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.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
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.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
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 March 31, 2018, the Company has $ 0 in deferred.
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 March 31, 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 book for the three months ended March 31, 2018.
Cash
Equivalents
The
Company considers highly liquid instruments with original maturity of three months or less to be cash equivalents. As of
March 31, 2018, the Company has a cash balance of $1,011 in cash and cash equivalents, compared to $69 at December 31, 2017.
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 three months ended March 31, 2018 and 2017, 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 March
31, 2018, the Company has $0 in inventories.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
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.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
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.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
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 $303,716 for the three months ended
March 31, 2018, and has an accumulated deficit of $6,285,653 as of March 31, 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.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
4.
INVENTORIES
No
inventories were recorded as March 31, 2018 and 2017.
5.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment at March 31, 2018 and December 31, 2017, consisted of:
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
Computers
|
|
$
|
1,362
|
|
|
$
|
15,986
|
|
|
Freezers
|
|
|
0
|
|
|
|
39,153
|
|
|
Office Furniture
|
|
|
0
|
|
|
|
15,687
|
|
|
Rugs
|
|
|
0
|
|
|
|
6,000
|
|
|
Software - Accounting
|
|
|
0
|
|
|
|
2,901
|
|
|
Telephone System
|
|
|
0
|
|
|
|
5,814
|
|
|
Video Camera
|
|
|
218
|
|
|
|
1,528
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
(226
|
)
|
|
|
(59,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value
|
|
$
|
1,354
|
|
|
$
|
27,843
|
|
Depreciation
expense for the three months ended March 31, 2018 was $226 compared to $998 for the same period of March 31, 2017.
6.
ACCRUED EXPENSE
As
of March 31, 2018, the Company had accrued expenses of $371,673 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.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
8.
RELATED PARTY TRANSACTIONS
The
following table presents a summary of the Company’s promissory notes issued to related parties as of March 31, 2018:
|
Noteholder
|
|
Note Amount
|
|
|
Issuance Date
|
|
Unpaid Amount
|
|
|
S. Masjedi
|
|
$
|
150,000
|
|
|
12/10/2010
|
|
$
|
122,692
|
|
|
A. Masjedi
|
|
|
500,000
|
|
|
6/1/2013
|
|
|
160,651
|
|
|
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
|
|
|
|
|
$
|
325,343
|
|
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 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. The current balance is
$160,651.
On
September 9, 2014, Snobar 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 March 31, 2018, the Company had related party current and long-term notes payable of $283,343 and $42,000, respectively.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
The
following table presents a summary of the Company’s promissory notes issued to unrelated
|
|
|
Note Amount
|
|
|
Issuance Date
|
|
Balance
|
|
|
|
|
$
|
86,821
|
|
|
3/14/13
|
|
$
|
86,821
|
|
|
|
|
|
15,000
|
|
|
7/22/13
|
|
|
15,000
|
|
|
|
|
|
10,000
|
|
|
2/21/14
|
|
|
10,000
|
|
|
|
|
|
10,000
|
|
|
2/1/14
|
|
|
1,000
|
|
|
|
|
|
15,000
|
|
|
8/21/17
|
|
|
15,000
|
|
|
|
|
|
272,500
|
|
|
2/13/17
|
|
|
207,500
|
|
|
|
|
|
30,000
|
|
|
1/13/18
|
|
|
30,000
|
|
|
|
|
|
30,000
|
|
|
2/1/12
|
|
|
25,000
|
|
|
|
|
|
73,473
|
|
|
5/1/17
|
|
|
73,473
|
|
|
|
|
|
33,000
|
|
|
2/22/18
|
|
|
33,000
|
|
|
|
|
|
500,000
|
|
|
5/19/14
|
|
|
150,000
|
|
|
|
|
|
75,000
|
|
|
7/12/17
|
|
|
55,000
|
|
|
|
|
|
18,822
|
|
|
3/14/18
|
|
|
18,822
|
|
|
|
|
|
119,000
|
|
|
7/25/17
|
|
|
119,000
|
|
|
Total
|
|
$
|
1,288,616
|
|
|
|
|
$
|
839,616
|
|
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 March 31, 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 March 31, 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 Snobar 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
March 31, 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 March 31, 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. As a result of the renegotiation
with the note holder.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
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. The current balance as of March 31, 2018 is $150,000.
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 $222,500
as of March 31, 2018, including the $15,000 penalty 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
subect to a 6 month hold before any stock was issued. The current balance is $119,000.
On
July 12, 2017, the issued a Convertible Promissory Note with a certain unrelated party JSJ for total gross proceeds of $75,000.
The note was subject to a 6 month hold before any stock is converted. The note is convertible at any time after the issuance date,
bears interest at 12% and matures on April 12, 2018. The current principal amount is $55,000. The company entered into an agreement
to pay a principal amount of $40,000 plus a fee of $20,000 and issue one and only one common stock certificate of 631,000 shares.
Subsequently JSJ voided the agreement and has filed a complaint.
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 March 31, 2018.
Over
the past year a company has periodically loaned the PACV money. 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 $73,473.
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 March 31, 2018 is
$18,882. That remaining balance converted into common stock in April of 2018.
As
of March 31, 2018, the Company had total short-term notes payable of $836,138 and long-term notes payable of $328,821.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
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 March 31, 2018 and December 31, 2017, there were 1,000,000 shares of Series E Preferred Stock issued and outstanding.
From
January 1, 2018 through March 31, 2018, the Company issued 24,319,634 shares of its common stock to various investors for services
or debt conversion.
From
January 1, 2018 through March 31, 2018, the Company issued 6,969,634 shares of its common stock in the first quarter of 2018 for
the conversion of certain debts. During the first quarter of 2018, the Company issued 17,350,000 shares of its common stock for
consulting services.
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 hold one vote per share. As of March 31, 2018 and December 31, 2017, there were 60,749,882 and 36,430,248 shares of common
stock issued and outstanding, respectively.
Pacific Ventures
Group, Inc.
Notes to Unaudited
Condensed Consolidated Financial Statements
(Unaudited)
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.
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
the following are material to disclose.
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. As of the date of this Quarterly Report, no awards or any shares of the Company’s common stock
have
been issued under the 2017 Plan.