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SPLASH BEVERAGE GROUP, INC. - Quarter Report: 2021 March (Form 10-Q)

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

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

 

For the transition period from _______ to _________

 

Commission File No. 000-55114

 

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

 

Colorado   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
N/A   N/A   N/A

 

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

x Yes        o No

 

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

x Yes        o No

 

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

 

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

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. x

 

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

o Yes     x No

 

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

 

As of May 12, 2021, there were 80,212,883 shares of Common Stock issued and outstanding.

 

 

 

 

SPLASH BEVERAGE GROUP, INC.
FORM 10-Q
March 31, 2020
 

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 Deficiency 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 22
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 24
ITEM 4: CONTROLS AND PROCEDURES 24
PART II: OTHER INFORMATION  
ITEM 1 LEGAL PROCEEDINGS 25
ITEM 1A: RISK FACTORS 25
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 26
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 26
ITEM 4: MINE SAFETY DISCLOSURES 26
ITEM 5: OTHER INFORMATION 26
ITEM 6: EXHIBITS 27
SIGNATURES 28

i

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Splash Beverage Group, Inc. 
Condensed Consolidated Financial Statements

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Splash Beverage Group, Inc.
Condensed Consolidated Balance Sheets
March 31, 2021 and December 31, 2020
(Unaudited)

 

   March 31, 2021  December 31, 2020
Assets          
Current assets:          
Cash and cash equivalents  $1,225,406   $380,000 
Accounts Receivable, net   803,052    484,858 
Prepaid Expenses   148,456    173,414 
Inventory   868,663    798,273 
Other receivables   93,424    90,919 
Assets of discontinued operations   357,893    316,572 
Total current assets   3,496,894    2,244,036 
           
Non-current assets:          
Deposits  $275,694   $77,686 
Goodwill   5,672,823    5,672,823 
Investment in Salt Tequila USA, LLC   250,000    250,000 
Right of use asset, net   1,161,476    80,479 
Quart Vin License, net   211,762    219,512 
Property and equipment, net   641,291    681,352 
Total non-current assets   8,213,045    6,981,852 
           
Total assets  $11,709,940   $9,225,888 
           
Liabilities and Deficiency in Stockholders’ Equity          
           
Liabilities:          
 Current liabilities          
Accounts payable and accrued expenses  $1,090,986   $1,521,818 
Right of use liability - current   270,771    57,478 
Due to related parties   252,904    368,904 
           
Related party notes payable   1,331,762    1,333,333 
Convertible Loan Payable   100,000    100,000 
Notes payable, current portion   837,477    999,736 
           
Shareholder advances   416,201     
Accrued interest payable   469,001    442,748 
Liabilities of discontinued operations   592,882    591,642 
Total current liabilities   5,361,984    5,415,659 
           
Long-term Liabilities:          
Related party notes payable - noncurrent   332,940    666,667 
Notes payable - noncurrent   1,240,044    1,240,044 
Liability to issue shares in APA   1,980,000    1,980,000 
Right of use liability - noncurrent   890,939    25,521 
Total long-term liabilities   4,443,923    3,912,232 
           
Total liabilities   9,805,907    9,327,891 
           
Common stock, (mezzanine shares) 0 and 12,605,283 shares, contingently convertible to notes payable at March 31, 2021 and December 31, 2020       9,248,720 
           
Stockholders’ equity:          
Common Stock, $0.001 par, 150,000,000 shares authorized, 80,104,839 and 63,471,129 shares issued and outstanding, at March 31, 2021 and December 31, 2020.   80,105    63,471 
Additional paid in capital   67,855,882    52,175,541 
           
Accumulated deficit   (66,031,954)   (61,589,735)
Total deficiency in stockholders’ equity   1,904,033    (9,350,724)
           
Total liabilities, mezzanine shares and deficiency in stockholders’ equity  $11,709,940   $9,225,888 

 

     

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, 2021 and March 31, 2020
(Unaudited)

 

   Three months ended March 31,
   2021  2020
Net revenues  $2,417,701   $112,003 
Cost of goods sold   (1,742,875)   (107,214)
Gross margin   674,826    4,789 
           
Operating expenses:          
Contracted services   276,511    257,981 
Salary and wages   2,020,447    241,676 
Other general and administrative   2,727,513    1,031,264 
Sales and marketing   41,878    23,012 
Total operating expenses   5,066,349    1,553,933 
           
Loss from operations   (4,391,523)   (1,549,144)
           
Other income/(expense):          
           
Interest income   114    16,151 
Interest expense   (92,211)   (1,913,637)
Gain from debt extinguishment   1,319     
Total other income/(expense)   (90,778)   (1,897,486)
           
Provision for income taxes        
           
Net loss from continuing operations   (4,482,301)   (3,446,630)
           
Net income from discontinued operations, net of tax   40,082     
           
Net loss  $(4,442,219)  $(3,446,630)
           
Earnings//(Loss)per share (basic diluted)          
Continuing operations   (0.06)   (0.08)
           
Weighted average number of common shares outstanding   73,927,596    44,021,393 

 

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

3

 

 

Splash Beverage Group, Inc.

Consolidated Statement of Changes in Deficiency in Stockholders’ Equity

For the three months ended March 31, 2021 and 2020 

 

                     Total
   Common Stock  Treasury Stock  Additional  Accumulated  Stockholders’
   Shares  Amount  Shares  Amount  Paid-In Capital  Deficit  Equity (Deficit)
                      
Balances at December 31, 2019   44,021,389    44,021    136,293   $(50,000)  $22,095,403   $(31,845,506)  $(9,756,083)
                                    
Issuance of common stock for convertible debt                   145,579        145,579 
Incremental beneficial conversion for preferred A                   240,770    (240,770)    
Issuance of warrants on convertible instruments                   2,486,706    (828,903)   1,657,803 
Issuance of options                                   
Issuance of common stock for services   817,753    818    (136,293)   50,000    549,182        600,000 
Issuance of common stock for cash                                   
Issuance of common stock for acquisition   11,913,200    11,913            9,161,251        9,173,164 
Net loss                       (3,446,630)   (3,446,630)
                                    
Balances at March 31, 2020   56,752,342    56,752            34,678,891    (36,361,809)   (1,626,167)
                                    
Issuance of warrants on convertible instruments                   8,996,844        8,996,844 
Issuance of options                            
Issuance of common stock for services   1,159,900    1,160            3,014,580        3,015,740 
Issuance of common stock for cash   1,736,356    1,736            1,401,016        1,402,753 
Net loss                        (22,570,893)   (22,570,893)
                                    
Balances at December 31, 2020   63,471,129    63,471       $   $52,175,541   $(61,589,735)  $(9,350,725)
                                    
Issuance of warrants for services                   1,186,596        1,186,596 
Issuance of common stock for services   505,000    505            730,530        731,035 
Issuance of common stock and warrants for cash   3,523,427    3,523            4,527,101        4,530,624 
Mezzanine shares   12,605,283    12,605            9,236,115        9,248,720 
Net loss                       (4,442,219)   (4,442,219)
                                    
Balances at March 31, 2021   80,104,839    80,105       $   $67,855,882   $(66,031,954)  $1,904,032 

   

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

4

 

Splash Beverage Group, Inc.
Consolidated Statement Cash Flows
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)

 

   Three months ended March 31,
   2021  2020
Net loss  $(4,442,219)  $(3,446,630)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   40,061    2,294 
ROU asset, net   36,445    20,192 
Gain from debt extinguishment       (763)
Interest on notes payable converted to common stock       231,692 
Interest expense due to the issuance of warrants       1,657,805 
Non-cash warrant expense   1,186,596     
Share-based compensation   731,035    600,000 
Other noncash changes   (362,515)   (14,400)
Changes in working capital items:          
Accounts receivable, net   (318,194)   (80,198)
Inventory, net   (70,391)   (153,836)
Prepaid expenses and other current assets   22,453    2,467 
Deposits       190 
Accounts payable and accrued expenses   (430,831)   226,187 
Royalty payable       6,000 
Accrued Interest payable   26,253    24,140 
Net cash used in operating activities - continuing operations   (3,581,308)   (924,860)
           
Net cash used in operating activities - discontinued operations   (40,082)     
           
Cash Flows from Investing Activities:          
Capital Expenditures       (2,419)
Investment in Salt Tequila USA, LLC       (150,000)
Net cash used in investing activities - continuing operations       (79,977)
           
Net cash used in investing activities - discontinued operations       72,442 
           
Cash Flows from Financing Activities:          
Proceeds from issuance of Common stock   4,530,624    1,500,000 
Cash advance from shareholder   416,201    240,000 
Repayment of cash advance   (107,966)   (120,000)
Principal repayment of debt   (333,333)   (18,000)
ROU liability, net   (38,731)   (19,788)
Net cash provided by financing activities - continuing operations   4,466,796    1,582,212 
           
Net cash provided by financing activities - discontinued operations        
           
Net Change in Cash and Cash Equivalents   845,406    577,375 
           
Cash and Cash Equivalents, beginning of year   380,000    42,639 
           
Cash and Cash Equivalents, end of year  $1,225,406   $620,014 
           
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 (12,605,283 shares)       9,248,721 
Series A & B preferred stock and declared dividends converted to common stock       14,587,623 
Liability issued for investment in SALT Tequila USA, LLC       100,000 

    

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

 

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

 

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

 

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

  

Splash specializes in the manufacturing, distribution, and sales & marketing of various beverages across multiple channels. Splash operates in both the non-alcoholic and alcoholic beverage segments. Additionally, Splash operates its own vertically integrated B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilities and visibility.

 

On July 2, 2020, CMS received a Certificate of Good Standing from the State of Colorado. This certificate allowed us to change our name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc. a Colorado company. On July 31, 2020, we received approval from FINRA to change the Company’s name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc. Our new ticker symbol is SBEV.

 

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

 

On February 2021, Management initiated a plan to divest its CMS business. As a result, the assets and operations of CMS are reflected as discontinued operations.

  

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation

These consolidated financial statements include the accounts of Splash Beverage Group and its wholly owned subsidiaries, Holdings and Splash Mex, CMS (as discontinued operations), and Copa. 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 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, 2021 and 2020 have been made.

 

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

 

Use of Estimates

The preparation of 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 no cash equivalents at March 31, 2021 or December 31, 2020.

 

Our cash in bank deposit accounts, at times, may exceed federally insured limits of $250,000. At March 31, 2021 we had $511,146 over the federally insured limits. Our bank deposit accounts in Mexico $2,447 are uninsured.

6

 

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 collectible 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, 2021 and December 31, 2020, our accounts receivable amounts are reflected net of allowances of $6,507 and $0, 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, 2021 and December 31, 2020 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 $355,780 and $366,109 at March 31, 2021 and December 31, 2020, respectively.

  

Property and Equipment

We record property and equipment at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic useful lives of assets, which range from 3-39 years. 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 $43,487 and $2,294 for the three months ended March 31, 2021 and March 31, 2020, respectively. Property and equipment as of March 31, 2021 and December 31, 2020 consisted of the following:

 

    March 31, 2021     December 31, 2020  
Property and equipment, at cost     2,076,710       718,884  
Accumulated depreciation     (1,435,419 )     (37,532 )
Property and equipment, net     641,291       681,352  

 

Excise taxes

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

 

Paycheck Protection Program

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

7

 

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 consolidated financial statements approximate fair values at March 31, 2021 and December 31, 2020, consistent with recent negotiations of notes payable and due to the short duration of maturities.

 

8

 

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 products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

 

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 option vesting period.  We use the Black-Scholes option pricing model to determine the fair value of stock options.  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 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, 2021 and December 31, 2020.

9

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Net income (loss) per share

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

 

Numerator  2021  2020
Net loss from continuing applicable to common shareholders  $(4,482,301)  $(3,446,630)
           
Earnings from discontinued applicable to common shareholders  $40,082   $ 
           
Denominator          
Weighted average number of common shares outstanding   73,927,596    44,021,393 
           
Net loss per share from continuing operations (basic diluted)  $(0.06)  $(0.08)
           
Net income per share from discontinued operations (basic diluted)  $0.00   $0.00 

 

Weighted average number of shares outstanding excludes anti-dilutive common stock equivalents, including warrants to purchase 3 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 $47,785 and $23,012 for the three-months ended March 31, 2021 and 2020, respectively.

  

Goodwill

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. During 2020, the company recorded an impairment charge associated with the CMS acquisition. See Note 16.

 

Long-lived assets

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

 

Recent Accounting Pronouncements

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

 

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

 

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

 

Note 3 – Going Concern

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  Our business operations have not yet generated significant revenues, and we have sustained net losses of approximately $4.4 million during the three months ended March 31, 2021 and have an accumulated deficit of approximately $66.0 million at March 31, 2021. In addition, we have current liabilities in excess of current assets of approximately $1.9 million at March 31, 2021. Further, we are in default on approximately $0.9 million of indebtedness, including accrued interest.

 

Our ability to continue as a going concern in the foreseeable future is dependent upon our ability to generate revenues and obtain sufficient long-term financing to meet current and future obligations and deploy such to produce profitable operating results. Management has evaluated these conditions and plans to raise capital as needed and to generate revenues to satisfy our capital needs. No assurance can be given that we will be successful in these efforts.

 

These factors, among others, raise substantial doubt about our ability to continue as a going concern for a reasonable period of time. These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

10

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

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

 

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

 

   Interest Rate  March 31, 2021  December 31, 2020
Notes Payable               
                
In February 2014, we entered into a 12-month term loan agreement with an individual in the amount of $200,000. The note included warrants for 66,146 shares of common stock at $0.73 per share. The warrants expired on February 28, 2017 and none were exercised at that date. The note matured and remains in default.   15%    150,000    150,000 
                
                
In March 2014, we entered into a short-term loan agreement with an entity in the amount of $200,000. The note included warrants for 272,584 shares of common stock at $0.94 per share. The warrants expired on February 28, 2017 and none were exercised at that date. The loan matured and remains in default.   8%    200,000    200,000 
                
In May 2020, we entered into a two year loan with the SBA under the Paycheck Protection Program established by the CARES Act in the amount of $94,833. The note requires monthly payments of principal and interest starting in December 2020 and maturing in May 2021. See note 13.   1%    94,833    89,612 
                
In June 2020, we entered into a six-month loan with an individual in the amount of $100,000. The loan matures in December 2020 with principal and interest due at maturity.   12%        100,000 
In August 2020, we entered into a nine-month loan with a company in the amount of $112,000. The loan requires 9 amortized payments of principal and interest in the amount of $12,246 with the final payment due September 2020.   4.8%    25,238    62,719 
Notes payable for license agreements due in 36 monthly payments of $10,000, interest imputed at 10%, maturing in January 2021.   10.0%    29,212    59,212 
In December 2020, we entered into a 56 month loan with a company in the amount of $1,578,237. The loan requires payments of 3.75% of the previous months revenue.   Various    1,578,237    1,578,237 
                
                
    Total notes payable   $2,077,520   $2,239,780 
                
    Less current portion    (837,477)   (999,736)
                
    Long-term notes payable   $1,240,044   $1,240,044 

     

Interest expense on notes payable was $9,625 and $49,430 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest was $273,880 at March 31, 2021.

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Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

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

 

Related Parties Notes Payable            
                 
  In December 2020, we entered into a 18 month loan with an individual in the amount of $2,000,000. The loan requires 18 monthly amortized payments of principal and interest in the amount of $144,444 with the final payment due June 2022.    2.0%              1,664,702                    2,000,000
                 
                 
        Less current portion             (1,331,762)                  (1,333,333)
                 
        Long-term notes payable    $           332,940    $                666,667

 

Interest expense on related party notes payable was $0 and $37,967 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest was $0 as of March 31, 2021.

12

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

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

 

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

13

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

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

 

Interest expense on the convertible bridge loans payable was $32,000 and $93,785 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest was $179,215 at March 31, 2021.

 

On April 24, 2017, a note holder filed a complaint against the Company for a promissory note in default. The note holder is requesting summary judgment in the amount of $279,215.

 

14

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 5 – Licensing Agreement and Royalty Payable

 

We have a licensing agreement with ABG TapouT, LLC (“TapouT”), providing us with licensing rights to the brand “TapouT” on energy drinks, energy shots, water, teas and sports drinks for beverages sold in the United States of America, its territories, possessions, U.S. military bases and Mexico. Under the terms of the agreement, we are required to pay a 6% royalty on net sales, as defined. In 2021 and 2020, we are required to make monthly payments of $49,500 and $45,000, respectively.

 

There were no unpaid royalties at March 31, 2021. We paid the guaranteed minimum royalty payments of $148,500 and $135,000 for the three-months ended March 31, 2021 and 2020, which is included in general and administrative expenses.

 

In connection with the Copa APA, we acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, the Copa di Vino entered into three separate license agreements with 1/4 Vin SARL, (1/4 Vin). 1/4 Vin has the right to license certain patents and patent applications relating to inventions, systems, and methods used in the Company’s manufacturing process. In exchange for notes payable, 1/4 Vin granted the 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 will be approximately $31,000 annually until the license agreement is fully amortized. The asset is being amortized over a 10-year useful life.

 

Note 6 – Deficiency in Stockholders’ Equity

 

Common Stock

At March 31, 2020, we issued 817,753 shares of common stock in exchange for services provided to us. The shares were valued at $0.73 per share. We recognized share-based compensation expense of $600,000, which is classified within the contracted services line on the Statement of Operations. At March 31, 2021, we issued 505,000 shares of common stock in exchange for services provided to us. The shares were valued at a fair market value stock price based on the agreement date. We recognized share-based compensation expense of $731,035, which is classified within the contracted services line on the Statement of Operations.

15

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 6 – Deficiency in Stockholders’ Equity, continued

 

Private Placement Memorandum (PPM)

Our Board of Directors has determined that it is in the best interests of the Corporation and its stockholders to obtain working capital by conducting a private placement offering of 3,636,364 shares of the common stock of the Company, $0.001 value per share at a purchase price of $1.10 per share for aggregate gross proceeds of $4,000,000. As part of the PPM, each purchaser received a warrant to purchase one share for every two shares purchased. In February 2021, we completed our PPM by issuing a total of 3,637,065 of shares and warrants with gross proceeds of $4,000,771.

 

Treasury Stock

Since its inception, we have repurchased shares from our shareholders. To date, we have repurchased 1,226,630 shares, of which 817,753 have been retired.

 

In connection with a 2018 consulting agreement, we are committed to issue the 408,877 shares held in treasury upon the occurrence of certain events or milestones. We issued 136,292 shares in July 2018, 136,292 shares in July 2019 and 136,292 shares at March 31, 2020.

 

Warrant Issuance-Series A Convertible Preferred Stock

As an incentive to convert their Series A preferred stock we issued 1,000,000 new warrants to the holders of our Series A preferred stock to purchase shares of SBG common stock at $0.18 per share. Concurrently with the consummation of the Merger, these warrants were exchanged for warrants to purchase 1,362,922 of Splash Beverage Group, Inc. shares all of which were outstanding as of March 31, 2021. These warrants have a 3-year term.

 

Warrant Issuance-Series B Convertible Preferred Stock

As part of the sale and issuance of 5,333,675 shares of our Series B Convertible Preferred Stock, we issued 2,666,839 warrants to purchase shares our common stock at a price of $1.10 per share. The warrants have a 5-year term. At March 31, 2021, there are 565,819 warrants outstanding.

16

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 7 – Share-Based Payments

 

Warrant Issuance-GMA Consulting Services

We issued 1,362,922 warrants to purchase shares of our common stock at $0.007 per share as part of our consulting agreement with GMA, at December 31, 2019.

 

The warrants entitle the holder to purchase one share per warrant of the Company’s common stock at a price of $0.01 per share during the five-year period commencing on October 2, 2018, or, if greater, the number of common shares with a market value equivalent to two percent of the enterprise value of the Company at an exercise price of $0.008 per share.

 

As an incentive for GMA to convert their debt and accrued interest into shares of common stock, we retired the original 1,362,922 warrants and issued 2,725,844 pre-merger new warrants to purchase shares of our common stock at $0.18 per share. These warrants have a 3-year term and remain outstanding as of March 31, 2021.

 

Stock Plan

We have adopted the 2012 Stock Incentive Plan for SBG (the “Plan”), which provides for the grant of common stock and stock options to employees. We have reserved 4,088,765 shares for issuance under the Plan. The option exercise price generally may not be less than the underlying stock’s fair market value at the date of the grant and generally have a term of ten years. On December 7, 2019, our Board of Directors granted 1,124,410 options to certain employees and consultants. None of these options were exercised at March 31, 2021. As of March 31, 2021, the total number of options available for grant is 306,657 under this plan.

 

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

  

Concurrently with the consummation of the Merger, options to purchase 825,000 SBG shares were converted to options to purchase 1,124,410 Splash Beverage Group, Inc. shares. 

 

       Weighted Average 
   Options   Exercise Price 
Outstanding - Beginning of 2021   3,758,910   $0.76 
Granted   -   $- 
Exercised   -   $- 
Cancelled/forfeited   -   $- 
Outstanding - March 31, 2021   3,758,910   $0.76 
           
Exercisable at March, 31 2021   3,758,910   $0.76 
           
Weighted average grant date fair value of options during year   -      
           
Weighted average duration to expiration of outstanding options at March 31, 2021   4.3      

17

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

In August 2020, we adopted a new incentive plan. The 2020 Long-Term Incentive Compensation Plan (the “Plan”) is established by Splash Beverage Group, Inc., a Colorado corporation (the “Company”), to create incentives which are designed to motivate Participants to put forth maximum effort toward the success and growth of the Company and to enable the Company to attract and retain experienced individuals who by their position, ability and diligence are able to make important contributions to the Company’s success. Toward these objectives, the Plan provides for the grant of Options, Restricted Stock Awards, Stock Appreciation Rights (“SARs”), Performance Units and Performance Bonuses to Eligible Employees and the grant of Nonqualified Stock Options, Restricted Stock Awards, SARs and Performance Units to Consultants and Eligible Directors, subject to the conditions set forth in the Plan. At December 31, 2020, the board approved the granting of 2,634,500 warrants were issued under this new plan. These warrants expire in 5 years.

 

Note 8 – Related Parties

 

During the normal course of business, we incurred expenses related to services provided by our CEO or Company expenses paid by our CEO, resulting in related party payables, net of $252,904 at March 31, 2021. The related party payable to the CEO bears no interest payable and is due on demand. We also assumed a $50,000 note for the President of WesBev who is the majority shareholder of SBG.

 

There are related party notes payable of $1.6 million outstanding as of March 31, 2021 as discussed in Note 4.

 

Note 9 – Investment in Salt Tequila USA, LLC

 

On December 9, 2013, we entered into a marketing and distribution agreement with SALT Tequila USA, LLC (“SALT”) in Mexico for the manufacturing of our product line. The agreement was for a one-year term with an additional two-year renewal. On December 28, 2015, the agreement was extended through 2020. In the December 9, 2013 agreement, we received a 5% ownership interest in SALT, 12 months after the date of the agreement we received an additional 5% ownership interest in SALT, and 24 months after the date of the agreement we received an additional 5% interest, resulting in a total interest of 15% in SALT.

 

SALT also has sold product to an unrelated international alcohol distributor, American Spirits Exchange, for preliminary market testing in 9 of 16 states that they distribute to, that are government-controlled alcohol resellers. In 2019 we had no sales for SALT Tequila. On December 31, 2018, we created a Mexican subsidiary, Splash MEX SA DE CV (“Splash Mex”) for the exporting of SALT Tequila from Mexico to the USA, South and Central Americas. Splash Mex will also act as the manufacturing and distribution agent of TapouT in Central and South Americas. Applications for the appropriate licenses required for import and wholesale of alcohol in the USA have been completed for at the Federal and State levels. These licenses will permit direct alcohol sales to distributors and wholesalers thereby limiting the use of agents for importing SALT Tequila to the USA for distribution.

 

On March 26, 2020, we entered into a new amended stock sale and purchase agreement. The agreement is for $1,000,000 to be paid in 4 tranches of $250,000 and entitles us to receive additional equity interest in Salt Tequila USA, LLC as follows: 

 

  Tranche 1 – 7.5%

Tranche 2 – 5.0%

  Tranche 3 – 5.0%

  Tranche 4 – 5.0%

 

Once all tranches are paid-out we will have a total equity stake of 37.5% of Salt Tequila USA, LLC.

 

During 2020, we paid the first tranche of $250,000 resulting in a total interest of 22.5%.

18

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 10 – Operating Lease Obligations 

 

Effective July 2018, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced July 1, 2018 and is scheduled to expire after 36 months, on June 30, 2021.

 

Effective November 2019, we entered into a 6-month lease agreement for our NY affiliate which expired on April 30, 2020.

 

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

 

Effective May 2019, we entered into a new lease in Mexico. The lease commenced May 1, 2019 and is scheduled to expire after 24 months, on April 1, 2021. We are in the process of negotiating a new lease for our Mexican warehouse.

 

Effective January 2021, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced January 18, 2021 and 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, 2021 and is scheduled to expire after 60 months, on December 31, 2025.

 

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 consolidated balance sheet at March 31, 2021:

 

Undiscounted Future Minimum Lease Payments   Operating Lease
     
2021 (nine months)     $ 246,339  
2022       294,347  
2023       252,000  
2024       252,000  
2025       249,357  
Total       1,294,043  
Amount representing imputed interest       (132,333 )
Total operating lease liability       1,161,710  
Current portion of operating lease liability       270,771  
Operating lease liability, non-current     $ 890,939  

   

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

  

Operating lease cost:    
Amortization of leased assets  $211,913 
Interest of lease liabilities   26,825 
Total operating lease cost  $238,738 

 

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

  

Remaining term on leases   1 to 57 months
Incremented borrowing rate   5.0%

19

 

Splash Beverage Group, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 11 – Line of Credit

 

At December 31, 2020 SBG owed $68,000 to a financial institution under a revolving line of credit. The line of credit is secured by the assets of SBG is due on demand, and bears interest at variable rates approximately 6.1% at December 31, 2020. As part of the acquisition of Copa di Vino the LOC was paid off.

 

Note 12 – PPP Loan

 

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

 

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

 

As of March 31, 2021, we have a balance of $94,833. In April 2021, we received notification of forgiveness for the entire outstanding balance.

 

Note 13 – Business Combinations

 

As stated in Note 1, we consummated the merger of CMS on March 31, 2020 which was accounted for as a reverse merger.

 

The value of our merger was approximately $9.2 million based on the valuation of the CMS equity on the date of consummation.

 

The following summarizes our allocation of the purchase price for the acquisition: 

 

Cash and cash equivalents  $72,442 
Accounts receivable  311,586 
Inventory  21,415 
Property and equipment  38,110 
Goodwill  9,448,832 
Accounts payable, accrued expenses and other liabilities  719,221 
Purchase price  $9,173,164 

 

During 2020, the goodwill associated with the CMS merger was impaired. See Note 16.

 

SBG-Copa Acquisition:

 

As stated in Note 1, we consummated the acquisition of Copa di Vino Company 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, for total consideration of approximately $6.0 million.

 

The following summarizes our allocation of the purchase price for the acquisition:

 

  Purchase
Accounting
 
Accounts receivable, net   88,131 
Other current assets   11,236 
Inventory   273,951 
Property and equipment, net   663,273 
License agreement, net   222,095 
Goodwill   5,672,823 
Total identifiable assets   6,931,509 
      
Accounts payable and accrued expenses   882,279 
Note payable   69,212 
Equity   5,980,000 
Total liabilities and equity   6,931,509 

20

 

Note 14 – Segment Reporting

 

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

 

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

 

Revenue    2021     2020 
Splash Beverage Group   825,742    112,003 
E-Commerce   1,313,182    - 
Medical Devices - Discontinued   278,777    - 
           
Total Revenues   2,417,701    112,003 

 

Total assets  2021  2020
Splash Beverage Group   10,605,847    8,403,670 
E-Commerce   746,198    505,646 
Medical Devices - Discontinued   357,893    316,572 
           
Total Assets   11,709,940    9,225,888 

  

Note 15 – 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.

 

Capital Raise

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

 

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

 

Stock Price Guarantee

We have a commitment to issue additional shares associated with specific stock price guarantee granted to an investor. See Note 4.

 

Note 16 – Goodwill

 

In accordance with ASC 350, Intangibles—Goodwill and Other, we test goodwill for impairment for each reporting unit on an annual basis, or when events or circumstances indicate the fair value of a reporting unit is below its carrying value.

 

Our goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in business combinations. The goodwill generated from the business combinations is primarily related to the value placed on the employee workforce and expected synergies. Judgment is involved in determining if an indicator or change in circumstances relating to impairment has occurred. Such changes may include, among others, a significant decline in expected future cash flows, a significant adverse change in the business climate, and unforeseen competition.

 

We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit. Factors we consider in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of its reporting units, sustained decrease in its share price, and other relevant entity specific events. If the management determines on the basis of qualitative factors that the fair value of the reporting unit is more likely than not less than the carrying value, then we perform a quantitative test for that reporting unit. The fair value of each reporting unit is compared to the reporting unit’s carrying value, including goodwill. Subsequent to the adoption on January 1, 2017 of Accounting Standards Update (“ASU”) No. 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment, if the fair value of a reporting unit is less than its carrying value, we recognize an impairment equal to the excess carrying value, not to exceed the total amount of goodwill allocated to that reporting unit.

 

At December 31, 2020, our management determined that an impairment charge of approximately $9.5 million, was necessary to reduce the goodwill relating to our Medical Device Segment the impairment charge was primarily related to the net cash flow projection of that business unit.

 

Note 17 – Subsequent Events

 

In April 2021, SBG received notification that its PPP loan has been forgiven in full.

 

In April 2021 we filed a registration statement on Form S-1 for the sale of up to $60 million of common stock.

  

In May 2021, our board of directors approved the Company to increase the amount of authorized shares from 150,000,000 to 250,000,000. In addition, the board has approved the Company the right to affect a reverse stock split with a range from 1 to 1.5 up to 1 to 10. The Company’s Articles of Incorporation have not yet been amended with respect to either of the a above-referenced actions.

 

In May 2021, we received $718,000 in convertible notes which has an annual interest rate of 7%. All notes mature October 2021.

  

21

 

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 Beverage Group (“SBG”), f/k/a Canfield Medical Supply, Inc. (the “CMS”), was incorporated in the State of Ohio on September 3, 1992, and changed domicile to Colorado on April 18, 2012.

 

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

 

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

 

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

 

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

 

Splash specializes in the manufacturing, distribution, and sales & marketing of various beverages across multiple channels. Splash operates in both the non-alcoholic and alcoholic beverage segments. Additionally, Splash operates its own vertically integrated B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilities and visibility.

 

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

 

On December 24, 2020, SBG consummated an Asset Purchase Agreement(the “APA”) 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.

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

 

Revenue

 

Revenues for the three months ended March 31, 2021 were $2,417,701 compared to revenues of $112,003 for the three months ended March 31, 2020. The $2,305,698 increase in sales is due to an increase within our vertically integrated B2B and B2C e-commerce distribution platform called Qplash ($1,313,182). This platform sells goods on both Amazon and Shopify. In addition, we had increased sales from our single-serve wine business ($742,355). Cost of goods sold for the three months ended March 31, 2021 were $1,742,875 compared to cost of goods sold for the three months ended March 31, 2020 of $107,214. The $1,635,661 increase in cost of goods sold for the three-month period ended March 31, 2021 is primarily due to our increased sales, and as our sales increased, our cost of sales for those sales correspondingly increased.

 

Operating Expenses

 

Operating expenses for the three months ended March 31, 2021 were $5,066,349 compared to $1,553,933 for the three months ended March 31, 2020. The $3,512,416 increase in our operating expenses was primarily a result of recording the warrants issued pursuant to certain private placements conducted by the Company, increased headcount from the Copa acquisition and the addition of new sales reps, professional fees ($1,100,000) and shipping costs ($325,160). The net loss for the three months ended March 31, 2021 was $4,442,219 as compared to a net loss of $3,446,630 for the three months ended March 31, 2020. The decrease 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, 2021 were $92,211 compared to $1,913,637 for the three months ended March 31, 2020. The $1,821,426 decrease in our interest expenses was primarily a result of recording a finance charge of $1,821,426   associated with warrants issued to one of our note holders in Q1 2020.

 

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, 2021, we had total cash and cash equivalents of $1,225,406, as compared with $380,000 at December 31, 2020. The increase is primarily due to cash received from private placements conducted by us.

 

Net cash used for operating activities during the three months ended March 31, 2021 was $3,581,308 as compared to the net cash used by operating activities for the three months ended March 31, 2020 of $924,860. 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 ($1,186,596) and share-based compensation ($731,035).

 

Net cash used for investing activities during the three months ended March 31, 2021 was $0 as compared to the net cash used by operating activities for the three months ended March 31, 2020 of $152,419. The net cash used in the first quarter of 2020 was primarily due to the $150,000 payment made to SALT Tequila USA.

 

Net cash provided by financing activities during the three months ended March 31, 2021 was $4,466,796 compared to $1,582,212 provided from financing activities for the three months ended March 31, 2020. During the three months ended March 31, 2021, we received $4,946,825 from investors, which was offset by repayments to shareholders and debt holders of $441,299.

 

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CONTRACTUAL OBLIGATIONS

 

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.

 

  2021     $594,000

  2022     $653,400

 

Inventory Purchase Commitments: 

 

None.

 

Off-Balance Sheet Arrangements

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for Smaller Reporting Companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a)Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

We hired a consulting firm 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

 

There has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS

 

The COVID-19 pandemic has had, and we expect will continue to have, certain negative impacts on our business and operations, and such impacts may have a material adverse effect on our business and results of operations.

 

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

 

  Deteriorating economic conditions and financial uncertainties in many of our major markets due to the COVID-19 pandemic, such as increased and prolonged unemployment, decreases in per capita income and the level of disposable income, declines in consumer confidence, or economic slowdowns or recessions, could affect consumer purchasing power and consumers’ ability to purchase our products, thereby reducing demand for our products. In addition, public concern among consumers regarding the risk of contracting COVID-19 may also reduce demand for our products.
  The closure of on-premise retailers and other establishments that sell our products as a result of the COVID-19 pandemic may also adversely impact our sales and results of operations.
  Our advertising, marketing, promotional, sponsorship and endorsement activities have been, and will continue to be, disrupted by reduced opportunities for such activities due to measures taken to limit the spread of the COVID-19 pandemic and the cancellations of sporting events, concerts and other events may result in decreased demand for our products. Our product sampling programs, which are part of our strategy to develop brand awareness, have been, and will continue to be, disrupted by the COVID-19 pandemic. If we are unable to successfully adapt to the changing landscape of advertising, marketing, promotional, sponsorship and endorsement opportunities created by the COVID-19 pandemic, our sales, volume growth and overall financial results could be negatively affected.
  Our innovation activities, including our ability to introduce new products in certain markets, have been delayed and/or adversely impacted by the COVID-19 pandemic. If such innovation activities are disrupted and we continue to delay the launch of new products and/or we are unable to secure sufficient distribution levels for such new products, our business and results of operations could be adversely affected.
  Some of our suppliers, bottlers/distributors and co-packers may experience plant closures, production slowdowns and disruptions in operations as a result of the impact of the COVID-19 pandemic. This could result in a disruption to our operations.
  We may experience delays in the sourcing of certain raw materials as a result of shipping delays due to, among other things, additional safety requirements imposed by port authorities, closures of or congestion at ports, reduced availability of commercial transportation, border restrictions and capacity constraints.
  As a result of the COVID-19 pandemic, including related governmental measures, restrictions, directives and guidance, we have required most of our office-based employees to work remotely. We may experience reductions in productivity and disruptions to our business routines while our remote work policy remains in place. If our employees working remotely do not maintain appropriate measures to mitigate potential risks to our technology and operations from information technology-related disruptions, we may face cybersecurity threats. Employees of our third-party service providers who are working remotely, with whom we may share data, are subject to similar cybersecurity risks. 
  Governmental authorities at the U.S. federal, state and/or municipal level and in certain foreign jurisdictions may increase or impose new income taxes, indirect taxes or other taxes or revise interpretations of existing tax rules and regulations as a means of financing the costs of stimulus or may take other measures to protect populations and economies from the impact of the COVID-19 pandemic. Increases in direct and indirect tax rates could affect our net income, and increases in consumer taxes could affect our products’ affordability and reduce our sales.
  We may be required to record significant impairment charges with respect to goodwill or intangible assets whose fair values may be negatively affected by the effects of the COVID-19 pandemic.
  The financial impact of the COVID-19 pandemic may cause one or more of the financial institutions we do business with to fail or default in their obligations to us or to become insolvent or file for bankruptcy, which could cause us to incur significant losses and negatively impact our results of operations and financial condition.
  Actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic may result in negative publicity and the Company becoming a party to litigation claims and/or legal proceedings, which could consume significant financial and managerial resources, result in decreased demand for our products and injury to our reputation.
  The resumption of normal business operations after the disruptions caused by the COVID-19 pandemic may be delayed or constrained by its lingering effects on our suppliers, bottlers/distributors, co-packers, contractors, business partners and other service providers.

 

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

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

No disclosure required.

 

ITEM 5. OTHER INFORMATION

 

None.

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ITEM 6. EXHIBITS

 

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

 

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

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SIGNATURES

 

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

 

  SPLASH BEVERAE GROUP, INC.
     
Date: May 12, 2021 By: /s/ Robert Nistico
    Robert Nistico, Chairman and CEO
     
Date: May 12, 2021 By: /s/ Dean Huge
    Dean Huge, CFO

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