Quarterly Report (10-q)

Date : 08/19/2019 @ 6:17PM
Source : Edgar (US Regulatory)
Stock : Spirits Time International, Inc. (SRSG)
Quote : 1.65  0.0 (0.00%) @ 1:07PM

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-Q

 

 

(Mark One)

þ Quarterly  report  pursuant  to  Section  13  or  15(d)  of  the  Securities  Exchange  Act  of  1934  for  the quarterly period ended June 30, 2019.

 

o Transition  report  pursuant  to  Section  13  or  15(d)  of  the  Securities  Exchange  Act  of  1934  for  the transition period from

_________________________ to _______________________.

 

 

 

Commission File Number:  333-151300

 

SPIRITS TIME INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

20-3455830

 

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

1661 Lakeview Circle

Ogden, Utah 84403

(801) 399-3632

 (Registrant’s address and telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: NONE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   x No   o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted  pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer  o

 

 

 

Non-accelerated filer o

 

Smaller reporting company  x

(Do not check if a smaller reporting company)

 

Emerging growth company o  

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

 

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).Yes o No  x  

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares outstanding of the issuer’s common stock, $0.001 par value (the only class of voting stock), was 7,281,005 on August 14, 2019.


1


SPIRITS TIME INTERNATIONAL, INC.

 

INDEX

 

 

Page

 

Number

PART I - FINANCIAL INFORMATION

3

 

 

Item 1 – Financial Statements -Unaudited

3

 

 

Balance Sheets

F-2

Statements of Operations

F-3

Statements of Stockholders’ Equity (Deficit)

F-4

Statements of Cash Flows

F-5

Notes to Financial Statements

F-6

 

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

4

 

 

Item 3 – Quantitative and Qualitative Disclosure About Market Risk

8

 

 

Item 4 – Controls and Procedures

8

 

 

PART II – OTHER INFORMATION

10

 

 

Item 1 - Legal Proceedings

10

 

 

Item 1A–Risk Factors

10

 

 

Item 2 – Unregistered Sales of  Equity Securities and Use of Proceeds

10

 

 

Item 3 - Defaults upon Senior Securities

10

 

 

Item 4 – Mine Safety Disclosures

10

 

 

Item 5 - Other Information

10

 

 

Item 6 – Exhibits

10

 

 

Signatures

11

 

 

Index to Exhibits

11

 

 

 


2


 

 

 

PART I ― FINANCIAL INFORMATION

 

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These statements are based on management’s beliefs and assumptions, and on information currently available to management.  Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.

 

Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties, and assumptions.  Our future results and shareholder values may differ materially from those expressed in these forward-looking statements.  Readers are cautioned not to put undue reliance on any forward-looking statements.  

 

Item 1. –  Financial Statements

 

As used herein, the terms “Spirits Time,” “we,” “our,” and “us” refer to Spirits Time International, Inc., a Nevada corporation, unless otherwise indicated. The unaudited financial statements of the registrant for the three and six months ended June 30, 2019 and 2018 follow. The condensed financial statements reflect all adjustments that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  All such adjustments are of a normal and recurring nature.


3



4


 

  SPIRITS TIME INTERNATIONAL, INC.

June 30, 2019

 

INDEX TO FINANCIAL STATEMENTS

 

 

 

Page(s)

Balance Sheets (Unaudited)

F-2

 

 

 

Statements of Operations (Unaudited)

F-3

 

 

 

Statements of Stockholders’ Equity (Deficit) (Unaudited)

F-4

 

 

Statements of Cash Flows (Unaudited)

F-5

 

 

Notes to the Financial Statements (Unaudited)

F-6

 

 


F- 1


 

 

 

SPIRITS TIME INTERNATIONAL, INC.

Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

$         41,390

 

$       121,739

 

Prepaid inventory

 

 

 

 

           69,530

 

           69,530

 

Inventory

 

 

 

 

           80,470

 

           80,470

 

 

 

 

 

 

 

 

 

 

 

 

Total Current Assets

 

 

 

 

         191,390

 

         271,739

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

 

 

 

         275,000

 

         275,000

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

 

 

$       466,390

 

$       546,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

 

$         91,105

 

$         73,205

 

Accrued interest

 

 

 

 

           16,360

 

             8,347

 

Accrued interest - related parties

 

 

 

 

           57,549

 

           51,593

 

Loans payable - related parties

 

 

 

 

         156,228

 

         153,228

 

Convertible notes payable - related parties

 

 

 

           55,000

 

           55,000

 

Convertible note payable (net of unamortized debt discount

 

 

 

 

 

 of $5,937 and $17,812, and unamortized debt premium

 

 

 

 

 

 

 of $69,999, and $219,998, respectively)

 

 

 

         364,062

 

         502,186

 

Notes payable

 

 

 

 

           40,000

 

           40,000

 

 

 

 

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

 

 

         780,304

 

         883,559

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

 

 

         780,304

 

         883,559

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 20,000,000 shares

 

 

 

 

 

 

 

authorized, -0- shares issued and outstanding

 

 

 

                     -

 

                     -

 

Common stock, $0.001 par value; 140,000,000 shares

 

 

 

 

 

 

 

authorized, 7,281,005 shares issued and outstanding

 

 

 

             7,281

 

             7,281

 

Additional paid-in capital

 

 

 

 

         834,536

 

         684,537

 

Accumulated deficit

 

 

 

 

     (1,155,731)

 

     (1,028,638)

 

 

 

 

 

 

 

 

 

 

 

 

Total Stockholders' Equity (Deficit)

 

 

 

 

        (313,914)

 

        (336,820)

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS'  EQUITY (DEFICIT)

 

$       466,390

 

$       546,739

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.


F- 2


SPIRITS TIME INTERNATIONAL, INC.

Statements of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

NET REVENUES

 

 

$                   -

 

$                   -

 

$                   -

 

$                   -

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Professional fees

 

 

           45,092

 

           14,448

 

           68,181

 

           20,508

 

Selling, general and administrative

 

 

             4,491

 

             1,734

 

           17,385

 

             3,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

           49,583

 

           16,182

 

           85,566

 

           24,034

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

          (49,583)

 

          (16,182)

 

          (85,566)

 

          (24,034)

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSES)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense (including the amortization of debt

 

 

 

 

 

 

 

 

 

 discount of $5,938, $-0-, $11,875 and $-0-, respectively)

          (20,847)

 

            (5,360)

 

          (41,527)

 

          (10,542)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Income (Expenses)

 

 

          (20,847)

 

            (5,360)

 

          (41,527)

 

          (10,542)

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

 

          (70,430)

 

          (21,542)

 

        (127,093)

 

          (34,576)

 

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

 

 

                     -

 

                     -

 

                     -

 

                     -

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

$        (70,430)

 

$        (21,542)

 

$      (127,093)

 

$        (34,576)

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS PER SHARE - BASIC AND DILUTED

 

$            (0.01)

 

$            (0.01)

 

$            (0.02)

 

$            (0.01)

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF

 

 

 

 

 

 

 

 

 

SHARES OUTSTANDING - BASIC AND DILUTED

 

      7,281,005

 

      3,181,005

 

      7,281,005

 

      3,181,005

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 


F- 1


SPIRITS TIME INTERNATIONAL, INC.

Statements of Stockholders' Equity (Deficit)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

 

Additional

 

 

 

Total

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Stockholders'

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

        3,181,005

 

$            3,181

 

$         342,343

 

$        (579,608)

 

$        (234,084)

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months ended

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

                     -

 

                     -

 

                     -

 

           (13,034)

 

           (13,034)

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2018

 

        3,181,005

 

              3,181

 

           342,343

 

          (592,642)

 

          (247,118)

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months ended

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

                     -

 

                     -

 

                     -

 

           (21,542)

 

           (21,542)

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2018

 

        3,181,005

 

$            3,181

 

$         342,343

 

$        (614,184)

 

$        (268,660)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2019

 

 

 

 

Additional

 

 

 

Total

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Stockholders'

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

        7,281,005

 

$            7,281

 

$         684,537

 

$     (1,028,638)

 

$        (336,820)

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt premium

 

                     -

 

                     -

 

            74,999

 

                     -

 

            74,999

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months ended

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

                     -

 

                     -

 

                     -

 

           (56,663)

 

           (56,663)

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

 

        7,281,005

 

              7,281

 

           759,536

 

       (1,085,301)

 

          (318,484)

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt premium

 

                     -

 

                     -

 

            75,000

 

                     -

 

            75,000

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months ended

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

                     -

 

                     -

 

                     -

 

           (70,430)

 

           (70,430)

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

 

        7,281,005

 

$            7,281

 

$         834,536

 

$     (1,155,731)

 

$        (313,914)

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.


F- 1


 

 

 

SPIRITS TIME INTERNATIONAL, INC.

Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

$      (127,093)

 

$        (34,576)

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

used by operating activities:

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

 

 

           11,875

 

                     -

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued interest

 

 

 

 

           25,913

 

           11,689

 

Accrued interest - related parties

 

 

 

 

             5,956

 

           10,542

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Used by Operating Activities

 

 

 

          (83,349)

 

          (12,345)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

                     -

 

                     -

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from loans payable - related parties

 

 

 

             3,000

 

           11,875

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by Financing Activities

 

 

 

             3,000

 

           11,875

 

 

 

 

 

 

 

 

 

 

DECREASE IN CASH AND CASH EQUIVALENTS

 

 

 

          (80,349)

 

               (470)

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

         121,739

 

                534

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

 

 

$         41,390

 

$                64

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

 

 

$         15,683

 

$                   -

 

Cash paid for income taxes

 

 

 

 

$                   -

 

$                   -

 

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Amortization to additional paid-in capital of premium on

 

 

 

 

 

 

 convertible note payable

 

 

 

 

$       149,999

 

$                   -

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.


F- 1


SPIRITS TIME INTERNATIONAL, INC.

Notes to the Financial Statements

June 30, 2019

(Unaudited)

 

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

 

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial statements at June 30, 2019 and for all periods presented have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2018 audited financial statements.  The results of operations for the period ended June 30, 2019 are not necessarily indicative of the operating results for the full year.

 

Loss Per Share - The computations of basic loss per share of common stock are based on the weighted average number of shares outstanding at the date of the financial statements. At June 30, 2019, the Company had warrants outstanding that are exercisable into 42,857 shares of common stock, and convertible debt outstanding that is convertible into 219,383 shares of common stock.  The common stock issuable from the warrants and convertible debt was not included, as it would be anti-dilutive due to continuing losses.

 

Six Months Ended

Loss (Numerator)

Shares (Denominator)

Per Share Amount

 

June 30, 2019

 

$             (127,093)

 

7,281,005

 

$             (0.02)

 

June 30, 2018

 

$             (34,576)

 

3,181,005

 

$             (0.01)

 

Inventory - Inventory consists of bottled tequila acquired in the acquisition of the Tequila Alebrijes products and intangibles (Note 2), and is held by a third-party tequila production warehouse in Tequila Jalisco, Mexico. Inventory is stated at lower of cost or net realizable value, with cost being determined on the first-in, first-out (“FIFO”) method. As of June 30, 2019 and December 31, 2018, the Company had finished goods inventory on-hand totaling $80,470 and prepaid inventory totaling $69,530. The Company has determined that no reserve for obsolete or slow-moving inventory is necessary as of June 30, 2019 or December 31, 2018.

 

NOTE 2 – ACQUSITION OF ASSETS

 

On September 28, 2018 (the “Acquisition Date”), the Company completed an Asset Purchase Agreement (the "Agreement”) with Human Brands International, Inc., a privately-held Nevada corporation ("HBI").  Pursuant to the Agreement, the Company acquired from HBI certain assets of HBI (the “Assets”) in exchange for 3,500,000 shares of common stock of the Company valued at $375,000, and $50,000 in cash, for total purchase price of $425,000 (the "Acquisition"). The Assets acquired were 12,000 bottles of Tequila Alebrijes products (the “Inventory”) and the brand name and property rights (the “Intangibles”).  Of the total $425,000 purchase price, $150,000 was allocated to the Inventory based on the tequila bottles’ invoiced fair market value on the Acquisition Date ($80,470 to finished goods inventory on hand on the Acquisition Date and $69,530 to Prepaid Inventory deliverable to the Company by HBI), with the remaining $275,000 allocated to the Intangibles. The Company has determined that no impairment of the Assets is necessary as of June 30, 2019 or December 31, 2018, as the Company plans to commence sale and shipment of the Inventory utilizing the Tequila Alebrijes branding and property rights during the third quarter of 2019.

On the Acquisition Date, the 3,500,000 shares represented 52.4% of the Company’s then-issued and outstanding common stock.  So as not to effect a change in control, HBI granted the Company’s President, Mark Scharmann, an Irrevocable Proxy to vote 300,000 of its shares of the Company’s common stock.  As a result, Mark Scharmann had the right to vote 3,361,553 shares of the Company’s common stock and HBI had the right to vote 3,200,000 shares of the Company’s common stock, which was reduced to 2,903,846 shares due to HBI’s transfer of 296,154 of its shares to other shareholders.  On May 24, 2019 the Company and proxy holder Mark Scharmann terminated the proxy and such proxy is of no further force or effect. HBI has full voting rights as to the 300,000 shares described in the proxy, as HBI’s ownership percentage has been diluted to 44% as a result of other stock issuances occurring subsequent to the Acquisition.


F- 1


 

SPIRITS TIME INTERNATIONAL, INC.

Notes to the Financial Statements

June 30, 2019

(Unaudited)

 

The Company did not acquire any ongoing operation of or substantive processes from HBI.  The Company did not merge with or acquire an equity interest in HBI.  The Company made no changes in its officers or directors.  The Company did not hire any employees of HBI.  The transaction was essentially the acquisition of certain rights to distribute, rights to use a brand, and a limited amount of inventory.  The Company intends to either assign the acquired assets to a third party for a royalty, or contract with one or more other entities to market products under the Tequila Alebrijes brand on behalf of the Company.  As such, the transaction has been deemed an asset purchase, with the Assets recorded at their fair market value on the Acquisition date.  As a result of the Acquisition, the Company is no longer considered to be a shell company.

NOTE 3 - GOING CONCERN

 

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has had no revenues and has generated losses from operations. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. These factors raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations.

 

The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

During the six months ended June 30, 2019 and 2018, the Company received loans in the amount of $3,000 and $11,875, respectively, from related parties of the Company.  These loans accrue interest at the rate of 12% per annum, are due on demand and are not convertible into common stock of the Company.  The balances due on loans payable to related parties were principal of $156,228 and $153,228 plus accrued interest of $57,549 and $51,593 as of June 30, 2019 and December 31, 2018, respectively.  During the six months ended June 30, 2019, interest in the amount of $6,500 was paid.  

 

Beginning August 2017, the Company entered into an oral agreement to pay the Company’s sole director $500 per month as payment for use of his personal residence as the Company’s office and mailing address.  The Company has recorded rent expense of $3,000 during the six months ended June 30, 2019 which is included in the selling, general and administrative expenses on the statements of operations.

 

On October 29, 2018, we entered into a non-exclusive Brand Management Agreement (“Brand Management Agreement”) with CapCity Beverage, LLC (“CCB”) for the brand Tequila Alebrijes (“Brand”).  CCB is a wholly-owned subsidiary of HBI.  HBI currently owns approximately 44% of our common stock.

 

Pursuant to the Brand Management Agreement, CCB has been appointed as a non-exclusive Brand Manager of the Company’s Tequila Alebrijes brand. The Brand Management Agreement is for a term of two (2) years subject to earlier termination as set forth in the Brand Management Agreement. 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. CCB will receive 10% of the gross revenue received from the sale of the products marketed under the Brand Management Agreement. 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.


F- 2


 

SPIRITS TIME INTERNATIONAL, INC.

Notes to the Financial Statements

June 30, 2019

(Unaudited)

 

NOTE 5 – CONVERTIBLE PROMISSORY NOTES / RELATED AND NON-RELATED PARTIES

 

The Company has a collateralized convertible debt obligation with an unaffiliated entity outstanding at June 30, 2019 as follows:

 

Note (A)

 

Principal (1)

 

Less Debt Discount

 

Plus Premium

 

Net Note Balance

 

Accrued Interest

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

$         300,000

 

$          (5,937)

 

$       69,999

 

$         364,062

 

$       15,163

December 31, 2018

 

$         300,000

 

$        (17,812)

 

$     219,998

 

$         502,186

 

$         7,787

 

 

(1) Collateralized by the Company’s assets, including accounts receivable, cash and equivalents, inventory, property, equipment, intangibles.  At June 30, 2019 and December 31, 2018, the Company’s assets consisted of cash and equivalents of $41,390 and $121,739, respectively, inventory/prepaid inventory of $150,000, and intangible assets of $275,000, for total carrying value of $466,390 and $546,739, respectively.  

 

(A) On September 24, 2018 (the “Date of Issuance”) the Company issued a convertible promissory note (the “Note”) with a face value of $300,000, maturing on September 24, 2019, and a stated interest of 10% to a third-party investor. The note is convertible at any time after 1 month of the funding of the note into a variable number of the Company's common stock, based on a conversion rate of 50% of the lowest trading price for the 25 days prior to conversion. The note was funded on September 28, 2018, when the Company received proceeds of $276,250, after disbursements for the lender's transaction costs, fees and expenses which in aggregate resulted in a total discount of $23,750 to be amortized to interest expense over the life of the note. Additionally, the note’s variable conversion rate component requires that the note be valued at its stock redemption value (i.e., “if-converted” value) pursuant to ASC 480, Distinguishing Liabilities from Equity , with the excess over the note’s undiscounted face value being deemed a premium to be added to the principal balance and amortized to additional paid-in capital over the life of the note. As such, the Company recorded a premium on the note of $299,998 as a reduction to additional paid-in capital based on a discounted “if-converted” rate of $1.825 per share (50% of the lowest trading price during the 25 days preceding the note's issuance), which computed to 164,383 shares of 'if-converted' common stock with a redemption value of $599,998 due to $3.65 per share fair market value of the Company's stock on the note's date of issuance. Debt discount amortization is recorded as interest expense, while debt premium amortization is recorded as an increase to additional paid-in capital. During the six months ended June 30, 2019, the Company recorded $149,999 of premium amortization to additional paid-in capital, and amortization of debt discount of $11,875.   Interest expense on the Note approximates $7,500 per quarter, and the Company made $7,500 in interest payments during the six months ended June 30, 2019, resulting in $15,163 and $7,787 in accrued interest at June 30, 2019 and December 31, 2018, respectively. 

 

Along with the Note, on the Date of Issuance the Company issued 42,857 Common Stock Purchase Warrants (the “Warrants”), exercisable immediately at a fixed exercise price of $3.50 with an expiration date of September 24, 2023.  The Company has determined that the Warrants are exempt from derivative accounting and were valued at $86,750 on the Date of Inception using the Black Scholes Options Pricing Model.  Assumptions used for the Black Scholes Options Pricing Model include (1) stock price of $3.65 per share, (2) exercise price of $3.50 per share, (3) term of 5 years, (4) expected volatility of 3.87% and (5) risk free interest rate of 2.96%.  The note proceeds of $300,000 were then allocated between the fair value of the promissory note ($300,000) and the Warrants ($86,750), resulting in a debt discount of $67,292.  As the warrants are exercisable immediately, this debt discount was amortized in its entirety to interest expense on the Date of Issuance.  

 

In March 2014, the Company issued a $40,000 convertible promissory note to the sole officer and director of the Company and a $15,000 convertible promissory note to another affiliated shareholder (the “Convertible Notes”). The Convertible

Notes had a term of one year expiring March 2015, and are now payable on demand, and accrue interest at the rate of 12% per annum. The holders of the Convertible Notes, may, at their option, convert all or any portion of the outstanding principal balance of, and all accrued interest on the Convertible Notes into shares of the Company’s common stock, par value $0.001 per share, at a conversion rate of $1.00 per share.  Accrued interest on the Convertible Notes totaled $34,754 and $31,481 at June 30, 2019 and December 31, 2018, respectively.

 


F- 3


 

SPIRITS TIME INTERNATIONAL, INC.

Notes to the Financial Statements

June 30, 2019

(Unaudited)

 

NOTE 6 – CONVERTIBLE NOTES AND LOANS PAYABLE – RELATED PARTIES

 

Convertible notes and loans payable – related parties consisted of the following:

 

 

 

 

 

 

June 30,

2019

 

December 31, 2018

Loans payable to related parties, interest at 12%  per annum, due on demand

 

           156,228

 

 153,228

Convertible notes payable to related parties, interest at 12% per annum, due on March 7, 2015 (in default), convertible into common stock at $1.00 per share

 

55,000

 

55,000

Total Convertible Notes and Loans Payable – Related Parties

 

211,228

 

208,228

Less: Current Portion

 

(211,228)

 

(208,228)

Long-Term Convertible Notes and Loans Payable – Related Parties

 

$  - 

 

$    - 

 

Accrued interest on the convertible notes and loans payable, related parties was $57,549 and $51,593 at June 30, 2019 and December 31, 2018, respectively.  The Company did not record beneficial conversion feature elements on the convertible debt due to the conversion rate of $1.00 per share being greater than the estimated fair market value of the underlying shares on the date of issuance.  

 

NOTE 7 – NOTES PAYABLE

 

Notes payable consisted of the following:

 

 

 

June 30,

2019

 

December 31, 2018

 

 

 

 

 

Note payable to an individual, interest at 12% per annum, issued August 1, 2018 due November 15, 2018 (in default), unsecured

 

 

 

$           10,000

 

 

 

$             10,000

 

 

 

 

 

Note payable to an individual, interest at 12% per annum, issued December 31, 2018 due December 31, 2019, unsecured

 

 

 

30,000

 

 

 

30,000

 

 

 

 

 

Total Notes Payable

 

40,000

 

40,000

Less: Current Portion

 

(40,000)

 

(40,000)

Long-Term Notes Payable

 

$                     -

 

$                       -

 

 

 

 

 

Accrued interest on notes payable was $1,197 and $500 at June 30, 2019 and December 31, 2018.  During the six months ended June 30, 2019, interest in the amount of $1,683 was paid.  

 

NOTE 8 – NOTE DEFAULT

 

On April 25, 2019, the Company received a demand letter from Auctus’s legal counsel that stated, among other things, that the Company has defaulted on the Auctus Note. The demand letter further stated that as a result of such breaches and the default remedy provisions of the Note set forth therein, as of April 25, 2019, the Company, owes Auctus at least $490,767 calculated as follows:


F- 4


SPIRITS TIME INTERNATIONAL, INC.

Notes to the Financial Statements

June 30, 2019

(Unaudited)

 

Outstanding principal of $300,000 + accrued interest of $12,178 + $15,000 liquidated damages relating back to the Auctus Note issuance date for breach of Section 3.1 + 50% liquidated damages of $163,589 for default under Sections other than Section 3.2.

 

We currently intend to file a registration statement covering the shares of common stock underlying the Auctus Note in the next 60 days.  The filing of the registration statement will not cure the defaults claimed by Auctus unless Auctus waives such defaults.  We have no reason to believe that Auctus will waive such claimed defaults.

 

We have communicated with Auctus regarding these matters but are unable to predict whether we will be able to enter into a workable resolution with Auctus.  If not, Auctus could commence collection action against the Company and seek to foreclose on our assets and seek other remedies.

 

NOTE 9 – SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events for the period of June 30, 2019 through the date the financial statements were issued, and concluded there were no events or transactions occurring during this period that required recognition or disclosure in its financial statements.


F- 5


 

Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations

 

FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements that involve risk and uncertainties. We use words such as "anticipate," "believe," "plan," "expect," "future," "intend," and similar expressions to identify such forward-looking statements. Investors should be aware that all forward-looking statements contained within this filing are good faith estimates of management as of the date of this filing and actual results may differ materially from historical results or our predictions of future results.

 

General Financial Matters

 

Our auditor’s report on our financial statements for the year ended December 31, 2018 contained a going concern qualification as there is substantial doubt about our ability to continue as a going concern.  Our liabilities significantly exceed our assets and we have yet to generate revenue from operations. Our primary creditor has claimed a default under the Promissory Note we issued to such creditor.  In order for us to continue to achieve our business plan we need to raise significant additional capital of which there can be no assurance. An investment in the Company would create a significant risk of loss to an investor.

 

Overview

 

Spirits Time International, Inc. (the “Company”) 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 (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, we ceased to be a “shell company” and have commenced operations in the beverage industry (initially in the tequila beverage industry).  

 

We have limited operating history, no revenue, and negative working capital.

 

On September 28, 2018, we completed and closed upon an Asset Acquisition Transaction (the “Acquisition”) 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 (See Notes to the Financial Statements).  Auctus has delivered a notice of default to us relating to such loan.  See Part II – Item 3 of this Form 10-Q.

 

We issued 3,500,000 shares of our common stock valued at $375,000 to Human Brands, and paid Human Brands $50,000 for the brand name, trademark and other acquired assets, for total purchase price of $425,000.   As a result of such asset acquisition, on the acquisition date Human Brands owned approximately 52.4 % of our then-issued and outstanding shares of common stock.  So as not to effect a change in control, Human Brands granted our President, Mark Scharmann, an Irrevocable Proxy to vote 300,000 of its shares of our common stock.  We have since issued additional shares of our common stock to other individuals and HBI has transferred 296,154 of its shares to another shareholder, thereby reducing HBI’s ownership percentage to 44% (3,203,846 shares) as of the date of this filing.  As such, on May 24, 2019 the Company and proxy holder Mark Scharmann terminated the proxy and such proxy is of no further force or effect. HBI has full voting rights as to the 300,000 shares described in the proxy. We anticipate that Human Brands’ percentage ownership of the Company will decrease as we issue additional shares in the future to raise additional capital and to effect acquisitions and business partnerships.

 

We did not acquire any ongoing operation of or substantive processes from Human Brands.  We did not merge with or acquire an equity interest in Human Brands.  We made no changes in our officers or directors.  No officer, director or employee of Human Brands is an officer or director of the Company.  We did not change our accounting firm or our transfer agent as a result of the completion of the Asset Acquisition.  We did not hire any employees 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.  As such, the transaction has been deemed an asset purchase, with the acquired assets recorded at their fair market value on the acquisition date.  


4


 

We intend to look for other beverage brand acquisition transactions in the future.

 

Plan of Operations

 

Prior to the Asset Acquisition transaction, we were a shell company with no substantive operations. The purpose of the Company was to seek and investigate potential assets, properties or businesses to acquire while complying with the periodic reporting requirements of the Exchange Act for so long as we are subject to those requirements.

 

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 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, as described in the Notes to the Financial Statements. Currently, the “Tequila Alebrijes” brand of tequila is our only product brand.

 

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.

 

Acquisition of Assets

 

On September 13, 2018 we entered into an Asset Purchase Agreement to purchase assets from Human Brands, as described above.

 

The Company’s Newly Adopted Business Plan - General

 

Our new business plan is to engage in the business of acquiring rights to market non-alcoholic and alcoholic beverage brands. As described above, our first acquisition was the Tequila Alebrijes brand of tequila. Currently, that is our only product brand.

 

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.  

 

We 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 June 30, 2019, 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.

 

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.


5


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-Q, 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 distribution 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. Presently, our non-exclusive 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 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.  Our Tequila Alebrijes product is expected to be shipped to the US in the third quarter of 2019.

 

In addition to CCB, we are discussing potential product distribution relationships with other participants in the beverage distribution industry.  

 

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.

 

Results of Operations

 

As the result of the acquisition of the Tequila Alebrijes assets and a change of our business direction, our future operations will be completely different than our historical lack of operations and financial position.  Accordingly, the historical disclosure in this Section is not an appropriate indication of our future results of operations disclosure.

 

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.

 

Three months ended June 30, 2019 compared to the three months ended June 30, 2018

 

For the three months ended June 30, 2019 and 2018, the Company had no revenue.  For the three months ended June 30, 2019, the Company incurred $45,092 of professional fees compared to $14,448 for the three months ended June 30, 2018.  Such expenses


6


consist primarily of legal and accounting fees, as well as annual fees required to maintain the Company’s corporate status.  For the three months ended June 30, 2019, the Company incurred $4,491 of selling, general and administrative expenses compared to $1,734 for the three months ended June 30, 2018.  The increase is due primarily to marketing and travel fees incurred related to the Asset Acquisition.  For the three months ended June 30, 2019, the Company incurred $20,847 of interest expense on notes payable compared to $5,360 for the three months ended June 30, 2018.  Included in interest expense is the amortization of debt discount of $5,938 during the three months ended June 30, 2019.  See Note 5 in the notes to the financial statements.    

 

As a result of the foregoing, the Company incurred a loss of $70,430 and $21,542, respectively, for the three months ended June 30, 2019 and 2018.    

 

Six months ended June 30, 2019 compared to the six months ended June 30, 2018

 

For the six months ended June 30, 2019 and 2018, the Company had no revenue.  For the six months ended June 30, 2019, the Company incurred $68,181 of professional fees compared to $20,508 for the six months ended June 30, 2018.  Such expenses consist primarily of legal and accounting fees, as well as annual fees required to maintain the Company’s corporate status.  For the six months ended June 30, 2019, the Company incurred $17,385 of selling, general and administrative expenses compared to $3,526 for the six months ended June 30, 2018.  The increase is due primarily to marketing and travel fees incurred related to the Asset Acquisition.  For the six months ended June 30, 2019, the Company incurred $41,527 of interest expense on notes payable compared to $10,542 for the six months ended June 30, 2018.  Included in interest expense is the amortization of debt discount of $11,875 during the six months ended June 30, 2019.  See Note 5 in the notes to the financial statements.    

 

As a result of the foregoing, the Company incurred a loss of $127,093 and $34,576, respectively, for the six months ended June 30, 2019 and 2018.    

 

Liquidity

 

As the result of the acquisition of the Tequila Alebrijes assets and a change of our business direction, our future operations, liquidity and financial position will be completely different than our historical lack of operations, liquidity and financial position.  Accordingly, the historical disclosure in this Section is not an appropriate indication of our future liquidity and financial position disclosure.

 

As of June 30, 2019, the Company had $41,390 of cash and negative working capital of $588,914.  This compares with cash of $121,739 and negative working capital of $611,820 as of December 31, 2018.

 

For the six months ended June 30, 2019, the Company used cash of $83,349 in operations consisting of the loss of $127,093 which was offset by the amortization of debt discount of $11,875, changes in accounts payable and accrued interest of $25,913 and changes in accrued interest due to related parties of $5,956. This compares with $12,345 used in operations for the six months ended June 30, 2018 consisting of the loss of $34,576 which was offset by changes in accounts payable and accrued interest of $11,689 and changes in accrued interest due to related parties of $10,542.

 

There were no investing activities during the six months ended June 30, 2019 and 2018.

 

For the six months ended June 30, 2019, financing activities provided $3,000 compared to $11,875 for the six months ended June 30, 2018, which consisted of proceeds from loans payable to related parties.     

 

As a result of the foregoing, there was a decrease of $80,349 in cash for the six months ended June 30, 2019 from the cash on hand as of December 31, 2018.  

 

From the date of inception (October 18, 2005) to June 30, 2019, the Company has recorded an accumulated deficit of $1,155,731, most of which were expenses relating to the initial development of the Company and maintaining reporting company status with the SEC over the past 10 years.  In order to survive as a going concern, the Company will require additional capital investments or borrowed funds to meet cash flow projections and carry forward our business objectives. There can be no guarantee or assurance that we can raise adequate capital from outside sources to fund the proposed business. Failure to secure additional financing would result in business failure and a complete loss of any investment made into the Company.

 

Our ability to continue as a going concern in the next 12 months depends on our ability to obtain sources of capital to fund our continuing operations and to fund our operations in the beverage industry. As of June 30, 2019, our remaining cash balance is not sufficient to cover our current liabilities, obligations and working capital needs for the balance of 2019. We will continue to rely


7


on loans from management and/or affiliated shareholders or we may raise additional capital through an interim financing to meet our general cash flow requirements until such time as we are able to complete the acquisition of an operating company.  

 

In September 2018, we obtained funds from the issuance of a Secured Promissory Note that is described above.  Our net proceeds from that transaction have been used to repay outstanding debt, to fund the professional fees in connection with such transaction and the Asset Acquisition Transaction, for use in our beverage operations and for working capital.  We anticipate that we will attempt to raise additional capital from the sale of our securities during the next two quarters to fund or operations.  There are no assurances, however, that we will be able raise the necessary additional capital to fund our operations in the beverage industry.

 

As described in Part II Item 3, the lender under the Secured Promissory Note has notified us of a claimed default under the Note. The Note is secured by all of the assets of the Company.  We currently do not have cash available to repay the Note and there is no assurance that we will ever have liquid assets necessary to repay the Note.

 

Employees

 

As of the date of this report, we have no employees. We currently rely on related parties such as our non-exclusive Brand Manager, CCB, and third parties such as CCB’s subcontractor, Tequila Armero. Subject to adequate financing and business needs we will retain employees, third party consultants, agents and other service providers on an as needed basis.

 

Off-Balance Sheet Arrangements

 

The Company did not have any off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 4. Disclosure Controls and Procedures

 

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a Company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, the chief executive officer and chief financial officer concluded that the disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in the Company’s periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified.  The Company’s chief executive officer and chief financial officer also concluded that the disclosure controls and procedures were not effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objectives.  


8


Changes in Internal Controls

 

There were no significant changes in the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company is currently not a party to any pending legal proceedings. As described It Part II, Item 3 of this Form 10-Q, we have been notified that Auctus Fund, LLC has claimed a default under the Promissory Note we issued to Auctus in September 2018.  Although we are attempting to resolve this issue with Auctus, there can be no assurance that Auctus will not commence a legal proceeding in connection with such claimed default.

 

No director, officer, or affiliate of the Company and no owner of record or beneficial owner of more than 5% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

 

Item 1A. Risk Factors

 

This item is not applicable to smaller reporting companies.  

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

We did not issue any securities in the six month period ended June 30, 2019.

 

We anticipate that we will issue additional shares in the future in connection with (i) capital raising activities, (ii) to attract potential brand sellers or other potential partners in the beverage industry, and (iii) for compensation for employees and other service providers.

 

Item 3. Defaults Upon Senior Securities

 

On September 24, 2018, the Company entered into a Securities Purchase Agreement (the "Auctus Securities Purchase Agreement") under which it issued a Senior Secured Convertible Promissory note in an aggregate principal amount of $300,000 (the "Auctus Note") to Auctus Fund, LLC ("Auctus"). The principal amount of the Auctus Note accrues interest at the rate of 10% per annum. The Auctus Note calls for default interest at the rate of 24% per annum. The maturity date of the Auctus Note is September 24, 2019.  The Auctus Note is secured by all of the assets of the Company.  Auctus has the option to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the Auctus Note into shares of the Company's common stock at the Auctus Conversion Price.  The Auctus Conversion Price, subject to the adjustments described in the Auctus Note, shall equal the lesser of:

 

(i) 50% multiplied by the lowest Trading Price (as defined in the Auctus Note) (representing a discount rate of 50%) during the previous twenty-five (25) Trading Day period ending on the latest complete Trading Day (as defined in the Auctus Note) prior to the date of the Note, and 

 

(ii) the Variable Conversion Price (as defined in the Auctus Note herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (as defined in the Auctus Note) (representing a discount rate of 50%) 

 

The Note provides that the conversion price may be adjusted downward upon the occurrence of certain events or the failure of certain events to occur.

 

The Auctus Note contains provisions relating to events and actions that, if to occur or not occur, would result in an Event of Default under the Auctus Note.  One Event of Default is as follows:


9


The Company fails to (i) file a registration statement covering the  Auctus (or a successor holder’s) (“Holder”) resale of all of the shares underlying the Auctus Note (the “Registration Statement”) within ninety (90) days following the Issue Date (as defined in the Auctus Note), (ii) cause the Registration Statement to become effective within one hundred ninety (190) days following the Issue Date, (iii) cause the Registration Statement to remain effective until the Note is satisfied in full, (iv) comply with the Registration Rights Agreement between the Company and Holder entered into in connection with the issuance of this Note, or (v) immediately amend the Registration Statement or file a new Registration Statement (and cause such Registration Statement to become immediately effective) if there are no longer sufficient shares registered under the initial Registration Statement for the Holder’s resale of all of the shares underlying the Note.

 

Under the Auctus loan documents, the registration statement for the shares underlying the Auctus Note was required to be filed by the Company on or about December 23, 2018.  The Company did not file the required registration statement on that date.  Subsequent to December 23, 2018, the Company had communication with Auctus in connection with a potential agreed upon delay in the filing of the registration statement, but no written agreement relating to a waiver or forbearance was entered into by the Company and Auctus.

 

Notification of Default

 

On April 25, 2019, the Company received a demand letter from Auctus’s legal counsel that stated, among other things, that the Company has defaulted on the Auctus Note pursuant to: 

 

Sections 2.8 (Non-circumvention);  

 

3.1 (Failure to pay Principal or interest - acceleration);  

 

3.4 (Breach of Agreements and Covenants – Sections 2.8 of the Note – (Non-circumvention); and  

 

3.5 (Breach of Representations and Warranties – Section 3(g) (SEC Documents; Financial Statements) of that certain Securities Purchase Agreement (the “SPA”) by and between the Company and Auctus dated September 24, 2018; and 3.25 (Failure to Register) (this is not an exhaustive delineation of potential breaches).  

 

The demand letter further stated that as a result of such breaches and the default remedy provisions of the Note set forth therein at pages 20 and 21 thereof, as of April 25, 2019, the Company, owes Auctus at least $490,767 calculated as follows:  

 

Outstanding principal of $300,000 + accrued interest of $12,178 + $15,000 liquidated damages relating back to the Auctus Note issuance date for breach of Section 3.1 + 50% liquidated damages of $163,589 for default under Sections other than Section 3.2. 

 

Registration Statement .  We currently intend to file a registration statement covering the shares of common stock underlying the Auctus Note in the next 60 days.  The filing of the registration statement will not cure the defaults claimed by Auctus unless Auctus waives such defaults.  We have no reason to believe that Auctus will waive such claimed defaults.

 

Uncertainty of Outcome .   We have communicated with Auctus regarding the matters described in this Item 3 but are unable to predict whether we will be able to enter into a workable resolution with Auctus.  If not, Auctus could commence collection action against the Company and seek to foreclose on our assets and seek other remedies.

 

Item 4. Mine Safety Disclosures

None.

 

Item 5. Other Information

None.

 

Item 6. Exhibits

Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits for this Form 10-Q, and are incorporated herein by this reference.


10


 

 

  Signature

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Date: August 14, 2019 Spirits Time International, Inc. 

 

By: /s/ Mark A. Scharmann                                 

  Mark A. Scharmann, President, Chief Executive Officer,  

Principal Financial and Accounting Officer   

 

 

Exhibit No.

 

Description

 

 

 

31.1

 

Certification of the Principal Executive and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

 

Certification of the Principal Executive and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101. INS XBRL Instance Document  

101. PRE XBRL Taxonomy Extension Presentation Linkbase  

101. LAB XBRL Taxonomy Extension Label Linkbase  

101. DEF XBRL Taxonomy Extension Label Linkbase  

101. CAL XBRL Taxonomy Extension Label Linkbase  

101. SCH XBRL Taxonomy Extension Schema  

*

Incorporated by reference from previous filings of the Company.

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


11

 

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