U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 2015
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 001-36549
SOUTH BEACH SPIRITS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 46-2084743
(State or other jurisdiction of (I.R.S. Employer
incorporation Or organization) Identification No.)
1411 Sawgrass Parkway, Suite B, Sunrise, FL 333231
(Address of Principal Executive Offices)
(800) 670-3879
(Issuer's telephone number)
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer,"
"non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
[ ] Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer [X] Smaller reporting company
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of January 19, 2016: 46,400,000 shares of common stock.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): YES [ ] NO [X]
Transitional Small Business Disclosure Format (Check One) YES [ ] NO [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Control and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 19
Item 4. Mine Safety Disclosures 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURE 20
2
ITEM 1. FINANCIAL STATEMENTS
South Beach Spirits,Inc.
fka CME Realty Inc.
Condensed Balance Sheets
November 30, February 28,
2015 2015
------------ ------------
(Unaudited)
ASSETS
Current Assets
Cash $ -- $ --
------------ ------------
TOTAL CURRENT ASSETS -- --
------------ ------------
TOTAL ASSETS $ -- $ --
============ ============
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities
Bank overdraft $ 1,921 $ --
Account payable and accrued expenses 110,467 6,000
Loan payable 47,977 --
Convertible prom notes (net of unamortized discount of $7,500) 83,187 --
Amount due to seller 910,000 --
Amount due to related party 175,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 1,328,552 6,000
------------ ------------
TOTAL LIABILITIES 1,328,552 6,000
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $0.001 Par Value
Authorized Common Stock
75,000,000 shares at $0.001
Issued and Outstanding
46,400,000 Common Shares at August 31, 2015 & 70,000,000 at February 28, 2015 46,400 70,000
Additional paid in capital 617,453 7,202
Accumulated deficit (2,021,857) (83,202)
------------ ------------
SUBTOTAL (1,358,004) (6,000)
------------ ------------
Treasury Shares
29,451,782 Shares Issued and Outstanding at November 30, 2015 and Zero
at February 28, 2015 $ 29,452 --
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (1,328,552) --
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ -- $ --
============ ============
The accompanying notes are an integral part of these
condensed financial statements.
On Feb 23, 2015, the Company approved a 5:1 forward split which has been
retroactively presented in these financial stmts.
3
South Beach Spirits, Inc.
fka CME Realty Inc.
Condensed Statements of Operations
(Unaudited)
For the For the For the For the
three months three months nine months nine months
ended ended ended ended
November 30, November 30, November 30, November 30,
2015 2014 2015 2014
------------ ------------ ------------ ------------
REVENUE
Revenues $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
Total Revenues -- -- -- --
------------ ------------ ------------ ------------
EXPENSES
General and Administrative expense 59,763 425 100,409 1,523
Professional fees 58,435 4,970 352,286 8,370
Officer salary 4,150 -- 38,100 --
Impairment loss -- -- 1,447,860 --
------------ ------------ ------------ ------------
Total Expenses 122,348 5,395 1,938,655 9,893
------------ ------------ ------------ ------------
INCOME/LOSS FROM OPERATIONS (122,348) (5,395) (1,938,655) (9,893)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
NET INCOME/LOSS $ (122,348) $ (5,395) $ (1,938,655) $ (9,893)
============ ============ ============ ============
Basic and diluted loss per common share $ (0.00) $ (0.00) $ (0.03) $ (0.00)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 54,380,220 70,000,000 64,831,273 70,000,000
============ ============ ============ ============
The accompanying notes are an integral part of these
condensed financial statements.
On Feb 23, 2015, the Company approved a 5:1 forward split which has been
retroactively presented in these financial stmts.
4
South Beach Spirits, Inc.
fka CME Realty Inc.
Statements of Stockholders' Equity (Deficit)
from Inception (August 10, 2012) to November 30, 2015
Deficit
Accumulated
Common Stock Treasury Stock Additional During the
Number of Number of Paid-In Development
Shares Amount Shares Amount Capital Stage Total
------ ------ ------ ------ ------- ----- -----
Balance, February 28, 2015 70,000,000 $ 70,000 5,000,000 $ 5,000 $ 2,202 $ (83,202) $ (6,000)
Shares issued per Asset agrmt
on Sept 18, 2015 1,400,000 1,400 446,460 447,860
Treas shares issued for debt
on Sept 30, 2015 @0.15 (28,000) (28) 15,028 15,000
Treas shares issued for debt
on Oct 1, 2015 @0.52 (yr avg) (160,000) (160) 86,797 86,637
Treas shares issued for debt
on Oct 1, 2015 @0.52 (yr avg) (70,400) (70) 36,676 36,606
Treas shares issued for debt
on Oct 1, 2015 @0.165 (yr avg) (181,818) (182) 30,182 30,000
Shares returned to treas per
separation agrmt Oct 1, 2015 (25,000,000) (25,000) 25,000,000 25,000 --
Treas shares returned to former
officer per sep agrmt on
Oct 1, 2015 (108,000) (108) 108 --
Net (Loss) for period ended
November 30, 2015 (1,938,655) (1,938,655)
----------- -------- ----------- ------- -------- ----------- -----------
Balance, November 30, 2015 46,400,000 $ 46,400 29,451,782 $29,452 $617,453 $(2,021,857) $(1,328,552)
=========== ======== =========== ======= ======== =========== ===========
The accompanying notes are an integral part of these
condensed financial statements.
On Feb 23, 2015, the Company approved a 5:1 forward split which has been
retroactively presented in these financial stmts.
5
South Beach Spirits, Inc.
fka CME Realty Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the For the
nine months nine months
ended ended
November 30, November 30,
2015 2014
------------ ------------
OPERATING ACTIVITIES
Net Loss $ (1,938,655) $ (9,893)
Adjustments to reconcile Net Loss
to net cash used in operations:
Amortization of debt discount 7,500 --
Impairment loss 1,447,860 --
Changes in operating assets and liabilities
Bank overdraft 1,921 --
Account payable and accrued expenses 104,467 (3,963)
Change in related Party Payable 175,000 --
------------ ------------
Net cash used in operating activities (201,907) (13,856)
------------ ------------
FINANCING ACTIVITIES
Payment on note payable to seller (90,000) --
Proceeds from NP-related 101,781 --
Repayment to NP-related (144) --
Priceeds from NP 115,583 --
Repayment to NP (1,000) 6,700
Proceeds from convertible notes 75,687 --
------------ ------------
Net cash provided by financing activities 201,907 6,700
------------ ------------
Net increase(decrease) in cash for period -- (7,156)
Cash at beginning of period -- 9,404
------------ ------------
Cash at end of period $ -- $ 2,248
============ ============
Supplemental Cash Flow Information and
noncash Financing Activities:
Cash Paid For:
Treasury shares issued per debt conversion $ 168,243 $ --
============ ============
Shares issued per asset agreement $ 447,860 $ --
============ ============
Note payable to seller for asset acquisition $ 1,000,000 $ --
============ ============
Shares returned to treasury $ 25,000 $ --
============ ============
Shares returned to former officer $ 108 $ --
============ ============
The accompanying notes are an integral part of these
condensed financial statements.
On Feb 23, 2015, the Company approved a 5:1 forward split which has been
retroactively presented in these financial stmts.
6
South Beach Spirits, Inc.
(Formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
November 30, 2015
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
South Beach Spirits, Inc. (the "Company") was incorporated in the state of
Nevada on August 10, 2012 under the name "CME Realty, Inc." and its year-end is
February 28. The Company's initial plan of operations was to engage in providing
real estate services for the Las Vegas residential market. The Company was
unable to implement this plan of operations for a number of reasons, including
without limitation, the inability to raise sufficient capital.
In light of the foregoing, on February 13, 2015, Carlos Espinosa, the principal
shareholder and sole director and executive officer of the Company, sold
50,000,000 shares of the Company's common stock held by him (the "CME Shares")
to Kenneth McLeod for $252,000. The CME Shares represented 74.13% of the
Company's issued and outstanding common stock. Contemporaneously therewith, Mr.
Espinosa resigned as an officer of the Company and appointed Mr. McLeod as a
director, President and Secretary-Treasurer of the Company. Subsequently, Mr.
Espinosa resigned as a director of the Company. As a result of the foregoing, a
"change in control" of the Company was deemed to have taken place.
On March 17, 2015, the Company implemented a five-for-one split of our common
stock in the form of a stock dividend to shareholders on record at the close of
business on March 9, 2015. In connection therewith, shareholders as of that date
received four additional shares of the Company's common stock for each share
held by them as of the record date. Unless otherwise indicated, all share
numbers and per-share numbers in this report have been retroactively adjusted to
give effect to the March 2015 stock split.
On April 22, 2015, the Company entered into a letter of intent to acquire all of
the capital stock of Rock N' Roll Imports, Inc., a California corporation
("RNR") engaged in alcoholic beverage development, marketing and distribution in
exchange for (a) the issuance of 50,000,000 shares of the Company's common stock
and (b) the contemporaneous contribution to the Company's capital of the CME
Shares held by Mr. McLeod. On August 6, 2015, the Company terminated the letter
of intent with RNR as a result of the inability to agree upon the terms of
definitive transaction documentation.
On July 10, 2015, the Company approved, authorized and adopted an amendment to
the Company's Articles of Incorporation to change its name from "CME Realty,
Inc." to "South Beach Spirits, Inc." The name change was effective on September
9, 2015.
In furtherance of its plan to focus on opportunities in developing and marketing
spirts, on August 25, 2015 the Company entered into an Asset Purchase Agreement
to acquire the worldwide intellectual property and related assets of V Georgio
Vodka, an ultra-premium brand of traditional and flavored vodkas from Victor G.
Harvey, Sr., the brand's founder and a limited liability company owned by him,
in exchange for 1,400,000 "restricted" shares of the Company's common stock and
$1,000,000 in cash, payable over a scheduled payment period. In connection with
the proposed transaction, 25,000,000 "restricted" shares of common stock were to
be returned by the Company's principal shareholder for cancellation. A
subsidiary of the Company, formed to exploit the V Georgio brand also, entered
into an employment agreement with Victor G. Harvey, Sr. to serve as CEO of the
subsidiary for an initial period of three years with a base salary of $120,000
per annum. The employment agreement contained confidentiality, non-competition
and non-solicitation covenants. Subsequent thereto, the Company learned of
certain breaches of material representations and warranties made by Mr. Harvey
7
South Beach Spirits, Inc.
(Formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
November 30, 2015
in the Asset Purchase Agreement, as well as breaches in his duties as the
subsidiaries CEO. On October 13, 2015, Mr. Harvey resigned his position and the
Company terminated the transaction.
On August 25, 2015, the Company also entered into an employment agreement with
Vincent Prince, to serve as its CFO for an initial period of three years with a
base salary of $120,000 per annum. The employment agreement contains
confidentiality, non-competition and non-solicitation covenants.
Contemporaneously therewith, the Company entered into a consulting agreement
with LandAmerica Holdings & Investments Group, LLC, and its principal Vincent
Prince, for services rendered since March 1, 2015 and prior to the date of the
employment agreement, with respect to business development, strategic planning,
evaluating business opportunities in the alcoholic beverage industry, assisting
management in structuring and potential business development opportunities, and
providing such other corporate advisory consulting services as management
requested. In consideration for the performance of the services, the Company has
agreed to pay the consultant a fee of $175,000 for services completed on the
Company's behalf.
On September 29, 2015, the Company authorized an increase in the number of
members of the Company's Board of Directors to three, and appointed Martin D.
Ustin to serve as a member of the Board until the next annual meeting or until
his successor is duly elected.
On October 1, 2015, Kenneth McLeod, the Company's former President returned
25,000,000 shares of "restricted" common stock held by him to the Company for
cancellation and sold 25,000,000 shares of "restricted" common stock held by him
to Vincent Prince, resulting in an additional "change in control" having taken
place. Contemporaneously therewith, Mr. McLeod resigned as CEO and director of
the Company, but remains with the Company in a non-managerial position. As
previously agreed upon, he converted the entire debt owed to him ($101,637) into
188,000 shares of the Company's common stock, see Note 4 - Related Party
Transactions, for additional information.
On October 19, 2015, the Company was served with a pro se legal action filed by
Victor G. Harvey, Sr. and his wholly-owned limited liability company, V Georgio
Enterprises, LLC, in Circuit Court, Broward County, Florida, alleging certain
breaches of the Company's payment obligations under the Asset Purchase Agreement
and related agreements entered into with the Company. The complaint sought,
somewhat inconsistently, injunctive relief for damages incurred by the
plaintiffs because of such breaches. On December 8, 2015, the Court dismissed
the complaint on various grounds, with leave to refile. The Company has been
advised that the plaintiffs have refiled an amended complaint (which has not
been served) with the Court. South Beach intends to vigorously defend against
the allegations of the complaint, as well as counterclaim against the plaintiffs
and/or take other action to redress the damage suffered by the Company as a
result of the plaintiffs' breach of the agreements.
On October 19, 2015, the Company entered into an Equity Purchase Agreement and
Convertible Promissory Note with Premier Venture Partners, LLC. Per the Equity
Purchase Agreement, Premier agrees to invest up to seven million dollars
($7,000,000) to purchase the Company's common stock, par value $0.001 per share.
The Convertible Promissory Note states that Premier will pay to SBES the amount
of $70,000 at 5% annual interest. At November 30, 2015, no investment has been
made.
On November 27, 2015, the Company approved entering into a Securities Purchase
Agreement and an 8% Convertible Redeemable Note with Adar Bays. The Security
Purchase Agreement calls for the issuance of two Convertible Redeemable Notes in
the amount of $35,000 each, at 8%. As of November 30, 2015, no funds were
received.
8
South Beach Spirits, Inc.
(Formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
November 30, 2015
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has a history of losses
and incurred losses of $1,938,655 for the nine-month period ending November 30,
2015. Losses have resulted in an accumulated deficit of $2,021,857 as of
November 30, 2015. From inception through November 30, 2015, the Company has had
no revenue producing operations and has not commenced its business plan. In view
of these matters, the Company's ability to continue as a going concern is
dependent upon the Company's ability to begin operations and to achieve a level
of profitability. The Company intends on financing its future development
activities and its working capital needs largely from the sale of public equity
securities with some additional funding from other traditional financing
sources, including term notes until such time that funds provided by operations
are sufficient to fund working capital requirements. The financial statements of
the Company do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classifications of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
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 February 28,
2015 audited financial statements. The results of operations for the three and
six month periods ended November 30, 2015 and the same periods last year are not
necessarily indicative of the operating results for the full year.
In the opinion of management, all adjustments consisting of normal recurring
entries necessary for a fair statement of the periods presented for: (a) the
financial position; (b) the result of operations; and (c) cash flows, have been
made in order to make the financial statements presented not misleading. The
results of operations for such interim periods are not necessarily indicative of
operations for a full year.
The financial statements present the balance sheets, statements of operations,
and cash flows of the Company. These financial statements are presented in
United States dollars and have been prepared in accordance with accounting
principles generally accepted in the United States.
IMPAIRMENT ON LONG-LIVED ASSETS AND OTHER ACQUIRED INTANGIBLE ASSETS
We evaluate the recoverability of equipment and amortizable intangible assets
for possible impairment whenever events or circumstances indicate that the
carrying amount of such assets may not be recoverable. Recoverability of these
assets is measured by a comparison of the carrying amounts to the future
undiscounted cash flows the assets are expected to generate. If such review
indicates that the carrying amount of property and equipment and intangible
assets is not recoverable, the carrying amount of such assets is reduced to fair
value.
9
South Beach Spirits, Inc.
(Formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
November 30, 2015
In addition to the recoverability assessment, we routinely review the remaining
estimated useful lives of amortizable intangible assets. If we reduce the
estimated useful life assumption for any asset, the remaining unamortized
balance would be amortized or depreciated over the revised estimated useful
life.
For nine-month period ended November 30, 2015, the amount of impairment is
$1,447,860.
NOTE 4 - RELATED PARTY TRANSACTIONS
On March 1, 2015, the Company approved compensation to the (former) President at
$1,250 per week for services performed. On October 1, 2015, Mr. McLeod resigned
as CEO and director of the Company, but remains with the Company in a
non-managerial position. At November 30, 2015 and February 28, 2015, the Company
has paid 38,100 and $0, respectively.
Pursuant to the Asset Purchase Agreement with Victor G. Harvey, Sr. and V
Georgio Enterprises, the Company has paid $90,000, and has an amount due to
seller of $910,000, which is payable per the asset purchase agreement. In
connection with this transaction, the Company recorded an intangible asset in
the amount of $1,000,000. A full impairment was recorded at August 31, 2015 due
to the absence of an independent third party valuation report.
As of November 30, 2015, the Company has made payments totaling $10,000 pursuant
to the employment agreement with Victor G. Harvey, Sr. On October 13, 2015, Mr.
Harvey resigned from his position.
The Company is also party to an employment agreement with Vincent Prince, to
serve as its CFO for an initial period of three years with a base salary of
$120,000 per annum. The employment agreement contains confidentiality,
non-competition and non-solicitation covenants. As of November 30, 2015, the
Company has made payments totaling $30,000 per the employment agreement with
Vincent Prince.
The Company has accrued $175,000 payable to LandAmerica Holdings & Investments
Group, LLC, an affiliate of Vincent Prince for business development consulting
services performed from March 1, 2015 through August 31, 2015. At November 30,
2015, no payments have been made against this liability.
For the nine-month period ended November 30, 2015, a shareholder had paid
expenses on behalf of the Company in the amount of $101,637, ($0 at February 28,
2015). These loans are not secured, are due on demand, and carry no interest. On
October 1, 2015, the shareholder converted this debt into 188,000 common shares
per his separation agreement. At November 30, 2015, $0 was owed to the
shareholder.
In May 2015, the Company entered into a rental agreement with a related party
for office space at $500 per month. This agreement was cancelled in favor of a
new lease agreement entered into in November 2015. At August 31, 2015, the
Company had paid a total of $1,750 in rental expense. No additional rent has
been paid per this agreement as of November 30, 2015.
On November 9, 2015, the Company entered into a lease agreement with a related
party for office space at $1600 per month. As of November 30, 2015, the Company
had paid $2488 in prorated rent and security deposits.
10
South Beach Spirits, Inc.
(Formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
November 30, 2015
NOTE 5 - CAPITAL STOCK
The Company is authorized to issue an aggregate of 75,000,000 common shares with
a par value of $0.001 per share. No preferred shares have been authorized or
issued. At November 30, 2015 and February 28, 2015, 46,400,000 and 70,000,000
common shares are issued and outstanding, respectively.
On September 18, 2015, the company issued 1,400,000 "restricted" shares of
common stock valued at $447,860 to Victor Harvey Sr. pursuant to the August 25,
2015 Asset Purchase Agreement.
On September 30, 2015, the company issued 28,000 shares of treasury stock to a
former officer in exchange for $15,000 in debt.
On October 1, 2015, the former officer returned 25,000,000 shares of
"restricted" common stock held by him to the Company's treasury shares and sold
25,000,000 shares of "restricted" common stock held by him to Vincent Prince,
resulting in an additional "change in control" having taken place. Immediately,
108,000 treasury shares were returned to him pursuant to his separation
agreement.
On October 1, 2015, the company issued 160,000 shares of treasury stock to a
former officer in exchange for $86,637 in debt.
On October 1, 2015, the company issued 70,400 shares of treasury stock to a
non-related party in exchange for $36,606 in debt.
On October 1, 2015, the company issued 181,818 shares of treasury stock to a
non-related party in exchange for $30,000 in debt.
As of November 30, 2015, there are no warrants or options outstanding to acquire
any additional shares of common stock of the Company.
NOTE 6 - LOANS PAYABLE
For the nine-months ended November 30, 2015, a non-related party had loaned
and/or paid expenses on behalf of the Company in the amount of $114,583, ($0 at
February 28, 2015). These loans are not secured, are due on demand, and carry no
interest. On October 1, 2015, the party agreed to convert $36,606 of this debt
into 70,400 shares of the Company's common treasury stock at $0.52, per share,
the average closing price for the trailing twelve months, and the remaining
$30,000 into 181,818 shares of the Company's common treasury stock at $0.165 per
share. At November 30, 2015, $47,977 was owed to the party for additional loans
for which shares have yet to be issued.
On November 3, 2015, the Company approved entering into a 10% Convertible
Promissory Note with Iconic Holdings, LLC for up to $110,000 to be repaid or
converted into the Company's Common Stock. This note includes a 10% original
issue discount ("OID") and reimbursement of expenses incurred for due diligence
and legal fees related to the transaction. The conversion price per share shall
be lower of $0.05 or 50% of the lowest trading price during the 25 consecutive
trading days prior to the date of notice of conversion.
11
South Beach Spirits, Inc.
(Formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
November 30, 2015
At November 30, 2015, the Company had received a loan of $27,729, which includes
an OID of $2,500 which was expensed in the period ending November 30, 2015,
expense reimbursement of $1,875, and interest of $229.
On October 29, 2015, the Company approved entering into a 10% Convertible
Promissory Note with Typenex Co-Investment, LLC, up to $170,000 in three
tranches, which includes a 10% OID and reimbursement of expenses incurred for
due diligence and legal fees related to the transaction. The conversion price
per share shall be $0.40. If Market Cap falls below $10 million, the conversion
price shall equal to the lower of $0.40 and the market price as of date of
conversion.
As of November 30, 2015, the Company had received a loan of $55,458 which
includes an OID of $5,000 which was expensed in the period ending November 30,
2015, expense reimbursement of $3,750, and interest of $458.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The terms "SOUTH BEACH SPIRITS," the "COMPANY," "WE," "OUR," "US" or any
derivative or similar terms used herein, refer to South Beach Spirits, Inc.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q of South Beach Spirits for the three and nine
month periods ended November 30, 2015 contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created thereby. To the
extent that such statements are not recitations of historical fact, such
statements constitute forward-looking statements which, by definition, involve
risks and uncertainties. In particular, statements under "ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
contain forward-looking statements. Where, in any forward-looking statement, the
Company expresses an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.
The following are factors that could cause actual results or events to differ
materially from those anticipated, and include but are not limited to: general
economic, financial and business conditions; changes in and compliance with
governmental regulations; changes in tax laws; and the costs and effects of
legal proceedings.
You should not rely on forward-looking statements in this quarterly report. This
quarterly report contains forward-looking statements that involve risks and
uncertainties. We use words such as "ANTICIPATES," "BELIEVES," "PLANS,"
"EXPECTS," "FUTURE," "INTENDS" and similar expressions to identify these
forward-looking statements. Investors should not place undue reliance on these
forward-looking statements, which apply only as of the date of this report. Our
actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by South
Beach Spirits. Financial information provided in this Form 10-Q for periods
subsequent to February 28, 2015 is preliminary and remains subject to audit. As
such, this information is not final or complete, and remains subject to change,
possibly materially.
INTRODUCTION
South Beach Spirits was incorporated in the state of Nevada on August 10, 2012
under the name "CME REALTY, INC." and its year-end is February 28. The Company's
initial plan of operations was to engage in providing real estate services for
the Las Vegas residential market. The Company was unable to implement this plan
of operations for a number of reasons, including without limitation, the
inability to raise sufficient capital.
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In light of the foregoing, on February 13, 2015, Carlos Espinosa, the principal
shareholder and sole director and executive officer of the Company, sold
50,000,000 shares of the Company's common stock held by him (the "CME SHARES")
to Kenneth McLeod for $252,000. The CME Shares represented 74.13% of the
Company's issued and outstanding common stock. Contemporaneously therewith, Mr.
Espinosa resigned as an officer of the Company and appointed Mr. McLeod as a
director, President and Secretary-Treasurer of the Company. Subsequently, Mr.
Espinosa resigned as a director of the Company. As a result of the foregoing, a
"CHANGE IN CONTROL" of the Company was deemed to have taken place.
On March 17, 2015, the Company implemented a five-for-one split of our common
stock in the form of a stock dividend to shareholders on record at the close of
business on March 9, 2015. In connection therewith, shareholders as of that date
received four additional shares of the Company's common stock for each share
held by them as of the record date. Unless otherwise indicated, all share
numbers and per-share numbers in this report have been retroactively adjusted to
give effect to the March 2015 stock split.
On April 22, 2015, the Company entered into a letter of intent to acquire all of
the capital stock of Rock N' Roll Imports, Inc., a California corporation
("RNR") engaged in alcoholic beverage development, marketing and distribution in
exchange for (a) the issuance of 50,000,000 shares of the Company's common stock
and (b) the contemporaneous contribution to the Company's capital of the CME
Shares held by Mr. McLeod. On August 6, 2015, the Company terminated the letter
of intent with RNR as a result of the inability to agree upon the terms of
definitive transaction documentation.
On July 10, 2015, the Company approved, authorized and adopted an amendment to
the Company's Articles of Incorporation to change its name from "CME REALTY,
INC." to "SOUTH BEACH SPIRITS, INC." The name change was effective on September
9, 2015.
In furtherance of its plan to focus on opportunities in developing and marketing
spirts, on August 25, 2015 the Company entered into an Asset Purchase Agreement
to acquire the worldwide intellectual property and related assets of V Georgio
Vodka, an ultra-premium brand of traditional and flavored vodkas from Victor G.
Harvey, Sr., the brand's founder and a limited liability company owned by him,
in exchange for 1,400,000 "restricted" shares of the Company's common stock and
$1,000,000 in cash, payable over a scheduled payment period. In connection with
the proposed transaction, 25,000,000 "RESTRICTED" shares of common stock were to
be returned by the Company's principal shareholder for cancellation. A
subsidiary of the Company, formed to exploit the V Georgio brand also, entered
into an employment agreement with Victor G. Harvey, Sr. to serve as CEO of the
subsidiary for an initial period of three years with a base salary of $120,000
per annum. The employment agreement contained confidentiality, non-competition
and non-solicitation covenants. Subsequent thereto, the Company learned of
certain breaches of material representations and warranties made by Mr. Harvey
in the Asset Purchase Agreement, as well as breaches in his duties as the
subsidiaries CEO. On October 13, 2015, Mr. Harvey resigned his position and the
Company terminated the transaction.
On August 25, 2015, the Company also entered into an employment agreement with
Vincent Prince, to serve as its CFO for an initial period of three years with a
base salary of $120,000 per annum. The employment agreement contains
confidentiality, non-competition and non-solicitation covenants.
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Contemporaneously therewith, the Company entered into a consulting agreement
with LandAmerica Holdings & Investments Group, LLC, and its principal Vincent
Prince, for services rendered since March 1, 2015 and prior to the date of the
employment agreement, with respect to business development, strategic planning,
evaluating business opportunities in the alcoholic beverage industry, assisting
management in structuring and potential business development opportunities, and
providing such other corporate advisory consulting services as management
requested. In consideration for the performance of the services, the Company has
agreed to pay the consultant a fee of $175,000 for services completed on the
Company's behalf.
On September 29, 2015, the Company authorized an increase in the number of
members of the Company's Board of Directors to three, and appointed Martin D.
Ustin to serve as a member of the Board until the next annual meeting or until
his successor is duly elected.
On October 1, 2015, Kenneth McLeod, the Company's former President returned
25,000,000 shares of "RESTRICTED" common stock held by him to the Company for
cancellation and sold 25,000,000 shares of "RESTRICTED" common stock held by him
to Vincent Prince, resulting in an additional "change in control" having taken
place. Contemporaneously therewith, Mr. McLeod resigned as CEO and director of
the Company, but remains with the Company in a non-managerial position. As
previously agreed upon, he converted the entire debt owed to him into 188,000
shares of the Company's common stock
On October 19, 2015, the Company was served with a pro se legal action filed by
Victor G. Harvey, Sr. and his wholly-owned limited liability company, V Georgio
Enterprises, LLC, in Circuit Court, Broward County, Florida, alleging certain
breaches of the Company's payment obligations under the Asset Purchase Agreement
and related agreements entered into with the Company. The complaint sought,
somewhat inconsistently, injunctive relief for damages incurred by the
plaintiffs because of such breaches. On December 8, 2015, the Court dismissed
the complaint on various grounds, with leave to refile. The Company has been
advised that the plaintiffs have refiled an amended complaint (which has not
been served) with the Court. South Beach intends to vigorously defend against
the allegations of the complaint, as well as counterclaim against the plaintiffs
and/or take other action to redress the damage suffered by the Company as a
result of the plaintiffs' breach of the agreements.
On October 19, 2015, the Company entered into an Equity Purchase Agreement and
Convertible Promissory Note with Premier Venture Partners, LLC. Per the Equity
Purchase Agreement, Premier agrees to invest up to seven million dollars
($7,000,000) to purchase the Company's common stock, par value $0.001 per share.
The Convertible Promissory Note states that Premier will pay to SBES the amount
of $70,000 at 5% annual interest. At November 30, 2015, no investment has been
made.
On October 29, 2015, the Company entered into a 10% Convertible Promissory Note
with Typeset Co-Investment, LLC, up to $170,000 in three tranches, which
includes a 10% original issued discount ("OID") and reimbursement of expenses
incurred for due diligence and legal fees related to the transaction. As of
November 30, 2015, the Company had booked a loan of $55,458 which includes an
OID of $5,000 expense reimbursement of $3,750, and interest of $458.34.
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On November 3, 2015, the Company entered into a 10% Convertible Promissory Note
with Iconic Holdings, LLC for up to $110,000 to be repaid or converted into the
Company's common stock. This note includes a 10% OID and reimbursement of
expenses incurred for due diligence and legal fees related to the transaction.
At November 30, 2015, the Company had booked a loan of $27,729, which includes
an OID of $2,500 expense reimbursement of $1,875, and interest of $229.
On November 27, 2015, the Company entered into a Securities Purchase Agreement
and an 8% Convertible Redeemable Note with Adar Bays. The Securities Purchase
Agreement calls for the issuance of two Convertible Redeemable Notes in the
amount of $35,000 each, at 8%. As of November 30, 2015, no funds were received.
On December 3, 2015, the Company entered into a letter of intent to acquire a
50% equity interest in Striped Pig Distillery, LLC, from certain of its members,
in exchange for the issuance of 1,500,000 "RESTRICTED" shares of SBES common
stock. In addition, the letter of intent contemplates SBES making a $300,000
cash working capital contribution to Striped Pig.
RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED NOVEMBER 30, 2015 AND 2014
The Company did not have any revenues or operating income for the three and nine
month periods ended November 30, 2015 and 2014. Operating expenses for the
three-month periods ended November 30, 2015 and 2014 were $122,348 and $5,395
respectively. Operating expenses for the nine-month periods ended November 30,
2015 and 2014 were $1,938,655 and $9,893, respectively. These expenses were
comprised of costs mainly associated with legal, accounting and office
operations, with the additional impairment of intangible assets at August 31,
2015. During the 2014 periods expenses were minimized and primarily related to
expenses associated with our public filing requirements. During the 2015
periods, operating expenses increased as a result of the terminated RNR and V
Georgio brand acquisitions, as well as subsequent efforts to implement the
Company's business plan. We anticipate that these expenses will increase as we
transition into operations focused on the development, manufacture, marketing
and sale of alcoholic beverages, through transactions such as the proposed
acquisition of a 50% equity interest in Striped Pig Distillery, LLC.
LIQUIDITY AND CAPITAL RESOURCEs
The Company initially financed its expenses and costs thus far through an equity
investment and funding from its founder. We received a Notice of Effectiveness
of our Registration Statement on Form S-1 from the Securities and Exchange
Commission on October 2, 2013, pursuant to which we sold 4,000,000 shares of
common stock at a fixed price of $0.002 per share. The offering closed on
January 10, 2014 and generated $40,000 in gross proceeds for the Company.
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As the Company has proceeded with implementing its business plan to engage in
the alcoholic beverage industry, it has secured additional capital through
unsecured demand loans or having expenses paid by third parties aggregating
$216,220. As at November 30, 2015, $168,243 of these obligations have been
converted into 28,000, 160,000, 70,400, and 181,818 shares of common treasury
stock at an effective conversion rate of $0.15, $0.52, $0.52, and $0.165 per
share, respectively. Total owing to a non-related party at November 30, 2015, is
$47,977.
During the three months ended November 30, 2015, the Company also entered into
the various agreements to described under "INTRODUCTION" above to privately
issue convertible debt or equity, which generated an aggregate of $69,375 in
proceeds, net of discounts and associated fees, during such period.
All of the foregoing securities were issued pursuant to the exemption from
registration afforded by Section 4(a) (2) of the Securities Act of 1933, as
amended and Regulation D thereunder.
The Company expects to effect additional private sales of its equity and debt
securities in order to generate additional capital for implementing its business
plan. There can be no assurance given, however, that the Company will be able to
do so on acceptable terms, or at all. Failure to secure financing when needed on
acceptable terms will impair the Company's ability to implement its business
plan and may significantly harm its operations and prospects.
OFF-BALANCE SHEET ARRANGEMENTS
We have no known demands or commitments and are not aware of any events or
uncertainties as of November 30, 2015 that will result in or that are reasonably
likely to materially increase or decrease our current liquidity.
CRITICAL ACCOUNTING POLICIES
We prepare our financial statements in conformity with GAAP, which requires
management to make certain estimates and apply judgments. We base our estimates
and judgments on historical experience, current trends and other factors that
management believes to be important at the time the financial statements are
prepared. Due to the need to make estimates about the effect of matters that are
inherently uncertain, materially different amounts could be reported under
different conditions or using different assumptions. On a regular basis, we
review our critical accounting policies and how they are applied in the
preparation of our financial statements.
While we believe that the historical experience, current trends and other
factors considered support the preparation of our financial statements in
conformity with GAAP, actual results could differ from our estimates and such
differences could be material.
For a full description of our critical accounting policies, please refer to
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" in our Annual Report on Form 10-K for the year ended February 28,
2015.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended ( the "EXCHANGE ACT"), we are not required to
provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (f)
and 15d-15(f)) as of November 30, 2015, have concluded that as of such date the
Company's disclosure controls and procedures are ineffective. Material
weaknesses noted are lack of an audit committee, lack of a majority of outside
directors on the board of directors, resulting in ineffective oversight in the
establishment and monitoring of required internal controls and procedures.
Moreover, current management is dominated by a two individuals, without adequate
compensating controls.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting
identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the three months ended
November 30, 2015, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM1. LEGAL PROCEEDINGS
See "NOTE 1 OF THE NOTES TO FINANCIAL STATEMENTS" and the "ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
INTRODUCTION" for an update on the status of litigation instituted against the
Company Victor G. Harvey, Sr. and his wholly-owned limited liability company, V
Georgio Enterprises, LLC, in Circuit Court, Broward County, Florida, with
respect to the terminated V Georgio brand purchase transaction.
ITEM 1A. RISK FACTORS
Reference is made to "ITEM 1A. RISK FACTORS" in our Annual Report on Form 10-K
for the year ended February 28, 2015.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
* On October 1, 2015, the Company issued 188,000 shares of treasury
stock to a former officer in exchange for $101,637 in debt in two
transactions, 160,000 shares for $86,637 and 28,000 shares for
$15,000.
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* On October 1, 2015, the Company issued 70,400 shares of treasury stock
to a non-related party in exchange for $36,606 in debt.
* On October 1, 2015, the Company issued 181,818 shares of treasury
stock to a non-related party in exchange for $30,000 in debt.
* On October 19, 2015, the Company entered into an Equity Purchase
Agreement and Convertible Promissory Note with Premier Venture
Partners, LLC. Per the Equity Purchase Agreement, Premier agrees to
invest up to seven million dollars ($7,000,000) to purchase the
Company's common stock, par value $0.001 per share. The Convertible
Promissory Note states that Premier will pay to SBES the amount of
$70,000 at 5% annual interest. At November 30, 2015, no investment has
been made.
* On October 29, 2015, the Company entered into a 10% Convertible
Promissory Note with Typenex Co-Investment, LLC, up to $170,000.00 in
three tranches, which includes a 10% original issued discount ("OID")
and reimbursement of expenses incurred for due diligence and legal
fees related to the transaction. As of November 30, 2015, the Company
had booked a loan of $55,458 which includes an OID of $5,000.00 which
was expensed in the period ending November 30, 2015, expense
reimbursement of $3,750, and interest of $458.
* On November 3, 2015, the Company entered into a 10% Convertible
Promissory Note with Iconic Holdings, LLC for up to $110,000 to be
repaid or converted into the Company's common stock. This note
includes a 10% OID and reimbursement of expenses incurred for due
diligence and legal fees related to the transaction. At November 30,
2015, the Company had booked a loan of $27,729, which includes an OID
of $2,500 which was expensed in the period ending November 30, 2015,
expense reimbursement of $1,875, and interest of $229.
* On November 27, 2015, the Company entered into a Securities Purchase
Agreement and an 8% Convertible Redeemable Note with Adar Bays. The
Securities Purchase Agreement calls for the issuance of two
Convertible Redeemable Notes in the amount of $35,000.00 each, at 8%.
As of November 30, 2015, no funds were received.
All of the foregoing securities were issued pursuant to the exemption from
registration afforded by Section 4(a) (2) of the Securities Act of 1933, as
amended and Regulation D thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
Sarbanes Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
Sarbanes Oxley Act of 2002
101 Interactive Data files pursuant to Regulation S-T *
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To be filed by amendment.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOUTH BEACH SPIRITS, INC.
Date: January 19, 2016 By: /s/ Vincent Prince
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Chief Financial Officer
(Principal Financial and Accounting Officer)
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