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 June 30, 2021March 31, 2022

 

o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _________

 

Commission File No. 000-55114001-40471

 

SPLASH BEVERAGE GROUP, INC.
(Exact name of registrant as specified in its charter)

 

ColoradoNevada 34-1720075
(State or other jurisdiction of
incorporation or formation)		 (I.R.S. employer
identification number)

 

1314 E Las Olas Blvd. Suite 221
Fort Lauderdale, FL 33301
(Address of principal executive offices) (Zip code)

(954) 745-5815
(Registrant’s telephone number, including area code)

 

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading SymbolName of each exchange on which registered
Common Stock, No par$0.001 value per shareSBEVNYSE American LLC
Warrants to purchase one whole share of common stock at an exercise price of $4.60SBEV- WTNYSE American LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x☒ Yeso☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x☒ Yes Yeso☐ No

 

 

 

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

 

Large accelerated filer o☐ Accelerated filer o☐
Non-accelerated Filerfiler x☒ Smaller reporting company x☒
Emerging growth company ☐

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o☐ Yes x☒ No

 

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. o☐ Yes o☐ No

 

As of AugustMay 16, 2021,2022, there were 30,481,91636,669,828 shares of Common Stock issued and outstanding.

 

 

SPLASH BEVERAGE GROUP, INC.
FORM 10-Q
March 31, 20202022
 

TABLE OF CONTENTS

 

 Page
PART I: FINANCIAL INFORMATION 
ITEM 1:FINANCIAL STATEMENTS1
 Condensed Consolidated Balance Sheets2
 Condensed Consolidated Statements of Operations43
 Condensed Consolidated Statement of DeficiencyChanges in Shareholders’ Equity54
 Condensed Consolidated Statements of Cash Flows75
 Notes to the Condensed Consolidated Financial Statements96
ITEM 2:MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS3020
ITEM 3:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK3322
ITEM 4:CONTROLS AND PROCEDURES3322
PART II: OTHER INFORMATION 
ITEM 1LEGAL PROCEEDINGS3524
ITEM 1A:RISK FACTORS3524
ITEM 2:UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS3724
ITEM 3:DEFAULTS UPON SENIOR SECURITIES3724
ITEM 4:MINE SAFETY DISCLOSURES3724
ITEM 5:OTHER INFORMATION3724
ITEM 6:EXHIBITS3825
SIGNATURES3926

i

 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Splash Beverage Group, Inc. 
Condensed Consolidated Financial Statements

 

June 30, 2021

March 31, 2022

1 

 

Splash Beverage Group, Inc.Inc.
Condensed Consolidated Balance Sheets
June 30, 2021March 31, 2022 and December 31, 20202021
(Unaudited)

 

     
  June 30, 2021 December 31, 2020
Assets
Current assets:        
Cash $11,943,753  $380,000 
Accounts Receivable, net  775,274   484,858 
Prepaid Expenses  37,147   173,414 
Inventory, net  1,194,085   798,273 
Other receivables  32,102   90,919 
Assets from discontinued operations  551,809   316,572 
Total current assets  14,534,170   2,244,036 
         
Non-current assets:        
Deposits $385,874  $77,686 
Goodwill  5,672,823   5,672,823 
Investment in Salt Tequila USA, LLC  250,000   250,000 
Right of use asset, net  1,190,296   80,479 
Quart Vin License, net  204,012   219,512 
Property and equipment, net  601,304   681,352 
Total non-current assets  8,304,309   6,981,852 
         
Total assets $22,838,479  $9,225,888 
         
Liabilities and Stockholders’ Equity (Deficiency)
         
Liabilities:        
Current liabilities        
Accounts payable and accrued expenses $1,238,938  $1,521,818 
Right of use liability – current portion  320,662   57,478 
Due to related parties  3,000   368,904 
Sales tax payable  8,119   — 
Related party notes payable – current portion  1,329,175   1,333,333 
Convertible Loan Payable  100,000   100,000 
Notes payable, current portion  1,438,000   999,736 
Shareholder advances  469,500   — 
Accrued interest payable  312,419   442,748 
Liabilities from discontinued operations  551,809   591,642 
Total current liabilities  5,771,622   5,415,659 

     
March 31, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$8,495,672 $4,181,383 
Accounts Receivable, net 1,394,293  1,114,452 
Prepaid Expenses 653,036  607,178 
Inventory, net 2,056,985  1,923,479 
Other receivables 45,811  41,939 
Assets from discontinued operations 252,297  473,461 
Total current assets 12,898,094  8,341,892 
      
Non-current assets:      
Deposit$206,508 $330,886 
Intangible assets 5,763,318  5,861,335 
Investment in Salt Tequila USA, LLC 250,000  250,000 
Right of use asset, net 950,851  1,031,472 
Property and equipment, net 542,535  569,785 
Total non-current assets 7,713,212  8,043,478 
      
Total assets$20,611,306 $16,385,370 
      
Liabilities and Stockholders’ Equity
      
Liabilities:       
Current liabilities        
Accounts payable and accrued expenses  1,517,305  $1,901,535 
Liability to issue shares  476,667   — 
Sales tax payable  15,322   11,924 
Right of use liability - current  284,372   294,067 
Related party notes payable  312,351   653,081 
Notes payable, current portion  2,171,068   2,967,812 
Shareholder advances  110,000   390,500 
Accrued interest payable  154,209   171,452 
Liabilities from discontinued operations  392,497   389,086 
Total current liabilities  5,433,791   6,779,457 
         
Long-term Liabilities:        
      
      
Liability to issue shares in APA  —   — 
Right of use liability - noncurrent  668,693   732,686 
Total long-term liabilities  668,693   732,686 
         
Total liabilities  6,102,484   7,512,143 
         
Common stock, (mezzanine shares) 12,605,283 shares, contingently convertible to notes payable at December 31, 2020  —   — 
         
Deficiency in stockholders’ equity (deficit):        
Common Stock, $0.001 par, 150,000,000 shares authorized, 36,669,828 and 33,596,232 shares issued 36,669,828 and 33,596,232 outstanding, at March 31, 2022 and December 31, 2021, respectively  36,670   33,596 
Additional paid in capital  111,107,116   99,480,188 
Accumulated deficit  (96,634,964)  (90,640,557)
Total deficiency in stockholders’ equity  14,508,822   8,873,227 
         
Total liabilities, mezzanine shares and deficiency in stockholders’ equity $20,611,306  $16,385,370 

 


Long-term Liabilities:        
Related party notes payable - noncurrent  —   666,667 
Notes payable - noncurrent  1,215,807   1,240,044 
Liability to issue shares in APA  1,980,000   1,980,000 
Right of use liability - noncurrent  871,161   25,521 
Total long-term liabilities  4,066,968   3,912,232 
         
Total liabilities  9,838,590   9,327,891 
         
Common stock, (mezzanine shares) 4,201,761 shares, contingently convertible to notes payable at December 31, 2020  —   9,248,720 
         
Stockholders’ equity (deficiency):        
         
Common Stock, $0.001 par, 150,000,000 shares authorized, 30,481,916 and 21,157,043 shares issued 30,481,916 and 21,157,043 outstanding, at June 30, 2021 and December 31, 2020, respectively  30,482   21,157 
Additional paid in capital  85,561,961   52,217,855 
Accumulated deficit  (72,592,554)  (61,589,735)
Total stockholders’ equity (deficiency)  12,999,887   (9,350,724)
         
Total liabilities, mezzanine shares and stockholders’ equity (deficiency) $22,838,479  $9,225,888 

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

32 

 


Splash Beverage Group, IncInc.
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30,March 31, 2022 and 2021 and June 30, 2020
(Unaudited)

 

                 
  Three months ended June 30, Six months ended June 30,
  2021 2020 2021 2020
Net revenues $3,287,760  $412,729  $5,426,684  $524,732 
Cost of goods sold  (2,382,707)  (218,751)  (4,004,211)  (325,965)
Gross margin  905,053   193,978   1,422,473   198,767 
                 
Operating expenses:                
Contracted services  190,606   167,894   467,117   405,875 
Salary and wages  2,073,530   303,060   4,019,756   544,736 
Other general and administrative  5,173,896   115,491   7,575,943   1,167,686 
Sales and marketing  174,727   23,012   216,605   47,242 
Total operating expenses  7,612,759   609,457   12,279,421   2,165,539 
                 
Loss from continuing operations  (6,707,706)  (415,479)  (10,856,948)  (1,966,772)
                 
Other income/(expense):                
Interest income  1   205   115   16,356 
Interest expense  (149,376)  (21,854)  (241,587)  (1,935,491)
Gain from debt extinguishment  96,077   34,962   97,396   34,962 
Total other income/(expense)  (53,298)  13,313   (144,076)  (1,884,173)
                 
Provision for income taxes  —   —   —   — 
                 
Net loss from continuing operations, net of tax  (6,761,004)  (402,166)  (11,001,024)  (3,850,945)
                 
Net income from discontinued operations, net of tax  200,404   28,816   240,486   28,816 
                 
Net loss $(6,560,600) $(373,350) $(10,760,538) $(3,822,129)
                 
Loss per share - continuing operations                
Basic  (0.25)  (0.02)  (0.42)  (0.23)
Dilutive  (0.25)  (0.02)  (0.42)  (0.23)
                 
Weighted average number of common shares outstanding - continuing operations                
Basic  27,356,918   18,969,568   26,003,605   16,809,392 
Dilutive  27,356,918   18,969,568   26,003,605   16,809,392 
                 
Earnings per share - discontinued operations                
Basic  0.01   0.00   0.01   0.00 
Dilutive  0.01   0.00   0.01   0.00 
                 
Weighted average number of common shares outstanding - discontinued operations                
Basic  27,356,918   18,969,568   26,003,605   16,809,392 
Dilutive  30,482,999   19,682,460   29,061,257   17,472,461 

     
  Three months ended March 31,
  2022 2021
     
Gross sales $4,071,356  $2,190,525 
Customer discounts  (144,783)  (51,601)
         
Net revenues  3,926,573   2,138,924 
Cost of goods sold  (3,094,571)  (1,621,504)
Gross profit  832,002   517,420 
         
Operating expenses:        
Contracted services  

431,545

   276,511 
Salary and wages  785,651   833,851 
Salary and wages - non-cash share-based compensation  1,242,697   1,186,596 
Other general and administrative  

2,222,238

   2,072,659 
Other general and administrative - non-cash share-based compensation  1,112,845   654,854 
Sales and marketing  

720,979

   41,878 
Total operating expenses  

6,515,955

  5,066,349 
         
Loss from continuing operations  (5,683,953)  (4,548,929)
         
Other income/(expense):        
      
Interest expense  (85,879)  (92,097)
Gain from debt extinguishment  —   1,319 
Total other (expense)  (85,879)  (90,778)
         
Provision for income taxes  —   — 
         
Net loss from continuing operations, net of tax  (5,769,831)  (4,639,707)
         
Net loss /income from discontinued operations, net of tax  (224,576)  197,488 
         
Net loss $(5,994,408) $(4,442,219)
         
Loss per share - continuing operations        
Basic $(0.16) $(0.19)
Dilutive  (0.16)   (0.19) 
         
Weighted average number of common shares outstanding - continuing operations        
Basic and dilutive  35,188,404   24,642,532 
         
Income/(loss) per share - discontinued operations        
Basic $(0.00)  $(0.00) 
Dilutive $(0.00)  $(0.00) 
         
Weighted average number of common shares outstanding - discontinued operations        
Basic  35,188,404   24,642,532 
Dilutive  35,188,404   26,965,927 

  

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

43 

 

 

Splash Beverage Group, Inc.

Condensed Consolidated Statement of Changes in Deficiency in Stockholders’ Equity (Deficit)

For the three and Six months ended June 30,March 31, 2022 and 2021 and 2020

               
  Common Stock Treasury Stock Additional Accumulated Total Stockholders’
  Shares Amount Shares Amount Paid-In Capital Deficit Equity (Deficit)
               
Balances at December 31, 2019  14,673,796   14,674   45,431  $(50,000) $22,124,750  $(31,845,506) $(9,756,083)
                             
Issuance of common stock for convertible debt  —   —   —   —   145,579   —   145,579 
Incremental beneficial conversion for preferred A  —   —   —   —   240,770   (240,770)  — 
Issuance of warrants on convertible instruments  —   —   —   —   2,486,706   (828,903)  1,657,803 
Issuance of common stock for services  272,584   273   (45,431)  50,000   549,727   —   600,000 
Issuance of common stock for acquisition  3,971,067   3,971   —   —   9,169,193   —   9,173,164 
Net loss  —   —   —   —   —   (3,446,630)  (3,446,630)
                             
Balances at March 31, 2020  18,917,447   18,917   0   —   34,716,725   (36,361,809)  (1,626,168)
                             
Issuance of warrants on convertible instruments  —   —   —   —   77,434   —   77,434 
Issuance of common stock for cash  83,304   83   —   —   142,483   —   142,566 
Net loss  —   —   —   —   —   (373,350)  (373,350)
                             
Balances at June 30, 2020  19,000,751   19,001   0  $—  $34,936,642  $(36,735,159) $(1,779,518)


Balances at December 31, 2020  21,157,043   21,157   0  $—  $52,217,855  $(61,589,735) $(9,350,724)
                                    
 2022 2021
Total stockholders’ equity, beginning balances  8,873,227   (9,350,724)
        
Common stock and additional paid-in capital        
Beginning balances  99,513,784   52,239,012 
Issuance of common stock upon conversion of
convertible instruments		  1,206,510     
Issuance of warrants for services  —   —   —   —   1,186,596   —   1,186,596   1,242,697   1,186,596 
Issuance of common stock for services  168,333   168   —   —   730,867   —   731,035   1,113,395   731,035 
Issuance of common stock and warrants or cash  1,174,476   1,174   —   —   4,529,450   —   4,530,624 
Mezzanine shares  4,201,761   4,202   —   —   9,244,519   —   9,248,720 
Issuance of common stock for cash  8,067,400   4,350,624 
Reclassification of Mezzanine shares  —   9,248,720 
Ending balances

111,143,786

  67,935,987 
        
Accumulated deficit        
Beginning balances  (90,640,557)  (61,589,735)
Net loss  —   —   —   —   —   (4,442,219)  (4,442,219)  (5,994,407)  (4,442,219)
Ending balances  (96,544,694)  (66,031,954)
                                    
Balance at March 31, 2021  26,701,613   26,702   0  $—  $67,909,286  $(66,031,954) $1,904,003 
                            
Issuance of warrants for services  —   —   —   —   1,186,596   —   1,186,596 
Issuance of common stock for services  —   —   —   —   1,369,918   —   1,369,918 
Issuance of common stock and warrants or cash  3,780,303   3,780   —   —   15,096,160   —   15,099,940 
Net loss  —   —   —   —   —   (6,560,600)  (6,560,600)  (5,994,407)  (4,442,219)
                            
Balance at June 30, 2021  30,481,916   30,482   0  $—  $85,561,961  $(72,592,554) $12,999,887 
Total stockholders’ equity, ending balances  14,508,822   1,904,032 

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

64 

 

Splash Beverage Group, Inc.
Condensed Consolidated Statement Cash Flows
For the SixThree Months Ended June 30,March 31, 2022 and 2021 and 2020
(Unaudited)

  

     
  Six months ended Six months ended
  June 30, 2021 June 30, 2020
     
Net loss $(11,001,024) $(3,850,945)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  80,048   13,045 
ROU asset, net  —   39,684 
Gain from debt extinguishment  (97,396)   (34,962)
Interest on notes payable converted to common stock  —   231,692 
Interest expense due to the issuance of warrants  —   1,657,805 
Share-based compensation - warrants  2,373,192  — 
Share-based compensation  2,100,953   600,000 
Other noncash changes  (283,139)  (257,502)
Changes in working capital items:        
Accounts receivable, net  (732,998)  (36,641)
Inventory, net  (437,827)  (153,804)
Prepaid expenses and other current assets  195,084   (16,077)
Deposits  —   (39,451)
Accounts payable and accrued expenses  268,930   (56,268)
Royalty payable  —   51,000 
Accrued Interest payable  (130,329)  40,601 
Net cash used in operating activities - continuing operations  (7,664,506)  (1,811,823)
         
Net cash from operating activities - discontinued operations  (240,486)  28,816 
         
Cash Flows from Investing Activities:        
Capital Expenditures  —   (5,439)
Proceeds from the sale of fixed assets  —   1,098 
Investment in Salt Tequila USA, LLC  —   (150,000)
Net cash used in investing activities - continuing operations  —   (154,341)
         
Net cash from investing activities - discontinued operations  —   72,442 
         
Cash Flows from Financing Activities:        
Proceeds from issuance of Common stock  19,630,565   1,610,000 
Cash advance from shareholder  469,500   288,000 
Repayment of cash advance  (360,870)  (120,106)
Proceeds from issuance of debt  928,000   264,249 
Principal repayment of debt  (1,189,832)  (61,248)
ROU liability, net  (8,618)  (39,877)
Net cash provided by financing activities - continuing operations  19,468,746   1,941,018 
         
Net cash from financing activities - discontinued operations  —   — 

        
 2022 2021
Net loss $(5,994,407) $(4,442,219)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  205,888   76,506 
Finance charges  (1,128,000)  — 
Beneficial conversion  106,061    — 
Non-cash warrant expense  1,242,697   1,186,596 
Share-based compensation  1,112,845   731,035 
Other noncash changes  64,896   (362,516)
Changes in working capital items:        
Accounts receivable, net  (279,841)  (318,194)
Inventory, net  (133,506)  (70,391)
Prepaid expenses and other current assets  (114,626)  22,453 
Deposits  124,378   — 
Accounts payable and accrued expenses  97,776   (469,562)
Accrued Interest payable  19,953   26,253 
Net cash used in operating activities - continuing operations  (4,675,886)  (3,620,039)
        
Net cash used in operating activities - discontinued operations  224,575   (40,082)
        
Cash Flows from Investing Activities:        
Capital Expenditures  —   — 
Investment in Salt Tequila USA, LLC  —   — 
Cash used for Copa acquisition  —   — 
Net cash acquired in Canfield merger  —   — 
Net cash used in investing activities - continuing operations  —   — 
        
Net cash used in investing activities - discontinued operations      — 
        
Cash Flows from Financing Activities:        
Proceeds from issuance of Common stock  9,203,074   4,530,624 
Cash advance from shareholder  —   416,201 
Repayment of cash advance      (107,966)
Proceeds from issuance of debt      — 
Principal repayment of debt  (437,474)  (333,333)
Net cash provided by financing activities - continuing operations  8,765,600   4,505,526 
        
Net cash provided by financing activities - discontinued operations  —   — 
        
Net Change in Cash and Cash Equivalents  11,563,753   76,112   4,314,289   845,405 
                
Cash and Cash Equivalents, beginning of year  380,000   42,639   4,181,383   380,000 
                
Cash and Cash Equivalents, end of year $11,943,753  $118,751  $8,495,672  $1,225,405 
                
Supplemental Disclosure of Cash Flow Information:                
Cash paid for Interest $173,363  $3,424  $10,000  $— 
                
Supplemental Disclosure of Non-Cash Investing and Financing Activities                
Notes payable and accrued interest converted to common stock  —   9,248,720 
Notes payable and accrued interest converted to common stock (223,596 shares)  843,480   — 

 

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

85 

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 1 – Business Organization and Nature of Operations

Splash Beverage Group (“SBG”), f/k/a Canfield Medical Supply, Inc. (the “CMS”), was incorporated in the State of Ohio on September 3, 1992, and changed domicile to Colorado on April 18, 2012. CMS was in the business of home health services, primarily the selling of durable medical equipment and medical supplies to the public, nursing homes, hospitals and other end users.

 

On December 31, 2019, CMS entered into an Agreement

Splash seeks to identify, acquire, and Plan of Merger (the “Merger Agreement”) with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly-owned by CMS, and Splash Beverage Group, Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of CMS. The Merger was consummated on March 31, 2020.

As the owners and management of Splashbuild early stage or under-valued beverage brands that have voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (thatstrong growth potential within its distribution system. Splash’s distribution system is with Splash as the acquiring entity), followed by a recapitalization.

As part of the recapitalization, previously issued shares of SBG preferred stock have been reflected as shares of common stock that were receivedcomprehensive in the Merger. These common shares have been retrospectively presented as outstanding for all periods. 

US and is now expanding to select attractive international markets. The Splash specializes in the manufacturing, distribution,brand portfolio is growing and sales & marketing of various beverages acrossdiverse, covering multiple channels. Splash operatescategories that are exhibiting strong growth in both the non-alcoholicnon-alcohol and alcoholic beverage segments. Additionally, Splash operatesalcohol sectors. Through its own vertically integratedwholly owned subsidiary Qplash, Splash’s distribution reach includes e-commerce access to both B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilitiescustomers. Q-plash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilities and visibility.or homes.

  

In July 2020 the Company filed a Certificate of Amendment of Articles of Incorporation of Canfield Medical Supply, Inc. with the Secretary of State of the State of Colorado, pursuant to which the Company changed its name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc.. On July 31, 2020, we received approval from FINRA to change the Company’s name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc. Our new ticker symbol is SBEV.

On December 24, 2020, SBG consummated an Asset Purchase Agreement (the “Copa APA”) with Copa di Vino Corporation (“CdV”), to purchase certain assets and assume certain liabilities that comprise the Copa di Vino business for a total purchase price of $5,980,000, payable in the combination of $2,000,000 in cash (“Cash Consideration”), $2,000,000 convertible promissory note (the “Convertible Note”) to Seller and a variable number of shares of the Company’s common stock based on a attainment of revenue hurdles. CdV is one of the leading producers of premium wine by the glass in the United States with its primary offices and facilities in The Dalles, Oregon.

On February 2021, Management initiated a plan to divest its CMSCanfied Medical Supply, Inc. (“CMS”) business. As a result, the assets and operations of CMS have been retrospectively reflected as discontinued operations. On November 12, 2021 the Company changed its state of Domicile from Colorado to Nevada.

 

In coordination with uplisting to the NYSE on June 11, 2021 the Company consummated a 1.0 for 3.0 reverse stock split. All common stock shares stated herein have been adjusted on a retrospective basis to reflect the split.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation

These condensed consolidated financial statements include the accounts of Splash Beverage Group and its wholly owned subsidiaries, Holdings, Copa di Vino, Inc.(‘CdV”) and Splash Mex,Mexico., CMS (asis reflected as discontinued operations), and Copa.operations. All intercompany balances have been eliminated in consolidation.

Our investment in Salt Tequila USA, LLC is accounted for at cost, as the company does not have the ability to exercise significant influence. 

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP).

The accompanying condensed consolidated financial statements have been prepared by us without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in GAAP have been condensed or omitted. The results of operations for the period ended June 30, 2021March 31, 2022 are not necessarily indicative of the operating results for the full year.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash Equivalents and Concentration of Cash Balance

We consider all highly liquid securities with an original maturity of three months or less to be cash equivalents. We had 0cash equivalents at June 30, 2021March 31, 2022 or December 31, 2020.2021.

Our cash in bank deposit accounts,amounts, at times, may exceed federally insured limits of $250,000. At June 30, 2021March 31, 2022 we had $11,115,1827,632,587 overin excess of the federally insured limits. Our bank deposit amounts in Mexico $2,169 are uninsured.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are carried at their estimated collectiblerecoverable amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. We establish provisions for losses on accounts receivable on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions. At June 30, 2021March 31, 2022 and December 31, 2020,2021, our accounts receivable amounts are reflected net of allowances of $775,27413,949 and $484,85845,203, respectively.


Splash Beverage Group, Inc.Inventory

Notes to the Condensed Consolidated Financial Statements

Inventory

Inventory is stated at the lower of cost or net realizable value, accounted for using the weighted average cost method. The inventory balances at June 30, 2021March 31, 2022 and December 31, 20202021 consisted of raw materials, work-in-process, and finished goods held for distribution. The cost elements of inventory consist of purchase of products, transportation, and warehousing. We establish provisions for excess or inventory near expiration are based on management’s estimates of forecast turnover of inventories on hand and under contract. A significant change in the timing or level of demand for certain products as compared to forecast amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on inventory. We manage inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The amount of our reserve was $319,622253,703 and $366,109223,223 at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.

Property and Equipment

We record property and equipment at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic useful lives of assets, which range from 3-39years. Company management reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable.

Depreciation expense totaled $44,46530,695 and $10,75043,487 for the three months ended June 30,March 31, 2022 and March 31, 2021, and June 30, 2020, respectively. Depreciation expense totaled $80,048 and $13,045 for the six months ended June 30, 2021 and June 30, 2020, respectively. Property and equipment as of June 30, 2021March 31, 2022 and December 31, 20202021 consisted of the following:

Schedule of Property and equipment    
  June 30, 2021 December 31, 2020
Property and equipment, at cost  2,170,899   843,097 
Accumulated depreciation  (1,569,585)  (161,745)
Property and equipment, net  601,304   681,352 

Schedule of Property and equipment        
  2022 2021
Machinery & equipment  1,108,870   1,108,870 
Buildings  282,988   279,543 
Leasehold improvements  662,537   662,537 
Office furniture & equipment  70,960   70,960 
Total cost  2,125,355   2,121,910 
Accumulated depreciation  (1,582,820)  (1,552,125)
Property, plant & equipment, net  542,535   569,785 

Excise taxes

The Company pays alcohol excise taxes based on product sales to both the Oregon Liquor Control Commission and to the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (TTB). The Company is liable for the taxes upon the removal of product from the Company’s warehouse on a per gallon basis. The federal tax rate is affected by a small winery tax credit provision which decreases based upon the number of gallons of wine production in a year rather than the quantity sold.

Paycheck Protection Program

The Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with Accounting Standards Codification (“ASC”) 470, Debt. Debt is extinguished when either the debtor pays the creditor or the debtor is legally released from being the primary obligor, either judicially or by the creditor. See note 11.

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Notes to the Condensed Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Fair Value of Financial Instruments

Financial Accounting Standards (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

 Level 1 -Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.

 Level 2 -Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).

 Level 3 -Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

 

The liabilities and indebtedness presented on the condensed consolidated financial statements approximate fair values at June 30, 2021March 31, 2022 and December 31, 2020,2021, consistent with recent negotiations of notes payable and due to the short duration of maturities.maturities and market rates of interest.

 

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Notes to the Condensed Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Revenue Recognition

We recognize revenue under ASC 606, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects what we expect to receive in exchange for the transfer of goods or services to customers.

 

We recognize revenue when our performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control of our products is transferred upon delivery to the customer. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring goods and is presented net of provisions for customer returns and allowances. The amount of consideration we receive and revenue we recognize varies with changes in customer incentives we offer to our customers and their customers. Sales taxes and other similar taxes are excluded from revenue.

 

Distribution expenses to transport our finished goods products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses. Distribution expense is capitalized as part of inventory as the materials are received by our distillery, co-packer or internal/external warehouse.

 

Cost of Goods Sold

Cost of goods sold include the costs of products, packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or impaired inventory.

 

We measure stock-based awards at the grant-date fair value for employees, directors and consultants and recognizes compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of our common stock, and for stock options and warrants, the expected life of the option and warrant, and expected stock price volatility and exercise price. We used the Black-Scholes option pricing model to value its stock-based awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The expected life of stock options/warrants were estimated using the “simplified method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, we have limited historical information to develop reasonable expectations about future exercise patterns. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, we use comparable public companies as a basis for its expected volatility to calculate the fair value of award. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the award. The estimation of the number of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised. 

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”. Under the fair value recognition provisions, cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the optionaward’s vesting period. We use the Black-Scholes option pricing model to determine the fair value of stock options.stock-based awards. We early adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns accounting treatment for such awards to non-employees with the existing guidance on employee share-based compensation in ASC 718.

Income Taxes

 

Income Taxes

We use the liability method of accounting for income taxes as set forth in ASC 740, “Income Taxes”. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. We record a valuation allowance when it is not more likely than not that the deferred tax assets will be realized.

 

Company management assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

 

For those income tax positions where there is less than 50%50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. Company management has determined that there are 0no material uncertain tax positions at June 30, 2021March 31, 2022 and December 31, 2020.2021.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Net income (loss) per share

The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included in the computation if the effect would be anti-dilutive.

 

Schedule of Earnings Per Share, Basic and Diluted        
Numerator 2021 2020
Net loss from continuing applicable to common shareholders $(11,001,024) $(402,166)
         
Net loss from discontinued applicable to common shareholders $240,486  $28,816 
         
Denominator        
Weighted average number of common shares outstanding        
Basic  26,003,605   16,809,392 
Dilutive  26,003,605   16,809,392 
         
Net loss per share from continuing operations        
Basic  (0.42)  (0.23)
Dilutive  (0.42)  (0.23)
         
Net income per share from discontinued operations        
Basic  0.01   0.00 
Dilutive  0.01   0.00 

Weighted average number of shares outstanding for awards granted from 2021 to 2022 excludes anti-dilutive common stock equivalents, including warrants to purchase 3million shares of common stock for nominal consideration.The weighted average number of common shares calculation excludes 10,068,836 warrants which have been granted by our Board but have not been exercised.

Advertising

Advertising

We conduct advertising for the promotion of our products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. We recorded advertising expense of $150,75387,590 and $23,9621,987 .11 for the three-months ended June 30,March 31, 2022 and 2021, and 2020, respectively. We recorded advertising expense of $198,538 and $46,768.45 for the six-months ended June 30, 2021 and 2020, respectively.

 

Goodwill and Intangibles Assets

Goodwill represents the excess of acquisition cost over the fair value of the net assets acquired and is not subject to amortization. The Company reviews goodwill annually in the fourth quarter for impairment or when circumstances indicate carrying value may exceed the fair value. This evaluation is performed at the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less than carrying value, a quantitative analysis is completed using either the income or market approach, or a combination of both. The income approach estimates fair value based on expected discounted future cash flows, while the market approach uses comparable public companies and transactions to develop metrics to be applied to historical and expected future operating results. At December 31, 2020, our management determined that an impairment charge of approximately $9.5 million, was necessary to reduce the goodwill relating to our Medical Device Segment. The impairment charge was primarily related to the net cash flow projection of that business unit. 

 

Intangible assets consist of customer lists, brands and license agreements acquired in the acquisition of CdV. The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives of 15 years.

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Notes to the Condensed Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

Long-lived assets

The Company evaluates long-lived assets for impairment on an annual basis, when relocating or closing a facility, or when events or changes in circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques.

Recent Accounting Pronouncements

In June 2016, that FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (Topic 326). This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

Management is currently assessing the new standard but does not believe that it would have a material effect.

  

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

Note 3 – Liquidity, Capital Resources and Going Concern ConsiderationsReclassifications

 

At December 31, 2020,Certain prior period amounts have been reclassified to conform with the Company had liabilities in excess of assets in the amount of approximately $9.4 million. During the six month period of 2021, the Company received approximately $19.6 million from the proceeds from the issuance common stock. These events served to mitigate the conditions that historically raised substantial doubt about the Company’s ability to continue as a going concern.current year presentation.

Based on this analysis the Company concluded it has the ability to continue as a going concern for at least the next 12 months.

 

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

Note 43 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable

 

Notes payable are generally nonrecourse and secured by all Company owned assets.

Schedule of Notes payable            
  Interest
Rate		 March 31,
2022		 December 31,
2021
Notes Payable and Convertible Notes Payable

      
In March 2014, we entered into a short-term loan agreement with an entity in the amount of $200,000. The note included warrants for 272,584 shares of common stock at $0.94 per share. The warrants expired unexercised on February 28, 2017. The loan matured and remains in default.  8%  200,000   200,000 
             
In September 2021, we entered into a twelve-month loan with a company in the amount of $208,000. The loan requires 12 amortized payments with the final payment due August 2022.  4.8%  46,870   116,478 
             
In December 2020, we entered into a 56 month loan with a company in the amount of $1,578,237. The loan requires payments of 3.75% of the previous months revenue. Note is due September 2025  17%  1,396,198   1,423,334 
             
In April 2021, we entered into a six-month convertible loan with an individual in the amount of $84,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to August 2022.  7%  84,000   84,000 
             
In April 2021, we entered into a six-month convertible loan with an individual in the amount of $84,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to August 2022.  7%  84,000   84,000 
             
In May 2021, we entered into a six-month convertible loan with an individual in the amount of $50,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to August 2022.  7%  50,000   50,000 
             
In May 2021, we entered into a six-month convertible loan with an individual in the amount of $500,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The principal and interest was converted into shares of common stock in February 2022.  7%  —   500,000 
             
In May 2021, we entered into a six-month convertible loan with an individual in the amount of $10,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to August 2022.  7%  10,000   10,000 
             
In May 2021, we entered into a six-month convertible loan with an individual in the amount of $200,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The principal and interest was converted into shares of common stock in February 2022.  7%  —   200,000 
             
In November 2021, we entered into a one-year convertible loan with an individual in the amount of $300,000. The loan expires November 2022 with the principal and interest due at maturity.  7%  300,000   300,000 
             
             
   

Total notes payable
and convertible notes payable

  $2,171,068  $2,967,812 
             
   Less current portion   (2,171,068)  (2,967,812)
             
   

Long-term notes payable
and convertible notes payable

  $

—

  $— 

 

Schedule of debt      
  Interest Rate June 30, 2021 December 31, 2020
Notes Payable            
             
In February 2014, we entered into a 12-month term loan agreement with an individual in the amount of $200,000. The note included warrants for 22,049 shares of common stock at $2.19 per share. The warrants expired on February 28, 2017 and none were exercised at that date. The note was paid all in Q2 2021.  15%  —   150,000 
             
In March 2014, we entered into a short-term loan agreement with an entity in the amount of $200,000. The note included warrants for 90,161 shares of common stock at $2.82 per share. The warrants expired on February 28, 2017 and none were exercised at that date. The loan matured and remains in default.  8%  200,000   200,000 
             
In May 2020, we entered into a two year loan with the SBA under the Paycheck Protection Program established by the CARES Act in the amount of $94,833. The note requires monthly payments of principal and interest starting in December 2020 and maturing in May 2021. We received 100% forgiveness in Q2 2021. See note 13.  1%  —   89,612 
             
In June 2020, we entered into a six-month loan with an individual in the amount of $100,000. The loan matures in December 2020 with principal and interest due at maturity.  12%  —   100,000 
             
In August 2020, we entered into a nine-month loan with a company in the amount of $112,000. The loan requires 9 amortized payments of principal and interest in the amount of $12,246 with the final payment due September 2020.  4.8%  —   62,719 
             
Notes payable for license agreements due in 36 monthly payments of $10,000, interest imputed at 10%, maturing in July 2021.  10.0%  10,000   59,212 
             
In December 2020, we entered into a 56 month loan with a company in the amount of $1,578,237. The loan requires payments of 3.75% of the previous months revenue.  Various   1,515,807   1,578,237 
             
In April 2021, we entered into a six-month loan with an individual in the amount of $84,000. The loan matures in October 2021 with principal and interest due at maturity.  7%  84,000   — 


In April 2021, we entered into a six-month loan with a individual in the amount of $84,000. The loan matures in October 2021 with principal and interest due at maturity.  7%  84,000   — 
             
In May 2021, we entered into a six-month loan with a individual in the amount of $50,000. The loan matures in October 2021 with principal and interest due at maturity.  7%  50,000   — 
             
In May 2021, we entered into a six-month loan with a individual in the amount of $500,000. The loan matures in October 2021 with principal and interest due at maturity.  7%  500,000   — 
             
In May 2021, we entered into a six-month loan with a individual in the amount of $10,000. The loan matures in October 2021 with principal and interest due at maturity.  7%  10,000   — 
             
In May 2021, we entered into a six-month loan with a individual in the amount of $200,000. The loan matures in October 2021 with principal and interest due at maturity.  7%  200,000   — 
             
             
   Total notes payable  $2,653,807  $2,239,780 
             
   Less current portion   (1,438,000)  (999,736)
             
   Long-term notes payable  $1,215,807  $1,240,044 

Interest expense on notes payable was $133,70281,700 and $10,4299,625 for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively.

Interest expense on notes payable was $203,236 and $59,859 for the six months ended June 30, 2021 and 2020, respectively. Accrued interest was $125,205154,209 at June 30, 2021March 31, 2022.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 4 –3– Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued

Schedule of debt      
  Interest Rate June 30, 2021 December 31, 2020
Related Parties Notes Payable            
             
In December 2020, we entered into a 18 month loan with an individual in the amount of $2,000,000. The loan requires 18 monthly amortized payments of principal and interest in the amount of $114,444 with the final payment due June 2022.  2.0%  1,329,175   2,000,000 
             
             
   Less current portion   (1,329,175)  (1,333,333)
             

 

 

  Long-term notes payable  $(0) $666,667 

 Schedule of Related Party Notes Payable          
  Interest Rate March 31, 2022 December 31, 2021
Related Parties Notes Payable          
           
In December 2020, we entered into an 18 month loan with an individual in the amount of $2,000,000. The loan requires 18 monthly amortized payments of principal and interest in the amount of $114,444 with the final payment due June 2022. 2.0%  312,351   653,081 
           
           
  Less current portion  (312,351)  (653,081)
           
  Long-term notes payable $—  $— 

 

Interest expense on related party notes payable was $7,8042,602 and $0for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively. Interest expense on related party notes payable was $15,839 and $0 for the six months ended June 30, 2021 and 2020, respectively. Accrued interest was $0as of June 30, 2021.March 31, 2022.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued

Schedule of debt      
  Interest Rate June 30, 2021 December 31, 2020
Convertible Bridge Loans Payable          
           
In May 2015, we entered into a 3-month term loan agreement with an individual in the amount of $100,000. The annual interest rate for this bridge loan was 32% for the first 90 days, and 4% thereafter, compounded monthly. See left $100,000  $100,000 

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued

Interest expense on the convertible bridge loans payable was $8,000 and $8,000 for the three months ended June 30, 2021 and 2020, respectively. Interest expense on the convertible bridge loans payable was $16,000 and $101,785 for the three months ended June 30, 2021 and 2020, respectively. Accrued interest was $187,215 at June 30, 2021.

On April 24, 2017, a note holder filed a complaint against the Company for a promissory note in default. The note holder is requesting summary judgment in the amount of $287,215.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

Note 54 – Licensing Agreement and Royalty Payable

We have a licensing agreement with ABG TapouT, LLC (“TapouT”), providing us with licensing rights to the brand “TapouT” on energy drinks, energy shots, water, teas and sports drinks for beverages sold in the United States of America, its territories, possessions, U.S. military bases and Mexico. Under the terms of the agreement, we are required to pay a 6% royalty on net sales, as defined. In 2021 and 2020, weWe are required to make minimum monthly payments of $49,50054,450 in 2022 and $45,00049,500 , respectively.in 2021.

There were no unpaid royalties at June 30, 2021.March 31, 2022. We paid the guaranteed minimum royalty payments of $297,000163,350 and $270,000148,500 for the six-monthsthree-months ended June 30,March 31, 2022 and 2021, and 2020, which is included in general and administrative expenses.

In connection with the Copa APA, we acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, the Copa di VinoCdV entered into three separate license agreements with 1/4 Vin SARL, (1/4 Vin). 1/4 Vin has the right to license certain patents and patent applications relating to inventions, systems, and methods used in the Company’sour manufacturing process. In exchange for notes payable, 1/4 Vin granted the Companyus a nonexclusive, royalty-bearing, non-assignable, nontransferable, terminable license which would continue until the subject equipment is no longer in service or the patents expire. Amortization is approximately $31,000 annually until the license agreement is fully amortized. The asset is being amortized over a 10-year useful life.

Note 6 –5– Stockholders’ Equity (Deficiency)

Common Stock

At March 31, 2020,2021, we issued 272,584168,333 shares of common stock in exchange for services provided to us. The shares were valued at $2.19 per share. We recognized share-based compensation expense of $600,000, which is classified within the other general and administrative line on the Statement of Operations. At March 31,September 30, 2021, we issued 168,3332,136,819 shares of common stock in exchange for services provided to us. TheAt December 31, 2021, we issued 977,497 shares of common stock in exchange for services provided to us. At March 31, 2022, we issued 550,000 shares of common stock in exchange for services, and 2,300,000 as part of our S3 drawdown and convertible instruments. For the three-month-ended March 31, 2022 the shares were valued at a fair market value stock price based on the agreement date. We recognized share-based compensation expense for the three-months ended March 31, 2022 of $2,100,9532,355,542, which is classified within the other general and administrative line on the Statementour Condensed Consolidated Statements of Operations.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial StatementsPrivate Placement Memorandum (PPM)

 

Note 6 – Deficiency in Stockholders’ Equity, continued

Private Placement Memorandum (PPM)

In July 2020, the Board of Directors has determined that it is in the best interests of the Corporation and its stockholders to obtain working capital by conducting a private placement offering of 930,303 shares of the common stock and 650,000 warrants to purchase common stock of the Company, $0.001 par value per share at a purchase price of $3.30 per share for aggregate gross proceeds of $3,070,000.

In January 2021, the Board of Directors approveda private placement offering of 1,212,121 shares of the common stock of the Company, $0.001 value per share at a purchase price of $3.30 per share for aggregate gross proceeds of $4,000,000(“PPM”). As part of the PPM, each purchaser received a warrant to purchase one share for every two shares purchased. In February 2021, we completed our PPM by issuing a total of 1,212,355 of shares and 606,179 606,178 warrants receiving gross proceeds of approximately $4,000,7714,000,000.

15 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

Note 5 – Stockholders’ Equity, continued

Stock Plans

2012 Plan

On May 2012, the Board adopted the 2012 Stock Incentive Plan (the “2012 Plan”), which provided for the grant of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Restricted Stock Units and Stock Appreciation Rights to eligible recipients. The total number of shares that may be issued under the 2012 plan was 1,362,920.

The Board previously granted options to purchase 885,897 shares of common stock, which were exercised prior to 2019. In December, 2019, the Board granted options to purchase 374,804 shares to certain employees and consultants at an exercise price of $2.20.

Concurrently with the consummation of the Merger, the outstanding options to purchase 374,803 shares were cancelled and replaced with warrants to purchase 374,804 shares at an exercise price of $2.20, and the 2012 Plan was retired.

2020 Plan

On August 2020, the Board adopted the 2020 Stock Incentive Plan (the “2020 Plan”), which provides for the grant of Options, Restricted Stock Awards, Stock Appreciation Rights, Performance Units and Performance Bonuses to consultants and eligible recipients. The total number of shares that may be issued under the 2020 plan was2,313,133. at the time the 2020 plan was adopted

No awards have been granted

The 2020 Plan has an “EVERGREEN” feature, which provides for the annual increase in the number of shares issuable under the plan by an amount equal to 5% of the number of issued and outstanding common shares at year end, unless otherwise adjusted by the board. At January 1, 2021 AND 2022, the number of shares issuable under the 2020 Plan.plan increased by 1,057,852 and 1,679,812 shares, respectively.

 

During the three-month period ended March 31, 2022, the company granted Warrants773,596

The shares under the 2020 plan. At March 31, 2022, the total amountnumber of outstanding warrants are summarized below:

Schedule of Warrants Activity
[A]454,064
[B]124,162
[C]908,129
[D]650,000
[E]606,179
[F]374,803
[G]1,884,833
[H]833,333
[I]333,333
[J]3,900,000
Total10,068,836

[A] Warrant Issuance-Series A Convertible Preferred Stock

As an incentive to convert their Series A preferred stock, in Marchawards that may be issued under the 2020 we issuedplan was 333,333 2,123,703new warrants to the holders of our Series A preferred stock to purchase shares of SBG common stock. Concurrently with the consummation of the Merger, these warrants were exchanged for warrants to purchase 454,064 of Splash Beverage Group, Inc. shares all of which were outstanding as of June 30, 2021. These warrants have a 3-year term and expire March 2023..

  

[B] Warrant Issuance-Series B Convertible Preferred Stock

As partThe fair value of stock options recognized in the sale and issuance of 1,777,892 shares of our Series B Convertible Preferred Stock, we issued 888,946 warrants to purchase shares our common stock. The warrants have a 5-year term and at June 30, 2021, there are 124,162 warrants outstanding.period has been estimated using the Black-Scholes option pricing model.

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Splash Beverage Group, Inc.

Notes toThe company did not grant any new options, warrants, or shares in Q1 2022 that would fall under the Condensed Consolidated Financial Statements2020 plan.

 

[C] Warrant Issuance-GMA Bridge Holdings, LLC Consulting Services

We issued 454,307 warrants to purchase shares of our common stock as part of our consulting agreement with GMA Bridge Holdings, LLC (“GMA), at December 31, 2019. These warrants subsequently were exchanged for 908,615 warrants in March 2020 as an incentive for GMA to convert indebtedness and accrued interest into shares of our common stock. At June 30, 2021 all 908,615 warrants remain outstanding.

[D] We issued 650,000 warrants to purchase common stock of the Company in connection with the July 2020 private placement offering of 930,303 shares of common stock

[E] We issued 606,179 warrants to purchase common stock of the Company in connection with the January 2021 private placement offering of 1,212,121 shares of common stock.

[F] We issued 374,803 warrants to purchase common stock, as a replacement of cancelled outstanding options concurrent with the March 2020 Merger

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

[G] In December 2020 we granted 1,884,833 warrants to purchase common stock of the Company to employees, consultants and directors. These warrants vest over three years

[H] In December 2020 we granted 833,333 warrants to purchase common stock of the Company to our board of directors. These warrants vest over two - three years

[I] In May 2021 we granted 333,333 warrants to purchase common stock of the Company to a director. These warrants vest, equally, over three years

[J] We issued 3,750,000 warrants to purchase common stock of the Company in connection with the June 2021 underwritten public offering of 3,750,000 shares of common stock, in addition to 150,000 warrants to purchase common stock of the Company to the representative underwriter.

Shareholder Advances and Liability to Issue Stock and Warrants

During

We have various agreements with consultants in the first quarteramount of 2021, we entered into a marketing agreement with a consultant,0.5 million shares to be paidissued by issuance of in Q2 2022. The stock price will be valued 150,000 shares of common stockusing the 10-day average price of the company. The liability was measuredcompany’s stock from the issuance date. As part of our private placement memoranda, we owe an investor 33,333 shares at $214,500, the value$3.30 of the Company’s common stock at the date of the agreement.which will be issued in Q2 2022. 

During the first quarter of 2021, the Company received $245,000 pursuant to subscription agreements for the issuance of 81,667 shares of common stock and warrants to purchase 40,833 shares of common stock.

We have an agreement with a consultant, to be paid by the issuance of 3,333 shares of common stock of the company. The liability was measured at $10,000, the value of the company’s common stock at the date we became obligated to issue the shares.

Note 76 – Related Parties

During the normal course of business, we incurred expenses related to services provided by our CEO or Company expenses paid by our CEO, resulting in related party payables, net of $0 at June 30, 2021. The related party payable to the CEO bears no interest payable and is due on demand. We also assumed a $50,000 note for the President of WesBev, who is the majority shareholder of SBG.

There are related party notes payable of $1.30.3 and $0.7 million outstanding as of June 30, 2021 as discussed in Note 4.March 31, 2022 and December 31,2021, respectively. See note 3.

 

Note 87 – Investment in Salt Tequila USA, LLC

The Company hasWe have a marketing and distribution agreement with SALT in MexicoTequila USA, LLC (“SALT”) for the manufacturing of our Tequila product line.line in Mexico.

The Company has

We have a22.5% percentage ownership interest in SALT, Tequila USA, LLC (“SALT”), and hashave the right to increase itsour ownership to 37.5%. This investment is accounted for at cost, due to our inability to exercise significant influence over the assets and operations.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

Note 98 – Operating Lease Obligations

 

Effective July 2018, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced July 1, 2018and is scheduled to expire after 36months, on June 30, 2021. We renewed the lease underIn July 2021, we executed a two-year renewal at the same terms.monthly amount.

Effective November 2019, we entered into a new lease with Interport Logistics, LLC. The lease term commenced on November 11, 2019and is scheduled to expire on November 11, 2022.

Effective May 2019, we entered into a new lease in Mexico. The lease commenced May 1, 2019and is scheduled to expire after 24 months, on April 1, 20212021. Our new 1 . We have negotiated a one year lease term for our Mexican warehouse.agreement is renewed annually.

Effective January 2021, we entered into a lease agreement for the right to use and occupy office space in Sarasota Florida.space. The lease term commenced January 18, 2021and is scheduled to expire after 18months, on July 31, 2022.

Effective January 2021, we entered into a lease agreement for the right to use and occupy office and manufacturing space located in Miami Florida.space. The lease term commenced January 1, 2021and is scheduled to expire after 60months, onDecember 31, 2025.

The following table presents the discounted present value of minimum lease payments for our office and warehouses to the amounts reported as operatingfinancial lease liabilities on the condensed consolidated balance sheet at June 30, 2021:March 31, 2022:

Schedule of maturities of lease liabilities    
Undiscounted Future Minimum Lease Payments Operating Lease
   
2022 (Nine months remaining)  252,723 
2023  279,790 
2024  252,000 
2025  252,000 
Total  1,036,513 
Amount representing imputed interest  (83,448)
Total operating lease liability  953,065 
Current portion of operating lease liability  284,372 
Operating lease liability, non-current $668,693 

 

Maturities of lease liabilities   
Undiscounted Future Minimum Lease Payments  Operating Lease
    
2021 (six months)  $178,592 
2022   342,273 
2023   276,318 
2024   265,493 
2025   252,000 
Total   1,314,676 
Amount representing imputed interest   (122,853)
Total operating lease liability   1,191,823 
Current portion of operating lease liability   320,662 
Operating lease liability, non-current  $871,161 

The table below presents information for lease costs related to our operating leases at June 30, 2021:March 31, 2022:

Schedule of lease costs    
Operating lease cost:  
Amortization of leased assets $386,475 
Interest of lease liabilities  71,811 
   Total operating lease cost $458,286 

 

Lease costs    
Operating lease cost:    
Amortization of leased assets $157,923 
Interest of lease liabilities  32,568 
Total operating lease cost $190,492 

The table below presents lease-related terms and discount rates at June 30, 2021:March 31, 2022:

Summary of lease-related terms and discount rates  
Remaining term on leases4 to 45 months13 to months 54
Incremented borrowing rate5.05.0%%

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 109 – Line of CreditBusiness Combination

 

At December 31, 2020 SBG owed $68,000 to a financial institution under a revolving line of credit. The line of credit is secured by the assets of SBG is due on demand, and bears interest at variable rates approximately 6.1% at December 31, 2020. As part ofWe consummated the acquisition of Copa di VinoCdV on December 24, 2020. The purchase price consideration was comprised of $1.5 million in debt, $0.5 million in cash and $2.0 million in contingent shares, and a note payable for $2.0 million (see note 4) for total consideration of approximately $6.0 million.

 The following summarizes our allocation of the LOC was paid off.updated purchase price for the acquisition:

 

Note 11 – PPP Loan

Schedule of purchase price for the acquisition        
  Preliminary Purchase Accounting Final Purchase Accounting
Accounts receivable, net  88,131   88,131 
Other current assets  11,236   11,236 
Inventory, net  273,951   273,951 
Property and equipment, net  663,273   663,273 
License agreement, net  222,095   222,095 
Brands  —   4,459,000 
Customer lists  —   957,000 
Goodwill  5,672,823   256,823 
Total indentifiable assets  6,931,509   6,931,509 
         
Accounts payable and accrued expenses  882,297   882,297 
Note payable  69,212   69,212 
Equity  5,980,000   5,980,000 
Total liabilities and equity  6,931,509   6,931,509 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond the point of origin. On March 20, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

In response to the COVID-19 outbreak in the United States, the CARES Act (the “Act”) was passed by Congress and signed into law on March 27, 2020. In connection with the CARES Act, the Company and its subsidiary applied for and received loans with an original aggregate principal balance of approximately $158,000. These loans and interest will be forgiven as long as the funds are used for qualifying expenditures as outlined in the Act. The loans bear interest at 1%, with an 18 month term, and has a 6-month initial payment deferral. See Note 4.

In April 2021, we received notification of forgiveness for the entire outstanding balance.

 

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

Note 1210 – Segment Reporting

The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Executive Officer and Chief Financial Officer.

 

Note: The Copa di VinoCdV business is included in our Splash Beverage Group segment.

Schedule of Segment Reporting Information        
Revenue 2022 2021
Splash Beverage Group  1,478,158   825,742 
E-Commerce  2,448,415   1,313,182 
         
Total Revenues continuing operations  3,926,573   2,138,924 
         
Total Revenues discontinuing operations  114,071   278,777 

  Three-Months Ended Six-Months Ended
Revenue Q2 2021 Q2 2020 Q2 2021 Q2 2020
Splash Beverage Group  1,565,865   121,392   2,391,608   121,392 
E-Commerce  1,721,895   291,337   3,035,077   403,340 
                 
Total Revenues continuing operations  3,287,760   412,729   5,426,684   524,732 
                 
Total Revenues discontinued operations  369,442   199,579   648,219   199,579 

 

Total assets 2021 2020
Splash Beverage Group  21,547,558   8,403,670 
E-Commerce  739,112   505,646 
Medical Devices - Discontinued  551,809   316,572 
         
Total Assets  22,838,479   9,225,888 

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

Total assets 2022 2021
Splash Beverage Group  19,188,887   14,998,597 
E-Commerce  1,170,122   913,312 

Total assets discontinued operations

  187,401   473,461 
         
Total Assets  20,611,306   16,385,370 

Note 1311 – Commitment and Contingencies

 

We are a party to asserted claims and are subject to regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but we do not anticipate that the outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations.

Note 12 – Capital RaiseSubsequent Events

In connection with the CMS merger we were committed to our previous preferred stock and debt holders to raise $9 million in a secondary IPO or debt, as defined in the agreements.

None

In February 2021, we successfully raised the $9 million required.

Stock Price Guarantee

We have a commitment to issue additional shares associated with specific stock price guarantee granted to an investor. The stock price guarantee expired March 2021.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

Note 14 – Registration Statement

Underwriting Agreement

On June 10, 2021, the Company entered into an underwriting agreement ( “Underwriting Agreement”) relating to an underwritten public offering (the “Offering”) of common stock, no par value per share (the “Common Stock”) and warrants to purchase one share of Common Stock (the “Warrants”). Pursuant to the Offering, the Company sold 3,750,000 shares of Common Stock and 4,312,500 Warrants, which include 562,500 Warrants sold upon the partial exercise of the Underwriters’ over-allotment, for total gross proceeds of approximately $15 million. After deducting the underwriting commissions, discounts, and offering expenses payable by the Company, the Company received net proceeds of approximately $13.2 million.

Representative’s Warrants

On June 15, 2021, pursuant to the Underwriting Agreement, the Company issued the Representative’s Warrants to purchase up to an aggregate of 150,000 shares of Common Stock. The Representative’s Warrants may be exercised beginning on December 10, 2021 until June 10, 2026. The initial exercise price of each Representative Warrant is $4.60 per share, which represents 115% of the Offering Price. 

29 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

The information in this discussion may contain 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. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements that are not of historical fact may be deemed to be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue”, the negative of the terms or other comparable terminology. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in other reports or registration statements filed with the United States Securities and Exchange Commission. These factors may cause our actual results to differ materially from any forward-looking statements. We disclaim any obligation to publicly update these statements or disclose any difference between actual results and those reflected in these statements.

Unless the context otherwise requires, references in this Form 10-Q to “we,” “us,” “our,” or the “Company” refer to Splash Beverage Group and its subsidiaries.

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements (unaudited) and Related Notes to Condensed Financial Statements (unaudited) filed herewith.

Business Overview

Splash Beverage Group (“SBG”), f/k/a Canfield Medical Supply, Inc. (the “CMS”), was incorporatedseeks to identify, acquire, and build early stage or under-valued beverage brands that have strong growth potential within its distribution system. Splash’s distribution system is comprehensive in the State of Ohio on September 3, 1992,US and changed domicileis now expanding to Colorado on April 18, 2012.

On December 31, 2019, CMS entered into an Agreementselect attractive international markets. The Splash brand portfolio is growing and Plan of Merger (the “Merger Agreement”) with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly-owned by CMS, and Splash Beverage Group, Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of CMS. The Merger was consummated on March 31, 2020.

Prior to the Merger, CMS was in the business of home health services, primarily the selling of durable medical equipment and medical supplies to the public, nursing homes, hospitals and other end users and the Company continues to operate the home health supply business as a separate division. 

As the owners and management of Splash have voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (that is with Splash as the acquiring entity), followed by a recapitalization.

30 

As part of the recapitalization, previously issued shares of SBG preferred stock have been reflected as shares of common stockdiverse, covering multiple categories that were received in the Merger. These common shares have been retrospectively presented as outstanding for all periods.

Splash specializes in the manufacturing, distribution, and sales & marketing of various beverages across multiple channels. Splash operatesare exhibiting strong growth in both the non-alcoholicnon-alcohol and alcoholic beverage segments. Additionally, Splash operatesalcohol sectors. Through its own vertically integratedwholly owned subsidiary Qplash, Splash’s distribution reach includes e-commerce access to both B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilitiescustomers. Q-plash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilities and visibility.or homes.

In July, 2020, the Company changes its name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc. Our new ticker symbol is SBEV.

On December 24, 2020, SBG consummated an Asset Purchase Agreement(the “APA”Agreement (the “Copa APA”) with Copa di Vino Corporation (“CdV”), to purchase certain assets and assume certain liabilities that comprise the Copa di Vino business for a total purchase price of $5,980,000, payable in the combination of $2,000,000 in cash (“Cash Consideration”), $2,000,000 convertible promissory note (the “Convertible Note”) to Seller and a variable number of shares of the Company’s common stock based on a attainment of revenue hurdles. CdV is one of the leading producers of premium wine by the glass in the United States with its primary offices and facilities in The Dalles, Oregon.

On February 2021, Management initiated a plan to divest its CMS business. As a result, the assets and operations of CMS have been retrospectively reflected as discontinued operations. On November 12, 2021 the Company changed its state of Domicile from Colorado to Nevada.

In coordination with uplisting to the NYSE on June 11, 2021 the Company consummated a 1.0 for 3.0 reverse stock split.

The 2020 Plan has an “EVERGREEN” feature, which provides for the annual increase in the number of shares issuable under the plan by an amount equal to 5% of the number of issued and outstanding common shares at year end, unless otherwise adjusted by the board. At January 1, 2021 AND 2022, the number of shares issuable under the 2020 plan increased by 1,057,852 and 1,679,812 shares, respectively.

20 

 

Results of Operations for the Three Months Ended June 30, 2021March 31, 2022 compared to Three Months Ended June 30, 2020.March 31, 2021.

 

Revenue

 

Revenues for the three months ended June 30, 2021March 31, 2022 were $3,287,760$3,926,573 compared to revenues of $412,729$2,138,924 for the three months ended June 30, 2020.March 31, 2021. The $2,875,031$1,787,649 increase in sales is due to an increase from CdV ($505105) and within our vertically integrated B2B and B2C e-commerce distribution platform called Qplash ($1,430,558)1,135,233). This platformQp;ash sells goods on both Amazon and Shopify. In addition, we had increased sales from Copa di Vino Wine Group, Inc., our single-serve wine and Pulpoloco Sangria businesses ($1,462,000).). Cost of goods sold for the three months ended June 30, 2021March 31, 2022 were $2,382,707$3,094,571 compared to cost of goods sold for the three months ended June 30, 2020March 31, 2021 of $218,751.$1,621,504. The $2,163,956$1,473,066 increase in cost of goods sold for the three-month period ended June 30, 2021 is primarily due to our increased sales, and as our sales increased, our cost of sales for those sales correspondingly increased.

Operating Expenses

 Operating expenses for the three months ended June 30, 2021 were $7,612,759 compared to $609,457 for the three months ended June 30, 2020. The $7,003,302 increase in our operating expenses was primarily a result of recording the warrants issued pursuant to certain private placements conducted by the Company, increased headcount from the Copa acquisition and the addition of new sales reps, professional fees ($1,446,946) and shipping costs ($557,815). The net loss for the three months ended June 30, 2021 was $6,761,004 as compared to a net loss of $402,166 for the three months ended June 30, 2020. The increase in net loss is due to our increase in operating expenses offset by our increase in revenues. 

Interest Expense

Interest expenses for the three months ended June 30, 2021 were $149,376 compared to $21,854 for the three months ended June 30, 2020. The $127,522 increase in our interest expenses was primarily a result of additional debt taken on in Q2 2021.


Results of Operations for the Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020.

Revenue

Revenues for the six months ended June 30, 2021 were $5,426,684 compared to revenues of $524,732 for the six months ended June 30, 2020. The $4,901,952 increase in sales is due to an increase within our vertically integrated B2B and B2C e-commerce distribution platform called Qplash ($2,631,737). This platform sells goods on both Amazon and Shopify. In addition, we had increased sales from Copa di Vino Wine Group, Inc., our single-serve wine and Pulpoloco Sangria businesses ($2,212,300). Cost of goods sold for the six months ended June 30, 2021 were $4,000,211 compared to cost of goods sold for the six months ended June 30, 2020 of $325,965. The $3,674,246 increase in cost of goods sold for the six-month period ended June 30, 2021March 31, 2022 is primarily due to our increased sales, and as our sales increased, our cost of sales for those sales correspondingly increased.

 

Operating Expenses

 

Operating expenses for the sixthree months ended June 30, 2021March 31, 2022 were $12,279,421$6,515,955 compared to $2,165,539$5,066,349 for the sixthree months ended June 30, 2020.March 31, 2021. The $10,113,882$1,449,606 increase in our operating expenses was primarily a result of recording the warrants issued pursuant to certain private placements conducted by the Company increased headcount from the Copa acquisition and the addition of new sales reps, professional fees ($6,666,141)888,158), marketing spend ($633,389) and shipping costs ($882,795).296,941) offset by other operating expenses. The net loss for the sixthree months ended June 30, 2021March 31, 2022 was $11,241,510$5,994,407 as compared to a net loss of $3,850,945$4,442,219 for the sixthree months ended June 30, 2020.March 31, 2021. The decreaseincrease in net loss is due to our increase in operating expenses offset by our increase in revenues.

  

Interest Expense

 

Interest expenses for the sixthree months ended June 30, 2021March 31, 2022 were $241,587$85,879 compared to $1,935,491$92,211 for the sixthree months ended June 30, 2020. The $1,693,904 decrease in our interest expenses was primarily a result of recording a finance charge of $1,821,426 associated with warrants issued to one of our note holders in Q1 2020 offset by interest expense recorded in the period.March 31, 2021.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

 

As of June 30, 2021,March 31, 2022, we had total cash and cash equivalents of $11,943,753,$8,495,672, as compared with $380,000$4,181,383 at December 31, 2020.2021. The increase is primarily due to cashthe gross proceeds of $8,100,000 received from private placements conducted by us and our S1/Athe sale of 2.3 million shares of the Company’s registered common stock in February 2022 pursuant to the Company’s shelf registration statement where we raised $15,000,000. on Form S-3.

 

Net cash used for operating activities during the sixthree months ended June 30, 2021March 31, 2022 was $7,664,506$4,675,886 as compared to the net cash used by operating activities for the sixthree months ended June 30, 2020March 31, 2021 of $1,783,007.$3,620,039. The primary reasons for the change in net cash used is due to losses sustained and increases in inventory, offset by non-cash expenses relating to warrant expense ($2,010,615)1,242,697) and share-based compensation ($2,100,953)1,112,845).

 

NetFor the period March 31, 2022 and 2021, did not use or receive cash used forrelating to investing activities during the six months ended June 30, 2021 was $0 as compared to the net cash used by operating activities for the six months ended June 30, 2020 of $154,341. The net cash used in the first quarter of 2020 was primarily due to the $150,000 payment made to SALT Tequila USA.activities.

 

Net cash provided by financing activities during the sixthree months ended June 30, 2021March 31, 2022 was $19,468,746$8,765,000 compared to $1,941,018$4,505,526 provided from financing activities for the sixthree months ended June 30, 2020.March 31, 2021. During the sixthree months ended June 30, 2021,March 31, 2022, we received $21,028,065$9,203,074 from investors, which was offset by repayments to shareholders and debt holders of $1,159,319.

$437,474.

 

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CONTRACTUAL OBLIGATIONS

Share obligation:

·The company hasa obligation to issue 500K shares to two marketing firms of which the cost associated to 167K shares was accrued for in Q1 2022.

 

Minimum Royalty Payments:

 

We have a licensing agreement with ABG TapouT, LLC (“TapouT”). Under the licensing agreement, we have minimum royalty payments to TapouT for the next two years.

●2022  $653,000

 

 ●2021     $594,000

●2022     $653,4002023  $653,000

 

Inventory Purchase Commitments:

 

None.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for Smaller Reporting Companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a)Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities and Exchange Commission Act of 1934 reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

  

As further discussed below, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer concluded that, because of certain material weaknesses in our internal control over financial reporting our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of March 31, 2021. The material weaknesses relate to the absence of in-house accounting personnel with the ability to properly account for complex transactions and a lack of separation of duties between accounting and other functions.2022.

 

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We hired a consulting firmconsultant to advise us on technical issues related to U.S. generally accepted accounting principles as related to the maintenance of our accounting books and records and the preparation of our consolidated financial statements. Although we are aware of the risks associated with not having dedicated accounting personnel, we are also at an early stage in the development of our business. We anticipate expanding our accounting functions with dedicated staff and improving our internal accounting procedures and separation of duties when we can absorb the costs of such expansion and improvement with additional capital resources. In the meantime, management will continue to observe and assess our internal accounting function and make necessary improvements whenever they may be required. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements, and we could be required to restate our financial results. In addition, if we are unable to successfully remediate this material weakness and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements.

 

(b)Changes in Internal Controls over Financial Reporting

 

There has been no change

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Our management assessed the effectiveness of the Company’s internal control over financial reporting at March 31, 2022, and this assessment identified some deficiencies in our internal control over financial reporting identified in connectionreporting.

Remediation plan

The company has established two procedures to begin addressing the controls area. Each quarter Senior Managers respond to a questionnaire to identify areas that would impact the company’s financial statements to be reviewed against the reported financial statements. Also, quarterly financial packages are collected and reviewed with each subsidiary to analyze and ensure completeness of their financial statements.

The remediation plan includes:

●              Walk through and document critical process.

●              Review resources and organizational structure to address segregation of duty issues and support the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934jobs assigned.

●              Implement a BI tool that occurred during our most recent fiscal quarterwill replace Excel worksheets that has materially affected, or is reasonably likelycan be prone to materially affect, our internal control over financial reporting.errors.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS

 

The COVID-19 pandemic has had, and we expect will continue to have, certain negative impactsNo new risk factors noted since our Annual Report on our business and operations, and such impacts may have a material adverse effect on our business and results of operations.Form 10-K for the year ended December 31, 2021.

The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the global economy and financial markets. The human and economic consequences of the COVID-19 pandemic as well as the measures being taken by governments, businesses (including the Company and our suppliers, bottlers/distributors, co-packers and other service providers) and the public at large to limit the COVID-19 pandemic, have and will, directly and indirectly impact our business and results of operations, including, without limitation, the following:

●Deteriorating economic conditions and financial uncertainties in many of our major markets due to the COVID-19 pandemic, such as increased and prolonged unemployment, decreases in per capita income and the level of disposable income, declines in consumer confidence, or economic slowdowns or recessions, could affect consumer purchasing power and consumers’ ability to purchase our products, thereby reducing demand for our products. In addition, public concern among consumers regarding the risk of contracting COVID-19 may also reduce demand for our products.
●The closure of on-premise retailers and other establishments that sell our products as a result of the COVID-19 pandemic may also adversely impact our sales and results of operations.
●Our advertising, marketing, promotional, sponsorship and endorsement activities have been, and will continue to be, disrupted by reduced opportunities for such activities due to measures taken to limit the spread of the COVID-19 pandemic and the cancellations of sporting events, concerts and other events may result in decreased demand for our products. Our product sampling programs, which are part of our strategy to develop brand awareness, have been, and will continue to be, disrupted by the COVID-19 pandemic. If we are unable to successfully adapt to the changing landscape of advertising, marketing, promotional, sponsorship and endorsement opportunities created by the COVID-19 pandemic, our sales, volume growth and overall financial results could be negatively affected.
●Our innovation activities, including our ability to introduce new products in certain markets, have been delayed and/or adversely impacted by the COVID-19 pandemic. If such innovation activities are disrupted and we continue to delay the launch of new products and/or we are unable to secure sufficient distribution levels for such new products, our business and results of operations could be adversely affected.
●Some of our suppliers, bottlers/distributors and co-packers may experience plant closures, production slowdowns and disruptions in operations as a result of the impact of the COVID-19 pandemic. This could result in a disruption to our operations.
●We may experience delays in the sourcing of certain raw materials as a result of shipping delays due to, among other things, additional safety requirements imposed by port authorities, closures of or congestion at ports, reduced availability of commercial transportation, border restrictions and capacity constraints.


●As a result of the COVID-19 pandemic, including related governmental measures, restrictions, directives and guidance, we have required most of our office-based employees to work remotely. We may experience reductions in productivity and disruptions to our business routines while our remote work policy remains in place. If our employees working remotely do not maintain appropriate measures to mitigate potential risks to our technology and operations from information technology-related disruptions, we may face cybersecurity threats. Employees of our third-party service providers who are working remotely, with whom we may share data, are subject to similar cybersecurity risks. 
●Governmental authorities at the U.S. federal, state and/or municipal level and in certain foreign jurisdictions may increase or impose new income taxes, indirect taxes or other taxes or revise interpretations of existing tax rules and regulations as a means of financing the costs of stimulus or may take other measures to protect populations and economies from the impact of the COVID-19 pandemic. Increases in direct and indirect tax rates could affect our net income, and increases in consumer taxes could affect our products’ affordability and reduce our sales.
●We may be required to record significant impairment charges with respect to goodwill or intangible assets whose fair values may be negatively affected by the effects of the COVID-19 pandemic.
●The financial impact of the COVID-19 pandemic may cause one or more of the financial institutions we do business with to fail or default in their obligations to us or to become insolvent or file for bankruptcy, which could cause us to incur significant losses and negatively impact our results of operations and financial condition.
●Actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic may result in negative publicity and the Company becoming a party to litigation claims and/or legal proceedings, which could consume significant financial and managerial resources, result in decreased demand for our products and injury to our reputation.
●The resumption of normal business operations after the disruptions caused by the COVID-19 pandemic may be delayed or constrained by its lingering effects on our suppliers, bottlers/distributors, co-packers, contractors, business partners and other service providers.

  

Any of the negative impacts of the COVID-19 pandemic, including those described above, alone or in combination with others, may have a material adverse effect on our business, reputation, operating results and/or financial condition. The full extent to which the COVID-19 pandemic will negatively affect our business, reputation, operating results and/or financial condition will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.

36 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

No disclosure required.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

(a) Exhibits required by Item 601 of Regulation S-K.

 

Exhibits Description
31.1 Certification of CEO and Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) - Filed herewith electronically
31.2 Certification of CFO and Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) - Filed herewith electronically
32.1 Certification of CEO and Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Filed herewith electronically
32.2 Certification of CFO and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Filed herewith electronically
101 XBRL Exhibits

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SIGNATURES

 

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

 

 SPLASH BEVERAGEBEVERAE GROUP, INC.
   
Date: AugustMay 16, 20212022By:/s/ Robert Nistico
  Robert Nistico, Chairman and CEO
(principal executive officer)
   
Date: AugustMay 16, 20212022By:/s/ Dean HugeRon Wall
  Dean Huge,Ron Wall, CFO
(principal accounting officer and principal financial officer) 

 

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