Background of Spirits Time
Spirits Time International, Inc. was incorporated on October 18, 2005 under the laws of the State of Nevada. The Company was formed under the name of Sears Oil and Gas Corporation but effective October 22, 2018, our name was changed to Spirits Time International, Inc. to reflect our new business direction.
At the time the Company was organized, its principal business objective was to engage in the oil and gas business. The Company became a public reporting company by filing a Form S-1 Registration Statement with the SEC that was declared effective July 25, 2008. The Company’s business operations in the oil and gas business were not successful and its initial principals sold controlling interest in the Company. Prior to the Asset Acquisition Transaction (as defined below), we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended). As a result of the Asset Acquisition Transaction, we ceased to be a “shell company” and intend to commence operations in the beverage industry (initially in the tequila beverage industry).
We have limited operating history, no revenue, and negative working capital.
The Company files reports with the Securities and Exchange Commission under Section 15(d) of the Securities Exchange act of 1934, as amended (the “Exchange Act”). We do not currently file reports under Section 12(b) or 12(g) of the Exchange Act.
Asset Acquisition
On September 28, 2018, we completed and closed upon an asset acquisition (the “Asset Acquisition Transaction”) and a loan transaction pursuant to which we intend to engage in the business of marketing tequila products under the brand name of Tequila Alebrijes. We acquired the Tequila Alebrijes brand name, trademark and certain other assets from Human Brands International, Inc., a Nevada corporation (“Human Brands”). We also closed on a loan transaction whereby we borrowed $300,000 from Auctus Fund, LLC which is described below (See Notes to the Financial Statements). Auctus has delivered a notice of default to us relating to such loan (See Notes to the Financial Statements).
The Assets acquired are certain “Tequila Alebrijes Products and Property Rights.” We did not acquire an ownership interest in or any ongoing operation of Human Brands. We did not merge with or acquire an equity interest in Human Brands. We made no changes in our officers or directors as a result of the Asset Acquisition Transaction. We did not hire any employee of Human Brands. The transaction was essentially the acquisition of certain rights to distribute, rights to use a brand and a limited amount of inventory. Human Brands is involved in the marketing of other beverage products and brands in which we have no ownership or other interest.
“Tequila Alebrijes Products and Property Rights” means collectively, the intangible legal rights we acquired from Human Brands pertaining to: (a) rights associated with the product known as Tequila Alebrijes, including but not limited to Tequila Alebrijes Blanco, Reposado, and Añejo and any and all related products or extension of that product including other related Tequila Blends and formulas from the same or other related supplier as well as physical extensions of the Tequila Alebrijes brand in the form of logos, trademarks, marketing material and related copyrights, copyright applications and copyright registrations and moral rights, trademarks, service marks, logos, trade dress, trade names and
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service names and all goodwill associated therewith; (b) rights related to the protections of trade secrets and confidential information, including, but not limited to, rights in industrial property, vendor lists and all associated information and other confidential or proprietary information; (c) industrial design rights; and (d) any rights analogous to those set forth in the preceding clauses and any other proprietary rights relating to intangible property, including, but not limited to, any applications, registrations or recordings in connection with the foregoing. Human Brands also granted us the exclusive right to sell directly or distribute Tequila Alebrijes products (including any product Extension of the Assets) on a worldwide basis.
The Acquired Assets include any and all product line extensions. The Acquired Assets include but are not limited to the following:
Trade Mark Design;
Packaging Design;
Formulas for Production of Tequila Alebrijes;
Finished Tequila Alebrijes Product of not less than 11,000 Mixed 750 ML bottles to be shipped to third parties as designated by the Company (less write-off, see below);
All Tequila Alebrijes Rights for Worldwide Use;
All Tequila Alebrijes Extensions for Worldwide Use;
The exclusive rights to sell the assets directly by the Company or through designated distributors or brand managers worldwide.
We issued 3,500,000 shares of our common stock to Human Brands and paid Human Brands $50,000 for the brand name, trademark and other acquired assets. We did not acquire an ownership interest in or any ongoing operation of Human Brands. No officer, director or employee of Human Brands became an officer, director or employee of the Company.
Name Change
Effective October 22, 2018, we changed our name from Sears Oil and Gas Corporation to Spirits Time International, Inc. Copies of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws were filed as exhibits to a Form 8-K filed October 31, 2018 and can be obtained on the SEC EDGAR Website. Our new CUSIP number is 84861Y107.
The Company’s Business Plan - General
We have developed a business plan to obtain rights to develop a portfolio of beverage (alcoholic and non-alcoholic) product brands and to distribute and market beverage products nationally and internationally. Our first brand is the “Tequila Alebrijes” brand of tequila. We have obtained the trademark for this brand and the rights to market and distribute Tequila Alebrijes products. We also acquired approximately 12,000 bottles of tequila valued at $150,000, of which approximately 6,500 valued at approximately $80,000 are on-hand as further described below. The remaining 5,500 were never delivered to us, resulting in the write-off of inventory of $69,530 during the year ended December 31, 2019, Currently, the “Tequila Alebrijes” brand of tequila is our only product brand, and we have not yet sold any of this product to date.
We do not intend to produce beverage products but rather we intend to acquire brand and marketing rights for beverage products and thereafter commercialize our products either directly by selling to retailers and point of sale locations or through brand management agreements and/or distribution agreements with other companies involved in the beverage distribution business.
Demand for premium distilled spirits brands is driving growth and transforming the distilled spirits industry, driven by several key trends including an increasingly global market for alcoholic beverages, better and more well defined channels of distribution, an international and domestic rise of cocktail culture, the growing popularity for distilled spirits, a greater desire among consumers wanting to know more about the history and production methods behind what they drink, an increase in the willingness of consumers to enjoy experimenting and trying new brands, categories and styles of alcoholic beverages, the identifiable industry trend showing increasing demand for a broader variety and new brands at the point of sale, and a higher level of appreciation of quality over quantity, with premium and above offerings gaining market share.
Amidst the background where industry leading producers are shifting more emphasis on premium brand offerings, an emerging wave of small craft distillers is capturing an increasing market share. As the craft boom continues, we anticipate that larger brands will increase their emphasis on craft qualities and will look to emerging brands gaining consumer support as acquisition candidates.
We intend, subject to adequate financing, to build a portfolio of beverage brands of non-alcoholic and alcoholic beverages. We anticipate that we may be able to use our securities to acquire interests in additional beverage brands and as incentive for brand managers and other product distributors.
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We have entered into a non-exclusive brand management agreement with CapCity Beverage, LLC (“CCB”). CCB is an affiliate of Human Brands which has been active in developing, distributing and promoting premium spirits brands since 2012. The brand management agreement calls for CCB to utilize its import and export licenses to bring the Tequila Alebrijes inventory into the U.S. from Mexico and also ship the product to other countries around the world.
As of the date of this report, the brand management agreement has not resulted in the sale of any of our product and we anticipate that we will either terminate or modify the agreement and seek other product market alternatives.
We have yet to generate any revenue from the acquisition of the tequila related assets and there can be no assurance we will be able to generate meaningful revenues in the near future. We anticipate that we must raise additional capital to develop a meaningful marketing program for our products and there can be no assurance that we will be able to raise adequate capital to market our products and develop active business operations.
Ultimate Business Goal
One of our ultimate business goals is to develop critical mass and a diverse portfolio of distilled spirits and non-alcoholic brands so as to make us an attractive acquisition target or an attractive partner for other companies in the beverage industry.
To achieve this goal, we plan on developing diverse channels of distribution by building relationships with strong regional and local distributors. To support our distributors, we plan to work with brand managers to create marketing, support consumer awareness, and to develop demand at the retail level in liquor stores and bars.
Our planned operating strategy.
Our business strategy relates to our Tequila Alebrijes product and potentially other distilled spirits brands and non-alcoholic brands. We have developed a strategy to commence and build operations in the premium spirits industry. Our strategy is as follows:
(1)Building Our Branded Product Portfolio. We plan to build a portfolio of distilled spirit and non-alcoholic brands through distribution agreements, acquisitions of distributors and brands, and potentially the development of our own proprietary brands. We intend to attempt to add products in high-demand and in high-growth categories. Our first brand acquisition, as described throughout this Form 10-K, is the acquisition of the Tequila Alebrijes brand.
(2)Qualify for Our Own Licenses and Permits. Initially we are relying on “Brand Management Agreements” with companies that already have distributions channels and have import and export licenses and permits. In addition, we will be contracting with US domestic distributors that have permits and licenses in a large number of key states for spirits sales. In addition, our Brand Management companies will have the logistical capability to store, ship and comply with all state and federal regulations and accounting requirements. The Brand Manager will also be responsible for collecting and reporting on all taxes, customs compliance and shipping regulations. Our Brand Manager for our Tequila Alebrijes brand is CCB. The CCB Brand Management Agreement is further discussed below.
(3)Build Distribution. If, in the future, we obtain required permits, we intend to focus on building additional distribution for Tequila Alebrijes and other brands in the U.S. and Asia, the largest beverage market and the fastest growing beverage market, respectively.
(4)Marketing. We plan to bring the enjoyment of the Tequila Alebrijes experience to the customer. Key to scaling our business activities is our commitment to, and investment in innovative and effective sales and marketing campaigns, and supporting demand generated from those campaigns with sufficient inventory. Consumers want an experience and our marketing strategy is built around that.
Our first proprietary brand, Tequila Alebrijes, is a premium tequila.
In addition to CCB, we are discussing potential product distribution relationships with other participants in the beverage distribution industry.
Tequila Market Overview
Tequila is a distilled beverage which is made out of the blue agave plant. There exist two major categories of tequila: ‘100% agave’ and ‘Mixtos.’ The term tequila is protected and may only be used on the product label if the alcoholic beverage is produced in specific regions of Mexico and contains at least 51 percent agave.
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According to Statista.com (https://www.statista.com/) the global tequila market is characterized by leading brands such as Sauza, Patrón, and El Jimador. Sauza tequila sold approximately 3.8 million 9 liter cases in 2016. Regionally, most tequila was exported to the United States from its country of origin Mexico.
Statista.com also reported that the sales volume of the American core market showed a continuous growth since 2004 and reached an all-time high with 15.87 million 9 liter cases sold in 2016. The tequila brand Jose Cuervo commanded 22 percent of U.S. tequila volume sales in 2016. Patron and Sauza tequila also accounted for a double-digit volume share in that year.
Statista.com latest consumption statistics illustrate that over 25 million people drank tequila in the United States as of spring 2017. The total U.S. consumption of tequila amounted to nearly 16 million 9 liter cases in 2016. Broken down on a state-level, California ranked first in terms of consumption. Texas and Florida rounded off the leading three consumption states.
Current projections anticipate that the tequila market will continue to grow through at least 2022. Although recent data as reported by Forbes suggests that the coronavirus ("COVID‐19") outbreak has not negatively impacted the alcoholic beverage industry, the extent of the impact of COVID-19 on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions, and the impact of COVID‐19 on the overall economy, all of which are highly uncertain and cannot be predicted. If the overall economy is impacted for an extended period, the Company’s future operating results may be materially adversely affected.
Description of Tequila Alebrijes
Tequila Alebrijes brand was first introduced in 2012 and has been sold in Asia, the United States and Europe. The Brand was developed by Autentica Tequilera SA.de CV. located in Tequila Jalisco, Mexico. The Brand was acquired by Human Brands in 2018 and subsequently sold to the Company in September 2018.
The Product
Tequila Alebrijes tequila is produced in Tequila Jalisco, Mexico. Our tequila is available in three styles: (i) tequila blanco, (ii) tequila reposado, and (iii) tequila añejo. Our product is offered in 750 ML bottle size and has 40% alcohol percentage. The retail price range of our product is approximately $33.95 to $54.95 per 750ML bottle.
Previous owners of the brand have sold product in the United States, Asia and Europe through a variety of distributors.
Marketing and Distribution Plans and Strategy
Until, if ever, we are licensed, we intend to retain third party brand managers to import and market our products. We have entered into a non-exclusive Brand Management Agreement with CCB as described below.
Brand Management Agreement
On October 29, 2018, we entered into a non-exclusive brand management agreement (“Brand Management Agreement”) with CCB for the brand Tequila Alebrijes (“Brand”). Pursuant to the Agreement, CCB has been appointed as a non-exclusive Brand Manager of the Company’s Tequila Alebrijes brand. CCB will perform certain services for the Company in connection with the planning, launch, creation, branding, market research, advertising, marketing, consulting, creative and/or digital services and sales for the Brand, the Company’s Tequila Alebrijes product and the Company. A copy of the Brand Management Agreement was attached as an Exhibit to a Form 8-K filed by the Company with the SEC on November 1, 2018,
The Company and CCB intend to develop a quarterly and annual budget pursuant to which CCB shall perform the agreed upon services under the Brand Management Agreement.
CCB will coordinate with the producer of the Company’s tequila product to ship existing inventory to CCB or to such other location as designated by CCB, to enable CCB to fulfill purchase orders from customers. If CCB anticipates that additional inventory should be produced for distribution, CCB shall discuss the inventory requirements with the Company. The Company shall be responsible for authorizing the producer to produce additional products for sale to customers on behalf of the Company.
CCB will receive 10% of the gross revenue received from the sale of the products marketed under the Brand Management Agreement.
The Brand Management Agreement is for a term of two (2) years subject to earlier termination as set forth in the Agreement.
CCB is an affiliate of Human Brands.
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The foregoing is a brief description of the material terms of the Brand Management Agreement, does not purport to be a complete description of the rights and obligations of the parties thereunder, and is qualified in its entirety by reference to the Brand Management Agreement, which was filed as an exhibit to a Form 8-K filed November 1, 2018 and can be obtained on the SEC EDGAR Website.
As of the date of this report, the brand management agreement has not resulted in the sale of any of our product and we anticipate that we will either terminate or modify the agreement and seek other product market alternatives. We have been in discussions with other entities concerning brand management and distribution services and we anticipate that we will attempt to expand brand management and distribution services to other service providers.
Production and Supplier
The Tequila Alebrijes product is produced by Autentica Tequilera, SA.de.CV (the “Producer”) in Tequila Jalisco, Mexico. The Producer is not affiliated with the Company or with the Brand Manager. In addition to our inventory stored at the Producer’s facilities, we have been informed that the Producer has the ability to continue to supply the Company with product as needed.
Current Inventory
In connection with the acquisition of the Tequila Alebrijes brand, we own approximately 6,500 bottles of tequila blanco, tequila reposado, and tequila anejo valued at $80,404. The inventory is currently stored at the producer’s facilities in Tequila Jalisco, Mexico and will be shipped to the Brand Manager as needed for distribution.
Other Brands
Tequila Alebrijes is our first brand. Subject to adequate capital, of which there can be no assurance, we intend to attempt to acquire additional distilled spirits brands and non-alcoholic beverage brands and to market and distribute other branded alcoholic and non-alcoholic beverage products.
Competition
The global distilled spirits industry, in general, and the tequila industry specifically is very competitive. The tequila industry is comprised of both major, well financed, participants and smaller boutique type producers or brands. We anticipate that we will compete on the basis of product quality, brand image, innovation, price, and service in response to consumer preferences. Top selling tequila brands in the US include Jose Cuervo, Sauza, Patron, Don Julio, El Jimada and Hernitos.
We anticipate that in order to expand our portfolio of brands we will focus on partnering with small to mid-size brands as opposed to major companies. We intend to use our capital stock to attempt to acquire other brands or partnership arrangements with other brands. As a result of our limited capital position and our lack of operating history in the beverage industry, we anticipate that it will be difficult to compete with these larger companies in pursuing agency distribution agreements and acquiring brands. We plan to seek acquisitions and other transactions with smaller privately-owned and family-owned brands, offering flexible transaction structures and providing brand owners the option to retain local production and “home” market sales. Given our size relative to our major competitors, most of which have multi-billion dollar operations, we believe that we must have greater focus on smaller brands and tailor transaction structures based on individual brand owner preferences. However, our relative capital position and resources may limit our marketing capabilities, limit our ability to expand into new markets and limit our negotiating ability with our distributors and other parties.
Intellectual Property
We anticipate that trademarks will be an important aspect of our business. We currently plan to sell products under the Tequila Alebrijes trademark. We anticipate that we will sell products under other trademarks as a product line increase. We plan to either own or license such trademarks.
Protection of our intellectual property is a strategic priority for our business. We currently own one trademark, Tequila Alebrijes. We will rely on a combination of copyright, trademark and trade secret laws, as well as confidentiality agreements, to establish and protect our proprietary rights. We do not rely on third-party licenses of intellectual property for use in our business.
The Tequila Alebrijes trademark was first registered on June 17, 2006 and was assigned to us by Human Brands, on September 13, 2018, pursuant to an assignment filed with the United States Patent and Trademark Office on September 25, 2018.
If our business plan is achieved, of which there can be no assurance, we anticipate that we will acquire other brands and their related trademarks, and other intellectual property.
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As of the date of this Form 10-K, we had acquired one registered internet domain name, www.tequilaalebrijes.com.
Regulatory Environment
Federal, state, local, and foreign authorities regulate how we produce, store, transport, distribute, and sell our products. Some countries and local jurisdictions prohibit or restrict the marketing or sale of distilled spirits in whole or in part.
In the United States, at the federal level, the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury regulates the spirits and wine industry with respect to the production, blending, bottling, labeling, sales, advertising, and transportation of beverage alcohol. Similar regulatory regimes exist at the state level and in most non-U.S. jurisdictions where we sell our products. In addition, beverage alcohol products are subject to customs duties or excise taxation in many countries, including taxation at the federal, state, and local level in the United States.
Mexican authorities regulate the production and bottling of tequilas; they mandate minimum aging periods for extra añejo (three years), añejo (one year), and reposado (two months) tequilas. Other beverage products that we may eventually become involved with have their own regulatory requirements as to production, labeling and other issues. We intend to comply with all applicable laws and regulations.
Accordingly, in the US we are subject to the jurisdiction of the Federal Alcohol Administration Act, U.S. Customs Laws, Internal Revenue Code of 1986, and the Alcoholic Beverage Control Laws of all fifty states.
The U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau regulates the production, blending, bottling, sales and advertising and transportation of alcohol products. Also, each state regulates the advertising, promotion, transportation, sale and distribution of alcohol products within its jurisdiction. We are also required to conduct business in the U.S. only with holders of licenses to import, warehouse, transport, distribute and sell spirits.
We are subject to U.S. regulations on the advertising, marketing and sale of beverage alcohol. These regulations range from a complete prohibition of the marketing of alcohol in some countries to restrictions on the advertising style, media and messages used.
Labeling of spirits is also regulated in many markets, varying from health warning labels to importer identification, alcohol strength and other consumer information. All beverage alcohol products sold in the U.S. must include warning statements related to risks of drinking beverage alcohol products.
In the U.S. control states, the state liquor commissions act in place of distributors and decide which products are to be purchased and offered for sale in their respective states. Products are selected for purchase and sale through listing procedures which are generally made available to new products only at periodically scheduled listing interviews. Consumers may purchase products not selected for listings only through special orders, if at all.
The distribution of alcohol-based beverages is also subject to extensive federal and state taxation in the U.S. and internationally. Most foreign countries in which we expect to do business impose excise duties on wines and distilled spirits, although the form of such taxation varies from a simple application on units of alcohol by volume to intricate systems based on the imported or wholesale value of the product. Several countries impose additional import duty on distilled spirits, often discriminating between categories in the rate of such tariffs. Import and excise duties may have a significant effect on our sales, both through reducing the consumption of alcohol and through encouraging consumer switching into lower-taxed categories of alcohol.
We will be subject to import and export laws relating to the US and any country we either intend to sell products or import products for resale
We will be subject to foreign laws to the extent we operate in foreign markets.
Compliance costs will be a significant factor in our business. At least initially, we plan to use licensed third party Brand Management companies and licensed distributors to manage our brand and market our products.
Funding Strategy
We anticipate that in order to achieve our marketing strategy for our Tequila Alebrijes brand and acquire and market other brands, we will be required to obtain significant capital from equity and debt sources. There can be no assurance that we will be able to obtain adequate additional capital as we need it or, even if it is available, that it will be on terms and conditions that are acceptable and commercially reasonable. We anticipate that we will issue shares of our capital stock to raise additional capital, to attract third party distribution networks, attempt to acquire interests in other brands and for employee compensation.