The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial
Statements
Note 1 – Business Organization and Nature of Operations
Splash
Beverage Group, Inc. (the “Company”, “Splash”) seeks to identify, acquire, and build early stage or under-valued
beverage brands that have strong growth potential within its distribution system. Splash’s distribution system is comprehensive
in the US and is now expanding to select attractive international markets. Through its division Qplash, Splash’s distribution reach
includes e-commerce access to both business-to-business (B2B) and business-to-consumer (B2C) customers. Qplash markets well known beverage
brands to customers throughout the US that prefer delivery direct to their office, facilities, and or homes.
Note 2 –
Summary of Significant Accounting Policies
Basis
of Accounting
The
accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”), and the requirements of the U.S. Securities and Exchange Commission (the “SEC”)
for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by
U.S. GAAP can be condensed or omitted. Accordingly, they do not include all of the information and footnotes normally included in financial
statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes
thereto included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on March 31,2023 (the “Form 10-K”).
The
accompanying condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments)
that management considers necessary for a fair presentation of its condensed financial position and results of operations for the interim
periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected
for the entire year.
Basis of Presentation and Consolidation
These consolidated financial statements include
the accounts of Splash and its wholly owned subsidiaries Splash Beverage Holdings LLC (“Holdings”), Splash International
Holdings LLC (“International”), Splash Mex SA de CV (“Splash Mex”), Canfield Medical Supply, Inc. (“CMS”) (as discontinued
operations), and Copa di Vino Wine Group, Inc. (“Copa di Vino”). All intercompany balances have been eliminated in
consolidation.
Our investment in Salt Tequila USA, LLC is carried
at cost less impairment, the investment does not have a readily determinable fair value.
Certain reclassifications have been made to the
prior period financial statements to conform to the December 31, 2022 audited financial statement and the current period
classifications. In the three months ending March 31, 2022 the Company reclassified $459,260
from cost of goods sold to other general and administrative cost in the condensed consolidated statement of operations and
comprehensive loss, $126,437
of shipping and handling and $332,823
of Amazon selling fees. These reclassifications had no impact on net loss.
Use of Estimates
The preparation of condensed consolidated financial
statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents and Concentration
of Cash Balance
The Company considers all highly liquid
securities with an original maturity of three months or less to be cash equivalents. The Company had no
cash equivalents at March 31, 2023 or December 31, 2022.
The Company cash in bank deposit amounts, at times,
may exceed federally insured limits of $250,000. At March 31, 2023 the Company had $271,743 in excess of the federally insured limits. The Company
bank deposit amounts in Mexico, $2,051, are uninsured.
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. The
Company establishes provisions for losses on accounts receivable on the basis of loss experience, known and inherent risk in the account
balance, and current economic conditions. At March 31, 2023 and December 31, 2022, our accounts receivable amounts are reflected net
of allowances of $13,797
and $13,683,
respectively.
Inventory
Inventory is stated at the lower of cost or net realizable value, accounted
for using the weighted average cost method. The inventory balances at March 31, 2023 and December 31, 2022 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. The Company establish provisions for excess or inventory near expiration are based on management’s estimates of forecast
turnover of inventories on hand and under contract. A significant change in the timing or level of demand for certain products as compared
to forecast amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions for excess
inventory are included in cost of goods sold and have historically been adequate to provide for losses on inventory. The Company
manages inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The
amount of our reserve was $0 and $66,146 at March 31, 2023 and December
31, 2022, respectively.
Property and Equipment
The Company record property and equipment at cost when
purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic
useful lives of assets, which range from 3-39 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 $46,701 and $30,695
for the three months ended March 31, 2023 and March 31, 2022, respectively. Property and equipment as of March 31, 2023 and December
31, 2022 consisted of the following:
Schedule of Property and equipment | |
| | | |
| | |
| |
2023 | |
2022 |
Auto | |
| 45,420 | | |
| 45,420 | |
Machinery & equipment | |
| 1,158,535 | | |
| 1,108,870 | |
Buildings | |
| 233,323 | | |
| 282,988 | |
Leasehold improvements | |
| 723,639 | | |
| 713,068 | |
Computer Software | |
| 5,979 | | |
| — | |
Office furniture & equipment | |
| 7,657 | | |
| 13,636 | |
Total cost | |
| 2,174,553 | | |
| 2,163,983 | |
Accumulated depreciation | |
| (1,713,336 | ) | |
| (1,674,385 | ) |
Property, plant & equipment, net | |
| 461,217 | | |
| 489,597 | |
Excise taxes
The Company pays alcohol excise taxes based
on product sales to both the Oregon Liquor Control Commission and to the U.S. Department of the Treasury, Alcohol and Tobacco Tax
and Trade Bureau (TTB). The company also pays taxes to the State of Florida – Division of Alcoholic Beverages and Tobacco.
The Company is liable for the taxes upon the removal of product from the Company’s warehouse on a per gallon basis. The federal
tax rate is affected by a small winery tax credit provision which decreases based upon the number of gallons of wine production
in a year rather than the quantity sold.
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, 2023 and December 31, 2022, consistent
with recent negotiations of notes payable and due to the short duration of maturities and market rates of interest.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated
Financial Statements
Note 2 –
Summary of Significant Accounting Policies, continued
Revenue Recognition
The Company recognizes revenue under ASC 606,
Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of
revenue in an amount that reflects what the Company expects to receive in exchange for the transfer of goods or services to customers.
The Company recognizes revenue when the Company’s performance
obligations under the terms of a contract with the customer are satisfied. Product sales occur for the Splash Beverage and E-commerce
businesses once control of the Company’s products are transferred upon delivery to the customer. Revenue is measured as the amount
of consideration that the Company expects to receive in exchange for transferring goods, and revenue is presented net of provisions for
customer returns and allowances. The amount of consideration the Company receives and revenue the Company recognizes varies with changes
in customer incentives offered to the Company’s customers and their customers. Sales taxes and other similar taxes are excluded
from revenue.
Shipping and Handling—The Company
includes costs associated with the outbound shipping and handling of finished goods as a component of other general and administrative
expenses in the consolidated statements of operations and comprehensive loss. Shipping and handling are not separately billed to
the customers and are included in fees charged to the customer and are recorded as revenue when earned.
Cost of Goods Sold
Cost of goods sold include the costs of
products, packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or
impaired inventory. In the three months ending March 31, 2022 the Company reclassified $459,260 from cost of goods sold to
other general and administrative cost in the condensed consolidated statement of operations and comprehensive loss, $126,437
of shipping and handling and $332,823
of Amazon selling fees.
Other General and Administrative Expenses
Other General and Administrative expenses includes
Amazon selling fees, royalty cost for selling TapouT, cost associated with the outbound shipping and handling of finished goods,
insurance cost, consulting cost, legal and audit fees, Investor Relations expenses, travel & entertainment expenses, occupancy
cost and other cost.
Shipping
and Handling
The
Company incurred $1,374,328
and $803,318
of shipping and handling costs for the three
months ending March 31, 2023 and 2022 respectively. These amounts, which primarily relate to shipping, are recorded in other general
and administrative expenses.
Stock-Based Compensation
The Company accounts for stock-based compensation
in accordance with ASC 718, ”Compensation - Stock Compensation”. Under the fair value recognition provisions,
cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service
period, which is generally the award’s vesting period. The Company uses the Black-Scholes option pricing model to determine the
fair value of stock-based awards. The Company early adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”,
which aligns accounting treatment for such awards to non-employees with the existing guidance on employee share-based compensation in
ASC 718.
Income Taxes
The Company uses the liability method of accounting
for income taxes as set forth in ASC 740, ”Income Taxes”. Under the liability method, deferred taxes are determined
based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to
be in effect during the years in which the basis differences reverse. The Company records a valuation allowance when it is not more likely
than not that the deferred tax assets will be realized.
Company management assesses its income tax
positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and
information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than
50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely
than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where there is less
than 50%
likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. Company management has
determined that there are no material uncertain tax positions at March 31, 2023 and December 31, 2022.
The Company’s
federal, state and local income tax returns prior to fiscal year 2019 are closed and management continually evaluates expiring
statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
The Company recognizes interest and penalties associated
with tax matters, if any, as part of operating expenses and includes accrued interest and penalties with accrued expenses in the condensed
interim balance sheets.
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 stock outstanding. Warrants, stock options,
and common stock issuable upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included
in the computation if the effect would be anti-dilutive.
Advertising
The Company conducts advertising for the
promotion of its products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. The Company
recorded advertising expense of $195,048
and $87,590
for the three months ended March 31, 2023 and 2022, respectively.
Goodwill and Intangibles Assets
Goodwill represents the excess of acquisition
cost over the fair value of the net assets acquired and is not subject to amortization. The Company reviews goodwill annually in
the fourth quarter for impairment or when circumstances indicate carrying value may exceed the fair value. This evaluation is performed
at the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less
than carrying value, a quantitative analysis is completed using either the income or market approach, or a combination of both.
The income approach estimates fair value based on expected discounted future cash flows, while the market approach uses comparable
public companies and transactions to develop metrics to be applied to historical and expected future operating results.
Intangible assets consist of customer lists,
brands and license agreements acquired in the acquisition of Copa Di Vino. The Company amortizes intangible assets with finite
lives on a straight-line basis over their estimated useful lives of 15 years.
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
when events or changes in circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not
be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered
recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed
the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for
the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset
groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs
to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques.
Segment
reporting
The Company discloses a measurement of segment profit
or loss that its chief operating decision maker (CODM) uses to assess segment performance and to make decisions about resource allocations
for each reportable segment.
Recent Accounting Pronouncements
On January 1, 2023, the Company adopted FASB issued
ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which requires the immediate recognition
of management’s estimates of current and expected credit losses. Adoption of this standard did not have a material impact on the
Company’s condensed consolidated financial statements or disclosures.
Management does not believe that any recently issued,
but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements
are issued, the Company will adopt those that are applicable under the circumstances.
Foreign Currency Gains/Losses
Foreign Currency Gains/Losses —
foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations
are translated into U.S. dollars using current exchange rates. Gains or losses from these translation adjustments are
included in the condensed consolidated statement of operations and other comprehensive loss as foreign currency translation
gains or losses. Translation gains and losses that arise from the translation of net assets from functional currency to the
reporting currency, as well as exchange gains and losses on intercompany balances, are included in foreign currency
translation in the condensed consolidated statement of operations and comprehensive loss. The Company incurred foreign
currency translation net loss of $1,609 and
$0 for
the three months ending March 31, 2023 and 2022 respectively.
Liquidity
and Going Concern Considerations
These condensed consolidated financial statements have been prepared assuming
the Company will be able to continue as a going concern. The Company historically has incurred significant losses and negative cash flows
from operation since inception and had net-loss of approximately $3.7 million for three-month period ended March 31, 2023 and accumulated
deficit of approximately $116.1 million through March 31, 2023. During the three-month period ended March 31, 2023, the Company’s
net cash used in operating activities totaled approximately $4.1 million.
If sales volumes do not meet the Company’s projections, expenses
exceed the Company’s expectations, or the Company’s plans change, the Company may be unable to generate enough cash flow from
operations to cover our working capital requirements. In such case, the Company may be required to adjust its business plan, by reducing
marketing, lower its working capital requirements and reduce other expenses or seek additional financing.
In order to have sufficient cash to fund our operations, the Company will
need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed from any
source or, if available, will be available on terms that are acceptable to us. The Company will be required to pursue sources of additional
capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive
to existing stockholders. Also, the terms of securities the Company may issue in future capital transactions may be more favorable for
new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities,
and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, the
Company may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. The Company may also be required to recognize non-cash expenses in connection
with certain securities the Company may issue, such as convertible notes and warrants, which will adversely impact our financial condition.
Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact
the availability or cost of future financings. If the amount of capital the Company is able to raise from financing activities together
with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that the Company reduce our operations
accordingly, the Company may be required to curtail or cease operations. As a result, there is uncertainty regarding the Company’s ability
to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability
to continue as a going concern for at least twelve months from the date of the consolidated financial
statements being available to be issued.
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.
Schedule of Notes payable | |
| | | |
| | | |
| | |
| |
Interest Rate | |
March 31, 2023 | |
December 31, 2022 |
Notes Payable and Convertible Notes Payable | |
| |
| |
|
In March 2014, the Company entered into a short-term loan agreement with an entity in the amount of $200,000. The note included warrants for 272,584 shares of common stock at $0.94 per share. The warrants expired unexercised on February 28, 2017. The loan and interest was paid off in February 2023 | |
| 8 | % | |
| — | | |
| 200,000 | |
| |
| | | |
| | | |
| | |
In December 2020, the Company entered into a 56- month loan with a company in the amount of $1,578,237. The
loan requires payments of 3.75% through November 2022 and 4.00% through September 2025 of the previous month’s revenue. Note
is due September 2025. Note is guaranteed by a related party see note 6. | |
| 17 | % | |
| 876,836 | | |
| 1,044,445 | |
| |
| | | |
| | | |
| | |
In April 2021, the Company entered into a six-month loan with an individual in the amount of $84,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to October 2023. | |
| 7 | % | |
| 84,000 | | |
| 84,000 | |
| |
| | | |
| | | |
| | |
In April 2021, the Company entered into a six-month loan with an individual in the amount of $84,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to October 2023. | |
| 7 | % | |
| 84,000 | | |
| 84,000 | |
| |
| | | |
| | | |
| | |
In May 2021, the Company entered into a six-month loan with an individual in the amount of $50,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to October 2023. | |
| 7 | % | |
| 50,000 | | |
| 50,000 | |
| |
| | | |
| | | |
| | |
In May 2021, the Company entered into a six-month loan with an individual in the amount of $10,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to October 2023. | |
| 7 | % | |
| 10,000 | | |
| 10,000 | |
| |
| | | |
| | | |
| | |
In August 2022, the Company entered into a 56-months auto loan in the amount of $45,420. | |
| 2.35 | % | |
| 40,064 | | |
| 42,396 | |
| |
| | | |
| | | |
| | |
In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $100,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | |
| 12 | % | |
| 100,000 | | |
| 100,000 | |
| |
| | | |
| | | |
| | |
In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | |
| 12 | % | |
| 250,000 | | |
| 250,000 | |
| |
| | | |
| | | |
| | |
In In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $1,000,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | |
| 12 | % | |
| 1,000,000 | | |
| 1,000,000 | |
| |
| | | |
| | | |
| | |
In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | |
| 12 | % | |
| 250,000 | | |
| 250,000 | |
| |
| | | |
| | | |
| | |
In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | |
| 12 | % | |
| 250,000 | | |
| 250,000 | |
| |
| | | |
| | | |
| | |
In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | |
| 12 | % | |
| 250,000 | | |
| 250,000 | |
| |
| | | |
| | | |
| | |
In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $400,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | |
| 12 | % | |
| 400,000 | | |
| 400,000 | |
| |
| | | |
| | | |
| | |
In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $1,500,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity. | |
| 12 | % | |
| 1,500,000 | | |
| 1,500,000 | |
| |
| | | |
| | | |
| | |
In February 2023, the Company entered into a twelve-month loan with an entity in
the amount of $2,000,000.
The convertible note included 750 additional shares for each $1,000
purchased. The loan matures in February 2024. | |
| — | | |
| 2,000,000 | | |
| — | |
| |
| Total notes payable | | |
$ | 7,144,900 | | |
$ | 5,514,841 | |
| |
| | | |
| | | |
| | |
| |
| Less notes discount | | |
| (3,437,072 | ) | |
| (1,898,265 | ) |
| |
| Less current portion | | |
| (1,275,540 | ) | |
| (1,080,257 | ) |
| |
| | | |
| | | |
| | |
| |
| Long-term notes payable | | |
$ | 2,432,288 | | |
$ | 2,536,319 | |
Interest expense on notes payable was $167,121
and $81,700 for the three months ended March 31, 2023 and 2022, respectively. Accrued interest was $123,990 at March 31, 2023.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated
Financial Statements
Note 4 – Licensing Agreement and
Royalty Payable
The Company has a licensing agreement with ABG TapouT, LLC (“TapouT”),
providing the Company with licensing rights to the brand “TapouT” (i)energy drinks, (ii) energy bars, (iii) coconut water,
(iv) electrolyte gum/chews, (v) energy shakes, (vi) powdered drink mix, (viii) water (including enhanced water), (vii) energy shots, (viii)
teas, and (ix) sports drinks sold in the North America (including US Territories and Military Bases), United Kingdom, Brazil, South Africa,
Australia, Scandinavia, Peru, Colombia, Chile and Guatemala. The Company is required to pay a 6% royalty on net sales, as defined, and
are required to make minimum monthly payments of $55,000 in 2023 and $54,450 in 2022.
There were no unpaid royalties at March 31, 2023.
The Company paid the guaranteed minimum royalty payments of $165,000
and $163,350
for the three months ended March 31, 2023 and 2022 respectively, which is included in general and administrative expenses
in the condensed consolidated statement of operations and comprehensive loss.
In connection with the Copa di Vino APA, the Company acquired the license
to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, Copa di Vino entered into three separate license agreements
with 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 is approximately $31,000 annually until the license agreement is fully amortized in 2027. The asset is being amortized over a 10-year useful life.
Note 5– Stockholders’ Equity
Common Stock
In February 2023, the Board of Directors approved
a private placement offering of 2,000,000 shares of the common stock of the Company, $0.001 value per share at a purchase price of $1.00
per share for aggregate gross proceeds of $2,000,000 (“SPA”). As part of the SPA, each purchaser received additional
restricted shares equal to 750 units for every $1,000 purchased.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 5 – Stockholders’ Equity,
continued
Stock Plan
2020 Plan
In July 2020, the Board adopted the 2020
Stock Incentive Plan (the “2020 Plan”), which provides for the grant of Options, Restricted Stock Awards, Stock Appreciation
Rights, Performance Units and Performance Bonuses to consultants and eligible recipients. The total number of shares that may be
issued under the 2020 plan was 2,313,133 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, 2022 and 2023,
the number of shares issuable under the 2020 plan increased by 1,679,812 and 2,054,276 shares, respectively.
The following is a summary of the Company’s
stock option activity during the quarter ended March 31, 2023:
Schedule of stock option activity | |
| | | |
| | |
| |
| Stock
options
| | |
| Weighted
average
exercise price of outstanding stock options
| |
Balance – December 31, 2022 | |
| 1,151,000 | | |
$ | 2.56 | |
Granted | |
| 65,000 | | |
$ | 1.08 | |
Exercises | |
| — | | |
$ | — | |
Cancelled | |
| — | | |
$ | — | |
Balance – March 31, 2023 | |
| 1,216,000 | | |
$ | 2.48 | |
| |
| | | |
| | |
Exercisable –
March 31, 2023 | |
| 732,746 | | |
$ | 2.58 | |
During the three-month period ended March 31,
2023, the company granted 65,000 options to new employees under the 2020 plan.
The fair value of stock options granted in the
period has been measured at $149,999 using the Black-Scholes option pricing model with the following assumptions: exercise price
$1.08,
expected life 10
years, expected volatility 228%, expected dividends 0%,
risk free rate 3.7%.
Common
Stock Issuable, Liability to Issue Stock and Shareholder Advances
On February 28, 2023, the Company entered into a securities
purchase agreement (the “Securities Purchase Agreement” or “SPA”) with an investor. Pursuant to the Securities
Purchase Agreement, the Company issued a non-interest bearing, convertible 12-month promissory note (the “Note”) convertible
for up to 2,000,000 shares of the Company’s common stock and received aggregate gross proceeds of $2,000,000. The note has a Conversion
Price of $1 per share, subject to adjustments as provided in the Note. Pursuant to the terms of the SPA, the Company is obligated to issue
1,500,000 restricted shares of restricted common stock to the investor at the time of funding of the note, which was not issued by March 31, 2023.
The per share value of the restricted shares at the
date of the SPA was $1.36, the Company’s quoted stock price at that date, representing a total value of $2,000,000. The restricted
shares have been accounted for as a debt discount. The debt discount was recorded at $1,786,468, the amount of cash received from the
investor for the Note. The discount is being amortized as an other expense over the 12-month term of the Note.
The Company
also has an obligation to issue 100,000 shares
of common stock for legal and consulting services provided in connection with a potential acquisition. These shares were
valued at $0.918 per
share, the quoted stock price at the date services were provided.
Outstanding balance for shareholder advances on
March 31, 2023 was $200,000.
Note 6 – Related Parties
During the normal course of business, the Company
incurred expenses related to services provided by the CEO or Company expenses paid by the CEO, resulting in related party payables. In
conjunction with the acquisition of Copa di Vino, the Company also entered into a Revenue Loan and Security Agreement (the “Loan
and Security Agreement”) by and among the Company, Robert Nistico, additional Guarantor and each of the subsidiary guarantors from
time-to-time party thereto (each a “Guarantor”, and, collectively, the “Guarantors”), and Decathlon Alpha IV,
L.P. (the “Lender”). The Note Payable with a balance of $876,836
at March 31,2023.
Note 7 – Investment in Salt Tequila
USA, LLC
The Company has a marketing and distribution agreement
with SALT Tequila USA, LLC (“SALT”) for the manufacturing of our Tequila product line in Mexico.
The Company has a 22.5%
percentage ownership interest in SALT, this investment is carried at cost less impairment, the investment
does not have a readily determinable fair value. The Company has the right to increase our ownership to 37.5%.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated
Financial Statements
Note 8 –Leases
The Company has various operating lease agreements primarily related to
real estate and office. The Company’s real estate leases represent a majority of the lease liability. Lease payments are mainly
fixed. Any variable lease payments, including utilities, common area maintenance are expensed during the period incurred. Variable lease
costs were immaterial for the quarter ended March 31, 2023 and 2022. A majority of the real estate leases include options to extend the
lease. Management reviews all options to extend at the inception of the lease and account for these options when they are reasonably certain
of being exercised.
Operating lease expense is recognized on a straight-line basis over the
lease term and is included in operating expense on the Company’s condensed consolidated statement of operations and comprehensive
loss. Operating lease cost was $93,328
and $92,788 during the period ended March 31, 2023 and 2022, respectively.
The following table sets for the maturities of our operating lease
liabilities and reconciles the respective undiscounted payments to the operating lease liabilities in the consolidated balance
sheet at December 31, 2022
Schedule of operating lease liability | |
| | |
Undiscounted Future Minimum Lease Payments | |
Operating Lease |
| |
|
2023 (Nine months remaining) | |
| 214,202 | |
2024 | |
| 252,000 | |
2025 | |
| 252,000 | |
Total | |
| 718,202 | |
Amount representing imputed interest | |
| (44,295 | ) |
Total operating lease liability | |
| 673,907 | |
Current portion of operating lease liability | |
| 250,734 | |
Operating lease liability, non-current | |
$ | 423,173 | |
The table below presents lease-related terms
and discount rates at March 31, 2023:
Summary of lease-related terms and discount rates | |
|
Remaining term on leases | |
| 1 to 33 months | |
Incremental borrowing rate | |
| 5.0 | % |
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial
Statements
Note 9 – Segment Reporting
The Company has two reportable operating segments:
(1) the manufacture and distribution of non-alcoholic and alcoholic brand beverages, and (2) the e-commerce sale of beverages. These operating
segments are managed separately and each segment’s major customers have different characteristics. Segment Reporting is evaluated
by our Chief Executive Officer and Chief Financial Officer.
Note: The Copa di Vino business is included
in our Splash Beverage Group segment.
Schedule of Segment Reporting Information | |
| | | |
| | |
Revenue, net | |
March 31, 2023 | |
March 31, 2022 |
Splash Beverage Group | |
| 1,898,968 | | |
| 1,478,158 | |
E-Commerce | |
| 3,923,759 | | |
| 2,448,415 | |
| |
| | | |
| | |
Total revenues, net, continuing operations | |
| 5,822,727 | | |
| 3,926,573 | |
| |
| | | |
| | |
Total revenues, net, discontinuing operations | |
| — | | |
| 114,071 | |
Contribution after Marketing | |
March 31, 2023 | |
March 31, 2022 |
Splash Beverage Group | |
$ | (286,929 | ) | |
$ | (459,775 | ) |
E-Commerce | |
| 1,311,602 | | |
| 1,030,059 | |
| |
| | | |
| | |
Total contribution after marketing | |
| 1,024,673 | | |
| 570,283 | |
| |
| | | |
| | |
Contracted services | |
| 381,005 | | |
| 431,545 | |
Salary and wages | |
| 1,234,127 | | |
| 785,651 | |
Non-cash share-based compensation | |
| 215,760 | | |
| 2,355,542 | |
Other general and administrative | |
| 2,648,701 | | |
| 2,681,498 | |
| |
| | | |
| | |
Loss from continuing operations | |
$ | (3,454,921 | ) | |
$ | (5,683,953 | ) |
Total assets |
|
March
31, 2023 |
|
December
31, 2022 |
Splash Beverage Group |
|
|
12,801,083 |
|
|
|
14,723,553 |
|
E-Commerce |
|
|
2,547,812 |
|
|
|
2,581,150 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
15,348,895 |
|
|
|
17,304,703 |
|
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial
Statements
Note 10 – Commitment and Contingencies
The Company is a party to asserted claims and are subject
to regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but
the Company do not anticipate that the outcome, if any, arising out of any such matter will have a material adverse effect on its business,
financial condition or results of operations.
Note 11 – Subsequent Events
On May 2, 2023 the Company issued 1,500,000 shares
of common stock to the purchaser of the convertible promissory note issued on February 28, 2023.
The Company granted 375,000
options in April to Board Directors and 125,000
options in May to the new Board Director under the 2020 plan.
In May 2023 the Company received
approximately $0.8
million from a Private Placement issuance of convertible notes. The notes have an eighteen-month term, accrue interest at
12.0% are convertible into shares of common stock of the Company at $1.00 per share, and include and 50% warrant coverage. These notes are part
of a Securities Purchase Agreement to raise up to $8.0
million to fund acquisitions, equipment purchases and working capital.