Endovia Health Sciences, Inc 10-Q for FY2023 Q3
Endovia Health Sciences, Inc. (EDVA)
About this 10-Q
Endovia Health Sciences, Inc filed this 10-Q on November 14, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $5.14M
- up 5.6% from $4.87M a year earlier
- Net loss
- $5.67M
- compared with a net loss of $5.14M a year earlier
- Diluted EPS
- -$0.13
- compared with -$0.14 a year earlier
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).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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, 2023, there were shares of Common Stock issued and outstanding.
| SPLASH BEVERAGE GROUP, INC. |
| FORM 10-Q |
| September 30, 2023 |
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 | 24 |
| ITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 28 |
| ITEM 4: | CONTROLS AND PROCEDURES | 28 |
| PART II: | OTHER INFORMATION | |
| ITEM 1 | LEGAL PROCEEDINGS | 29 |
| ITEM 1A: | RISK FACTORS | 29 |
| ITEM 2: | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 29 |
| ITEM 3: | DEFAULTS UPON SENIOR SECURITIES | 29 |
| ITEM 4: | MINE SAFETY DISCLOSURES | 29 |
| ITEM 5: | OTHER INFORMATION | 29 |
| ITEM 6: | EXHIBITS | 30 |
| SIGNATURES | 31 | |
| i |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Splash Beverage Group, Inc.
Condensed Consolidated Financial Statements
September 30, 2023
1
| Splash Beverage Group, Inc. |
| Condensed Consolidated Balance Sheets |
| September 30, 2023 and December 31, 2022 |
| September 30, 2023 |
December 31, 2022 | |||||||
| Assets | (unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Inventory | ||||||||
| Other receivables | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Deposit | $ | $ | ||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Investment in Salt Tequila USA, LLC | ||||||||
| Operating lease right of use asset | ||||||||
| Property and equipment, net | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Liability to issue shares | ||||||||
| Operating lease liabilities - current | ||||||||
| Notes payable, current portion | ||||||||
| Due to related party | ||||||||
| Shareholder advance | ||||||||
| Accrued interest payable | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Notes payable | ||||||||
| Operating lease liabilities - noncurrent | ||||||||
| 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, 2023 and shares issued, shares outstanding at December 31, 2022 | ||||||||
| 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 and Nine Months Ended September 30, 2023 and 2022 (Unaudited) |
| Three months ended September 30 | Nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income/(expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income | ||||||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss from continuing operations, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss from discontinued operations, net of tax | ( | ) | ||||||||||||||
| Gain on sale of discontinued operations | ||||||||||||||||
| Income (Loss) from discontinued operations | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other Comprehensive Income | ||||||||||||||||
| Foreign currency translation Income | ||||||||||||||||
| Total Comprehensive 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 Three and Nine months ended September 30, 2023 and 2022
(Unaudited)
| Total | ||||||||||||||||||||||||
| Accumulated Other | Stockholders' | |||||||||||||||||||||||
| Common Stock | Additional | Comprehensive | Accumulated | Equity | ||||||||||||||||||||
| Shares | Amount | Paid-In Capital | Income | Deficit | (Deficit) | |||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Issuance of common stock on convertible instruments | ||||||||||||||||||||||||
| Issuance of warrants and options for services | — | |||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||
| Issuance of common stock and warrants for cash | ||||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Issuance of warrants for services | — | |||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||
| Issuance of common stock and warrants for cash | ||||||||||||||||||||||||
| Accumulated Comprehensive Income - Translation | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balances at June 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Issuance of warrants for services | — | |||||||||||||||||||||||
| Issuance of common stock for APA | ( |
) | ||||||||||||||||||||||
| Issuance of common stock and warrants for cash | ||||||||||||||||||||||||
| Accumulated Comprehensive Income - Translation | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Common stock issuable and beneficial conversion feature on convertible 12-month promissory note | — | |||||||||||||||||||||||
| Issuance of warrants for services | — | |||||||||||||||||||||||
| 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 | $ |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
| Splash Beverage Group, Inc. |
| Condensed Consolidated Statement Cash Flows |
| For the Nine Months Ended September 30, 2023 and 2022 |
| (Unaudited) |
| 2023 | 2022 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| ROU assets, net | ||||||||
| Loss (gain) from sale of discontinued operation | ||||||||
| 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 - continuing operations | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Net cash used in investing activities - continuing operations | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Cash advance from related party | ||||||||
| Cash advance from shareholder | ( | ) | ||||||
| Proceeds from issuance of debt | ||||||||
| Principal repayment of debt | ( | ) | ( | ) | ||||
| Net cash provided by financing activities - continuing operations | ||||||||
| 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 (223,596 shares) | ||||||||
| Non-cash debt discount in the form of issuance of equity instruments and beneficial conversion feature in conjunction with convertible notes | ||||||||
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 expanding to select attractive international markets. Through its division Qplash, Splash’s distribution reach includes e-commerce access to both business-to-business (B2B) and business-to-consumer (B2C) customers. Qplash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilities, and or homes.
Note 2 – Summary of Significant Accounting Policies
Basis of Accounting
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. Accordingly, they do not include all the information and footnotes normally included in financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on March 31,2023 (the “Form 10-K”).
The accompanying condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
Basis of Presentation and Consolidation
These consolidated financial statements include the accounts of Splash and its wholly owned subsidiaries Splash Beverage Holdings LLC (“Holdings”), Splash International Holdings LLC (“International”), Splash Mex SA de CV (“Splash Mex”) and Copa di Vino Wine Group, Inc. (“Copa di Vino”).
Canfield Medical Supply, Inc. (“CMS”) (as discontinued operations), was consolidated until September 30, 2022.
All intercompany balances have been eliminated in consolidation.
6
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Our investment in Salt Tequila USA, LLC is carried at cost less impairment, the investment does not have a readily determinable fair value.
Certain reclassifications have been made to
the prior period financial statements to conform to the December 31, 2022 audited financial statement and the current period classifications.
In the three months ended September 30, 2022, the Company reclassified $
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents and Concentration of Cash Balance
The Company considers all highly liquid securities
with an original maturity of three months or less to be cash equivalents. The Company had
At September 30, 2023 the Company’s cash
on deposit with financial institutions, at times, had not exceed federally insured limits of $
7
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at their estimated
recoverable amounts and are periodically evaluated for collectability based on past credit history with clients and other factors.
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, 2023 and December 31, 2022, 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, 2023 and December
31, 2022 consisted of raw materials, work-in-process, and finished goods held for distribution. The cost elements of inventory
consist of purchase of products, transportation, and warehousing. The Company establish provisions for excess or inventory near
expiration are based on management’s estimates of forecast turnover of inventories on hand and under contract. A significant
change in the timing or level of demand for certain products as compared to forecast amounts may result in recording additional
provisions for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and
have historically been adequate to provide for losses on inventory. The Company manages inventory levels and purchase commitments
in an effort to maximize utilization of inventory on hand and under commitments. The amount of our reserve was $
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
Depreciation expense totaled $
| 2023 | 2022 | |||||||
| 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.
8
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Fair Value of Financial Instruments
Financial Accounting Standards Board (“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, 2023 and December 31, 2022, consistent with recent negotiations of notes payable and due to the short duration of maturities and market rates of interest.
9
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects what the Company expects to receive in exchange for the transfer of goods or services to customers.
The Company recognizes revenue when the Company’s performance obligations under the terms of a contract with the customer are satisfied. Product sales occur for the Splash Beverage and E-commerce businesses once control of the Company’s products are transferred upon delivery to the customer. Revenue is measured as the amount of consideration that the Company expects to receive in exchange for transferring goods, and revenue is presented net of provisions for customer returns and allowances. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives offered to the Company’s customers and their customers. Sales taxes and other similar taxes are excluded from revenue.
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.
Other General and Administrative Expenses
Other General and Administrative expenses include 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, shipping and handling cost and other cost.
10
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Shipping and Handling Costs
The Company includes costs associated with the outbound shipping and handling of finished goods as a component of other general and administrative expenses in the consolidated statements of operations and comprehensive loss. Shipping and handling are not separately billed to the customers and are included in fees charged to the customer and are recorded as revenue when earned.
The Company incurred $
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.
Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, ”Income Taxes”. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. The Company records a valuation allowance when it is not more likely than not that the deferred tax assets will be realized.
Company management assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where there
is less than
The Company’s federal, state and local income tax returns prior to fiscal year 2019 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
The Company recognizes interest and penalties associated with tax matters, if any, as part of operating expenses and includes accrued interest and penalties with accrued expenses in the condensed interim balance sheets.
11
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included in the computation if the effect would be anti-dilutive.
Advertising
The Company conducts advertising for the promotion
of its products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. For the three months
ended September 30, 2023 and September 30, 2022 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.
Intangible assets consist of customer lists, brands and license agreements acquired in the acquisition of Copa Di Vino. The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives of 15 years.
12
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Long-lived assets
The Company evaluates long-lived assets for impairment when events or changes in circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques.
Segment reporting
The Company discloses a measurement of segment profit or loss that its chief operating decision maker (CODM) uses to assess segment performance and to make decisions about resource allocations for each reportable segment.
Recent Accounting Pronouncements
On January 1, 2023, the Company adopted FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which requires the immediate recognition of management’s estimates of current and expected credit losses. Adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements or disclosures.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
In October 2021, the FASB issued ASU 2021-08, Business Combinations - Accounting for contract assets and contract liabilities from contracts with customers (Topic 805), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Revenues from contracts with customers (Topic 606). For public companies, the guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted the guidance during fiscal year 2023. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Foreign Currency Gains/Losses
Foreign Currency Gains/Losses — foreign
subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated
into U.S. dollars using current exchange rates. Gains or losses from these translation adjustments are included in the condensed
consolidated statement of operations and other comprehensive loss as foreign currency translation gains or losses. Translation gains
and losses that arise from the translation of net assets from functional currency to the reporting currency, as well as exchange
gains and losses on intercompany balances, are included in foreign currency translation in the condensed consolidated statement of
operations and comprehensive loss. The Company incurred foreign currency translation net gain of $
13
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Liquidity and Going Concern Considerations
These condensed consolidated financial statements have been prepared assuming the Company will be able to continue as a going concern. The Company historically has incurred significant losses and negative cash flows from operation since inception and had net-loss of approximately $15 million for nine-month period ended September 30, 2023 and accumulated deficit of approximately $127.3 million through September 30, 2023. During the nine-month period ended September 30, 2023, the Company’s net cash used in operating activities totaled approximately $8.5 million.
If sales volumes do not meet the Company’s projections, expenses exceed the Company’s expectations, or the Company’s plans change, the Company may be unable to generate enough cash flow from operations to cover our working capital requirements. In such case, the Company may be required to adjust its business plan, by reducing marketing, lower its working capital requirements and reduce other expenses or seek additional financing.
In order to have sufficient cash to fund our operations, the Company will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. The Company will be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities the Company may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, the Company may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. The Company may also be required to recognize non-cash expenses in connection with certain securities the Company may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital the Company is able to raise from financing activities together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that the Company reduce our operations accordingly, the Company may be required to curtail or cease operations. As a result, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern for at least twelve months from the date of the consolidated financial statements being available to be issued.
14
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 3 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable and Revenue Financing Arrangements
Notes payable are generally non-recourse and secured by all Company owned assets.
| Schedule of notes payable | ||||||||||||
| Interest Rate | September 30, 2023 | December 31, 2022 | ||||||||||
| Notes Payable and Convertible Notes Payable | ||||||||||||
| In March 2014, the Company entered into a short-term loan agreement with an entity in the amount of $ | % | |||||||||||
| 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 various six-month loans with individuals totaling in the amount of $ | % | |||||||||||
| In May 2021, the Company entered into various six-month loans with individuals totaling in the amount of $ | % | |||||||||||
15
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
| 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 $ | % |
16
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
| 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 $ | - | |||||||||||
| Total notes payable | $ | $ | ||||||||||
| Less notes discount | ( | ) | ( | ) | ||||||||
| Less current portion | ( | ) | ( | ) | ||||||||
| Long-term notes payable | $ | $ |
Interest
expense on notes payable was $
As of September 30, 2023, the Company’s convertible note balances are convertible into shares of common stock.
Shareholder Advances
As of February 23, 2023, the Company received a shareholder advance for $ with a % interest rate and interest expense was $ for the nine months ended September 30, 2023.
17
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 4 – Licensing Agreement and Royalty Payable
The Company has a licensing agreement with
ABG TapouT, LLC (“TapouT”), providing the Company with licensing rights to the brand “TapouT” (i)energy
drinks, (ii) energy bars, (iii) coconut water, (iv) electrolyte gum/chews, (v) energy shakes, (vi) powdered drink mix, (viii) water
(including enhanced water), (vii) energy shots, (viii) teas, and (ix) sports drinks sold in the North America (including US Territories
and Military Bases), United Kingdom, Brazil, South Africa, Australia, Scandinavia, Peru, Colombia, Chile and Guatemala. The Company
is required to pay a 6% royalty on net sales, as defined, and are required to make minimum monthly payments of $
There were no unpaid royalties at September
30, 2023. The Company paid the 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
During the period ended September 30, 2023,
the Company entered into a private placement offering to purchase convertible instruments that convert into the Company’s
common stock up to an aggregate of $
In the three months and nine months ended September 30, 2023, the Company granted share-based awards to certain consultants totaling and shares of common stock, respectively, at a weighted average price of $0.66 and $0.91, respectively, recognized share-based compensation of $ and $, respectively. In the nine months ended September 30, 2023, the Company issued shares in satisfaction of a $ liability to issue shares recorded in December 2022.
18
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 5 – Stockholders’ Equity, continued
Stock Plans
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 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 of Directors. At January 1, 2023 and 2022, the number of shares issuable under the 2020 plan increased by and shares, respectively.
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 during the period ended September 30, 2023:
| Schedule of stock option activity | ||||||||||||
| Stock options | Weighted average exercise price of outstanding stock options |
Weighted average remaining life (Yrs) | ||||||||||
| Balance January 01, 2023 * | $ | |||||||||||
| Granted | ||||||||||||
| Exercises | ||||||||||||
| Cancelled | ||||||||||||
| Balance March 31, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Exercises | ||||||||||||
| Cancelled | ||||||||||||
| Balance - June 30, 2023 | $ | |||||||||||
| Exercisable - June 30, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Exercises | ||||||||||||
| Cancelled | ||||||||||||
| Balance - September 30, 2023 | $ | $ | ||||||||||
| Exercisable - September 30, 2023 | $ | $ | ||||||||||
| * |
The Company recognized $ and $ of share-based compensation during the three months and nine months ended September 30, 2023.
19
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
The following is a summary of the Company’s Warrant activity.
| Schedule of warrant activity | ||||||||||||
| Warrants | Weighted average exercise price of outstanding warrants | Weighted average remaining term (Yrs) | ||||||||||
| Balance December 31, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Balance March 31, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Exercises | ||||||||||||
| Cancelled | ||||||||||||
| Balance - June 30, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Exercises | ||||||||||||
| Cancelled | ||||||||||||
| Balance - September 30, 2023 | $ | |||||||||||
Note 6 – Related Parties
During the normal course of business, the Company
incurs expenses related to services provided by the CEO for Company expenses paid by the CEO. 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, was an 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 had a balance outstanding of $
On June 22, 2023, the Company received an interest
free short-term loan from the CEO for $
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
20
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 8 –Leases
The Company has various operating lease agreements primarily related to real estate and office 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, common area maintenance are expensed during the period incurred. Variable lease costs were immaterial for the three months and nine-month period ended September 30, 2023 and 2022. A majority of the real estate leases include options to extend the lease. Management reviews all options to extend at the inception of the lease and account for these options when they are reasonably certain of being exercised.
Operating lease expense is recognized on a
straight-line basis over the lease term and is included in the Company’s condensed consolidated statement of operations and
comprehensive loss. Operating lease cost was $
The following table sets forth 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, 2023:
| Schedule of operating lease liability | ||||
| Undiscounted Future Minimum Lease Payments | Operating Lease | |||
| 2023 (Three months remaining) | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | ||||
| Amount representing imputed interest | ( | ) | ||
| Total operating lease liability | ||||
| Current portion of operating lease liability | ||||
| Operating lease liability, non-current | $ | |||
The table below presents lease-related terms and discount rates at September 30, 2023:
| Remaining term on leases | ||||
| Incremental borrowing rate |
21
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 9 – Segment Reporting
The Company has two reportable operating segments: (1) the manufacture and distribution of non-alcoholic and alcoholic brand beverages, and (2) the e-commerce sale of beverages. These operating segments are managed respectively, and each segment’s major customers have different characteristics. Segment Reporting is evaluated by our Chief Executive Officer and Chief Financial Officer.
| Schedule of segment reporting information | ||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| Revenue | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| 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, 2023 | December 31, 2022 | ||||||
| Splash Beverage Group | $ | $ | ||||||
| E-Commerce | ||||||||
| Total assets | $ | $ | ||||||
22
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.
Note 11 – Subsequent Events
In October, 2023, the Company received
approximately $
The notes that matured in October 2023 were extended by the note holders to March 31, 2024.
The maturity dates of the related party notes were extended to March 31, 2024.
23
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, 2023 compared to Three Months and Nine Months Ended September 30, 2022.
Net Revenue
Three months ended September 30, 2023:
Revenue increased by 5.6%, over same quarter last year $5,144,069 compared to $4,870,407. The increase of $273,662 was due to:
| · | An increase from our e-commerce distribution platform called Qplash. |
| · | Increase in the Energy and Salt brands |
| · | Offset by a partial decline in sales in the Hydration, Copa and Pulpoloco brands |
Nine months ended September 30, 2023:
Revenue increased by 21.6%, over same period last year $16,161,747 compared to $13,295,921. The increase of $2,865,826 was due to:
| · | An increase from our e-commerce distribution platform called Qplash. |
| · | Increase in the Energy, Salt and Copa brands. |
| · | Offset by a partial decline in sales in the Hydration and Pulpoloco brands. |
24
Cost of Goods Sold
Three months ended September 30, 2023:
Cost of goods sold increased by 24%, over the same quarter last year $3,847,202compared to $3,101,807. The increase of $745,395 was due to:
| · | Increase in sales |
| · | Higher production costs in the Hydration brand |
| · | Increase in cost associated with valuation allowances for expired, damaged, or impaired inventory. |
Nine months ended September 30, 2023:
| · | Cost of goods sold increased by 27.5%, over the same nine months last year $11,326,298 compared to $8,886,508. The increase of $2,439,790 was due to: |
| · | Increase in sales |
| · | Higher production costs in the Hydration brand |
| · | Increase in cost associated with valuation allowances for expired, damaged, or impaired inventory. |
Operating Expenses
Three months ended September 30:
Operating expenses for the three months ended September 30, 2023, was $ 5,620,398 compared to $6,879,482 for the three months ended September 30, 2022, a decrease of $1,259,084. The decrease in operating expenses was primarily due to a decrease in consulting fees.
Nine months ended September 30:
Operating expenses for the nine months ended September 30, 2023, was $ 16,835,250 compared to $21,033,396 for the nine months ended September 30, 2022, a decrease of $4,198,146. The decrease in operating expenses was primarily due to:
| · | Decrease in consulting fees. |
| · | Offset by increase in Employee cost due to new hires |
| · | Offset by increase in e-commerce shipping and handling directly attributive to increase in e-commerce sales |
25
Net Other Income and Expense
Interest expense for the three and nine months ended September 30, 2023 was $221,488 and $561,249 respectively. For the three and nine months ended September 30, 2022 the interest expenses was $66,193 and $225,543 respectively due to additional convertible notes issued in December 2022.
Included in Other Income for the three months ended September 30, 2023 was an insurance settlement of $57,429. For the three and nine months ended September 30, 2022 the other income / expense $0.
Amortization of debt discount for the three months and nine months ended September 30, 2023 was $1,125,409 and $2,500,065 respectively. For the three and nine months ended September 30, 2022 the amortization of debt discount was $0.
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 expenditure.
As of September 30, 2023, the Company had total cash and cash equivalents of $96,121, as compared with $4,431,745 at December 31, 2022.
Net cash used for operating activities during the nine months ended September 30, 2023 was $8,503,765 as compared to the net cash used by operating activities for the nine months ended September 30, 2022 of $10,824,651. The driver for the change in net cash used is due to a reduction of inventory in 2023 and an increase of inventory to support sales commitments in 2022.
26
Net cash provided by financing activities during the nine months ended September 30, 2023 was $4,168,730. During the nine months ended September 30, 2023, the Company received $4,500,000 for convertible notes and a $460,000 loan from a related party, which was offset by repayments to debt holders of $757,270.
In order to have sufficient cash to fund 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 the Company. 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 new 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 issuance of incentive awards under equity 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 financial condition. The Company’s ability to obtain needed financing may be impaired by such factors as the capital markets and its 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
Share obligation:
None.
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 $165,000 for the three months remaining in 2023.
Inventory Purchase Commitments:
None.
Off-Balance Sheet Arrangements
The Company does 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
None.
Recently Issued Accounting Pronouncements
None.
27
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, 2023. 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, 2023, 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 as noted 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.
28
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS
There can be no assurances that the common stock will not be subject to potential delisting if the Company do not continue to maintain the listing requirements of the NYSE American.
Since June 11, 2021, the common stock has been listed on the NYSE American, under the symbol “SBEV”. The NYSE American has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing (i.e., being de-listed from the NYSE American), would make it more difficult for shareholders to sell our common stock and more difficult to obtain accurate price quotations on our common stock. This could have an adverse effect on the price of common stock. The ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing the Company may need in the future, may also be materially and adversely affected if common stock is not traded on a national securities exchange.
As of September 30, 2023, we have a negative stockholders’ equity. If we are unable to raise additional capital, or otherwise become unable to satisfy our obligations as they become due, we may become insolvent and face the risk of bankruptcy.
Since our inception and throughout most of our history, we have incurred net losses, including but not limited to, a net loss of $16,897,065 incurred in Fiscal 2022. As of December 31, 2022, we also reported positive stockholders’ equity of $9,322,134 and a gross loss of $$112,331,027. However, as of September 30, 2023, our current shareholders’ equity is ($657,830). We incur substantial expenditures related to manufacturing products in the United States, sales and marketing, general and administrative and research and development purposes. Our ability to achieve profitability in the future will primarily depend on our ability to increase sales of our products. Stockholders’ equity improvement will also be dependent on our ability to increase sales which will increase the value of our assets and decrease our liabilities. Future profitability is dependent on our ability to reduce manufacturing costs. However, some manufacturing costs are fixed and cannot be reduced.
Upon the occurrence of a breach relating to our outstanding notes, the lender may seek to remedy.
We may have breached terms on certain of our outstanding loans by violating certain covenants. Although we have not been informed by any of our lenders that we are in default, such lenders could do so, and at such time the lenders may seek to remedy. It is possible that the occurrence of such an event could place us in breach of other outstanding agreements as well. At this time we are current on all of our outstanding payments with respect to all of our outstanding agreements.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In the nine months ended September 30, 2023, the Company issued 1,150,000 shares in connection with convertible instruments. On May 10, 2023, the Company received $800,000 for the sale of convertible notes with 12.0% interest and eighteen-month term to four individual investors totaling 800,000 shares with an exercise price of $1.00 per share, the notes included 400,000 warrants with an exercise price of $0.25 per warrant. On June 28, 2023, the Company received $350,000 for the sale of convertible notes with 12.0% interest and eighteen-month term to two individual investors totaling 350,000 shares with an exercise price of $1.00 per share, the notes included 175,000 warrants with an exercise price of $0.25 per warrant. On August 10, 2023, the Company received $1,100,000 for the sale of a convertible note. The note has a twelve -month term, is non-interest bearing and is convertible into shares of common stock of the Company at $1.00 per share, the note includes 500 shares for every $1,000 purchased in the note. These notes were issued to fund acquisitions, equipment purchases and working capital.
In the three months and nine months ended September 30, 2023, the Company issued 99,999 and 316,665 shares of common stock to consultants in exchange for services and recognized non-cash compensation on our Condensed Consolidated Statement of Operation in the amount of $289,998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
No disclosure required.
ITEM 5. OTHER INFORMATION
None.
29
ITEM 6. EXHIBITS
(a) Exhibits required by Item 601 of Regulation S-K.
* Filed herewith
** Furnished herewith
30
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 BEVERAGE GROUP, INC. | ||
| Date: November 14, 2023 | By: | /s/ Robert Nistico |
| Robert Nistico, Chairman and CEO | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ Fatima Dhalla |
| Fatima Dhalla, Interim CFO | ||
| (Principal Accounting Officer and Principal Financial Officer) | ||
31
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Nistico, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Splash Beverage Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within the registrant, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 14, 2023 | |
| /s/ Robert Nistico | |
| Robert Nistico | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Fatima Dhalla, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Splash Beverage Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within the registrant, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 14, 2023 | |
| /s/ Fatima Dhalla | |
| Fatima Dhalla | |
| Interim Chief Financial Officer | |
| (Principal Accounting Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Form 10-Q of Splash Beverage Group Inc., a company duly formed under the laws of Nevada (the “Company”), for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert Nistico, President (Chief Executive Officer) of the Company, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 14, 2023 | /s/ Robert Nistico |
| Robert Nistico, Chief Executive Officer (Principal Executive Officer) |
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Form 10-Q of Splash Beverage Group, Inc., a company duly formed under the laws of Nevada (the “Company”), for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Fatima Dhalla, Interim Chief Financial Officer of the Company, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of her knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 14, 2023 | /s/ Fatima Dhalla |
| Fatima Dhalla Interim Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer) |
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.