The following discussion highlights Pacific Ventures' results of operations and
the principal factors that have affected our financial condition as well as our
liquidity and capital resources for the periods described and provides
information that management believes is relevant for an assessment and
understanding of the statements of financial condition and results of operations
presented herein. The following discussion and analysis are based on Pacific
Ventures' audited Financial Report, which we have prepared in accordance with
United States generally accepted accounting principles. You should read this
discussion and analysis together with such financial statements and the related
notes thereto.
Basis of Presentation
The audited financial statements for our fiscal years ended December 31, 2021
and 2020 include a summary of our significant accounting policies and should be
read in conjunction with the discussion below. In the opinion of management, all
material adjustments necessary to present fairly the results of operations for
such periods have been included in these audited financial statements. All such
adjustments are of a normal recurring nature.
The following discussion and analysis is intended to help the reader understand
the Company, our financial condition and results of operations and our present
business environment. It should be read together with our consolidated financial
statements and related notes contained elsewhere in this Annual Report. The
following discussion and analysis contain certain financial measures that are
not required by, or presented in accordance with, accounting principles
generally accepted in the U.S. ("GAAP"). We believe these non- GAAP financial
measures provide meaningful supplemental information about our operating
performance and liquidity. Information regarding reconciliations of and the
rationale for these measures is discussed in "Non-GAAP Reconciliations" below.
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COVID-19
Our operations, our industry and the U.S. economy continue to be disrupted by
the COVID-19 pandemic and related supply chain disruptions and labor shortages.
The timing and extent of the economic recovery from the COVID-19 pandemic is
dependent upon many factors, including the rate of vaccination, the emergence
and severity of COVID-19 variants, the continued effectiveness of the vaccines
against those variants, the frequency of booster vaccinations and the duration
and implications of continued restrictions and safety measures.
Impact of COVID-19 on Our Business
We continue to actively monitor the impacts of the COVID-19 pandemic on all
aspects of our business including related actions taken by government
authorities. We saw improvement in Net sales and total case volumes during
fiscal year 2021 coinciding with declining infection rates and loosening of
indoor dining restrictions and other safety measures.
Economic and operating conditions for our business have improved in each quarter
of 2021 as compared to the fourth quarter of 2020. However, uncertainty around
the pandemic persists and, as a result, we and the industry may continue to face
pandemic-related challenges, such as the recent Omicron variant and related case
increases, as the recovery continues, such as constraints on the availability of
product supply, increased product and logistics costs, labor shortages,
inflation and shifts in the buying patterns of our customers. Therefore, we are
unable to predict the duration and extent to which the pandemic will continue to
impact our results of operations. We are optimistic about the long-term
prospects for our business
Operating Metrics
Case growth-Case growth, by customer type (e.g., independent restaurants) is
reported as of a point in time. Customers periodically are reclassified, based
on changes in size or other characteristics, and when those changes occur, the
respective customer's historical volume follows its new classification.
Organic growth-Organic growth includes growth from operating business that has
been reflected in our results of operations for at least 12 months.
Overview 2018; On May 1, 2018, Royalty Foods Partners, LLC - a Florida Limited
Liability Corporation and a subsidiary of Pacific Ventures Group, Inc. -
completed an asset acquisition of San Diego Farmers Outlet, Inc. (SDFO), a
California Corporation. San Diego Farmers Outlet was started in over thirty-five
years ago to provide primarily restaurants customers in southern California's
three largest counties with quality food and produce and does business under the
name of Farmers Outlet and San Diego Farmers Outlet.
Farmers Outlet provides a wide array of products to serve customers of all
types. However, they do have a niche in providing fresh produce and food
products. Farmers Outlet provides specialty produce that the larger distributors
do not carry on a daily basis. Unlike some larger distributors who make their
customers receive products on a day and time convenient to the distributor,
Farmers Outlet delivers daily and pays attention to what the customer wants.
Farmers Outlet added products to meet the needs of Restaurants, Hotels, Food
Trucks, and Caterers
Unlike some larger distributors who make their customers receive products on a
day and time convenient to the distributor, SDFO delivers daily and pays
attention to what the customer wants. Farmers Outlet added products to meet the
needs of Restaurants, Hotels, Food Trucks and Caterers. Free delivery was added
to demonstrate that Farmers Outlet had customers interest first in mind.
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Overview 2019; During the 2019 fiscal year, the Company completed acquired 100%
of assets of Seaport Meat Company, (Seaport Meat), a California Corporation with
over thirty (30) years in business servicing restaurant and retail, and
institutional customers in Southern California and Arizona. Seaport Meat is a
USDA meat processing plant that supplies quality meats, seafood, dry goods,
dairy and produce. Seaport Meat Company operates a distribution and
manufacturing facility in Spring Valley, California their 12,000 square foot
facility is HACCP-compliant and is a USDA Licensed processing facility with
on-site daily inspections. HACCP is a management system in which food safety is
addressed through the analysis and control of biological, chemical, and physical
hazards from raw material production, procurement and handling, to
manufacturing, distribution and consumption of the finished product. Having a
USDA certified facility allows consumers to be confident that the Food Safety
and Inspection Service (FSIS), the public health agency in the USDA, ensured
that meat and poultry products are safe, wholesome, and correctly labeled and
packaged
The Company's customers range from a wide variety of restaurants, including many
well known in Southern CA, to institutions, schools (UCSD, SDSU, etc.) and
re-distributors such as US Foods and Sysco as well as to local distributors.
They supply wholesale food and restaurant supplies to San Diego, Los Angeles,
Orange and Riverside and offer same day service. In addition, they have clients
in Arizona and Colorado that come to their facility to pick up their orders.
Because Seaport Meat Company of America can efficiently add new product lines,
they can easily expand the distribution of Pacific Ventures' San Diego Farmers
Outlet and SnoBar product line, thereby accelerating Pacific Ventures' revenue
growth. The combination of a distribution and product company is unique in the
San Diego area and will position the company for rapid growth.
They manufacture and wholesale custom processed beef, pork, chicken, lamb, veal
and seafood. In addition, they are redistributors of a wide variety of dry
goods, frozen foods, disposables and janitorial products. Their sales,
distribution and finance processes are very efficient and can be expanded to add
new product lines, including fresh produce and dairy
Overview 2020- During 2020, the U.S. foodservice industry faced unprecedented
challenges as the COVID-19 pandemic caused substantial disruption across many of
our customers' operations and, in some cases, resulted in permanent closures of
restaurants. As a company, we took several actions to increase liquidity,
conserve cash, manage working capital, and reduce expenses to align with the
decrease in demand.
We also acted quickly to protect the health and safety of our communities by
implementing new protocols and enhanced safety measures to protect our frontline
associates and customers, many of whom are "essential workers" and unable to
work remotely. As we adapted to rapidly changing conditions, we also increased
our efforts to stay connected to our current customers and attract new customer.
As was widely reported in the media, the U.S. meat industry experienced meat
shortages due to massive outbreaks of COVID-19 and in some cases large
facilities were forced to close, meat prices reached an all-time high due to the
lack of product and increase in demand. While many of our competitors chose to
pass these increases in price to the customers, The Companies Management made a
conscious decision to support our customers by lowering our margins in order to
offset the increase in prices caused by the pandemic. By lowering our margins
during the second and third quarters we attracted many new customers and won the
loyalty of its current customer base.
The Company was able to maintain the historical average of the prior year's
revenues but did share the burden of the pandemic.
During the onset of the pandemic Seaport's sales staff and management acted
quickly to recover any lost revenue due to the massive government mandated
shutdown. Some of our largest customers were forced to stay closed for almost a
year which include Petco Park (home of the San Diego Padres), and the SoCal
County Fairs. We acted quickly, and attracted more business from Hospitals,
Nursing Homes, and Naval Bases just to name a few.
The Company made concerted efforts to let our customers know that we appreciate
their loyalty and continued support during these challenging times.
22
Overview 2021-
Our sales and gross profit performance can be influenced by multiple factors,
including price, volume, customer mix, product mix and the impact of the
COVID-19 pandemic. The biggest factor affecting performance in fiscal 2021 was
the COVID-19 pandemic and the slow reopening of restaurants and other food
service industries. The restaurant sector of our business, however, had nearly
achieved full recovery as of the fourth quarter of fiscal 2021, as local sales
volumes have exceeded fiscal 2019 volume levels. We are experiencing especially
strong results from independent customers. The Company has increased market
share in this rapidly expanding market. Sales growth has continued into the
first quarter of fiscal 2022.
The return of robust customer demand has created pressure on us and our industry
for available product supply in select categories. Our supplier partners are
struggling with meeting the demand of the Company's orders, and certain product
categories remain in short supply. We believe that the Company is performing
better than the industry at large in delivering what we refer to as customer
fill rate, but we are performing below our historical performance standards. Our
management teams are working closely with current suppliers and actively
sourcing incremental supply from new suppliers, and we are working with our
sales teams to offer product substitutions to our customers. In the current
operating environment, we are experiencing a tight labor market, particularly
with our warehouse and driver positions. This is resulting in cost pressures, as
we adopt mostly temporary wage actions, such as hiring bonuses, referral
bonuses, and even retention bonus programs. We are working aggressively to fill
open positions and improve productivity to offset cost increases.
Strategy
In Fiscal Year 2022, the Company's strategy is focused on:
? incrementally increase sales and profitability of San Diego Farmers Outlet
(SDFO) and Seaport Meat Company.
? expanding Snöbar production and distribution
? acquisition of food production or distribution companies that are synergistic
with SDFO and Seaport Meat Company.
Seaport is looking to imrove the current processing line and add and upgrade to
a more efficient and automated processing line. This will allow Seaport to
operate more efficiently and reduce the amount of overtime hours on the
production line. Seaport plans to increase its customer base.
We plan to grow SDFO's wholesale business by expanding its delivery territory
from 40 miles to a 75-mile radius and add to the current fleet of delivery
trucks. The Company has already begun marketing to new restaurants in the area,
most notably Asian and Italian restaurants, and have let restaurants know that
SDFO can deliver the finest produce in market.
We plan to relaunch Snöbar production and distribution by partnering with
third-party manufacturers and co-packers, and with third-party distributors that
can sell Snöbar products to high-end restaurants, resorts, cruise lines and
hotels worldwide. Initially, the focus will be on establishing major accounts in
four core markets consisting of Southern California, Phoenix, Las Vegas and
Miami. The larger vision is to sell products in grocery stores such as Kroger,
Wal-Mart and others, and thereafter to begin a national marketing program to all
U.S. retailers. It is essentially a top-down marketing plan where products are
placed with the largest retailer then trickle down to the smallest seller in
each market area
We plan to grow through acquisitions of similar meat and food
processing/distributing companies located within the Southwest. Our company has
identified and are currently speaking with a few key opportunities.
We plan to acquire food production and distribution businesses that will help
the Company grow its food, beverage and alcohol-related products businesses. We
continue to engage in preliminary discussions with potential investors in order
to properly fund potential acquisitions, however, there are no assurances that
the required funding will be available on terms acceptable to us, or at all.
23
Going Concern
The accompanying consolidated financial statements have been prepared assuming
we will continue as a going concern. As discussed in this Annual Report and in
the notes to the Company's consolidated financial statements included elsewhere
herein, we have incurred operating losses, and as of December 31, 2021 and 2020,
we have accumulated deficit of $21,235,728 and $16,063,780 respectively. For the
year ended December 31, 2021, we have a working capital deficiency of
$5,287,673. These factors raise substantial doubt about our ability to continue
as a going concern. Additionally, our independent registered public accounting
firm included an explanatory paragraph in their report for the years ended
December 31, 2021 and 2020 regarding concerns about our ability to continue as a
going concern.
Our ability to continue as a going concern is dependent upon our generating
operating cash flow and raising capital sufficient to fund operations. We have
discussed our strategy and plans relating to these matters elsewhere in this
Current Report although the consolidated financial statements included herein do
not include any adjustments that might result from the outcome of these
uncertainties. Our business strategy may not be successful in funding ongoing
operations and accelerating our domestic and international expansion, and if we
cannot continue as a going concern, our stockholders may lose their entire
investment in us.
Plan of Operations for the Next Twelve Months
Our plan is to achieve meaningful sales revenue from the sale of the SDFO and
Seaport Meat Company products to meet our operating needs. It is also unlikely
that we will be able to satisfy all of our obligations to pay interest and repay
principal due and payable within the next 12 months under the various forms of
our outstanding debt. Although we have been able to extend the maturity dates as
well as repayment terms of a substantial amount of such debt, there is no
assurance that we will be able to further extend such repayments or maturity
dates to avoid a default, as such further extension depends on the consent of
the holders of such debt. If we are unable to make such payments and repayments
and unable to extend and delay required payments or maturities of such debt, the
holders of such debt will have the right to take legal action seeking
enforcement of the debt. If any legal action is taken against us, we would face
the risk of having to deplete our limited cash resources to defend against such
suit or face the entry of a default judgment. In either event, such action would
have grave impact on our operations. Our ability to continue operations will be
dependent upon the successful completion of additional long-term or permanent
equity financing, the support of creditors and shareholders, and, ultimately,
the achievement of profitable operations. There can be no assurances that we
will be successful, which would in turn significantly affect our ability to be
successful in our new business plan. If not, we will likely be required to
reduce operations or liquidate assets. We will continue to evaluate our
projected expenditures relative to our available cash and to seek additional
means of financing in order to satisfy our working capital and other cash
requirements.
Critical Accounting Estimates
We regularly evaluate the accounting estimates that we use to prepare our
financial statements. A complete summary of these policies is included in the
Notes to our audited financial statements. In general, management's estimates
are based on historical experience, on information from third party
professionals, and on various other assumptions that are believed to be
reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
We believe that of our significant accounting policies, which are described in
Note 2 to our consolidated financial statements, the following accounting
policies involve a greater degree of judgment and complexity. Accordingly, these
are the policies we believe are the most critical to aid in fully understanding
and evaluating our financial condition and results of operations.
Revenue Recognition; We are generating substantially all our revenue from the
domestic sale of fresh produce, meat, and other food related products. Farmers
Outlet and Seaport Meat specialty food products that the larger distributors do
not carry on a daily basis. Our customers comprise of redistributors,
restaurants, hotels, schools, and nursing homes just to name a few. , Sales
revenues are generally recognized when the products are shipped or delivered to
the customers, net of discounts, returns and allowance and collectability is
reasonably assured.
24
Concentrations of Credit Risk; Cash held in banks: we maintain cash balances at
a financial institution that is insured by the Federal Deposit Insurance
Corporation ("FDIC") up to federally insured limits. At times balances may
exceed FDIC insured limits. We have not experienced any losses in such accounts.
Accounts Receivable (AR): AR as at the years-ended December 31, 2021 and 2020,
were $1,402,334 and $1,213,991, respectively. Historically, customer accounts
typically are collected within a short period of time and based on its
assessment of current conditions and its experience collecting such receivables,
management believes it has no significant risk related to its concentration
within its accounts receivable.
Results of Operations
Year ended December 31, 2021, as compared to the year ended December 31, 2020
Revenues and Cost of Goods Sold. Revenue for the fiscal year ended December 31,
2021 increased to $41,991,172 from $30,212,420 during the comparable period as a
result of the acquisition of Seaport Meat Company.
Cost of goods sold ("COGS") is comprised of production costs, shipping, and
handling costs. For the fiscal year ended December 31, 2021, we had costs of
goods sold of $37,139,454, as compared to $26,857,783 in the comparable period
ended December 31, 2020. The percentage of COGS against sales was 88.45% in the
fiscal year ended December 31, 2021 compared to 88.89% in the fiscal year ended
December 31, 2020.
Operating Expenses. Our Selling, General and Administrative ("SG&A") expenses
consist of sales and marketing, professional services, rents, and general office
expenses (including wages for non-officer personnel). During the fiscal year
ended December 31, 2021 our SG&A expenses increased to $5,933,273 from
$5,077,008 in the comparable prior period, an increase of $856,265. These
increases were the result of increases in general office expenses, professional
services and marketing expenses. On December 31, 2021, total general office
expense was $5,933,273, marketing expenses was $286,752 and professional fees
was $1,144,959. Amortization and depreciation expenses decreased from $696,144
to $602,987 for the fiscal years December 31, 2020 and December 31, 2021,
respectively.
Total operating expenses for the fiscal year ended December 31, 2021 were
$8,267,970 representing an increase of $1,235,687, as compared to $7,032,283 for
the comparable prior period ended December 31, 2020.
Other Non-Operating Income and Expenses. Non-operating expenses for the fiscal
year ended December 31, 2021 were $3,452,693, consisting all in interest expense
compared to a non-operating expense of $2,204,391, consisting of also all in
interest expense, in the comparable prior period ended December 31, 2020.
Net Loss. Net loss for the fiscal year ended December 31, 2021 was $5,557,679, a
decrease of $304,142 from $5,861,821 in the comparable prior period ended
December 31, 2020.
Financial Condition, Liquidity and Capital Resources
Fiscal years ended December 31, 2021 and 2020
As of December 31, 2021, we had a working capital deficit of $5,287,673
comprised of $16,435 in cash and cash equivalents, $1,402,334 of accounts
receivable, $1,393,215 inventory assets, other current assets of $283,379
(includes current portion of Rent to Use Asset) and $16,845 in deposits which
were offset by accounts payable of $3,475,443, $1,414,526 in accrued expenses,
$42,344 in lease payables, $3,218,567 in current note payables and $249,000 in
lease liability. For the fiscal year ended December 31, 2021 we used $2,334,760
in operating activities. Cash used in investing activities totaled $55,498,
consisting of purchase of equipment, building and improvement and fixed assets.
Cash provided in financing activities totaled $2,348,459, consisting of
$3,216,460 in proceeds from notes payable and $79,193 of long term notes,
$287,110 for debt conversion, $237,500 shares issued for services, $422,500
shares issued for cash, $1,000 for conversion issuance of preferred shares, and
$385,731 in prior year adjustments, which is offset with note or loan repayments
for $1,076,952, $150,083 and $776,000 for non-related notes, related notes and
long-term loans, respectively.
25
In the comparable prior period in 2020, we had a working capital deficit of
$4,589,002 comprised of $58,234 in cash and cash equivalents, $1,213,991 of
accounts receivable, $1,216,562 inventory assets, other current assets of
$283,379 (includes current portion of Rent to Use Asset) and $16,845 in deposits
which were offset by accounts payable of $2,809,136, $902,442 in accrued
expenses, $88,417 in lease payables, $3,239,017 in current note payables and
$249,000 in lease liability. For the fiscal year ended December 31, 2020, we
used $2,327,148 in operating activities. Cash used in investing activities
totaled $186,519, consisting of purchase of equipment, building and improvement
and fixed assets. Cash provided in financing activities totaled $2,255,943,
consisting of $1,532,737 in proceeds from notes payable, $3,246,100 from long
term notes, $122,815 for debt conversion, $5,000 for issuance of preferred "E"
shares, and $161,592 in prior year adjustments, which is offset with note or
loan repayments for $315,349, $29,218 and $2,144,550 for non-related notes,
related notes and long-term loans, respectively..
On December 31, 2021, we had cash and cash equivalents of $16,435 as compared to
$58,234 on December 31, 2020.
Cash used in operations for the fiscal year ended December 31, 2021 was
$2,334,760 as compared to $2,327,148 in the comparable prior fiscal year ended
December 31, 2020. Cash used increased by $81,151 between periods.
For the fiscal year ended December 31, 2021, cash used in investing totaled
$55,498. We used $186,519 from investing activities in the prior fiscal year
ended December 31, 2020.
Cash provided from financing activities on December 31, 2021 was $2,348,459 as
compared to $2,255,943 on December 31, 2020.
As of December 31, 2021, we had total current liabilities of $8,399,880 and
total liabilities were $22,357,138 as compared to $7,378,012 and $18,706,866,
respectively, for December 31, 2020.
We depend upon debt and/or equity financing to fund our ongoing operations and
to execute our business plan. If continued funding and capital resources are
unavailable at reasonable terms, we may curtail our plan of operations. We will
be required to obtain alternative or additional financing from financial
institutions or otherwise, in order to maintain and expand our existing
operations. The failure by us to obtain such financing would have a material
adverse effect upon our business, financial condition and results of operations.
Capital Resources
Our principal sources of liquidity have been cash generated by loan proceeds and
cash generated from operations.
We plan to continue raising capital in order to meet our liquidity needs.
However, we may be unable to raise sufficient additional capital when we need it
or to raise capital on favorable terms. If we are unable to obtain adequate
funds on reasonable terms, we may be required to significantly curtail or
discontinue operations or obtain funds by entering into financing agreements on
unattractive terms.
We do not currently have any contractual restrictions on our ability to incur
debt and, accordingly we could incur significant amounts of indebtedness to
finance operations. Any such indebtedness could contain covenants which would
restrict our operations.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities in the consolidated financial statements and accompanying notes.
The SEC has defined a company's critical accounting policies as the ones that
are most important to the portrayal of the company's financial condition and
results of operations, and which require the company to make its most difficult
and subjective judgments, often as a result of the need to make estimates of
matters that are inherently uncertain. Based on this definition, we have
identified the critical accounting policies and judgments addressed below. We
also have other key accounting policies, which involve the use of estimates,
judgments and assumptions that are significant to understanding our results,
which are described in Note 2 to our consolidated financial statements. Although
we believe that our estimates, assumptions and judgments are reasonable, they
are based upon information presently available. Actual results may differ
significantly from these estimates under different assumptions, judgments or
conditions.
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