Form 10-Q SPLASH BEVERAGE GROUP, For: Mar 31
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U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from _______ to _________
Commission
File No.
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(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.
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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).
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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 ☐ | |
| 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).
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As of May 16, 2022, there were shares of Common Stock issued and outstanding.
| SPLASH BEVERAGE GROUP, INC. |
| FORM 10-Q |
| March 31, 2022 |
TABLE OF CONTENTS
| Page | ||
| PART I: FINANCIAL INFORMATION | ||
| ITEM 1: | FINANCIAL STATEMENTS | 1 |
| Condensed Consolidated Balance Sheets | 2 | |
| Condensed Consolidated Statements of Operations | 3 | |
| Condensed Consolidated Statement of Changes in Shareholders’ Equity | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to the Condensed Consolidated Financial Statements | 6 | |
| ITEM 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20 |
| ITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 22 |
| ITEM 4: | CONTROLS AND PROCEDURES | 22 |
| PART II: OTHER INFORMATION | ||
| ITEM 1 | LEGAL PROCEEDINGS | 24 |
| ITEM 1A: | RISK FACTORS | 24 |
| ITEM 2: | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 24 |
| ITEM 3: | DEFAULTS UPON SENIOR SECURITIES | 24 |
| ITEM 4: | MINE SAFETY DISCLOSURES | 24 |
| ITEM 5: | OTHER INFORMATION | 24 |
| ITEM 6: | EXHIBITS | 25 |
| SIGNATURES | 26 | |
i
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Splash
Beverage Group, Inc.
Condensed Consolidated Financial Statements
March 31, 2022
1
| Splash Beverage Group, Inc . |
| Condensed Consolidated Balance Sheets |
| March 31, 2022 and December 31, 2021 |
| (Unaudited) |
| March 31, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts Receivable, net | ||||||||
| Prepaid Expenses | ||||||||
| Inventory, net | ||||||||
| Other receivables | ||||||||
| Assets from discontinued operations | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Deposit | $ | $ | ||||||
| Intangible assets | ||||||||
| Investment in Salt Tequila USA, LLC | ||||||||
| Right of use asset, net | ||||||||
| Property and equipment, net | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | |||||||
| Liability to issue shares | ||||||||
| Sales tax payable | ||||||||
| Right of use liability - current | ||||||||
| Related party notes payable | ||||||||
| Notes payable, current portion | ||||||||
| Shareholder advances | ||||||||
| Accrued interest payable | ||||||||
| Liabilities from discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Liability to issue shares in APA | ||||||||
| Right of use liability - noncurrent | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| 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 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total deficiency in stockholders’ equity | ||||||||
| Total liabilities, mezzanine shares and deficiency in stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Splash Beverage Group, Inc. |
| Condensed Consolidated Statements of Operations |
| For the Three Months Ended March 31, 2022 and 2021 |
| (Unaudited) |
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Gross sales | $ | $ | ||||||
| Customer discounts | ( | ) | ( | ) | ||||
| Net revenues | ||||||||
| Cost of goods sold | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Contracted services | ||||||||
| Salary and wages | ||||||||
| Salary and wages - non-cash share-based compensation | ||||||||
| Other general and administrative | ||||||||
| Other general and administrative - non-cash share-based compensation | ||||||||
| Sales and marketing | ||||||||
| Total operating expenses | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Other income/(expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Gain from debt extinguishment | ||||||||
| Total other (expense) | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss from continuing operations, net of tax | ( | ) | ( | ) | ||||
| Net loss /income from discontinued operations, net of tax | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share - continuing operations | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Dilutive | ( | ) | ( | ) | ||||
| Weighted average number of common shares outstanding - continuing operations | ||||||||
| Basic and dilutive | ||||||||
| Income/(loss) per share - discontinued operations | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Dilutive | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - discontinued operations | ||||||||
| Basic | ||||||||
| Dilutive | ||||||||
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, 2022 and 2021
| 2022 | 2021 | |||||||
| Total stockholders’ equity, beginning balances | ( |
) | ||||||
| Common stock and additional paid-in capital | ||||||||
| Beginning balances | ||||||||
| Issuance
of common stock upon conversion of convertible instruments |
||||||||
| Issuance of warrants for services | ||||||||
| Issuance of common stock for services | ||||||||
| Issuance of common stock for cash | ||||||||
| Reclassification of Mezzanine shares | ||||||||
| Ending balances | ||||||||
| Accumulated deficit | ||||||||
| Beginning balances | ( |
) | ( |
) | ||||
| Net loss | ( |
) | ( |
) | ||||
| Ending balances | ( |
) | ( |
) | ||||
| Total stockholders’ equity, ending balances | ||||||||
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, 2022 and 2021 |
| (Unaudited) |
| 2022 | 2021 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Finance charges | ( | ) | ||||||
| Beneficial conversion | ||||||||
| Non-cash warrant expense | ||||||||
| Share-based compensation | ||||||||
| Other noncash changes | ( | ) | ||||||
| Changes in working capital items: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventory, net | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Deposits | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued Interest payable | ||||||||
| Net cash used in operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities - discontinued operations | ( | ) | ||||||
| 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 | ||||||||
| Cash advance from shareholder | ||||||||
| Repayment of cash advance | ( | ) | ||||||
| Proceeds from issuance of debt | ||||||||
| Principal repayment of debt | ( | ) | ( | ) | ||||
| Net cash provided by financing activities - continuing operations | ||||||||
| Net cash provided by financing activities - discontinued operations | ||||||||
| Net Change in Cash and Cash Equivalents | ||||||||
| Cash and Cash Equivalents, beginning of year | ||||||||
| Cash and Cash Equivalents, end of year | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid for Interest | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Notes payable and accrued interest converted to common stock (shares) | ||||||||
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 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 subsidiary Qplash, Splash’s distribution reach includes e-commerce access to both B-to-B and B-to-C customers. Q-plash 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 Presentation and Consolidation
These condensed consolidated financial statements include the accounts of Splash Beverage Group and its wholly owned subsidiaries, Holdings, Copa di Vino, Inc.(‘CdV”) and Splash Mexico., CMS is reflected as discontinued operations. All intercompany balances have been eliminated in consolidation.
Our accounting and reporting policies conform to accounting principles generally accepted 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, results of operations and cash flows for the three months ended March 31, 2022 and 2021 have been made.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in GAAP have been condensed or omitted. The results of operations for the period ended 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 GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents and Concentration of Cash Balance
We
consider all highly liquid securities with an original maturity of three months or less to be cash equivalents. We had
Our cash in bank deposit amounts, at times, may exceed
federally insured limits of $250,000. At March 31, 2022 we had $
7
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 establish provisions for losses on accounts receivable on the basis of loss experience, known
and inherent risk in the account balance, and current economic conditions. At March 31, 2022 and December 31, 2021, our accounts receivable
amounts are reflected net of allowances of $
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, 2022 and December 31, 2021 consisted of raw materials, work-in-process, and finished goods held for distribution. The cost
elements of inventory consist of purchase of products, transportation, and warehousing. We establish provisions for excess or inventory
near expiration are based on management’s estimates of forecast turnover of inventories on hand and under contract. A significant
change in the timing or level of demand for certain products as compared to forecast amounts may result in recording additional provisions
for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and have historically
been adequate to provide for losses on inventory. We manage inventory levels and purchase commitments in an effort to maximize utilization
of inventory on hand and under commitments. The amount of our reserve was $
Property and Equipment
We
record property and equipment at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line
method over the estimated economic useful lives of assets, which range from
Depreciation
expense totaled $
| 2022 | 2021 | |||||||
| Machinery & equipment | ||||||||
| Buildings | ||||||||
| Leasehold improvements | ||||||||
| Office furniture & equipment | ||||||||
| Total cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant & equipment, net | ||||||||
Excise taxes
The Company pays alcohol excise taxes based on product sales to both the Oregon Liquor Control Commission and to the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (TTB). The Company is liable for the taxes upon the removal of product from the Company’s warehouse on a per gallon basis. The federal tax rate is affected by a small winery tax credit provision which decreases based upon the number of gallons of wine production in a year rather than the quantity sold.
8
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, 2022 and December 31, 2021, consistent with recent negotiations of notes payable and due to the short duration of maturities and market rates of interest.
9
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Revenue Recognition
We recognize revenue under ASC 606, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects what we expect to receive in exchange for the transfer of goods or services to customers.
We recognize revenue when our performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control of our products is transferred upon delivery to the customer. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring goods and is presented net of provisions for customer returns and allowances. The amount of consideration we receive and revenue we recognize varies with changes in customer incentives we offer to our customers and their customers. Sales taxes and other similar taxes are excluded from revenue.
Distribution expenses to transport our finished goods products, where applicable, and warehousing expense are accounted for within operating expenses. Distribution expense is capitalized as part of inventory as the materials are received by our distillery, co-packer or internal/external warehouse.
Cost of Goods Sold
Cost of goods sold include the costs of products, packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or impaired inventory.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”. Under the fair value recognition provisions, cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the award’s vesting period. We use the Black-Scholes option pricing model to determine the fair value of stock-based awards. We early adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns accounting treatment for such awards to non-employees with the existing guidance on employee share-based compensation in ASC 718.
Income Taxes
We use the liability method of accounting for income taxes as set forth in ASC 740, “Income Taxes”. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. We record a valuation allowance when it is not more likely than not that the deferred tax assets will be realized.
Company management assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For
those income tax positions where there is less than
10
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 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
We
conduct advertising for the promotion of our products. In accordance with ASC 720-35, advertising costs are charged to operations when
incurred. We recorded advertising expense of $
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. The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives of 15 years.
11
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.
Recent Accounting Pronouncements
Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current year presentation.
12
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
Notes payable are generally nonrecourse and secured by all Company owned assets.
| 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 $ | % | |||||||||||
| In September 2021, we entered into a twelve-month
loan with a company in the amount of $ | % | |||||||||||
| In December 2020, we entered into a 56
month loan with a company in the amount of $ | % | |||||||||||
| In April 2021, we entered into a six-month
convertible loan with an individual in the amount of $ | % | |||||||||||
| In April 2021, we entered into a six-month
convertible loan with an individual in the amount of $ | % | |||||||||||
| In May 2021, we entered into a six-month
convertible loan with an individual in the amount of $ | % | |||||||||||
| In May 2021, we entered into a six-month
convertible loan with an individual in the amount of $ | % | |||||||||||
| In May 2021, we entered into a six-month
convertible loan with an individual in the amount of $ | % | |||||||||||
| In May 2021, we entered into a six-month
convertible loan with an individual in the amount of $ | % | |||||||||||
| In November 2021, we entered into a one-year
convertible loan with an individual in the amount of $ | % | |||||||||||
Total
notes payable | $ | $ | ||||||||||
| Less current portion | ( | ) | ( | ) | ||||||||
Long-term
notes payable | $ | $ | ||||||||||
Interest
expense on notes payable was $
13
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
| 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 $ |
||||||||||
| Less current portion | ( |
) | ( |
) | ||||||
| Long-term notes payable | $ | $ | ||||||||
Interest
expense on related party notes payable was $
14
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 4 – Licensing Agreement and Royalty Payable
We have a licensing agreement with ABG TapouT, LLC
(“TapouT”), providing us with licensing rights to the brand “TapouT” on energy drinks, energy shots, water, teas
and sports drinks for beverages sold in the United States of America, its territories, possessions, U.S. military bases and Mexico. Under
the terms of the agreement, we are required to pay a 6% royalty on net sales, as defined. We are required to make minimum monthly payments
of $
There
were no unpaid royalties at March 31, 2022. We paid the guaranteed minimum royalty payments of $
In
connection with the Copa APA, we acquired the license to certain patents from 1/4 Vin SARL
(“1/4 Vin”) On February 16, 2018, the CdV entered into three separate license
agreements with 1/4 Vin SARL, (1/4 Vin). 1/4 Vin has the right to license certain patents
and patent applications relating to inventions, systems, and methods used in our manufacturing
process. In exchange for notes payable, 1/4 Vin granted us a nonexclusive, royalty-bearing,
non-assignable, nontransferable, terminable license which would continue until the subject
equipment is no longer in service or the patents expire. Amortization is approximately $31,000
annually until the license agreement is fully amortized. The asset is being amortized over
a
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.
Private Placement Memorandum (PPM)
In
January 2021, the Board of Directors approved a private placement offering of shares of the common stock of the Company, $value per share at a purchase price of $per share for aggregate gross proceeds of $
15
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 5 – Stockholders’ Equity, continued
Stock Plans
2020 Plan
On August 2020, the Board adopted the 2020 Stock Incentive Plan (the “2020 Plan”), which provides for the grant of Options, Restricted Stock Awards, Stock Appreciation Rights, Performance Units and Performance Bonuses to consultants and eligible recipients. The total number of shares that may be issued under the 2020 plan was at the time the 2020 plan was adopted
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
During the three-month period ended March 31, 2022,
the company granted
The fair value of stock options recognized in the period has been estimated using the Black-Scholes option pricing model.
The company did not grant any new options, warrants, or shares in Q1 2022 that would fall under the 2020 plan.
Shareholder Advances and Liability to Issue Stock and Warrants
We have various agreements with consultants in the amount of 0.5 million 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 which will be issued in Q2 2022.
Note 6 – Related Parties
There
are related party notes payable of $
Note 7 – Investment in Salt Tequila USA, LLC
We have a marketing and distribution agreement with SALT Tequila USA, LLC (“SALT”) for the manufacturing of our Tequila product line in Mexico.
We have a
16
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 8 – Operating Lease Obligations
Effective
July 2018, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced
Effective
November 2019, we entered into a new lease with Interport Logistics, LLC. The lease term commenced on
Effective
May 2019, we entered into a new lease in Mexico. The lease commenced
Effective
January 2021, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced
Effective
January 2021, we entered into a lease agreement for the right to use and occupy office and manufacturing space. The lease term commenced
The following table presents the discounted present value of minimum lease payments for our office and warehouses to the amounts reported as financial lease liabilities on the condensed consolidated balance sheet at March 31, 2022:
| Undiscounted Future Minimum Lease Payments | Operating Lease | |||
| 2022 (Nine months remaining) | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total | ||||
| Amount representing imputed interest | ( | ) | ||
| Total operating lease liability | ||||
| Current portion of operating lease liability | ||||
| Operating lease liability, non-current | $ | |||
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 | $ | |||
| Interest of lease liabilities | ||||
| Total operating lease cost | $ | |||
The table below presents lease-related terms and discount rates at March 31, 2022:
| Summary of lease-related terms and discount rates | ||||
| Remaining term on leases | ||||
| Incremented borrowing rate | % |
17
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:
| Preliminary Purchase Accounting | Final Purchase Accounting | |||||||
| Accounts receivable, net | ||||||||
| Other current assets | ||||||||
| Inventory, net | ||||||||
| Property and equipment, net | ||||||||
| License agreement, net | ||||||||
| Brands | ||||||||
| Customer lists | ||||||||
| Goodwill | ||||||||
| Total indentifiable assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Note payable | ||||||||
| Equity | ||||||||
| Total liabilities and equity | ||||||||
18
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 10 – Segment Reporting
The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Executive Officer and Chief Financial Officer.
Note: The CdV business is included in our Splash Beverage Group segment.
| Revenue | 2022 | 2021 | ||||||
| Splash Beverage Group | ||||||||
| E-Commerce | ||||||||
| Total Revenues continuing operations | ||||||||
| Total Revenues discontinuing operations | ||||||||
| Total assets | 2022 | 2021 | ||||||
| Splash Beverage Group | ||||||||
| E-Commerce | ||||||||
Total assets discontinued operations |
||||||||
| Total Assets | ||||||||
Note 11 – Commitment and Contingencies
We are a party to asserted claims and are subject to regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but we do not anticipate that the outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations.
Note 12 – Subsequent Events
None
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The information in this discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements that are not of historical fact may be deemed to be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue”, the negative of the terms or other comparable terminology. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in other reports or registration statements filed with the United States Securities and Exchange Commission. These factors may cause our actual results to differ materially from any forward-looking statements. We disclaim any obligation to publicly update these statements or disclose any difference between actual results and those reflected in these statements.
Unless the context otherwise requires, references in this Form 10-Q to “we,” “us,” “our,” or the “Company” refer to Splash Beverage Group and its subsidiaries.
The following discussion and analysis should be read in conjunction with the Condensed Financial Statements (unaudited) and Notes to Condensed Financial Statements (unaudited) filed herewith.
Business Overview
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 subsidiary Qplash, Splash’s distribution reach includes e-commerce access to both B-to-B and B-to-C customers. Q-plash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilities 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.
20
Results of Operations for the Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021.
Revenue
Revenues for the three months ended March 31, 2022 were $3,926,573 compared to revenues of $2,138,924 for the three months ended March 31, 2021. The $1,787,649 increase in sales is due to an increase from CdV ($505105) and within our vertically integrated B2B and B2C e-commerce distribution platform called Qplash ($1,135,233). Qp;ash sells goods on both Amazon and Shopify. ). Cost of goods sold for the three months ended March 31, 2022 were $3,094,571 compared to cost of goods sold for the three months ended March 31, 2021 of $1,621,504. The $1,473,066 increase in cost of goods sold for the three-month period ended March 31, 2022 is primarily due to our increased sales, and as our sales increased, our cost of sales for those sales correspondingly increased.
Operating Expenses
Operating expenses for the three months ended March 31, 2022 were $6,515,955 compared to $5,066,349 for the three months ended March 31, 2021. The $1,449,606 increase in our operating expenses was primarily a result of recording the warrants issued pursuant to certain private placements conducted by the Company ($888,158), marketing spend ($633,389) and shipping costs ($296,941) offset by other operating expenses. The net loss for the three months ended March 31, 2022 was $5,994,407 as compared to a net loss of $4,442,219 for the three months ended March 31, 2021. The increase in net loss is due to our increase in operating expenses offset by our increase in revenues.
Interest Expense
Interest expenses for the three months ended March 31, 2022 were $85,879 compared to $92,211 for the three months ended March 31, 2021.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
As of March 31, 2022, we had total cash and cash equivalents of $8,495,672, as compared with $4,181,383 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.
Net cash used for operating activities during the three months ended March 31, 2022 was $4,675,886 as compared to the net cash used by operating activities for the three months ended March 31, 2021 of $3,620,039. The primary reasons for the change in net cash used is due to losses sustained and increases in inventory, offset by non-cash expenses relating to warrant expense ($1,242,697) and share-based compensation ($1,112,845).
For the period March 31, 2022 and 2021, did not use or receive cash relating to investing activities.
Net cash provided by financing activities during the three months ended March 31, 2022 was $8,765,000 compared to $4,505,526 provided from financing activities for the three months ended March 31, 2021. During the three months ended March 31, 2022, we received $9,203,074 from investors, which was offset by repayments debt holders of $437,474.
21
CONTRACTUAL OBLIGATIONS
Share obligation:
· The company has a obligation to issue 500K shares to two marketing firms of which the cost associated to 167K shares was accrued for in Q1 2022.
Minimum Royalty Payments:
We have a licensing agreement with ABG TapouT, LLC (“TapouT”). Under the licensing agreement, we have minimum royalty payments to TapouT for the next two years.
| ● | 2022 $653,000 |
| ● | 2023 $653,000 |
Inventory Purchase Commitments:
None.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for Smaller Reporting Companies.
ITEM 4. CONTROLS AND PROCEDURES
| (a) | Evaluation of Disclosure Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities and Exchange Commission Act of 1934 reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As further discussed below, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer concluded that, because of certain material weaknesses in our internal control over financial reporting our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of March 31, 2022.
22
We hired a consultant to advise on technical issues related to U.S. generally accepted accounting principles as related to the maintenance of our accounting books and records and the preparation of our consolidated financial statements. Although we are aware of the risks associated with not having dedicated accounting personnel, we are also at an early stage in the development of our business. We anticipate expanding our accounting functions with dedicated staff and improving our internal accounting procedures and separation of duties when we can absorb the costs of such expansion and improvement with additional capital resources. In the meantime, management will continue to observe and assess our internal accounting function and make necessary improvements whenever they may be required. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements, and we could be required to restate our financial results. In addition, if we are unable to successfully remediate this material weakness and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements.
| (b) | Changes in Internal Controls over Financial Reporting |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our management assessed the effectiveness of the Company’s internal control over financial reporting at March 31, 2022, and this assessment identified some deficiencies in our internal control over financial reporting.
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.
23
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.
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.
24
ITEM 6. EXHIBITS
(a) Exhibits required by Item 601 of Regulation S-K.
25
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: May 16, 2022 | By: | /s/ Robert Nistico |
| Robert Nistico, Chairman and CEO | ||
| (principal executive officer) | ||
| Date: May 16, 2022 | By: | /s/ Ron Wall |
| Ron Wall, CFO | ||
| (principal accounting officer and principal financial officer) | ||
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