Statements in this Quarterly Report on Form 10-Q (this "Quarterly Report") which
are not historical in nature are "forward-looking statements" within the meaning
of the federal securities laws. These statements often include words such as
"believe," "expect," "project," "anticipate," "intend," "plan," "outlook,"
"estimate," "target," "seek," "will," "may," "would," "should," "could,"
"forecast," "mission," "strive," "more," "goal," or similar expressions and are
based upon various assumptions and our experience in the industry, as well as
historical trends, current conditions, and expected future developments.
However, you should understand that these statements are not guarantees of
performance or results, and there are a number of risks, uncertainties and other
important factors that could cause our actual results to differ materially from
those expressed in the forward-looking statements, including, among others:
? any declines in the consumption of food prepared away from home;
? the extent and duration of the negative impact of the COVID-19 pandemic on us;
? cost inflation/deflation and commodity volatility;
? competition;
? reliance on third-party suppliers and interruption of product supply or
increases in product costs;
? changes in our relationships with customers and group purchasing
organizations;
? our ability to increase or maintain the highest margin portions of our
business;
? effective integration of acquired businesses;
? achievement of expected benefits from cost savings initiatives;
? increases in fuel costs;
? economic factors affecting consumer confidence and discretionary spending;
? changes in consumer eating habits;
? reputation in the industry;
? labor relations and costs and continued access to qualified and diverse labor;
? cost and pricing structures;
? changes in tax laws and regulations and resolution of tax disputes;
? environmental, health and safety and other government regulation, including
actions taken by national, state and local governments to contain the COVID-19
pandemic, such as travel restrictions or bans, social distancing requirements,
and required closures of non-essential businesses;
? product recalls and product liability claims;
? adverse judgments or settlements resulting from litigation;
? disruption of existing technologies and implementation of new technologies;
? cybersecurity incidents and other technology disruptions;
? management of retirement benefits and pension obligations;
? extreme weather conditions, natural disasters and other catastrophic events,
including pandemics and the rapid spread of contagious illnesses;
? risks associated with intellectual property, including potential infringement;
indebtedness and restrictions under agreements governing indebtedness; and
? interest rate increases.
You should read the following discussion of our financial condition and results
of operations together with the audited consolidated financial statements and
notes to the financial statements included elsewhere in this Annual Report. This
discussion contains forward-looking statements that involve risks and
uncertainties. The forward-looking statements are not historical facts, but
rather are based on current expectations, estimates, assumptions and projections
about our industry, business and future financial results. Our actual results
could differ materially from the results contemplated by these forward-looking
statements due to a number of factors, including those discussed under "Item 1A.
Risk Factors" and other sections in this Annual Report.
The following discussion highlights Pacific Ventures' results of operations and
the principal factors that have affected our financial condition as well as our
liquidity and capital resources for the periods described and provides
information that management believes is relevant for an assessment and
understanding of the statements of financial condition and results of operations
presented herein. The following discussion and analysis are based on Pacific
Ventures' audited Financial Report, which we have prepared in accordance with
United States generally accepted accounting principles. You should read this
discussion and analysis together with such financial statements and the related
notes thereto.
Basis of Presentation
The audited financial statements for our fiscal years ended December 31, 2020
and 2019 include a summary of our significant accounting policies and should be
read in conjunction with the discussion below. In the opinion of management, all
material adjustments necessary to present fairly the results of operations for
such periods have been included in these audited financial statements. All such
adjustments are of a normal recurring nature.
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Overview
Overview 2017 ― During 2017, the South Carolina distributor expanded the
account base for SnöBar and has many successful placements for the brand.
Furthermore, additional funding has also been unavailable to pursue additional
geographic markets, both domestic and international. Despite such challenges,
during 2017, the Company continued development of the Snobar Product Line with
the goal to fulfill the current orders that the brand has in hand from the
Company's distributor in South Carolina as well as from other accounts. In
addition, the Company further continued with its strategy of selectively pursue
strategic acquisitions in its industry and related industries, culminating in
the execution of the Asset Purchase Agreement with San Diego Farmers Outlet,
Inc. The Company is currently working on satisfying the closing conditions under
the Asset Purchase Agreement, including obtaining the necessary Financing, and
hope to close the transaction during the second quarter of 2018. There can be no
assurance, however, that the Financing and the asset acquisition will be
consummated or as to the date by which the asset acquisition may be consummated,
if at all.
Overview 2018 ― During the 2018 fiscal year, the Company completed an
asset acquisition of San Diego Farmers Outlet, Inc. (SDFO), a California
Corporation with over thirty-five (35) years in business servicing restaurant
and retail produce customers in southern California's three largest counties,
supplying quality food and produce. SDFO does business under the name of Farmers
Outlet and San Diego Farmers Outlet. On Sept. 24, 2018, the Company announced
the signing of a definitive Asset Purchase Agreement to acquire a food and
beverage distribution company that is involved in the sale of food, beverages
and general merchandise to retailers, households, hotels, restaurants, "mom and
pop" markets, liquor stores, gas stations and other retail outlets.
Overview 2019 ― During the 2019 fiscal year, the Company completed an
asset acquisition of Seaport Meat Company, (Seaport Meat), a California
Corporation with over thirty (30) years in business servicing restaurant and
retail, and institutional customers in Southern California and Arizona. Seaport
Meat is a USDA meat processing plant that supplies quality meats, seafood, dry
goods, dairy and produce. Seaport Meat Company operates a distribution and
manufacturing facility in Spring Valley, California their 12,000 square foot
facility is HACCP-compliant and is a USDA Licensed processing facility with
on-site daily inspections. HACCP is a management system in which food safety is
addressed through the analysis and control of biological, chemical, and physical
hazards from raw material production, procurement and handling, to
manufacturing, distribution and consumption of the finished product. Having a
USDA certified facility allows consumers to be confident that the Food Safety
and Inspection Service (FSIS), the public health agency in the USDA, ensured
that meat and poultry products are safe, wholesome, and correctly labeled and
packaged
The Company's customers range from a wide variety of restaurants, including many
well known in Southern CA, to institutions, schools (UCSD, SDSU, etc.) and
re-distributors such as US Foods and Sysco as well as to local distributors.
They supply wholesale food and restaurant supplies to San Diego, Los Angeles,
Orange and Riverside and offer same day service. In addition, they have clients
in Arizona and Colorado that come to their facility to pick up their orders.
Because Seaport Meat Company of America can efficiently add new product lines,
they can easily expand the distribution of Pacific Ventures' San Diego Farmers
Outlet and SnoBar product line, thereby accelerating Pacific Ventures' revenue
growth. The combination of a distribution and product company is unique in the
San Diego area and will position the company for rapid growth.
They manufacture and wholesale custom processed beef, pork, chicken, lamb, veal
and seafood. In addition, they are redistributors of a wide variety of dry
goods, frozen foods, disposables and janitorial products. Their sales,
distribution and finance processes are very efficient and can be expanded to add
new product lines, including fresh produce and dairy
Overview 2020- During 2020, the U.S. foodservice industry faced unprecedented
challenges as the COVID-19 pandemic caused substantial disruption across many of
our customers' operations and, in some cases, resulted in permanent closures of
restaurants. As a company, we took several actions to increase liquidity,
conserve cash, manage working capital, and reduce expenses to align with the
decrease in demand.
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We also acted quickly to protect the health and safety of our communities by
implementing new protocols and enhanced safety measures to protect our frontline
associates and customers, many of whom are "essential workers" and unable to
work remotely. As we adapted to rapidly changing conditions, we also increased
our efforts to stay connected to our current customers and attract new customer.
As was widely reported in the media, the U.S. meat industry experienced meat
shortages due to massive outbreaks of COVID-19 and in some cases large
facilities were forced to close, meat prices reached an all-time high due to the
lack of product and increase in demand. While many of our competitors chose to
pass these increases in price to the customers, The Companies Management made a
conscious decision to support our customers by lowering our margins in order to
offset the increase in prices caused by the pandemic. By lowering our margins
during the second and third quarters we attracted many new customers and won the
loyalty of its current customer base.
The Company was able to maintain the historical average of the prior year's
revenues but did share the burden of the pandemic.
During the onset of the pandemic Seaport's sales staff and management acted
quickly to recover any lost revenue due to the massive government mandated
shutdown. Some of our largest customers were forced to stay closed for almost a
year which include Petco Park (home of the San Diego Padres), and the SoCal
County Fairs. We acted quickly, and attracted more business from Hospitals,
Nursing Homes, and Naval Bases just to name a few.
The Company made concerted efforts to let our customers know that we appreciate
their loyalty and continued support during these challenging times.
Strategy
In Fiscal Year 2021, the Company's strategy is focused on:
? incrementally increase sales and profitability of San Diego Farmers Outlet
(SDFO) and Seaport Meat Company.
? expanding Snöbar production and distribution
? acquisition of food production or distribution companies that are synergistic
with SDFO and Seaport Meat Company.
We plan to grow SDFO's wholesale business by expanding its delivery territory
from 25 miles to a 75-mile radius and add to the current fleet of delivery
trucks. The Company has already begun marketing to new restaurants in the area,
most notably Asian and Italian restaurants, and have let restaurants know that
SDFO can deliver the finest produce in market.
We plan to relaunch Snöbar production and distribution by partnering with
third-party manufacturers and co-packers, and with third-party distributors that
can sell Snöbar products to high-end restaurants, resorts, cruise lines and
hotels worldwide. Initially, the focus will be on establishing major accounts in
four core markets consisting of Southern California, Phoenix, Las Vegas and
Miami. The larger vision is to sell products in grocery stores such as Kroger,
Wal-Mart and others, and thereafter to begin a national marketing program to all
U.S. retailers. It is essentially a top-down marketing plan where products are
placed with the largest retailer then trickle down to the smallest seller in
each market area
We plan to acquire food production and distribution businesses that will help
the Company grow its food, beverage and alcohol-related products businesses. We
continue to engage in preliminary discussions with potential investors in order
to properly fund potential acquisitions, however, there are no assurances that
the required funding will be available on terms acceptable to us, or at all.
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Going Concern
The accompanying consolidated financial statements have been prepared assuming
we will continue as a going concern. As discussed in this Annual Report and in
the notes to the Company's consolidated financial statements included elsewhere
herein, we have incurred operating losses, and as of December 31, 2020 and 2019,
we have accumulated deficit of $16,063,780 and $10,040,367 respectively. For the
year ended December 31, 2020, we have a working capital deficiency of
$4,589,002. These factors raise substantial doubt about our ability to continue
as a going concern. Additionally, our independent registered public accounting
firm included an explanatory paragraph in their report for the years ended
December 31, 2020 and 2019 regarding concerns about our ability to continue as a
going concern.
Our ability to continue as a going concern is dependent upon our generating
operating cash flow and raising capital sufficient to fund operations. We have
discussed our strategy and plans relating to these matters elsewhere in this
Current Report although the consolidated financial statements included herein do
not include any adjustments that might result from the outcome of these
uncertainties. Our business strategy may not be successful in funding ongoing
operations and accelerating our domestic and international expansion, and if we
cannot continue as a going concern, our stockholders may lose their entire
investment in us.
Plan of Operations for the Next Twelve Months
Our plan is to achieve meaningful sales revenue from the sale of the SDFO and
Seaport Meat Company products to meet our operating needs. It is also unlikely
that we will be able to satisfy all of our obligations to pay interest and repay
principal due and payable within the next 12 months under the various forms of
our outstanding debt. Although we have been able to extend the maturity dates as
well as repayment terms of a substantial amount of such debt, there is no
assurance that we will be able to further extend such repayments or maturity
dates to avoid a default, as such further extension depends on the consent of
the holders of such debt. If we are unable to make such payments and repayments
and unable to extend and delay required payments or maturities of such debt, the
holders of such debt will have the right to take legal action seeking
enforcement of the debt. If any legal action is taken against us, we would face
the risk of having to deplete our limited cash resources to defend against such
suit or face the entry of a default judgment. In either event, such action would
have grave impact on our operations. Our ability to continue operations will be
dependent upon the successful completion of additional long-term or permanent
equity financing, the support of creditors and shareholders, and, ultimately,
the achievement of profitable operations. There can be no assurances that we
will be successful, which would in turn significantly affect our ability to be
successful in our new business plan. If not, we will likely be required to
reduce operations or liquidate assets. We will continue to evaluate our
projected expenditures relative to our available cash and to seek additional
means of financing in order to satisfy our working capital and other cash
requirements.
Critical Accounting Estimates
We regularly evaluate the accounting estimates that we use to prepare our
financial statements. A complete summary of these policies is included in the
Notes to our audited financial statements. In general, management's estimates
are based on historical experience, on information from third party
professionals, and on various other assumptions that are believed to be
reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
We believe that of our significant accounting policies, which are described in
Note 2 to our consolidated financial statements, the following accounting
policies involve a greater degree of judgment and complexity. Accordingly, these
are the policies we believe are the most critical to aid in fully understanding
and evaluating our financial condition and results of operations.
Revenue Recognition ― We are generating substantially all our revenue
from the domestic sale of fresh produce, meat, and other food related products.
Farmers Outlet and Seaport Meat specialty food products that the larger
distributors do not carry on a daily basis. Our customers comprise of
redistributors, restaurants, hotels, schools, and nursing homes just to name a
few. , Sales revenues are generally recognized when the products are shipped or
delivered to the customers, net of discounts, returns and allowance and
collectability is reasonably assured.
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Concentrations of Credit Risk ― Cash held in banks: we maintain cash
balances at a financial institution that is insured by the Federal Deposit
Insurance Corporation ("FDIC") up to federally insured limits. At times balances
may exceed FDIC insured limits. We have not experienced any losses in such
accounts.
Accounts Receivable (AR): AR as at the years-ended December 31, 2020 and 2019,
were $1,213,991 and $1,290,637, respectively. Historically, customer accounts
typically are collected within a short period of time and based on its
assessment of current conditions and its experience collecting such receivables,
management believes it has no significant risk related to its concentration
within its accounts receivable.
Results of Operations
Year ended December 31, 2020, as compared to the year ended December 31, 2019
Revenues and Cost of Goods Sold. Revenue for the fiscal year ended December 31,
2020 increased to $30,212,420 from $5,918,337 during the comparable period as a
result of the acquisition of Seaport Meat Company.
Cost of goods sold ("COGS") is comprised of production costs, shipping, and
handling costs. For the fiscal year ended December 31, 2020, we had costs of
goods sold of $26,857,783, as compared to $5,070,322 in the comparable period
ended December 31, 2020. The percentage of COGS against sales was 85.67% in the
fiscal year ended December 31, 2019 to 88.89% in the fiscal year ended December
31, 2020.
Operating Expenses. Our Selling, General and Administrative ("SG&A") expenses
consist of sales and marketing, professional services, rents, and general office
expenses (including wages for non-officer personnel). During the fiscal year
ended December 31, 2020 our SG&A expenses increased to $5,077,008 from
$1,365,942 in the comparable prior period, an increase of $3,711,066. These
increases were the result of increases in general office expenses, professional
services and marketing expenses. On December 31, 2020, total general office
expense was $5,077,008, marketing expenses was $45,837 and professional fees was
$913,293. Amortization and depreciation expenses increased from $229,036 to
$696,144 for the fiscal years December 31, 2019 and December 31, 2020,
respectively, due to the addition of depreciable assets in the second quarter of
2019 related to the acquisition of San Diego Market Outlet, Inc and Seaport Meat
Company.
Total operating expenses for the fiscal year ended December 31, 2020 were
$7,032,283 representing an increase of $4,480,723, as compared to $2,551,560 for
the comparable prior period ended December 31, 2019.
Other Non-Operating Income and Expenses. Non-operating expenses for the fiscal
year ended December 31, 2020 were $2,204,391, consisting all in interest expense
compared to a non-operating expense of $970,488, consisting of also all in
interest expense, in the comparable prior period ended December 31, 2019.
Net Loss. Net loss for the fiscal year ended December 31, 2020 was $5,861,821,
an increase of $3,209,195 from $2,652,626 in the comparable prior period ended
December 31, 2019
Financial Condition, Liquidity and Capital Resources
Fiscal years ended December 31, 2020 and 2019
As of December 31, 2020, we had a working capital deficit of $4,589,002
comprised of $58,233 in cash and cash equivalents, $1,213,991 of accounts
receivable, $1,216,562 inventory assets, other current assets of $283,379
(includes current portion of Rent to Use Asset) and $16,845 in deposits which
were offset by accounts payable of $2,809,136, $902,442 in accrued expenses,
$88,417 in lease payables, $3,239,017 in current note payables and $249,000 in
lease liability. For the fiscal year ended December 31, 2020 we used $2,327,148
in operating activities. Cash used in investing activities totaled $186,519,
consisting of purchase of equipment, building and improvement and fixed assets
for $186,519. Cash provided in financing activities totaled $2,255,943,
consisting of $1,532,737 in proceeds from notes payable, $3,246,100, $122,815
for debt conversion, $5,000 for issuance of preferred "E" shares, and $161,592
in prior year adjustments, which is offset with note or loan repayments for
$315,349, $29,218 and $2,144,550 for non-related notes, related notes and
long-term loans, respectively.
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In the comparable prior period in 2019, we had a working capital deficit of
$1,118,654 comprised of $315,957 in cash and cash equivalents, $1,290,637 of
accounts receivable, $830,504 inventory assets, other current assets of $283,379
(includes current portion of Rent to Use Asset) and $16,845 in deposits which
were offset by accounts payable of $1,409,420, $714,962 in accrued expenses,
$119,988 in lease payables, $1,362,605 in current note payables and $249,000 in
lease liability. For the fiscal year ended December 31, 2019 we used $2,620,665
in operating activities. Cash used in investing activities totaled $4,202,000,
consisting of purchase of equipment, building and improvement and fixed assets
for $1,384,382 and for goodwill and intangible assets $2,783,239, all of which
related to the recent acquisition of Seaport Meat Company. Cash provided in
financing activities totaled $6,987,564, consisting of $2,960,899 in proceeds
from notes payable, $3,461,606 in proceeds from long term loans, of which
$3,015,780 was for the acquisition and working capital of Seaport Meat Company,
$119,542 from proceeds from note payables from related parties, $166,000 for
debt conversion, $60,000 for issuance of preferred "E" shares, $446,711 in
common shares issued for debt conversion and $111,304 in prior year adjustments.
On December 31, 2020, we had cash and cash equivalents of $58,233 as compared to
$315,957 on December 31, 2019.
Cash used in operations for the fiscal year ended December 31, 2020 was
$2,327,148 as compared to $2,620,665 in the comparable prior fiscal year ended
December 31, 2019. Cash used decreased by $293,517 between periods.
For the fiscal year ended December 31, 2020, cash used in investing totaled
$186,519. We used $4,202,000 from investing activities December 31, 2019, which
was related to the acquisition of Seaport Meat Company.
Cash provided from financing activities on December 31, 2020 was $2,255,943 as
compared to $6,987,564 at December 31, 2019.
As of December 31, 2020, we had total current liabilities of $7,378,012 and
total liabilities were $18,706,866 as compared to $3,855,976 and $13,386,354,
respectively, for December 31, 2019.
We depend upon debt and/or equity financing to fund our ongoing operations and
to execute our business plan. If continued funding and capital resources are
unavailable at reasonable terms, we may curtail our plan of operations. We will
be required to obtain alternative or additional financing from financial
institutions or otherwise, in order to maintain and expand our existing
operations. The failure by us to obtain such financing would have a material
adverse effect upon our business, financial condition and results of operations.
Capital Resources
Our principal sources of liquidity have been cash generated by loan proceeds and
cash generated from operations.
We plan to continue raising capital in order to meet our liquidity needs.
However, we may be unable to raise sufficient additional capital when we need it
or to raise capital on favorable terms. If we are unable to obtain adequate
funds on reasonable terms, we may be required to significantly curtail or
discontinue operations or obtain funds by entering into financing agreements on
unattractive terms.
We do not currently have any contractual restrictions on our ability to incur
debt and, accordingly we could incur significant amounts of indebtedness to
finance operations. Any such indebtedness could contain covenants which would
restrict our operations.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
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Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities in the consolidated financial statements and accompanying notes.
The SEC has defined a company's critical accounting policies as the ones that
are most important to the portrayal of the company's financial condition and
results of operations, and which require the company to make its most difficult
and subjective judgments, often as a result of the need to make estimates of
matters that are inherently uncertain. Based on this definition, we have
identified the critical accounting policies and judgments addressed below. We
also have other key accounting policies, which involve the use of estimates,
judgments and assumptions that are significant to understanding our results,
which are described in Note 2 to our consolidated financial statements. Although
we believe that our estimates, assumptions and judgments are reasonable, they
are based upon information presently available. Actual results may differ
significantly from these estimates under different assumptions, judgments or
conditions.
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