U.S. SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20222023
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission File No. 001-40471
SPLASH BEVERAGE GROUP, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 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 class | Trading Symbol | Name of each exchange on which registered | ||
| American LLC | ||||
| 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.
☒ Yes☐ 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).
☒ Yes☐ 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 ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ 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).
☐ Yes ☒ 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. ☐ Yes ☐ No
As of May 16, 2022,26, 2023, there were shares of Common Stock issued and outstanding.
| SPLASH BEVERAGE GROUP, INC. |
| FORM 10-Q |
| March 31, |
TABLE OF CONTENTS
i
| i |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Splash Beverage Group, Inc.
Condensed Consolidated Financial Statements
March 31, 20222023
1
| Splash Beverage Group, |
| Condensed Consolidated Balance Sheets |
| March 31, |
| March 31, 2023 | December 31, 2022 | |||||||
| Assets | (unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,145,797 | $ | 4,431,745 | ||||
| Accounts receivable, net | 2,190,681 | 1,812,110 | ||||||
| Prepaid expenses | 926,273 | 348,036 | ||||||
| Inventory | 3,144,793 | 3,721,307 | ||||||
| Other receivables | 490,126 | 344,376 | ||||||
| Total current assets | 8,897,670 | 10,657,574 | ||||||
| Non-current assets: | ||||||||
| Deposit | $ | 49,368 | $ | 49,290 | ||||
| Goodwill | 256,823 | 256,823 | ||||||
| Intangible assets, net | 4,759,711 | 4,851,377 | ||||||
| Investment in Salt Tequila USA, LLC | 250,000 | 250,000 | ||||||
| Operating lease right of use asset | 674,106 | 750,042 | ||||||
| Property and equipment, net | 461,217 | 489,597 | ||||||
| Total non-current assets | 6,451,225 | 6,647,129 | ||||||
| Total assets | $ | 15,348,895 | $ | 17,304,703 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 2,918,991 | $ | 3,383,187 | ||||
| Liability to issue shares | 91,800 | 91,800 | ||||||
| Operating lease liabilities - current | 250,734 | 268,749 | ||||||
| Notes payable, current portion | 1,275,540 | 1,080,257 | ||||||
| Shareholder advances | 200,000 | — | ||||||
| Accrued interest payable | 162,915 | 141,591 | ||||||
| Total current liabilities | 4,899,980 | 4,965,584 | ||||||
| Long-term liabilities: | ||||||||
| Notes payable | 2,432,288 | 2,536,319 | ||||||
| Operating lease liabilities - noncurrent | 423,173 | 480,666 | ||||||
| Total long-term liabilities | 2,855,461 | 3,016,985 | ||||||
| Total liabilities | 7,755,441 | 7,982,569 | ||||||
| Stockholders’ equity : | ||||||||
| Preferred stock, $par value, shares authorized, shares issued | — | — | ||||||
| Common Stock, $par, shares authorized, shares issued, shares outstanding at March 31, 2023 and December 31, 2022 | 41,086 | 41,086 | ||||||
| Additional paid in capital | 123,634,774 | 121,632,547 | ||||||
| Accumulated other comprehensive loss | (22,081 | ) | (20,472 | ) | ||||
| Accumulated deficit | (116,060,325 | ) | (112,331,027 | ) | ||||
| Total stockholders’ equity | 7,593,454 | 9,322,134 | ||||||
| Total liabilities and stockholders’ equity | $ | 15,348,895 | $ | 17,304,703 | ||||
| March 31, 2022 | December 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, $par, shares authorized, and shares issued and 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 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
| Condensed Consolidated Statements of Operations and Comprehensive Loss |
| For the Three Months Ended March 31, |
(Unaudited) |
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net revenues | $ | 5,822,727 | $ | 3,926,573 | ||||
| Cost of goods sold | (4,061,228 | ) | (2,635,310 | ) | ||||
| Gross profit | 1,761,499 | 1,291,263 | ||||||
| Operating expenses: | ||||||||
| Contracted services | 381,005 | 431,545 | ||||||
| Salary and wages | 1,234,127 | 785,651 | ||||||
| Non-cash share-based compensation | 215,760 | 2,355,542 | ||||||
| Other general and administrative | 2,648,701 | 2,681,498 | ||||||
| Sales and marketing | 736,827 | 720,979 | ||||||
| Total operating expenses | 5,216,420 | 6,975,215 | ||||||
| Loss from continuing operations | (3,454,921 | ) | (5,683,953 | ) | ||||
| Other income/(expense): | ||||||||
| Other income | 140,404 | — | ||||||
| Amortization of debt discount | (247,661 | ) | — | |||||
| Interest expense | (167,121 | ) | (85,879 | ) | ||||
| Total other expense | (274,378 | ) | (85,879 | ) | ||||
| Provision for income taxes | — | — | ||||||
| Net loss from continuing operations, net of tax | (3,729,299 | ) | (5,769,832 | ) | ||||
| Net loss from discontinued operations, net of tax | — | (224,576 | ) | |||||
| Net loss | $ | (3,729,299 | ) | $ | (5,994,408 | ) | ||
| Other comprehensive loss foreign currency translation loss, net of tax | (1,609 | ) | — | |||||
| Total comprehensive loss | (3,730,908 | ) | (5,994,408 | ) | ||||
| Loss per share - continuing operations | ||||||||
| Basic and dilutive | $ | (0.10 | ) | $ | (0.16 | ) | ||
| Weighted average number of common shares outstanding - continuing operations | ||||||||
| Basic and dilutive | 37,389,990 | 35,188,404 | ||||||
| Loss per share - discontinued operations | ||||||||
| Basic and dilutive | $ | — | $ | (0.00 | ) | |||
| Weighted average number of common shares outstanding - discontinued operations | ||||||||
| Basic and dilutive | — | 35,188,404 | ||||||
| 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.
3
Splash Beverage Group, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
For the three months ended March 31, 20222023 and 2021
| 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 | 1,242,697 | 1,186,596 | ||||||
| Issuance of common stock for services | 1,113,395 | 731,035 | ||||||
| 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 | (5,994,407 | ) | (4,442,219 | ) | ||||
| Ending balances | (96,544,694 | ) | (66,031,954 | ) | ||||
| Net loss | (5,994,407 | ) | (4,442,219 | ) | ||||
| Total stockholders’ equity, ending balances | 14,508,822 | 1,904,032 | ||||||
2022
(Unaudited)
| Common Shares | Amount | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders’ equity | |||||||||||||||||||
| Balances at December 31, 2021 | 33,596,232 | $ | 33,596 | $ | 99,480,188 | $ | — | $ | (90,640,557 | ) | $ | 8,873,227 | ||||||||||||
| Issuance of common stock on convertible instruments | 223,596 | 224 | 1,206,287 | — | — | 1,206,511 | ||||||||||||||||||
| Issuance of warrants and options for services | — | — | 1,242,697 | — | — | 1,242,697 | ||||||||||||||||||
| Issuance of common stock for services | 550,000 | 550 | 1,112,845 | — | — | 1,113,395 | ||||||||||||||||||
| Issuance of common stock and warrants for cash | 2,300,000 | 2,300 | 8,065,100 | — | — | 8,067,400 | ||||||||||||||||||
| Net loss | — | — | — | — | (5,994,407 | ) | (5,994,407 | ) | ||||||||||||||||
| Balances at March 31, 2022 | 36,669,828 | $ | 36,670 | $ | 111,107,116 | $ | — | $ | (96,634,964 | ) | $ | 14,508,822 | ||||||||||||
| Balances at December 31, 2022 | 41,085,520 | $ | 41,086 | $ | 121,632,546 | $ | (20,472 | ) | $ | (112,331,026 | ) | $ | 9,322,134 | |||||||||||
| Common stock issuable and beneficial conversion feature on convertible 12-month promissory note | — | — | 1,786,468 | — | — | 1,786,468 | ||||||||||||||||||
| Share based compensation | — | — | 215,760 | — | — | 215,760 | ||||||||||||||||||
| Accumulated Comprehensive loss – translation, net | — | — | — | (1,609 | ) | — | (1,609 | ) | ||||||||||||||||
| Net loss | — | — | — | — | (3,729,299 | ) | (3,729,299 | ) | ||||||||||||||||
| Balances at March 31, 2023 | 41,085,520 | $ | 41,086 | $ | 123,634,774 | $ | (22,081 | ) | $ | (116,060,325 | ) | $ | 7,593,454 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
| Splash Beverage Group, Inc. |
| Condensed Consolidated Statement Cash Flows |
| For the Three Months Ended March 31, |
| (Unaudited) |
| 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 | 4,314,289 | 845,405 | ||||||
| Cash and Cash Equivalents, beginning of year | 4,181,383 | 380,000 | ||||||
| Cash and Cash Equivalents, end of year | $ | 8,495,672 | $ | 1,225,405 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid for Interest | $ | 10,000 | $ | — | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Notes payable and accrued interest converted to common stock (shares) | 843,480 | — | ||||||
| 2023 | 2022 | |||||||
| Net loss | $ | (3,729,299 | ) | $ | (5,994,407 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 130,618 | 205,888 | ||||||
| Amortization of debt discount | 247,661 | — | ||||||
| ROU assets, net | 427 | — | ||||||
| Beneficial conversion | — | 106,061 | ||||||
| Liability to issue shares | — | (1,128,000 | ) | |||||
| Other noncash changes | — | 64,896 | ||||||
| Non-cash share-based compensation | 215,760 | 2,355,542 | ||||||
| Changes in working capital items: | ||||||||
| Accounts receivable, net | (378,571 | ) | (279,841 | ) | ||||
| Inventory, net | 576,514 | (133,506 | ) | |||||
| Prepaid expenses and other current assets | (723,988 | ) | (114,626 | ) | ||||
| Deposits | (78 | ) | 124,378 | |||||
| Accounts payable and accrued expenses | (464,195 | ) | 97,776 | |||||
| Accrued interest payable | 21,324 | 19,953 | ||||||
| Net cash used in operating activities - continuing operations | (4,103,827 | ) | (4,675,886 | ) | ||||
| Net cash provided by operating activities - discontinued operations | — | 224,575 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (10,571 | ) | — | |||||
| Net cash used in investing activities - continuing operations | (10,571 | ) | — | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | — | 9,203,074 | ||||||
| Cash advance from shareholder | 200,000 | — | ||||||
| Proceeds from convertible 12-month promissory note and 1,500,000 restricted shares issuance | 2,000,000 | — | ||||||
| Principal repayment of debt | (369,941 | ) | (437,474 | ) | ||||
| Net cash provided by financing activities - continuing operations | 1,830,059 | 8,765,600 | ||||||
| Net cash effect of exchange rate changes on cash | (1,609 | ) | — | |||||
| Net change in cash and cash equivalents | (2,285,948 | ) | 4,314,289 | |||||
| Cash and cash equivalents, beginning of year | 4,431,745 | 4,181,383 | ||||||
| Cash and cash equivalents, end of period | $ | 2,145,797 | $ | 8,495,672 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for Interest | $ | 145,797 | $ | 10,000 | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Notes payable and accrued interest converted to common stock (223,596 shares) | — | 843,480 | ||||||
| Non-cash debt discount in the form of issuance of shares and beneficial conversion feature in conjunction with convertible notes | 1,786,468 | — | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 1 – Business Organization and Nature of Operations
Splash Beverage Group, Inc. (the “Company”, “Splash”) seeks 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 US and is now expanding to select attractive international markets. The Splash brand portfolio is growing and diverse, covering multiple categories that are exhibiting strong growth in both the non-alcohol and alcohol sectors. Through its wholly owned subsidiarydivision Qplash, Splash’s distribution reach includes e-commerce access to both B-to-Bbusiness-to-business (B2B) and B-to-Cbusiness-to-consumer (B2C) customers. Q-plashQplash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilities, and or homes.
On February 2021, Management initiated a plan to divest its Canfied 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.
6
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies
Basis of Accounting
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. Accordingly, they do not include all of the information and footnotes normally included in financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on March 31,2023 (the “Form 10-K”).
The accompanying condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
Basis of Presentation and Consolidation
These condensed consolidated financial statements include the accounts of Splash Beverage Group and its wholly owned subsidiaries Splash Beverage Holdings LLC (“Holdings”), Splash International Holdings LLC (“International”), Splash Mex SA de CV (“Splash Mex”), Canfield Medical Supply, Inc. (“CMS”) (as discontinued operations), and Copa di Vino Wine Group, Inc.(‘CdV” (“Copa di Vino”) and Splash Mexico., CMS is reflected as discontinued operations.. All intercompany balances have been eliminated in consolidation.
Our accounting and reporting policiesinvestment in Salt Tequila USA, LLC is carried at cost less impairment, the investment does not have a readily determinable fair value.
Certain reclassifications have been made to the prior period financial statements to conform to accounting principles generally acceptedthe December 31, 2022 audited financial statement and the current period classifications. In the three months ending March 31, 2022 the Company reclassified $459,260 from cost of goods sold to other general and administrative cost in the United States of America (GAAP).
The accompanying condensed 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, resultsconsolidated statement of operations and cash flows for the three months ended March 31, 2022comprehensive loss, $126,437 of shipping and 2021 have been made.handling and $332,823 of Amazon selling fees. These reclassifications had no impact on net loss.
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 March 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 U.S. 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 condensed 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 considerThe Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents. WeThe Company had 0no cash equivalents at March 31, 20222023 or December 31, 2021.2022.
OurThe Company cash in bank deposit amounts, at times, may exceed federally insured limits of $250,000. At March 31, 2022 we2023 the Company had $7,632,587 271,743in excess of the federally insured limits. OurThe Company bank deposit amounts in Mexico, $2,169 2,051, 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 recoverable amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. We establishThe Company establishes 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 March 31, 20222023 and December 31, 2021,2022, our accounts receivable amounts are reflected net of allowances of $13,94913,797 and $45,20313,683, respectively.
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 March 31, 20222023 and December 31, 20212022 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. WeThe Company 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 manageThe Company manages inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The amount of our reserve was $253,703 0and $223,223 66,146at March 31, 20222023 and December 31, 2021,2022, respectively.
Property and Equipment
WeThe Company 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 $30,695 46,701and $43,487 30,695for the three months ended March 31, 20222023 and March 31, 2021,2022, respectively. Property and equipment as of March 31, 20222023 and December 31, 20212022 consisted of the following:
| Schedule of Property and equipment | ||||||||
| 2023 | 2022 | |||||||
| Auto | 45,420 | 45,420 | ||||||
| Machinery & equipment | 1,158,535 | 1,108,870 | ||||||
| Buildings | 233,323 | 282,988 | ||||||
| Leasehold improvements | 723,639 | 713,068 | ||||||
| Computer Software | 5,979 | — | ||||||
| Office furniture & equipment | 7,657 | 13,636 | ||||||
| Total cost | 2,174,553 | 2,163,983 | ||||||
| Accumulated depreciation | (1,713,336 | ) | (1,674,385 | ) | ||||
| Property, plant & equipment, net | 461,217 | 489,597 | ||||||
| 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 also pays taxes to the State of Florida – Division of Alcoholic Beverages and Tobacco. 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.
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Splash Beverage Group, Inc.
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 March 31, 20222023 and December 31, 2021,2022, consistent with recent negotiations of notes payable and due to the short duration of maturities and market rates of interest.
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Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Revenue Recognition
We recognizeThe Company recognizes 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 expectthe Company expects to receive in exchange for the transfer of goods or services to customers.
We recognize
The Company recognizes revenue when ourthe Company’s performance obligations under the terms of a contract with the customer are satisfied. Product sales occur for the Splash Beverage and E-commerce businesses once control of ourthe Company’s products isare transferred upon delivery to the customer. Revenue is measured as the amount of consideration that we expectthe Company expects to receive in exchange for transferring goods, and revenue is presented net of provisions for customer returns and allowances. The amount of consideration we receivethe Company receives and revenue we recognizethe Company recognizes varies with changes in customer incentives we offeroffered to ourthe Company’s customers and their customers. Sales taxes and other similar taxes are excluded from revenue.
Distribution expenses to transport our
Shipping and Handling—The Company includes costs associated with the outbound shipping and handling of finished goods products, where applicable,as a component of other general and warehousing expenseadministrative expenses in the consolidated statements of operations and comprehensive loss. Shipping and handling are accounted for within operating expenses. Distribution expense is capitalizednot separately billed to the customers and are included in fees charged to the customer and are recorded as part of inventory as the materials are received by our distillery, co-packer or internal/external warehouse.revenue when earned.
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. In the three months ending March 31, 2022 the Company reclassified $459,260 from cost of goods sold to other general and administrative cost in the condensed consolidated statement of operations and comprehensive loss, $126,437 of shipping and handling and $332,823 of Amazon selling fees.
Other General and Administrative Expenses
Other General and Administrative expenses includes Amazon selling fees, royalty cost for selling TapouT, cost associated with the outbound shipping and handling of finished goods, insurance cost, consulting cost, legal and audit fees, Investor Relations expenses, travel & entertainment expenses, occupancy cost and other cost.
Shipping and Handling
Stock-Based CompensationThe Company incurred $1,374,328
and $803,318 of shipping and handling costs for the three months ending March 31, 2023 and 2022 respectively. These amounts, which primarily relate to shipping, are recorded in other general and administrative expenses.
We account
Stock-Based Compensation
The Company accounts 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 award’s vesting period. We useThe Company uses the Black-Scholes option pricing model to determine the fair value of stock-based awards. WeThe Company 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
We useThe Company uses 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 recordThe Company records 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% 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 no material uncertain tax positions at March 31, 20222023 and December 31, 2021.2022.
The Company’s federal, state and local income tax returns prior to fiscal year 2019 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
The Company recognizes interest and penalties associated with tax matters, if any, as part of operating expenses and includes accrued interest and penalties with accrued expenses in the condensed interim balance sheets.
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Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock 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.
Weighted average number of shares outstanding for awards granted from 2021 to 2022 excludes anti-dilutive common stock equivalents, including warrants to purchase million shares of common stock for nominal consideration.
Advertising
Advertising
We conductThe Company conducts advertising for the promotion of ourits products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. WeThe Company recorded advertising expense of $87,590 195,048and $1,987 87,590for the three-monthsthree months ended March 31, 2023 and 2022, and 2021, 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.
Intangible assets consist of customer lists, brands and license agreements acquired in the acquisition of CdV.Copa Di Vino. 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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Splash Beverage Group, Inc.
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.
Segment reporting
The Company discloses a measurement of segment profit or loss that its chief operating decision maker (CODM) uses to assess segment performance and to make decisions about resource allocations for each reportable segment.
Recent Accounting Pronouncements
On January 1, 2023, the Company adopted FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which requires the immediate recognition of management’s estimates of current and expected credit losses. Adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements or disclosures.
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, wethe Company will adopt those that are applicable under the circumstances.
Foreign Currency Gains/Losses
Foreign Currency Gains/Losses — foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates. Gains or losses from these translation adjustments are included in the condensed consolidated statement of operations and other comprehensive loss as foreign currency translation gains or losses. Translation gains and losses that arise from the translation of net assets from functional currency to the reporting currency, as well as exchange gains and losses on intercompany balances, are included in foreign currency translation in the condensed consolidated statement of operations and comprehensive loss. The Company incurred foreign currency translation net loss of $1,609 and $0 for the three months ending March 31, 2023 and 2022 respectively.
ReclassificationsLiquidity and Going Concern Considerations
Certain prior period amountsThese condensed consolidated financial statements have been reclassifiedprepared assuming the Company will be able to conformcontinue as a going concern. The Company historically has incurred significant losses and negative cash flows from operation since inception and had net-loss of approximately $3.7 million for three-month period ended March 31, 2023 and accumulated deficit of approximately $116.1 million through March 31, 2023. During the three-month period ended March 31, 2023, the Company’s net cash used in operating activities totaled approximately $4.1 million.
If sales volumes do not meet the Company’s projections, expenses exceed the Company’s expectations, or the Company’s plans change, the Company may be unable to generate enough cash flow from operations to cover our working capital requirements. In such case, the Company may be required to adjust its business plan, by reducing marketing, lower its working capital requirements and reduce other expenses or seek additional financing.
In order to have sufficient cash to fund our operations, the Company will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. The Company will be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities the Company may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, the Company may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. The Company may also be required to recognize non-cash expenses in connection with certain securities the current year presentation.Company may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital the Company is able to raise from financing activities together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that the Company reduce our operations accordingly, the Company may be required to curtail or cease operations. As a result, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern for at least twelve months from the date of the consolidated financial statements being available to be issued.
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Notes to the Condensed Consolidated Financial Statements
Note 3 – 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 $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 | $ | 2,171,068 | $ | 2,967,812 | ||||||||
| Less current portion | (2,171,068 | ) | (2,967,812 | ) | ||||||||
Long-term notes payable | $ | — | $ | — | ||||||||
| Schedule of Notes payable | ||||||||||||
| Interest Rate | March 31, 2023 | December 31, 2022 | ||||||||||
| Notes Payable and Convertible Notes Payable | ||||||||||||
| In March 2014, the Company 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 $ per share. The warrants expired unexercised on February 28, 2017. The loan and interest was paid off in February 2023 | 8 | % | — | 200,000 | ||||||||
| In December 2020, the Company entered into a 56- month loan with a company in the amount of $1,578,237. The loan requires payments of 3.75% through November 2022 and 4.00% through September 2025 of the previous month’s revenue. Note is due September 2025. Note is guaranteed by a related party see note 6. | 17 | % | 876,836 | 1,044,445 | ||||||||
| In April 2021, the Company entered into a six-month 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 October 2023. | 7 | % | 84,000 | 84,000 | ||||||||
| In April 2021, the Company entered into a six-month 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 October 2023. | 7 | % | 84,000 | 84,000 | ||||||||
| In May 2021, the Company entered into a six-month 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 October 2023. | 7 | % | 50,000 | 50,000 | ||||||||
| In May 2021, the Company entered into a six-month 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 October 2023. | 7 | % | 10,000 | 10,000 | ||||||||
| In August 2022, the Company entered into a 56-months auto loan in the amount of $45,420. | 2.35 | % | 40,064 | 42,396 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $100,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | 12 | % | 100,000 | 100,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | 12 | % | 250,000 | 250,000 | ||||||||
| In In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $1,000,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | 12 | % | 1,000,000 | 1,000,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | 12 | % | 250,000 | 250,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | 12 | % | 250,000 | 250,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | 12 | % | 250,000 | 250,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $400,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | 12 | % | 400,000 | 400,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $1,500,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | 12 | % | 1,500,000 | 1,500,000 | ||||||||
| In February 2023, the Company entered into a twelve-month loan with an entity in the amount of $2,000,000. The convertible note included 750 additional shares for each $1,000 purchased. The loan matures in February 2024. | — | 2,000,000 | — | |||||||||
| Total notes payable | $ | 7,144,900 | $ | 5,514,841 | ||||||||
| Less notes discount | (3,437,072 | ) | (1,898,265 | ) | ||||||||
| Less current portion | (1,275,540 | ) | (1,080,257 | ) | ||||||||
| Long-term notes payable | $ | 2,432,288 | $ | 2,536,319 | ||||||||
Interest expense on notes payable was $81,700 167,121and $9,625 81,700for the three months ended March 31, 20222023 and 2021,2022, respectively. Accrued interest was $154,209 123,990at March 31, 2022.2023.
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Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 3– Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
| 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 $2,602 and $0 for the three months ended March 31, 2022 and 2021, respectively. Accrued interest was $0 as of March 31, 2022.
14
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 4 – Licensing Agreement and Royalty Payable
We haveThe Company has a licensing agreement with ABG TapouT, LLC (“TapouT”), providing usthe Company with licensing rights to the brand “TapouT” on (i)energy drinks, (ii) energy bars, (iii) coconut water, (iv) electrolyte gum/chews, (v) energy shakes, (vi) powdered drink mix, (viii) water (including enhanced water), (vii) energy shots, water,(viii) teas, and (ix) sports drinks for beverages sold in the North America (including US Territories and Military Bases), United States of America, its territories, possessions, U.S. military basesKingdom, Brazil, South Africa, Australia, Scandinavia, Peru, Colombia, Chile and Mexico. Under the terms of the agreement, we areGuatemala. The Company is required to pay a 6% royalty on net sales, as defined. Wedefined, and are required to make minimum monthly payments of $54,450 55,000in 20222023 and $49,500 54,450in 2021.2022.
There were no unpaid royalties at March 31, 2022. We2023. The Company paid the guaranteed minimum royalty payments of $163,350165,000 and $148,500163,350 for the three-monthsthree months ended March 31, 2023 and 2022 and 2021,respectively, which is included in general and administrative expenses.expenses in the condensed consolidated statement of operations and comprehensive loss.
In connection with the Copa di Vino APA, wethe Company acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, the CdVCopa di Vino entered into three separate license agreements with 1/4 Vin SARL, (1/4 Vin).Vin. 1/4 Vin has the right to license certain patents and patent applications relating to inventions, systems, and methods used in ourthe Company’s manufacturing process. In exchange for notes payable, 1/4 Vin granted usthe Company 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.amortized in 2027. The asset is being amortized over a 10-year useful life.
Note 5– Stockholders’ Equity
Common Stock
At March 31, 2021, we issued shares of common stock in exchange for services provided to us. At September 30, 2021, we issued shares of common stock in exchange for services provided to us. At December 31, 2021, we issued shares of common stock in exchange for services provided to us. At March 31, 2022, we issued shares of common stock in exchange for services, and 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 $, which is classified within the other general and administrative line on our Condensed Consolidated Statements of Operations.
Common Stock
Private Placement Memorandum (PPM)
In January 2021,February 2023, the Board of Directors approved a private placement offering of 2,000,000 shares of the common stock of the Company, $$0.001 value per share at a purchase price of $$1.00 per share for aggregate gross proceeds of $4,000,000 $2,000,000 (“PPM”SPA”). As part of the PPM,SPA, each purchaser received a warrantadditional restricted shares equal to purchase one share750 units for every two shares$1,000 purchased. In February 2021, we completed our PPM by issuing a total of 1,212,355 of shares and 606,178 warrants receiving gross proceeds of approximately $4,000,000.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 5 – Stockholders’ Equity, continued
Stock PlansPlan
2020 Plan
On AugustIn July 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 was at the time the 2020 plan was adopted
The 2020 Plan has an “EVERGREEN”“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 and 2023, the number of shares issuable under the 2020 plan increased by and shares, respectively.
The following is a summary of the Company’s stock option activity during the quarter ended March 31, 2023:
| Schedule of stock option activity | ||||||||
Stock options | Weighted average exercise price of outstanding stock options | |||||||
| Balance – December 31, 2022 | 1,151,000 | $ | 2.56 | |||||
| Granted | 65,000 | $ | 1.08 | |||||
| Exercises | — | $ | — | |||||
| Cancelled | — | $ | — | |||||
| Balance – March 31, 2023 | 1,216,000 | $ | 2.48 | |||||
| Exercisable – March 31, 2023 | 732,746 | $ | 2.58 |
During the three-month period ended March 31, 2022,2023, the company granted sharesoptions to new employees under the 2020 plan. At March 31, 2022, the total number of awards that may be issued under the 2020 plan was 2,123,703.
The fair value of stock options recognizedgranted in the period has been estimatedmeasured at $149,999 using the Black-Scholes option pricing model.model with the following assumptions: exercise price $1.08, expected life years, expected volatility %, expected dividends %, risk free rate %.
The company did not grant any new options, warrants, or shares in Q1 2022 that would fall under the 2020 plan.
Shareholder Advances andCommon Stock Issuable, Liability to Issue Stock and WarrantsShareholder Advances
We have various agreementsOn February 28, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement” or “SPA”) with consultants inan investor. Pursuant to the amount of 0.5 millionSecurities Purchase Agreement, the Company issued a non-interest bearing, convertible 12-month promissory note (the “Note”) convertible for up to shares to be issued by in Q2 2022. The stock price will be valued using the 10-day average price of the company’s stock from the issuance date. As part of our private placement memoranda, we owe an investor 33,333 shares at $3.30 of the Company’s common stock and received aggregate gross proceeds of $2,000,000. The note has a Conversion Price of $1 per share, subject to adjustments as provided in the Note. Pursuant to the terms of the SPA, the Company is obligated to issue restricted shares of restricted common stock to the investor at the time of funding of the note, which will bewas not issued by March 31, 2023.
The per share value of the restricted shares at the date of the SPA was $, the Company’s quoted stock price at that date, representing a total value of $2,000,000. The restricted shares have been accounted for as a debt discount. The debt discount was recorded at $1,786,468, the amount of cash received from the investor for the Note. The discount is being amortized as an other expense over the 12-month term of the Note.
The Company also has an obligation to issue shares of common stock for legal and consulting services provided in Q2 2022.connection with a potential acquisition. These shares were valued at $per share, the quoted stock price at the date services were provided.
Outstanding balance for shareholder advances on March 31, 2023 was $200,000.
Note 6 – Related Parties
There areDuring the normal course of business, the Company incurred expenses related to services provided by the CEO or Company expenses paid by the CEO, resulting in related party notes payablepayables. In conjunction with the acquisition of Copa di Vino, the Company also entered into a Revenue Loan and Security Agreement (the “Loan and Security Agreement”) by and among the Company, Robert Nistico, additional Guarantor and each of the subsidiary guarantors from time-to-time party thereto (each a “Guarantor”, and, collectively, the “Guarantors”), and Decathlon Alpha IV, L.P. (the “Lender”). The Note Payable with a balance of $0.3876,836 and $0.7 million outstanding as ofat March 31, 2022 and December 31,2021, respectively. See note 3.31,2023.
Note 7 – Investment in Salt Tequila USA, LLC
We haveThe Company has a marketing and distribution agreement with SALT Tequila USA, LLC (“SALT”) for the manufacturing of our Tequila product line in Mexico.
We have The Company has a 22.5% percentage ownership interest in SALT, this investment is carried at cost less impairment, the investment does not have a readily determinable fair value. The Company has the right to increase our ownership to 37.5%. This investment is accounted for at cost, due to our inability to exercise significant influence over the assets and operations.
1614
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 8 –OperatingLeases
The Company has various operating lease agreements primarily related to real estate and office. The Company’s real estate leases represent a majority of the lease liability. Lease Obligations
Effective July 2018, we entered into apayments are mainly fixed. Any variable lease agreementpayments, including utilities, common area maintenance are expensed during the period incurred. Variable lease costs were immaterial for the rightquarter ended March 31, 2023 and 2022. A majority of the real estate leases include options to useextend the lease. Management reviews all options to extend at the inception of the lease and occupy office space. Theaccount for these options when they are reasonably certain of being exercised.
Operating lease expense is recognized on a straight-line basis over the lease term commenced July 1, 2018and is scheduled to expire after 36 months,included in operating expense on June 30, 2021. In July 2021, we executed a two-year renewal at the same monthly amount.Company’s condensed consolidated statement of operations and comprehensive loss. Operating lease cost was $93,328 and $92,788 during the period ended March 31, 2023 and 2022, respectively.
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, 2021. Our new 1 year lease agreement is renewed annually.
Effective January 2021, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced January 18, 2021and is scheduled to expire after 18 months, on July 31, 2022.
Effective January 2021, we entered into a lease agreement for the right to use and occupy office and manufacturing space. The lease term commenced January 1, 2021and is scheduled to expire after 60 months, on December 31, 2025.
The following table presentssets for the discounted present valuematurities of minimumour operating lease payments for our officeliabilities and warehousesreconciles the respective undiscounted payments to the amounts reported as financialoperating lease liabilities onin the condensed consolidated balance sheet at MarchDecember 31, 2022:2022
| Schedule of maturities of lease liabilities | ||||||||
| Schedule of operating lease liability | ||||||||
| Undiscounted Future Minimum Lease Payments | Operating Lease | Operating Lease | ||||||
| 2022 (Nine months remaining) | 252,723 | |||||||
| 2023 | 279,790 | |||||||
| 2023 (Nine months remaining) | 214,202 | |||||||
| 2024 | 252,000 | 252,000 | ||||||
| 2025 | 252,000 | 252,000 | ||||||
| Total | 1,036,513 | 718,202 | ||||||
| Amount representing imputed interest | (83,448 | ) | (44,295 | ) | ||||
| Total operating lease liability | 953,065 | 673,907 | ||||||
| Current portion of operating lease liability | 284,372 | 250,734 | ||||||
| Operating lease liability, non-current | $ | 668,693 | $ | 423,173 | ||||
The table below presents information for lease costs related to our operating leases at 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 | ||
The table below presents lease-related terms and discount rates at March 31, 2022:2023:
| Summary of lease-related terms and discount rates | ||||||
| Remaining term on leases | ||||||
| 5.0 | % | |||||
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Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 9 – Business Combination
We consummated the acquisition of CdV 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 updated purchase price for the acquisition:
| 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 | ||||||
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Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 109 – Segment Reporting
The Company evaluates segment reporting in accordance withhas two reportable operating segments: (1) the FASB Accounting Standards Codification Topic 280,manufacture and distribution of non-alcoholic and alcoholic brand beverages, and (2) the e-commerce sale of beverages. These operating segments are managed separately and each segment’s major customers have different characteristics. Segment Reporting each reporting period, including evaluating the reporting package reviewedis evaluated by theour Chief Executive Officer and Chief Financial Officer.
Note: The CdVCopa di Vino business is included in our Splash Beverage Group segment.
| Schedule of Segment Reporting Information | ||||||||
| Revenue, net | March 31, 2023 | March 31, 2022 | ||||||
| Splash Beverage Group | 1,898,968 | 1,478,158 | ||||||
| E-Commerce | 3,923,759 | 2,448,415 | ||||||
| Total revenues, net, continuing operations | 5,822,727 | 3,926,573 | ||||||
| Total revenues, net, discontinuing operations | — | 114,071 | ||||||
| Contribution after Marketing | March 31, 2023 | March 31, 2022 | ||||||
| Splash Beverage Group | $ | (286,929 | ) | $ | (459,775 | ) | ||
| E-Commerce | 1,311,602 | 1,030,059 | ||||||
| Total contribution after marketing | 1,024,673 | 570,283 | ||||||
| Contracted services | 381,005 | 431,545 | ||||||
| Salary and wages | 1,234,127 | 785,651 | ||||||
| Non-cash share-based compensation | 215,760 | 2,355,542 | ||||||
| Other general and administrative | 2,648,701 | 2,681,498 | ||||||
| Loss from continuing operations | $ | (3,454,921 | ) | $ | (5,683,953 | ) | ||
| Total assets | March 31, 2023 | December 31, 2022 | ||||||
| Splash Beverage Group | 12,801,083 | 14,723,553 | ||||||
| E-Commerce | 2,547,812 | 2,581,150 | ||||||
| Total assets | 15,348,895 | 17,304,703 | ||||||
| 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 | ||||||
16
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 1110 – Commitment and Contingencies
We areThe Company is 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 wethe Company 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 1211 – Subsequent Events
NoneOn May 2, 2023 the Company issued shares of common stock to the purchaser of the convertible promissory note issued on February 28, 2023.
The Company granted options in April to Board Directors and options in May to the new Board Director under the 2020 plan.
In May 2023 the Company received approximately $0.8 million from a Private Placement issuance of convertible notes. The notes have an eighteen-month term, accrue interest at 12.0% are convertible into shares of common stock of the Company at $1.00 per share, and include and 50% warrant coverage. These notes are part of a Securities Purchase Agreement to raise up to $8.0 million to fund acquisitions, equipment purchases and working capital.
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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. WeThe Company 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 Financial Statements (unaudited) and Notes to Condensed Financial Statements (unaudited) filed herewith.
Business Overview
Splash Beverage Group, Inc. (the “Company”, “Splash”) seeks 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 US and is now expanding to select attractive international markets. The Splash brand portfolio is growing and diverse, covering multiple categories that are exhibiting strong growth in both the non-alcohol and alcohol sectors. Through its wholly owned subsidiarydivision Qplash, Splash’s distribution reach includes e-commerce access to both B-to-Bbusiness-to-business (B2B) and B-to-Cbusiness-to-consumer (B2C) customers. Q-plashQplash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilitiesfacilities; and or homes.
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 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.
2018
Results of Operations for the Three Months Ended March 31, 20222023 compared to Three Months Ended March 31, 2021.2022.
Revenue
Revenues for the three months ended March 31, 20222023 were $3,926,573$5,822,727 compared to revenues of $2,138,924$3,926,573 for the three months ended March 31, 2021.2022. The $1,787,649$1,896,154 increase in sales is due to an increase in our beverage sales of $420,810 with all brands growing versus last year with largest contribution from CdV ($505105)TapouT and withinCopa di Vino. Our revenues from our vertically integrated B2B and B2C e-commerce distribution platform called Qplash ($1,135,233). Qp;ash sells goods on both Amazonincreased $1,475,344 or 60% driven by expanded territory coverage, new products being sold and Shopify. ). increased cart size when customers are checking out.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 20222023 were $3,094,571$4,061,228 compared to cost of goods sold for the three months ended March 31, 20212022 of $1,621,504.$2,635,310. The $1,473,066$1,425,918 increase in cost of goods sold for the three-month period ended March 31, 20222023 is primarily due to our increased sales and as our sales increased, our cost of sales for those sales correspondingly increased.product mix shifting to lower margin items in e-commerce business.
Operating Expenses
Operating expenses for the three months ended March 31, 20222023 were $6,515,955$5,216,420 compared to $5,066,349$6,975,215 for the three months ended March 31, 2021.2022 a decrease of $1,758,795. The $1,449,606 increasedecrease in our operating expenses was primarily a result of recording the warrants issued pursuantdue to certain private placements conducted by the Company ($888,158), marketing spend ($633,389) and shipping costs ($296,941)non-cash expenses partially offset by other operating expenses.increases for the incorporation of new staff, benefit cost, freight cost and Amazon selling fees. The net loss for the three months ended March 31, 20222023 was $5,994,407$3,729,299 as compared to a net loss of $4,442,219$5,994,408 for the three months ended March 31, 2021.2022. The increasedecrease in net loss is due to our increase inhigher sales offsetting lower gross margins and lower operating expenses offset by our increase in revenues.expenses.
InterestNet Other Income and Expense
Interest expenses for the three months ended March 31, 2022 were $85,8792023 was $167,121 compared to $92,211$85,879 for the three months ended March 31, 2021.2022.
Other income was $140,404 and $0 for the three months ended March 31, 2023 and March 31, 2022 respectively. The income was related to an insurance settlement.
Amortization of debt discount for the three months ended March 31, 2023 was $247,661 compared to $0 for three months ended March 31, 2022.
LIQUIDITY, GOING CONCERN CONSIDERATIONS 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 March 31, 2022, we2023, the Company had total cash and cash equivalents of $8,495,672,$2,145,797, as compared with $4,181,383$4,431,745 at December 31, 2021. The increase is primarily due to the gross proceeds of $8,100,000 received from the sale of 2.3 million shares of the Company’s registered common stock in February 2022 pursuant to the Company’s shelf registration statement on Form S-3.2022.
Net cash used for operating activities during the three months ended March 31, 20222023 was $4,675,886$4,103,827 as compared to the net cash used by operating activities for the three months ended March 31, 20212022 of $3,620,039.$4,675,886. The primary reasons for the change in net cash used is due to losses sustainedare decreases in inventory, accrued expenses and accounts payable partially offset by increases in inventory, offset by non-cash expenses relating to warrant expense ($1,242,697) and share-based compensation ($1,112,845).account receivables.
For the period March 31, 2023, the Company had leasehold improvements of $10,571 related to our Copa Di Vino production site. For the period ending March 31, 2022, and 2021, did not use or receive cash relating to investing activities.there were no capital asset transactions.
19
Net cash provided by financing activities during the three months ended March 31, 20222023 was $8,765,000$1,830,059 compared to $4,505,526$8,765,000 provided from financing activities for the three months ended March 31, 2021.2022. During the three months ended March 31, 2022, we2023, the Company received $9,203,074$2,000,000 for convertible note, $200,000 from investors,a shareholder advance, which was offset by repayments to debt holders of $437,474.$369,941.
21 The Company has a Securities Purchase Agreement approved by the Board to raise up to $8.0 million to fund acquisitions, equipment purchases and working capital.
In order to have sufficient cash to fund our operations, the Company will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. The Company will be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities the Company may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, the Company may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. The Company may also be required to recognize non-cash expenses in connection with certain securities the Company may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital the Company are able to raise from financing activities together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that the Company reduce our operations accordingly, the Company may be required to curtail or cease operations. As a result, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern for at least twelve months from the date of the consolidated financial statements being available to be issued.
CONTRACTUAL OBLIGATIONS
Share obligation:
·TheAt March 31, 2023 the company hasahad an obligation to issue 500K1,500,000 shares related to the February Private Placement, which was issued in May, 2023. The company has an obligation to issue 100,000 shares to two marketing firms of which the cost associated to 167K shares was accrueda consultant for in Q1 2022.services provided.
Minimum Royalty Payments:
WeThe Company have a licensing agreement with ABG TapouT, LLC (“TapouT”). Under the licensing agreement, wethe Company have minimum royalty payments to TapouT of $495,000 for the next two years.nine months remaining in 2023
Inventory Purchase Commitments:
None.
Off-Balance Sheet Arrangements
WeThe Company 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.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for Smaller Reporting Companies.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controlsEvaluation of 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 ourProcedures
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 chiefthe principal executive officer and chiefprincipal financial officer, ofofficers, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e)13a – 15(e) and 15d-15(e)15d – 15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, as of the Exchange Act. end of the period covered by this Report. Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on that evaluation, our chief executive officerChief Executive Officer and chief financial officerour Chief Financial Officer concluded that, because of certain material weaknesses in our internal controlcontrols 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, 2022.2023. The material weaknesses relate to a lack of segregation of duties between accounting and other functions and the absence of sufficient depth of in-house accounting personnel with the ability to properly account for complex transactions.
22
The Company plans to implement additional internal controls or enhance existing internal controls to strengthen its control environment
We hired. Subsequent to the quarter ended March 31, 2023, the company is reviewing a consultantplan to adviseengage additional internal staff, external staff, or an advisory firm to provide support on technical issues related to U.S. generally accepted accounting principlesGAAP as related to the maintenance of our accounting books and records and the preparation of our consolidated financial statements. Although we are aware of
Changes in Internal Control Over Financial Reporting
Except with respect to the risks associated with not having dedicated accounting personnel, we are also at an early stage inabove, during 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 withquarter ended March 31, 2023, there were no 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 deficiencieschanges in our internal control over financial reporting that have materially affected, or are discovered or occur in the future, our consolidated financial statements may contain material misstatements, and we could be requiredreasonably likely 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.
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 inmaterially affect, our internal control over financial reporting.
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 jobs assigned.
● Implement a BI tool that will replace Excel worksheets that can be prone to errors.
2321
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS
No new risk factors noted since our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
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.
2422
ITEM 6. EXHIBITS
(a) Exhibits required by Item 601 of Regulation S-K.
* Filed herewith
** Furnished herewith
2523
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 BEVERAE GROUP, INC. | ||
| Date: | By: | /s/ Robert Nistico |
| Robert Nistico, Chairman and CEO | ||
| ( | ||
| Date: | By: | /s/ |
| ( | ||
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