| | | | | | | | | |
SNOBAR HOLDINGS, INC. AND SUBSIDIARIES |
Consolidated Statements of Cash Flows |
| | | | | | | | | |
| | | | For the Years Ended, | |
| | | | December 31, | |
| | | | 2014 | | 2013 | |
| | | | | | | | |
OPERATING ACTIVITIES | | | | | | |
| Net loss | $ | (1,136,693) | | $ | (2,601,495) | |
| Adjustments to reconcile net loss to | | | | | | |
| net cash used in operating activities: | | | | | | |
| | Common stock issued for services | | - | | | 55,888 | |
| | Depreciation | | 166,373 | | | 255,466 | |
| | Write-off inventory to R&D | | - | | | 37,618 | |
| | Imputed interest | | - | | | 11,531 | |
| Changes in operating assets and liabilities | | | | | | |
| | Accounts receivable | | (5,877) | | | (6,494) | |
| | Inventory | | (27,762) | | | 17,929 | |
| | Deposits | | 16,900 | | | 103,596 | |
| | Accounts payable | | 38,235 | | | 87,588 | |
| | Accrued expenses | | 319,026 | | | 560,286 | |
| | Net Cash Used in Operating Activities | | (629,798) | | | (1,478,087) | |
| | | | | | | | | |
INVESTING ACTIVITIES | | | | | | |
| | Purchase of property, plant and equipment | | - | | | (260,232) | |
| | Disposal of property, plant and equipment | | 53,645 | | | - | |
| | Net Cash Provided By (Used In) Investing Activities | | 53,645 | | | (260,232) | |
| | | | | | | | | |
FINANCING ACTIVITIES | | | | | | |
| Proceeds from the sale of stock | | - | | | 950,000 | |
| Bank overdraft | | 2,589 | | | | |
| Proceeds from related party notes payable | | 17,724 | | | 588,578 | |
| Proceeds from notes payable | | 550,333 | | | - | |
| Repayment of leases payable | | (24,517) | | | (29,472) | |
| | Net Cash Provided by Financing Activities | | 546,129 | | | 1,509,106 | |
| | | | | | | | | |
NET INCREASE (DECREASE) IN CASH | | (30,024) | | | (229,213) | |
CASH AT BEGINNING OF PERIOD | | 30,024 | | | 259,237 | |
| | | | | | | | | |
CASH AT END OF PERIOD | $ | - | | $ | 30,024 | |
| | | | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | |
| CASH PAID FOR: | | | | | | |
| | Interest | $ | 76,820 | | $ | 46,806 | |
| | Income taxes | $ | - | | $ | - | |
NON CASH FINANCING ACTIVITIES: | | | | | | |
| | Issuance of shares for debt conversion | $ | 160,000 | | $ | 1,000,000 | |
| | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. |
SNOBAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
1. NATURE OF OPERATIONS
The Company and Nature of Business
Snöbar Holdings, Inc. (“Snöbar Holdings”) was formed in the State of Delaware on January 7, 2013. Snöbar Holdings is the trustor and sole beneficiary of Snobar Trust, a California trust ("Trust"), which was formed in June 1, 2013. The current trustee that holds legal title to the Trust is Clark Rutledge, who is the father of Shannon Masjedi, who controls Snöbar Holdings. The Trust owns 100% of the shares of International Production Impex Corporation, a California corporation ("IPIC"), which was formed on August 2, 2001. IPIC is in the business of selling alcohol-infused ice cream and ice-pops, and holds all of the right to the liquor licenses to sell such products and trade names "SnöBar". As such, the Trust holds all ownership interest of IPIC and its liquor licenses, permitting IPIC to sell its product to distributors, with all income, expense, gains and losses rolling up to the Trust, of which Snöbar Holdings is the sole beneficiary. Snöbar Holdings also owns 99.9% of the shares of MAS Global Distributors, Inc., a California corporation ("MGD"). MGD is in the business of selling and leasing freezers and providing marketing services. As a result of the foregoing, Snöbar Holdings is the primary beneficiary of all assets, liabilities and any income received from the business of the Trust and IPIC through the Trust and is the parent company of MGD.
The Trust and IPIC are considered variable interest entities (“VIEs”) and Snöbar Holdings is identified as the primary beneficiary of the Trust and IPIC. Under ASC 810, Snöbar Holdings performs ongoing reassessments of whether it is the primary beneficiary of a VIE. As the assessment of Snöbar Holdings' management is that Snöbar Holdings has the power to direct the activities of a VIE that most significantly impact the VIE's activities (it is responsible for establishing and operating IPIC), and the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE’s economic performance, it was therefore concluded by management that Snöbar Holdings is the primary beneficiary of the Trust and IPIC. As such, the Trust and IPIC were consolidated in the financial statements of Snöbar Holdings since the inception of the Trust, in the case of the Trust, and since the inception of Snöbar Holdings, in the case of IPIC.
Principles of Consolidation
The consolidated financial statements include the accounts of Snöbar Holdings and its subsidiaries, in which Snöbar Holdings has a controlling voting interest and entities consolidated under the variable interest entities ("VIE") provisions of ASC 810, "Consolidation" ("ASC 810"). Inter-company balances and transactions have been eliminated upon consolidation.
The Company applies the provisions of ASC 810 which provides a framework for identifying VIEs and determining when a company should include the assets, liabilities, non-controlling interests and results of activities of a VIE in its consolidated financial statements.
In general, a VIE is a corporation, partnership, limited-liability corporation, trust, or any other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that is unable to make significant decisions about its activities, (3) has a group of equity owners that does not have the obligation to absorb losses or the right to receive returns generated by its operations or (4) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity's activities (for example, providing financing or buying assets) either involve or are conducted on behalf of an investor that has disproportionately fewer voting rights.
ASC 810 requires a VIE to be consolidated by the party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) that has both of the following characteristics: a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE, or the right to receive benefits from the VIE that could potentially be significant to the VIE.
A variable interest holder that consolidates the VIE is called the primary beneficiary. If the primary beneficiary of a variable interest entity (VIE) and the VIE are under common control, the primary beneficiary shall initially measure the assets, liabilities, and non-controlling interests of the VIE at amounts at which they are carried in the accounts of the reporting entity that controls the VIE (or would be carried if the reporting entity issued financial statements prepared in conformity with generally accepted accounting principles). ASC 810 also requires disclosures about VIEs in which the variable interest holder is not required to consolidate but in which it has a significant variable interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include Snöbar Holdings, Inc. a Delaware corporation (“Snöbar Holdings”), MAS Global Distributors, Inc., a California corporation (“MGD”), International Production Impex Corporation, a California corporation (“IPIC”), and Snobar Trust, a California trust (“Trust”), which was established to hold IPIC, which in turn holds liquor licenses. All inter-company accounts have been eliminated during consolidation. See the discussion in Note 1 above for variable interest entity treatment of the Trust and IPIC.
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
SNOBAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
Revenue Recognition - Sales revenues are generally recognized when an agreement exists and price is determinable, the products are shipped to the customers or services are rendered, net of discounts, returns and allowance and collectability is reasonably assured.
Shipping and Handling Costs – The Company’s shipping costs are all recorded as operating expenses for all periods presented.
Cash Equivalents - The Company considers highly liquid instruments with original maturity of three months or less to be cash equivalents.
Accounts Receivable - Accounts receivable are stated at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts. The allowance is calculated based upon the level of past due accounts and the relationship with and financial status of our customers. The Company did not write off any bad debt during the years ended December 31, 2014 and 2013, and thus has not set an allowance for doubtful accounts for the year ended December 31, 2014.
Inventories - Inventories are stated at the lower of cost or market value. Cost has been determined using the first-in, first-out method. Inventory quantities on-hand are regularly reviewed, and where necessary, reserves for excess and unusable inventories are recorded. Inventory consists of finished goods and includes ice cream, popsicles and the related packaging materials.
Income Taxes - Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net Income/ (Loss) Per Common Share - Income/ (loss) per share of common stock is calculated by dividing the net income/ (loss) by the weighted average number of shares of common stock outstanding during the period. The Company has no potentially dilutive securities in 2014 and 2013. Accordingly, basic and dilutive income (loss) per common share are the same.
Property and Equipment - Property and equipment are carried at cost less accumulated depreciation and includes expenditures that substantially increase the useful lives of existing property and equipment. Maintenance, repairs, and minor renovations are expensed as incurred. Upon sale or retirement of property and equipment, the cost and related accumulated depreciation are eliminated from the respective accounts and the resulting gain or loss is included in the results of operations. The Company provides for depreciation of property and equipment using the straight-line method over the estimated useful lives or the term of the lease, as appropriate. The estimated useful lives are as follows: vehicles, five years; office furniture and equipment, three to fifteen years; equipment, three years.
Fair Value of Financial Instruments - The carrying amounts of Snöbar Holdings' financial instruments, which include cash, accounts receivable, accounts payable, and accrued expenses are representative of their fair values due to the short-term maturity of these instruments.
Concentration of Credit Risk - Financial instruments that potentially subject Snöbar Holdings to concentration of credit risk consist primarily of cash and accounts receivable. The Company maintains cash balances at financial institutions within the United States which are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to limits of approximately $250,000. The Company has not experienced any losses with regard to its bank accounts and believes it is not exposed to any risk of loss on its cash bank accounts.
During the years-ended December 31, 2014 and 2013, approximately 47% and 87% of total sales were to two distributors, respectively.
As of December 31, 2014, 99% of IPIC accounts receivable were from one distributor.
Advertising Costs - The Company expenses advertising costs when incurred. Advertising costs incurred amounted to $79,701 and $238,190 for the years ended December 31, 2014 and 2013, respectively.
Research and Development Costs - Expenditures for research activities of IPIC relating to product development and improvement are charged against income as incurred and included within operating expenses in the accompanying statements of operations. Research and development (R&D) costs were $0 for the year ended December 31, 2014 and were $43,951 for the year ended December 31, 2013.
Critical Accounting Policies - The Company considers revenue recognition and the valuation of accounts receivable, allowance for doubtful accounts, and inventory and reserves as its significant accounting policies. Some of these policies require management to make estimates and assumptions that may affect the reported amounts in Snöbar Holdings' financial statement.
Recent Accounting Pronouncements - In June 2009, the FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly
SNOBAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
the change did not impact our financial statements. The ASC does change the way the guidance is organized and presented.
In April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”, to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition and measurement guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In April 2015, FASB issued ASU No. 2015-04, “Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets”, which permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In April 2015, FASB issued ASU No. 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”, which provides guidance to customers about whether a cloud computing arrangement includes a software license. If such includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for it as a service contract. For public business entities, the ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In April 2015, FASB issued ASU No. 2015-06, “Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions”, which specifies that, for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a drop down transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method also are required. The ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In June 2014, FASB issued ASU No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The update removes all incremental financial reporting requirements from GAAP for development stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. In addition, the update adds an example disclosure in Risks and Uncertainties (Topic 275) to illustrate one way that an entity that has not begun planned principal operations could provide information about the risks and uncertainties related to the company’s current activities. Furthermore, the update removes an exception provided to development stage entities in Consolidations (Topic 810) for determining whether an entity is a variable interest entity-which may change the consolidation analysis, consolidation decision, and disclosure requirements for a company that has an interest in a company in the development stage. The update is effective for the annual reporting periods beginning after December 15, 2014, including interim periods therein. Early application is permitted with the first annual reporting period or interim period for which the entity’s financial statements have not yet been issued (Public business entities) or made available for issuance (other entities). Our company adopted this pronouncement for year ended December 31, 2014.
In June 2014, FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718); Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities, the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
SNOBAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
In August 2014, the FASB issued ASU 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
All other newly issued accounting pronouncements which are not yet effective have been deemed either immaterial or not applicable.
We reviewed all other recently issued accounting pronouncements and determined these have no current applicability to Snöbar Holdings or their effect on the financial statements would not have been significant.
3. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming Snöbar Holdings will continue as a going concern. As shown in the accompanying financial statements, Snöbar Holdings has incurred a net loss of $1,136,693 and $2,601,495 for the years ended December 31, 2014 and 2013, respectively and has an accumulated deficit of $5,420,431 as of December 31, 2014.
In order to continue as a going concern, Snöbar Holdings will need, among other things, additional capital resources. The Company is significantly dependent upon its ability, and will continue to attempt, to secure equity and/or additional debt financing. There are no assurances that Snöbar Holdings will be successful and without sufficient financing it would be unlikely for Snöbar Holdings to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event Snöbar Holdings cannot continue in existence. These conditions raise substantial doubt about Snöbar Holdings' ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might arise from this uncertainty.
4. INVENTORIES
Inventories at December 31, 2014 and 2013 consisted of the following:
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2014 and 2013, consists of:
Depreciation expense for the years-ended, December 31, 2014 and 2013 was $166,373 and $255,466, respectively.
6. ACCRUED EXPENSE
During the calendar year December 2014 and 2013, Snöbar Holdings had accrued expenses of $891,532 and $572,506, respectively. These amounts primarily consist of payroll liabilities of $807,365 and $517,107, as of December 31, 2014 and 2013, respectively.
SNOBAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
7. INCOME TAX
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
At December 31, 2014 and 2013, Snöbar Holdings had cumulative federal operating loss carry forwards of $3,704,035 and $2,572,925, respectively, which begin to expire in 2028.
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income and tax-planning.
The Company’s federal income tax returns for the years ended December 31, 2013 and 2014 remain subject to examination by the Internal Revenue Service as of December 31, 2014.
Components of net deferred tax assets, including a valuation allowance, are as follows at December 31, 2014 and 2013:
| | | | | | | | | | |
| | | | 2014 | | 2013 | | | |
Deferred tax assets: | | | | | | | | | |
Net operating loss carryforward | | | | 1,586,808 | | $ | 1,107,581 | | | |
Total deferred tax assets | | | | 1,586,808 | | | 1,107,581 | | | |
Less: Valuation allowance | | | | (1,586,808) | | | (1,107,581 | ) | | |
Net deferred tax assets | | | | - | | $ | - | | | |
The valuation allowance for deferred tax assets as of December 31, 2014 was $1,586,808 and $1,107,581in 2013. The net operating losses will begin to expire in 2028. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. Management believes it is more likely than not that the deferred tax assets as of December 31, 2014 will not be realized based on the management’s assessment that the deductions ultimately recognized for tax purposes will not be fully utilized. Therefore full valuation allowances were set up for these deferred tax assets as of December 31, 2014 and 2013.
Components of net deferred tax liabilities are as follows at December 31, 2014 and 2013:
| | | | | | | | | |
| | | | 2014 | 2013 | | | |
Deferred tax liabilities: | | | | | | | | |
Deferred tax liabilities | | | | $ - | $ | - | | | |
Total deferred tax liabilities | | | | $ - | $ | - | | | |
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31, 2014 and 2013:
| | | | | | | | |
| | | 2014 | 2013 | | |
Federal statutory rate | | | (34)% | | (34) | % | | |
State taxes, net of federal benefit | | | (8.84)% | | (8.84) | % | | |
Change in valuation allowance | | | 42.84% | | 42.84% | | | |
Effective tax rate | | | 0% | | 0 | % | | |
8. RELATED PARTY TRANSACTIONS
In January 2011, MGD entered into an unsecured promissory note with an officer and shareholder. The note had a principal balance of $150,000 with an interest rate of 3% and has a maturity date of December 31, 2017. The balance of the note at December 31, 2014 and 2013 was $142,621 and $138,412, respectively. As of December 31, 2014 and 2013, Snöbar Holdings accrued $17,621 and $13,412 of interest, respectively.
In February of 2012, MGD entered into an unsecured promissory note with a shareholder. The note had a principal balance of $30,000 with an interest rate of 8% and a maturity date of August 1, 2014. The note’s maturity date has subsequently been extended to February 1, 2017. The note’s balance is $25,000 as of December 31, 2014 and 2013, respectively.
SNOBAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
Snobar Holdings entered into a promissory note agreement with a relative and former officer to purchase all shares and interests in IPIC, including liquor licenses, for $500,000. The note bears no interest and payments are due in five installments of $100,000 due each year beginning on December 31, 2013 and going through December 31, 2017. The entire purchase price of $500,000 was expensed in 2013 and recorded in IPIC business rights expense on the statement of operations. The balance on the note was $299,522 and $383,500 as of December 31, 2014 and 2013, respectively.
On March 14, 2013, MGD entered into an unsecured promissory note with a shareholder. The note had a principal balance of $10,000 with an interest rate of 5% and had a maturity date of March 14, 2014 and was subsequently extended to February 1, 2017. The note is current and has an outstanding balance of $6,000 and $10,000 as of December 31, 2014 and 2013, respectively.
On March 14, 2013, MGD entered into an unsecured promissory note with a shareholder. The note had a principal balance of $87,121 with an interest rate of 5% and had a maturity date of March 14, 2014. The note’s maturity date has subsequently been extended to February 1, 2017. The note is current and the entire balance is still owed and outstanding.
On July 22, 2013, Snöbar Holdings entered into an unsecured promissory note with a shareholder. The note’s maturity date has subsequently been extended to February 1, 2017. The note had a principal balance of $15,000 with an interest rate of 5% and is due on demand.
On February 24, 2014, Snöbar Holdings entered into an unsecured promissory note with a shareholder. The note had a principal balance of $20,000 with an interest rate of 8% and a maturity date of 30 days from execution of the note. The maturity date has subsequently been extended to February 1, 2017.
During the year ended December 31, 2014, Snöbar Holdings entered into unsecured promissory notes with an entity owned by a shareholder. The notes had a total principal balance of $16,000 with an interest rate of 2% and are due on demand.
During the year ended December 31, 2014, an officer advanced $7,238 to IPIC to pay for operating expenses.
9. NOTES PAYABLE
In July of 2012, MGD entered into secured promissory notes for a total of $1,000,000. The notes are secured by a security interest in 11% of MGD common shares of stock. The notes bear interest of 8% and have a maturity date of July 31, 2013. During 2013, Snöbar Holdings issued a total of 1,298,834 Class A Common Stock in consideration for the entire balance. The outstanding balance on the notes was $0 as of December 31, 2014 and 2013.
On December 9, 2013, Snöbar Holdings entered into an unsecured promissory note. The note had a principle balance of $100,000 with an interest rate of 6% and maturity date of February 9, 2014. During 2014, an additional $60,000 was borrowed for a total balance of $160,000. Snöbar Holdings issued 111,328 shares of its Class A Common Stock to pay off the entire principal balance along with accrued interest.
In February 2014, MGD entered into a secured promissory note with a principal balance of $10,000. The note was secured by interests in tangible and intangible property of MGD The Company is to make payments of $181 each business day (Monday through Friday) until the loan is paid off. The effective interest rate on the note is 137%. The note has been paid and the outstanding balance is $0 as of December 31, 2014 and 2013.
On March 10, 2014, MGD entered into a secured promissory note with a principal balance of $23,000. The note was secured by MGD future sales and accounts receivable totaling $31,970. The Company is to remit 2% of revenues and accounts receivables daily until the entire balance of $31,970 has been received. The outstanding balance on the note is $23,000 as of December 31, 2014.
On May 19, 2014, Snöbar Holdings entered into a secured convertible promissory note with a principal balance of $500,000. The note was secured by interests in cash, accounts receivable, other receivables, inventory, supplies, other assets of Snöbar Holdings including general intangibles and rights of each liquor license owned by SnoBar Trust. The note has an interest rate of 10% and a maturity date of December 31, 2015. The Company is to make interest only payments beginning July 1, 2014.
The lender determined Snöbar Holdings to be in default and on January 29, 2015, entered into a mutually agreed loan modification. The agreement increased the principal balance of the note as of December 31, 2014 to $527,333 and all interest due and payable was deemed to have been paid and the conversion rights of the note were removed. The maturity date is December 31, 2015 and if Snöbar Holdings is not in default, the maturity date of the note will automatically be extended to December 31, 2016 (“First Extended Maturity Date”). Commencing on January 1, 2016, Snöbar Holdings will make monthly payments of $15,000 until the First Extended Maturity Date. Assuming Snöbar Holdings is not in default with respect to its obligations as of the First Extended Maturity Date, the note shall automatically be extended to December 31, 2017 (“Second Extended Maturity Date”). Commencing on January 1, 2017, the monthly payments will be increased to $25,000 for every month until the Second Extended Maturity Date. All accrued but unpaid interest, charges and the remaining principal balance of the note is fully due and payable on the Second Extended Maturity Date.
In December of 2014, the lender purchased the note entered into by IPIC on August 22, 2014.
On August 22, 2014, IPIC entered into a secured promissory note with a principal balance of $15,000. The note was secured by interests in all accounts, cash, deposit accounts, documents, equipment, general intangibles and inventory of International IPIC. The
SNOBAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
Company is to make daily payments of $163 until the entire balance is paid off for an estimated total payment of $20,550. The effective interest rate on the note is 192%. This loan was purchased by the lender mentioned in the paragraph above and the outstanding balance is $0 as of December 31, 2014 and 2013.
10. STOCKHOLDERS’ EQUITY
As of December 31, 2014 and 2013, Snöbar Holdings had issued 20,322,390 and 20,211,062, shares of Snobar Holdings capital stock, respectively.
Preferred Stock, par value $0.001 per share, was authorized January 7, 2013 for up to 10,000,000 shares. Under the rights, preferences and privileges Preferred Stock holders had dividend and liquidation preferences over Class A and Class B Common shareholders. As of December 31, 2014 and 2013, there were no preferred shares outstanding.
Class A Common Stock, par value $0.001 per share, was authorized January 7, 2013 for up to 30,000,000 shares. Class A Common Stock shareholders get one vote per share. As of December 31, 2014 and 2013, there were 19,322,290 and 19,211,062 shares of Class A Common Stock outstanding, respectively.
Class B Common Stock, par value $0.001 per share, was authorized January 7, 2013 for up to 10,000,000 shares. Class B Common Stock shareholders get 20 votes per share and can be converted into one Class A Common Stock share. As of December 31, 2014 and 2013, there were 1,000,000 shares of Class B Common Stock outstanding, respectively.
Both Class A and Class B Common Stock have the same liquidation rights and preferences.
MAS Global Distributors, Inc., a California corporation (MGD), was formed in December 2010. Shannon Masjedi had approximately 80% ownership interest in MGD. In January 2013, Snöbar Holdings was incorporated in the State of Delaware. Shannon Masjedi and the management group of MGD controlled operations of Snöbar Holdings, Inc. and were considered to have common control over both MGD and Snöbar Holdings. Upon the formation of Snöbar Holdings, Snöbar Holdings issued 14,832,733 shares of Class A Common Stock and 1,000,000 shares of Class B Common Stock to the founder, Shannon Masjedi, as trustee of the ACD Trust, for intellectual property and incorporation costs on behalf of Snöbar Holdings for an aggregate value of $15,833.
During May of 2013, Snöbar Holdings offered to exchange shares of Snöbar Holdings’ Class A Common Stock for shares of common stock of MGD, pursuant to a Subscription Agreement (“Agreement”) between the shareholders of MGD and Snobar Holdings. Each MGD shareholder received one share of Class A Common Stock of Snöbar Holdings for each share of common stock of MGD exchanged. Snöbar Holdings issued a total of 1,154,500 shares of Class A Common stock in the transaction, of which (i) 1,000,000 shares of Class A Common Stock were issued to Shannon Masjedi, as trustee of the ACD Trust, in exchange for her 1,000,000 shares of common stock of MGD and (ii) 154,500 shares of Class A Common Stock were issued to the other shareholders of MGD in exchange for their 154,500 shares of common stock of MGD. As a result of the share exchange, MGD became a 99% owned subsidiary of Snöbar Holdings.
This is considered an exchange of shares between entities under common control and per ASC 805-50-45-2 the financial statements, “shall report results of operations for the period in which the transfer occurs as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period. Results of operations for that period will thus comprise those of the previously separate entities combined from the beginning of the period to the date the transfer is completed and those of the combined operations from that date to the end of the period”. ASC 805-50-45-4 continues, “similarly, the receiving entity shall present the statement of financial position and other financial information as of the beginning of the period as though the assets and liabilities had been transferred at that date”.
This method is similar to the pooling-of-interests method and as a result MGD’s financial statements have been included in Snöbar Holdings’ consolidated financial statements.
During 2013, Snöbar Holdings sold 751,729 shares of Snöbar Holdings’ Class A Common Stock for proceeds of $950,000.
During 2013, Snöbar Holdings issued 2,043,200 shares of Snöbar Holdings’ Class A Common Stock for services of $40,055.
During 2013, Snöbar Holdings issued 428,900 shares of Snöbar Holdings’ Class A Common Stock in exchange for $1,000,000 of outstanding loans.
During 2013, the Company recorded $11,531 as an in kind contribution of interest on the loans.
During 2014, Snöbar Holdings issued 111,328 shares of Snöbar Holdings’ Class A Common Stock in exchange for $160,000 of outstanding loans.
11. COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES
Capital Lease
MGD leased certain machinery and equipment in 2014 and 2013 under an agreement that is classified as a capital lease. The cost of
SNOBAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
equipment under capital leases is included in the balance sheets as property, plant and equipment and was $44,946 and $80,723 at December 31, 2014 and 2013, respectively. Accumulated depreciation of the leased equipment at December 31, 2014 and 2013 was $96,948 and $61,170, respectively. As of December 31, 2014, future minimum payments for all capital lease obligations are as follows:
| |
Year | Amount |
2015 | $ 36,012 |
2016 | 6,553 |
| |
Total Minimum Lease Payments | 41,515 |
Less: Amount Representing Interest | (5,402) |
Present Value of Minimum Lease Payments | 36,113 |
Less: Current Maturities of Capital Lease Obligations | (29,560) |
Long-Term Capital Lease Obligations | $ 6,553 |
Operating Lease
IPIC is currently obligated under two operating leases for office spaces and associated building expenses. One of the leases expires in December 2015 and the other lease is on a month to month basis. As of December 31, 2014, future minimum payments for all lease obligations are as follows:
| |
Year | Amount |
2015 | $ 9,360 |
| $ 9,360 |
For the years ended December 31, 2014 and 2013, IPIC and MGD had rent expense of $60,702 and $93,451, respectively.
12. SUBSEQUENT EVENTS
ASC 855-16-50-4 establishes accounting and disclosure requirements for subsequent events. ASC 855 details the period after the balance sheet date during which we should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which we should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. We have evaluated all subsequent events through the date these consolidated financial statements were issued, and determined the following are material to disclose:
Share Issuances
·
During February 2015, Snöbar Holdings issued 100,000 shares of Class A Common Stock for $100,000 in cash.
·
During July 2015, Snöbar Holdings issued 10,000 shares of Class A Common Stock in exchange of MGD stock.
·
During July 2015, Snöbar Holdings issued 1,120,650 shares of Class A Common Stock for $91,569 in cash.
·
During July 2015, a note holder converted $5,000 into 95,000 shares of Class A Common Stock.
·
During July 2015, Snöbar Holdings issued 851,960 shares of Class A Common Stock for services.
Share Exchange
On August 14, 2015, Snöbar Holdings entered into a Share Exchange Agreement ("Exchange Agreement") with Pacific Ventures Group, Inc., a Delaware corporation ("Pacific Ventures"), and Snöbar Holdings’ shareholders ("Snobar Shareholders") who hold of record (i) at least 99% and up to 100% of the total issued and outstanding shares of Class A Common Stock and (ii) 100% of the total issued and outstanding shares of Class B Common Stock. In accordance with the terms and provisions of the Exchange Agreement, Pacific Ventures shall acquire (i) at least 99% and up to 100% of the total issued and outstanding shares of Snöbar Holdings’ Class A Common Stock and (ii) 100% of the total issued and outstanding shares of Snöbar Holdings’ Class B Common Stock from Snöbar Holdings’ Shareholders, thus making Snöbar Holdings a majority-owned or wholly-owned subsidiary, in exchange for the issuance to the Snobar Shareholders of at least 22,285,000 and up to 22,500,000 shares of restricted common stock of Pacific Ventures for each share of common stock of Snobar while simultaneously issuing 2,500,000 shares of restricted common stock of Pacific Ventures to certain other persons.
