Endovia Health Sciences, Inc 8-K/A, filed Apr 17, 2020
Endovia Health Sciences, Inc. (EDVA)
About this 8-K/A
Endovia Health Sciences, Inc filed this 8-K/A on April 17, 2020, reporting on events of March 31, 2020.
Items reported
- Item 2.01: Completed an acquisition or sale of assets
- Item 3.02: Unregistered sale of equity
- Item 5.02: Director or officer change, or executive pay
- Item 7.01: Regulation FD disclosure
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 31, 2020
| CANFIELD MEDICAL SUPPLY, INC. |
| (Exact Name of Registrant as Specified in Its Charter) |
| Colorado |
| (State or Other Jurisdiction of Incorporation) |
| 000-55114 | 34-1720075 | |||||
| (Commission File Number) | (IRS Employer Identification No.) | |||||
|
1314 E Las Olas Blvd, Suite 221
Fort Lauderdale, Florida 33301 |
||
| (Address of Principal Executive Offices) | ||
| (954) 745-5815 | ||
| (Registrant’s Telephone Number, Including Area Code) | ||
| (Former Name or Former Address, if Changed Since Last Report) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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EXPLANATORY NOTE
On April 6, 2020 Canfield Medical Supply, Inc. (the “Company”)
filed a current report on Form 8-K (the “Current Report) with the Securities and Exchange Commission disclosing that on
March 31, 2020 SBG Acquisition Inc. a wholly-owned subsidiary of the Company merged with and into Splash Beverage Group, Inc.
The Company is filing this Amendment No. 1 to the Current Report to disclose the financial statements required under Regulation
S-X.
| Item 2.01. | Completion of Acquisition or Disposition of Assets |
As previously reported on a Current Report on Form 8-K that was
filed with the Securities and Exchange Commission on January 7, 2020, on December 31, 2019 Canfield Medical Supply, Inc., a Colorado
corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”)
with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly-owned by the Company, and Splash Beverage Group,
Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub shall be merged with and into Splash (the “Merger”)
with Splash as the surviving company and a wholly-owned subsidiary of the Company.
The closing of the Merger took place on March 31, 2020 (the “Closing”) and on March 31, 2020, the Company filed Articles of Conversion/Exchange Merger with the Secretary of State of the State of Nevada pertaining to the merger of Merger Sub into Splash, with Splash as the surviving entity wholly owned by the Company, and the Merger became effective on that date.
Splash, a corporation incorporated under the laws of Nevada, specializes in manufacturing, distribution, selling and marketing of various beverages across multiple channels, operating in both the non-alcoholic and alcoholic segments, leveraging efficiencies and diluting risk.
In connection with the Merger, Splash entered into Lock-Up Agreements with officers, directors, employees, consultants and beneficial owners of more than 10% of the outstanding shares of Splash prior to the Merger (the “Lock-Up Holder”). Pursuant to the Lock-Up Agreements, the Lock-Up Holder agreed that for a period of 180 days (“Lock-Up Period”) from the Merger the Lock-Up Holder will not offer, pledge, sell or otherwise transfer or dispose of any shares of the common stock of the Company that the Lock-Up Holder receives in connection with the Merger( the “Lock-Up Securities”). Upon termination of the Lock-up Period the Lock-Up Holder may release from the sale restrictions in the Lock-Up agreements contained up to twenty-five percent (25%) of the Lock-up Securities during ninety (90) days after expiration of Lock Up Period and (ii) release from the sale restrictions contained in the Lock-Up Agreement all remaining Lock-up Securities six months after the Lock Up Period (collectively these six months are, the “Leak-Out Period”).
The Lock-up Securities may be released from the sale restrictions contained in the Lock-Up Agreement at any time following the Lock-up Period (the “Early L/U Release”) when both (a) the volume of Canfield shares traded are at least 50,000 shares of common stock per day (the “Volume Condition”) and (b) the closing price per share determined on a volume weighted average price basis equals not less than 300% of deemed value per share (the “Price Condition”) for 20 consecutive trading days (the “Trading Term Condition”) have been met. The “deemed value per share” shall equal the aggregate Canfield enterprise value post-Merger divided by the total number of shares outstanding but in any event shall be not less than $1.00 per share (before giving effect to a proposed reverse stock split discussed below).
The Lock-Up Agreements apply to approximately 4,734,334 shares of the common stock of the Company.
In connection with the Merger, Splash entered into Promissory Note Conversion Agreements with approximately eighteen (18) holders who held approximately $7,748,720 in principal and interest amount of debt. Pursuant to the Promissory Note Conversion Agreements, the holders agreed to convert the outstanding amount including principal and interest of the promissory notes held by them and receive common stock of Splash at a conversion rate of $1.00 per share. As a result of the conversions, 10,560,900 shares of the common stock of Splash (the “Note Conversion Shares”) were issued in exchange for the Outstanding Promissory Notes. Pursuant to the Promissory Note Conversion Agreements, the holders were given piggyback rights with respect to the Note Conversion Shares, which would require that the Note Conversion Shares are included on a registration statement that the Company files with the Securities and Exchange Commission seeking to register other shares. Under the Promissory Note Conversion Agreement, if the Company shall fail to raise $9,000,000 of additional capital no later than six months from the date of the Merger, then the holder may seek to rescind the Promissory Note Conversion Agreement, return the Note Conversion Shares and receive a replacement promissory note from the Company. A form of the replacement promissory notes is attached to the Current Report on Form 8-K as exhibit 4.1 and is incorporated by reference herein.
In connection with the Merger, Splash entered into Preferred Stock Conversion Agreements with the three (3) holders of 1,000,000 shares of its Series A Convertible Preferred Stock and thirty-eight (38) holders of 3,913,418 shares of its Series B Convertible Preferred Stock. Pursuant to the conversion agreements the holders agreed to convert their Preferred Stock into 13,930,413 shares (the “Preferred Stock Conversion Shares”) of the common stock of Splash. Pursuant to the Preferred Stock Conversion Agreements, the holders were given piggyback rights with respect to the Preferred Stock Conversion Shares, which would require that the Preferred Stock Conversion Shares are included on a registration statement that the Company files with the Securities and Exchange Commission seeking to register other shares. Under the Preferred Stock Conversion Agreement, if the Company shall fail to raise $9,000,000 of additional capital no later than six months from the date of the Merger, then the holder may seek to rescind the Preferred Stock Conversion Agreement, return the Preferred Stock Conversion Shares and receive replacement shares of preferred stock from the Company.
In connection with the Merger, the Company will issue (i) warrants to purchase 1,838,745 shares of its common stock to the holders of 1,349,120 shares of Splash Series B Convertible Preferred Stock (“Preferred B Warrants”) and (ii) warrants to purchase 96,664 shares of its common stock to certain debt holders of Splash in connection with a previous repurchase of Splash debt by such lenders (“Debt Repurchase Warrants” and collectively with the Preferred B Warrants the “SBG Warrants”). The warrants have an exercise price of $1.50 per share subject to adjustment as set forth in the warrant, and may be exercised on a cashless basis as set forth in the Warrant. The warrants are exercisable until three years form the date of issuance. The warrants contain a dilutive issuance provision such that in the event that the Company sells or issue shares of common stock for consideration that is less than the current exercise price the exercise price shall be reduced concurrently with such issue. The form of warrant is included as Exhibit 10.4 to this 8-K.
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In connection with the Merger, the company will issue warrants to purchase 4,088,766 shares of its common stock (the “New Warrants”) to the holders of warrants to purchase 3,000,000 shares of Splash common stock. The warrants have an exercise price of $.25 per share subject to adjustment as set forth in the warrant. If at any time after the warrant is issued, there is no effective registration statement registering or no current prospectus available for the resale of the shares of common stock issuable upon exercise of the warrant and the fair market value of one (1) share of Warrant Stock is greater than the exercise price the warrants may be exercised on a cashless basis. The warrants may be exercised until three years from the issuance date. The form of warrant is included as Exhibit 10.5 to this 8-K.
At the Closing, each outstanding share of common stock, was converted into such amount of fully paid and non-assessable shares of the common stock of the Company so that, upon completion of the Merger, the Company will issue to Splash’s equity holders common stock equaling approximately 85% of the Company on a fully diluted basis in exchange for the common stock of Splash and the current shareholders of the Company will own approximately 15% of the Company.
The foregoing descriptions of the Merger Agreement, the Lock-Up Agreements, the Promissory Note Conversion Agreement, the Preferred Stock Conversion Agreement, the form of Replacement Note, the SBG Warrant and the New Warrant do not purport to be complete and are qualified in its entirety by reference to these agreements which are attached hereto as Exhibit 2.1, 10.1, 10.2, 10.3, 10.4, 10.5, and 4.1 respectively and are incorporated herein by reference.
The Corporation’s Board approved a reverse split of the Corporation’s common stock at a ratio of not less than one share for every two shares but not more than one share for every 10 shares (the "Reverse Split Range") that are issued and outstanding shares of the Corporation's common stock to be effected not earlier than the first business date after the Closing but not later than three months thereafter.
| Item 3.02 | Unregistered Sales of Equity Securities |
As described in Section 2.01, the Company became obligated to issue an aggregate of 67,720,853 shares of common stock in connection with the Merger as well became obligated to issue warrants to purchase 19,067,337 shares of the Company’s common stock, which are included of the 85% fully diluted amount discussed above. The shares issued in connection with the Merger will be issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended since among other things the transactions did not involve a public offering.
| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On the Closing and pursuant to the Merger Agreement, John Matthias Lepo resigned as the Company’s Chief Executive Officer and Chief Financial Officer.
On the Closing and pursuant to the Merger Agreement, Robert Nistico was appointed as the Company’s Chairman of the Board, Chief Executive Officer and President, Dean Huge was appointed as the Company’s Chief Financial Officer, and Justin Yorke was appointed as the Company’s Secretary.
On the Closing and pursuant to the Merger Agreement, Michael West, and Stephen West, tendered their resignations as directors and, pursuant to the Merger Agreement, Robert Nistico and Justin Yorke, each of whom is a current director of Splash, become directors of the Company. Mr. Nistico owns approximately 5% of SALT Tequila USA, LLC. Splash is the manufacture and distributer of Salt Tequila’s products.
Robert Nistico, age 54, on March 31, 2020 became the Chief Executive Officer and a member of the board of directors of the Company. Since 2012, Mr. Nistico has served as the Chief Executive Officer and a member of the board of directors of the Splash Beverage Group, Inc. Mr. Nistico also served as the president of Viva Beverages, LLC. Mr. Nistico was the fifth employee at Red Bull North America, Inc. where he worked for 10 years and served as Vice President of Field Marketing and Sr. Vice President/General Manager. Mr. Nistico was instrumental in building the Red Bull brand in North and Central America and the Caribbean from $0 revenues to $1.45 billion in annual revenues. Earlier, he held the brand position of Regional Portfolio V.P and Division Manager for Diageo (formerly I.D.V. / Heublein), General Sales Manager for Republic National (formerly The Julius Schepps Company) and North Texas State Manager for The E & J Gallo Winery (and a variety of other management positions for those companies). Mr. Nistico serves as a Director of Apollo Brands. Mr. Nistico has more than 27 years of experience in the beverage industry, including direct and indirect sales management, strategic brand management & marketing, finance, operations, production and logistics. Mr. Nistico holds a B.A. from the University of Colorado.
Dean Huge, age 61, became the Chief Financial Officer of the Company on March 31, 2020 and since June 2018 has been the Chief Financial Officer of the Splash Beverage Group, Inc. From 2017 to June 2018 Mr. Huge was the Interim Chief Financial Officer of Splash Beverage Group, Inc. Mr. Huge was the President of D&H Energy Development, Inc. where he developed a toxic waste processing plant to create electrical energy from May 2013 to May 2017. With 35 years of experience, Mr. Huge’s career started on Wall Street in the private and public sectors. Mr. Huge has been involved with in-depth work in accounting, audits, IPOs, secondary offering and complex partnership matters. Mr. Huge’s experience includes expertise in financial services, manufacturing, distribution and SAAS type programs and he has degrees in Accounting and Finance.
Justin Yorke, age 51, became a member of the board of directors of the Company on the Merger and serves as Director of Splash Beverage Group, Inc. Since March 31, 2020, Mr. Yorke has also served as the Company’s Secretary. Mr. Yorke has over twenty-five years of experience in finance. Based in Hong Kong for a little over 10 years, he managed funds for a private Swiss Bank, Darier Henstch. Prior to that, Mr. Yorke managed funds for Peregrine Investments and Unifund, a high net worth family out based in Switzerland. For the past 10 years, Mr. Yorke has been a partner in San Gabriel Advisors and is the manager of the San Gabriel Fund, JMW Fund and Richland Fund. He has a B.A. degree from UCLA. Mr. Yorke is the principal of WesBev LLC which prior to the Merger was the majority shareholder of the Company.
There are no family relationships with any of the executive officers or directors of the Company and the above referenced individuals. Other than as set forth in the Merger Agreement there are no arrangements or understandings between the above referenced individuals and any other persons pursuant to which he was selected as a director, and there are no transactions in which he has an interest requiring disclosure under Item 404(a) of Regulation S-K.
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Item 7.01 Regulation FD Disclosure
On April 6, 2020, the Company issued a press release announcing the completion of the Merger. A copy of the press release is attached as Exhibit 99.1 and is incorporated herein by reference.
Item 8.01 Risk Factors
The Company is subject to all the same risks that all companies in its business, and all companies in the economy, are exposed to. These include risks relating to economic downturns, political and economic events and technological developments (such as hacking and the ability to prevent hacking). Additionally, early-stage companies are inherently more risky than more developed companies. The risk factors summarized below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, reputation, financial condition and/or operating results.
An occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations and our ability to raise capital.
The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. This event may also limit our ability to raise capital which as noted above could trigger certain rescission rights which could result in the Company’s incurring additional debt and preferred holders who may take preference over other common holders. These factors, in turn, may not only impact our operations, financial condition and demand for our products but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.
Demand for our products may be adversely affected by changes in consumer preferences or any inability on our part to innovate, market or distribute our products effectively, and any significant reduction in demand could adversely affect our business, financial condition or results of operations..
Our beverage portfolio is comprised of a number of unique brands with reputations and consumer imagery that have been built over time. Our investments in marketing as well as our strong commitment to product quality are intended to have a favorable impact on brand image and consumer preferences. Unfavorable publicity, or allegations of quality issues, even if false or unfounded, could tarnish our reputation and brand image and may cause consumers to choose other products. In addition, if we do not adequately anticipate and react to changing demographics, consumer and economic trends, health concerns and product preferences, our financial results could be adversely affected.
Competition.
The beverage industry is extremely competitive. Our products compete with a broad range of beverage products, most of which are manufactured and distributed by companies with substantially greater financial, marketing and distribution resources. In order to generate future revenues and profits, we must continue to sell products that appeal to our customers and consumers. Discounting and other actions by our competitors may make it more difficult to sustain revenues and profits.
Volatility in the price or availability of the inputs we depend on, including raw materials, packaging, energy and labor, could adversely impact our financial results.
Our financial results could be adversely impacted by changes in the cost or availability of raw materials and packaging. Continued growth would require us to hire, retain and develop a highly skilled workforce and talented management team. Any unplanned turnover or our failure to develop an adequate succession plan for current positions could erode our competitiveness. In addition, our financial results could be adversely affected by increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs.
Governmental regulation.
Our business and properties are subject to various federal, state and local laws and regulations, including those governing the production, packaging, quality, labeling and distribution of beverage products. In addition, various governmental agencies have enacted or are considering additional taxes on soft drinks and other sweetened beverages. Changes in existing laws or regulations could require material expenses and negatively affect our financial results through lower sales or higher costs.
Dependence on key personnel.
Our performance significantly depends upon the continued contributions of our executive officers and key employees, both individually and as a group, and our ability to retain and motivate them. Our officers and key personnel have many years of experience with us and in our industry and it may be difficult to replace them. If we lose key personnel or are unable to recruit qualified personnel, our operations and ability to manage our business may be adversely affected.
Because our officers and directors serve as officers and directors of other companies engaged in the beverage industry, a potential conflict of interest could negatively impact our ability to run our business.
Some of our directors and officers work for other companies in the beverage industry. Due to time demands placed on our directors and officers, and due to the competitive nature of the beverage industry, the potential exists for conflicts of interest to occur from time to time that could adversely affect our ability to conduct our business. The officers and directors’ employment and affiliations with other entities limits the amount of time they can dedicate to us as a director or officer and cannot be certain that a conflict of interest will not arise in the future. To date, there have not been any conflicts of interest between any of our directors or officers and the Company.
If our products become adulterated, misbranded or mislabeled, we might need to recall those items and we may experience product liability claims if consumers are injured or become sick.
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Product recalls or safety concerns could adversely impact our market share and financial results. We may be required to recall certain of our products should they be mislabeled, contaminated or damaged. We also may become involved in lawsuits and legal proceedings if it is alleged that the consumption of any of our products causes injury or illness. A product recall or an adverse result in any such litigation could have an adverse effect on our operating and financial results. We may also lose customer confidence for our entire brand portfolio.
Our distribution network relies on relationships with our distributors, and such reliance could affect our ability to efficiently and profitably distribute and market products, maintain existing markets and expand business into other geographic markets.
Our business relies upon distribution relationships for the sale and distribution of our products. There can be no assurance that we will be able to mitigate the risks related to all or any of these factors in any of the current or prospective geographic areas of distribution. To the extent that any of these factors have an adverse effect on the relationships with consultants, companies or retailers in a particular geographic area and, thus, limit our ability to maintain and expand the sales market, revenues and financial results may be adversely impacted. There also is no assurance that we will be able to maintain distribution relationships or establish and maintain successful relationships in new geographic distribution areas. There is the possibility that we will have to incur significant expenses to attract and maintain relationships in one or more geographic distribution areas in order to profitably expand geographic markets. The occurrence of any of these factors could result in a significant decrease in sales volume of our branded products and the products which we distribute for others and harm our business and financial results.
We will need significant additional capital, which we may be unable to obtain.
Our current liquidity position raises substantial doubt about our ability to continue as a going concern. If we are unable to raise additional capital and/or obtain financing sufficient to meet current and future obligations, we may not be able to continue as a going concern. Additionally, if the Company shall fail to raise $9,000,000 of additional capital no later than six months from the date of the Merger, then the holder may seek to rescind the Promissory Note Conversion Agreement, return the Note Conversion Shares and receive a replacement promissory note from the Company and the parties to the Preferred Stock Note Conversion Agreements may seek to rescind the Preferred Stock Conversion Agreement, return the Preferred Stock Conversion Shares and receive replacement shares of preferred stock from the Company. There can be no assurance that such funding will be available to the Company in the amount required at any time or, if available, that it can be obtained on terms satisfactory to the Company.
Future sales of common stock, or the perception of such future sales, by some of our existing stockholders could cause our stock price to decline.
The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell shares in the future at a time and at a price that we deem appropriate.
Our limited operating history makes it difficult to forecast our future results, making any investment in us highly speculative.
We have a limited operating history, and our historical financial and operating information is of limited value in predicting our future operating results. We may not accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts. Our current and future expense levels are based largely on our investment plans and estimates of future revenue. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which could then force us to curtail or cease our business operations.
Item 9.01 Financial Statements and Exhibits
| (a) | Financial Statements of Businesses Acquired |
In accordance with Item 9.01(a), the following are filed as exhibits to this Current Report on Form 8-K:
Audited financial statements of Splash Beverage Group, Inc. for the year ended December 31, 2019 are filed as Exhibit 99.2 hereto.
Audited financial statements of Splash Beverage Group, Inc. for the years ended December 31, 2018 and 2017 are filed as Exhibit 99.3 hereto.
|
(b)
|
Pro Forma Financial Information
In accordance with Item 9.01(b), the following is filed as an exhibit to this Current Report on Form 8-K:
The unaudited pro forma consolidated financial statements giving effect to the Merger Agreement transaction between Canfield Medical Supply, Inc. and Splash Beverage Group, Inc. are filed as Exhibit 99.4 hereto.
Exhibits. |
(1) Incorporated by reference to the Current Report on Form 8-K filed on January 7, 2020.
(2) Incorporated by reference to the Current Report on Form 8-K filed on April 6, 2020
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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 hereunto duly authorized.
Date: April 17, 2020
| CANFIELD MEDICAL SUPPLY, INC. | |
| /s/ Dean Huge | |
| Dean Huge |
|
| Chief Financial Officer | |
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Exhibit 99.2
Splash Beverage Group, Inc.
Consolidated Financial Statements
December 31, 2019
Table of Contents
To
the Board of Directors of
Splash Beverage Group, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Splash Beverage Group, Inc. (the “Company”) at December 31, 2019, and the related consolidated statements operations, changes in deficiency in stockholders’ equity and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the financial statements).
Management’s Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Continued from previous page
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
/s/ Daszkal Bolton LLP
Boca Raton, Florida
April 3, 2020
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Consolidated Balance Sheet
December 31, 2019
Assets
| Current assets: | ||||
| Cash and cash equivalents | $ | 42,639 | ||
| Accounts Receivable, net | 11,430 | |||
| Prepaid Expenses | 5,449 | |||
| Inventory | 304,012 | |||
| Other receivables | 7,132 | |||
| Total current assets | 370,662 | |||
| Non-current assets: | ||||
| Deposit | 34,915 | |||
| Right of use asset, net | 162,008 | |||
| Property and equipment, net | 37,729 | |||
| Total non-current assets | 234,652 | |||
| Total assets | $ | 605,314 | ||
| Liabilities and Deficiency in Stockholders' Equity | ||||
| Liabilities: | ||||
| Current liabilities | ||||
| Accounts payable and accrued expenses | $ | 703,905 | ||
| Right of use liability - current | 81,502 | |||
| Due to related parties | 429,432 | |||
| Bridge loan payable, net | 2,200,000 | |||
| Related party notes payable | 1,505,100 | |||
| Convertible Loan Payable | 2,202,664 | |||
| Notes payable, current portion | 875,000 | |||
| Royalty payable | 39,000 | |||
| Revenue financing arrangements | 45,467 | |||
| Shareholder advances | 46,250 | |||
| Accrued interest payable | 1,604,498 | |||
| Accrued interest payable - related parties | 546,362 | |||
| Total current liabilities | 10,279,180 | |||
| Long-term Liabilities: | ||||
| Right of use liability - noncurrent | 82,238 | |||
| Total long-term liabilities | 82,238 | |||
| Total liabilities | 10,361,418 | |||
| Deficiency in stockholders' equity: | ||||
| Series A Convertible Preferred Stock, $0.001 par, 3,000,000 shares issued and outstanding | 3,000 | |||
| Series B Convertible Preferred Stock, $0.001 par, 3,913,430 shares issued and outstanding | 3,913 | |||
| Common Stock, $0.001 par, 50,000,000 shares authorized, 22,078,551 shares issued, 21,978,551 shares outstanding | 22,079 | |||
| Additional paid in capital | 22,110,412 | |||
| Treasury Stock, $0.001 par, 100,000 shares at cost | (50,000 | ) | ||
| Accumulated deficit | (31,845,508 | ) | ||
| Total deficiency in stockholders' Equity | (9,756,104 | ) | ||
| Total liabilities and deficiency in stockholders' equity | $ | 605,314 | ||
The accompanying notes are an integral part of these financial statements.
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Consolidated Statement of Operations
For the Year Ended December 31, 2019
| Net revenues | $ | 20,387 | ||
| Cost of goods sold | (245,500 | ) | ||
| Negative gross margin | (225,113 | ) | ||
| Operating expenses: | ||||
| Contracted services | 2,109,146 | |||
| Salary and wages | 1,078,730 | |||
| Other general and administrative | 1,006,603 | |||
| Sales and marketing | 67,467 | |||
| Total operating expenses | 4,261,946 | |||
| Loss from operations | (4,487,059 | ) | ||
| Other income (expense): | ||||
| Interest income | 132 | |||
| Interest expense | (665,195 | ) | ||
| Gain/Loss from debt extinguishment | 16,391 | |||
| Total other income (expense) | (648,672 | ) | ||
| Provision for income taxes | - | |||
| Net loss | $ | (5,135,731 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated Statement of Changes in Deficiency in Stockholders' Equity
For the Year Ended December 31, 2019
| Series
A Convertible Preferred Stock | Series
B Convertible Preferred Stock | Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 3,000,000 | $ | 3,000 | 3,913,412 | $ | 3,913 | 19,248,781 | $ | 19,249 | 200,000 | $ | (100,000 | ) | $ | 18,952,483 | $ | (26,709,777 | ) | $ | (7,831,132 | ) | |||||||||||||||||||||||
| Issuance of Common stock and treasury stock for services | - | - | - | - | 1,254,500 | 1,255 | (100,000 | ) | 50,000 | 1,303,248 | - | 1,354,503 | ||||||||||||||||||||||||||||||||
| Issuance of Common stock for cash | - | - | - | - | 1,575,000 | 1,575 | - | - | 1,573,425 | - | 1,575,000 | |||||||||||||||||||||||||||||||||
| Warrants issued in connection with debt modification | - | - | - | - | - | - | - | - | 15,667 | - | 15,667 | |||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | - | - | - | - | 265,589 | - | 265,589 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (5,135,731 | ) | (5,135,731 | ) | |||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 3,000,000 | $ | 3,000 | 3,913,412 | $ | 3,913 | 22,078,281 | $ | 22,079 | 100,000 | $ | (50,000 | ) | $ | 22,110,412 | $ | (31,845,508 | ) | $ | (9,756,105 | ) | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
Splash
Beverage Group, Inc.
Consolidated Statement of Cash Flows
For the Year Ended December 31, 2019
| Net loss | $ | (5,135,731 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Depreciation and amortization | 9,334 | |||
| Amortization of ROU Asset | 53,194 | |||
| Gain from debt extinguishment | (16,391 | ) | ||
| Noncash finance charge in connection with a debt modification | 15,667 | |||
| Share-based compensation | 265,589 | |||
| Shares issued in exchange for services | 1,354,503 | |||
| Other noncash charges | 360,923 | |||
| Changes in working capital items: | ||||
| Accounts receivable | (11,428 | ) | ||
| Inventory | (27,224 | ) | ||
| Prepaid expenses and other current assets | (1,233 | ) | ||
| Deposits | (20,513 | ) | ||
| Accounts payable and accrued expenses | (127,167 | ) | ||
| Royalty payable | 17,938 | |||
| Accrued Interest payable | 604,211 | |||
| Net cash used in operating activities | (2,658,328 | ) | ||
| Cash Flows from Investing Activities: | ||||
| Capital Expenditures | (12,552 | ) | ||
| Net cash used in investing activities | (12,552 | ) | ||
| Cash Flows from Financing Activities: | ||||
| Proceeds from issuance of Common stock | 1,575,000 | |||
| Shareholder advances | 153,582 | |||
| Proceeds from issuance of debt | 130,000 | |||
| Principal repayment of debt | (31,641 | ) | ||
| Reduction of ROU Liability | (51,462 | ) | ||
| Net cash provided by financing activities | 1,775,479 | |||
| Net Decrease in Cash and Cash Equivalents | (895,401 | ) | ||
| Cash and Cash Equivalents, beginning of year | 938,040 | |||
| Cash and Cash Equivalents, end of year | $ | 42,639 | ||
| Supplemental Disclosure of Cash Flow Information: | ||||
| Cash paid for Interest | $ | 23,851 |
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
Notes to the Consolidated Financial Statements
Note 1 – Business Organization and Nature of Operations
Splash Beverage Group, Inc. (“we” or the “Company”) was organized on January 8, 2012 under the name Tapout Beverages, Inc. under the laws of Nevada. We changed our name to Splash Beverage Group, Inc. on April 17, 2012. On March 12, 2018, we formed a wholly owned subsidiary, Splash International Holdings, LLC, a Nevada corporation (“Holdings”), to conduct business in Central and South America. In December 2018, we formed a wholly owned subsidiary in Mexico, Splash MEX SA DE CV (“Splash Mex”), for the exportation of SALT Tequila from Mexico to the USA, South and Central Americas. We plan to commence distribution of TapouT in Mexico to serve the Central and South American markets. The Company specializes in development, procurement, distribution, and sales and marketing activities of various non-alcoholic and alcoholic beverages across multiple channels.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). These consolidated financial statements include the accounts of Splash Beverage Group and its wholly owned subsidiaries, Holdings and Splash Mex. All intercompany balances have been eliminated in consolidation.
Use of Estimates
The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents and Concentration of Cash Balance
We consider all highly liquid securities with an original maturity of three months or less to be cash equivalents. We had no cash equivalents at December 31, 2019. Our cash in bank deposit accounts, at times, may exceed federally insured limits of $250,000. Our bank deposit accounts in Mexico are uninsured.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at their estimated collectible amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. We establish provisions for losses on accounts receivable on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions. At December 31, 2019, our accounts receivable amounts are reflected net of allowances of $ 11,430.
Inventory
Inventory is stated at the lower of cost or net realizable value, accounted for using the weighted average cost method. The inventory balance at December 31, 2019 consisted of finished goods held for distribution. The cost elements in inventory consist of purchase of products, transportation, and warehousing. We establish provisions for excess or inventory near expiration are based on management’s estimates of forecast turnover of inventories on hand and under contract. A significant change in the timing or level of demand for certain products as compared to forecast
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Inventory, continued
amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on inventory. We manage inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments.
Property and Equipment
We record property and equipment at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic useful lives of assets, which ranges from 3-10 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 $19,781 for the year ended December 31, 2019. Property and equipment as of December 31, 2019 consisted of the following:
| Property and equipment, at cost | $ | 88,758 | ||
| Accumulated depreciation | (51,029 | ) | ||
| Property and equipment, net | $ | 37,729 |
Licensing Agreements
We capitalize the costs for our licensing agreements with ABG TapouT, LLC and Salt Tequila USA, LLC, which are amortized to expense on a straight-line basis over the term of the agreements.
The initial amount of the TapouT agreement as entered into by a related party prior to the Company’s assumption in 2013, was $4,000,000 to be paid over several years pursuant to a guaranteed minimum royalty agreement. Royalty costs incurred under the agreements, guaranteed minimum royalty amounts, are expensed as incurred. See Notes 5 and 13 for further information.
We have not made any payments to Salt Tequila USA, LLC under the licensing agreement due to the immaterial nature of our sales from the brand. See Note 10 for further information.
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:
- 8 -
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Fair Value of Financial Instruments, continued
| Level 1 - | Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. | |
| Level 2 - | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). | |
| Level 3 - | Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. |
The liabilities and indebtedness presented on the consolidated financial statements approximate fair values at December 31, 2019, consistent with recent negotiations of notes payable and due to the short duration of maturities.
Convertible Instruments
U.S. GAAP requires the bifurcation of certain conversion rights contained in convertible indebtedness and account for them as free standing derivative financial instruments according to certain criteria. This criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable U.S. GAAP.
When bifurcation is required, the embedded conversion options are bifurcated from the convertible note, resulting in the recognition of discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
With respect to convertible preferred stock, we record a dividend for the intrinsic value of conversion options embedded in preferred securities based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Revenue Recognition
We recognize revenue under ASC 606, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects what we expect to receive in exchange for the transfer of goods or services to customers.
We recognize revenue when our performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control of our products is transferred upon delivery to the customer. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring goods and is presented net of provisions for customer returns and allowances. The amount of consideration we receive and revenue we recognize varies with changes in customer incentives we offer to our customers and their customers. Sales taxes and other similar taxes are excluded from revenue.
Distribution expenses to transport our products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.
Cost of Goods Sold
Cost of goods sold include the costs of products, packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or impaired inventory.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”. Under the fair value recognition provisions, cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. The Company early adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns accounting treatment for such awards to non-employees with the existing guidance on employee share-based compensation in ASC 718.
Income Taxes
We use the liability method of accounting for income taxes as set forth in ASC 740, “Income Taxes”. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. We record a valuation allowance when it is not more likely than not that the deferred tax assets will be realized.
Company management assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
- 10 -
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Income Taxes, continued
For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. Company management has determined that there are no material uncertain tax positions at December 31, 2019.
Advertising
We conduct advertising for the promotion of our products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred; such amounts aggregated to $4,767 during the year ended December 31, 2019.
Related Parties
We are indebted to certain members of our Board of Directors at December 31, 2019. Transactions between us and the Board members are summarized in Notes 4 and 9.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606). This ASU supersedes the previous revenue recognition requirements in ASC Topic 605— Revenue Recognition and most industry-specific guidance. The core principle within Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. Transition methods under ASU 2014-09 must be through either (i) retrospective application to each prior reporting period presented, or (ii) retrospective application with a cumulative effect adjustment at the date of initial application.
On January 1, 2019, we adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”), using the retrospective application with a cumulative effect adjustment at the date of initial application, which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial asset. The adoption did not have a material effect on our Consolidated Financial Statements
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability for most leases in its balance sheet. The ASU is effective for annual periods beginning after December 15, 2019. Early adoption is permitted.
We adopted the standard on January 1, 2019, using the modified retrospective method. The adoption of this standard resulted in recognition of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, for all leases with a term greater than 12 months. When available, we would use the rate implicit in the lease to discount lease payments to present value. However, our leases generally do not provide a readily determinable implicit rate. Therefore, our management estimates the incremental borrowing rate to discount lease payments based on the information at the lease commencement. The accounting for finance leases is substantially unchanged. Given the nature of our operation, the adoption of Topic 842 did not have a material impact on our balance sheet, statement of income, or liquidity. Refer to Note 11 – Operating Lease Obligations for information regarding our adoption of Topic 842 and the Company’s undiscounted future lease payments and the timing of those payments.
- 11 -
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements, continued
Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Management’s Evaluation
Management has evaluated subsequent events through April 3, 2020, the date the financial statements were available to be issued.
Note 3 – Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our business operations have not yet generated significant revenues, and we have sustained net losses of approximately $5.1 million during the year ended December 31, 2019 and have an accumulated deficit of approximately $31.8 million at December 31, 2019. In addition, we have current liabilities in excess of current assets of approximately $9.9 million at December 31, 2019. Further, we are in default on approximately $3.8 million of indebtedness, including accrued interest.
Our ability to continue as a going concern in the foreseeable future is dependent upon our ability to generate revenues and obtain sufficient long-term financing to meet current and future obligations and deploy such to produce profitable operating results. Management has evaluated these conditions and plans to raise capital as needed and to generate revenues to satisfy our capital needs. No assurance can be given that we will be successful in these efforts.
These factors, among others, raise substantial doubt about our ability to continue as a going concern for a reasonable period of time. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
- 12 -
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable
Notes payable are generally nonrecourse and secured by all Company owned assets.
| Interest | ||||||
| Rate | 2019 | |||||
| Notes Payable | ||||||
| In October 2013, we entered into a short-term loan agreement with an entity in the amount of $25,000. The note matured and remains unpaid. | 7% | $ | 25,000 | |||
| In February 2014, we entered into a 12-month term loan agreement with an individual in the amount of $200,000. The note included warrants for 50,000 shares of common stock at $1.00 per share. The warrants expired on February 28, 2017 and none were exercised at that date. The note matured and remains unpaid. | 15% | 150,000 | ||||
| In March 2014, we entered into a 12-month term loan agreement with an individual in the amount of $500,000. The note included warrants for 500,000 shares of common stock at $1.25 per share. The warrants expired on February 28, 2017 and none were exercised at that date. The loans matured and remain unpaid. | 15% | 500,000 | ||||
| In March 2014, we entered into a short-term loan agreement with an entity in the amount of $200,000. The note included warrants for 200,000 shares of common stock at $1.25 per share. The warrants expired on February 28, 2017 and none were exercised at that date. The loans matured and remain unpaid. | 8% | 200,000 | ||||
| $ | 875,000 | |||||
Interest expense on notes payable was $105,966 for the year ended December 31, 2019 and accrued interest was $581,693 at December 31, 2019.
- 13 -
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
| Interest | ||||||
| Rate | 2019 | |||||
| Related Parties Notes Payable | ||||||
| During 2012, we entered into two 6-month term loan agreements with an entity, totaling $150,000. The notes included warrants for 50,000 shares of common stock at $1.00 per share which expired unexercised in 2017. The loans matured and remain unpaid. | 7% | $ | 41,500 | |||
| In March 2014, we entered into a $50,000 12-month term loan agreement. The note included warrants for 100,000 shares of common stock at $1.25 per share. The warrants expired unexercised on February 28, 2017. The loan matured and remains unpaid. | 8% | 50,000 | ||||
| During 2015, we entered into a 12-month term loan agreement with an individual in the amount $250,000. The loan matured and remains unpaid. | 8% | |||||
| 250,000 | ||||||
| In February 2012, we entered into a loan agreement with an officer of the Company in the amount of $100. On September 25, 2018 an additional $10,500 loan agreement was entered into. The loan matured and remains unpaid. | 7% | 10,600 | ||||
| During 2013, 2014, 2015, and 2016, we entered into several 12-month term loan agreements with an officer of the Company in the amounts of $57,000, $225,000, $105,000, and $9,000, respectively. The loans matured and remain unpaid. | 7% | 396,000 | ||||
Continued on next page
- 14 -
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
| Interest | ||||||
| Rate | 2019 | |||||
| Related Parties Notes Payable, continued | ||||||
| During 2012, 2013, 2014, and 2016, we entered into 6-month term loan agreements with an officer of the Company in the amounts of $155,000, $210,000, $150,000 and $40,000, all respectively. The notes included warrants for issuances of 150,000 shares of common stock at $1.25 per share. The warrants expired unexercised on March 1, 2017. The loans matured and remain unpaid. | 7% | 495,000 | ||||
| During 2013, 2014 and 2017, we entered into 12-month term loan agreements with an officer of the Company in the amounts of $60,000, $50,000 and $10,000. The loans matured and remain unpaid. | 7% | 120,000 | ||||
| During 2018, we entered into a long term note payable with an entity owned by an officer for $12,000 to be payable on July 10, 2020. | 12% | 12,000 | ||||
| During 2019, we entered into a term note payable with an entity owned by an officer for $130,000 to be paid on August 8, 2019. The loan matured and remains unpaid. | 12% | 130,000 | ||||
| $ | 1,505,100 | |||||
Interest expense on related party notes payable was $95,183 for the year ended December 31, 2019 and accrued interest was $546,362 as of December 31, 2019.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
| Interest | ||||||
| Rate | 2019 | |||||
| Convertible Bridge Loans Payable | ||||||
| In May 2015, we entered into a 3-month term loan agreement with an individual in the amount of $100,000. The annual interest rate for this bridge loan was 32% for the first 90 days, and 4% thereafter, compounded monthly. The loans matured and remain unpaid. | See left | $ | 100,000 | |||
| In September 2015, we entered into a 3-month term loan with an individual in the amount of $200,000. In October 2018, the full outstanding principal balance of $200,000 and unpaid accrued interest of $165,000 was converted into 243,360 shares of our common stock at $1.50 per share. | 18% | - | ||||
| In October 2015, we entered into a 3-month term loan agreement with two individuals in the amount of $25,000. On December 26, 2018, the outstanding principal and accrued interest of $14,388 was consolidated into a new $39,388 term loan due August 26, 2020. | 12% | 39,388 | ||||
| In September 2015, we entered into a 3-month term loan with an individual in the amount of $175,000. In October 2018, the full outstanding principal balance of $175,000 and unpaid accrued interest of $144,410 was converted into 212,940 shares of the Company’s common stock at $1.50 per share. | 18% | - | ||||
| In June 2015, we entered into a 3-month term loan with two individuals in the amount of $100,000. On December 26, 2018, the outstanding principal amount of $100,000 and accrued interest of $64,307 was consolidated into a new $164,307 term loan due August 26, 2020. | 12% | 164,307 | ||||
Continued on next page
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
| Interest | ||||||
| Rate | 2019 | |||||
| Convertible Bridge Loans Payable, continued | ||||||
| During 2016, 2017 and 2018, we entered into multiple loan agreements with an entity in varying amounts. On December 26, 2018, the outstanding principal of $235,500 and accrued interest of $155,861 was consolidated into a new $391,361 term due | 12% | 391,361 | ||||
| During 2016, we entered into 3-month term loan agreements with an individual totaling $20,000. The loan was extended to August 14, 2020. | 9% | 20,000 | ||||
| During 2014 through 2018, we entered into convertible promissory note agreements with various terms ranging from 90 days to 18 months at 18% interest with an entity which were consolidated into one loan at 12% in 2018 totaling $795,137 with a due date of August 26, 2020. | 12% | 795,137 | ||||
| During 2015 and 2016, we entered into a series of 3-month term convertible promissory note agreements at 18% interest with an entity which were consolidated into one loan at 12% in 2018 totaling $692,471 with a due date of August 26, 2020. | 12% | 692,471 | ||||
| $ | 2,202,664 | |||||
During 2018, we issued convertible bridge loans payable in varying amounts with three-to-eighteen-month terms. The principal of these notes is convertible, at the holders’ option, into shares of our common stock. The total principal of these issuances amounted to $226,984. The stated interest rate on these loans was 12% on $200,500 of the notes and 8% on $26,484 of the notes. At December 31, 2019, the full $226,984 has not matured.
During 2018 multiple convertible bridge loans payable to five counterparties, and related unpaid interest were consolidated into five new convertible bridge loans payable totaling $2,082,665. The notes are of varying amounts and are due in August 2020, at an interest rate of 12%. The Company analyzed the notes and concluded the conversion terms did not constitute beneficial conversion features. The principal amount and any accrued and unpaid interest are convertible at the conversion price of a potential future offering of the Company.
Interest expense on the convertible bridge loans payable was $310,865 for the year ended December 31, 2019 and accrued interest was $439,344 at December 31, 2019.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
| Interest | ||||||
| Rate | 2019 | |||||
| Revenue Financing Arrangements | ||||||
| During August 2015, we entered into a 3-month term loan agreement with an entity in the amount of $50,000, with required daily payments of $999. we entered into two additional 3-month loan agreements with the entity in 2016 in the amounts of $60,000 and $57,000, with required daily payments of $928 and $713, respectively. The term loans matured and remain unpaid. | 10% | 28,032 | ||||
| During 2016, we entered into several short-term loan agreements with an entity totaling $50,100. The loans were settled in 2018, resulting in an extinguishment gain of $3,520. | 12.50% | - | ||||
| During September 2016, we entered into a short-term loan agreement with an entity in the amount of $55,000 with required daily payments of $929. The note was in default as of December 31, 2018. In 2019, we fully repaid the outstanding loan amount. | 15% | - | ||||
| During November 2016, we entered into a short-term loan agreement with an entity in the amount of $55,000 with required daily payments of $1,299. The note was in default as of December 31, 2018. In 2019, we entered into a settlement | 12% | 17,435 | ||||
| $ | 45,464 | |||||
Interest expense on the revenue financing arrangements was $2,577 for the year ended December 31, 2019 and accrued interest was $32,154 at December 31, 2019.
Bridge Loan Payable
We issued an additional bridge loan in October 2018 for $2 million with a one-year maturity to GMA Bridge Fund LLC (“GMA”). This bridge loan contains a 10% administration fee of which the full $200,000 was accrued at December 31, 2019 and included in bridge loan payable, net. The Company incurred $271,670 of loan costs, which was fully amortized at December 31, 2019. Interest on the bridge loan was 0.5% monthly for the first six months and 0.75% monthly for the next six months. At the same time the debt was issued, we entered into a separate agreement in which GMA provided consulting services for one year (“Consulting Agreement”). We compensated GMA for the Consulting Agreement services by issuance of a warrant with a 5-year term to acquire 1,000,000 shares of our common stock at an exercise price of $0.01 per share. The warrant vested immediately. The value of the warrant, based on a Black-Scholes option pricing model, was $991,423 and was expensed in full in 2018. Interest expense on the bridge loan for the year ended December 31, 2019 was $137,637, and accrued interest at December 31, 2019 was $166,240.
- 18 -
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
Future Minimum Debt Payments
Future minimum debt payments under the Company’s outstanding loans are as follows at December 31, 2019:
| Related Party | Other | Total | ||||||||||
| 2020 | $ | 1,505,100 | $ | 2,102,664 | $ | 3,607,764 | ||||||
| Thereafter | - | - | - | |||||||||
| Total | $ | 1,505,100 | $ | 2,102,664 | $ | 3,607,764 | ||||||
Note 5 – Licensing Agreement and Royalty Payable
During 2012, we entered into an assignment agreement with ABG TapouT, LLC (“TapouT”) to obtain the licensing rights of the brand “TapouT” on energy drinks, energy shots, water, teas and sports drinks for beverages sold in the United States of America, its territories, possessions, U.S. military bases and Mexico. Under the terms of the agreement, we are required to pay ABG Tapout, LLC a 6% royalty on net sales (gross revenue less discounts and allowances). The agreement requires us to make varying guaranteed minimum royalty payments in the total amount of $3,500,000 for the initial period of 5 years beginning in 2012. The terms of the license agreement were subsequently amended on several occasions between 2012 and 2016. During April 2017, the license agreement was again amended, to extend the term through December 31, 2018 with a 5-year renewal option if $5 million of net sales were achieved in 2018. The amendment also stated we were required to make a $30,000 payment on the date of the executed amendment, monthly payments of $30,000 starting on April 30, 2017 through December 31, 2017, and monthly payments of $26,484 starting on January 31, 2018 through December 31, 2018. We did not achieve the minimum net sales requirement per the amendment terms for 2018. In 2019 the agreement was once again amended extending the term through December 31, 2019. Per the 2019 amendment, the Company is required to make twelve monthly payments of $39,000. See Note 13.
The unpaid amount of royalties was $39,000 at December 31, 2019. Guaranteed minimum royalty payments totaled $468,000 for the year ended December 31, 2019, which is included in general and administrative expenses.
Note 6 – Income Taxes
We have evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax planning strategies to determine which deferred tax assets are more likely than not to be realized in the future.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 6 – Income Taxes, continued
At December 31, 2019, our net operating loss carryforward for Federal income tax purposes was approximately $23.2m, which will be available to offset future taxable income. If not used, these carry forwards will begin to expire in 2032, except for the current year net operating loss generated which can be carried forward indefinitely.
There was no income tax expense or benefit for the year ended December 31, 2019 due to the full valuation allowance recorded.
The reconciliation of the income tax benefit is computed at the U.S. federal statutory rate as follows:
| 2019 | ||||
| US federal statutory tax rate | 21.00 | % | ||
| Permanent differences | -6.56 | % | ||
| Change in valuation allowance | -14.44 | % | ||
| Total | 0.00 | % | ||
The tax effects of temporary differences which give rise to the significant portions of deferred tax assets or liabilities at December 31 are as follows:
| 2019 | ||||
| Deferred tax assets: | ||||
| Net operating losses | $ | 5,887,022 | ||
| Deferred rent | 1,381 | |||
| Accrued expenses/interest expense limitation | 962,838 | |||
| Total deferred tax assets | 6,851,241 | |||
| Deferred tax liabilities: | ||||
| Depreciation | (7,354 | ) | ||
| Total deferred tax liabilities | (7,354 | ) | ||
| Less: valuation allowance | (6,843,887 | ) | ||
| Total net deferred tax liabilities | $ | - | ||
We continually evaluate expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The open tax years subject to examination with respect to our operations are 2015 through 2019.
Common Stock
In 2019, we issued 1,354,500 shares of our common stock in exchange for services provided to us. The shares were valued at $1.00 per share. We recognized share-based compensation expense of $1,354,500, which is classified within the contracted services line on the Statement of Operations.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 7 – Deficiency in Stockholders’ Equity
Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock are subject to adjustment in the event of any recapitalization, dividend, split, combination, or other similar event. Series A Convertible Preferred Stock were issued in units, with each unit consisting of one share of Series A Convertible Preferred Stock, par value $0.001, and one common stock purchase warrant. The warrants entitle the holders to purchase one share of the Company’s common stock at a price of $1.00 per share during the five-year period commencing on the date of the issuance of the warrants. Series A Preferred Stock rank, with respect to dividend rights and rights upon any voluntary or involuntary liquidation, dissolution or winding up of the Company (Liquidation Event), as senior in preference and priority to the common stock, par value $0.001, and any other class or series of equity security established and designated by the Company’s Board of Directors and in parity with Series B Convertible Preferred Stock. Liquidation preference is 150% of the original issue price, which totaled $4,500,000 at December 31, 2019. The liquidation preference ranks in parity with Series B Preferred Stock.
The holders of the Series A Preferred Stock are entitled to receive cash dividends when and if declared, out of any assets available, prior to any declaration or payment of any dividend on any other class of preferred stock and common stock of the Company at an annual rate of 8% of the original issue price (equal to $0.08 per share per annum based on $1.00 per share purchase price). The cumulative dividend amounted to $1,364,361 as of December 31, 2019. The Company has not accrued this amount as the dividends are not payable until when and if declared by the board as previously mentioned. Such dividends are cumulative and convertible into common stock under the same terms as the Series B Preferred Stock.
Each holder of Series A Preferred Stock shall be entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall be entitled to that number of votes equal to the number of shares of common stock into which the holder's shares of Series A Preferred Stock could then be converted at the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, and the holders of shares of Series A Preferred Stock and Common Stock shall vote together (or tender written consents in lieu of a vote) as a single class on all matters submitted to the stockholders of the Company.
Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and non-assessable shares of common stock as is determined by dividing the Series A original issue price ($1.00 per share) by the conversion price ($0.85 per share) in effect at the time of conversion, subject to certain dilution protections. The conversion price at which shares of common stock shall be deliverable upon conversion of Series A Preferred Stock without the payment of additional consideration by the holder thereof shall initially be $0.85 per share. All accrued and unpaid dividends may be converted by each holder of Series A Preferred Stock into common stock by first determining the number of shares of Series A Preferred Stock that could be purchased based on the Series A original issue price then in effect and then determining the number of shares of common stock such additional shares of Series A Preferred Stock are convertible into.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 7 – Deficiency in Stockholders’ Equity, continued
Series A Convertible Preferred Stock, continued
Upon the consummation of an underwritten public offering of the common stock of the Company ("IPO"), each share of Series A Preferred Stock shall automatically be converted into such number of fully paid and non-assessable shares of common stock at a conversion price equal to the lesser of (i) the conversion price in effect immediately prior to the consummation of the IPO or (ii) fifty percent (50%) of the public offering price of the Common Stock in the IPO. All accrued and unpaid dividends may be converted by each holder of Series A Preferred Stock into common stock by first determining the number of shares of Series A Preferred Stock that could be purchased based on the Series A original issue price then in effect and then determining the number of shares of common stock such additional shares of Series A Preferred Stock are convertible into.
Series B Convertible Preferred Stock
During 2017, the Company issued 495,900 shares of Series B Convertible Preferred Stock at $1.50 per share resulting in total proceeds of $736,350 along with 247,950 warrants for the Company’s common stock. The warrants expire after 5 years and are exercisable at $1.50 per share.
In 2018, the Company issued 132,406 shares of Series B Convertible Preferred Stock at $1.50 per share resulting in total proceeds of $198,609 along with 66,203 warrants for the Company’s common stock. The warrants expire after 5 years and are exercisable at $1.50 per share.
The Company has issued Series B Convertible Preferred shares in units, each unit consisting of one share of Series B Convertible Preferred Stock, par value $0.001, and one-half share common stock warrant per share of Series B Convertible Preferred Stock, at a price of $1.50 per unit. Per the warrant agreement, the Company issued to the purchasers five-year warrants to purchase shares of the Company’s Common Stock, par value $0.001, at an exercise price of $1.50 per share. As of December 31, 2019, 1,902,887 warrants were exercisable, respectively. Liquidation preference is 150% of the original issue price, which totaled $9,315,693 at December 31, 2019. The liquidation preference ranks in parity with Series A Preferred Stock.
The holders of the Series B Convertible Preferred Stock are entitled to receive cash dividends, out of any assets available, prior to any declaration or payment of any dividend on any other class of preferred stock and common stock of the Company, except that it is in parity with Series A Preferred stock, at an annual rate of 9% of the original issue price (equal to $0.135 per share per annum). Such dividends are cumulative and convertible to common stock under the same terms as the Series A Preferred Stock. The cumulative dividend amounted to $2,179,134 as of December 31, 2019. The Company has not accrued this amount as the dividends are not payable until when and if declared by the board.
Each holder of Series B Preferred Stock shall be entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall be entitled to that number of votes equal to the number of shares of Common Stock into which the holder's shares of Series B Preferred Stock could then be converted at the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, and (b) the holders of shares of Series B Preferred Stock and Common Stock shall vote together (or tender written consents in lieu of a vote) as a single class on all matters submitted to the stockholders of the Company.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 7 – Deficiency in Stockholders’ Equity, continued
Series B Convertible Preferred Stock, continued
Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Series B original issue price ($1.50 per share) by the conversion price ($1.28 per share) in effect at the time of conversion, subject to certain dilution protections. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series B Preferred Stock without the payment of additional consideration by the holder thereof shall initially be $1.28 per share. All accrued and unpaid dividends may be converted by each holder of Series B Preferred Stock into Common Stock by first determining the number of shares of Series B Preferred Stock that could be purchased based on the Series B Original Issue Price then in effect and then determining the number of shares of Common Stock such additional shares of Series B Preferred Stock are convertible into.
Upon the consummation of an underwritten public offering of the Common Stock of the Company ("IPO"), each share of Series B Preferred Stock shall automatically be converted into such number of fully paid and non-assessable shares of Common Stock at a conversion price equal to the lesser of (i) the conversion price in effect immediately prior to the consummation of the IPO or (ii) fifty percent (50%) of the public offering price of the Common Stock in the IPO. All accrued and unpaid dividends may be converted by each holder of Series B Preferred Stock into Common Stock by first determining the number of shares of Series B Preferred Stock that could be purchased based on the Series B original issue price then in effect and then determining the number of shares of common stock such additional shares of Series B Preferred Stock are convertible into.
Undesignated Preferred Stock
The Company has authorized a total of 20,000,000 shares of preferred stock, of which 6,000,000 of such authorized shares of preferred stock remain undesignated at December 31, 2019.
Treasury Stock
Since its inception, we have repurchased shares from our shareholders. To date, we have repurchased 900,000 shares, of which 600,000 have been retired.
In connection with a 2018 consulting agreement, we are committed to issue the 300,000 shares held in treasury upon the occurrence of certain events or milestones. We issued 100,000 shares in July 2018 and 100,000 shares in July 2019.
Warrant Issuance-Series A Convertible Preferred Stock
As part of the sale and issuance of 3,000,000 shares of our Series A Convertible Preferred Stock, we issued 3,000,000 warrants to purchase shares of our common stock at a price of $1.00 per share. The warrants have a five-year term. These warrants have expired.
Warrant Issuance-Series B Convertible Preferred Stock
As part of the sale and issuance of 3,913,414 shares of our Series B Convertible Preferred Stock, we issued 1,956,707 warrants to purchase shares of our common stock at a price of $1.50 per share. The warrants have a 5-year term. At December 31, 2019, there are 1,902,887 warrants outstanding with a weighted average remaining life of 0.9 years.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 7 – Deficiency in Stockholders’ Equity, continued
Warrant Issuance-Loan Agreements
In 2014, the Company issued seven (7) warrants for the purchase of 1,000,000 shares of the Company’s common stock. The warrants were issued with various loan agreements as described above in Note 4. Two warrants for a total of 100,000 shares of common stock were issued with exercise prices of $1.00 per share and five warrants for a total of 900,000 shares of common stock were issued with an exercise price of $1.25 per share. The Company estimated the fair value of the warrants totaling $161,626 based on its estimate of the fair value of the Company’s common stock at the issuance date, an average risk-free interest rate of 1.69%, the estimated life of half of the term of the warrant, a zero dividend yield and, a volatility rate of 50%, which was recorded as a discount to the notes and amortized over the notes’ lives under the effective interest rate method. The fair value of the warrants were expensed over the life of the loans which was 12 months. These warrants have expired.
Note 8 – Share-Based Payments
Warrant Issuance-GMA Consulting Services
We issued 1,000,000 warrants to purchase shares of our common stock at $0.01 per share as part of our consulting agreement with GMA, At December 31, 2019, the weighted average life of the outstanding warrants is 3.75 years.
The warrants entitle the holder to purchase one share per warrant of the Company’s common stock at a price of $0.01 per share during the five-year period commencing on October 2, 2018, or, if greater, the number of common shares with a market value equivalent to two percent of the enterprise value of the Company at an exercise price of $0.008 per share.
Stock Plan
We have adopted the 2012 Stock Incentive Plan (the “Plan”), which provides for the grant of common stock and stock options to employees. We have reserved 3,000,000 shares for issuance under the Plan. The option exercise price generally may not be less than the underlying stock’s fair market value at the date of the grant and generally have a term of ten years. On December 31, 2018, the sole option holder at the time, our CEO, exercised his options to purchase 1,950,000 shares of common stock at a purchase price of $0.16 per share, totaling $312,000, which total purchase price was paid by the cancelation of the equivalent amount of debt owed by us to the CEO. On December 7, 2019, our Board of Directors granted 825,000 options to certain employees and consultants. None of these options were exercised at December 31, 2019. There are 825,000 options issued and outstanding under the Plan at December 31, 2019. As of December 31, 2019, the total number of options available for grant is 225,000.
We measure employee stock-based awards at the grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of our common stock, and for stock options, the expected life of the option, and expected stock price volatility and exercise price. We used the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 8 – Share-Based Payments, continued
Stock Plan, continued
application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The expected life of stock options was estimated using the “simplified method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, we have limited historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, we use comparable public companies as a basis for its expected volatility to calculate the fair value of options granted. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.
We recognized stock-based compensation expense of $265,589 for the year ended December 31, 2019. There was no unrecognized compensation cost related to stock option awards at December 31, 2019.
A summary of information related to stock options for the years ended December 31, 2019 is as follows:
| Options | Weighted
Average Exercise Price | |||||||
| Outstanding - beginning of year | - | $ | - | |||||
| Granted | 825,000 | $ | 1.00 | |||||
| Exercised | - | $ | - | |||||
| Cancelled/forfeited | - | $ | - | |||||
| Outstanding - end of year | 825,000 | $ | 1.00 | |||||
| Exercisable at end of year | 825,000 | $ | 1.00 | |||||
| Weighted average grant date fair value of options during year | N/A | |||||||
| Weighted average duration to expiration of outstanding options at year-end | 5.0 | |||||||
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 9 – Related Parties
During the normal course of business, we incurred expenses related to services provided by our CEO or Company expenses paid by our CEO, resulting in related party payables, net of $429,432 as of December 31, 2019. The related party payable to the CEO bears no interest payable and is due on demand.
There are related party notes payable of $1,505,100 outstanding as of December 31, 2019 as discussed in Note 4.
Note 10 – Investment in Salt Tequila USA, LLC
On December 9, 2013, we entered into a marketing and distribution agreement with SALT Tequila USA, LLC (“SALT”) in Mexico for the manufacturing of our product line. The agreement was for a one-year term with an additional two-year renewal. On December 28, 2015, the agreement was extended through 2020. In the December 9, 2013 agreement, we received a 5% ownership interest in SALT, 12 months after the date of the agreement we received an additional 5% ownership interest in SALT, and 24 months after the date of the agreement we received an additional 5% interest, resulting in a total interest of 15% in SALT. We have not recorded the cost of the investment or our share of its results of operations as the amounts are considered immaterial.
SALT also has sold product to an unrelated international alcohol distributor, American Spirits Exchange, for preliminary market testing in 9 of 16 states that they distribute to, that are government-controlled alcohol resellers. In 2019 we had no sales for SALT Tequila. On December 31, 2018, we created a Mexican subsidiary, Splash MEX SA DE CV (“Splash Mex”) for the exporting of SALT Tequila from Mexico to the USA, South and Central Americas. Splash Mex will also act as the manufacturing and distribution agent of TapouT in Central and South Americas. Applications for the appropriate licenses required for import and wholesale of alcohol in the USA have been completed for at the Federal and State levels. These licenses will permit direct alcohol sales to distributors and wholesalers thereby limiting the use of agents for importing SALT Tequila to the USA for distribution.
Note 11 – Operating Lease Obligations
Effective July 2018, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced July 1, 2018 and is scheduled to expire after 36 months, on June 30, 2021.
Prior to the current lease, we entered into a lease agreement in 2014 for the right to use and occupy office space. The lease term commenced November 1, 2014 and was scheduled to expire after 62 months, on December 31, 2019. The lease was terminated in February 2018.
Effective November 2019, we entered into a new lease agreement for our NY affiliate. The lease is for six months and will expire on April 30, 2020. This lease was not subjected to the new lease standard, Topic 842.
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 11 – Operating Lease Obligations, continued
Effective November 2019, we entered into a new lease with Interport Logistics, LLC. The lease term commenced on November 11, 2019 and is scheduled to expire on November 11, 2020. This lease was subjected to the new lease standard, Topic 842.
Effective May 2019, we entered into a new lease in Mexico. The lease commenced May 1, 2019 and is scheduled to expire after 24 months, on April 1, 2021. This lease was subjected to the new lease standard, Topic 842.
The following table presents a reconciliation of the undiscounted future minimum lease payments, under the leases for our office and warehouses to the amounts reported as financial lease liabilities on the consolidated balance sheet at December 31, 2019:
| Undiscounted Future Minimum Lease Payments | Operating Lease | |||
| 2020 | $ | 87,734 | ||
| 2021 | 59,291 | |||
| Thereafter | 26,170 | |||
| Total | 173,195 | |||
| Amount representing imputed interest | (9,196 | ) | ||
| Total operating lease liability | 163,999 | |||
| Current portion of operating lease liability | (81,501 | ) | ||
| Operating lease liability, non-current | $ | 82,498 | ||
The table below presents information for lease costs related to our operating leases at December 31, 2019:
| Operating lease cost: | ||||
| Amortization of leased assets | $ | 52,692 | ||
| Interest of lease liabilities | 5,716 | |||
| Total operating lease cost | $ | 58,408 | ||
The table below presents lease-related terms and discount rates at December 31, 2019:
| Remaining term on leases | 34 months |
| Incremented borrowing rate | 5.0% |
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Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 12 - Contingencies
We are a party to asserted claims and are subject to regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but 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.
Litigation
On April 24, 2017, a note holder filed a complaint against the Company for a promissory note in default. The note holder is requesting summary judgment in the amount of $246,632.
Note 13 – Subsequent Events
TapouT Licensing Agreement
Effective January 1, 2020, we have amended its license agreement with TapouT as previously disclosed in Note 5. The agreement has been extended through December 31, 2022. Under the terms of the amendment, we are required to make guaranteed minimum royalty monthly payments of $45,000 through December 31, 2022. We also are required to meet a minimum net sales threshold of $9,000,000 for 2020. There can be no assurance that the net sales threshold will be achieved, or that further amendments to the agreement will be executed for it to remain effective in later periods.
SALT Tequila Stock Sale and Purchase Agreement
On March 26, 2020, we entered into a stock sale and distribution agreement for $1,000,000 with Salt Tequila USA, LLC. The $1,000,000 will be paid out in 4 distinct tranches. Upon payment of the 1st tranche of $250,000, we will obtain an additional 7.5% stake in Salt Tequila USA, LLC.
Merger with Canfield Medical Supply, Inc.
On December 31, 2019, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Canfield Medical Supply, Inc., a Colorado corporation. Upon completion of the merger, our shareholders will collectively own, as a group, on a fully diluted basis approximately 85% of the combined company.
The Merger Agreement was consummated on March 31, 2020. As part of the merger all outstanding debt, except for $450,000 in principal, were converted in common shares of the combined company. In addition, all Preferred Stock A and Preferred Stock B were converted into common shares of the combined company.
Alcohol License
On February 4, 2020 we received a Florida Alcohol License. This license gives us the ability to import and sell liquor within the United States.
Warrant Expiration
Subsequent to December 31, 2019, warrants to purchase 553,767 shares of our common stock have expired.
- 28 -
Exhibit 99.3
Splash Beverage Group, Inc.
A Nevada Corporation
Consolidated
Financial Statements and
Report of Independent Certified Public Accountants
December 31, 2018 and 2017
- 1 -
Splash Beverage Group, Inc.
TABLE OF CONTENTS
| Page | |
| REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS | 3-4 |
| CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2018 AND 2017, AND FOR THE YEARS THEN ENDED: | |
| Consolidated Balance Sheets | 5-6 |
| Consolidated Statements of Operations | 7 |
| Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | 8 |
| Consolidated Statements of Cash Flows | 9 |
| Notes to Consolidated Financial Statements | 10-28 |
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- 3 -
Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Splash Beverage Group, Inc. and subsidiaries as of December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of matter regarding going concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company incurred a net loss of approximately $3.8 million during the year ended December 31, 2018, and as of that date, the Company’s current liabilities exceeded its current assets by approximately $4.4 million and its total liabilities exceeded its total assets by approximately $7.8 million, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. |
| /s/ Grant Thornton LLP |
| Fort
Lauderdale, Florida July 31, 2019 |
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SPLASH
BEVERAGE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2018 and 2017
| ASSETS | ||||||||
| 2018 | 2017 | |||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 938,040 | $ | 3,805 | ||||
| Accounts receivable, net | - | 32,252 | ||||||
| Prepaid expenses | 5,648 | - | ||||||
| Inventory | 276,788 | - | ||||||
| Other receivables | 5,700 | 5,700 | ||||||
| Total current assets | 1,226,176 | 41,757 | ||||||
| Noncurrent assets | ||||||||
| Deposit | 14,402 | - | ||||||
| Property and equipment, net | 34,513 | 40,434 | ||||||
| Total noncurrent assets | 48,915 | 40,434 | ||||||
| Total assets | $ | 1,275,091 | $ | 82,191 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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SPLASH BEVERAGE GROUP, INC.
CONSOLIDATED
BALANCE SHEETS (continued)
As of December 31, 2018 and 2017
| LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT) | ||||||||
| Liabilities | 2018 | 2017 | ||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 561,512 | $ | 565,262 | ||||
| Accrued expenses | 269,558 | 10,456 | ||||||
| Due to related party | 302,934 | 297,438 | ||||||
| Bridge loan payable, net | 1,858,385 | - | ||||||
| Convertible bridge loans payable, current | 100,000 | 100,000 | ||||||
| Notes payable, current portion | 875,000 | 875,000 | ||||||
| Royalty payable | 21,062 | 347,813 | ||||||
| Revenue financing arrangements | 77,108 | 98,533 | ||||||
| Shareholder advance | 16,250 | 238,560 | ||||||
| Accrued interest payable | 1,119,909 | 1,329,790 | ||||||
| Accrued interest payable – related parties | 426,740 | 327,203 | ||||||
| Total current liabilities | 5,628,458 | 4,190,055 | ||||||
| Non-current liabilities | ||||||||
| Related party notes payable | 1,375,100 | 1,352,600 | ||||||
| Convertible bridge loans payable, non-current | 2,102,664 | 1,823,500 | ||||||
| Total non-current liabilities | 3,477,764 | 3,176,100 | ||||||
| Total liabilities | 9,106,222 | 7,366,155 | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A convertible preferred stock, $0.001 par, 3,000,000 shares authorized, issued and outstanding as of December 31, 2018 and 2017, respectively | 3,000 | 3,000 | ||||||
| Series B convertible preferred stock, $0.001 par, 11,000,000 shares authorized, 3,913,412 and 3,781,006 shares issued and outstanding as of December 31, 2018 and 2017, respectively | 3,913 | 3,781 | ||||||
| Common stock, $0.001 par, 50,000,000 shares authorized, 19,248,781 and 15,701,666 shares issued and 19,048,781 and 15,401,666 outstanding as of December 31, 2018 and 2017, respectively | 19,249 | 15,702 | ||||||
| Additional paid in capital | 18,952,483 | 15,729,416 | ||||||
| Treasury stock, at cost, 200,000 and 300,000 shares as of December 31, 2018 and 2017, respectively | (100,000 | ) | (150,000 | ) | ||||
| Accumulated deficit | (26,709,776 | ) | (22,885,863 | ) | ||||
| Total stockholders’ deficit | (7,831,131 | ) | (7,283,964 | ) | ||||
| Total liabilities and stockholders’ equity (deficit) | $ | 1,275,091 | $ | 82,191 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED
STATEMENTS OF OPERATIONS
For the years ended December 31, 2018 and 2017
| 2018 | 2017 | |||||||
| Net revenues | $ | 16,176 | $ | 8,396 | ||||
| Cost of goods sold | (109,706) | (35,933) | ||||||
| Gross loss | (93,530) | (27,537) | ||||||
| Operating expenses | ||||||||
| General and administrative | 2,890,662 | 1,007,129 | ||||||
| Sales and marketing | 112,506 | 66,456 | ||||||
| Total operating expenses | 3,003,168 | 1,073,585 | ||||||
| Loss from operations | (3,096,698 | ) | (1,101,122) | |||||
| Other income/(expense) | ||||||||
| Interest income | - | 303 | ||||||
| Interest expense | (684,833) | (764,261) | ||||||
| Loss from debt extinguishment | (42,382) | - | ||||||
| Total other income/(expense) | (727,215) | (763,958) | ||||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (3,823,913) | $ | (1,865,080) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
- 7 -
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the years ended December 31, 2018 and 2017
| Series
A Convertible Preferred Stock | Series
B Convertible Preferred Stock | Common Stock | Treasury Stock | Additional | Accumulated | Total Stockholders' | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Paid-In Capital | Deficit | Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2016 | 3,000,000 | $ | 3,000 | 3,285,106 | $ | 3,285 | 15,631,333 | $ | 15,631 | 300,000 | $ | (150,000 | ) | 14,921,440 | (21,020,783 | ) | $ | (6,227,427 | ) | |||||||||||||||||||||||||
| Issuance of Series B Convertible Preferred Stock | - | - | 495,900 | 496 | - | - | - | - | 735,854 | - | 736,350 | |||||||||||||||||||||||||||||||||
| Issuance of Common stock | - | - | - | - | 70,333 | 71 | - | - | 70,262 | - | 70,333 | |||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | - | - | - | - | 1,860 | - | 1,860 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (1,865,080 | ) | (1,865,080 | ) | |||||||||||||||||||||||||||||||
| Balances at December 31, 2017 | 3,000,000 | $ | 3,000 | 3,781,006 | $ | 3,781 | 15,701,666 | $ | 15,702 | 300,000 | $ | (150,000 | ) | 15,729,416 | (22,885,863 | ) | $ | (7,283,964 | ) | |||||||||||||||||||||||||
| Issuance of Common Stock | - | - | - | - | 3,447,115 | 3,447 | - | - | 1,983,267 | - | 1,986,714 | |||||||||||||||||||||||||||||||||
| Issuance of Series B Convertible Preferred Stock | - | - | 132,406 | 132 | - | - | - | - | 198,477 | - | 198,609 | |||||||||||||||||||||||||||||||||
| Reissuance of Common Stock | - | - | - | - | 100,000 | 100 | (100,000 | ) | 50,000 | 49,900 | - | 100,000 | ||||||||||||||||||||||||||||||||
| Warrants issued for consulting services | - | - | - | - | - | - | - | - | 991,423 | - | 991,423 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (3,823,913 | ) | (3,823,913 | ) | |||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 3,000,000 | $ | 3,000 | 3,913,412 | $ | 3,913 | 19,248,781 | $ | 19,249 | 200,000 | $ | (100,000 | ) | 18,952,483 | (26,709,776 | ) | $ | (7,831,131 | ) | |||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
- 8 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2018 and 2017
| 2018 | 2017 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (3,823,913) | $ | (1,865,080) | ||||
| Adjustments to reconcile net loss to cash used in operating activities | ||||||||
| Depreciation and amortization | 7,257 | 13,905 | ||||||
| Shares issued in exchange for services | 664,815 | 70,333 | ||||||
| Deferred loan costs amortization | 130,055 | - | ||||||
| Warrants issued for services | 991,423 | - | ||||||
| Stock based compensation | - | 1,860 | ||||||
| Bad debt expense | 32,252 | - | ||||||
| Changes in assets and liabilities | ||||||||
| Shareholder advance | (222,310) | 222,261 | ||||||
| Inventories | (276,788) | - | ||||||
| Other current assets | (20,049) | 21,480 | ||||||
| Due to related party | 5,496 | (318,918) | ||||||
| Accounts payable | (3,750) | 417,250 | ||||||
| Accrued and other current liabilities | 259,102 | 124,862 | ||||||
| Royalty payable | (326,750) | (211,562) | ||||||
| Accrued interest payable | (110,345) | 736,706 | ||||||
| Net cash used in operating activities | (2,693,505) | (786,903) | ||||||
| Cash flows from investing activities | ||||||||
| Capital expenditures | (1,336) | (3,612) | ||||||
| Net cash used in investing activities | (1,336) | (3,612) | ||||||
| Cash flows from financing activities | ||||||||
| Repayments of debt | (422,425) | (246,030) | ||||||
| Proceeds from debt issuance | 2,702,664 | 304,000 | ||||||
| Debt issuance costs | (271,670) | - | ||||||
| Issuance of preferred stock | 198,609 | 736,350 | ||||||
| Issuance of common stock | 1,421,898 | - | ||||||
| Net cash provided by financing activities | 3,629,076 | 794,320 | ||||||
| Net increase in cash | 934,235 | 3,805 | ||||||
| Cash | ||||||||
| Beginning of period | 3,805 | - | ||||||
| End of period | $ | 938,040 | $ | 3,805 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | 586,075 | $ | 23,750 | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Notes converted to common stock | $ | 684,450 | $ | - | ||||
| Loss from debt extinguishment | $ | 42,382 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
- 9 -
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
NOTE 1: BUSINESS ORGANIZATION AND NATURE OF OPERATIONS
Splash Beverage Group, Inc. (the “Company”) is a corporation organized on January 8, 2012 under the name Tapout Beverages, Inc. under the laws of Nevada. The name change to Splash Beverage Group, Inc. was effected on April 17, 2012. On March 12, 2018, the Company formed a wholly owned subsidiary, Splash International Holdings, LLC, a Nevada corporation, for their business in Central and South America. In December 2018, the Company formed a wholly owned subsidiary in Mexico, Splash MEX SA DE CV, for the exporting of SALT Tequila from Mexico to the USA, South and Central Americas. The Company anticipates distributing TapouT in Mexico to service Central and South America. The Company specializes in development, procurement, distribution, and sales and marketing activities of various beverages across multiple channels. The Company operates in both the non-alcoholic and alcoholic businesses.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances have been eliminated in consolidation.
The Company adopted the calendar year as its basis of reporting.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires 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 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’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at their estimated collectible amounts. Accounts receivable are periodically evaluated for collectability based on past credit history with clients and other factors. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions. As of December 31, 2018, and 2017, the Company did not carry an allowance.
Inventory
Inventory is stated at the lower of cost or net realizable value and accounted for using the weighted average cost method. The inventory balance as of December 31, 2018 consists of finished goods held for distribution. The cost elements in inventory consist of purchase of products, transportation, and warehousing. The provisions for excess or expired inventory are based on management’s estimates of forecasted usage of inventories on hand and under contract. A significant change in the timing or level of demand for certain products as compared to forecasted amounts may result in recording additional
- 10 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
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 Company’s accounting policy for inventory and purchase commitments is to recognize a loss by establishing a reserve to the extent inventory levels and commitments exceed management’s expected future usage.
Property and Equipment
Property and equipment are recorded at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated useful lives of assets, which range from 3-10 years. The Company 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 $7,257 and $13,905 for the years ended December 31, 2018 and 2017, respectively. Property and equipment as of December 31, 2018 and 2017 consisted of the following:
| 2018 | 2017 | |||||||
| Property and equipment, at cost | $ | 76,205 | $ | 74,869 | ||||
| Accumulated depreciation | (41,692) | (34,436) | ||||||
| Property and equipment, net | $ | 34,513 | $ | 40,434 | ||||
Licensing Agreement
Costs for a licensing agreement with ABG TapouT, LLC entered into in 2012 totaled $3,506,000 through December 31, 2016 including $500,000 of common stock-based consideration. The initial amount of the agreement as entered into by a related party prior to the Company’s assumption in 2013 was $4,000,000 to be paid over several years pursuant to a guaranteed minimum royalty agreement. Cost incurred under the agreement are expensed as incurred. See Notes 5 and 13 for further information.
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.
- 11 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
The liabilities that the Company has presented on the financial statements approximate fair value at December 31, 2018 and 2017, consistent with recent negotiations of notes payable and due to the short duration of maturities.
Convertible Instruments
U.S. GAAP requires companies to bifurcate certain conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable U.S. GAAP.
When the Company has determined that the embedded conversion options should be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The Company also records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares.
Revenue Recognition
Revenue from sales of products is recognized when persuasive evidence of an arrangement exists, products have been shipped to the customer, economic risk of loss has passed to the customer, the price is fixed or determinable, collection is reasonably assured, and any future obligations of the Company are insignificant. Revenue is shown net of estimated returns and allowances.
Cost of Goods Sold
Cost of goods sold include the costs of products, packaging, transportation, warehousing, and costs related to expired or damaged inventory and lower of cost or net realizable value adjustments.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. The Company early adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns accounting treatment for such awards, with the existing guidance on employee share-based payments in ASC 718.
Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, “Income Taxes”. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in
- 12 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is not more likely than not that the deferred tax assets will be realized.
The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. The Company has determined that there are no material uncertain tax positions as of December 31, 2018 and 2017.
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; such amounts aggregated to $8,148 and $1,500, respectively, during the years ended December 31, 2018 and 2017.
Related Parties
Most members of the Company’s Board of Directors as of December 31, 2018 and 2017, have accounts payable and notes payable which are recorded by the Company as a component of due to related party and related party notes payable. The transactions between the members and the Company are summarized in Notes 4 and 9.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606). This ASU supersedes the previous revenue recognition requirements in ASC Topic 605—Revenue Recognition and most industry-specific guidance. The core principle within this ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers”, which deferred the effective date for ASU 2014-09 by one year to fiscal years beginning after December 15, 2018, while providing the option to early adopt for fiscal years beginning after December 15, 2016. Transition methods under ASU 2014-09 must be through either (i) retrospective application to each prior reporting period presented, or (ii) retrospective application with a cumulative effect adjustment at the date of initial application. The Company is continuing to evaluate the impact of this new standard on our financial reporting and disclosures, including but not limited to a review of accounting policies, internal controls and processes.
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability for most leases in its balance sheet. The ASU is effective for annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is continuing to evaluate the impact of this new standard on our financial reporting and disclosures.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows” (Topic 230). This ASU is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017. We have adopted this standard in 2018 and it did not have a material impact on our financial position, results of operations or cash flows.
- 13 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
NOTE 3: GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is a business that has not yet generated profits, has sustained net losses of $3,823,913 and $1,865,080 during the years ended December 31, 2018 and 2017, respectively, and has an accumulated deficit of $26,709,776 and $22,885,863 as of December 31, 2018 and 2017, respectively, has current liabilities in excess of current assets of $4,402,282 as of December 31, 2018, has cash on hand of $938,040 as of December 31, 2018, and lacks liquidity to satisfy its existing obligations and ongoing obligations as they come due. The Company is in default on five of its debt obligations with an unpaid principal balance of $377,109, and unpaid accrued interest payable of $625,012, and has faced litigation due to its debt defaults subsequent to December 31, 2018.
The Company’s ability to continue as a going concern in the next twelve months following the date the financial statements were available to be issued is dependent upon its ability to produce revenues and/or obtain financing sufficient to meet current and future obligations and deploy such to produce profitable operating results. Management has evaluated these conditions and plans to generate revenues and raise capital as needed to satisfy its capital needs. No assurance can be given that the Company will be successful in these efforts.
These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4: NOTES PAYABLE, RELATED PARTY NOTES PAYABLE, CONVERTIBLE BRIDGE LOANS PAYABLE, REVENUE FINANCING ARRANGEMENTS AND BRIDGE LOAN PAYABLE
Notes payable are generally nonrecourse and secured by all right, title interest, claims and demands in each and every asset to which the Company has any right, title and interest, and bear simple interest rates unless otherwise noted:
| Interest | |||||||||||
| Rate | 2018 | 2017 | |||||||||
| Notes Payable | |||||||||||
| In October 2013, the Company entered into a short-term loan agreement with an entity in the amount of $25,000. | 7% | $ | 25,000 | $ | 25,000 | ||||||
| In February 2014, the Company entered into a 12-month term loan agreement with an individual in the amount of $200,000. The note included warrants for 50,000 shares of common stock at $1.00 per share. The warrants expired on February 28, 2017 and none were exercised at that date. | 15% | 150,000 | 150,000 | ||||||||
- 14 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
| In March 2014, the Company entered into a 12- month term loan agreement with an individual in the amount of $500,000. The note included warrants for 500,000 shares of common stock at $1.25 per share. The warrants expired on February 28, 2017 and none were exercised at that date. | 15% | 500,000 | 500,000 | ||||||||
| In March 2014, the Company entered into a short-term loan agreement with an entity in the amount of $200,000. The note included warrants for 200,000 shares of common stock at $1.25 per share. The warrants expired on February 28, 2017 and none were exercised at that date. The note is in default as of December 31, 2018. | 8% | 200,000 | 200,000 | ||||||||
| $ | 875,000 | $ | 875,000 |
Interest expense on notes payable was $115,250 and $96,757 for the years ended December 31, 2018 and 2017, respectively, and accrued interest was $475,728 and $360,478 as of December 31, 2018 and 2017, respectively.
| Interest Rate | 2018 | 2017 | |||||||||
| Related Party Notes Payable: | |||||||||||
| During 2012, two 6-month term loan agreements were entered into with an entity, totaling $150,000. The notes included warrants for 50,000 shares of common stock at $1.00 per share which expired in 2017. | 7% | $ | 41,500 | $ | 41,500 | ||||||
| In March 2014, a $50,000 12-month term loan agreement was entered with an entity. The note included warrants for 100,000 shares of common stock at $1.25 per share. The warrants expired on February 28, 2017, and none were exercised at that date. | 8% | 50,000 | 50,000 | ||||||||
| During 2015, the Company entered into a 12- month term loan agreement with an individual in the amount $250,000. | 8% | 250,000 | 250,000 | ||||||||
| In February 2012, the Company entered into a loan agreement with an officer of the Company in the amount of $100. On September 25, 2018 an additional $10,500 loan agreement was entered into. | 7% | 10,600 | 100 | ||||||||
- 15 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
| During 2013, 2014, 2015, and 2016, the Company entered into several 12-month term loan agreements with an officer of the Company in the amounts of $57,000, $225,000, $105,000, and $9,000, respectively. | 7% | 396,000 | 396,000 | ||||||||
| During 2012, 2013, 2014, and 2016, the Company entered into 6-month term loan agreements with an officer of the Company in the amounts of $155,000, $210,000, $150,000 and $40,000, all respectively. The notes included warrants for issuances of 150,000 shares of common stock at $1.25 per share. The warrants expired on March 1, 2017, and none were exercised at that date. | 7% | 495,000 | 495,000 | ||||||||
| During 2013, 2014 and 2017, the Company entered into 12-month term loan agreements with an officer of the Company in the amounts of $60,000, $50,000 and $10,000. | 7% | 120,000 | 120,000 | ||||||||
| During 2018, the Company entered into a long term note payable with an entity owned by an officer for $12,000 to be payable on July 10, 2020. | 12% | 12,000 | - | ||||||||
| $ | 1,375,100 | $ | 1,352,600 |
Interest expense on related party notes payable was $99,532 and $97,767 for the years ended December 31, 2018 and 2017, respectively, and accrued interest was $426,740 and $327,203 as of December 31, 2018 and 2017, respectively.
| Interest Rate | 2018 | 2017 | |||||||||
| Convertible Bridge Loans Payable | |||||||||||
| In May 2015, the Company entered into a 3- month term loan agreement with an individual in the amount of $100,000. The annual interest rate for this bridge loan was 32% for the first 90 days, and 4% thereafter, compounded monthly. The note is in default as of December 31, 2018. | See left | $ | 100,000 | $ | 100,000 | ||||||
| In September 2015, the Company entered into a 3-month term loan with an individual in the amount of $200,000. In October 2018, the full outstanding principal balance of $200,000 and unpaid accrued interest of $165,000 was converted into 243,360 shares of the Company’s common stock at $1.50 per share. | 18% | - | 200,000 | ||||||||
- 16 -
| In October 2015, the Company entered into a 3- month term loan agreement with two individuals in the amount of $25,000. On December 26, 2018, the Company consolidated the outstanding principal amount of $25,000 and the accrued interest balance of $14,388 into a new term loan due August 26, 2020, of $39,388. | 12% | 39,388 | 25,000 | ||||||||
| In September 2015, the Company entered into a 3-month term loan with an individual in the amount of $175,000. In October 2018, the full outstanding principal balance of $175,000 and unpaid accrued interest of $144,410 was converted into 212,940 shares of the Company’s common stock at $1.50 per share. | 18% | - | 175,000 | ||||||||
| In June 2015, the Company entered into a 3- month term loan agreement with two individuals in the amount of $100,000. On December 26, 2018, the Company consolidated the outstanding principal amount of $100,000 and the accrued interest balance of $64,307 into a new term loan due August 26, 2020, of $164,307. | 12% | 164,307 | 100,000 | ||||||||
| During 2016, 2017 and 2018, the Company entered into multiple loan agreements with an entity in varying amounts. On December 26, 2018, the Company consolidated the outstanding principal amount of $235,500 and the accrued interest balance of $155,861 into a new term loan, with a due date of August 26, 2020, of $391,361. | 12% | 391,361 | 235,500 | ||||||||
| During 2016, the Company entered into 3-month term loan agreements with an individual totaling $20,000. | 9% | 20,000 | 20,000 | ||||||||
| During 2014 through 2018, the Company entered into convertible promissory note agreements with various terms ranging from 90 days to 18 months with an entity which were consolidated into one loan in 2018 totaling $795,137 with a due date of August 26, 2020. | 18% | 795,137 | 574,500 |
- 17 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
| During 2015 and 2016, the Company entered into 3-month term convertible promissory note agreements with an entity which were consolidated into one loan in 2018 totaling $692,471 with a due date of August 26, 2020. | 18% | 692,471 | 493,500 | ||||||||
| $ | 2,202,664 | $ | 1,923,500 |
During 2017, the Company issued convertible bridge loans payable of varying amounts with one to three-month terms. The principal of these notes are convertible, at the holder’s options, into common shares of the Company. The total principal of these issuances amounted to $269,000. The stated interest rate on these notes was 12% for $244,000 of the notes and 18% on $25,000 of the notes.
During 2018, the Company issued convertible bridge loans payable of varying amounts with three to eighteen-month terms. The principal of these notes is convertible, at the holders’ option, into common shares of the Company. The total principal of these issuances amounted to $226,984. The stated interest rate on these loans was 12% on $200,500 of the notes and 8% on $26,484 of the notes.
During 2018 multiple convertible bridge loans payable with five counterparties, and the related unpaid interest was consolidated into five new convertible bridge loans payable totaling $2,082,665. The notes are of varying amounts and are due in August 2020, at an interest rate of 12%. The Company analyzed the notes and concluded the conversion terms did not constitute beneficial conversion features. The principal amount and any accrued and unpaid interest are convertible at the conversion price of a potential future offering of the Company.
Interest expense on the convertible bridge loans payable was $430,317 and $534,854 for the years ended December 31, 2018 and 2017, respectively, and accrued interest was $489,015 and $854,206 as of December 31, 2018 and 2017, respectively.
| Interest Rate | 2018 | 2017 | |||||||||
| Revenue Financing Arrangements | |||||||||||
| During August 2015, the Company entered into a 3-month term loan agreement with an entity in the amount of $50,000, with required daily payments of $999. The Company entered into two additional 3-month loan agreements with the entity in 2016 in the amounts of $60,000 and $57,000, with required daily payments of $928 and $713, respectively. The note is in default as of December 31, 2018. | 10% | $ | 28,032 | $ | 28,032 | ||||||
| During 2016, the Company entered into several short-term loan agreements with an entity totaling $50,100. A gain of $3,520 was recorded on October 26, 2018 due to an agreed upon negotiation to reduce the loan pay out. | 12.5% | - | 11,725 | ||||||||
- 18 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
| During September 2016, the Company entered into a short-term loan agreement with an entity in the amount of $55,000 with required daily payments of $929. The note is in default as of December 31, 2018. | 15% | $ | 15,009 | $ | 15,009 | ||||||
| During November 2016, the Company entered into a short-term loan agreement with an entity in the amount of $55,000 with required daily payments of $1,299. The note is in default as of December 31, 2018. | 12% | 34,067 | 43,767 | ||||||||
| $ | 77,108 | $ | 98,533 |
Interest expense on the revenue financing arrangements was $11,132 and $34,883 for the years ended December 31, 2018 and 2017, respectively, and accrued interest was $126,333 and $115,202 as of December 31, 2018 and 2017, respectively.
Bridge Loan Payable
The Company issued an additional bridge loan in October 2018 for $2 million with a one-year maturity to GMA Bridge Fund LLC (“GMA”). This bridge loan contains a 10% administration fee of which $47,671 was accrued at December 31, 2018 and included in bridge loan payable, net. The Company incurred $271,670 of loan costs and the unamortized balance at December 31, 2018 is $189,286. The stated interest rate is 0.5% monthly for the first six months and 0.75% monthly for the next six months. At the same time the debt was issued, the Company entered into a separate agreement in which GMA will be providing consulting services for the Company for one year (“Consulting Agreement”). The Company compensated GMA for the Consulting Agreement services by issuing a warrant with a 5 year term to maturity, to acquire 1,000,000 shares of common stock of the Company at an exercise price of $0.01 per share. The warrant vested immediately. The value of the warrant, based on a Black-Scholes option pricing model, was $991,423 and was expensed in full in 2018. Interest expense and accrued interest on the entity’s loan was $28,603 for the year ended and as of December 31, 2018.
Future Minimum Debt Payments
Future minimum debt payments under the Company’s outstanding loans are as follows as of December 31, 2018:
| Related Party | Other | Total | ||||||||||
| 2019 | $ | - | $ | 3,052,108 | $ | 3,052,108 | ||||||
| 2020 | 1,375,100 | 2,102,664 | 3,477,764 | |||||||||
| Thereafter | - | - | - | |||||||||
| Total | $ | 1,375,100 | $ | 5,154,772 | $ | 6,529,872 | ||||||
NOTE 5: LICENSING AGREEMENT AND ROYALTY PAYABLE
During 2012, the Company entered into an assignment agreement to obtain the licensing rights of the brand “TapouT” with ABG TapouT, LLC on energy drinks, energy shots, water, teas and sports drinks for beverages sold in the United States of America, it’s territories, possessions, U.S. military bases and Mexico. Under the terms of the agreement, the Company is required to pay ABG Tapout, LLC a 6% royalty of net
- 19 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
sales (gross revenue less discounts and allowances). The agreement states that the Company is to make varying guaranteed minimum royalty payments in the total amount of $3,500,000 for the initial period of 5 years beginning in 2012. The Company subsequently amended its license agreement with TapouT on several occasions between 2012 and 2016. During April 2017, the Company amended its license agreement again extending the term through December 31, 2018 with a 5 year renewal option if $5 million of net sales were achieved in 2018. The amendment also stated the Company was required to make a $30,000 payment on the date of the executed amendment, monthly payments of $30,000 starting on April 30, 2017 through December 31, 2017, and monthly payments of $26,484 starting on January 31, 2018 through December 31, 2018. The Company did not achieve the $5 million minimum net sales requirement per the amendment terms for 2018. In 2019 the agreement was amended once again extending the term through December 31, 2019. Per the 2019 amendment, the Company is required to make twelve monthly payments of $39,000. See Note 13.
The unpaid amount of royalties was $21,062 and $347,813 as of December 31, 2018 and 2017, respectively. Guaranteed minimum royalty payments totaled $326,750 and $211,562 for the years ended December 31, 2018 and 2017, respectively, which are included in general and administrative expenses.
NOTE 6 – INCOME TAXES
The Company has evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax planning strategies to determine which deferred tax assets are more likely than not to be realized in the future.
At December 31, 2018, the Company’s net operating loss carryforward for Federal income tax purposes was approximately $21 million, which will be available to offset future taxable income. If not used, these carry forwards will begin to expire in 2032, except for the current year net operating loss generated which can be carried forward indefinitely.
The provisions for income taxes consist of the following components at December 31:
| Current Tax Expense (Benefit) | 2018 | 2017 | ||||||
| Federal | - | - | ||||||
| State | - | - | ||||||
| Deferred Tax Expense (Benefit) | - | |||||||
| Federal | - | - | ||||||
| State | - | - | ||||||
| Total Provision for Income Taxes | - | - | ||||||
The reconciliation of the income tax benefit is computed at the U.S. federal statutory rate as follows:
| 2018 | 2017 | |||||||
| US Federal Statutory Tax Rate | 21.00 | % | 34.00 | % | ||||
| Permanent Differences | -0.03 | % | -0.07 | % | ||||
| Change in Valuation Allowance | -20.97 | % | -58.38 | % | ||||
| Prior Year Adjustments | 0.00 | % | 24.45 | % | ||||
| Total | 0.00 | % | 0.00 | % | ||||
- 20 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
The tax effects of temporary differences which give rise to the significant portions of deferred tax assets or liabilities at December 31 are as follows:
| Deferred Tax Assets: | 2018 | 2017 | ||||||
| Net Operating Losses | 5,315,433 | 4,562,529 | ||||||
| Deferred Rent | - | 2,235 | ||||||
| Accrued Interest /Interest Expense Limitation | 641,141 | 390,607 | ||||||
| Total deferred tax assets | 5,956,574 | 4,955,371 | ||||||
| Deferred Tax Liabilities: | ||||||||
| Depreciation | (7,666 | ) | (7,978 | ) | ||||
| Total deferred tax liabilities | (7,666 | ) | (7,978 | ) | ||||
| Less valuation allowance | (5,948,908 | ) | (4,947,393 | ) | ||||
| Total Net Deferred Tax Assets | - | - | ||||||
The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The open tax years subject to examination with respect to the Company’s operations are 2014 through 2018.
NOTE 7: STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
In 2017, the Company issued 70,333 shares of common stock valued at $1.00 per share in exchange for services provided to the Company.
In 2018, the Company issued 664,815 shares of common stock valued at $1.00 per share in exchange for services provided to the Company.
On May 28, 2018, the Company issued to a consultant or its designees common stock equal to 527,310 shares in exchange for services provided to the Company.
In December 2018, the full outstanding principal balance of a bridge note of $175,000 and unpaid accrued interest balance of $144,410 was converted to 212,940 shares of the Company’s common stock at $1.50 per share.
In October 2018, the full outstanding principal balance of a bridge note of $200,000 and unpaid accrued interest balance of $165,040 was converted to 243,360 shares of the Company’s common stock at $1.50 per share.
Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock are subject to adjustment in the event of any recapitalization, dividend, split, combination, or other similar event. Series A Convertible Preferred Stock were issued in units, with each unit consisting of one share of Series A Convertible Preferred Stock, par value $0.001, and one common stock purchase warrant. The warrants entitle the holders to purchase one share of the
- 21 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
Company’s common stock at a price of $1.00 per share during the five-year period commencing on the date of the issuance of the warrants. Series A Preferred Stock rank, with respect to dividend rights and rights upon any voluntary or involuntary liquidation, dissolution or winding up of the Company (Liquidation Event), as senior in preference and priority to the common stock, par value $0.001, and any other class or series of equity security established and designated by the Company’s Board of Directors and in parity with Series B Convertible Preferred Stock. Liquidation preference is 150% of the original issue price, which totaled $4,500,000 as of both December 31, 2018 and 2017. The liquidation preference ranks in parity with Series B Preferred Stock.
The holders of the Series A Preferred Stock are entitled to receive cash dividends when and if declared, out of any assets available, prior to any declaration or payment of any dividend on any other class of preferred stock and common stock of the Company at an annual rate of 8% of the original issue price (equal to $0.08 per share per annum based on $1.00 per share purchase price). The cumulative dividend amounted to $1,121,753 as of December 31, 2018. The Company has not accrued this amount as the dividends are not payable until when and if declared by the board as previously mentioned. Such dividends are cumulative and convertible into common stock under the same terms as the Series B Preferred Stock.
Each holder of Series A Preferred Stock shall be entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall be entitled to that number of votes equal to the number of shares of common stock into which the holder’s shares of Series A Preferred Stock could then be converted at the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, and the holders of shares of Series A Preferred Stock and Common Stock shall vote together (or tender written consents in lieu of a vote) as a single class on all matters submitted to the stockholders of the Company.
Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and non-assessable shares of common stock as is determined by dividing the Series A original issue price ($1.00 per share) by the conversion price ($0.85 per share) in effect at the time of conversion, subject to certain dilution protections. The conversion price at which shares of common stock shall be deliverable upon conversion of Series A Preferred Stock without the payment of additional consideration by the holder thereof shall initially be $0.85 per share. All accrued and unpaid dividends may be converted by each holder of Series A Preferred Stock into common stock by first determining the number of shares of Series A Preferred Stock that could be purchased based on the Series A original issue price then in effect and then determining the number of shares of common stock such additional shares of Series A Preferred Stock are convertible into.
Upon the consummation of an underwritten public offering of the common stock of the Company (“IPO”), each share of Series A Preferred Stock shall automatically be converted into such number of fully paid and non-assessable shares of common stock at a conversion price equal to the lesser of (i) the conversion price in effect immediately prior to the consummation of the IPO or (ii) fifty percent (50%) of the public offering price of the Common Stock in the IPO. All accrued and unpaid dividends may be converted by each holder of Series A Preferred Stock into common stock by first determining the number of shares of Series A Preferred Stock that could be purchased based on the Series A original issue price then in effect and then determining the number of shares of common stock such additional shares of Series A Preferred Stock are convertible into.
Series B Convertible Preferred Stock
During 2017, the Company issued 495,900 shares of Series B Convertible Preferred Stock at $1.50 per share resulting in total proceeds of $736,350 along with 247,950 warrants for the Company’s common stock. The warrants expire after 5 years and are exercisable at $1.50 per share.
- 22 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
In 2018, the Company issued 132,406 shares of Series B Convertible Preferred Stock at $1.50 per share resulting in total proceeds of $198,609 along with 66,203 warrants for the Company’s common stock. The warrants expire after 5 years and are exercisable at $1.50 per share.
The Company has issued Series B Convertible Preferred shares in units, each unit consisting of one share of Series B Convertible Preferred Stock, par value $0.001, and one-half share common stock warrant per share of Series B Convertible Preferred Stock, at a price of $1.50 per unit. Per the warrant agreement, the Company issued to the purchasers five-year warrants to purchase shares of the Company’s Common Stock, par value $0.001, at an exercise price of $1.50 per share. As of December 31, 2018, and 2017, 1,956,706 and 1,890,503 warrants were exercisable, respectively. Liquidation preference is 150% of the original issue price, which totaled $8,788,057 and $8,490,342 as of December 31, 2018 and 2017, respectively. The liquidation preference ranks in parity with Series A Preferred Stock.
The holders of the Series B Convertible Preferred Stock are entitled to receive cash dividends, out of any assets available, prior to any declaration or payment of any dividend on any other class of preferred stock and common stock of the Company, except that it is in parity with Series A Preferred stock, at an annual rate of 9% of the original issue price (equal to $0.135 per share per annum). Such dividends are cumulative and convertible to common stock under the same terms as the Series A Preferred Stock. The cumulative dividend amounted to $1,093,488 as of December 31, 2018. The Company has not accrued this amount as the dividends are not payable until when and if declared by the board as previously mentioned.
Each holder of Series B Preferred Stock shall be entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall be entitled to that number of votes equal to the number of shares of Common Stock into which the holder’s shares of Series B Preferred Stock could then be converted at the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, and (b) the holders of shares of Series B Preferred Stock and Common Stock shall vote together (or tender written consents in lieu of a vote) as a single class on all matters submitted to the stockholders of the Company.
Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Series B original issue price ($1.50 per share) by the conversion price ($1.28 per share) in effect at the time of conversion, subject to certain dilution protections. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series B Preferred Stock without the payment of additional consideration by the holder thereof shall initially be $1.28 per share. All accrued and unpaid dividends may be converted by each holder of Series B Preferred Stock into Common Stock by first determining the number of shares of Series B Preferred Stock that could be purchased based on the Series B Original Issue Price then in effect and then determining the number of shares of Common Stock such additional shares of Series B Preferred Stock are convertible into.
Upon the consummation of an underwritten public offering of the Common Stock of the Company (“IPO”), each share of Series B Preferred Stock shall automatically be converted into such number of fully paid and non-assessable shares of Common Stock at a conversion price equal to the lesser of (i) the conversion price in effect immediately prior to the consummation of the IPO or (ii) fifty percent (50%) of the public offering price of the Common Stock in the IPO. All accrued and unpaid dividends may be converted by each holder of Series B Preferred Stock into Common Stock by first determining the number of shares of Series B Preferred Stock that could be purchased based on the Series B original issue price then in effect and then determining the number of shares of common stock such additional shares of Series B Preferred Stock are convertible into.
- 23 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
Undesignated Preferred Stock
The Company has authorized a total of 20,000,000 shares of preferred stock. 6,000,000 of such authorized shares of preferred stock remain undesignated as of December 31, 2018 and 2017.
Treasury Stock
Since its inception, the Company has bought back shares from its shareholders. As of December 31, 2018 and 2017, 900,000 shares for a total of $199,100 have been repurchased by the Company. 600,000 shares of the amount repurchased were retired prior to 2017, and in December 2018, the Company issued the balance of 300,000 shares of common stock to a consultant, to be held in treasury and redeemed as follows: i) 100,000 shares on July 1, 2018, ii) 100,000 shares within 30 days of the corporation becoming a public trading entity and, iii) 100,000 shares upon the one-year anniversary of i). In 2018, 100,000 shares were reissued in compliance with the treasury redemption clause above.
Warrant Issuance-Series A Convertible Preferred Stock
As of December 31, 2018 3,000,000 warrants were exercisable. The warrants entitle the holder to purchase one share per warrant of the Company’s common stock at a price of $1.00 per share during the five-year period commencing on the date of the respective stock closing. The weighted average remaining life of outstanding warrants as of December 31, 2018 is 0.5 years.
Warrant Issuance-Series B Convertible Preferred Stock
As of December 31, 2018, 1,956,706 warrants were exercisable. The warrants entitle the holder to purchase one share per warrant of the Company’s common stock at a price of $1.50 per share during the five-year period commencing on the date of the respective stock closing. The weighted average remaining life of outstanding warrants as of December 31, 2018 is 1.9 years.
NOTE 8: SHARE-BASED PAYMENTS
Warrant Issuance-Loan Agreements
In 2014, the Company issued seven warrants for the purchase of 1,000,000 shares of the Company’s common stock. The warrants were issued with loan agreements as mentioned above in Note 4. Two warrants for a total of 100,000 shares of common stock were issued with exercise prices of $1.00 per share and five warrants for a total of 900,000 shares of common stock were issued with an exercise price of $1.25 per share. The Company estimated the fair value of the warrants totaling $161,626 based on its estimate of the fair value of the Company’s common stock at the issuance date, a risk-free interest rate, the estimated life of half of the term of the warrant, a zero dividend yield and, a volatility rate of 50%, which was recorded as a discount to the notes and amortized over the notes’ lives under the effective interest rate method. The fair value of the warrants were expensed over the life of the loans which was 12 months. These warrants have all expired as of December 31, 2018.
Warrant Issuance-GMA Consulting Services
As of December 31, 2018, 1 million warrants were exercisable by GMA. The warrants entitle the holder to purchase one share per warrant of the Company’s common stock at a price of $0.01 per share during the five-year period commencing on October 2, 2018, or, if greater, the number of common shares with a market value equivalent to two percent of the enterprise value of the Company at an exercise price of $0.008 per share. The weighted average life of outstanding warrants as of December 31, 2018 is 4.75 years.
- 24 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
Stock Plan
The Company has adopted the 2012 Stock Incentive Plan (the “Plan”), which provides for the grant of common stock and stock options to employees. Under the Plan, the number of shares reserved for grant was 3,000,000 shares as of both December 31, 2018 and 2017. The option exercise price generally may not be less than the underlying stock’s fair market value at the date of the grant and generally have a term of ten years. There are 0 and 1,950,000 options issued and outstanding as of December 31, 2018 and 2017, respectively. On December 31, 2018, the sole option holder at the time, the Company’s CEO, exercised his options to purchase 1,950,000 shares of common stock at a purchase price of $0.16 per share, totaling $312,000, which total purchase price was paid by the cancelation of the equivalent amount of debt owed by the Company to the CEO.
The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for stock options, the expected life of the option, and expected stock price volatility and exercise price. The Company used the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The expected life of stock options was estimated using the “simplified method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, as the Company has limited historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of options granted. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.
Stock-based compensation expense of $0 and $1,860 was recognized for the years ended December 31, 2018 and 2017, respectively. There was no unrecognized compensation cost related to stock option awards as of December 31, 2018.
- 25 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
A summary of information related to stock options for the years ended December 31, 2018 and 2017 is as follows:
| December 31, 2018 | December 31, 2017 | |||||||||||||||
| Weighted Average | Weighted Average | |||||||||||||||
| Options | Exercise Price | Options | Exercise Price | |||||||||||||
| Outstanding – beginning of year | 1,950,000 | $ | 0.16 | 2,550,000 | $ | 0.16 | ||||||||||
| Granted | - | $ | - | - | $ | - | ||||||||||
| Exercised | (1,950,000 | ) | $ | 0.16 | - | $ | - | |||||||||
| Cancelled/Forfeited | $ | - | (600,000 | ) | $ | 0.16 | ||||||||||
| Outstanding - end of year | - | $ | - | 1,950,000 | $ | 0.16 | ||||||||||
| Exercisable at end of year | - | $ | - | 1,950,000 | $ | 0.16 | ||||||||||
| Weighted average grant date fair value of options granted during year | N/A | N/A | ||||||||||||||
| Weighted average duration to expiration of outstanding options at year-end (years) | N/A | 2.00 | ||||||||||||||
NOTE 9: RELATED PARTIES
During the 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, net of $302,934 and $297,438 as of December 31, 2018 and 2017, respectively. The related party payable to the CEO bears no interest payable and is due on demand. During 2018, $312,000 of the related party payable was paid in kind as the CEO exercised 1,950,000 options to acquire Common Stock at $0.16 per share against the payable.
There are related party notes payable of $1,375,100 and $1,352,600 outstanding as of December 31, 2018 and 2017, respectively, as discussed in Note 6.
NOTE 10: INVESTMENT IN SALT TEQUILA USA, LLC
On December 9, 2013, the Company entered into a marketing and distribution agreement with SALT Tequila USA, LLC (SALT) in Mexico for the manufacturing of the Company’s product line. The agreement was for a one-year term with an additional two-year renewal. On December 9, 2015, the agreement was extended another two years. In the December 9, 2013 agreement, the Company received a 5% interest in SALT, 12 months after the date of the agreement the Company received an additional 5% interest in SALT, and 24 months after the date of the agreement the Company received an additional 5% interest, resulting in a total interest of 15% in SALT as of both December 31, 2016 and 2015. The Company has not recorded
- 26 -
SPLASH BEVERAGE GROUP, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
the cost of the investment or its investment income or losses as the amounts are considered immaterial.
SALT has also sold to an unrelated international alcohol distributor, American Spirits Exchange, for preliminary market testing in 9 of 16 states they distribute to, that are government-controlled alcohol resellers. In 2018 and 2017 sales for SALT Tequila were $16,176 and $8,396, respectively. On December 31, 2018, the Company created a Mexican corporation, Splash MEX SA DE CV (“Splash Mex”) for the exporting of SALT Tequila from Mexico to the USA, South and Central Americas. Splash Mex will also act as the manufacturing and distribution agent of TAPOUT in Central and South Americas. The appropriate licenses for importing and wholesaling alcohol in the USA are currently being applied for at the Federal and State levels. These licenses, when and if obtained, will permit direct alcohol sales to distributors and wholesalers thereby limiting the use of agents for importing SALT Tequila to the USA for distribution.
NOTE 11: LEASE OBLIGATIONS
Effective July 2018, the Company entered into a lease agreement for office space. The lease term commenced July 1, 2018 and is scheduled to expire after 36 months, on June 30, 2021.
Prior to the current lease, the Company entered into a lease agreement in 2014 for office space. The lease term commenced November 1, 2014 and was scheduled to expire after 62 months, on December 31, 2019. The lease was terminated in February 2018.
Rent expense for the years ended December 31, 2018 and 2017 totaled $48,941 and $115,263, respectively.
The following are the minimum future lease obligations on the Company’s lease agreement:
| December 31, | Lease Obligations | |||
| 2019 | $ | 46,395 | ||
| 2020 | $ | 47,791 | ||
| 2021 | $ | 24,251 | ||
NOTE 12: CONTINGENCIES
The Company is a party to pending legal proceedings and is 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.
Litigation
On April 24, 2017, a note holder filed a complaint against the Company for a promissory note in default. The note holder is requesting summary judgment in the amount of $166,289.
NOTE 13: SUBSEQUENT EVENTS
Royalty Payable
Effective January 1, 2019, the Company amended its license agreement with Tapout as previously disclosed in Note 5. The agreement has been extended through December 31, 2019. The amendment states the Company is required to make guaranteed minimum royalty monthly payments of $39,000 through December 31, 2019. The Company is also required to meet a minimum net sales threshold of $5,000,000 for 2019. There can be no assurance that the net sales threshold will be
- 27 -
SPLASH BEVERAGE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2018 and 2017
achieved, or the licensor will again amend the agreement for it to remain effective in 2020 and later periods.
Common Stock Issuance
In 2019, the Company has sold 320,000 shares of common stock for $1.00 per share.
Wholly Owned Subsidiary
During 2019, the Company created Splash Beverage Holdings LLC for the creation of an e-commerce platform for the sale of its products nationwide.
Management’s Evaluation
Management has evaluated subsequent events through July 31, 2019, the date the financial statements were available to be issued. Based on this evaluation, no additional material events were identified which require adjustment or disclosure in these financial statements.
- 28 -
Exhibit 99.4
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give effect to the Merger Agreement transaction (the "Merger Agreement") between Canfield Medical Supply, Inc. (“CMS”) and Splash Beverage Group, Inc. ("SBG"). In the Merger Agreement, CMS issued 54,677,690 shares of its common stock to the shareholders of SBG in exchange for all of the issued and outstanding common shares of SBG, which resulted in SBG becoming a wholly-owned subsidiary of CMS. CMS also issued warrants to acquire 6,024,174 shares of its common stock to existing SBG warrant holders. As owners and management of SBG have voting and operating control of CMS following the Merger Agreement, the transaction is accounted for as a reverse acquisition.
The unaudited pro forma consolidated financial statements presented below are prepared by applying the acquisition method of accounting to a business combination that is a reverse acquisition. Pro forma adjustments which give effect to certain transactions occurring as a direct result of the Merger Agreement are described in the accompanying unaudited notes presented on the following pages. The accompanying unaudited pro forma consolidated statement of operations for the year ended December 31, 2019 presents the combined results of operations as if the Reverse Acquisition had occurred on January 1, 2019. The accompanying unaudited pro forma consolidated balance sheet at December 31, 2019, presents the combined balance sheets as if the Merger Agreement had occurred on December 31, 2019.
These unaudited pro forma consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had CMS and SBG been a combined company during the specified periods. The unaudited pro forma consolidated financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, SBG's audited financial statements at and for the years ended December 31, 2019, 2018 and 2017 and CMS's audited financial statements for the years ended December 31, 2019 and 2018, as included in its Annual Report on Form 10K for the year ended December 31, 2019.
| 1 |
Unaudited Pro Forma Consolidated Condensed Balance Sheet
At December 31, 2019
| Pro Forma | ||||||||||||||||||||
| Pro Forma | Condensed | |||||||||||||||||||
| Canfield | Splash | Note | Adjustments | Consolidated | ||||||||||||||||
| Current Assets | 363,496 | 370,662 | — | 734,158 | ||||||||||||||||
| Non-current Assets | 62,563 | 234,652 | — | 297,215 | ||||||||||||||||
| Goodwill | — | — | (d) | 9,392,271 | 9,392,271 | |||||||||||||||
| Total Assets | 426,059 | 605,314 | 9,392,271 | 10,423,644 | ||||||||||||||||
| Accounts Payable and Other | 643,102 | 785,407 | — | 1,428,509 | ||||||||||||||||
| Loans Payable and Accrued Interest | — | 9,493,773 | (a) | (7,748,720 | ) | 1,745,053 | ||||||||||||||
| Loans Payable - Non-current | 2,064 | — | — | 2,064 | ||||||||||||||||
| Other non-current | — | 82,238 | — | 82,238 | ||||||||||||||||
| Total Liabilities | 645,166 | 10,361,418 | (7,748,720 | ) | 3,257,864 | |||||||||||||||
| Equity | ||||||||||||||||||||
| Preferred Stock | — | 6,913 | (b) | 1,605 | 8,518 | |||||||||||||||
| (b) | 1,702 | 1,702 | ||||||||||||||||||
| (c) | (10,220 | ) | (10,220 | ) | ||||||||||||||||
| Common Stock | 345,515 | 22,079 | (e) | (312,916 | ) | 54,678 | ||||||||||||||
| Treasury Stock | — | (50,000 | ) | — | (50,000 | ) | ||||||||||||||
| Paid-in Capital | 160,786 | 22,110,412 | (a) | 7,748,720 | 30,019,918 | |||||||||||||||
| (b) | 1,362,756 | 1,362,756 | ||||||||||||||||||
| (b) | 2,177,432 | 2,177,432 | ||||||||||||||||||
| (d) | 8,666,863 | 8,666,863 | ||||||||||||||||||
| (c) | 10,220 | 10,220 | ||||||||||||||||||
| (e) | 312,916 | 312,916 | ||||||||||||||||||
| Accumulated Deficit | (725,408 | ) | (31,845,508 | ) | (b) | (1,364,361 | ) | (33,935,277 | ) | |||||||||||
| (b) | (2,179,134 | ) | (2,179,134 | ) | ||||||||||||||||
| (d) | 725,408 | 725,408 | ||||||||||||||||||
| Total Equity | (219,107 | ) | (9,756,104 | ) | 17,140,991 | 7,165,780 | ||||||||||||||
| Total Liabilities and Equity | 426,059 | 605,314 | 9,392,271 | 10,423,644 | ||||||||||||||||
(a) To record conversion of principal and accrued interest on notes payable to common stock on notes payable
(b) To record stock dividends on series A & B convertible preferred stock
(c) To record conversion of series A & B convertible Preferred stock to Common stock.
(d) To record the issuance of common stock pursuant to the Merger Agreement, and related allocation of purchase price to the net assets acquired in the reverse merger
(e) To reflect the total number of shares outstanding as a result of the Merger Agreement accounted for as a reverse merger and recapitalization
The unaudited pro forma condensed consolidated balance sheet does not give effect to the issuance of warrants in connection with the Merger Agreement
| 2 |
Unaudited Pro Forma Consolidated Condensed Statement of Operations
For the Twelve Months Ended December 31, 2019
| Pro Forma | ||||||||||||||||||||
| Pro Forma | Condensed | |||||||||||||||||||
| Canfield | Splash | Note | Adjustments | Consolidated | ||||||||||||||||
| Revenues | 1,017,833 | 20,387 | — | 1,038,220 | ||||||||||||||||
| Cost of Sales | (508,874 | ) | (245,500 | ) | — | (754,374 | ) | |||||||||||||
| Gross Margin | 508,959 | (225,113 | ) | — | 283,846 | |||||||||||||||
| Operating Expenses | 979,355 | 4,261,946 | — | 5,241,301 | ||||||||||||||||
| Loss from Operations | (470,396 | ) | (4,487,059 | ) | — | (4,957,455 | ) | |||||||||||||
| Interest Expense | (8,376 | ) | (665,195 | ) | (f) | 584,830 | (88,741 | ) | ||||||||||||
| Other Income (Expense) | 1,538 | 16,523 | 18,061 | |||||||||||||||||
| Net Loss | (477,234 | ) | (5,135,731 | ) | 584,830 | (5,028,135 | ) | |||||||||||||
| Basic and diluted net (loss) per share | (0.04 | ) | (0.03 | ) | — | (0.08 | ) | |||||||||||||
| Weighted average shares outstanding | 11,635,534 | 20,008,839 | 64,243,803 | |||||||||||||||||
(f) To reverse interest expense on notes payable which were converted to Common stock concurrently with the Merger Agreement
| 3 |