significant variable interest.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the Company, Snöbar Holdings, MGD, IPIC and the Trust, which was established to
hold IPIC, which in turn holds liquor licenses. All inter-company accounts have been eliminated during consolidation. See the
discussion in Note 1 above for variable interest entity treatment of the Trust and IPIC.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities,
at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue
Recognition
Sales
revenues are generally recognized in accordance with the SAB 104 Public Company Guidance, when an agreement exists and price is
determinable, the products are shipped to the customers or services are rendered, net of discounts, returns and allowance and
collectability is reasonably assured. We are often entitled to bill our customers and receive payment from our customers in advance
of recognizing the revenue. In the instances in which we have received payment from our customers in advance of recognizing revenue,
we include the amounts in deferred or unearned revenue on our consolidated balance sheet.
Unearned
Revenue
Certain
amounts are received pursuant to agreements or contracts and may only be used in the conduct of specified transactions or the
related services are yet to be performed. These amounts are recorded as unearned or deferred revenue and are recognized as revenue
in the year/period the related expenses are incurred or services are performed. As at December 31, 2017, the Company has $0 in
deferred revenue. This is comparable to deferred revenue balance of $15,042 as of December 31, 2016, which was as a result of
prepayment by two of its customers.
Shipping
and Handling Costs
The
Company’s shipping costs are all recorded as operating expenses for all periods presented.
Disputed
Liabilities
The
Company is involved in a variety of disputes, claims, and proceedings concerning its business operations and certain liabilities.
We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and
can be reasonably estimated. We assess our potential liability by analyzing our litigation and regulatory matters using available
information. We develop our views on estimated losses in consultation with outside counsel handling our defense in these matters,
which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should developments
in any of these matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a
material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts, they
could have a material adverse effect on our results of operations, cash flows and financial position in the period or periods
in which such change in determination, judgment or settlement occurs. As of December 31, 2017, the Company has $31,858 in disputed
liabilities on its balance sheet.
In
addition, on January 28, 2016, a labor dispute between IPIC and a former employee was ruled in favor of the former employee by
the Labor Commissioner of the State of California. This finding resulted in compensation expenses of $29,103 and an accrued liability
of the same amount on IPIC book for the fiscal year ended December 31, 2017.
Cash
Equivalents
The
Company considers highly liquid instruments with original maturity of three months or less to be cash equivalents. As of December
31, 2017, the Company had a cash balance of $69 in cash and cash equivalents, compared to $25,284 at December 31, 2016.
Accounts
Receivable
Accounts
receivable are stated at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts.
The allowance is calculated based upon the level of past due accounts and the relationship with and financial status of our customers.
The Company did not write off any bad debts during the years ended December 31, 2017 and 2016, and thus has not set an allowance
for doubtful accounts.
Inventories
Inventories
are stated at the lower of cost or market value. Cost has been determined using the first-in, first-out method. Inventory quantities
on-hand are regularly reviewed, and where necessary, reserves for excess and unusable inventories are recorded. Inventory consists
of finished goods and includes ice cream, popsicles and the related packaging materials. As of December 31, 2017 and 2016, the
Company has $0 in inventories.
Income
Taxes
Deferred
taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences
and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Net
Income/(Loss) Per Common Share
Income/(loss)
per share of common stock is calculated by dividing the net income/(loss) by the weighted average number of shares of common stock
outstanding during the period. The Company has no potentially dilutive securities. Accordingly, basic and dilutive income/(loss)
per common share are the same.
Property
and Equipment
Property
and equipment are carried at cost less accumulated depreciation and includes expenditures that substantially increase the useful
lives of existing property and equipment. Maintenance, repairs, and minor renovations are expensed as incurred. Upon sale or retirement
of property and equipment, the cost and related accumulated depreciation are eliminated from the respective accounts and the resulting
gain or loss is included in the results of operations. The Company provides for depreciation of property and equipment using the
straight-line method over the estimated useful lives or the term of the lease, as appropriate. The estimated useful lives are
as follows: vehicles, five years; office furniture and equipment, three to fifteen years; equipment, three years.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s financial instruments, which include cash, accounts receivable, accounts payable, and
accrued expenses are representative of their fair values due to the short-term maturity of these instruments.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable.
The Company maintains cash balances at financial institutions within the United States which are insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to limits of approximately $250,000. The Company has not experienced any losses
with regard to its bank accounts and believes it is not exposed to any risk of loss on its cash bank accounts.
Critical
Accounting Policies
The
Company considers revenue recognition and the valuation of accounts receivable, allowance for doubtful accounts, and inventory
and reserves as its significant accounting policies. Some of these policies require management to make estimates and assumptions
that may affect the reported amounts in the Company’s financial statements.
Recent
Accounting Pronouncements
In
June 2009, the FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the
source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation
of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).
Rules and interpretive releases of the Securities and Exchange Commission (the “SEC”) issued under authority of federal
securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the
Codification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is
organized and presented.
In
April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest – Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”, to simplify presentation of debt issuance costs
by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition and measurement
guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for fiscal years
beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted.
In
April 2015, FASB issued ASU No. 2015-04, “Compensation – Retirement Benefits (Topic 715): Practical Expedient for
the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets”, which permits the entity to measure
defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply
that practical expedient consistently from year to year. The ASU is effective for public business entities for financial statements
issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is
permitted.
In
April 2015, FASB issued ASU No. 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”, which provides guidance to customers
about whether a cloud computing arrangement includes a software license. If such includes a software license, then the customer
should account for the software license element of the arrangement consistent with the acquisition of other software licenses.
If the arrangement does not include a software license, the customer should account for it as a service contract. For public business
entities, the ASU is effective for annual periods, including interim periods within those annual periods, beginning after December
15, 2015. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be
any impact on our results of operations, cash flows or financial condition.
In
April 2015, FASB issued ASU No. 2015-06, “Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master
Limited Partnership Dropdown Transactions”, which specifies that, for purposes of calculating historical earnings per unit
under the two-class method, the earnings (losses) of a transferred business before the date of a drop down transaction should
be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners
(which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown
transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction
occurs for purposes of computing earnings per unit under the two-class method also are required. The ASU is effective for fiscal
years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier application is permitted.
In
June 2014, FASB issued ASU No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The update removes
all incremental financial reporting requirements from GAAP for development stage entities, including the removal of Topic 915
from the FASB Accounting Standards Codification. In addition, the update adds an example disclosure in Risks and Uncertainties
(Topic 275) to illustrate one way that an entity that has not begun planned principal operations could provide information about
the risks and uncertainties related to the company’s current activities. Furthermore, the update removes an exception provided
to development stage entities in Consolidations (Topic 810) for determining whether an entity is a variable interest entity-which
may change the consolidation analysis, consolidation decision, and disclosure requirements for a company that has an interest
in a company in the development stage. The update is effective for the annual reporting periods beginning after December 15, 2014,
including interim periods therein. Early application is permitted with the first annual reporting period or interim period for
which the entity’s financial statements have not yet been issued (Public business entities) or made available for issuance
(other entities). Our company adopted this pronouncement.
In
June 2014, FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718); Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”.
The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms
of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The
amendments require that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards
with performance conditions that affect vesting to account for such awards. For all entities, the amendments in this ASU are effective
for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted.
Entities may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date
or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual
period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted,
the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements
should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition
is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This updated guidance is not expected
to have a material impact on our results of operations, cash flows or financial condition.
In
August 2014, the FASB issued ASU 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) –
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance
in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability
to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance.
In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments
require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain
principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial
doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the
mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result
of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is
not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued
(or available to be issued).
All
other newly issued accounting pronouncements which are not yet effective have been deemed either immaterial or not applicable.
We
reviewed all other recently issued accounting pronouncements and determined these have no current applicability to the Company
or their effect on the financial statements would not have been significant.
3.
GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown
in the accompanying consolidated financial statements, the Company has incurred a net loss of $590,059 for the year ended December
31, 2017, and has an accumulated deficit of $5,970,024 as at December 31, 2017.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is
significantly dependent upon its ability, and will continue to attempt, to secure equity and/or additional debt financing. There
are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to
continue as a going concern.
The
audited consolidated financial statements do not include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue
in existence. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These
audited consolidated financial statements do not include any adjustments that might arise from this uncertainty.
4.
INVENTORIES
No
inventories were recorded as of December 31, 2017 and 2016.
5.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment at December 31, 2017 and December 31, 2016, consisted of:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Computers
|
|
$
|
15,986
|
|
|
$
|
15,986
|
|
Freezers
|
|
|
39,153
|
|
|
|
39,153
|
|
Office Furniture
|
|
|
15,687
|
|
|
|
15,687
|
|
Rugs
|
|
|
6,000
|
|
|
|
6,000
|
|
Software - Accounting
|
|
|
2,901
|
|
|
|
2,901
|
|
Telephone System
|
|
|
5,814
|
|
|
|
5,814
|
|
Video Camera
|
|
|
1,528
|
|
|
|
1,528
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
(59,225
|
)
|
|
|
(55,231
|
)
|
|
|
|
|
|
|
|
|
|
Net Book Value
|
|
$
|
27,843
|
|
|
$
|
31,838
|
|
Depreciation
expense for the year ended December 31, 2017 was $3,995 compared to $3,993 for the same period of December 31, 2016.
6.
ACCRUED EXPENSE
As
of December 31, 2017, the Company had accrued expenses of $332,503 compared to $231,060 for the year ended December 31, 2016.
7.
INCOME TAX
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under
this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse.
8.
RELATED PARTY TRANSACTIONS
The
following table presents a summary of the Company’s promissory notes issued to related parties as of December 31, 2017:
Noteholder
|
|
Note
Amount
|
|
|
Issuance
Date
|
|
Unpaid
Amount
|
|
S. Masjedi
|
|
$
|
150,000
|
|
|
12/10/2010
|
|
$
|
122,692
|
|
A. Masjedi
|
|
|
500,000
|
|
|
6/1/2013
|
|
|
231,067
|
|
M. Shenkman
|
|
|
10,000
|
|
|
2/21/2012
|
|
|
10,000
|
|
M. Shenkman
|
|
|
10,000
|
|
|
2/23/2102
|
|
|
10,000
|
|
M. Shenkman
|
|
|
10,000
|
|
|
3/14/2013
|
|
|
6,000
|
|
M. Shenkman
|
|
|
16,000
|
|
|
9/9/2014
|
|
|
16,000
|
|
Total
|
|
$
|
696,000
|
|
|
|
|
$
|
395,759
|
|
The
following description represent note payable-related party transaction pre-Share Exchange that were assumed by the Company as
a condition to the Share Exchange:
In
January 2011, MGD, which is now a majority owned subsidiary of Snöbar Holdings , entered into an unsecured promissory note
with Mrs. Masjedi, who is now the Company’s President, Chief Executive Officer, Interim Chief Financial Officer, director
and majority stockholder. The note had a principal balance of $150,000 with an interest rate of 3% and has a maturity date of
December 31, 2020. Interest under the note was extinguished in a subsequent extension of the term of the note. The balance of
the note at December 31, 2017 was $122,692.
On
February 21, 2012, Snöbar Holdings entered into an unsecured promissory note with Mr. Shenkman, who is Chairman of the Board
of Directors and a shareholder of the Company. The note had a principal balance of $10,000 with an interest rate of 5% and is
due on demand. The note’s maturity date has subsequently been extended to December 31, 2020. Interest against the note was
extinguished in a subsequent extension of the term. The note had a principal balance of $10,000 as of December 31, 2017.
On
February 23, 2012, Snöbar Holdings entered into a promissory note with Mr. Shenkman for $10,000, maturing in one year at
an interest of 8%. The note has subsequently been extended to December 31, 2020. Interest under the note was extinguished in a
subsequent extension of the term. The note had an outstanding balance of $10,000 as of December 31, 2017.
On
March 14, 2013, Snöbar Holdings entered into an unsecured promissory note with a Mr. Shenkman, the Company’s Chairman
of the Board of Directors. The note had a principal balance of $10,000 with an interest rate of 5% and an original maturity date
of March 14, 2014, subsequently extended to December 31, 2020 with a lower interest rate of 2%/year. Mr. Shenkman also agreed
to make all interest retroactive and deferred. The note had an outstanding balance of $6,000 as of December 31, 2017.
On
June 1, 2013, Snöbar Holdings entered into a promissory note with Azizolla Masjedi, father-in-law to Shannon Masjedi who’s
the Company’s President, Chief Executive Officer, Interim Chief Financial Officer, director and majority stockholder, in
an amount of $500,000 to purchase all the shares and interests of IPIC. The note matured on June 31, 2017. As of December 31,
2017, the outstanding balance under this note was $231,067, which includes interest and penalty charges.
On
September 9, 2014, Snöbar Holdings entered into a second unsecured promissory note with Mr. Shenkman, through his affiliate
company Entrust Group for a total amount of $6,000 and a third unsecured promissory note for a total amount of $10,000, both at
an annual interest rate of 2%. No term was provided for in each note, but Mr. Shenkman has agreed to a maturity date of December
31, 2020 and the accrual of interest rates and deferral to maturity. The notes had an aggregate outstanding balance of $16,000
as of December 31, 2017.
As
of December 31, 2017, the Company had related party current and long-term notes payable of $353,759 and $42,000, respectively.
9.
NOTES PAYABLE
The
following table presents a summary of the Company’s promissory notes issued to unrelated third parties as of December 31,
2017:
|
|
Note
Amount
|
|
|
Issuance
Date
|
|
Unpaid
Amount
|
|
|
|
$
|
10,000
|
|
|
February 2014
|
|
$
|
1,000
|
|
|
|
|
272,500
|
|
|
9/30/2017
|
|
|
207,500
|
|
|
|
|
129,000
|
|
|
7/25/2017
|
|
|
129,000
|
|
|
|
|
75,000
|
|
|
7/12/2017
|
|
|
75,000
|
|
|
|
|
15,000
|
|
|
7/22/2013
|
|
|
15,000
|
|
|
|
|
86,821
|
|
|
3/14/2013
|
|
|
86,821
|
|
|
|
|
10,000
|
|
|
2/21/2014
|
|
|
10,000
|
|
|
|
|
30,000
|
|
|
2/1/2012
|
|
|
25,000
|
|
|
|
|
500,000
|
|
|
5/19/2014
|
|
|
175,000
|
|
|
|
|
44,414
|
|
|
5/1/2017
|
|
|
44,414
|
|
Total:
|
|
$
|
914,321
|
|
|
|
|
$
|
768,735
|
|
The
following description represent unrelated notes payable transactions pre-reverse merger between Snöbar and the Company that
were assumed by the Company as a condition to the Share Exchange Agreement:
In
February, 2012, MGD entered into an unsecured promissory note with a certain unrelated party, now a shareholder of the Company
for a principal balance of $30,000 at in interest rate of 8% per year and maturity date of August 1, 2014. The note’s maturity
date has been extended to December 31, 2020 and the interest rate under the extinguished as part of the extension. The note had
an outstanding balance of $25,000 as of December 31, 2017.
On
March 14, 2013, Snöbar Holdings entered into an unsecured promissory note with a certain unrelated third party, now a shareholder
of the Company. The note had a principal balance of $86,821 with an interest rate of 5% and had a maturity date of March 14, 2014.
The note’s maturity date has subsequently been extended to February 1, 2020. Interest under the note was extinguished in
a subsequent extension of the term. The note is current and the entire balance is owed and outstanding as of December 31, 2017.
On
July 22, 2013, Snöbar Holdings entered into an unsecured promissory note with a certain unrelated third party. The note had
a principal balance of $15,000 with an original interest rate of 5%. Maturity date has been extended to December 31, 2018, and
interest rate has been reduced to 2%, and lender agreed to make all interest retroactive and deferred. The balance of the note
was $15,000 as of December 31, 2017.
In
February 2014, MGD entered into a secured promissory note with a certain unrelated third party for $10,000. The note was secured
by interests in tangible and intangible property of MGD. The Company is to make payments of $181 each business day (Monday through
Friday) until the loan is paid off. The effective interest rate on the note is 137%. The outstanding balance of the note is $1,000
as of December 31, 2017.
On
May 19, 2014, Snöbar Holdings entered into a secured convertible promissory note with a principal balance of $500,000. The
note was secured by interests in cash, accounts receivable, other receivables, inventory, supplies, other assets of Snöbar
Holdings including general intangibles and rights of each liquor license owned by Snöbar Trust. The note has an interest
rate of 10% and an original maturity date of December 31, 2015. The Company was to make interest only payments beginning July
1, 2014. The lender determined Snöbar Holdings to be in default and on January 29, 2015, entered into a mutually agreed loan
modification. The agreement increased the principal balance of the note as of December 31, 2014 to $527,333 and all interest due
and payable was deemed to have been paid and the conversion rights of the note were removed. The modification also removed and
deleted, in its entirety, all secured interests in cash, accounts receivable, other receivables, inventory, supplies, and other
assets of Snöbar Holdings, including intangibles, and rights of each liquor license owned by Snöbar Trust. The maturity
date was December 31, 2015 if Snöbar Holdings is not in default, the maturity date of the note should automatically be extended
to December 31, 2016 (“First Extended Maturity Date”). Commencing on January 1, 2016, Snöbar Holdings was to
make monthly payments of $15,000 until the First Extended Maturity Date. Assuming Snöbar Holdings was not in default with
respect to its obligations as of the First Extended Maturity Date, the note would have automatically been extended to December
31, 2017 (“Second Extended Maturity Date”). Commencing on January 1, 2017, the monthly payments increased to $25,000
for every month until the Second Extended Maturity Date. All accrued but unpaid interest, charges and the remaining principal
balance of the note was fully due and payable on the Second Extended Maturity Date. In January of 2016 the company decided to
enter into renegotiation period for the repayment terms of the modification dated January 29, 2015. As a result of the renegotiation
with the note holder.
The
following description represents unrelated note payable transactions post-merger between Snöbar and the Company:
On
February 13, 2017, the Company entered a settlement agreement with one of its creditors for $527,333 of its long-term notes payable.
The agreement called for issuance of 400,000 restricted shares of the Company’s common stock and $200,000 in future cash
payment comprising of $25,000 on March 31, 2017, $25,000 on March 31, 2018, $25,000 on March 31, 2019, and $125,000 on March 31,
2020. As of March 10, 2017, the Company issued to the creditor, 400,000 restricted shares of the Company’s common stock,
and also paid the $25,000 for the required March 31, 2017 cash payment. The $25,000 payment due in 2018 was paid to JRSR26 on
March 1, 2018. The balance of the note as of December 31, 2017 is $175,000.
Effective
September 30, 2015, the Company entered into amended promissory notes with a certain unrelated third party in an amount of $272,500,
one for $172,500, and two others for $50,000 each. All of the notes have an interest rate of 8% and had a maturity date of August
13, 2017, but have been extended to November 15, 2017 for a fee of $15,000. The notes had a principal outstanding balance of $207,500
as of December 31, 2017.
In
September of 2017, the Company entered into a financing arrangement with a lending institution pursuant to which the Company borrowed
a principal of $129,000 secured by shares of the Company’s common stock.
On
July 12, 2017, the issued a Convertible Promissory Note to JSJ Investments Inc. for total gross proceeds of $75,000. The note
is convertible at any time after the issuance date, bears interest at 12% and matures on April 12, 2018.
As
of December 31, 2017, the Company had short-term notes payable of $456,914 and long-term notes payable of $311,821.
10.
STOCKHOLDERS’ EQUITY
Share
Exchange
On
August 14, 2015, Snöbar Holdings entered into the Share Exchange Agreement with the Company and Snöbar Holdings’
shareholders (the “Snöbar Shareholders”) who held of record (i) at least 99% and up to 100% of the total issued
and outstanding shares of Class A Common Stock and (ii) 100% of the total issued and outstanding shares of Class B Common Stock,
of Snöbar Holding. In accordance with the terms and provisions of the Share Exchange Agreement, the Company acquired all
of the issued and outstanding shares of Snöbar Holdings’ Class A and Class B Common Stock from Snöbar Shareholders,
with Snöbar Holdings becoming a wholly owned subsidiary of the Company, in exchange for the issuance to the Snöbar Shareholders
of 22,500,000 shares of restricted common stock of the Company and the issuance of 2,500,000 restricted shares of the Company’s
common stock to certain other persons (as set forth below).
The
2,500,000 restricted shares of the Company’s common stock were issued for the following: 600,000 shares were issued for
services for a total of $326,900 of non-cash expenses; a former officer of the Company received 1,000,000 shares in exchange for
his 1,000,000 shares of the Company’s Series E Preferred Stock; and 900,000 shares were issued to extinguish $21,675 of
debt due to a former officer and shareholder of the Company.
Common
Stock and Preferred Stock
The
Company is authorized to issue up to 10,000,000 shares of its preferred stock, $0.001 par value per share. Effective as of October
2016, the Company designated 1,000,000 shares of preferred stock as Series E Preferred Stock (the “Series E Preferred Stock”).
Under the rights, preferences and privileges of the Series E Preferred Stock, for every share of Series E Preferred Stock held,
the holder thereof has the voting rights equal to 10 shares of common stock. The Series E Preferred Stock is not convertible into
any class of stock of the Company and has no preferences to dividends or liquidation rights. As of December 31, 2017, and 2016,
there were 1,000,000 shares of Series E Preferred Stock issued and outstanding.
From
January 1, 2017 through December 31, 2017, the Company issued 2,849,551 shares of its common stock to various investors for cash
and other considerations.
From
January 1, 2017 through December 31, 2017, the Company issued 11,243,333 shares of its common stock and cancelled 4,960,000 shares
issued in the first quarter of 2017 fiscal year as a result of a failure to close an acquisition, resulting in a net issuance
of 9,132,884 (including converted 2,849,551 shares) for services and repayment of debt.
The
Company is authorized to issue up to 100,000,000 shares of its common stock, $0.001 par value per share. Holders of common stock
have one vote per share. As of December 31, 2017, and 2016, there were 36,430,248 and 27,297,364 shares of the Company’s
common stock issued and outstanding, respectively.
11.
COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES
Operating
Lease
The
Company is currently obligated under two operating leases for office spaces and associated building expenses. Both leases are
on a month-to-month basis at a monthly rate of $450 and $330, respectively.
12.
EQUITY INCENTIVE PLAN
On
November 3, 2017, the Company’s Board of Directors approved the Company’s 2017 Equity Incentive Plan (the “2017
Plan”), which reserves a total of 1,500,000 shares of the Company’s common stock for issuance under the 2017 Plan.
Incentive awards authorized under the 2017 Plan include, but are not limited to, incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, subject to the approval of the 2017 Plan by the Company’s
stockholders. If an incentive award granted under the 2017 Plan expires, terminates, is unexercised or is forfeited, or if any
shares are surrendered to us in connection with the exercise of an incentive award, the shares subject to such award and the surrendered
shares will become available for further awards under the 2017 Plan. All of the shares under the 2017 Plan were registered in
the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on November 21, 2017
(the “Form S-8”).
In
December 2017, the Company issued 1,240,000 shares of its common stock under the 2017 Plan and pursuant to the Form S-8 to a certain
consultant in settlement of amounts owed by the Company for services provided by such consultant. As of December 31, 2017, other
than such issuance, no other awards or shares of the Company’s common stock have been issued under the 2017 Plan.
13. SUBSEQUENT EVENTS
ASC
855-16-50-4 establishes accounting and disclosure requirements for subsequent events. ASC 855 details the period after the balance
sheet date during which we should evaluate events or transactions that occur for potential recognition or disclosure in the financial
statements, the circumstances under which we should recognize events or transactions occurring after the balance sheet date in
its financial statements and the required disclosures for such events.
The
Company has evaluated all subsequent events through the date these consolidated financial statements were issued, and determined
the following are material to disclose.
On
January 31, 2018, the Company entered into an Asset Purchase Agreement (the “APA”) with Royalty Foods, LLC, a Nevada
limited liability corporation and wholly owned subsidiary of the Company (“Royalty Foods”), and San Diego Farmers
Outlet, Inc., a California corporation (“SDFO”). Pursuant to the APA, at the closing of the transactions contemplated
therein (the “Closing”), Royalty Foods agreed to acquire substantially all of the operating assets and assume certain
liabilities of SDFO (the “Asset Purchase”). SDFO is a wholesale and retail seller of fresh produce, groceries, meals,
food and other food-related goods. SDFO was founded in 2002 and is located in San Diego, California.
The
Closing is subject to various closing conditions, including, among others, SDFO’s material performance or compliance with
obligations and covenants required by the APA, SDFO’s delivery to the Company and the Company’s satisfaction upon
review of certain due diligence items, the Company successfully securing financing to complete the Asset Purchase (the “Financing”),
and SDFO’s execution of Ancillary Agreements (as defined below). At Closing, upon satisfaction of each of the closing conditions
set forth in the Agreement, Royalty Foods agreed to acquire those properties, rights, contracts, claims and assets of SDFO (defined
in the Agreement as the “Transferred Assets”), and assume certain liabilities of SDFO (defined in the Agreement as
the “Assumed Liabilities”). The total consideration to be paid by the Company to SDFO under the APA is $1,050,000
in cash, subject to inventory, accounts payable, accounts receivable and other true-up adjustments as set forth in the APA.
There
can be no assurance that the Financing and the Asset Purchase will be consummated or as to the date by which the Asset Purchase
may be consummated, if at all.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following plan of operation provides information which management believes is relevant to an assessment and understanding of our
results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto.
This section includes a number of forward-looking statements that reflect our current views with respect to future events and
financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend,
project and similar expressions, or words which refer to future events. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially from our predictions.
Plan
of Operations
Pacific
Ventures’ current structure was as a result of a reverse merger with Snöbar Holdings, Inc. (“Snöbar”)
through a share exchange (the “Share Exchange”). As the result of the share exchange, Pacific Ventures became the
holding company for Snöbar Holdings, Inc. and its affiliates and subsidiaries comprising Snöbar
Trust
(“Trust”), International Production Impex Corporation (“IPIC”)
, and MAS Global Distributors, Inc.
(“MGD”).
Prior
to the Share Exchange, Pacific Ventures, which was incorporated under the laws of the State of Delaware on October 3, 1986, operated
as an insurance holding company and through its subsidiaries, marketed and underwrote specialized property and casualty coverage
in the general aviation insurance marketplace. However, in 1997, after selling several of its divisions, the Company’s remaining
insurance operations were placed into receivership and the Company ceased operating its insurance business.
As
the result of the Share Exchange, Pacific Ventures became the holding company for Snöbar Holdings, Inc. and its affiliates
and subsidiaries comprising Snöbar
Trust (“Trust”), International Production
Impex Corporation (“IPIC”)
, and MAS Global Distributors, Inc. (“MGD”).
Since
the Share Exchange represented a change in control of the Company and a change in business operations, the business operations
changed to that of Snöbar Holdings and the discussions of business operations accompanying this filing are solely that of
Snöbar Holdings and its affiliates and subsidiaries comprising of Snöbar
Trust
,
IPIC, and MGD.
The
following discussion highlights Pacific Ventures’ results of operations and the principal factors that have affected our
financial condition as well as our liquidity and capital resources for the periods described and provides information that management
believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented
herein. The following discussion and analysis are based on Pacific Ventures’ audited Financial Report, which we have prepared
in accordance with United States generally accepted accounting principles. You should read this discussion and analysis together
with such financial statements and the related notes thereto.
Overview
As
a result of the Share Exchange, Pacific Ventures through its subsidiaries and affiliates of Snöbar, IPIC and MGD, offers
solutions within the food, beverage, alcohol and hospitality industries. The Company is the trustor and beneficiary of the Trust.
The Trust owns all of the interests of IPIC. IPIC holds the rights of the liquor licenses to sell alcohol-infused ice cream and
ice-pops products and trade names Snöbar. IPIC is a food and beverage, alcohol distribution company that is engaged in marketing
products, such as Snöbar alcohol infused ice pops, and Snöbar alcohol infused ice cream and sorbet. The Snöbar
ice pops are frozen alcohol beverage bars, similar to popsicles on a stick, but made with liquor, such as tequila and vodka. Snöbar
ice pops are manufactured in approximately three flavors: Margarita, Cosmopolitan and Mojito. Snöbar ice creams are ice cream
and sorbets that are distilled spirit cocktails containing approximately 15% liqueurs and liquors.
The
alcohol beverage and dessert industries are extremely innovative and continuously add new and original products. IPIC has determined
that capturing even a small portion of these markets would surpass the initial production capabilities of the SnöBar products
and provide a platform for exponential growth nationally and internationally. The offering of SnöBar alcohol-infused ice
cream and ice pop products worldwide seeks to take advantage of the success of the worldwide alcohol beverage market and the thriving
frozen desserts market.
Overview
2016 ―
During the 2016 fiscal year, the Company confronted significant challenges in the delivery of their products
and services, primarily as a consequence of changing merchandising and customer preferences for online purchases. Additionally,
the Company’s primary vendors changed policies with respect to minimum orders, delivery times and prepayments. The Company’s
management observes that shortfalls in investment and financial funding have not been resourced sufficiently to meet sometimes
compressed delivery requirements. Additional funding has also been unavailable to pursue additional geographic markets, both domestic
and international.
Overview
2017 ―
During 2017, the South Carolina distributor expanded the account base for SnöBar and has many successful
placements for the brand. Furthermore, additional funding has also been unavailable to pursue additional geographic markets, both
domestic and international. The Company continued development of the Snöbar Product Line with the goal to fulfill the current
orders that the brand has in hand from the Company’s distributor in South Carolina as well as from other accounts. In addition,
the Company further continued with its strategy of selectively pursue strategic acquisitions in its industry and related industries,
culminating in the execution of the Asset Purchase Agreement with San Diego Farmers Outlet, Inc. The Company is currently working
on satisfying the closing conditions under the Asset Purchase Agreement, including obtaining the necessary Financing, and hope
to close the transaction during the fourth quarter of 2018. There can be no assurance, however, that the Financing and the asset
acquisition will be consummated or as to the date by which the asset acquisition may be consummated, if at all.
Strategy
The
general marketing strategy is for the SnöBar products to be sold to high-end restaurants, resorts, cruise lines and hotels
worldwide. Additionally, various celebrity branding and product endorsements are currently being explored. Initially, the focus
will be on establishing major accounts in four core markets consisting of Southern California, Phoenix, Las Vegas and Miami. The
larger vision is to sell products in grocery stores such as Kroger, Wal-Mart and others, and thereafter to begin a national marketing
program to all U.S. retailers. It is essentially a top down marketing plan where products are placed with the largest retailer
then trickle down to the smallest seller in each market area. We intend to raise additional capital through the issuance of equity
and/or debt securities in order to finance our growth and expansion of distribution.
Plan
of Operations for the Next Twelve Months
Pacific
Ventures will need approximately $500,000 to sustain operations for the next 12 months. Our plan is to achieve meaningful sales
revenue from the sale of the SnöBar products to meet our operating needs. However, it is very likely that we will not be
able to increase our sale revenue sufficiently to meet these needs in time. It is also unlikely that we will be able to satisfy
all of our obligations to pay interest and repay principal in the estimated aggregate amount of $570,800 due and payable within
the next 12 months under the various forms of our outstanding debt. Although we have been able to extend the maturity dates as
well as repayment terms of a substantial amount of such debt, there is no assurance that we 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 we are 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 us, we 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 our operations. Our 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 we will be successful,
which would in turn significantly affect our ability to be successful in our new business plan. If not, we will likely be required
to reduce operations or liquidate assets. We will continue to evaluate our projected expenditures relative to our available cash
and to seek additional means of financing in order to satisfy our working capital and other cash requirements.
As
of the date of this Prospectus, 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 San Diego Farmers Outlet (SDFO) acquisition has increased sales of its wholesale business, and still plan on expanding
our current delivery territory from 25 miles to a 40-mile radius. SDFO is also in the process of obtaining 2 new delivery trucks
to add to the current fleet of trucks. The Company has begun marketing to new restaurants in the area, most notably Asian and
Italian restaurants, and have let restaurants know that SDFO can deliver the finest produce in market.
SDFO
installed new signage around the retail market, added additional landscaping to enhance the appearance of the market, and purchased
a new Point of Sale system to improve efficiency and ordering processes.
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.
Results
of Operations
Nine
months ended September 30, 2018, as Compared to Nine months Ended September 30, 2017
Revenues
―
The Company accrued $1,908,674 in Sales, net of discounts
for the nine months
ended September 30, 2018 as compared to $0 for the same period of September 30, 2017.
Operating
Expenses
―
Total operating expenses for the nine months ended September 30, 2018
were $1,157,226 as compared to $341,417 in the same period in, 2017, due to increased operating activities during the period ended
September 30, 2018, and an increase in general and administrative expenses, marketing and advertising and professional fees.
Selling,
General and Administrative Expenses ―
Selling, general and administrative expenses
for
the nine months ended September 30, 2018 increased to $484,996 from $
296,676 in the same period in 2017
,
which was due to an increase in marketing and business development expenses and professional fees
. The amount excludes
salaries and wages expenses.
Marketing
and Advertising Expenses –
Marketing and advertising expenses
for the nine months
ended September 30, 2018 was $93,474 which includes marketing and business development expenses
.
Professional
fees
– Professional fees expenses for the nine months ended September 30, 2018 was $388,298, which includes accounting,
legal fees and consulting services.
Depreciation
Expense ―
Depreciation expense for
the nine months ended September 30, 2018 and
2017 was $11,227 and $2,997, respectively.
Salaries
and Wages ―
Salaries and wages expense for
the nine months ended September 30,
2018 was $179,230 as compared to $6,437 for the prior same period. The decrease was due to cost cutting measures implemented previously
that froze compensation accrual for senior management. This action was primarily responsible for the reduction compensation of
staff during the period under review.
Net
Loss ―
Net loss for
nine months ended September 30, 2018 was $1,048,559, as
compared
to net loss of $
353,758 for the nine months ended September 30, 2017,
which was primarily
due to increase in operating expenses,
marketing and business development expenses and professional
fees.
Year
ended December 31, 2017, as compared to the year ended December 31, 2017
Revenues
and Cost of Goods Sold.
We generate our revenues from
the domestic and international
sales of SnöBar ice creams and ice pops of
IPIC, which is owned by the Trust. Revenue
for the fiscal year ended December 31, 2017 declined to $0 from $2,743 during the comparable period reflecting significant financial
constraints caused by changes in vendor requirements, mandatory changes in operations and logistics, and delays associated with
completion of online sales platform, for a net decrease of $2,743.
Cost
of goods sold is comprised of production costs, shipping and handling and handling costs. For the fiscal year ended December 31,
2017, we had costs of goods sold of $0, as compared to $2,020 in the comparable period ended December 31, 2016. The percentage
of COGS against sales was for from 42.4%in to 0% in the fiscal year ended December 31, 2017.
Operating
Expenses.
Our SG&A expenses consist of sales and marketing, professional services,
rents, and general office expenses (including wages for non-officer personnel). During the fiscal year ended December 31, 2017
our SG&A expenses increased to $463,749 from $358,007 in the comparable prior period, an increase of $105,742. These increases
were the result of increases in general office expenses of $34,693, professional services increasing $147,302 between the fiscal
year periods ended December 31, 2016 and 2017. Depreciation expenses remained the same between fiscal year periods as no depreciable
assets were added. Executive salaries decreased from $11,845 during December 31, 2016 to $6,437 during December 31, 2017, the
direct consequence of non-accruing deferrals from our owners and senior executives.
Total
operating expenses for the fiscal year ended December 31, 2017 were $486,988, representing an increase of $113,430, as compared
to $358,007 for the comparable prior period ended December 31, 2016.
Other
Non-Operating Income and Expenses
.
N
on-operating expenses for the fiscal year
ended December 31, 2017 were $103,071, consisting of $124,963 in interest expense and an extraordinary items of $21,891 compared
to a loss of $119,640, consisting of interest expense of $32,063 and an extraordinary item gain of $87,577, respectively, in the
comparable prior period ended December 31, 2016
.
Net
Loss.
Net loss for the fiscal year ended December 31, 2017 was $590,059, an increase
of $99,316 from $490,743 in the comparable prior period ended December 31, 2016.
Financial
Condition, Liquidity and Capital Resources
As
of
September 30, 2018
, the Company had a working capital deficit of $1,131,089, consisting
of current assets of $
419,214 in cash
and cash equivalents, accounts receivable of
164,237, inventory of $162,326, other current assets of $1,600 and deposits of $1,500. Current liabilities consist of accounts
payable $
501,447
, accrued expenses of $
393,804,
$
895,719
in the current portion of notes payable, and $88,896 in the current
portion of leases payable.
For
the nine months period ended September 30, 2018, the Company used $
1,084,797
of cash
in operating activities, used $1,103,439 of cash in investing activities and obtained cash of $2,607,379 from financing activities,
resulting in an increase in total cash of $
419,143
and a balance of $419,214 for
the period.
Total
current assets as of September 30, 2018 were
$748,877
, while current liabilities
for the nine months period ended September 30, 2018 were $1,879,966. The Company has incurred an operating loss of $1,048,559
for the nine months period ended September 30, 2018, largely due the increase in operating expenses and increase in salaries and
wages expenses, marketing and business development expenses and professional fees. During the nine months period ended September
30, 2018, the Company had an accumulated deficit of $7,023,467. These factors raise substantial doubt about our ability to continue
as a going concern.
Changes
in the composition of our Notes Payable and Notes Payable-Related Parties are presented in the table below:
|
|
As
of Sept 30,
2018
|
|
|
As
of December 31,
2017
|
|
|
|
$
Current
|
|
|
$
Long-Term
|
|
|
$
Current
|
|
|
$
Long
Term
|
|
Notes
Payable
|
|
|
646,199
|
|
|
|
2,286,821
|
|
|
|
456,914
|
|
|
|
311,821
|
|
Notes
Payable - Related
|
|
|
249,520
|
|
|
|
42,000
|
|
|
|
353,759
|
|
|
|
42,000
|
|
|
|
$
|
895,719
|
|
|
$
|
2,328,821
|
|
|
$
|
810,673
|
|
|
$
|
353,821
|
|
Total
Notes Payable for related and unrelated parties increased by $
2,060,046
from the
fiscal year ended December 31, 2017 from $1,164,494 to $3,224,540 in nine months period ended September 30, 2018.
As
of September 30, 2018, total stockholders’ equity deficit increased to $2,282,655 from $
1,632,080
as of December 31, 2017. Accumulated deficit increased from $
5,970,024
in
the fiscal year ended December 31, 2017 to $
7,023,467
for the nine months period
ended September 30, 2018.
As
of September 30, 2018, the Company had $419,214 in cash to fund our 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 operations. 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.
Fiscal
years ended December 31, 2017 and 2016
As
of December 31, 2017, we had a working capital deficit of $1,306,103comprised of $69 in cash, $6,589 of accounts receivable, and
$1,500 in deposits which were offset by accounts payable of $171,085, $332,503 in accrued expenses, $456,914 in current notes
payable, $353,759 in current note payable to a related party. For the fiscal year ended December 31, 2017 we used $512,034 in
operating activities. Cash provided in financing activities totaled $486,820, consisting of $465,914 in proceeds from notes payable,
$534,196 in the sale of common stock, $747 in proceeds from related party notes payable. In the comparable prior period in 2016,
we had a working capital deficit of $532,400 comprised of $23,284 in cash, $983 of accounts receivable, and $1,500 in deposits
offset by $177,475 in accounts payable, $213,060 in accrued expenses, $15,042 in deferred revenue, $26,510 in current portion
of notes payable, and $26,510 in current portion of notes payable to a related party. We used $559,194 in cash from operating
activities, and received $584,268 in financing activities, comprised of $10,000 in proceeds from notes payable, $261,577 proceeds
from notes payable related party, common stock sales of $361,976 and prior period adjustment of ($49,285).
Capital
Resources
Our
principal sources of liquidity to date have been cash generated by issuing new shares of the Company’s common stock and
cash generated from loans to us. Management estimates that the current funds on hand will be sufficient to continue operations
through December 31, 2018.
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. There can be given no assurances 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.
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.
Critical
Accounting Policies
Our
significant accounting policies are described in the notes to our financial statements for the year ended December 31, 2017 and
2016 and are included elsewhere in this prospectus.
Off-Balance
Sheet Arrangements
As
of September 30, 2018, December 31, 2017 and 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii)
of Regulation S-K promulgated under the Securities Act of 1934.
DESCRIPTION
OF BUSINESS
Overview
Pacific
Ventures was incorporated under the laws of the State of Delaware on October 3, 1986, under the name AOA Corporation. On November
12, 1991, the Company changed its name to American Eagle Group, Inc. On October 22, 2012, the Company changed its name to Pacific
Ventures Group, Inc.
The
current structure of Pacific Ventures resulted from a share exchange with Snöbar Holdings, Inc. (“Snöbar”),which
was treated as a reverse merger for accounting purposes. On August 14, 2015, Pacific Ventures and its stockholders entered into
a share exchange agreement (the “Share Exchange Agreement”) with Snöbar Holdings, Inc. (“Snöbar Holdings”),
pursuant to which Pacific Ventures 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 Pacific Ventures’ common stock, while simultaneously
issuing 2,500,000 shares of Pacific Ventures’ restricted common stock to certain other persons, including for services provided
and to a former officer of the Company (the “Share Exchange”).As the result of the Share Exchange, Snöbar Holdings.
became Pacific Venture’s wholly owned operating subsidiary and the business of Snöbar Holdings became the Company’s
sole business operations, and Snöbar Holdings’ majority owned subsidiary, MAS Global Distributors, Inc., a California
corporation (“MGD”),became indirect subsidiary of Pacific Ventures.
Prior
to the Share Exchange, 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. However, in 1997, after selling several
of its divisions, the Company’s remaining insurance operations were placed into receivership and the Company ceased operating
its insurance business.
Since
the Share Exchange represented a change in control of the Company and a change in business operations, the business operations
changed to that of Snöbar Holdings and the discussions of business operations accompanying this filing are solely that of
Snöbar Holdings and its affiliates and subsidiaries comprising of Snöbar
Trust
,
IPIC, and MGD.
Snöbar
Holdings was formed under the laws of the State of Delaware on January 7, 2013.
Snöbar
Holdings is the trustor and sole beneficiary of
Snöbar
Trust, a California
trust (“Trust”), which was formed in June 1, 2013. The current trustee that holds legal title to the Trust is Clark
Rutledge, who is the father of Shannon Masjedi, who is the Company’s President, Chief Executive Officer, Interim Chief Financial
Officer, Treasurer, Secretary and majority stockholder
.
The Trust owns 100% of
the shares of 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”. As such,
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”). MGD is in the business
of selling and leasing freezers and providing
marketing
services. As a result of the foregoing,
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.
The
Trust and IPIC are considered variable interest entities (“VIEs”) and Snöbar Holdings is identified as the primary
beneficiary of the Trust and IPIC. Under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”)
810, Snöbar Holdings performs ongoing reassessments of whether it is the primary beneficiary of a VIE. As the assessment
of Snöbar Holdings’ management is that Snöbar Holdings has the power to direct the activities of a VIE that most
significantly impact the VIE’s activities (it is responsible for establishing and operating IPIC), and the obligation to
absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that
could potentially be significant to the VIE’s economic performance, it was therefore concluded by management that Snöbar
Holdings is the primary beneficiary of the Trust and IPIC. As such, the Trust and IPIC were consolidated in the financial statements
of Snöbar Holdings since the inception of the Trust, in the case of the Trust, and since the inception of Snöbar Holdings,
in the case of IPIC.
On
June 12, 2017, the Company, entered into a Purchase and Sale Agreement to acquire Healthy Foods Markets LLC, a Carson, California
based healthy food and grocery retailer. The contemplated acquisition of the business was aimed at creating a fulfillment center
for the Sn
ö
bar
products and to create additional and immediate revenue and exposure for the Company. However, after further consideration and
additional due diligence review of the target businesses, the Company determined to rescind the transaction and the related purchase
agreements.
Our
principal executive office is located at 117 West 9th Street, Suite 316, Los Angeles, California. Our main telephone number is
(310) 392-5606.
Description
of Operations of Snöbar Holdings, Inc.
General
Snöbar
Holdings was incorporated in the state of Delaware on January 7, 2013. Snöbar Holdings is the trustor and sole beneficiary
of the Trust, which was formed in June 1, 2013. The trustee that holds legal title to the Trust is Clark Rutledge, who is the
father of Mrs. Masjedi, the Company’s President, Chief Executive Officer, Interim Chief Financial Officer, Treasurer, Secretary
and a director. The Trust owns 100% of the shares of IPIC, which was formed on August 2, 2001. 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. Snöbar Holdings also owns 99.9% of the shares of MGD. MGD is in the business of selling
and leasing freezers and providing marketing services. As a matter of law, IPIC may not be engaged in any business similar to
MGD. As a result of the foregoing, Snöbar Holdings is the beneficiary of all assets, liabilities and any income received
from the business of IPIC through the Trust and is the parent company of MGD.
IPIC
is a food, beverage and alcohol distribution company that 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.
What
makes the SnöBar products unique is the proprietary formulation and method of manufacturing. SnöBar ice pops and SnöBar
ice cream use a system to stabilize the alcohol molecule, whereby the alcohol content, quality and flavor is not degraded during
the production process. The technology is also applicable to other food and beverage products such as yogurt, water ice creations
and alcohol based goods. IPIC has begun the process of obtaining trade secret and other intellectual property protections as to
these unique technologies. The SnöBar brand is fully trademarked within the United States and is currently seeking worldwide
trademark rights.
SnöBar
brand products have been through extensive consumer testing across all age groups and sexes over 21 years of age. According to
the results of the consumer testing, there is a large untapped market potential for frozen alcohol desserts. Market research shows
that there are very few alcohol infused ice-creams and ice pops available in the U.S. markets and the few that are out there are
of lower quality ingredients and are not mass produced. IPIC holds several Federal and State granted liquor licenses. These licenses
allow the SnöBar product line to be introduced and distributed in 95% of the United States. IPIC desires to be the first
to mass market the SnöBar alcohol-infused products in this untapped and sizeable market segment and capitalize on these two
exclusive products. IPIC only uses the finest of ingredients and dairy to produce SnöBar products and strives to achieve
the highest quality of texture and taste for all of the SnöBar products. IPIC believes that the SnöBar brand has the
potential to scale on a national and international level with worldwide distribution capabilities.
To
date, 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” for further detail.
Market
The
alcohol and distilled spirits market, and ice cream markets have consistently exhibited year-over-year growth, and are projected
to continue this positive trend. Not only are these products a part of an expanding market segment, but they have been received
by a wide range of consumers who find them entertaining and enjoyable to consume. The alcohol beverage and dessert industries
are extremely innovative and continuously add new and original products. IPIC has determined that capturing even a small portion
of these markets would surpass the initial production capabilities of the SnöBar products and provide a platform for exponential
growth nationally and internationally.
In
2012, the SnöBar brand was introduced in the USA in the state of Arizona. The brand was extremely well received and was immediately
placed in the top chain stores and restaurants, resorts including Total Wine and the Bevmo Chains. Due to its multiple applications
and uses, the SnöBar alcohol infusing technology is used to create exotic and innovative cocktails and the most unique and
delicious desserts. SnöBar is one of the only few spirit brands that can offer incremental revenues and not compete with
other spirits currently on the market.
In
2013, the SnöBar brand was launched in Nevada. Immediately, the SnöBar products were in demand in all the major casinos
and resorts. The SnöBar brand joined forces with reputable hotels and resorts, including, but not limited to, the Bellagio,
Golden Nugget, Rio, Wynn, Encore, TAO, Caesars Palace, Hilton, The M and MGM. In Nevada, IPIC’s focus is to place the SnöBar
brand within all the venues of the hotels including catering and banquets, room service, retail outlets and nightclubs.
Immediately
following Nevada, the SnöBar brand was launched in the state of Florida, in cities including Miami, Tampa, Orlando, Jacksonville
and the panhandle. This expansion resulted in SnöBar products being offered by reputable hotels and resorts, including, but
not limited to, Ritz Carlton Hotel, Fountainbleau, Hilton, Waldorf Astoria and The Breakers Resort.
In
2014, the SnöBar brand was launched in California. Over 100 accounts with retailers for SnöBar products were established
in the 90 day period following the launch in California. The focus in California has been ensuring that the accounts are reordering
product and being serviced and supported properly. Currently, SnöBar products are being offered by Gelson’s Markets
and there has also been interest from other chains such as Ralph’s (Kroger) and Costco.
Walmart,
the largest retailer in the world, approved the SnöBar brand to be test marketed in a few stores in the Florida market. The
first store sold out of more than 10 cases of SnöBar products within the first two weeks prompting an 85 case reorder. After
a three month trial period, Walmart approved the expansion of SnöBar products in to more stores in the Florida market.
In
2015, the SnöBar brand was launched in North Carolina and South Carolina teaming up with a distributor who is well known
in the market place. The brand has been very well received within the market.
In
the first two months of 2015, IPIC restructured its approach to distribution of SnöBar products and scaled back the operating
expenditures by reducing its expenses. Most notably, SnöBar products are now distributed by a local food Distributor in the
California markets resulting in almost a 50% decrease in distribution expenses to IPIC.
On
March 16, 2015, IPIC entered into a contract that allows for exclusive rights to distribute SnöBar products. The contract
provides for a minimum of two years with options for extensions to distribute the SnöBar products in South Carolina.
In
2017, the South Carolina distributor expanded the account base for SnöBar and has many successful placements for the brand,
IPIC
continues to actively negotiate with other distributors, both nationally and internationally, for exportation or distribution
of SnöBar products to various territories.
Ice
Cream and Ice Pops
While
the majority of ice cream sales have long been regular-fat products, ice cream manufacturers continue to diversify their lines
of frozen desserts in order to fit into various lifestyles. However, most consumers are looking for an indulgence when eating
ice creams, which makes these products well situated with its ideal formula of two enjoyable products, ice cream and alcohol in
an affordable combination.
Alcohol
The
second ingredient in SnöBar ice cream and SnöBar ice pops is alcohol. The U.S. beverage alcohol market is over $400
billion according to The Distilled Spirits Council of the United States. The SnöBar alcohol-infused ice cream and ice pop
products take advantage of the success of the thriving frozen desserts industry and the successful alcohol beverage industry,
making SnöBar ice cream and ice pop products a hybrid of uniqueness conducive to the consumer markets.
Opportunity
IPIC
has created a proprietary formula and the methodology and manufacturing technique to mass-produce alcohol-infused ice cream leveraging
production facilities, warehousing, distribution, and merchandising methods currently used for ice cream. Specifically, the proprietary
formulation and manufacturing method stabilize the alcohol molecules from interacting with ice crystals and milk proteins making
it possible to mass-produce a solid alcohol-infused ice cream that has a flavoring system of up to 15% distilled spirits. To date,
SnöBar ice cream is one of the only products of its kind in the U.S.
The
original invention of these frozen alcohol desserts follows the same recipes used by America’s finest bars and restaurants.
The SnöBar products are distilled spirit cocktails that contain up to 15%quality liqueurs and liquors. What makes liquor
ice cream and sorbet different is that the product is solid just like regular ice cream, not semi-soft or in a milk shake consistency
like one would find at bars and restaurants: These products are ready-to-eat solid or can be blended into a cocktail. While SnöBar
products look like ice cream and frozen popsicles, the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”)
and Food and Drug Administration (“FDA”) have classified SnöBar ice cream and SnöBar pops as distilled spirits
due to the alcohol content.
Female
consumers have generally been high consumers of the dessert market; consequently, males have been the greater consumer of alcohol.
The primary target market for these two products is adult women 21 to 45. An alcoholic-infused ice cream drink would appear to
combine the best of both worlds for the female consumer. Of course, to a large degree the market for frozen alcohol desserts includes
all adults, excluding those who have dietary, medical, or social/religious concerns. This presents an opportunity for a new innovative
product that specifically addresses both females and males.
IPIC
will market and promote the SnöBar brand utilizing a proprietary manufacturing and freezing method where the alcohol content
and flavor is not degraded during the production process. SnöBar ice pops are frozen beverage alcohol bars, similar to a
popsicle on a stick, and are currently manufactured in three flavors; Margarita, Cosmopolitan, and Mojito. Both recipes include
premium liquors of blue agave tequila and vodka, however, the alcohol freezing technology 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.
While
SnöBar popsicles are included in the frozen dessert and alcohol beverage category, initially sales are expected to be driven
mostly by on-premise accounts. While a core-target audience of females 21 to 65 years old have been highly accepting and positive
regarding the product, our market studies show that the actual acceptance band of the product is much wider, and that if cost
is not a purchase condition, most people of drinking age will try one or more.
With
a confidential/proprietary formula and exclusive manufacturing process, coupled with a focused launch and national distribution
network, IPIC strives to be the first to market in this unique segment and capitalize on a revolutionary product.
Strategy
The
current marketing strategy is to sell products to high-end restaurants, resorts, cruise lines and hotels. Additionally, various
celebrity branding and product endorsements are currently being explored. Initially, IPIC will focus on major accounts in four
core markets consisting of Southern California, Phoenix, Las Vegas and Miami. The larger vision is to sell products in grocery
stores such as Kroger, Wal-Mart and others, and thereafter to begin a national marketing program to all U.S. retailers. It is
essentially a top down marketing plan where products are placed with the largest retailer then trickle down to the smallest seller
in each market area.
The
fact that SnöBar products are unique and exclusive, allows SnöBar to bring new consumers and revenue to our vendors,
hence creating incremental growth in their overall sales. A national direct mail campaign to liquor retailers and leading food
service operators will support these efforts. By SnöBar creating a new vehicle for distilled spirits, many consumers will
be tasting liqueurs and liquors for the first time, and in the very favorable mixed medium of premium ice cream.
The
initial target market for SnöBar popsicles consists of bars, night clubs, restaurants, resorts, hotels, event banquet and
catering firms, and cruise lines. Negotiations are currently underway with several more Las Vegas resorts and a major cruise line
to initially launch the SnöBar products. Heavy attention will also be given to consumer and trade shows in the beverage industry
to provide exposure and sampling as well as to enlist new accounts. IPIC intends to provide SnöBar products to more major
groceries stores at a later date.
At
the outset, the target consumer is 21 to 45-year old’s, predominately females that frequent restaurants, bars, and events
on a regular basis. While the consumer demographic is predominantly female, the slight majority of the purchasers are male for
female consumption. Our marketing studies and strategy have identified these trends and structured promotional efforts accordingly.
IPIC will coordinate and oversee all out-sourced brand awareness and public relations activities. Many of the strategies used
will be replications of the past successes experienced by management and other similar demographically-oriented products.
MAS
Global Distributors, Inc., a California corporation (“MGD”), formed in December 14, 2010, a majority owned subsidiary
of Snöbar Holdings, is the sole marketer for SnöBar ice cream and SnöBar ice pops.MGD handles all the marketing
and promotional aspect for the SnöBar product line.
Seasonality
While
it is anticipated that SnöBar ice cream will be consumed year round with special holiday flavors and promotions planned,
it is anticipated that SnöBar consumption will be strong in warm climates, specialty venues, cruise lines, resorts, and of
course seasonal occasions.
Raw
Materials and Other Supplies
The
principal raw materials for the production, storage and aging of distilled products are primarily corn and other grains for whiskies
and other spirits, agave for tequila, molasses for rum, grapes for cognac, sticks for the popsicles and milk and other dairy products
for the ice cream. IPIC does not currently have any long-term supply agreements with third-party suppliers for the purchase of
any of raw materials used in our products. From time to time, these raw materials are affected by weather and other forces that
may impact production and quality, and, ultimately, their price.
Manufacturing
Due
to the confidentiality of the SnöBar ice cream and SnöBar formulas and manufacturing processes, IPIC has established
a manufacturing agreement with a large frozen dessert manufacturer and packer in Southern California that is large enough to meet
initial and all anticipated future demand for the SnöBar brands. The co-packing facility can scale to handle worldwide demand
of the SnöBar products. The co-packing facility currently manufactures for such retailers as Trader Joes and Whole Foods.
Inventory
IPIC
maintains inventory of SnöBar products with the third-party manufacturer/co-packer of its ice-pops and ice creams, as well
as with third-party distributors of its products. IPIC’s products that are in inventory may be subject to spoliation, theft,
or other hazards that could adversely affect the financial condition, results of operations or business of IPIC. While IPIC tries
to take precautions to prevent such occurrences, the ice pops, in particular, require refrigeration to a certain temperature that
if not maintained can cause the degradation in the products consistency. Ultimate end consumers may not maintain their freezers
at the required temperatures which may cause them to believe that their ice-pops have partially melted and therefore they may
return the ice-pops, requiring IPIC to reimburse its distributors and take such product back in to inventory for possible disposal.
No assurance can be given that individual consumers will be educated in the proper freezing requirements of the SnöBar products.
Distribution
In
order to scale distribution, SnöBar will partner with more food, beverage and alcohol distributors. The SnöBar products
are primarily sold through direct sales forces to distributors. The product delivery will occur through frozen distribution channels.
Transportation of the product from the manufacturing facility to customers will be handled by third parties contracted by IPIC.
IPIC is utilizing frozen warehouse facilities in Los Angeles and Phoenix, and accounts in Las Vegas and Miami will be shipped
directly to the distributor.
In
addition, IPIC may sell the SnöBar products through joint ventures with and global or regional duty-free customers. IPIC
may also sell the SnöBar products through governmental liquor authorities in jurisdictions where aspects of the purchase
and distribution of products that contain alcohol are under government control. Examples of such authorities are the eighteen
“control” states (and one county) in the United States and the Liquor Control Boards in Canada.
Trademarks
IPIC
sells the SnöBar products under a number of trademarks, brand names and trade names that are important to its continued success.
The SnöBar brand is fully trademarked within the United States. IPIC’s business could be adversely affected by the
loss of any major brand or by material infringement of its intellectual property rights. The SnöBar products are also subject
to intellectual property risks because existing trademark laws offer only limited protection, and the laws of some countries in
which the SnöBar products are or may be developed, manufactured or sold may not fully protect the SnöBar products from
infringement by others.
Competition
The
global distilled spirits industry is very competitive, and the dessert industry is very competitive. The SnöBar products
compete on the basis of product quality, brand image, price, service and innovation in response to consumer preferences. While
the industry is highly fragmented, major competitors on the alcohol-side of the business include Brown-Forman Corporation, Diageo
PLC, Beam, Inc., Pernod Ricard S.A., Bacardi Limited, Davide Campari Milano-S.P .A., Remy Cointreau S.A., and Constellation Brands,
Inc. and major competitors on the dessert-side of the business include such premium brands as HäagenDazs and Dreyer’s,
which are owned by Nestle and Ben and Jerry’s which is owned by Unilever.
Regulatory
Environment
The
production, storage, transportation, distribution and sale of the SnöBar products are subject to regulation by federal, state,
local and foreign authorities. Various countries and local jurisdictions prohibit or restrict the marketing or sale of products
containing alcohol in whole or in part.
The
Bureau of Alcohol, Tobacco, Firearms and Explosives regulates the U.S. spirits industry with respect to production, blending,
bottling, sales, advertising, and transportation of industry products. Also, each state in the United States regulates the advertising,
promotion, transportation, sale, and distribution of such products. Many of the key markets for IPIC’s business, distilled
spirits are subject to federal excise taxes and/or customs duties, as well as state/provincial, local and other taxes. Sales of
products containing alcohol could be adversely impacted by increases to excise tax rates, which are considered from time to time
by U.S. states and municipalities and in other key markets for IPIC’s business. The effect of any future excise tax increases
in any jurisdiction cannot be determined, but it is possible that any future excise tax increases could have an adverse effect
on IPIC’s business, financial condition and results of operations.
Environmental
Matters
IPIC
is subject to both U.S. and international laws and regulations relating to the protection of the environment. In the U.S., the
laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and Superfund
(the environmental program established in the Comprehensive Environmental Response, Compensation, and Liability Act to address
abandoned hazardous waste sites), which imposes joint and severable liability on each potentially responsible party.
Recent
Developments and Initiatives
On
January 31, 2018, the Company entered into an Asset Purchase Agreement (the “APA”) with Royalty Foods, LLC, a Nevada
limited liability corporation and wholly owned subsidiary of the Company (“Royalty Foods”), and San Diego Farmers
Outlet, Inc., a California corporation (“SDFO”). Pursuant to the APA, at the closing of the transactions contemplated
therein (the “Closing”), Royalty Foods will acquire substantially all of the operating assets and assume certain liabilities
of SDFO (the “SDFO Acquisition”). SDFO is a wholesale and retail seller of fresh produce, groceries, meals, food and
other food-related goods. SDFO was founded in 2002 and is located in San Diego, California.
The
Closing is subject to various closing conditions, including, among others, SDFO’s material performance or compliance with
obligations and covenants required by the APA, SDFO’s delivery to the Company and the Company’s satisfaction upon
review of certain due diligence items, the Company successfully securing financing to complete the SDFO Acquisition (the “Financing”),
and SDFO’s execution of Ancillary Agreements (as defined below). At Closing, upon satisfaction of each of the closing conditions
set forth in the APA, Royalty Foods shall acquire those properties, rights, contracts, claims and assets of SDFO (defined in the
APA as the “Transferred Assets”), and assume certain liabilities of SDFO (defined in the APA as the “Assumed
Liabilities”). The total consideration to be paid by the Company to SDFO in connection with the SDFO Acquisition will be
$1,050,000 in cash, subject to inventory, accounts payable, accounts receivable and other true-up adjustments as set forth in
the APA.
The
parties to the APA made certain representations, warranties, covenants and agreements that are customary for transactions of this
nature (including non-compete, non-solicitation of employees and no solicitation of an alternative transaction covenants), agreed
to certain indemnification terms as set forth in the APA and agreed to enter into certain agreements in connection with the SDFO
Acquisition (the “Ancillary Agreements”).
There
can be no assurance that the Financing and the SDFO Acquisition will be consummated or as to the date by which the SDFO Acquisition
may be consummated, if at all.
Employees
As
of December 31, 2017, Pacific Venture has one full time employee (CEO) who manages the affairs of the corporation. On an as needed
basis, the Company hires independent contractors to perform specific tasks related to the Company’s business interests.
Transfer
Agent
Our
stock transfer agent is VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598. Their telephone number is (503) 227 2950,
their fax number is (212) 828-8436, and their website is:
www.vstocktransfer.com
.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Officers
and Board of Directors
The
following individuals serve as executive officers and directors of Pacific Ventures as of March 28, 2018:
Name
|
|
Age
|
|
Positions
|
Shannon
Masjedi
(1)
|
|
44
|
|
President,
Chief Executive Officer, Interim Chief Financial Officer, Secretary and Director
|
Marc
Shenkman
|
|
55
|
|
Chairman
of the Board of Directors
|
|
(1)
|
In
October, 2017, Mrs. Masjedi was appointed as the Company’s Interim Chief Financial
Officer.
|
Marc
Shenkman
. Mr. Shenkman has served as a director of Snöbar Holdings since January 2013. From 2000 to present, Mr.
Shenkman worked as the President of Priority Financial Network. Priority Financial Network is a mortgage brokerage company. Mr.
Shenkman graduated from the University of Vermont with a Bachelor of Arts in Economics and a Bachelor of Arts in Political Science.
Mr. Shenkman brings knowledge and experience in the banking and financial industries. Mr. Shenkman does not hold, and has not
previously held, any directorships in any other reporting companies.
Shannon
Masjedi
. Mrs. Masjedi has served as a director and Chairman of the Board of Directors, Chief Executive Officer, President,
Vice President, Treasurer, Chief Financial Officer, Secretary of Snöbar Holdings since January 2013. From June 1, 2010 to
present, Mrs. Masjedi worked as a director of operations for IPIC, where she implemented all current operating platforms including
development of SnöBar product line, packaging and research and development and oversaw all day-to-day operations of IPIC
as well as managing all the contractors of IPIC. Mrs. Masjedi was in charge of all compliance and regulatory issues for IPIC and
obtained all necessary licenses for IPIC to distribute and export products worldwide.
Mrs.
Masjedi attended Arizona State University where she studied Aeronautical Technology. Mrs. Masjedi also attended flight school
and obtained her pilots license. Mrs. Masjedi has had extensive experience with creating the distribution platform for the SnöBar
product line in the alcohol industry. Her knowledge in the frozen ice cream category and alcohol category combined make her indispensible
to Pacific Ventures. Mrs. Masjedi has long standing relationships within these industries which allow Snöbar products to
be distributed efficiently.
Committees
of our Board of Directors
Our
securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and we are
not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include
“independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our
Board of Directors.
We
have not established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee, any committee
performing a similar function. The functions of those committees are being undertaken by Board of Directors as a whole. Because
we have only three directors, none of whom are independent, we believe that the establishment of these committees would be more
form over substance.
We
do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including
the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating
director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates
by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as
we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative
size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a
recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a
proposal is made, all members of our Board will participate in the consideration of director nominees. In considering a director
nominee, it is likely that our Board will consider the professional and/or educational background of any nominee with a view towards
how this person might bring a different viewpoint or experience to our Board.
None
of our directors is an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-K. In
general, an “audit committee financial expert” is an individual member of the audit committee or Board of Directors
who:
|
●
|
understands
generally U.S. GAAP and financial statements,
|
|
●
|
is
able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
|
|
●
|
has
experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our
financial statements,
|
|
●
|
understands
internal controls over financial reporting, and
|
|
●
|
understands
audit committee functions.
|
Family
Relationships
There
are no family relationships between or among any of our directors or executive officers or persons nominated or chosen by us to
become directors or executive officers.
Section
16(a) Compliance.
Section
16(a) of the Securities and Exchange Act of 1934 requires that directors and executive officers, and persons who own beneficially
more than ten percent (10%) of the Registrant’s Common Stock, to file reports of ownership and changes of ownership with
the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Registrant pursuant to
Section 16(a). Based solely on the reports received by the Registrant and on written representations from reporting persons, the
Registrant was informed that our CEO has filed reports as required under Section 16(a). Based solely on the reports received by
the Registrant and on written representations from reporting persons, the Registrant was informed that its officers and directors
have not filed all reports as required under Section 16(a).
NASDAQ
Rule 4200.
The
NASDAQ Rule 4200, which sets forth several tests to determine whether a director of a listed company is independent. Rule 4200
provides that a director would not be considered independent if the director or an immediate family member accepted any compensation
from the listed company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the
determination of independence (excluding compensation for board or board committee service, compensation paid to an immediate
family member as a non-executive employee, benefits paid under a tax-qualified retirement plan and non-discretionary compensation).
Director
Independence.
In
determining whether or not our directors are considered independent, the Company used the definition of independence as defined
in NASDAQ Rule 4200. Our board of directors has determined that neither of the members of our board of directors qualifies as
an “independent” director under Nasdaq’s definition of independence.
Directors’
Term of Office.
Our
directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until
removed from office in accordance with our bylaws. All directors listed above will remain in office until the next annual meeting
of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to
the election of Directors.
Compensation
of Directors
We
have not established standard compensation arrangements for our directors and the compensation payable to each individual for
their service on our Board is determined from time to time by our Board of Directors based upon the amount of time expended by
each of the directors on our behalf. During the 2017 fiscal year, none of our directors received any compensation specifically
for their services as a director.
Audit
Committee and Financial Expert, Compensation Committee, Nominations Committee.
We
do not have any of the above-mentioned standing committees because our corporate financial affairs and corporate governance are
simple in nature at this stage of development and each financial transaction is approved by our sole officer or director.
Potential
Conflicts of Interest.
Since
we do not have an audit or compensation committee comprised of independent Directors, the functions that would have been performed
by such committees are performed by our Board of Directors. Thus, there is a potential conflict of interest in that our Directors
have the authority to determine issues concerning management compensation, in essence their own, and audit issues that may affect
management decisions. We are not aware of any other conflicts of interest with any of our Executives or Directors.
Board’s
Role in Risk Oversight.
The
Board assesses on an ongoing basis the risks faced by the Company. These risks include financial, technological, competitive,
and operational risks. In addition, since the Company does not have an Audit Committee, the Board is also responsible for the
assessment and oversight of the Company’s financial risk exposures.
Involvement
in Certain Legal Proceedings.
Mrs.
Masjedi does not hold, and has not previously held, any directorships in any other reporting companies. In 2010, Mrs. Masjedi
filed for Chapter 7 personal bankruptcy, which was discharged in August 2011.
Mr.
Shenkman was a member of Raynol LLC which filed for Chapter 11 bankruptcy in May 2010, which bankruptcy was dismissed (not discharged)
in May 2012.
EXECUTIVE
COMPENSATION
The
following table sets forth certain compensation information for: (i) Pacific Ventures’ principal executive officer serving
in such capacity during fiscal years ended December 31, 2017 and 2016; (ii) our two most highly compensated executive officers
other than our principal executive officer who were serving as executive officers at December 31, 2017 and 2016; and (iii) up
to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving
as an executive officer at December 31, 2017 and 2016. Compensation information is shown for the fiscal years ended December 31,
2017 and 2016:
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($) *
|
|
|
Option
Awards
($) *
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bob
Smith, CEO
(1)
|
|
|
2017
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
2016
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Shannon
Masjedi, CEO
|
|
|
2017
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
2016
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
(1)
|
Mr.
Smith was terminated as CEO
in
March 2017.
|
Snöbar
Holdings
Compensation
The
following table sets forth certain compensation information for: (i)
Snöbar
Holdings
’ principal executive officer serving in such capacity during the fiscal years
ended December 31, 2017and 2016; (ii)
Snöbar Holdings
’ two most highly
compensated executive officers other than its principal executive officer who were serving as executive officers at December 31,
2017and 2016; and (iii) up to two additional individuals for whom disclosure would have been required but for the fact that the
individual was not serving as an executive officer at December 31, 2017 and 2016. Compensation information is shown for the fiscal
years ended December 31, 2017 and 2016:
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($) *
|
|
|
Option
Awards
($) *
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shannon
Masjedi, CEO/President
|
|
|
2017
|
|
|
$
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
2016
|
|
|
$
|
160,000
|
(1)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
160,000
|
|
|
(1)
|
Such
compensation was payable to Mrs. Masjedi pursuant to an employment agreement with IPIC.
However, due to the financial position of the Company, IPIC was unable to make such payments
which accrued. For the 2016 fiscal year, the total accrual of Mrs. Masjedi’s salary
was reduced by $600,000 and approved by the Company’s Board of Directors.
|
Employment
Agreements
We
have no written employment agreements or other formal compensation agreements with our officers or directors.
Securities
Authorized for Issuance Under Equity Compensation Plans
On
November 3, 2017, the Company’s Board of Directors adopted, by written consent, in accordance with the General Corporation
Law of the State of Delaware, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”), which reserves a total
of 1,500,000 shares of the Company’s Common Stock for issuance under the 2017 Plan. Incentive awards authorized under the
2017 Plan include, but are not limited to, incentive stock options within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the “Code”). If an incentive award granted under the 2017 Plan expires, terminates, is unexercised
or is forfeited, or if any shares are surrendered to us in connection with the exercise of an incentive award, the shares subject
to such award and the surrendered shares will become available for further awards under the 2017 Plan.
In
December 2017, the Company issued 1,240,000 shares of its common stock under the 2017 Plan to a certain consultant in settlement
of amounts owed by the Company for services provided by such consultant. As of September 30, 2018, other than such issuance, no
other awards or shares of the Company’s common stock have been issued under the 2017 Plan.
Outstanding
Equity Awards
None
of our Directors or executive officers holds stock that has not vested or equity incentive plan awards.
Option
Grants
There
were no individual grants of stock options to purchase our Common Stock made to our executive officers
Aggregated
Option Exercises and Fiscal Year-End Option Value
There
were no stock options exercised during the year ending December 31, 2017 and 2016 by the executive officers.
Long-Term
Incentive Plan (“LTIP”) Awards
There
were no awards made to a named executive officers in the last completed fiscal year under any LTIP.
Disclosure
of Commission Position on Indemnification of Securities Act Liabilities
Our
directors and officers are indemnified as provided by the Delaware corporate law and our Bylaws. We have agreed to indemnify each
of our directors and certain officers against certain liabilities, including liabilities under the Securities Act of 1933, as
amended. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended may be permitted to our
directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that
in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities
Act of 1933, as amended and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
We
have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under
the Act is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit
the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be
governed by the court’s decision.
Indemnification
of Directors and Officers
Section
145 of the Delaware Corporation Law provides in relevant parts as follows:
|
(1)
|
A
corporation shall have power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including attorneys’
fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit, or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding
by judgment, order, settlement, conviction, or on a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best interests
of the corporation, and with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
|
|
(2)
|
A
corporation shall have power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other enterprise against
expenses (including attorneys’ fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation and except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation unless
and only to the extent that the court in which such action or suit was brought shall
determine on application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to indemnity
for such expenses which such court shall deem proper.
|
|
(3)
|
To
the extent that a director, officer, employee, or agent of a corporation has been successful
on the merits or otherwise in defense of any action, suit, or proceeding referred to
in (1) or (2) of this subsection, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys’ fees) actually and
reasonably incurred by him in connection therewith.
|
|
(4)
|
The
indemnification provided by this section shall not be deemed exclusive of any other rights
to which those seeking indemnification may be entitled under any bylaws, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a person.
|
The
foregoing discussion of indemnification merely summarizes certain aspects of indemnification provisions and is limited by reference
to the above discussed sections of the Delaware Corporation Law.
The
Company’s Certificate of Incorporation and Bylaws provide that the Company “may indemnify” to the full extent
of its power to do so, all directors, officers, employees, and/or agents. It is anticipated that the Company will indemnify its
officer and director to the full extent permitted by the above-quoted statute.
Insofar
as indemnification by the Company for liabilities arising under the Securities Act may be permitted to officers and directors
of the Company pursuant to the foregoing provisions or otherwise, the Company is aware that in the opinion of the U.S. Securities
and Exchange Commission (the “SEC”), such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table lists the number of shares of Common Stock of our Company as of December 20, 2018 that are beneficially owned
by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding Common Stock;
(ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial
ownership of Common Stock by our principal stockholders and management is based upon information furnished by each person using
“beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person
is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or
direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security.
The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership
within sixty (60) days. Under the rules of the SEC, more than one person may be deemed to be a beneficial owner of the same securities,
and a person may be deemed to be a beneficial owner of securities as to which he/she may not have any pecuniary beneficial interest.
Except as noted below, each person has sole voting and investment power. As of December 20, 2018, the Company had 196,533,585
shares of Common Stock outstanding and 206,533,585 shares of voting capital stock.
Name
of Stockholder
|
|
Number
of Shares of
Common
Stock
|
|
|
Number
of Votes of
Series
E Preferred Stockholder
|
|
|
Number
of Votes Held by Common Stockholders
|
|
|
Percentage
of Voting
Equity
(1)(3)
|
|
Shannon
Masjedi
(2)
|
|
|
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
4.84
|
%
(3)
|
ACD
Trust, Shannon Masjedi, Trustee
(3)
|
|
|
35,226,901
|
|
|
|
|
|
|
|
35,226,901
|
|
|
|
17.06
|
%
|
Azita
Davidyan
|
|
|
16,035,000
|
|
|
|
|
|
|
|
16,035,000
|
|
|
|
7.76
|
%
|
Classic
Beverage Corporation
|
|
|
12,050,000
|
|
|
|
|
|
|
|
12,050,000
|
|
|
|
5.83
|
%
|
Marc
Shenkman, Director
(4)
|
|
|
11,414,000
|
|
|
|
|
|
|
|
11,414,000
|
|
|
|
5.53
|
%
|
Mark
Gulinson, shareholder
|
|
|
13,193,803
|
|
|
|
|
|
|
|
13,193,803
|
|
|
|
6.71
|
%
|
All
directors and officers as a group (2 persons)
|
|
|
46,640,901
|
|
|
|
10,000,000
|
|
|
|
56,640,901
|
|
|
|
27.43
|
%
(5)
|
|
(1)
|
Based
upon 196,533,585 shares of Common Stock issued and outstanding as of the Record Date of December 20, 2018, expect with respect
to Shannon Masjedi, whose percentage also reflects the 10,000,000 votes attributable to the 1 million shares of Series E Preferred
Stock and is based on 206,533,585 shares of voting capital stock.
|
|
(2)
|
Shannon
Masjedi, our Chief Executive Officer and principal common stockholder, is the record and beneficial owner of all of the issued
and outstanding shares of Series E Preferred Stock having ten (10) votes per share on all matters subject to the vote of the
Company’s holders of Common Stock.
|
|
(3)
|
Represents
of 21,500,000 shares of Common Stock owned by ACD Trust (“Trust”) and 13,726,901 shares of Common Stock owned
by Shannon Masjedi, Trustee of the Trust. Shannon Masjedi holds voting and investment power over the 13,726,901 shares of
our Common Stock owned by the Trust. As such, Shannon Masjedi has 21.9% of the voting control of the issued and outstanding
stock when the 10,000,000 shares of voting Series E Preferred Stock are added to the existing 35,226,901 shares of issued
and outstanding Common Stock subject to her control, for an aggregate total of 45,226,901 shares of issued and outstanding
voting capital stock.
|
|
(4)
|
Represents
1,414,000 shares of our Common Stock owned of record and beneficially by Mr. Shenkman, and 10,000,000 shares of our Common
Stock owned of record by The Entrust Group f/b/o Marc Shenkman.
|
|
(5)
|
Includes
shares of Common Stock and Series E Preferred Stock owned by our officers and directors as a group (2 persons).
|
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
Certain
Related Party Transactions During the Last Two Fiscal Years
Promissory
Notes with Related Parties
In
January 2011, MGD, a majority owned subsidiary of Snöbar Holdings, entered into an unsecured promissory note with a person,
who is now an officer and shareholder of Pacific Ventures. The note had a principal balance of $150,000 with an interest rate
of 3% and has a maturity date of December 31, 2020. The balance of the note at December 31, 2017 was $122,692.
In
February of 2012, MGD entered into an unsecured promissory note with a person, who is now a shareholder of the Company. The note
had a principal balance of $30,000 with an interest rate of 8% and a maturity date of August 1, 2014. The note’s maturity
date has subsequently been extended to December 31, 2020. The note’s balance is $25,000 as of December 31, 2017 and 2016,
respectively.
On
February 21, 2012, Snöbar Holdings entered into an unsecured promissory note with Marc Shenkman, who is the Chairman and
a shareholder in the Company. The note had a principal balance of $10,000 with an interest rate of 5% and is due on demand. The
note’s maturity date has subsequently been extended to December 31, 2020. The note has a principal balance of $10,000 as
of December 31, 2017.
On
February 23, 2012 Snöbar Holdings entered into a promissory note with a related party, now a shareholder of the Company,
for $10,000, maturing in one year at an interest of 8%. The note has subsequently been extended to December 31, 2020. As of December
31, 2017, there is a $10,000 balance.
Snöbar
Holdings entered into a promissory note agreement with a relative and former officer to purchase all shares and interests in IPIC,
including liquor licenses, for $500,000. The note bears no interest and payments are due in five installments of $100,000 due
each year beginning on December 31, 2013 and going through December 31, 2017, subsequently extended to December 31, 2020. The
entire purchase price of $500,000 was expensed in 2013 and the balance on the note was $231,067 and $299,522 as of December 31,
2017 and 2016 respectively.
On
March 14, 2013, Snöbar Holdings entered into an unsecured promissory note with Marc Shenkman, who is Chairman of our Board
of Directors and a shareholder in the Company. The note had a principal balance of $10,000 with an interest rate of 5% and had
a maturity date of March 14, 2014 and was subsequently extended to December 14, 2020. Interest against the note was extinguished
in a subsequent extension of the term. The note is current and has an outstanding balance of $6,000 and $6,000 as of December
31, 2017 and 2016 respectively.
On
March 14, 2013, Snöbar Holdings entered into an unsecured promissory note with a person, who is now a shareholder of the
Company. The note had a principal balance of $86,821 with an interest rate of 5% and had a maturity date of March 14, 2014. The
note’s maturity date has subsequently been extended to February 1, 2020. Interest against the note was extinguished in a
subsequent extension of the term. The note is current and the entire balance is still owed and outstanding.
In
2014, Snöbar Holdings entered into unsecured promissory notes with Marc Shenkman, who is Chairman of our Board of Directors
and a shareholder in the Company The notes had a total principal balance of $16,000 with an interest rate of 2% and are due on
Dec 31 2018 subsequently extended to December 31, 2020. Interest against the note was extinguished in a subsequent extension of
the term. As of December 31, 2017, the balance was $16,000.
From
2012 through December 31, 2017, Shannon Masjedi, our CEO, President, Treasurer and Interim CFO, has provided an unsecured credit
line to the Company, payable on demand without interest. As of December 31, 2017, the current balance is $25,693.
We
believe that each reported transaction and relationship is on terms that are at least as fair to us as would be expected if those
transactions were negotiated with third parties.
The
Snöbar Trust
The
Snöbar Trust (the “Trust”) a California Trust formed on June 1, 2013. Snöbar Holdings is the trustor and
sole beneficiary of Trust. The current trustee that holds legal title to the Trust is Clark Rutledge, who is the father of Shannon
Masjedi, who is the Company’s President, Chief Executive Officer, Interim Chief Financial Officer, Treasurer, Secretary
and majority stockholder. So long as the trustor is in existence, on demand of the trustor or the beneficiary, the trustee shall
distribute to the trustor any or all of the property contained in the beneficiary. Subject to the terms of the Trust, the trustor
may remove any acting trustee, or designate one or more successor trustees. Any trustee may resign at any time. The Trust shall
terminate upon the earlier of (i) withdrawal or distribution of all assets from the Trust or the date upon which the trustor ceases
to be in existence. As of the date of this annual report, the Trust owns 100% of the shares 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. Snöbar Holdings
also owns 99.9% of the shares of MGD, which is in the business of selling and leasing freezers and providing marketing services.
As a result of the foregoing, 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. The Trust and IPIC are considered
variable interest entities.
No
other officer, director or security holder known to us to own of record or beneficially more than 5% of our Common Stock or any
member of the immediate family or sharing the household (other than a tenant or employee) of any of the foregoing persons is indebted
to us in the years 2017 and 2016.
DESCRIPTION
OF OUR CAPITAL STOCK
General
We
are authorized to issue an aggregate number of 510,000,000 shares of capital stock, $0.001 par value per share, consisting of
10,000,000 shares of Preferred Stock and 500,000,000 shares of Common Stock.
Common
Stock
We
are authorized to issue 500,000,000 shares of Common Stock, $0.001 par value per share. As of December 20, 2018, we had 196,533,585
shares of Common Stock outstanding. Our Common Stock is subject to quotation on the OTC Pink Market under the trading symbol:
“PACV.” Our plan is to apply for listing of our Common Stock on the NASDAQ Capital Market after: (i) the implementation
of the reverse split (reference is made to our Definitive Information Statement on Schedule 14C filed with the SEC on November
26, 2018 [
https://www.sec.gov/Archives/edgar/data/882800/000121390018016491/def14c112318_pacificventures.htm
]); and (ii)
the Closing of the Offering of our Series G Preferred Stock. See the discussion under “Description Of The 11% Series G Preferred
Stock” below.
Each
share of Common Stock shall have one (1) vote per share for all purpose. Our Common Stock does not provide a preemptive, subscription
or conversion rights and there are no redemption or sinking fund provisions or rights. Our Common Stock holders are not entitled
to cumulative voting for election of Board of Directors.
Dividends
We
have not paid any cash dividends to our shareholders. The declaration of any future cash dividends is at the discretion of our
board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic
conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future,
but rather to reinvest earnings, if any, in our business operations.
Transfer
Agent and Registrar
The
transfer agent of our Common Stock is VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598, Phone: (212) 828-8436.
Preferred
Stock
Our
board of directors is authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series,
to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences
and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further
vote or action by our stockholders. Our board of directors can also increase (but not above the total number of authorized shares
of the class) or decrease (but not below the number of shares then outstanding) the number of shares of any series of preferred
stock, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common
stock or other series of preferred stock. The issuance of preferred stock, while providing flexibility in connection with possible
financings, acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing
a change in our control of our company and might adversely affect the market price of our common stock and the voting and other
rights of the holders of our common stock.
Series
E Convertible Preferred Stock
In
October 2016, the Company designated 10,000,000 shares of preferred stock as Series E Preferred Stock (the “Series E Preferred
Stock”). Under the rights, preferences and privileges of the Series E Preferred Stock, for every share of Series E Preferred
Stock held, the holder thereof has the voting rights equal to 10 shares of common stock. The Series E Preferred Stock is not convertible
into any class of stock of the Company and has no preferences to dividends or liquidation rights. As of September 30, 2018 and
December 31, 2017, there were 1,000,000 shares of Series E Preferred Stock issued and outstanding.
Shannon
Masjedi, our Chief Executive Officer and principal common stockholder, is the record and beneficial owner of all of the issued
and outstanding shares of Series E Preferred Stock having ten (10) votes per share on all matters subject to the vote of the Company’s
holders of Common Stock.
Anti-Takeover
Provisions
The
provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws may have
the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which
are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons
seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection
of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a
proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware
Law
We
are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL. In general, Section 203 prohibits
a public Delaware corporation from engaging in a “business combination” with an “interested stockholder”
for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales or
other transactions resulting in a financial benefit to the stockholder. An “interested stockholder” is a person who,
together with affiliates and associates, owns, or within three years of the date on which it is sought to be determined whether
such person is an “interested stockholder,” did own, 15% or more of the corporation’s outstanding voting stock.
These provisions may have the effect of delaying, deferring or preventing a change in our control.
DESCRIPTION
OF THE 11% SERIES G PREFERRED STOCK
The
description of certain terms of the 11% Series G Cumulative Redeemable Perpetual Preferred Stock (the “Series G Preferred
Stock”) in this prospectus does not purport to be complete and is in all respects subject to, and qualified in its entirety
by references to the relevant provisions of our amended and restated certificate of incorporation, the certificate of designations
establishing the terms of our Series G Preferred Stock.
General
Pursuant
to our amended and restated certificate of incorporation, we are currently authorized to designate and issue up to 10,000,000
shares of preferred stock, par value $0.001 per share, in one or more classes or series and, subject to the limitations prescribed
by our amended and restated certificate of incorporation and Delaware corporate law, with such rights, preferences, privileges
and restrictions of each class or series of preferred stock, including dividend rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any class or series as our board of directors may determine, without any vote
or action by our shareholders.
In
connection with this offering, our board of directors will designate 2,000,000 shares of our authorized preferred stock as 11%
Series G Preferred Stock, having the rights and privileges described in this prospectus, by adopting and filing the certificate
of designations with the State of Delaware. Assuming all of the shares of Series G Preferred Stock offered hereunder are issued,
we will have available for issuance 1,600,000 authorized but unissued shares of Series G Preferred Stock. Our board of directors
may, without the approval of holders of the Series G Preferred Stock or our common stock, designate additional series of authorized
preferred stock ranking junior to or on parity with the Series G Preferred Stock or designate additional shares of the Series
G Preferred Stock and authorize the issuance of such shares. Designation of preferred stock ranking senior to the Series G Preferred
Stock will require approval of the holders of Series G Preferred Stock, as described below in “Voting Rights.”
The
transfer agent of our Series G Preferred Stock is VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598, Phone: (212) 828-8436.
Quotation
We
plan to apply for listing of our Series G Preferred Stock on the NASDAQ Capital Market. Companies must meet all of the criteria
under at least one of the three standards below.
Requirements
|
|
Equity
Standard
|
|
|
Market
Value or Listed Securities Standard
|
|
|
Net
Income Standard
|
|
Listing
Rules
|
|
5505(a)
and
5505(b)(2)
|
|
|
5505(a)
and
5505(b)(2)
|
|
|
5505(a)
and
5505(b)(3)
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|
Stockholders’
Equity
|
|
$5
million
|
|
|
$4
million
|
|
|
$4
million
|
|
Market Value
of Publicly Held Shares
|
|
$15
million
|
|
|
$15
million
|
|
|
$15
million
|
|
Operating
History
|
|
2
years
|
|
|
-
|
|
|
-
|
|
Net
Income from Continuing Operations (latest fiscal year or in 2 of the last 3 fiscal years)
|
|
-
|
|
|
$50
million
|
|
|
-
|
|
Publicly Held
Shares
|
|
1
million
|
|
|
1
million
|
|
|
1
million
|
|
Round
Lot Shareholders
|
|
300
|
|
|
300
|
|
|
300
|
|
Market
Makers
|
|
3
|
|
|
3
|
|
|
3
|
|
Bid Price
or
|
|
$
4
|
|
|
$
4
|
|
|
$
4
|
|
Closing Price
|
|
$
3
|
|
|
$
2
|
|
|
$
3
|
|
|
*
|
Currently
traded companies qualifying solely under the Market Value Standard must meet the $50
million Market Value of Listed Securities and the applicable bid price requirement for
90 consecutive days before applying.
|
|
**
|
To
qualify. Under the closing price alternative, a company must have: (i) average annual
revenues of $6 million for 3 years, or (ii) net tangible assets of $5 million, or (iii)
net tangible assets of $2 million and a 3-year operating history, in addition to satisfying
the other financial and liquidity requirements listed above.
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No
Maturity, Sinking Fund or Mandatory Redemption
The
Series G Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption. Shares of
the Series G Preferred Stock will remain outstanding indefinitely unless we decide to redeem or otherwise repurchase them. We
are not required to set aside funds to redeem the Series G Preferred Stock.
Ranking
The
Series G Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up:
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(1)
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senior
to all classes or series of our common stock and to all other equity securities issued
by us other than equity securities referred to in clauses (2) and (3) below;
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(2)
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on
a parity with all equity securities issued by us with terms specifically providing that
those equity securities rank on a parity with the Series G Preferred Stock with respect
to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up;
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(3)
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junior
to all equity securities issued by us with terms specifically providing that those equity
securities rank senior to the Series G Preferred Stock with respect to rights to the
payment of dividends and the distribution of assets upon our liquidation, dissolution
or winding up (please see the section entitled “Voting Rights” below); and
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|
(4)
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effectively
junior to all of our existing and future indebtedness (including indebtedness convertible
to our common stock or preferred stock) and to any indebtedness and other liabilities
of (as well as any preferred equity interests held by others in) our existing subsidiaries.
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Dividends
Holders
of shares of the Series G Preferred Stock are entitled to receive cumulative cash dividends at the rate of 11% of the $25.00 per
share liquidation preference per annum (equivalent to $2.75 per annum per share). Dividends on the Series G Preferred Stock shall
be payable monthly on the 15
th
day of each month; provided that if any dividend payment date is not a business day,
as defined in the certificate of designations, then the dividend that would otherwise have been payable on that dividend payment
date may be paid on the next succeeding business day and no interest, additional dividends or other sums will accrue on the amount
so payable for the period from and after that dividend payment date to that next succeeding business day. Any dividend payable
on the Series G Preferred Stock, including dividends payable for any partial dividend period, will be computed on the basis of
a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in our stock
records for the Series G Preferred Stock at the close of business on the applicable record date, which shall be the last day of
the calendar month, whether or not a business day, in which the applicable dividend payment date falls. As a result, holders of
shares of Series G Preferred Stock will not be entitled to receive dividends on a dividend payment date if such shares were not
issued and outstanding on the applicable dividend record date.
No
dividends on shares of Series G Preferred Stock shall be authorized by our board of directors or paid or set apart for payment
by us at any time when the terms and provisions of any agreement of ours, including any agreement relating to our indebtedness,
prohibit the authorization, payment or setting apart for payment thereof or provide that the authorization, payment or setting
apart for payment thereof would constitute a breach of the agreement or a default under the agreement, or if the authorization,
payment or setting apart for payment shall be restricted or prohibited by law. You should review the information appearing above
under “Risk Factors — We may not be able to pay dividends on the Series G Preferred Stock” for information as
to, among other things, other circumstances under which we may be unable to pay dividends on the Series G Preferred Stock.
Notwithstanding
the foregoing, dividends on the Series G Preferred Stock will accrue whether or not we have earnings, whether or not there are
funds legally available for the payment of those dividends and whether or not those dividends are declared by our board of directors.
No interest, or sum in lieu of interest, will be payable in respect of any dividend payment or payments on the Series G Preferred
Stock that may be in arrears, and holders of the Series G Preferred Stock will not be entitled to any dividends in excess of full
cumulative dividends described above. Any dividend payment made on the Series G Preferred Stock shall first be credited against
the earliest accumulated but unpaid dividend due with respect to those shares.
Future
distributions on our common stock and preferred stock, including the Series G Preferred Stock will be at the discretion of our
board of directors and will depend on, among other things, our results of operations, cash flow from operations, financial condition
and capital requirements, any debt service requirements and any other factors our board of directors deems relevant. Accordingly,
we cannot guarantee that we will be able to make cash distributions on our preferred stock or what the actual distributions will
be for any future period.
Unless
full cumulative dividends on all shares of Series G Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment for all past dividend periods,
no dividends (other than in shares of common stock or in shares of any series of preferred stock that we may issue ranking junior
to the Series G Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or
winding up) shall be declared or paid or set aside for payment upon shares of our common stock or preferred stock that we may
issue ranking junior to, or on a parity with, the Series G Preferred Stock as to the payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up. Nor shall any other distribution be declared or made upon shares of our
common stock or preferred stock that we may issue ranking junior to, or on a parity with, the Series G Preferred Stock as to the
payment of dividends or the distribution of assets upon liquidation, dissolution or winding up. Also, any shares of our common
stock orpreferred stock that we may issue ranking junior to or on a parity with the Series G Preferred Stock as to the payment
of dividends or the distribution of assets upon liquidation, dissolution or winding up shall not be redeemed, purchased or otherwise
acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any such shares)
by us (except by conversion into or exchange for our other capital stock that we may issue ranking junior to the Series G Preferred
Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up).
When
dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series G Preferred Stock
and the shares of any other series of preferred stock that we may issue ranking on a parity as to the payment of dividends with
the Series G Preferred Stock, all dividends declared upon the Series G Preferred Stock and any other series of preferred stock
that we may issue ranking on a parity as to the payment of dividends with the Series G Preferred Stock shall be declared pro rata
so that the amount of dividends declared per share of Series G Preferred Stock and such other series of preferred stock that we
may issue shall in all cases bear to each other the same ratio that accrued dividends per share on the Series G Preferred Stock
and such other series of preferred stock that we may issue (which shall not include any accrual in respect of unpaid dividends
for prior dividend periods if such preferred stock does not have a cumulative dividend) bear to each other. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series G Preferred Stock
that may be in arrears.
We
will place proceeds equal to 18 months of dividends ($1.65 million based on an offering of $5 million of Series G Preferred) into
a separate bank account to be used to pay Series G Preferred Stock dividends.
Liquidation
Preference
In
the event of our voluntary or involuntary liquidation, dissolution or winding up, the holders of shares of Series G Preferred
Stock will be entitled to be paid out of the assets we have legally available for distribution to our shareholders, subject to
the preferential rights of the holders of any class or series of our capital stock we may issue ranking senior to the Series G
Preferred Stock with respect to the distribution of assets upon liquidation, dissolution or winding up, a liquidation preference
of $25.00 per share, plus an amount equal to any accumulated and unpaid dividends to, but not including, the date of payment,
before any distribution of assets is made to holders of our common stock or any other class or series of our capital stock we
may issue that ranks junior to the Series G Preferred Stock as to liquidation rights.
In
the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient
to pay the amount of the liquidating distributions on all outstanding shares of Series G Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of our capital stock that we may issue ranking on a parity with the Series
G Preferred Stock in the distribution of assets, then the holders of the Series G Preferred Stock and all other such classes or
series of capital stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.
Holders
of Series G Preferred Stock will be entitled to written notice of any such liquidation, dissolution or winding up no fewer than
30 days and no more than 60 days prior to the payment date. After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series G Preferred Stock will have no right or claim to any of our remaining assets.
The consolidation or merger of us with or into any other corporation, trust or entity or of any other entity with or into us,
or the sale, lease, transfer or conveyance of all or substantially all of our property or business, shall not be deemed a liquidation,
dissolution or winding up of us (although such events may give rise to the special optional redemption to the extent described
below).
Redemption
The
Series G Preferred Stock is not redeemable by us prior to February 4, 2022, a date 36 months from the date of issuance, except
as described below under “— Special Optional Redemption.”
Optional
Redemption
. On and after February 4, 2022, a date 36 months from the date of issuance, we may, at our option, upon not less
than 30 nor more than 60 days’ written notice (the “Redemption Notice”), redeem the Series G Preferred Stock,
in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus any accumulated
and unpaid dividends thereon to, but not including, the date fixed for redemption.
Special
Optional Redemption
. Upon the occurrence of a Change of Control, we may, at our option, upon not less than 30 nor more than
60 days’ written notice, redeem the Series G Preferred Stock, in whole or in part, within 120 days after the first date
on which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid
dividends thereon to, but not including, the redemption date.
A
“Change of Control” is deemed to occur when, after the original issuance of the Series G Preferred Stock, the following
have occurred and are continuing:
the
acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the
Exchange Act (other than Mrs. Shannon Masjedi, a director and our principal shareholder, any member of his immediate family, and
any “person” or “group” under Section 13(d)(3) of the Exchange Act, that is controlled by Mrs. Shannon
Masjedi or any member of his immediate family, any beneficiary of the estate of Mrs. Shannon Masjedi, or any trust, partnership,
corporate or other entity controlled by any of the foregoing), of beneficial ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our stock entitling
that person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election of
our directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition).
Redemption
Procedures.
In the event we elect to redeem Series G Preferred Stock, the notice of redemption will be mailed to each holder
of record of Series G Preferred Stock called for redemption at such holder’s address as it appear on our stock transfer
records, not less than 30 nor more than 60 days prior to the redemption date, and will state the following:
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●
|
the
redemption date;
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|
●
|
the
number of shares of Series G Preferred Stock to be redeemed;
|
|
●
|
the
redemption price;
|
|
●
|
the
place or places where certificates (if any) for the Series G Preferred Stock are to be surrendered for payment of the redemption
price;
|
|
●
|
that
dividends on the shares to be redeemed will cease to accumulate on the redemption date;
|
|
●
|
whether
such redemption is being made pursuant to the provisions described above under “— Optional Redemption” or
“— Special Optional Redemption”; and
|
|
●
|
if
applicable, that such redemption is being made in connection with a Change of Control and, in that case, a brief description
of the transaction or transactions constituting such Change of Control.
|
If
less than all of the Series G Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also
specify the number of shares of Series G Preferred Stock held by such holder to be redeemed. No failure to give such notice or
any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of
Series G Preferred Stock except as to the holder to whom notice was defective or not given.
Holders
of Series G Preferred Stock to be redeemed shall surrender the Series G Preferred Stock at the place designated in the notice
of redemption and shall be entitled to the redemption price and any accumulated and unpaid dividends payable upon the redemption
following the surrender. If notice of redemption of any shares of Series G Preferred Stock has been given and if we have irrevocably
set aside the funds necessary for redemption in trust for the benefit of the holders of the shares of Series G Preferred Stock
so called for redemption, then from and after the redemption date (unless default shall be made by us in providing for the payment
of the redemption price plus accumulated and unpaid dividends, if any), dividends will cease to accrue on those shares of Series
G Preferred Stock, those shares of Series G Preferred Stock shall no longer be deemed outstanding and all rights of the holders
of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any,
payable upon redemption. If any redemption date is not a business day, then the redemption price and accumulated and unpaid dividends,
if any, payable upon redemption may be paid on the next business day and no interest, additional dividends or other sums will
accrue on the amount payable for the period from and after that redemption date to that next business day. If less than all of
the outstanding Series G Preferred Stock is to be redeemed, the Series G Preferred Stock to be redeemed shall be selected pro
rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method we determine.
In
connection with any redemption of Series G Preferred Stock, we shall pay, in cash, any accumulated and unpaid dividends to, but
not including, the redemption date, unless a redemption date falls after a dividend record date and prior to the corresponding
dividend payment date, in which case each holder of Series G Preferred Stock at the close of business on such dividend record
date shall be entitled to the dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption
of such shares before such dividend payment date. Except as provided above, we will make no payment or allowance for unpaid dividends,
whether or not in arrears, on shares of the Series G Preferred Stock to be redeemed.
Unless
full cumulative dividends on all shares of Series G Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment for all past dividend periods,
no shares of Series G Preferred Stock shall be redeemed unless all outstanding shares of Series G Preferred Stock are simultaneously
redeemed and we shall not purchase or otherwise acquire directly or indirectly any shares of Series G Preferred Stock (except
by exchanging it for our capital stock ranking junior to the Series G Preferred Stock as to the payment of dividends and distribution
of assets upon liquidation, dissolution or winding up); provided, however, that the foregoing shall not prevent the purchase or
acquisition by us of shares of Series G Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders
of all outstanding shares of Series G Preferred Stock.
Subject
to applicable law, we may purchase shares of Series G Preferred Stock in the open market, by tender or by private agreement. Any
shares of Series G Preferred Stock that we acquire may be retired and reclassified as authorized but unissued shares of preferred
stock, without designation as to class or series, and may thereafter be reissued as any class or series of preferred stock.
Voting
Rights
Holders
of the Series G Preferred Stock do not have any voting rights, except as set forth below or as otherwise required by law.
On
each matter on which holders of Series G Preferred Stock are entitled to vote, each share of Series G Preferred Stock will be
entitled to one vote. In instances described below where holders of Series G Preferred Stock vote with holders of any other class
or series of our preferred stock as a single class on any matter, the Series G Preferred Stock and the shares of each such other
class or series will have one vote for each $25.00 of liquidation preference (excluding accumulated dividends) represented by
their respective shares.
Whenever
dividends on any shares of Series G Preferred Stock are in arrears for eighteen or more monthly dividend periods, whether or not
consecutive, the number of directors constituting our board of directors will be automatically increased by two (if not already
increased by two by reason of the election of directors by the holders of any other class or series of our preferred stock we
may issue upon which like voting rights have been conferred and are exercisable and with which the Series G Preferred Stock is
entitled to vote as a class with respect to the election of those two directors) and the holders of Series G Preferred Stock (voting
separately as a class with all other classes or series of preferred stock we may issue upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a class with the Series G Preferred Stock in the election of those
two directors) will be entitled to vote for the election of those two additional directors (the “preferred stock directors”)
at a special meeting called by us at the request of the holders of record of at least 25% of the outstanding shares of Series
G Preferred Stock or by the holders of any other class or series of preferred stock upon which like voting rights have been conferred
and are exercisable and which are entitled to vote as a class with the Series G Preferred Stock in the election of those two preferred
stock directors (unless the request is received less than 90 days before the date fixed for the next annual or special meeting
of shareholders, in which case, such vote will be held at the earlier of the next annual or special meeting of shareholders),
and at each subsequent annual meeting until all dividends accumulated on the Series G Preferred Stock for all past dividend periods
and the then current dividend period have been fully paid or declared and a sum sufficient for the payment thereof set aside for
payment. In that case, the right of holders of the Series G Preferred Stock to elect any directors will cease and, unless there
are other classes or series of our preferred stock upon which like voting rights have been conferred and are exercisable, any
preferred stock directors elected by holders of the Series G Preferred Stock shall immediately resign and the number of directors
constituting the board of directors shall be reduced accordingly. In no event shall the holders of Series G Preferred Stock be
entitled under these voting rights to elect a preferred stock director that would cause us to fail to satisfy a requirement relating
to director independence of any national securities exchange or quotation system on which any class or series of our capital stock
is listed or quoted. For the avoidance of doubt, in no event shall the total number of preferred stock directors elected by holders
of the Series G Preferred Stock (voting separately as a class with all other classes or series of preferred stock we may issue
upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series
G Preferred Stock in the election of such directors) under these voting rights exceed two.
If
a special meeting is not called by us within 30 days after request from the holders of Series G Preferred Stock as described above,
then the holders of record of at least 25% of the outstanding Series G Preferred Stock may designate a holder to call the meeting
at our expense.
If,
at any time when the voting rights conferred upon the Series G Preferred Stock are exercisable, any vacancy in the office of a
preferred stock director shall occur, then such vacancy may be filled only by a written consent of the remaining preferred stock
director, or if none remains in office, by vote of the holders of record of the outstanding Series G Preferred Stock and any other
classes or series of preferred stock upon which like voting rights have been conferred and are exercisable and which are entitled
to vote as a class with the Series G Preferred Stock in the election of the preferred stock directors. Any preferred stock director
elected or appointed may be removed only by the affirmative vote of holders of the outstanding Series G Preferred Stock and any
other classes or series of preferred stock upon which like voting rights have been conferred and are exercisable and which classes
or series of preferred stock are entitled to vote as a class with the Series G Preferred Stock in the election of the preferred
stock directors, such removal to be effected by the affirmative vote of a majority of the votes entitled to be cast by the holders
of the outstanding Series G Preferred Stock and any such other classes or series of preferred stock, and may not be removed by
the holders of the common stock.
So
long as any shares of Series G Preferred Stock remain outstanding, we will not, without the affirmative vote or consent of the
holders of at least two-thirds of the votes entitled to be cast by the holders of the Series G Preferred Stock outstanding at
the time, given in person or by proxy, either in writing or at a meeting (voting together as a class with all other series of
parity preferred stock that we may issue upon which like voting rights have been conferred and are exercisable), (a) authorize
or create, or increase the authorized or issued amount of, any class or series of capital stock ranking senior to the Series G
Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up
or reclassify any of our authorized capital stock into such shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares; or (b) amend, alter, repeal or replace our amended and restated certificate
of incorporation, including by way of a merger, consolidation or otherwise in which we may or may not be the surviving entity,
so as to materially and adversely affect and deprive holders of Series G Preferred Stock of any right, preference, privilege or
voting power of the Series G Preferred Stock (each, an “Event”). An increase in the amount of the authorized preferred
stock, including the Series G Preferred Stock, or the creation or issuance of any additional Series G Preferred Stock or other
series of preferred stock that we may issue, or any increase in the amount of authorized shares of such series, in each case ranking
on a parity with or junior to the Series G Preferred Stock with respect to payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up, shall not be deemed an Event and will not require us to obtain two-thirds of the
votes entitled to be cast by the holders of the Series G Preferred Stock and all such other similarly affected series, outstanding
at the time (voting together as a class).
The
foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise
be required shall be effected, all outstanding shares of Series G Preferred Stock shall have been redeemed or called for redemption
upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.
Except
as expressly stated in the certificate of designations or as may be required by applicable law, the Series G Preferred Stock do
not have any relative, participating, optional or other special voting rights or powers and the consent of the holders thereof
shall not be required for the taking of any corporate action.
No
Conversion Rights
The
Series G Preferred Stock is not convertible into our common stock or any of our other securities.
No
Preemptive Rights
No
holders of the Series G Preferred Stock will, as holders of Series G Preferred Stock, have any preemptive rights to purchase or
subscribe for our common stock or any other security.
Change
of Control
Provisions
in our amended and restated certificate of incorporation and bylaws may make it difficult and expensive for a third party to pursue
a tender offer, change in control or takeover attempt, which is opposed by management and the board of directors. See “Risk
Factors — Provisions of Delaware law, of our amended and restated charter and amended and restated bylaws may make a takeover
more difficult, which could cause our stock price to decline.”
Book-Entry
Procedures
DTC
acts as securities depository for our outstanding common stock and will also act as securities depository for the Series G Preferred
Stock offered hereunder. With respect to the Series G Preferred Stock offered hereunder, we will issue one or more fully registered
global securities certificates in the name of DTC’s nominee, Cede & Co. These certificates will represent the total
aggregate number of shares of Series G Preferred Stock. We will deposit these certificates with DTC or a custodian appointed by
DTC. We will not issue certificates to you for the shares of Series G Preferred Stock that you purchase, unless DTC’s services
are discontinued as described below.
Title
to book-entry interests in the Series G Preferred Stock will pass by book-entry registration of the transfer within the records
of DTC in accordance with its procedures. Book-entry interests in the securities may be transferred within DTC in accordance with
procedures established for these purposes by DTC. Each person owning a beneficial interest in shares of the Series G Preferred
Stock must rely on the procedures of DTC and the participant through which such person owns its interest to exercise its rights
as a holder of the Series G Preferred Stock.
We
understand that, under DTC’s existing practices, in the event that we request any action of the holders, or an owner of
a beneficial interest in a global security, such as you, desires to take any action that a holder is entitled to take under our
amended and restated certificate of incorporation (including the certificate of designations designating the Series G Preferred
Stock), DTC would authorize the Direct Participants holding the relevant shares to take such action, and those Direct Participants
and any Indirect Participants would authorize beneficial owners owning through those Direct and Indirect Participants to take
such action or would otherwise act upon the instructions of beneficial owners owning through them.
Any
redemption notices with respect to the Series G Preferred Stock will be sent to Cede & Co. If less than all of the outstanding
shares of Series G Preferred Stock are being redeemed, DTC will reduce each Direct Participant’s holdings of shares of Series
G Preferred Stock in accordance with its procedures.
In
those instances where a vote is required, neither DTC nor Cede & Co. itself will consent or vote with respect to the shares
of Series G Preferred Stock. Under its usual procedures, DTC would mail an omnibus proxy to us as soon as possible after the record
date. The omnibus proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants whose accounts
the shares of Series G Preferred Stock are credited to on the record date, which are identified in a listing attached to the omnibus
proxy.
Dividends
on the Series G Preferred Stock will be made directly to DTC’s nominee (or its successor, if applicable). DTC’s practice
is to credit participants’ accounts on the relevant payment date in accordance with their respective holdings shown on DTC’s
records unless DTC has reason to believe that it will not receive payment on that payment date.
Payments
by Direct and Indirect Participants to beneficial owners will be governed by standing instructions and customary practices, as
is the case with securities held for the accounts of customers in bearer form or registered in “street name.” These
payments will be the responsibility of the participant and not of DTC, us or any agent of ours.
DTC
may discontinue providing its services as securities depositary with respect to the Series G Preferred Stock at any time by giving
reasonable notice to us. Additionally, we may decide to discontinue the book-entry only system of transfers with respect to the
Series G Preferred Stock. In that event, we will print and deliver certificates in fully registered form for the Series G Preferred
Stock. If DTC notifies us that it is unwilling to continue as securities depositary, or it is unable to continue or ceases to
be a clearing agency registered under the Exchange Act and a successor depositary is not appointed by us within 90 days after
receiving such notice or becoming aware that DTC is no longer so registered, we will issue the Series G Preferred Stock in definitive
form, at our expense, upon registration of transfer of, or in exchange for, such global security.
Global
Clearance and Settlement Procedures
Initial
settlement for the Series G Preferred Stock will be made in immediately available funds. Secondary market trading among DTC’s
participants will occur in the ordinary way in accordance with DTC’s rules and will be settled in immediately available
funds using DTC’s Same-Day Funds Settlement System.
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes the material U.S. federal income tax considerations that may be applicable to “U.S. holders”
and “non-U.S. holders” (each as defined below) with respect to the purchase, ownership and disposition of the Series
G Preferred Stock offered by this prospectus. This discussion only applies to purchasers who purchase and hold the Series G Preferred
Stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”)
(generally property held for investment). This discussion does not describe all of the tax consequences that may be relevant to
each purchaser or holder of the Series G Preferred Stock in light of its particular circumstances.
This
discussion is based upon provisions of the Code, Treasury regulations, rulings and judicial decisions as of the date hereof. These
authorities may change, perhaps retroactively, which could result in U.S. federal income tax consequences different from those
summarized below. This discussion does not address all aspects of U.S. federal income taxation (such as the alternative minimum
tax) and does not describe any foreign, state, local or other tax considerations that may be relevant to a purchaser or holder
of the Series G Preferred Stock in light of their particular circumstances. In addition, this discussion does not describe the
U.S. federal income tax consequences applicable to a purchaser or a holder of the Series G Preferred Stock who is subject to special
treatment under U.S. federal income tax laws (including, a corporation that accumulates earnings to avoid U.S. federal income
tax, a pass-through entity or an investor in a pass-through entity, a tax-exempt entity, pension or other employee benefit plans,
financial institutions or broker-dealers, persons holding the Series G Preferred Stock as part of a hedging or conversion transaction
or straddle, a person subject to the alternative minimum tax, an insurance company, former U.S. citizens or former long-term U.S.
residents). We cannot assure you that a change in law will not significantly alter the tax considerations that we describe in
this discussion.
If
a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds the Series G Preferred
Stock, the U.S. federal income tax treatment of a partner of that partnership generally will depend upon the status of the partner
and the activities of the partnership. If you are a partnership or a partner of a partnership holding the Series G Preferred Stock,
you should consult your tax advisors as to the particular U.S. federal income tax consequences of holding and disposing of the
Series G Preferred Stock.
You
should consult your own tax advisor concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing
of these securities, as well as any tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction
and the possible effects of changes in U.S. federal or other tax laws.
U.S.
Holders
Subject
to the qualifications set forth above, the following discussion summarizes the material U.S. federal income tax considerations
that may relate to the purchase, ownership and disposition of the Series G Preferred Stock by “U.S. holders.” You
are a “U.S. holder” if you are a beneficial owner of Series G Preferred Stock and you are for U.S. federal income
tax purposes;
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an
individual citizen or resident of the United States;
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a
corporation (or other entity treated as a corporation for U.S. federal income tax purposes)
created or organized in or under the laws of the United States, any state thereof or
the District of Columbia;
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an
estate the income of which is subject to U.S. federal income taxation regardless of its
source; or
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a
trust if it (i) is subject to the primary supervision of a court within the United States
and one or more United States persons have the authority to control all substantial decisions
of the trust or (ii) has a valid election in effect under applicable United States Treasury
regulations to be treated as a United States person.
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Distributions
in General.
If distributions are made with respect to the Series G Preferred Stock, such distributions will be treated
as dividends to the extent of our current and accumulated earnings and profits as determined under the Code. Any portion of a
distribution that exceeds our current and accumulated earnings and profits will first be applied to reduce a U.S. holder’s
tax basis in the Series G Preferred Stock on a share-by-share basis, and the excess will be treated as gain from the disposition
of the Series G Preferred Stock, the tax treatment of which is discussed below under “Material U.S. Federal Income Tax Considerations
— U.S. Holders: Disposition of Series G Preferred Stock, Including Redemptions.”
Under
current law, dividends received by individual holders of the Series G Preferred Stock will be subject to a reduced maximum tax
rate of 20% if such dividends are treated as “qualified dividend income” for U.S. federal income tax purposes. The
rate reduction does not apply to dividends received to the extent that the individual shareholder elects to treat the dividends
as “investment income,” which may be offset against investment expenses. Furthermore, the rate reduction does not
apply to dividends that are paid to individual shareholders with respect to Series G Preferred Stock that is held for 60 days
or less during the 121 day period beginning on the date which is 60 days before the date on which the Series G Preferred Stock
becomes ex-dividend (or where the dividend is attributable to a period or periods in excess of 366 days, Series G Preferred Stock
that is held for 90 days or less during the 181 day period beginning on the date which is 90 days before the date on which the
Series G Preferred Stock becomes ex-dividend). Also, if a dividend received by an individual shareholder that qualifies for the
rate reduction is an “extraordinary dividend” within the meaning of Section 1059 of the Code, any loss recognized
by such individual shareholder on a subsequent disposition of the stock will be treated as long-term capital loss to the extent
of such “extraordinary dividend,” irrespective of such shareholder’s holding period for the stock. In addition,
dividends recognized by U.S. holders that are individuals could be subject to the 3.8% tax on net investment income. Individual
shareholders should consult their own tax advisors regarding the implications of these rules in light of their particular circumstances.
Dividends
received by corporate shareholders generally will be eligible for the dividends-received deduction. Generally, this deduction
is allowed if the underlying stock is held for at least 46 days during the 91 day period beginning on the date 45 days before
the ex-dividend date of the stock, and for cumulative preferred stock with an arrearage of dividends attributable to a period
in excess of 366 days, the holding period is at least 91 days during the 181 day period beginning on the date 90 days before the
ex-dividend date of the stock. Corporate shareholders of the Series G Preferred Stock should also consider the effect of Section
246A of the Code, which reduces the dividends-received deduction allowed to a corporate shareholder that has incurred indebtedness
that is “directly attributable” to an investment in portfolio stock such as preferred stock. If a corporate shareholder
receives a dividend on the Series G Preferred Stock that is an “extraordinary dividend” within the meaning of Section
1059 of the Code, the shareholder in certain instances must reduce its basis in the Series G Preferred Stock by the amount of
the “nontaxed portion” of such “extraordinary dividend” that results from the application of the dividends-received
deduction. If the “nontaxed portion” of such “extraordinary dividend” exceeds such corporate shareholder’s
basis, any excess will be taxed as gain as if such shareholder had disposed of its shares in the year the “extraordinary
dividend” is paid. Each domestic corporate holder of the Series G Preferred Stock is urged to consult with its tax advisors
with respect to the eligibility for and the amount of any dividends received deduction and the application of Code Section 1059
to any dividends it may receive on the Series G Preferred Stock.
Constructive
Distributions on Series G Preferred Stock.
A distribution by a corporation of its stock deemed made with respect to its
preferred stock is treated as a distribution of property to which Section 301 of the Code applies. If a corporation issues preferred
stock that may be redeemed at a price higher than its issue price, the excess (a “redemption premium”) is treated
under certain circumstances as a constructive distribution (or series of constructive distributions) of additional preferred stock.
The constructive distribution of property equal to the redemption premium would accrue without regard to the holder’s method
of accounting for U.S. federal income tax purposes at a constant yield determined under principles similar to the determination
of original issue discount (“OID”) pursuant to Treasury regulations under Sections 1271 through 1275 of the Code (the
“OID Rules”). The constructive distributions of property would be treated for U.S. federal income tax purposes as
actual distributions of the Series G Preferred Stock that would constitute a dividend, return of capital or capital gain to the
holder of the stock in the same manner as cash distributions described under “Material U.S. Federal Income Tax Considerations
— U.S. Holders: Distributions in General.” The application of principles similar to those applicable to debt instruments
with OID to a redemption premium for the Series G Preferred Stock is uncertain.
We
have the right to call the Series G Preferred Stock for redemption on or after _________, 2023 (the “call option”),
and have the option to redeem the Series G Preferred Stock upon any Change of Control (the “contingent call option”).
The stated redemption price of the Series G Preferred Stock upon any redemption pursuant to our call option or contingent call
option is equal to the liquidation preference of the Series G Preferred Stock (i.e., $25.00, plus accrued and unpaid dividends)
and is payable in cash.
If
the redemption price of the Series G Preferred Stock exceeds the issue price of the Series G Preferred Stock upon any redemption
pursuant to our call option or contingent call option, the excess will be treated as a redemption premium that may result in certain
circumstances in a constructive distribution or series of constructive distributions to U.S. holders of additional Series G Preferred
Stock. The redemption price for the Series G Preferred Stock should be the liquidation preference of the Series G Preferred Stock.
Assuming that the issue price of the Series G Preferred Stock is determined under principles similar to the OID Rules, the issue
price for the Series G Preferred Stock should be the initial offering price to the public (excluding bond houses and brokers)
at which a substantial amount of the Series G Preferred Stock is sold.
A
redemption premium for the Series G Preferred Stock should not result in constructive distributions to U.S. holders of the Series
G Preferred Stock if the redemption premium is less than a de-minimis amount as determined under principles similar to the OID
Rules. A redemption premium for the Series G Preferred Stock should be considered de-minimis if such premium is less than.0025
of the Series G Preferred Stock’s liquidation value of $25.00 at maturity, multiplied by the number of complete years to
maturity. Because the determination under the OID Rules of a maturity date for the Series G Preferred Stock is unclear, the remainder
of this discussion assumes that the Series G Preferred Stock is issued with a redemption premium greater than a de-minimis amount.
The
call option should not require constructive distributions of the redemption premium, if based on all of the facts and circumstances
as of the issue date, a redemption pursuant to the call option is not more likely than not to occur. The Treasury regulations
provide that an issuer’s right to redeem will not be treated as more likely than not to occur if: (i) the issuer and the
holder of the stock are not related within the meaning of Section 267(b) or Section 707(b) of the Code (substituting “20%”
for the phrase “50%); (ii) there are no plans, arrangements, or agreements that effectively require or are intended to compel
the issuer to redeem the stock; and (iii) exercise of the right to redeem would not reduce the yield on the stock determined using
principles applicable to the determination of OID under the OID Rules. The fact that a redemption right is not within the safe
harbor described in the preceding sentence does not mean that an issuer’s right to redeem is more likely than not to occur
and the issuer’s right to redeem must still be tested under all the facts and circumstances to determine if it is more likely
than not to occur. We do not believe that a redemption pursuant to the call option should be treated as more likely than not to
occur under the foregoing test. Accordingly, no U.S. holder of the Series G Preferred Stock should be required to recognize constructive
distributions of the redemption premium because of our call option.
Disposition
of Series G Preferred Stock, Including Redemptions.
Upon any sale, exchange, redemption (except as discussed below) or
other disposition of the Series G Preferred Stock, a U.S. holder will recognize capital gain or loss equal to the difference between
the amount realized by the U.S. holder and the U.S. holder’s adjusted tax basis in the Series G Preferred Stock. Such capital
gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period for the Series G Preferred Stock
is longer than one year. A U.S. holder should consult its own tax advisors with respect to applicable tax rates and netting rules
for capital gains and losses. Certain limitations exist on the deduction of capital losses by both corporate and non-corporate
taxpayers. In addition, gains recognized by U.S. holders that are individuals could be subject to the 3.8% tax on net investment
income.
A
redemption of shares of the Series G Preferred Stock will generally be a taxable event. If the redemption is treated as a sale
or exchange, instead of a dividend, a U.S. holder will recognize capital gain or loss (which will be long-term capital gain or
loss, if the U.S. holder’s holding period for such Series G Preferred Stock exceeds one year) equal to the difference between
the amount realized by the U.S. holder and the U.S. holder’s adjusted tax basis in the Series G Preferred Stock redeemed,
except to the extent that any cash received is attributable to any accrued but unpaid dividends on the Series G Preferred Stock,
which will be subject to the rules discussed above in “Material U.S. Federal Income Tax Considerations — U.S. Holders:
Distributions in General.” A payment made in redemption of Series G Preferred Stock may be treated as a dividend, rather
than as payment in exchange for the Series G Preferred Stock, unless the redemption:
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is
“not essentially equivalent to a dividend” with respect to a U.S. holder under Section 302(b)(1) of the Code;
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is
a “substantially disproportionate” redemption with respect to a U.S. holder under Section 302(b)(2) of the Code;
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results
in a “complete redemption” of a U.S. holder’s stock interest in the company under Section 302(b)(3) of the
Code; or
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is
a redemption of stock held by a non-corporate shareholder, which results in a partial liquidation of the company under Section
302(b)(4) of the Code.
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In
determining whether any of these tests has been met, a U.S. holder must take into account not only shares of the Series G Preferred
Stock and the common stock that the U.S. Holder actually owns, but also shares of stock that the U.S. holder constructively owns
within the meaning of Section 318 of the Code.
A
redemption payment will be treated as “not essentially equivalent to a dividend” if it results in a “meaningful
reduction” in a U.S. holder’s aggregate stock interest in the company, which will depend on the U.S. holder’s
particular facts and circumstances at such time. If the redemption payment is treated as a dividend, the rules discussed above
in “Material U.S. Federal Income Tax Considerations — U.S. Holders: Distributions in General” apply.
Satisfaction
of the “complete redemption” and “substantially disproportionate” exceptions is dependent upon compliance
with the objective tests set forth in Section 302(b)(3) and Section 302(b)(2) of the Code, respectively. A redemption will result
in a “complete redemption” if either all of the shares of our stock actually and constructively owned by a U.S. holder
are exchanged in the redemption or all of the shares of our stock actually owned by the U.S. holder are exchanged in the redemption
and the U.S. holder is eligible to waive, and the U.S. holder effectively waives, the attribution of shares of our stock constructively
owned by the U.S. holder in accordance with the procedures described in Section 302(c)(2) of Code. A redemption does not qualify
for the “substantially disproportionate” exception if the stock redeemed is only non-voting stock, and for this purpose,
stock which does not have voting rights until the occurrence of an event is not voting stock until the occurrence of the specified
event. Accordingly, any redemption of the Series G Preferred Stock generally will not qualify for this exception because the voting
rights are limited as provided in the “Description of Series G Preferred Stock-Voting Rights.” For purposes of the
“redemption from non-corporate shareholders in a partial liquidation” test, a distribution will be treated as in partial
liquidation of a corporation if the distribution is not essentially equivalent to a dividend (determined at the corporate level
rather than the shareholder level) and the distribution is pursuant to a plan and occurs within the taxable year in which the
plan was adopted or within the succeeding taxable year. For these purposes, a distribution is generally not essentially equivalent
to a dividend if the distribution results in a corporate contraction. The determination of what constitutes a corporate contraction
is factual in nature, and has been interpreted under case law to include the termination of a business or line of business. Each
U.S. holder of the Series G Preferred Stock should consult its own tax advisors to determine whether a payment made in redemption
of the Series G Preferred Stock will be treated as a dividend or a payment in exchange for the Series G Preferred Stock. If the
redemption payment is treated as a dividend, the rules discussed above in “Material U.S. Federal Income Tax Considerations
— U.S. Holders: Distributions in General” apply. Under proposed Treasury regulations, if any amount received by a
U.S. holder in redemption of Series G Preferred Stock is treated as a distribution with respect to such holder’s Series
G Preferred Stock, but not as a dividend, such amount will be allocated to all shares of the Series G Preferred Stock held by
such holder immediately before the redemption on a pro rata basis. The amount applied to each share will reduce such holder’s
adjusted tax basis in that share and any excess after the basis is reduced to zero will result in taxable gain. If such holder
has different bases in shares of the Series G Preferred Stock, then the amount allocated could reduce a portion of the basis in
certain shares while reducing all of the basis, and giving rise to taxable gain, in other shares. Thus, such holder could have
gain even if such holder’s aggregate adjusted tax basis in all shares of the Series G Preferred Stock held exceeds the aggregate
amount of such distribution.
The
proposed Treasury regulations permit the transfer of basis in the redeemed shares of the Series G Preferred Stock to the holder’s
remaining, unredeemed Series G Preferred stock (if any), but not to any other class of stock held, directly or indirectly, by
the holder. Any unrecovered basis in the Series G Preferred Stock would be treated as a deferred loss to be recognized when certain
conditions are satisfied. The proposed Treasury regulations would be effective for transactions that occur after the date the
regulations are published as final Treasury regulations. There can, however, be no assurance as to whether, when and in what particular
form such proposed Treasury regulations are ultimately finalized.
Information
Reporting and Backup Withholding.
Information reporting and backup withholding may apply with respect to payments of dividends
on the Series G Preferred Stock and to certain payments of proceeds on the sale or other disposition of the Series G Preferred
Stock. Certain non-corporate U.S. holders may be subject to U.S. backup withholding (currently at a rate of 28%) on payments of
dividends on the Series G Preferred Stock and certain payments of proceeds on the sale or other disposition of the Series G Preferred
Stock unless the beneficial owner thereof furnishes the payor or its agent with a taxpayer identification number, certified under
penalties of perjury, and certain other information, or otherwise establishes, in the manner prescribed by law, an exemption from
backup withholding. U.S. backup withholding tax is not an additional tax. Any amounts withheld under the backup withholding rules
may be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability, which may entitle the
U.S. holder to a refund, provided the U.S. holder timely furnishes the required information to the Internal Revenue Service.
Non-U.S.
Holders
Subject
to the qualifications set forth above under the caption “Material U.S. Federal Income Tax Considerations,” the following
discussion summarizes the material U.S. federal income tax consequences of the purchase, ownership and disposition of the Series
G Preferred Stock by certain “Non-U.S. holders.” You are a “Non-U.S. holder” if you are a beneficial owner
of the Series G Preferred Stock and you are not a “U.S. holder.”
Distributions
on the Series G Preferred Stock.
If distributions are made with respect to the Series G Preferred Stock, such distributions
will be treated as dividends to the extent of our current and accumulated earnings and profits as determined under the Code and
may be subject to withholding as discussed below. Any portion of a distribution that exceeds our current and accumulated earnings
and profits will first be applied to reduce the Non-U.S. holder’s basis in the Series G Preferred Stock and, to the extent
such portion exceeds the Non-U.S. holder’s basis, the excess will be treated as gain from the disposition of the Series
G Preferred Stock, the tax treatment of which is discussed below under “Material U.S. Federal Income Tax Considerations
— Non-U.S. Holders: Disposition of Series G Preferred Stock, Including Redemptions.” In addition, if we are a U.S.
real property holding corporation, i.e. a “USRPHC,” and any distribution exceeds our current and accumulated earnings
and profits, we will need to choose to satisfy our withholding requirements either by treating the entire distribution as a dividend,
subject to the withholding rules in the following paragraph (and withhold at a minimum rate of 10% or such lower rate as may be
specified by an applicable income tax treaty for distributions from a USRPHC), or by treating only the amount of the distribution
equal to our reasonable estimate of our current and accumulated earnings and profits as a dividend, subject to the withholding
rules in the following paragraph, with the excess portion of the distribution subject to withholding at a rate of 10% or such
lower rate as may be specified by an applicable income tax treaty as if such excess were the result of a sale of shares in a USRPHC
(discussed below under “Material U.S. Federal Income Tax Considerations — Non-U.S. Holders: Disposition of Series
G Preferred Stock, Including Redemptions”), with a credit generally allowed against the Non-U.S. holder’s U.S. federal
income tax liability in an amount equal to the amount withheld from such excess.
Dividends
paid to a Non-U.S. holder of the Series G Preferred Stock will be subject to withholding of U.S. federal income tax at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with
the conduct of a trade or business by the Non-U.S. holder within the United States (and, where a tax treaty applies, are attributable
to a permanent establishment maintained by the Non-U.S. holder in the United States) are not subject to the withholding tax, provided
that certain certification and disclosure requirements are satisfied including completing Internal Revenue Service Form W-8ECI
(or other applicable form). Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner
as if the Non-U.S. holder were a United States person as defined under the Code, unless an applicable income tax treaty provides
otherwise. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch
profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. A Non-U.S. holder
of the Series G Preferred Stock who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as
discussed below, for dividends will be required to (i) complete Internal Revenue Service Form W-8BEN or Form W-8BEN-E (or other
applicable form) and certify under penalty of perjury that such holder is not a United States person as defined under the Code
and is eligible for treaty benefits, or (ii) if the Series G Preferred Stock is held through certain foreign intermediaries, satisfy
the relevant certification requirements of applicable Treasury regulations. A Non-U.S. holder of the Series G Preferred Stock
eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts
withheld by timely filing an appropriate claim for refund with the Internal Revenue Service.
Disposition
of Series G Preferred Stock, Including Redemptions.
Any gain realized by a Non-U.S. holder on the disposition of the Series
G Preferred Stock will not be subject to U.S. federal income or withholding tax unless:
the
gain is effectively connected with a trade or business of the Non-U.S. holder in the United States (and, if required by an applicable
income tax treaty, is attributable to a permanent establishment maintained by the Non-U.S. holder in the United States); the Non-U.S.
holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition, and certain
other conditions are met; or we are or have been a USRPHC for U.S. federal income tax purposes, as such term is defined in Section
897(c) of the Code, and such Non-U.S. holder owned directly or pursuant to attribution rules at any time during the five year
period ending on the date of disposition more than 5% of the Series G Preferred Stock. This assumes that the Series G Preferred
Stock is regularly traded on an established securities market, within the meaning of Section 897(c)(3) of the Code. A Non-U.S.
holder described in the first bullet point immediately above will generally be subject to tax on the net gain derived from the
sale under regular graduated U.S. federal income tax rates in the same manner as if the Non-U.S. holder were a United States person
as defined under the Code, and if it is a corporation, may also be subject to the branch profits tax equal to 30% of its effectively
connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. An individual Non-U.S.
holder described in the second bullet point immediately above will be subject to a flat 30% tax (or at such reduced rate as may
be provided by an applicable treaty) on the gain derived from the sale, which may be offset by U.S. source capital losses, even
though the individual is not considered a resident of the United States. A Non-U.S. holder described in the third bullet point
above will be subject to U.S. federal income tax under regular graduated U.S. federal income tax rates with respect to the gain
recognized in the same manner as if the Non-U.S. holder were a United States person as defined under the Code. If a Non-U.S. holder
is subject to U.S. federal income tax on any sale, exchange, redemption (except as discussed below), or other disposition of the
Series G Preferred Stock, such a Non-U.S. holder will recognize capital gain or loss equal to the difference between the amount
realized by the Non-U.S. holder and the Non-U.S. holder’s adjusted tax basis in the Series G Preferred Stock. Such capital
gain or loss will be long-term capital gain or loss if the Non-U.S. holder’s holding period for the Series G Preferred Stock
is longer than one year. A Non-U.S. holder should consult its own tax advisors with respect to applicable tax rates and netting
rules for capital gains and losses. Certain limitations exist on the deduction of capital losses by both corporate and Non-corporate
taxpayers. If a Non-U.S. holder is subject to U.S. federal income tax on any disposition of the Series G Preferred Stock, a redemption
of shares of the Series G Preferred Stock will be a taxable event. If the redemption is treated as a sale or exchange, instead
of a dividend, a Non-U.S. holder generally will recognize long-term capital gain or loss, if the Non-U.S. holder’s holding
period for such Series G Preferred Stock exceeds one year, equal to the difference between the amount of cash received andfair
market value of property received and the Non-U.S. holder’s adjusted tax basis in the Series G Preferred Stock redeemed,
except that to the extent that any cash received is attributable to any accrued but unpaid dividends on the Series G Preferred
Stock, which generally will be subject to the rules discussed above in “Material U.S. Federal Income Tax Considerations
— Non-U.S. Holders: Distributions on the Series G Preferred Stock.” A payment made in redemption of the Series G Preferred
Stock may be treated as a dividend, rather than as payment in exchange for the Series G Preferred Stock, in the same circumstances
discussed above under “Material U.S. Federal Income Tax Considerations — U.S. Holders: Disposition of Series G Preferred
Stock, Including Redemptions.” Each Non-U.S. holder of the Series G Preferred Stock should consult its own tax advisors
to determine whether a payment made in redemption of the Series G Preferred Stock will be treated as a dividend or as payment
in exchange for the Series G Preferred Stock.
Information
reporting and backup withholding.
We must report annually to the Internal Revenue Service and to each Non-U.S. holder
the amount of dividends paid to such Non-U.S. holder and the tax withheld with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available
to the tax authorities in the country in which the Non-U.S. holder resides under the provisions of an applicable income tax treaty.
A Non-U.S. holder will not be subject to backup withholding on dividends paid to such Non-U.S. holder as long as such Non-U.S.
holder certifies under penalty of perjury that it is a Non-U.S. holder (and the payor does not have actual knowledge or reason
to know that such Non-U.S. holder is a United States person as defined under the Code), or such Non-U.S. holder otherwise establishes
an exemption. Depending on the circumstances, information reporting and backup withholding may apply to the proceeds received
from a sale or other disposition of the Series G Preferred Stock unless the beneficial owner certifies under penalty of perjury
that it is a Non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United
States person as defined under the Code), or such owner otherwise establishes an exemption. U.S. backup withholding tax is not
an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S.
holder’s U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue
Service.
Foreign
Account Tax Compliance Act.
Sections 1471 through 1474 of the Code (provisions which are commonly referred to as “FATCA”),
generally impose a 30% withholding tax on dividends on Series G Preferred Stock paid on or after July 1, 2014 and the gross proceeds
of a sale or other disposition of Series G Preferred Stock paid on or after January 1, 2017 to: (i) a foreign financial institution
(as that term is defined in Section 1471(d)(4) of the Code) unless that foreign financial institution enters into an agreement
with the U.S. Treasury Department to collect and disclose information regarding U.S. account holders of that foreign financial
institution (including certain account holders that are foreign entities that have U.S. owners) and satisfies other requirements;
and (ii) specified other foreign entities unless such an entity certifies that it does not have any substantial U.S. owners or
provides the name, address and taxpayer identification number of each substantial U.S. owner and such entity satisfies other specified
requirements. Non-U.S. holders should consult their own tax advisors regarding the application of FATCA to them and whether it
may be relevant to their purchase, ownership and disposition of Series G Preferred Stock.
PLAN
OF DISTRIBUTION
The
Offering will be made using the services of our management, who will not be compensated for their services and efforts related
to the Offering of our Series G Preferred Stock. We also contemplate utilizing the services of one or more placement agents (collectively,
the “Placement Agents”), which means our management and Placement Agent(s) will attempt to sell the Series G Preferred
Stock being offered hereby on behalf of the Company. There is no underwriter for this Offering. To date, we have not yet retained
any Placement Agent nor are we in negotiations with any Placement Agent but expect that we will utilize one or more Placement
Agent(s) and expect that will enter into a Placement Agent Agreement in the form attached as Exhibit 10.17 hereto prior to the
commencement of the Offering. Reference is also made to the disclosure under “The Offering” above.
Pursuant
to the terms of the Placement Agent Agreement, we will pay the Placement Agents a cash fee equal to 7% of the gross proceeds received
by the Company from qualified investors from such closing of the sale of Series G Preferred Stock as a direct result of the selling
efforts and introductions of each respective Placement Agent; and (ii) issue to each such Placement Agent warrants (the “Placement
Agent Warrants”) to purchase a number of shares of the Company’s Series G Preferred Stock equal to 7% of the number
of shares of Series G Preferred Stock sold in the Offering as a direct result of the selling efforts and introductions of each
respective Placement Agent, exercisable during the period of thirty-six (36) months from the final Closing of the Offering an
exercise price of $25.00 per share of Series G Preferred Stock.
The
Placement Agent Agreement does not give rise to any commitment by any Placement Agent to purchase any of our securities, and the
Placement Agent will have no authority to bind us by virtue of the Placement Agent Agreement. Further, the Placement Agent does
not guarantee that any such Placement Agent will be able to raise new capital in any prospective offering.
We
will deliver the shares of Series G Preferred Stock, also referred to as the “Securities” being issued to the investors
upon receipt of investor funds for the purchase of the Securities offered pursuant to this prospectus. We expect to deliver the
securities being offered pursuant to this prospectus on or about March 31, 2019.
The
following table shows per-share and total cash placement agent fees we will pay to the placement agent in connection with the
sale of the shares of Series C Preferred Stock pursuant to this prospectus assuming the purchase of all of the shares offered
hereby, as well as the fees if the number of shares sold was 33% or 67% of the maximum offered:
|
|
33%
of
Maximum
|
|
|
67%
of
Maximum
|
|
|
Maximum
|
|
Per-share
placement agent fee
|
|
$
|
1.75
|
|
|
$
|
1.75
|
|
|
$
|
1.75
|
|
Total
placement agent fee
|
|
$
|
231,000
|
|
|
$
|
469,000
|
|
|
$
|
700,000
|
|
We
have agreed to indemnify the Placement Agent and specified other persons against some civil liabilities, including liabilities
under the Securities Act of 1933, as amended (the “Act”) and the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and to contribute to payments that the Placement Agent may be required to make in respect of such
liabilities.
Any
Placement Agent participating in the Offering may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the
Act, and any commissions received by them and any profit realized on the resale of the securities sold by them while acting as
principal might be deemed to be underwriting discounts or commissions under the Act. As underwriters, a placement agent would
be required to comply with the requirements of the Act and the Exchange Act, including, without limitation, Rule 415(a)(4) under
the Act and Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases
and sales of shares of Series G Preferred Stock by any Placement Agent acting as principal. Under these rules and regulations,
a Placement Agent:
|
●
|
may
not engage in any stabilization activity in connection with our securities; and
|
|
●
|
may
not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than
as permitted under the Exchange Act, until it has completed its participation in the distribution.
|
From
time to time, one or more of the Placement Agents may provide us in the future, various advisory, investment and commercial banking
and other services to us in the ordinary course of business, for which it has received and may continue to receive customary fees
and commissions. However, except as disclosed in this prospectus, we have no present arrangements with any Placement Agent for
any further services.
LEGAL
MATTERS
No
counsel named in this Prospectus as having prepared or certified any part of this Prospectus or having given an opinion upon the
validity of the securities being registered or upon other legal matters in connection with the registration or Offering of the
Series G Preferred Stock was employed on a contingency basis, or had, or is to receive, in connection with the Offering, a substantial
interest, direct or indirect, in the Registrant. Nor was any such person connected with the registrant as a promoter, managing
or principal underwriter, voting trustee, director, officer, or employee.
The
validity of the Series G Preferred Stock being offered hereby and other certain legal matters will be passed upon for us by The
Lonergan Law Firm, LLC, Lawrence R. Lonergan, Esq.
EXPERTS
No
expert named in this Prospectus as having prepared or certified any part of this Prospectus or having given an opinion upon the
validity of the securities being registered or upon other legal matters in connection with the registration or Offering of the
Series G Preferred Stock was employed on a contingency basis, or had, or is to receive, in connection with the Offering, a substantial
interest, direct or indirect, in the registrant. Nor was any such person connected with the registrant as a promoter, managing
or principal underwriter, voting trustee, director, officer, or employee.
The
audited financial statements for the years ended December 31, 2017 and 2016 included in this Prospectus and the Registration Statement
have been audited by Albert Garcia, CPA of DylanFloyd Accounting & Consulting, an independent registered public accounting
firm, to the extent and for the periods set forth in their report appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual reports, quarterly and current reports, proxy statements and other information with the SEC. The public may read and
copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington,
DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC0330. The SEC
maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC at
www.sec.gov
.
All
of our reports filed with the SEC (including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and proxy statements) are accessible through the Investor Relations section of our website, free of charge, as soon as reasonably
practicable after electronic filing. The reference to our website in this prospectus is an inactive textual reference only and
is not a hyperlink. The contents of our website are not part of this prospectus, and you should not consider the contents of our
website in making an investment decision with respect to our securities.
We
have filed with the SEC a registration statement under the Securities Act of 1933, as amended (the “Securities Act”),
that registers the distribution of the securities offered hereby. The registration statement, including the attached exhibits
and schedules, contains additional relevant information about us and the securities being offered. This prospectus, which forms
part of the registration statement, omits certain of the information contained in the registration statement in accordance with
the rules and regulations of the SEC. Reference is hereby made to the registration statement and related exhibits for further
information with respect to us and the securities offered hereby. Statements contained in this prospectus concerning the provisions
of any document are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an
exhibit to the registration statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such
reference.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our
directors and officers are indemnified as provided by Section 145 of the General Corporation Law of Delaware and our amended and
restated bylaws. We have agreed to indemnify each of our directors and certain officers against certain liabilities, including
liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other
than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Pacific
Ventures Group, Inc.
400,000
Shares of 11% Series G Cumulative Redeemable Perpetual Preferred Stock
$25.00 Per Share
Liquidation Preference $25.00 Per Share
PROSPECTUS
March
14, 2019
Pacific Ventures (PK) (USOTC:PACV)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Pacific Ventures (PK) (USOTC:PACV)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024