EDVA 10-Q
Endovia Health Sciences, Inc. (EDVA)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from _______ to _________
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or formation) |
(I.R.S. employer identification number) |
| (Address of principal executive offices) (Zip code) |
(
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| American LLC | ||||
| American LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
As of November 14, 2024, there were shares of Common Stock issued and outstanding.
| SPLASH BEVERAGE GROUP, INC. |
| FORM 10-Q |
| September 30, 2024 |
TABLE OF CONTENTS
| Page | ||
| PART I: FINANCIAL INFORMATION | ||
| ITEM 1: | FINANCIAL STATEMENTS | 1 |
| Condensed Consolidated Balance Sheets | 2 | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss | 3 | |
| Condensed Consolidated Statement of Changes in Shareholders’ Equity | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to the Condensed Consolidated Financial Statements | 6 | |
| ITEM 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20 |
| ITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 23 |
| ITEM 4: | CONTROLS AND PROCEDURES | 23 |
| PART II: OTHER INFORMATION | ||
| ITEM 1 | LEGAL PROCEEDINGS | 24 |
| ITEM 1A: | RISK FACTORS | 24 |
| ITEM 2: | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 24 |
| ITEM 3: | DEFAULTS UPON SENIOR SECURITIES | 24 |
| ITEM 4: | MINE SAFETY DISCLOSURES | 24 |
| ITEM 5: | OTHER INFORMATION | 24 |
| ITEM 6: | EXHIBITS | 25 |
| SIGNATURES | 26 | |
i
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Splash Beverage Group, Inc.
Condensed Consolidated Financial Statements
September 30, 2024
1
| Splash Beverage Group, Inc. |
| Condensed Consolidated Balance Sheets |
| September 30, 2024 and December 31, 2023 |
| September 30, 2024 | December 31, 2023 | |||||||
| Assets | (unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Inventory | ||||||||
| Other receivables | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Deposits | $ | $ | ||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Investment in Salt Tequila USA, LLC | ||||||||
| Right of use assets | ||||||||
| Property and equipment, net | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Right of use liability, current portion | ||||||||
| Related party notes payable | ||||||||
| Notes payable, net of discounts | ||||||||
| Shareholder advances | ||||||||
| Accrued interest payable | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Notes payable, net of discounts | ||||||||
| Right of use liability – net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued | ||||||||
| Common Stock, $ par, shares authorized, shares issued, shares outstanding at September 30, 2024 and December 31, 2023 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
| Splash Beverage Group, Inc. |
| Condensed Consolidated Statements of Operations and Comprehensive Loss |
| For the Three Months and Nine Months Ended September 30, 2024 and 2023 |
| (Unaudited) |
| Three months ended September 30 | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net revenues | ||||||||||||||||
| Cost of goods sold | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Contracted services | ||||||||||||||||
| Salary and wages | ||||||||||||||||
| Non-cash share-based compensation | ||||||||||||||||
| Other general and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income/(expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other Income/Expense | ( |
( |
) | |||||||||||||
| Legal reserve | ( |
) | ( |
) | ||||||||||||
| Amortization of debt discount | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total other income/(expense) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other Comprehensive Income (Loss) | ||||||||||||||||
| Foreign currency translation loss | ||||||||||||||||
| Total Comprehensive Income (Loss) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| (Loss) per share - continuing operations | ||||||||||||||||
| Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of common shares outstanding - continuing operations | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Splash Beverage Group, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
For the Nine months ended September 30, 2024 and 2023
(Unaudited)
| Common Shares | Amount | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders’ equity | |||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Common stock issuable and beneficial conversion feature on convertible 12-month promissory note | — | |||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||
| Accumulated Comprehensive loss – translation, net | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Issuance of common stock on convertible instruments | ( |
) | ||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||
| Issuance of warrants on convertible instruments | — | |||||||||||||||||||||||
| Accumulated Comprehensive loss – translation, net | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Debt discount from convertible instrument | — | |||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||
| Issuance of warrants on convertible instruments | — | |||||||||||||||||||||||
| Accumulated Comprehensive loss – translation, net | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balances at September 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Issuance of common stock for note extension | ||||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||
| Adoption of ASU 2020-06 | ( |
) | ( |
) | ||||||||||||||||||||
| Issuance of warrants on convertible instruments | — | |||||||||||||||||||||||
| Conversion of notes payable to common stock | ||||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||
| Accumulated Comprehensive loss – translation, net | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balances at March 31, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Issuance of common stock for convertible note | ||||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||
| Issuance of warrants on convertible instruments | — | |||||||||||||||||||||||
| Conversion of notes payable to common stock | ||||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||
| Accumulated Comprehensive loss – translation, net | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balances at June 30, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Share based compensation | — | |||||||||||||||||||||||
| Issuance of common stock for convertible note | ||||||||||||||||||||||||
| Issuance of warrants on convertible instruments | — | |||||||||||||||||||||||
| Conversion of notes payable to common stock | ||||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||
| Accumulated Comprehensive loss – translation, net | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
| Splash Beverage Group, Inc. |
| Condensed Consolidated Statement of Cash Flows |
| For the Nine Months Ended September 30, 2024 and 2023 |
| (Unaudited) |
| 2024 | 2023 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| ROU assets, net | ( | ) | ||||||
| Common stock issued for services | ||||||||
| Non-cash share-based compensation | ||||||||
| Changes in working capital items: | ||||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Deposits | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Accrued interest payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Net cash provided by investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Cash advance from related party | ||||||||
| Cash advance repayment from related party | ( | ) | ||||||
| Cash advance from shareholder | ||||||||
| Proceeds from convertible promissory note | ||||||||
| Principal repayment of debt | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net cash effect of exchange rate changes on cash | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for Interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Notes payable and accrued interest converted to common stock (13,546,259 shares in 2024) | ||||||||
| Creation of debt discounts from the issuance of equity instruments | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 1 – Business Organization and Nature of Operations
Splash Beverage Group, Inc. (the “Company”, “Splash”) seeks to identify, acquire, and build early stage or under-valued beverage brands that have strong growth potential within its distribution system. Splash’s distribution system is comprehensive in the US and is now planning to expand 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 2023 Annual Report on Form 10-K, filed with the SEC on March 31,2024 (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”), 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 accounted for at cost, as the company does not have the ability to exercise significant influence.
Our accounting and reporting policies confirm to accounting principles generally accepted in the United States of America (GAAP).
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the 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
Our cash in bank deposit accounts, at times, may exceed federally insured limits of $250,000. At September 30, 2024, the Company had $120,275 in excess of the federally insured limits. At December 31, 2023, the Company’s cash on deposit with financial institutions, at times, had not exceeded federally insured limits of $250,000.
6
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at their estimated
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 September 30, 2024 and December 31, 2023, our accounts receivable amounts are reflected net
of allowances of $
Inventory
Inventory is stated at the lower of cost or net realizable
value, accounted for using the weighted average cost method. The inventory balances at September 30, 2024 and December 31, 2023 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 $
Property and Equipment
The Company records 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 $
| 2024 | 2023 | |||||||
| Auto | ||||||||
| Machinery & equipment | ||||||||
| Buildings | ||||||||
| Leasehold improvements | ||||||||
| Computer Software | ||||||||
| Office furniture & equipment | ||||||||
| Total cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant & equipment, net | ||||||||
Excise taxes
The Company pays alcohol excise taxes based on product sales to both the Oregon Liquor Control Commission and to the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (TTB). The Company 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.
7
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Fair Value of Financial Instruments
Financial Accounting Standards (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
| Level 1 - | Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. | |
| Level 2 - | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). | |
| Level 3 - | Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. |
The liabilities and indebtedness presented on the condensed consolidated financial statements approximate fair values at September 30, 2024 and December 31, 2023, consistent with recent negotiations of notes payable and due to the short duration of maturities and market rates of interest.
Embedded debt costs in convertible debt instruments
In August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”) which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition was permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted no earlier than the fiscal year beginning after December 15, 2020. The Company has adopted ASU 2020-06 effective January 1, 2024 and has removed the effects of any embedded conversion features from certain of our convertible instruments.
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.
8
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Distribution expenses to transport our products, and warehousing expense after manufacture are accounted for in Other General and Administrative cost.
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. The cost of transportation from production site to other 3rd party warehouses or customer is included in Other General and Administrative cost.
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 costs.
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.
We measure stock-based awards at the grant-date fair value for employees, directors and consultants and recognize compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of our common stock, and for stock options and warrants, the expected life of the option and warrant, and expected stock price volatility and exercise price. We used the Black-Scholes option pricing model to value its stock-based awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The expected life of stock options/warrants were estimated using the “simplified method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, we have limited historical information to develop reasonable expectations about future exercise patterns. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, we use comparable public companies as a basis for its expected volatility to calculate the fair value of award. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the award. The estimation of the number of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.
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 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.
9
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
For those income tax positions where there is less
than
The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included in the computation if the effect would be anti-dilutive.
Weighted average number of shares outstanding excludes anti-dilutive common stock equivalents, including warrants to purchase shares of common stock and warrants granted by our Board that have not been exercised totaling .
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. For the three months ended
September 30, 2024 and September 30, 2023 the Company recorded advertising expenses of $
Goodwill and Intangibles Assets
Goodwill represents the excess of acquisition cost over the fair value of the net assets acquired and is not subject to amortization. The Company reviews goodwill annually in the fourth quarter for impairment or when circumstances indicate carrying value may exceed the fair value. This evaluation is performed at the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less than carrying value, a quantitative analysis is completed using either the income or market approach, or a combination of both. The income approach estimates fair value based on expected discounted future cash flows, while the market approach uses comparable public companies and transactions to develop metrics to be applied to historical and expected future operating results.
The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives, included in other intangible assets, net in the accompanying consolidated balance sheets, were as follows:
| September 30, 2024 | ||||||||||||
| Gross Amount | Accumulated Amortization | Amortization Period | ||||||||||
| Finite: | (in years) | |||||||||||
| Brands | $ | $ | ||||||||||
| Customer Relationships | ||||||||||||
| License | ||||||||||||
| Total Intangible Assets | $ | $ | ||||||||||
At the time of acquisition, the Company estimates
the fair value of the acquired identifiable intangible assets based upon the facts and circumstances related to the particular intangible
asset. Inherent in such estimates are judgments and estimates of future revenue, profitability, cash flows and appropriate discount rates
for any present value calculations. The Company preliminarily estimates the value of the acquired identifiable intangible assets and then
finalizes the estimated fair values during the purchase allocation period, which does not extend beyond
10
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
| Future Intangible Asset Amortization Expense | |||||
| Fiscal Year: | |||||
| 2024 (3 months) | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
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.
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 gain 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 gain. The Company incurred foreign
currency translation net gain of $
Liquidity, Capital Resources and Going Concern Considerations
The Company’s consolidated financial statements
have been prepared on the basis of US GAAP for a going concern, on the premise that the Company is able to meet its obligations as they
come due in the normal course of business. The Company historically has incurred significant losses and negative cash flows from operation
since inception and had net-loss of approximately $.0 million for nine-month period ended September 30, 2024 and accumulated deficit
of approximately $146.8 million through September 30, 2024. During the nine-month period ended September 30, 2024, the Company’s
net cash used in operating activities totaled approximately $
During the year ended December 31, 2023, the Company
sustained a net loss of approximately $.0 million and used cash in operating activities of $
11
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
The Company received approximately $
Management’s plans in regard to these matters include actions to sustain the Company’s operations, such as seeking additional funding to meet its obligations and implement its business plan. However, there is no assurance that the Company will be successful in implementing its plans or in raising additional funds. If the Company is unable to raise additional funding to meet its working capital needs in the future, it may be forced to delay, reduce, or cease its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unable to continue as a going concern, adjustments would be necessary to the carrying values of its assets and liabilities and the reported amounts of revenues and expenses could be materially affected.
Recent Accounting Pronouncements
In August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”) which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition was permissible for the adoption of this standard.
Update No. 2020-06 is effective for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted no earlier than the fiscal
year beginning after December 15, 2020. The Company has adopted ASU 2020-06 effective January 1, 2024, the Company recorded approximately
$
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
12
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 3 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable
Notes payable are generally nonrecourse and secured by all Company owned assets.
| Interest Rate | September 30, 2024 | December 31, 2023 | ||||||||||
| Notes Payable and Convertible Notes Payable | ||||||||||||
| In December 2020, the Company entered into a 56- month loan with a company in the amount of $ | % | |||||||||||
| In April 2021, the Company entered into a six-month loan with an individual in the amount of $ | % | |||||||||||
| In May 2021, the Company entered into a six-month loan with two individuals totaling $ | % | |||||||||||
| In August 2022, the Company entered into a 56-months auto loan in the amount of $ | % | |||||||||||
| In December 2022, the Company entered into various eighteen-month loans with individuals totaling in the amount of $ | % | |||||||||||
| In February 2023, the Company entered into a twelve-month loan with an entity in the amount of $ | % | |||||||||||
| In May 2023, the Company entered into various eighteen-month loans with individuals totaling in the amount of $ | % | |||||||||||
| In June 2023, the Company entered into various eighteen-month loans with individuals totaling in the amount of $ | % | |||||||||||
| In July 2023, the Company entered into a twelve-month loan with an individual in the amount of $ | % | |||||||||||
| In July 2023, the Company entered into a twelve-month loan with an individual in the amount of $ | % | |||||||||||
| In August 2023, the Company entered into a twelve-month loan with an individual in the amount of $ | % | |||||||||||
| In October 2023, the Company entered into a three-month loan with an individual in the amount of $ | % | |||||||||||
| In October 2023, the Company entered into a loan with an individual in the amount of $ | % | |||||||||||
| In October 2023, the Company entered into a loan with an individual in the amount of $ | % | |||||||||||
| In October 2023, the Company entered into a eighteen-month loan with individuals totaling in the amount of $ | % | |||||||||||
| In December 2023, the Company entered into a 2.5-month loan with an individual in the amount of $ | % | |||||||||||
| In January 2024, the Company entered into a 18-month loan with an individual in the amount of $ | % | |||||||||||
| In February 2024, the Company entered into a 18-month loan with an individual in the amount of $ | % | |||||||||||
| In February 2024, the Company entered into a 6-month loan with an individual in the amount of $ | % | |||||||||||
| In February 2024, the Company entered into a 18-month loan with an entity in the amount of $ | % | |||||||||||
| In April 2024, the Company entered into a commercial financing agreement in the amount of $ | % | |||||||||||
| In May 2024, the Company entered into an eighteen-month loan with individuals totaling in the amount of $ | % | |||||||||||
| In June 2024, the Company entered into a merchant cash advance agreement in the amount of $ | % | |||||||||||
| In June 2024, the Company entered into a revenue purchase agreement in the amount of $ | % | |||||||||||
| In July 2024, the Company entered into a revenue purchase agreement in the amount of $ | % | |||||||||||
| In July 2024, the Company entered into a revenue purchase agreement in the amount of $ | % | |||||||||||
| In August 2024, the Company entered into a 5-year loan
with individuals totaling in the amount of $ | % | |||||||||||
| In August 2024, the Company entered into a eighteen-month
loan with individuals totaling in the amount of $ | % | |||||||||||
| In September 2024, we entered into a merchant cash advance agreement in the amount of $ | % | |||||||||||
| In September 2024, the Company entered into an agreement with individuals totaling in the amount of $ | % | |||||||||||
| Total notes payable | $ | $ | ||||||||||
| Less notes discount | ( | ) | ( | ) | ||||||||
| Less current portion | ( | ) | ( | ) | ||||||||
| Long-term notes payable | $ | $ | ||||||||||
13
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 3 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
Interest expense on notes payable was $
The Company recognized approximately $
As of September 30, 2024, and December 31, 2023, the balance of the unamortized
debt discount was $
| Interest Rate | September 30, 2024 | September 30, 2023 | ||||||||
| Shareholder Notes Payable | ||||||||||
| In April 2024, revised Feb 2023 shareholder advance in the amount of $ | ||||||||||
| Less current portion | ( | ) | ( | ) | ||||||
| Long-term notes payable | $ | $ | ||||||||
Interest expense on related party notes payable was
$
As of September 30, 2024, the Company’s convertible note balances are convertible into shares of common stock
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 $
14
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
The Company has accrued guaranteed minimum
royalty payments of $
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
Note 5– Stockholders’ Equity
Common Stock
On September 29, 2023, the Company entered into a
securities purchase agreement with certain accredited investors. Pursuant to such agreements, the Company sold:
On May 1, 2024, the Company entered into a securities
purchase agreement with certain accredited investors. Pursuant to such agreements, the Company sold:
During the nine-months ended September 30, 2024, the Company granted share-based awards to certain consultants totaling shares of common stock at a weighted average price of $0.24, shares for extension of note, shares on conversion of convertible instruments, shares on debt discount and shares for non-cash compensation.
A convertible promissory note was issued to shareholder on April 15, 2024 for $ at % with conversion price of $0.35 per share. The note included share of warrant coverage. The loan matures in July 2025 with principal and interest due semi-annually. Accrued interest of advance $ will be made on or before August 15, 2024.
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 at the time the 2020 plan was adopted as of September 30, 2024.
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, 2023 and 2024, the number of shares issuable under the 2020 plan increased by and shares, respectively.
15
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
In October 2023, the shareholders voted to increase the number of shares issuable under the Plan to 7.5%.
The following is a summary of the Company’s stock option activity:
| Options | September 30, 2024 | September 30, 2023 | ||||||||||||||||
| Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | |||||||||||||||
| Balance - January 1* | $ | $ | ||||||||||||||||
| Granted | ||||||||||||||||||
| Exercises | ||||||||||||||||||
| Cancelled | ||||||||||||||||||
| Balance – March 31, | $ | $ | ||||||||||||||||
| Granted | ||||||||||||||||||
| Exercises | ||||||||||||||||||
| Cancelled | ||||||||||||||||||
| Balance – June 30, | $ | $ | ||||||||||||||||
| Granted | ||||||||||||||||||
| Exercises | ||||||||||||||||||
| Cancelled | ||||||||||||||||||
| Balance – September 30, | $ | $ | ||||||||||||||||
| Exercisable – September 30, | $ | $ | ||||||||||||||||
Note 5– Stockholders’ Equity, continued
During the nine-month period ended September 30, 2024 and September 30, 2023, the company granted and options to employees and directors at weighted average strike price of $ under the 2020 plan. shares were granted to CEO, Robert Nistico, shares to CMO, William Meissner, shares to CFO, Julius Ivancsits, to the Board director, John Paglia and shares to Board director, Bill Caple.
The fair value of stock options granted in the period has been measured at $ using the Black-Scholes option pricing model with the following assumptions: exercise price $ - $, expected life to years, expected volatility %, expected dividends %, risk free rate %.
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 $
16
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
There were related party advances from our chief executive
officer in the amount of approximately $
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
Note 8 –Leases
The Company has various operating lease agreements primarily related to real estate and office space. The Company’s real estate leases represent a majority of the lease liability. Lease payments are mainly fixed. Any variable lease payments, including utilities, and common area maintenance are expensed during the period incurred. Variable lease costs were immaterial for the quarter ended September 30, 2024 and 2023. 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 $
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 September 30, 2024
| Undiscounted Future Minimum Lease Payments | Operating Lease | |||
| 2024 (three months remaining) | ||||
| 2025 | ||||
| 2026 | ||||
| Total | ||||
| Amount representing imputed interest | ( | ) | ||
| Total operating lease liability | ||||
| Current portion of operating lease liability | ||||
| Operating lease liability, non-current | $ | |||
17
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 8 –Leases, continued
The table below presents lease-related terms and discount rates at September 30, 2024:
| Remaining term on leases | ||||
| Incremental borrowing rate | % |
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.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| Revenue | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Splash Beverage Group | $ | $ | $ | $ | ||||||||||||
| E-Commerce | ||||||||||||||||
| Net revenues, continuing operations | ||||||||||||||||
| Contribution after Marketing | ||||||||||||||||
| Splash Beverage Group | ( | ) | ( | ) | ||||||||||||
| E-Commerce | ||||||||||||||||
| Total contribution after marketing | ||||||||||||||||
| Contracted services | ||||||||||||||||
| Salary and wages | ||||||||||||||||
| Non-cash share-based compensation | ||||||||||||||||
| Other general and administrative | ||||||||||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total assets | September 30, 2024 | December 31, 2023 | ||||||
| Splash Beverage Group | ||||||||
| E-Commerce | ||||||||
| Total assets | $ | $ | ||||||
18
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 does 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.
On June 5, 2024, the Company
received notification from the NYSE American LLC (“NYSE American”) indicating that it is not in compliance with the NYSE
American’s continued listing standards under Section 1003(a)(iii) of the NYSE American Company Guide (the “Company Guide”),
requiring a listed company to have stockholders’ equity of $
Note 11 – Subsequent Events
The notes that matured in October 2024 was extended by the note holders to April 2025.
The note that matured in August 2024 was partially converted to common stock in September and the remaining was converted in October 2024.
In November 2024, the company entered into a merchant
cash advance agreement in the amount of $
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The information in this discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements that are not of historical fact may be deemed to be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue”, the negative of the terms or other comparable terminology. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in other reports or registration statements filed with the United States Securities and Exchange Commission. These factors may cause our actual results to differ materially from any forward-looking statements. The Company disclaim any obligation to publicly update these statements or disclose any difference between actual results and those reflected in these statements.
Unless the context otherwise requires, references in this Form 10-Q to “we,” “us,” “our,” or the “Company” refer to Splash Beverage Group and its subsidiaries.
The following discussion and analysis should be read in conjunction with the Condensed Financial Statements (unaudited) and Notes to Condensed Financial Statements (unaudited) filed herewith.
Business Overview
Splash Beverage Group, Inc. (the “Company”, “Splash”) seeks to identify, acquire, and build early stage or under-valued beverage brands that have strong growth potential within its distribution system. Splash’s distribution system is comprehensive in the US and is now expanding to select attractive international markets. 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.
Results of Operations for the Three Months and Nine Months Ended September 30, 2024, compared to Three Months and Nine Months Ended September 30, 2023.
Revenue
Revenues for the three months ended September 30, 2024 were approximately $1 million compared to revenues of approximately $5.1 million for the three months ended September 30, 2023. Part of the $4.1 million decrease in sales is due to a decrease in our beverage sales of $0.2 million. Additionally, revenues from our vertically integrated B2B and B2C e-commerce distribution platform called Qplash decreased approximately $3.9 million or 97.6% due to low inventory. Total sales declined due to limited liquidity to procure inventory to drive third-party sales.
Revenue for the nine months ended September 30, 2024 was $3.6 million compared to revenues of $16.2 million for the nine months ended September 30, 2023. The $12.6 million decrease in sales is driven by decreases in both the e-commerce and beverage businesses which decreased $11.6 million and $1 million respectively. Qplash’s revenue decreased due to low inventory.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 2024 was $0.7 million compared to cost of goods sold for the three months ended September 30, 2023 of $3.8 million. The $3.1 million decrease in cost of goods sold for the three-month period ended September 30, 2024 was driven by decreased sales.
20
Cost of goods sold for the nine months ended September 30, 2024 was $2.9 million compared to cost of goods sold for the nine months ended September 30, 2023 of $11.3 million. The $8.5 million decrease in cost of goods sold for the nine-month period ended September 30, 2024 was driven by decreased sales in both the e-commerce and beverage business.
Operating Expenses
Operating expenses for the three months ended September 30, 2024 was $3.0 million compared to $5.6 million for the three months ended September 30, 2023 a decrease of $2.6 million. The decrease in operating expenses was primarily due to a reduction in marketing expense, freight cost, Amazon selling fees and the non-cash expenses.
Operating expenses for the nine months ended September 30, 2024 was $10.3 million compared to $16.8 million for the nine months ended September 30, 2023 a decrease of $6.5 million. The decrease in operating expenses was primarily due to marketing expense, contracted services, freight cost and Amazon selling fees partially offset by increases for the non-cash expenses.
The net loss for the three months ended September 30, 2024 was $4.7 million as compared to a net loss of approximately $5.7 million for the three months ended September 30, 2023. The decrease in net loss is due to lower debt discount expense. The net loss for the nine months ended September 30, 2024 was $14.7 million as compared to a net loss of approximately $15.0 million for the nine months September 30, 2023. The decrease in net loss is due to lower operating expenses partially offset by higher interest expenses.
Net Other Income and Expense
Interest expenses for the three months ended September 30, 2024 was $0.9 million compared to $0.2 million for the three months ended September 30, 2023. The $0.7 million increase in interest expense is due to new loans with a principal of $3.2 million. Interest expenses for the nine months ended September 30, 2024 was $2.0 million compared to $0.6 million for the three months ended September 30, 2023. The $1.4 million increase in interest expense is due to new loans with a principal of $7.9 million with higher interest rates.
There were no significant other expenses for the three months ended September 30, 2024 and September 30, 2023 respectively. Other expenses were $0 and other income was $0.05 million for the nine months ended September 30, 2024 and September 30, 2023 respectively. The income in 2023 was related to an insurance settlement.
Amortization of debt discount for the three months ended September 30, 2024 was approximately $0.8 million compared to $1.1 million for three months ended September 30, 2023. Amortization of debt discount for the nine months ended September 30, 2024 was approximately $2.7 million compared to $2.5 million for nine months ended September 30, 2023.
LIQUIDITY, GOING CONCERN CONSIDERATIONS AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
As of September 30, 2024, the Company had total cash and cash equivalents of $456,889, as compared with $379,978 at December 31, 2023.
Net cash used for operating activities during the nine months ended September 30, 2024 was $6.4 million as compared to the net cash used by operating activities for the nine months ended September 30, 2023 of $8.5 million. The primary reasons for the change in net cash used were reduced operating expenses, prepaid expenses were allocated.
Net cash used for investing activities for the period ending September 30, 2024, $1,500 furniture was returned to vendor and $4,735 on purchase of machinery. For the period September 30, 2023, the Company had leasehold improvements of $12,613 related to our Copa Di Vino production site.
21
Net cash provided by financing activities during the nine months ended September 30, 2024 was $6.4 million compared to $4.4 million provided from financing activities for the nine months ended September 30, 2023. During the nine months ended September 30, 2024, the Company received $7.9 million for convertible note, which was offset by repayments to debt holders of $1.5 million and $0.01 million to related party cash advance.
In order to have sufficient cash to fund our operations, the Company will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. The Company will be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities the Company may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, the Company may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. The Company may also be required to recognize non-cash expenses in connection with certain securities the Company may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital the Company are able to raise from financing activities together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that the Company reduce our operations accordingly, the Company may be required to curtail or cease operations. As a result, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern for at least twelve months from the date of the consolidated financial statements being available to be issued.
CONTRACTUAL OBLIGATIONS
Minimum Royalty Payments:
The Company has a licensing agreement with ABG TapouT, LLC (“TapouT”). Under the licensing agreement, the Company has minimum royalty payments to TapouT of $55,000 per month, $495,000 was reserved in the nine months of September 2024.
Inventory Purchase Commitments:
None.
Off-Balance Sheet Arrangements
The Company do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as the disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
22
Revenue
The Company faces significant judgment in revenue recognition due to the complexities of the beverage industry’s competitive landscape and diverse distribution channels. Determining the timing of revenue recognition involves assessing factors such as control transfer, returns, allowances, trade promotions, and distributor sell-through data. Historical analysis, market trends assessment, and contractual term evaluations inform revenue recognition judgments. However, inherent uncertainties persist, underscoring the critical nature of revenue recognition as it significantly impacts financial statements and performance evaluation.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is established based on historical experience, current economic conditions, and specific customer collection issues. Management evaluates the collectability of accounts receivable on an ongoing basis and adjusts the allowance as necessary. Changes in economic conditions or customer creditworthiness could result in adjustments to the allowance for doubtful accounts, impacting our reported financial results.
Inventory Valuation
We value inventory at the lower of cost or net realizable value. Estimating the net realizable value of inventory involves significant judgment, particularly when market conditions change rapidly or when excess or obsolete inventory exists. Management regularly assesses inventory quantities on hand, future demand forecasts, and market conditions to determine whether write-downs to inventory are necessary.
Fair Value Measurements
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value measurements involve significant judgment and estimation, particularly when observable inputs are limited or not available. Management utilizes valuation techniques such as discounted cash flow models, market comparable, and third-party appraisals to determine fair values.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for Smaller Reporting Companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end of the period covered by this Report. Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, because of certain material weaknesses in our internal controls over financial reporting, our disclosure controls and procedures were not effective as of September 30, 2024. The material weaknesses relate to a lack of segregation of duties between accounting and other functions and the absence of sufficient depth of in-house accounting personnel with the ability to properly account for complex transactions.
The Company plans to implement additional internal controls or enhance existing internal controls to strengthen its control environment. Subsequent to the quarter ended September 30, 2024, the company is reviewing a plan to engage additional internal staff, external staff, or an advisory firm to provide support on technical issues related to U.S. GAAP as related to the maintenance of our accounting books and records and the preparation of our financial statements.
Changes in Internal Control Over Financial Reporting
Except with respect to the above, during the quarter ended September 30, 2024, there were no additional changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except for the litigation disclosed below, we are not currently a party to any legal or arbitration proceeding the outcome of which, if ‘determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business, operating results, cash flows, or financial condition.
On August 14, 2024, TapouT, LLC, a subsidiary of Authentic Brands Group, LLC (“ABG”), filed a Complaint (the “Complaint”) against the Company in the Supreme Count of New York for New York County (the “Court”). The Complaint pertains to breach of a certain licensing agreement dated December 8, 2011 (the “Licensing Agreement”), under which the Company became a successor in interest on July 1, 2013, pursuant to an amendment to the Licensing Agreement.
ABG alleges that as a result of an unpaid invoice they had exercised their right pursuant to section 22 of the Licensing Agreement to terminate the Licensing Agreement. ABG alleges that as a result of the aforementioned termination, pursuant to the Licensing Agreement, they are owed all unpaid fees and other amounts payable become immediately due. As a result, ABG have brought two causes of action, the first being breach of contract for the unpaid invoice and the second for accounts stated for all unpaid fees and other amounts payable. TapouT, LLC is seeking $1,400,000 for termination of the Licensing Agreement. The Company (Splash Beverage Group) does not view this as a reasonable amount given that the Company believes TapOut LLC did not fulfill their obligations pursuant the Licensing Agreement. The Company believes the case will be settled for a lower amount and has booked a legal reserve of $330,000 as the estimate for the potential liability.
On November 12, 2024, the Company filed a motion to compel mediation that is pending before the Court.
The Company intends to take all necessary steps to continue to vigorously defend against the action.
ITEM 1A. RISK FACTORS
No new risk factors noted since our Annual Report on Form 10-K for the year ended December 31, 2023 was filed with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
No disclosure required.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Arrangement
During the nine months ended September 30, 2024,
no director or officer of the Company
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ITEM 6. EXHIBITS
(a) Exhibits required by Item 601 of Regulation S-K.
* Filed herewith
** Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SPLASH BEVERAE GROUP, INC. | ||
| Date: November 15, 2024 | By: | /s/ Robert Nistico |
| Robert Nistico, Chairman and CEO | ||
| (Principal Executive Officer) | ||
| Date: November 15, 2024 | By: | /s/ Julius Ivancsits |
| Julius Ivancsits, CFO | ||
| (Principal Accounting Officer and Principal Financial Officer) | ||
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