Endovia Health Sciences, Inc 8-K/A, filed Feb 12, 2021
Endovia Health Sciences, Inc. (EDVA)
About this 8-K/A
Endovia Health Sciences, Inc filed this 8-K/A on February 12, 2021, reporting on events of December 24, 2020.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1 FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 24, 2020
| SPLASH BEVERAGE GROUP, INC. |
| (Exact Name of Registrant as Specified in Its Charter) |
| Colorado |
| (State or Other Jurisdiction of Incorporation) |
| 000-55114 | 34-1720075 | |
| (Commission File Number) | (IRS Employer Identification No.) |
|
1314 East Las Olas Blvd, Suite 221 Fort Lauderdale, Florida 33301 |
||
| (Address of Principal Executive Offices) | ||
| (954) 745-5815 | ||
| (Registrant’s Telephone Number, Including Area Code) | ||
|
Not Applicable | ||
| (Former Name or Former Address, if Changed Since Last Report) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
On December 31, 2020, Splash Beverage Group, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original Form 8-K”) relating to, among other things, the Company’s purchase of certain assets of Copa di Vino Corporation, an Oregon company (“Copa”).This amendment (the “Amendment”) to the Original Form 8-K is being filed for the purpose of satisfying the Company’s undertaking to file the financial statements and pro forma financial statements required by Item 9.01 of Form 8-K, and this Amendment should be read in conjunction with the Original 8-K. Except as set forth herein, no modifications have been made to information contained in the Original 8-K, and the Company has not updated any information contained therein to reflect events that have occurred since the date of the Original 8-K. The other items to the Original 8-K remain unchanged and are not amended hereby.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The audited financial statements of Copa as of and for the years ended December 31, 2019 and December 31, 2018, and the notes related thereto, are included as Exhibit 99.1 to this Amendment and the unaudited interim condensed financial statements as of and for the nine months ended September 30, 2020, and the notes related thereto, are included as Exhibit 99.2 to this Amendment, each incorporated herein by reference.
(b) Pro-Forma Financial Information
The unaudited pro forma combined financial information of the Company and Copa is included as Exhibit 99.3 to this Amendment and is incorporated herein by reference.
(d) Exhibits.
1
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 hereunto duly authorized.
Date: February 12, 2021
| SPLASH BEVERAGE GROUP, INC. | |
| /s/ Dean Huge | |
|
Dean Huge Chief Financial Officer |
2
Exhibit 99.1
Report of Independent Auditors
The Stockholders of
Copa di Vino Corporation
Report on the Financial Statements
We have audited the accompanying financial statements of Copa di Vino Corporation (the Company), which comprise the balance sheets as of December 31, 2019 and 2018, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Copa di Vino Corporation as of December 31, 2019 and 2018, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, has a net capital deficiency, and has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Portland, Oregon
December 3, 2020
F-2
Table of Contents
| PAGE | |
| Report of Independent Auditors | F-2 |
| Financial Statements | |
| Balance sheets | F-4 |
| Statements of operations | F-5 |
| Statements of stockholders’ equity (deficit) | F-6 |
| Statements of cash flows | F-7 |
| Notes to financial statements | F-8 – F-17 |
F-3
Balance Sheets
| December 31, | ||||||||
| 2019 | 2018 | |||||||
ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 62,898 | $ | 52,495 | ||||
| Accounts receivable, net | 402,443 | 312,315 | ||||||
| Inventories | 499,741 | 740,820 | ||||||
| Prepaid expenses | 71,599 | 113,387 | ||||||
| Total current assets | 1,036,681 | 1,219,017 | ||||||
| PROPERTY AND EQUIPMENT, net | 1,037,151 | 1,185,348 | ||||||
| LICENSE AGREEMENTS, net | 250,512 | 281,503 | ||||||
| Total assets | $ | 2,324,344 | $ | 2,685,868 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 1,244,764 | $ | 1,139,560 | ||||
| Accrued expenses | 415,958 | 401,585 | ||||||
| Line of credit | 49,000 | - | ||||||
| Current portion of notes payable | 543,058 | 211,533 | ||||||
| Related party notes payable | 233,426 | 509,329 | ||||||
| Total current liabilities | 2,486,206 | 2,262,007 | ||||||
| NOTES PAYABLE, NET OF CURRENT PORTION | 159,917 | 637,722 | ||||||
| Total liabilities | 2,646,123 | 2,899,729 | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Voting common stock, $0.001 par value, 80,000,000 shares authorized, 24,440,945 shares issued and outstanding at December 31, 2019 and 2018 | 24,441 | 24,441 | ||||||
| Non-voting common stock, $0.001 par value, 20,000,000 shares authorized, 7,993,802 shares issued and outstanding at December 31, 2019 and 2018 | 7,994 | 7,994 | ||||||
| Additional paid-in capital | 4,258,399 | 4,258,399 | ||||||
| Accumulated deficit | (4,612,613 | ) | (4,504,695 | ) | ||||
| Total stockholders’ deficit | (321,779 | ) | (213,861 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 2,324,344 | $ | 2,685,868 | ||||
See accompanying notes.
F-4
Statements of Operations
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| NET SALES | ||||||||
| Sales, net of allowances and discounts | $ | 5,769,452 | $ | 7,051,413 | ||||
| Less federal excise taxes | 56,588 | 85,335 | ||||||
| Net sales | 5,712,864 | 6,966,078 | ||||||
| COST OF GOODS SOLD | 3,654,539 | 4,327,396 | ||||||
| GROSS PROFIT | 2,058,325 | 2,638,682 | ||||||
| OPERATING EXPENSES | 1,994,522 | 2,817,205 | ||||||
| INCOME (LOSS) FROM OPERATIONS | 63,803 | (178,523 | ) | |||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income | 7,074 | - | ||||||
| Interest expense | (190,740 | ) | (138,179 | ) | ||||
| Other income (expense) | 14,139 | (77,711 | ) | |||||
| Total other income (expense) | (169,527 | ) | (215,890 | ) | ||||
| LOSS BEFORE INCOME TAXES | (105,724 | ) | (394,413 | ) | ||||
| PROVISION FOR INCOME TAXES | 2,194 | 2,281 | ||||||
| NET LOSS | $ | (107,918 | ) | $ | (396,694 | ) | ||
See accompanying notes.
F-5
Statements of Stockholders’ Equity (Deficit)
| Voting | Non-Voting | Additional | Total Stockholders’ | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-In | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| BALANCE, December 31, 2017 | 24,440,945 | $ | 24,441 | 7,993,802 | $ | 7,994 | $ | 4,258,399 | $ | (4,108,001 | ) | $ | 182,833 | |||||||||||||||
| Net loss | - | - | - | - | - | (396,694 | ) | (396,694 | ) | |||||||||||||||||||
| BALANCE, December 31, 2018 | 24,440,945 | 24,441 | 7,993,802 | 7,994 | 4,258,399 | (4,504,695 | ) | (213,861 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (107,918 | ) | (107,918 | ) | |||||||||||||||||||
| BALANCE, December 31, 2019 | 24,440,945 | $ | 24,441 | 7,993,802 | $ | 7,994 | $ | 4,258,399 | $ | (4,612,613 | ) | $ | (321,779 | ) | ||||||||||||||
See accompanying notes.
F-6
Statements of Cash Flows
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (107,918 | ) | $ | (396,694 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities | ||||||||
| Depreciation and amortization | 204,338 | 205,393 | ||||||
| Inventory lower of cost or net realizable value adjustment | - | 149,994 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable, net | (90,128 | ) | 311,608 | |||||
| Inventories | 241,079 | (98,339 | ) | |||||
| Prepaid expenses | 41,788 | 114,581 | ||||||
| Accounts payable | 105,204 | (436,007 | ) | |||||
| Accrued liabilities | 14,373 | (16,872 | ) | |||||
| Net cash from operating activities | 408,736 | (166,336 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for property and equipment | (25,150 | ) | (3,831 | ) | ||||
| Net cash from investing activities | (25,150 | ) | (3,831 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from related party notes payables | 808,418 | 1,089,390 | ||||||
| Repayments of related party payable | (1,084,321 | ) | (572,007 | ) | ||||
| Advances on line of credit | 359,500 | 60,000 | ||||||
| Payments on line of credit | (310,500 | ) | (66,805 | ) | ||||
| Principal payments of notes payable | (146,280 | ) | (308,737 | ) | ||||
| Net cash from financing activities | (373,183 | ) | 201,841 | |||||
| NET INCREASE IN CASH | 10,403 | 31,674 | ||||||
| CASH AT BEGINNING OF YEAR | 52,495 | 20,821 | ||||||
| CASH AT END OF YEAR | $ | 62,898 | $ | 52,495 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for interest | $ | 212,817 | $ | 130,625 | ||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| License agreements obtained with notes payable | $ | - | $ | 309,912 | ||||
See accompanying notes.
F-7
Notes to Financial Statements
Note 1 – Summary of Significant Accounting Policies
Nature of operations – Copa di Vino Corporation (Copa di Vino, or the Company) is a bottler of wine into single cup servings, with a bottling plant and administrative offices located in The Dalles, Oregon. The Company’s primary customers are distributors throughout the United States.
Basis of accounting and presentation – The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Variable interests – Accounting principles generally accepted in the United States of America (GAAP) require a qualitative approach to identifying a controlling financial interest in a variable interest entity (VIE) and an ongoing assessment of the primary beneficiary of the VIE based on an evaluation to determine whether an entity has: (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
In determining whether an entity has the power to direct the activities of the VIE that most significantly affect the VIE’s performance, the guidance requires a reporting entity to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed. The guidance also requires: (a) separate presentation on the face of the statement of financial position of certain assets and liabilities of a VIE, (b) disclosure of the significant judgments and assumptions made by an enterprise in its determination as to whether or not the enterprise is the primary beneficiary of a VIE, and (c) additional expanded disclosures regarding the enterprise’s involvement with a VIE.
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances at the time. Actual results could differ from those estimates.
Cash and cash equivalents – For purposes of the statements of cash flows, the Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk associated with its cash and cash equivalents.
Accounts receivable – Accounts receivable are recorded when invoices are issued and are written off against the allowance for doubtful accounts if they are determined by management to be uncollectible. Accounts receivable consist primarily of non-interest bearing trade receivables from the sale of products. Generally, the Company considers accounts receivable past due after 30 days. Management individually reviews all delinquent accounts receivable balances and has recorded an allowance for receivables that are not fully collectible as of December 31, 2019 and 2018. The allowance for uncollectible accounts was approximately $122,000 as of December 31, 2019 and 2018.
F-8
Copa di Vino Corporation
Notes to Financial Statements
Note 1 – Summary of Significant Accounting Policies (continued)
Inventories, net – Inventories consist primarily of bulk wine, cased goods, bottling supplies, and other merchandising inventories. These are stated at the lower of cost or net realizable value using the first-in, first-out method. An inventory impairment to record inventory at its lower of cost or net realizable value of approximately $150,000 are included in costs of goods sold during the year ended December 31, 2018. No inventory impairments were recorded during the year ended December 31, 2019.
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.
During March 2014, the Company received a Notice of Proposed Assessment from the Department of Treasury for tax due and recorded an accrual of $173,659 based on the assessment. This amount is included in accrued liabilities as of December 31, 2019 and 2018. Excise tax laws state that when an assessment is made, the TTB can collect such tax by levy or by proceeding in court, for a period of 10 years after the assessment of the tax. The Company has not paid the assessment as of December 31, 2019.
Property and equipment – Property and equipment are carried at cost less accumulated depreciation and include major expenditures that increase the productivity or useful life of existing assets. Depreciation is computed using the straight-line method based on estimated useful lives of the related assets as follows:
| Leasehold improvements | 10-39 years |
| Tanks, machinery, and equipment | 3–20 years |
| Furniture and fixtures | 5–15 years |
Management reviews property, plant, and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the asset to the undiscounted future net cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.
License agreements – On February 16, 2018, the Company 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. The license agreement is recorded net of accumulated amortization of $59,400 and $28,409 at December 31, 2019 and 2018, respectively. 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.
F-9
Copa di Vino Corporation
Notes to Financial Statements
Note 1 – Summary of Significant Accounting Policies (continued)
Revenue recognition – For sales of product, revenue is recognized when product is shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable.
The Company pays depletion allowances to the Company’s distributors based on their sales to their customers. The Company sets these allowances on a periodic basis and the Company’s distributors bill them back periodically. All depletion expenses associated with a given month are recognized in that month as a reduction of revenues. Revenue is recorded net of allowances and discounts, which were $411,600 and $340,700 for the years ended December 31, 2019 and 2018, respectively.
The Company also reimburses for samples used by distributors. Sample expenses are recognized at the time the Company is billed by the distributor as a selling, general and administrative expense. Samples expense was approximately $48,400 and $68,600 for the years ended December 31, 2019 and 2018, respectively.
Advertising and promotion costs – The Company expenses advertising and promotion costs as they are incurred. Advertising and promotion expenses amounted to approximately $48,500 and $116,600 for the years ended December 31, 2019 and 2018, respectively.
Shipping and handling costs – Amounts billed to customers for shipping and handling are classified as revenue. Costs incurred in shipping of goods are expensed as incurred, and are reported as operating expenses in the statements of operations. Shipping and handling costs were approximately $426,200 and $491,900 for the years ended December 31, 2019 and 2018, respectively.
Income taxes – Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable enacted tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. See Note 7 for further discussion on the Company’s valuation allowance recorded as of December 31, 2019.
The Company recognizes the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in income tax expense.
The Company recognized no uncertain tax positions or any accrued interest and penalties associated with uncertain tax positions for the year ended December 31, 2019. The Company files tax returns in the U.S. federal jurisdiction and various state jurisdictions. Generally, the Company is subject to examination by income tax authorities for three years from the filing of a tax return.
F-10
Copa di Vino Corporation
Notes to Financial Statements
Note 1 – Summary of Significant Accounting Policies (continued)
Recent accounting pronouncements – In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In June 2020, the FASB issued ASU 2020-05, which allows private companies to elect to adopt the guidance for annual reporting periods beginning after December 15, 2019. The Company has elected to defer implementation until its 2020 fiscal year in accordance with ASU 2020-05. The Company is currently evaluating the impact of the adoption of the new guidance.
In February 2016, FASB issued ASU 2016-02, which represents a significant change from the existing lease accounting model for lessees. Under the new guidance, for operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The new guidance is effective for calendar year 2022 for many nonpublic entities, with early adoption permitted. The Company is currently evaluating the effects of the adoption of the new guidance, which may have significant impacts on the Company’s financial statements depending on the number of operating leases that exist as of the beginning of the earliest comparative period in the year of adoption.
Subsequent events – Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued. The Company recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before the financial statements are available to be issued.
The Company has performed an evaluation of subsequent events through December 3, 2020, which is the date these financial statements were available to be issued.
F-11
Copa di Vino Corporation
Notes to Financial Statements
Note 2 – Management’s Plan
The accompanying 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. In accordance with US GAAP, management evaluates whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date these financial statements were available to be issued. The Company has incurred operating losses over the past several years and has an accumulated deficit of approximately $4.6 million at December 31, 2019, which has eroded the Company’s working capital position. Accounts payable more than 90 days past due was approximately $500,000 as of December 31, 2019 and certain vendor payables were converted to notes payable over the previous two years. The current portion of notes payable was approximately $543,000. After evaluating these factors, the Company determined there is substantial doubt about the ability of the Company to continue as a going concern.
Subsequent to year-end 2019, the World Health Organization declared the novel coronavirus (COVID-19) outbreak a public health emergency. There have been mandates from international, federal, state and local authorities requiring forced closures of various schools, businesses and other facilities and organizations. While the closures and cancellations are expected to be temporary, the cancellation of events throughout the country are expected to have an adverse impact on the Company’s sales and gross profit margins.
In 2020, the Company obtained a Payroll Protection Program PPP loan in the amount of $159,900 through the Small Business Administration. The Company is also pursuing potential investment options, including the potential of a sale of substantially all of its assets. See Note 9 for further discussion of the letter of intent received on July 26, 2020.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund ongoing operations and increasing profitability.
Note 3 – Inventories
Inventories consist of the following at December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Raw materials | $ | 184,950 | $ | 319,906 | ||||
| Finished goods | 314,791 | 420,914 | ||||||
| Total inventories | $ | 499,741 | $ | 740,820 | ||||
F-12
Copa di Vino Corporation
Notes to Financial Statements
Note 4 – Property and Equipment, net
Property and equipment consist of the following at December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Leasehold improvements | $ | 1,005,673 | $ | 1,003,697 | ||||
| Machinery and equipment | 1,486,213 | 1,479,139 | ||||||
| Tanks | 164,195 | 164,195 | ||||||
| Furniture and fixtures | 54,750 | 53,363 | ||||||
| 2,710,831 | 2,700,394 | |||||||
| Less accumulated depreciation and amortization | (1,693,479 | ) | (1,520,132 | ) | ||||
| 1,017,352 | 1,180,262 | |||||||
| Construction in progress | 19,799 | 5,086 | ||||||
| Total property and equipment, net | $ | 1,037,151 | $ | 1,185,348 | ||||
Depreciation and amortization expense amounted to approximately $173,300 and $177,000 for the years ended December 31, 2019 and 2018, respectively.
Note 5 – Line of Credit
The Company maintains a line of credit with an approved maximum borrowing limit from a bank of $49,000 at December 31, 2019. The line is unsecured and bears interest at 6.75%. There was an outstanding balance of $49,000 on the line of credit at December 31, 2019.
F-13
Copa di Vino Corporation
Notes to Financial Statements
Note 6 – Notes Payable
Notes payable consist of the following at December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Note payable to a vendor, monthly payments of $10,000 beginning January 1, 2017 until paid in full, paid in 2019. | $ | - | $ | 3,749 | ||||
| Note payable to a vendor, monthly payments of approximately $5,000 beginning November 15, 2017 with payments increasing to $10,000 per month, paid in 2019. | - | 28,400 | ||||||
| Note payable to a vendor, weekly payments of at least $2,000 beginning December 2, 2016, including fixed interest of 4% at December 31, 2019 and 2018, until paid in full. | 38,763 | 51,297 | ||||||
| Note payable to an individual, monthly interest only payments, including fixed interest of 14%, due on December 7, 2020. | 150,000 | 150,000 | ||||||
| Notes payable to an individual, monthly interest only payments, including fixed interest of 15% and 20% at December 31, 2019 and 2018, respectively, due in May 2020. | 215,000 | 215,000 | ||||||
| Notes payable to an individual, monthly payments including fixed interest of 10%, paid in full in December 2019. | - | 25,974 | ||||||
| Note payable to an individual, monthly interest only payments at 6% due on September 1, 2021. | 150,000 | 150,000 | ||||||
| Notes payable for license agreements (see Note 1) due in 36 monthly payments of $10,000, interest imputed at 10%, maturing in January 2021. | 149,212 | 224,835 | ||||||
| 702,975 | 849,255 | |||||||
| Less current portion | (543,058 | ) | (211,533 | ) | ||||
| Total notes payable, net of current portion | $ | 159,917 | $ | 637,722 | ||||
F-14
Copa di Vino Corporation
Notes to Financial Statements
Note 7 – Provision for Income Taxes
The provision for income taxes consists of the following for the year ended December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Current income tax expense | ||||||||
| State and local income taxes | $ | 2,194 | $ | 2,281 | ||||
| Provision for income taxes | $ | 2,194 | $ | 2,281 | ||||
The income tax provision differs from the expense that would result from applying statutory tax rates to income before income taxes primarily because of permanent adjustments.
The tax effect of temporary differences that give rise to the deferred tax asset (liability) is as follows at December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Deferred tax assets | ||||||||
| Net operating losses | $ | 778,700 | $ | 915,300 | ||||
| Accrued interest – stockholder note | 28,200 | 29,600 | ||||||
| Inventory adjustments | 57,100 | 73,000 | ||||||
| Other | 400 | 200 | ||||||
| Total deferred tax asset | 864,400 | 1,018,100 | ||||||
| Deferred tax liabilities | ||||||||
| Fixed asset basis | (109,600 | ) | (112,500 | ) | ||||
| Total deferred tax liability | (109,600 | ) | (112,500 | ) | ||||
| Valuation allowance | (754,800 | ) | (905,600 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating losses and tax credit carryforwards. The net operating losses generated in years up to the year ending December 31, 2017 begin to expire in 2032. Net operating losses generated subsequent to 2017 do not expire. ASC Topic 740, Income Taxes, requires that the tax benefit of net operating losses and various temporary differences be recorded as an asset to the extent that the Company assesses that realization is more likely than not. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period.
Due to the Company’s recent history of operating losses, the Company believes the recognition of the deferred tax assets arising from the above mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a full valuation allowance.
F-15
Copa di Vino Corporation
Notes to Financial Statements
Note 7 – Provision for Income Taxes (continued)
As of December 31, 2019, management had not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company’s formation that would limit the use of the net operating losses under section 382 of the Internal Revenue Code.
If the Company has experienced an ownership change at any time since its formation that triggered the rules under section 382, utilization of net operating loss carryforwards and other tax attributes generated before the change would be subject to an annual limitation. Any limitation may result in expiration of a portion of the net operating loss carryforwards or other attributes before utilization. Management will continue to monitor this issue and will complete a Section 382 study prior to utilizing the Company’s net operating loss carryforwards.
Note 8 – Related Party Transactions
The Company is related to Discover Development LLC and Drinx Tec Inc. through common ownership.
Discover Development LLC – The Company leases its production facility from Discover Development LLC for monthly rent of $14,500 under an operating lease agreement expiring July 1, 2025. Total related party rent expense during the years ended December 31, 2019 and 2018 totaled $142,500 and $144,000, respectively. The Company is contractually obligated under the lease for annual payments as follows:
| Years ending December 31, 2020 | $ | 177,000 | ||
| 2021 | 180,000 | |||
| 2022 | 180,000 | |||
| 2023 | 180,000 | |||
| 2024 | 180,000 | |||
| Thereafter | 90,000 | |||
| Total | $ | 987,000 |
Amounts due to Discover Development LLC as of December 31, 2019 and 2018 were $108,426 and $353,445, respectively. Interest charged by Discover Development LLC to the Company during the year ended December 31, 2019 was approximately $38,300. Interest was not charged by Discover Development during the year ended December 31, 2018. The Company received advances of $596,974 and paid $634,390 to Discover Development LLC during the year ended December 31, 2018. The Company received advances of $1,053,437 and paid $808,418 to Discover Development LLC and received no advances during the year ended December 31, 2019.
Drinx Tec Inc. – Drinx Tec Inc. holds certain beverage technologies. Drinx Tec Inc. utilizes the Company’s personnel for certain administrative functions. During the year ending December 31, 2019, the Company charged Drinx Tec Inc. approximately $609,000 for its share of administrative costs, recorded as an offset to operating expenses in the statement of operations.
F-16
Copa di Vino Corporation
Notes to Financial Statements
Note 8 – Related Party Transactions (continued)
Related party payables consist of the following at December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Discover Development LLC | $ | 108,426 | $ | 353,445 | ||||
| Drinx Tec Inc. note payable (see below) | 125,000 | 125,000 | ||||||
| Other | - | 30,884 | ||||||
| Total related party notes payable | $ | 233,426 | $ | 509,329 | ||||
In 2018, Drinx Tec Inc., a related party through common ownership, obtained a $125,000 note payable from an individual requiring interest only payments at a rate of 15% until maturity in December 2020. Drinx Tec then advanced the $125,000 to the Company under the same terms.
Note 9 – Subsequent Events
Letter of Intent –The Company received a Letter of Intent dated July 26, 2020, under which an unrelated third party intends to acquire substantially all of the Company’s assets. Closing of the transaction, which is expected to occur in 2020, is contingent on management and board of directors’ approval and receipt of necessary regulatory approvals, along with satisfaction of other customary closing conditions.
F-17
Exhibit 99.2
Copa di Vino Corporation
Condensed Financial Statements
September 30, 2020
(Unaudited)
F-1
Copa di Vino Corporation
Condensed Balance Sheets
(Unaudited)
| September 30, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 145,415 | $ | 62,898 | ||||
| Accounts receivable, net | 191,981 | 402,443 | ||||||
| Inventory | 563,989 | 499,741 | ||||||
| Prepaid expenses | 81,651 | 71,599 | ||||||
| Total current assets | 983,036 | 1,036,681 | ||||||
| Property and equipment, net | 921,036 | 1,037,151 | ||||||
| Intangible assets, net | 227,012 | 250,512 | ||||||
| Total assets | $ | 2,131,084 | $ | 2,324,344 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 1,175,472 | $ | 1,244,764 | ||||
| Accrued expenses | 381,305 | 415,958 | ||||||
| Line of credit | 44,755 | 49,000 | ||||||
| Current portion of notes payable | 249,212 | 543,058 | ||||||
| Related party notes payable | 992,710 | 233,426 | ||||||
| Total current liabilities | 2,843,454 | 2,486,206 | ||||||
| Notes payable, net of current portion | 159,900 | 159,917 | ||||||
| Total liabilities | 3,003,354 | 2,646,123 | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Voting common stock, $0.001 par value, 80,000,000 shares authorized, 24,440,945 shares issued and outstanding at September 30, 2020 and December 31, 2019 | 24,441 | 24,441 | ||||||
| Non-voting common stock, $0.001 par value, 20,000,000 shares authorized, 7,993,802 shares issued and outstanding at September 30, 2020 and December 31, 2019 | 7,994 | 7,994 | ||||||
| Additional paid-in capital | 4,258,399 | 4,258,399 | ||||||
| Accumulated deficit | (5,163,104 | ) | (4,612,613 | ) | ||||
| Total stockholders’ deficit | (872,270 | ) | (321,779 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 2,131,084 | $ | 2,324,344 | ||||
See accompanying notes.
F-2
Copa di Vino Corporation
Condensed Statements of Operations
(Unaudited)
| Nine months ended September 30, |
||||||||
| 2020 | 2019 | |||||||
| NET SALES | ||||||||
| Sales, net of allowances and discounts | $ | 2,252,950 | $ | 4,121,305 | ||||
| Less federal excise taxes | (17,957 | ) | (50,468 | ) | ||||
| Net sales | 2,234,993 | 4,070,837 | ||||||
| COST OF GOODS SOLD | 1,698,407 | 2,833,284 | ||||||
| GROSS PROFIT | 536,586 | 1,237,553 | ||||||
| OPERATING EXPENSES | 987,914 | 1,498,339 | ||||||
| (LOSS) FROM OPERATIONS | (451,328 | ) | (260,786 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income | - | 547 | ||||||
| Interest expense | (99,163) | (152,355) | ||||||
| Other income (expense) | - | 3,000 | ||||||
| Total other (expense) | (99,163) | (148,808 | ) | |||||
| LOSS BEFORE INCOME TAXES | (550,491 | ) | (409,594 | ) | ||||
| PROVISION FOR INCOME TAXES | - | - | ||||||
| NET LOSS | $ | (550,491 | ) | $ | (409,594 | ) | ||
See accompanying notes.
F-3
Copa di Vino Corporation
Condensed Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| Total | ||||||||||||||||||||||||||||
| Voting Common Stock |
Non-Voting Common Stock |
Additional Paid-In |
Accumulated | Stockholders’ Equity |
||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| BALANCE, December 31, 2018 | 24,440,945 | 24,441 | 7,993,802 | 7,994 | 4,258,399 | (4,504,695 | ) | (213,861 | ) | |||||||||||||||||||
| Net loss, nine months ended September 30, 2019 | - | - | - | - | - | (409,594 | ) | (409,594 | ) | |||||||||||||||||||
| Net loss, three months ended December 31, 2019 | - | - | - | - | - | 301,676 | 301,676 | |||||||||||||||||||||
| BALANCE, December 31, 2019 | 24,440,945 | $ | 24,441 | 7,993,802 | $ | 7,994 | $ | 4,258,399 | $ | (4,612,613 | ) | $ | (321,779 | ) | ||||||||||||||
| Net loss, nine months ended September 30, 2020 | - | - | - | - | - | (550,491 | ) | (550,491 | ) | |||||||||||||||||||
| BALANCE, September 30, 2020 | 24,440,945 | $ | 24,441 | 7,993,802 | $ | 7,994 | $ | 4,258,399 | $ | (5,163,104 | ) | $ | (872,270 | ) | ||||||||||||||
See accompanying notes.
F-4
Copa di Vino Corporation
Condensed Statements of Cash Flows
(Unaudited)
| Nine-months ended September 30, |
||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (550,491 | ) | $ | (409,594 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities | ||||||||
| Depreciation and amortization | 151,792 | 153,936 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable, net | 210,462 | 406,475 | ||||||
| Inventories | (64,248 | ) | 229,001 | |||||
| Prepaid expenses | (10,052 | ) | 46,624 | |||||
| Accounts payable | (55,513 | ) | 236,545 | |||||
| Accrued expenses | (48,432 | ) | (196,479 | ) | ||||
| Net cash provided by (used in) operating activities | (366,482 | ) | 466,508 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for property and equipment | (12,177 | ) | (28,791 | ) | ||||
| Net cash used in investing activities | (12,177 | ) | (28,791 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes and related party payables | 1,304,996 | 612,030 | ||||||
| Repayments of notes and related party payables | (545,712 | ) | (1,086,895 | ) | ||||
| Advances on line of credit | 98,000 | 213,500 | ||||||
| Payments on line of credit | (102,245 | ) | (165,949 | ) | ||||
| Proceeds of notes payable | 170,355 | - | ||||||
| Principal payments of notes payable | (464,218 | ) | - | |||||
| Net cash provided by (used in) financing activities | 461,176 | (427,314 | ) | |||||
| NET INCREASE IN CASH | 82,517 | 10,403 | ||||||
| CASH AT BEGINNING OF YEAR | 62,898 | 52,495 | ||||||
| CASH AT END OF YEAR | $ | 145,415 | $ | 62,898 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for interest | $ | 81,105 | $ | 90,921 | ||||
See accompanying notes.
F-5
Copa di Vino Corporation
Notes to Condensed Financial Statements (Unaudited)
Note 1 – Summary of Significant Accounting Policies
Nature of operations – Copa di Vino Corporation (Copa di Vino, or the Company) is a bottler of wine into single cup servings, with a bottling plant and administrative offices located in The Dalles, Oregon. The Company’s primary customers are distributors throughout the United States.
Basis of accounting and presentation – The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances at the time. Actual results could differ from those estimates.
Cash and cash equivalents – For purposes of the statements of cash flows, the Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk associated with its cash and cash equivalents.
Accounts receivable – Accounts receivable are recorded when invoices are issued and are written off against the allowance for doubtful accounts if they are determined by management to be uncollectible. Accounts receivable consist primarily of non-interest bearing trade receivables from the sale of products. Generally, the Company considers accounts receivable past due after 30 days. Management individually reviews all delinquent accounts receivable balances and has recorded an allowance for receivables that are not fully collectible. The allowance for uncollectible accounts was approximately $122,000 as of December 31, 2019. There was no allowance at September 30, 2020.
F-6
Copa di Vino Corporation
Notes to Condensed Financial Statements (Unaudited)
Note 1 – Summary of Significant Accounting Policies (continued)
Inventories, net – Inventories consist primarily of bulk wine, cased goods, bottling supplies, and other merchandising inventories. These are stated at the lower of cost or fair value using the first-in, first-out method. An inventory adjustment of approximately $25,000 is included in costs of goods sold during the period ended September 30, 2020. No inventory adjustments were recorded during 2019.
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.
During March 2014, the Company received a Notice of Proposed Assessment from the Department of Treasury for tax due and recorded an accrual of $173,659 based on the assessment. This amount is included in accrued liabilities as of September 30, 2020 and December 31, 2019. Excise tax laws state that when an assessment is made, the TTB can collect such tax by levy or by proceeding in court, for a period of 10 years after the assessment of the tax. The Company has not paid the assessment as of September 30, 2020.
Property and equipment – Property and equipment are carried at cost less accumulated depreciation and include major expenditures that increase the productivity or useful life of existing assets. Depreciation is computed using the straight-line method based on estimated useful lives of the related assets as follows:
| Leasehold improvements | 10-39 years |
| Tanks, machinery, and equipment | 3–20 years |
| Furniture and fixtures | 5–15 years |
Management reviews property, plant, and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the asset to the undiscounted future net cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.
License agreements – On February 16, 2018, the Company 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. The license agreement is recorded net of accumulated amortization of $82,900 at September 30, 2020 and $59,400 at December 31, 2019. 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.
F-7
Copa di Vino Corporation
Notes to Condensed Financial Statements (Unaudited)
Note 1 – Summary of Significant Accounting Policies (continued)
Revenue recognition – For sales of product, revenue is recognized when product is shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable.
The Company pays depletion allowances to the Company’s distributors based on their sales to their customers. The Company sets these allowances on a periodic basis and the Company’s distributors bill them back periodically. All depletion expenses associated with a given month are recognized in that month as a reduction of revenues. Revenue is recorded net of allowances and discounts, which were $152,504 and $281,698 for the nine-months ended September 30, 2020 and 2019, respectively.
The Company also reimburses for samples used by distributors. Sample expenses are recognized at the time the Company is billed by the distributor as a selling, general and administrative expense. Samples expense was approximately $10,113 and $33,175 for the nine months ended September 30, 2020 and 2019, respectively.
Advertising and promotion costs – The Company expenses advertising and promotion costs as they are incurred. Advertising and promotion expenses amounted to approximately $82,200 and $164,600 for the nine months ending September 30, 2020 and 2019, respectively.
Shipping and handling costs – Amounts billed to customers for shipping and handling are classified as revenue. Costs incurred in shipping of goods are expensed as incurred and are reported as operating expenses in the statements of operations. Shipping and handling costs were approximately $152,400 and $297,000 for the nine months ended September 30, 2020 and 2019, respectively.
Income taxes – Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable enacted tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.
The Company recognizes the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in income tax expense.
The Company recognized no uncertain tax positions or any accrued interest and penalties associated with uncertain tax positions for the nine months period ended September 30, 2020 and 2019. The Company files tax returns in the U.S. federal jurisdiction and various state jurisdictions. Generally, the Company is subject to examination by income tax authorities for three years from the filing of a tax return.
F-8
Copa di Vino Corporation
Notes to Condensed Financial Statements (Unaudited)
Note 1 – Summary of Significant Accounting Policies (continued)
Recent accounting pronouncements – In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In June 2020, the FASB issued ASU 2020-05, which allows private companies to elect to adopt the guidance for annual reporting periods beginning after December 15, 2019. The Company has elected to defer implementation until its 2020 fiscal year in accordance with ASU 2020-05. The Company is currently evaluating the impact of the adoption of the new guidance, but does not feel that there will be a material impact to the financial statements as a whole.
In February 2016, FASB issued ASU 2016-02, which represents a significant change from the existing lease accounting model for lessees. Under the new guidance, for operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The new guidance is effective for calendar year 2022 for many nonpublic entities, with early adoption permitted. The Company is currently evaluating the effects of the adoption of the new guidance, but does not feel that there will be a material impact to the financial statements as a whole.
Subsequent events – Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued. The Company recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before the financial statements are available to be issued.
The Company has performed an evaluation of subsequent events through January 29, 2021, which is the date these financial statements were available to be issued.
F-9
Copa di Vino Corporation
Notes to Condensed Financial Statements (Unaudited)
Note 2 – Management’s Plan
The accompanying 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. In accordance with US GAAP, management evaluates whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date these financial statements were available to be issued. The Company has incurred operating losses over the past several years and has an accumulated deficit of approximately $5.1 million at September 30, 2020, which has eroded the Company’s working capital position. Accounts payable more than 90 days past due was approximately $788,000 as of September 30, 2020 and certain vendor payables were converted to notes payable over the previous two years. The current portion of notes payable was approximately $1,200,000. After evaluating these factors, the Company determined there is substantial doubt about the ability of the Company to continue as a going concern.
Subsequent to year-end 2019, the World Health Organization declared the novel coronavirus (COVID-19) outbreak a public health emergency. There have been mandates from international, federal, state, and local authorities requiring forced closures of various schools, businesses and other facilities and organizations. The experienced closures and cancellations of events throughout the country are expected to continue to have an adverse impact on the Company’s sales and associated cash flows.
In 2020, the Company obtained a Payroll Protection Program PPP loan in the amount of $159,900 through the Small Business Administration. The Company is also pursuing potential investment options, including the potential of a sale of substantially all of its assets. See Note 8.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund ongoing operations and increasing profitability.
Note 3 – Inventories
Inventories consist of the following at September 30, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Raw materials | $ | 236,994 | $ | 184,950 | ||||
| Finished goods | 326,995 | 314,791 | ||||||
| Total inventories | $ | 563,989 | $ | 499,741 | ||||
F-10
Copa di Vino Corporation
Notes to Condensed Financial Statements (Unaudited)
Note 4 – Property and Equipment, net
Property and equipment consist of the following at September 30, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Leasehold improvements | $ | 1,005,673 | $ | 1,005,673 | ||||
| Machinery and equipment | 1,487,063 | 1,486,213 | ||||||
| Tanks | 169,223 | 164,195 | ||||||
| Furniture and fixtures | 54,750 | 54,750 | ||||||
| 2,716,709 | 2,710,831 | |||||||
| Less accumulated depreciation and amortization | (1,821,771 | ) | (1,693,479 | ) | ||||
| 894,938 | 1,017,352 | |||||||
| Construction in progress | 26,098 | 19,799 | ||||||
| Total property and equipment, net | $ | 921,036 | $ | 1,037,151 | ||||
Depreciation and amortization expense amounted to approximately $151,800 for the nine months ending September 31, 2020 and $173,300 for the years ended December 31, 2019.
Note 5 – Line of Credit
The Company maintains a line of credit with an approved maximum borrowing limit from a bank of $49,000 at September 30, 2020. The line is unsecured and bears interest at 6.75%. There was an outstanding balance of $44,755 and $49,000 on the line of credit at September 30, 2020 and December 31, 2019, respectively.
F-11
Copa di Vino Corporation
Notes to Condensed Financial Statements (Unaudited)
Note 6 – Notes Payable
Notes payable consist of the following at September 31, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Note payable to a vendor, weekly payments of at least $2,000 beginning December 2, 2016, including fixed interest of 4% at December 31, 2019 and 2018, until paid in full. | - | 38,763 | ||||||
| Note payable to an individual, monthly interest only payments, including fixed interest of 14%, due on December 7, 2020. | - | 150,000 | ||||||
| Notes payable to an individual, monthly interest only payments, including fixed interest of 15% and 20% at December 31, 2019 and 2018, respectively, due in May 2020. | - | 215,000 | ||||||
| PPP loan through the SBA. | 159,900 | - | ||||||
| Note payable to an individual, monthly interest only payments at 6% due on September 1, 2021. | 150,000 | 150,000 | ||||||
| Notes payable for license agreements (see Note 1) due in 36 monthly payments of $10,000, interest imputed at 10%, maturing in January 2021. | 99,212 | 149,212 | ||||||
| 409,112 | 702,975 | |||||||
| Less current portion | (249,212 | ) | (543,058 | ) | ||||
| Total notes payable, net of current portion | $ | 159,900 | $ | 159,917 | ||||
F-12
Copa di Vino Corporation
Notes to Condensed Financial Statements (Unaudited)
Note 7 – Related Party Transactions
The Company is related to Discover Development LLC and Drinx Tec Inc. through common ownership.
Discover Development LLC – The Company leases its production facility from Discover Development LLC for monthly rent of $15,000 under an operating lease agreement expiring July 1, 2025. Total related party rent expense during the nine months ending September 30, 2020 and 2019 totaled $119,500 and $107,250, respectively. Since this is a sub-lease by the owner of the Company, the monthly payment did differ from the monthly rent of $15,000. The Company is contractually obligated under the lease for annual payments as follows:
| 2020 (3 months) | 45,000 | |||
| 2021 | 180,000 | |||
| 2022 | 180,000 | |||
| 2023 | 180,000 | |||
| 2024 | 180,000 | |||
| Thereafter | 45,000 | |||
| Total | $ | 810,000 |
Amounts due to Discover Development LLC at September 30, 2020 and December 31, 2019 were $992,710 and $108,426, respectively. Interest charged by Discover Development LLC to the Company during the nine months ending September 30, 2020 and 2019 was approximately $69,500 and $14,000, respectively. The Company received advances of $311,862 and paid $474,165 to Discover Development LLC during the nine months ending September 30, 2019. The Company received advances of $1,234,345 and paid $419,602 to Discover Development LLC during the nine months ending September 30, 2020.
Drinx Tec Inc. – Drinx Tec Inc. holds certain beverage technologies. Drinx Tec Inc. utilizes the Company’s personnel for certain administrative functions. During the nine months ending September 30, 2019, the Company charged Drinx Tec Inc. approximately $493,000 for its share of administrative costs, recorded as an offset to operating expenses in the statement of operations. During the nine months ending September 30, 2020, the Company charged Drinx Tec Inc. approximately $0 for its share of administrative costs.
F-13
Copa di Vino Corporation
Notes to Condensed Financial Statements (Unaudited)
Note 7 – Related Party Transactions (continued)
Related party payables consist of the following at September 30, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Discover Development LLC | $ | 992,710 | $ | 108,426 | ||||
| Drinx Tec Inc. note payable (see below) | - | 125,000 | ||||||
| Total related party notes payable | $ | 992,710 | $ | 233,426 | ||||
In 2018, Drinx Tec Inc., a related party through common ownership, obtained a $125,000 note payable from an individual requiring interest only payments at a rate of 15% until maturity in December 2020. Drinx Tec then advanced the $125,000 to the Company under the same terms. The note was repaid 2020.
Note 8 – Subsequent Events
In December 2020, the company entered into an asset purchase agreement with Splash Beverage Group, Inc. (“Splash”), a Colorado company, and two of its wholly-owned subsidiaries, in which Splash acquired substantially all of the net assets that comprise the Company’s bottling and distribution business.
F-14
Exhibit 99.3
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements give effect to the Purchase Agreement transaction (the “Purchase Agreement”) between Copa di Vino Corporation (“Copa”) and Splash Beverage Group to, Inc. (“SBG”). The purchase price consists of $500,000 in cash, a $2,000,000 Promissory Note to the seller, and a variable number of shares of SBG common stock (up to a maximum value of $1,980,000) based on Copa’s attainment of certain future revenue targets. Concurrently with the transaction, SBG issued a $1,500,000 loan to a third party to fund the cash portion of the Purchase Agreement.
The unaudited pro forma condensed consolidated financial statements presented below are prepared by applying the acquisition method of accounting to a business combination. Pro forma adjustments which give effect to certain transactions occurring as a direct result of the Purchase Agreement are described in the accompanying unaudited notes presented on the following pages. The accompanying unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2019 presents the combined results of operations as if the Purchase Agreement had occurred on January 1, 2019. The accompany unaudited pro forma condensed consolidated balance sheet at September 30, 2020, presents the combined balance sheets as if the Purchase Agreement had occurred on September 30, 2020.
These unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had Copa and SBG been a combined company during the specified periods. The unaudited pro forma condensed consolidated financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, Copa’s audited financial statements as of and for the years ended December 31, 2019 and 2018 and Copa’s unaudited Condensed financial statements for the nine-month period ended September 30, 2020 and SBG’s audited financial statements for the years ended December 31, 2019 and 2018, as included in its Annual Report on Form 10K for the year ended December 31, 2019 and SBG’s unaudited Condensed Consolidated financial statements for the nine-month period ended September 30, 2020 on Form 10-Q.
1
Condensed Consolidated Balance Sheet - September 30, 2020:
(Unaudited)
| Pro Forma | ||||||||||||||||||
| Copa di | Pro Forma | Condensed | ||||||||||||||||
| Splash | Vino | Adjustments | Consolidated | |||||||||||||||
| Current Assets | 3,139,157 | 983,036 | (a) | (268,516 | ) | 3,353,677 |
||||||||||||
| (b) | 1,500,000 | |||||||||||||||||
| (c) | (2,000,000 | ) | ||||||||||||||||
| Non-current Assets | 448,928 | 1,148,048 | (a) | (256,479 | ) | 1,340,497 | ||||||||||||
| Investment in Copa | (c) | 5,980,000 | - | |||||||||||||||
| (d) | (5,980,000 | ) | ||||||||||||||||
| Goodwill | 9,448,852 | - | (d) | 6,187,004 | 15,635,856 | |||||||||||||
| Total Assets | 13,036,937 | 2,131,084 | 5,162,009 | 20,330,030 | ||||||||||||||
| Accounts Payable and Other | 1,151,250 | 1,650,184 | 2,801,434 | |||||||||||||||
| Loans Payable and Accrued Interest | 2,799,194 | 1,193,270 | (a) | (1,030,361) | 2,962,103 | |||||||||||||
| Loans Payable - Non-current | - | 159,900 | (a) | (159,900) | - | |||||||||||||
| Credit Facility | (b) | 1,500,000 | 1,500,000 | |||||||||||||||
| Contingently convertible Promissory Note | (c) | 2,000,000 | 2,000,000 | |||||||||||||||
| Liability to issue Shares | (c) | 1,980,000 | 1,980,000 | |||||||||||||||
| Other non-current | 32,940 | - | 32,940 | |||||||||||||||
| Total Liabilities | 3,983,384 | 3,003,354 | 4,289,739 | 11,276,477 | ||||||||||||||
| Mezzanine Shares | 9,248,720 | - | 9,248,720 | |||||||||||||||
| Equity | ||||||||||||||||||
| Common Stock | 60,575 | 32,435 | (d) | (32,435 | ) | 60,575 | ||||||||||||
| Paid-in Capital | 38,763,100 | 4,258,399 | (a) | (665,266 | ) | 38,763,100 | ||||||||||||
| (d) | (3,593,133 | ) | ||||||||||||||||
| Accumulated Deficit | (39,018,842 | ) | (5,163,104 | ) | (d) | 5,163,104 | (39,018,842 | ) | ||||||||||
| Total Equity | (195,167 | ) | (872,270 | ) | 872,270 | (195,167 | ) | |||||||||||
| Total Liabilities and Equity | 13,036,937 | 2,131,084 | 5,162,009 | 20,330,030 | ||||||||||||||
| (a) | To exclude certain assets and liabilities of Copa not included as part of the Purchase Agreement |
| (b) | To record the proceeds received from $1.5 million Credit Facility |
| (c) | To record purchase consideration in the amount of $5,9480,000, consisting of cash ($2,000,000), contingently convertible promissory note ($2,000,000) and contingent purchase consideration issuable in common stock ($1,980,000) |
| (d) | To record the preliminary purchase price allocation to the net assets acquired |
2
Condensed Consolidated Statement of Operations – Nine-Months Ended September 30, 2020:
(Unaudited)
| Pro Forma | ||||||||||||||||||
| Copa di | Pro Forma | Condensed | ||||||||||||||||
| Splash | Vino | Adjustments | Consolidated | |||||||||||||||
| Revenues | 1,733,926 | 2,234,993 | (e) | (246,677 | ) | 3,722,242 | ||||||||||||
| Cost of Sales | (965,966 | ) | (1,698,407 | ) | (e) | 186,339 | (2,478,034 | ) | ||||||||||
| Gross Margin | 767,960 | 536,586 | 1,244,208 | |||||||||||||||
| Operating Expenses | 5,000,715 | 987,914 | (e) | (20,274 | ) | 5,968,355 | ||||||||||||
| Loss from Operations | (4,232,755 | ) | (451,328 | ) | (4,724,147 | ) | ||||||||||||
| Interest Expense | (1,958,601 | ) | (99,163 | ) | (f) | (1,452,710 | ) | (3,510,473 | ) | |||||||||
| Other Income (Expense) | 69,193 | - | 69,193 | |||||||||||||||
| Net Loss | (6,122,163 | ) | (550,491 | ) | (8,165,428 | ) | ||||||||||||
| Net loss per share | (0.12 | ) | (0.15 | ) | ||||||||||||||
| Weighted Average Shares Outstanding | 53,108,031 | 53,108,031 | ||||||||||||||||
| (e) | To eliminate revenues and related expenses associated with assets excluded from the Purchase Agreement |
| (f) | To record interest expense on Credit Facility and Convertible Note |
3
Income Statement - December 31, 2019:
(Unaudited)
| Pro Forma | ||||||||||||||||||
| Copa di | Pro Forma | Condensed | ||||||||||||||||
| Splash | Vino | Adjustments | Consolidated | |||||||||||||||
| Revenues | 1,038,220 | 5,712,864 | (g) | (270,313 | ) | 6,480,771 | ||||||||||||
| Cost of Sales | (754,374 | ) | (3,654,539 | ) | (g) | 257,543 | (4,151,370 | ) | ||||||||||
| Gross Margin | 283,846 | 2,058,325 | 2,329,401 | |||||||||||||||
| Operating Expenses | 5,241,301 | 1,994,522 | (g) | (27,032 | ) | 7,208,791 | ||||||||||||
| Loss from Operations | (4,957,455 | ) | 63,803 | (4,879,390 | ) | |||||||||||||
| Interest Expense | (88,741 | ) | (190,740 | ) | (h) | (1,842,750 | ) | (2,122,231 | ) | |||||||||
| Other Income (Expense) | 18,061 | 19,019 | 37,080 | |||||||||||||||
| Net Loss | (5,028,135 | ) | (107,918 | ) | (6,964,542 | ) | ||||||||||||
| Net loss per share | (0.12 | ) | (0.17 | ) | ||||||||||||||
| Weighted Average Shares Outstanding | 42,154,947 | 42,154,947 | ||||||||||||||||
| (g) | To eliminate revenues and related expenses associated with assets excluded from transaction |
| (h) | To record interest expense on Credit Facility and Convertible Note |
4
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Note 1
Basis of presentation
The unaudited pro forma condensed consolidated financial statements are based on Splash Beverage Group, Inc. (a “Nevada” company) and Copa di Vino Corporation’s historical consolidated financial statements as adjusted to give effect to the acquisition of Copa di Vino Corporation. The unaudited pro forma condensed consolidated statements of operations for the none-months ended September 30, 2020 and the 12 months ended December 31, 2019 give effect to the Copa di Vino Corporation acquisition as if it had occurred on January 1, 2019. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2020 gives effect to the Copa di Vino Corporation acquisition as if it occurred on September 30, 2020.
Note 2
Preliminary purchase price allocation
On December 24, 2020 Splash Beverage Group, Inc. acquired certain net assets of Copa di Vino Corporation for a total consideration of $5,980,000. The company financed the acquisition through the issuance of $3,500,000 in notes, $500,000 in cash and the remaining $1,980,000 with contingently issuable shares. The shares will be considered earned once the seller achieves certain revenue hurdles. Management assumes that these hurdles will be achieved and that all contingently issuable shares will be issued. The unaudited pro forma condensed consolidated financial statements include various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Copa di Vino Corporation based on management’s best estimates of fair value. The final purchase price allocation may vary based on final appraisals, valuations, and analysis of the fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.
The following table shows the preliminary allocation of the purchase price for Copa di Vino Corporation to the acquired assets, assumed liabilities and pro form goodwill:
| Pro Forma | ||||
| Cash and cash equivalents | 66,878 | |||
| Accounts receivable | 191,981 | |||
| Other current assets | 81,651 | |||
| Inventory | 374,010 | |||
| Property and equipment | 664,557 | |||
| License agreement | 227,012 | |||
| Total identifiable assets | 1,606,089 | |||
| Accounts payable and accrued expenses | 1,650,184 | |||
| Note payable | 162,909 | |||
| Total liabilities assumed | 1,813,093 | |||
| Identifiable net liabilities | (207,004 | ) | ||
| Total consideration | $ | 5,980,000 | ||
| Proforma goodwill | 6,187,004 | |||
5
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement on Form S-8 (No . 333- 248109) of Splash Beverage Group, Inc. of our report dated December 3, 2020, relating to the financial statements of Copa di Vino Corporation (which report expresses an unmodified opinion and includes an emphasis-of-matter paragraph relating to going concern), appearing in this Current Report on Form 8- K/A (Amendment No. 1) of Splash Beverage Group, Inc.
Portland, Oregon
February 12, 2021