Endovia Health Sciences, Inc 10-Q for FY2021 Q3
Endovia Health Sciences, Inc. (EDVA)
About this 10-Q
Endovia Health Sciences, Inc filed this 10-Q on November 15, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.83M
- up 308.0% from $692.97K a year earlier
- Net loss
- $12.19M
- compared with a net loss of $2.08M a year earlier
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from _______ to _________
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company Emerging growth company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
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As of November 15, 2021, there were shares of Common Stock issued and outstanding.
| SPLASH BEVERAGE GROUP, INC. |
| FORM 10-Q |
| September 30, 2020 |
TABLE OF CONTENTS
| Page | ||
| PART I: FINANCIAL INFORMATION | ||
| ITEM 1: | FINANCIAL STATEMENTS | 1 |
| Condensed Consolidated Balance Sheets | 2 | |
| Condensed Consolidated Statements of Operations | 3 | |
| Condensed Consolidated Statement of Shareholders’ Equity (Deficit) | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to the Condensed Consolidated Financial Statements | 7 | |
| ITEM 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 27 |
| ITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 30 |
| ITEM 4: | CONTROLS AND PROCEDURES | 31 |
| PART II: OTHER INFORMATION | ||
| ITEM 1 | LEGAL PROCEEDINGS | 32 |
| ITEM 1A: | RISK FACTORS | 32 |
| ITEM 2: | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 33 |
| ITEM 3: | DEFAULTS UPON SENIOR SECURITIES | 33 |
| ITEM 4: | MINE SAFETY DISCLOSURES | 33 |
| ITEM 5: | OTHER INFORMATION | 33 |
| ITEM 6: | EXHIBITS | 34 |
| SIGNATURES | 35 | |
| i |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Splash Beverage Group, Inc.
Condensed Consolidated Financial Statements
September 30, 2021
1
| Splash Beverage Group, Inc. |
| Condensed Consolidated Balance Sheets |
| September 30, 2021 and December 31, 2020 |
| (Unaudited) |
| September 30, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Inventory. net | ||||||||
| Other receivables | ||||||||
| Assets from discontinued operations | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Deposits | $ | $ | ||||||
| Goodwill | ||||||||
| Investment in Salt Tequila USA, LLC | ||||||||
| Right of use assets, net | ||||||||
| Quart Vin License | ||||||||
| Property and equipment, net | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Right of use liabilities - current | ||||||||
| Sales tax payable | ||||||||
| Due to related parties | ||||||||
| Related party notes payable | ||||||||
| Convertible loan payable | ||||||||
| Notes payable, current portion | ||||||||
| Shareholder advances | ||||||||
| Accrued interest payable | ||||||||
| Liabilities from discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Related party notes payable - noncurrent | ||||||||
| Notes payable - noncurrent | ||||||||
| Liability to issue shares in APA | ||||||||
| Right of use liability - noncurrent | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Common stock, (mezzanine shares) shares, contingently convertible to notes payable at December 31, 2020 | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Common Stock, $par, shares authorized, and shares issued and outstanding, at September 30, 2021 and December 31, 2020, respectively | |
|
||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities, mezzanine shares and (deficit) stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
| Splash Beverage Group, Inc. |
| Condensed Consolidated Statements of Operations |
| For the Three and Nine Months Ended September 30, 2021 and 2020 |
| (Unaudited) |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross margin | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Contracted services | ||||||||||||||||
| Salary and wages | ||||||||||||||||
| Salary and wages – non-cash share-based compensation | ||||||||||||||||
| Other general and administrative | ||||||||||||||||
| Other general and administrative – non-cash share-based compensation | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income/(expense): | ||||||||||||||||
| Other Income | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain /( loss) from debt extinguishment | ( | ) | ||||||||||||||
| Total other income/(expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss from continuing operations, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (loss) income from discontinued operations, net of tax | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income(loss) per share - continuing operations | ||||||||||||||||
| Basic | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Dilutive | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted average number of common shares outstanding - continuing operations | ||||||||||||||||
| Basic | ||||||||||||||||
| Dilutive | ||||||||||||||||
| Income(loss) per share - discontinued operations | ||||||||||||||||
| Basic | ||||||||||||||||
| Dilutive | ||||||||||||||||
| Weighted average number of common shares outstanding - discontinued operations | ||||||||||||||||
| Basic | ||||||||||||||||
| Dilutive | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Splash Beverage Group, Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three and Nine months ended September 30, 2021 and 2020
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Total stockholders’ equity (deficit), beginning balances | ( | ) | ( | ) | ( | ) | ||||||||||
| Common stock and additional paid-in capital | ||||||||||||||||
| Beginning balances | ||||||||||||||||
| Issuance of common stock for convertible debt | ||||||||||||||||
| Incremental beneficial conversion for preferred A | ||||||||||||||||
| Issuance of warrants on convertible instruments | ||||||||||||||||
| Issuance of warrants for services | ||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||
| Issuance of common stock for cash | ||||||||||||||||
| Reclassification of Mezzanine shares | ||||||||||||||||
| Issuance of common stock for acquisition | ||||||||||||||||
| Ending balances | ||||||||||||||||
| Treasury stock | ||||||||||||||||
| Beginning balances | — | — | — | ( | ) | |||||||||||
| Issuance of common stock for services | — | — | — | |||||||||||||
| Ending balances | — | — | — | — | ||||||||||||
| Accumulated deficit | ||||||||||||||||
| Beginning balances | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Incremental beneficial conversion for preferred A | ( | ) | ||||||||||||||
| Issuance of warrants on convertible instruments | ( | ) | ||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Ending balances | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total stockholders’ equity (deficit), ending balances | ( | ) | ( | ) | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
| Splash Beverage Group, Inc. |
| Condensed Consolidated Statement Cash Flows |
| For the Nine Months Ended September 30, 2021 and 2020 |
| (Unaudited) |
| Nine months ended | Nine months ended | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| ROU assets, net | ||||||||
| Gain from debt extinguishment | ( | ( | ) | |||||
| Interest on notes payable converted to common stock | ||||||||
| Interest expense due to the issuance of warrants | ||||||||
| Non-cash warrant expense | ||||||||
| Share-based compensation | ||||||||
| Other noncash changes | ( | ) | ||||||
| Changes in working capital items: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventory, net | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Deposits | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Royalty payable | ( | ) | ||||||
| Accrued interest payable | ( | ) | ||||||
| Net cash used in operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities - discontinued operations | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Capital Expenditures | ( | ) | ||||||
| Proceeds from the sale of fixed assets | ||||||||
| Investment in Salt Tequila USA, LLC | ( | ) | ||||||
| Net cash used in investing activities - continuing operations | ( | ) | ||||||
| Net cash used in investing activities - discontinued operations | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Cash advance from shareholder | ||||||||
| Funds in escrow | ( | ) | ||||||
| Repayment of cash advance | ( | ) | ||||||
| Proceeds from issuance of debt | ||||||||
| Principal repayment of debt | ( | ) | ||||||
| ROU liability, net | ( | ) | ( | ) | ||||
| Net cash provided by financing activities - continuing operations | ||||||||
| Net cash provided by financing activities - discontinued operations | ||||||||
| Net Change in Cash and Cash Equivalents | ||||||||
| Cash and Cash Equivalents, beginning of year | ||||||||
| Cash and Cash Equivalents, end of year | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid for Interest | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Notes payable and accrued interest converted to common stock ( shares) | ||||||||
| Liability issued for investment in SALT Tequila USA, LLC | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 1 – Business Organization and Nature of Operations
Splash Beverage Group (“SBG” or “Splash”), f/k/a Canfield Medical Supply, Inc. (the “CMS”), was incorporated in the State of Ohio on September 3, 1992, and changed domicile to Colorado on April 18, 2012. CMS was in the business of home health services, primarily the selling of durable medical equipment and medical supplies to the public, nursing homes, hospitals and other end users.
On December 31, 2019, CMS entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly owned by CMS, and Splash Beverage Group, Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of CMS. The Merger was consummated on March 31, 2020.
As the owners and management of Splash have voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (that is with Splash as the acquiring entity), followed by a recapitalization.
As part of the recapitalization, previously issued shares of SBG preferred stock have been reflected as shares of common stock that were received in the Merger. These common shares have been retrospectively presented as outstanding for all periods.
Splash specializes in the manufacturing, distribution, and sales & marketing of various beverages across multiple channels. Splash operates in both the non-alcoholic and alcoholic beverage segments. Additionally, Splash operates its own vertically integrated B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilities and visibility.
In July 2020 the Company filed a Certificate of Amendment of Articles of Incorporation of CMS with the Secretary of State of the State of Colorado, pursuant to which the Company changed its name from CMS. to Splash Beverage Group, Inc. On July 31, 2020, we received approval from FINRA to change the Company’s name from CMS to Splash Beverage Group, Inc. Our new ticker symbol is SBEV.
On December 24, 2020, SBG consummated an Asset
Purchase Agreement (the “Copa APA”) with Copa di Vino Corporation (“CdV”), to purchase certain assets and
assume certain liabilities that comprise the Copa di Vino business for a total purchase price of $
On February 2021, Management initiated a plan to divest its CMS business. As a result, the assets and operations of CMS have been retrospectively reflected as discontinued operations.
In coordination with uplisting to the NYSE on
June 11, 2021 the Company consummated a
6
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
These condensed consolidated financial statements include the accounts of Splash and its wholly owned subsidiaries, Holdings and Splash Mex, CMS (as discontinued operations), and Copa. All intercompany balances have been eliminated in consolidation.
Our investment in Salt Tequila USA, LLC is accounted for at cost, as the company does not have the ability to exercise significant influence.
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP).
The accompanying condensed consolidated financial statements have been prepared by us without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the three and nine months ended September 30, 2021 and 2020 have been made.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in GAAP have been condensed or omitted. The results of operations for the period ended September 30, 2021 are not necessarily indicative of the operating results for the full year.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents and Concentration of Cash Balance
We consider all highly liquid securities with
an original maturity of three months or less to be cash equivalents. We had
Our cash in bank deposit accounts, at times,
may exceed federally insured limits of $
Note 2 – Summary of Significant Accounting Policies, continued
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 September 30, 2021 and December 31, 2020, our accounts receivable amounts are reflected
net of allowances of $
7
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Inventory
Inventory is stated at the lower of cost or
net realizable value, accounted for using the weighted average cost method. The inventory balances at September 30, 2021 and December
31, 2020 consisted of raw materials, work-in-process, and finished goods held for distribution. The cost elements of inventory
consist of purchase of products, transportation, and warehousing. 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 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. The amount of our reserve was $
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 range from
Depreciation expense totaled $
| Schedule of property and equipment | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| Property and equipment, at cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
Excise taxes
The Company pays alcohol excise taxes based on product sales to both the Oregon Liquor Control Commission and to the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (TTB). The company also pays taxes to the State of Florida – Division of Alcoholic Beverages and Tobacco. The Company is liable for the taxes upon the removal of product from the Company’s warehouse on a per gallon basis. The federal tax rate is affected by a small winery tax credit provision which decreases based upon the number of gallons of wine production in a year rather than the quantity sold.
Paycheck Protection Program
The Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with Accounting Standards Codification (“ASC”) 470, Debt. Debt is extinguished when either the debtor pays the creditor or the debtor is legally released from being the primary obligor, either judicially or by the creditor. See note 11.
8
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
Fair Value of Financial Instruments
Financial Accounting Standards (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
| Level 1 - | Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. |
| Level 2 - | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). |
| Level 3 - | Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. |
The liabilities and indebtedness presented on the consolidated financial statements approximate fair values at September 30, 2021 and December 31, 2020, consistent with recent negotiations of notes payable and due to the short duration of maturities.
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.
9
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
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.
We measure stock-based awards at the grant-date fair value for employees, directors and consultants and recognizes compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of our common stock, and for stock options and warrants, the expected life of the option and warrant, and expected stock price volatility and exercise price. We used the Black-Scholes option pricing model to value its stock-based awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The expected life of stock options/warrants were estimated using the “simplified method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, we have limited historical information to develop reasonable expectations about future exercise patterns. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, we use comparable public companies as a basis for its expected volatility to calculate the fair value of award. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the award. The estimation of the number of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.
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. We use the Black-Scholes option pricing model to determine the fair value of stock options. We 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.
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
10
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included in the computation if the effect would be anti-dilutive.
Weighted average number of shares outstanding excludes anti-dilutive common stock equivalents, including warrants to purchase million shares of common stock for nominal consideration. The weighted average number of common shares calculation excludes 11,163,834 warrants which have been granted by our Board but have not been exercised.
Advertising
We conduct advertising for the promotion of
our products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. We recorded advertising
expense of $
Goodwill
Goodwill represents the excess of acquisition
cost over the fair value of the net assets acquired and is not subject to amortization. The Company reviews goodwill annually in
the fourth quarter for impairment or when circumstances indicate carrying value may exceed the fair value. This evaluation is performed
at the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less
than carrying value, a quantitative analysis is completed using either the income or market approach, or a combination of both.
The income approach estimates fair value based on expected discounted future cash flows, while the market approach uses comparable
public companies and transactions to develop metrics to be applied to historical and expected future operating results. At December
31, 2020, our management determined that an impairment charge of approximately $
11
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Long-lived assets
The Company evaluates long-lived assets for impairment on an annual basis, when relocating or closing a facility, or when events or changes in circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques.
Recent Accounting Pronouncements
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 – Liquidity, Capital Resources and Going Concern Considerations
At December 31, 2020, the Company had liabilities
in excess of assets in the amount of approximately $
Based on this analysis the Company concluded it has the ability to continue as a going concern for at least the next 12 months.
12
Splash Beverage Group, Inc.
Notes to the Condensed 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 | September 30, 2021 | December 31, 2020 | ||||||||||
| Notes Payable | ||||||||||||
| In February 2014, we entered into a 12-month term loan agreement with an individual in the amount of $ |
% | |||||||||||
| In March 2014, we entered into a short-term loan agreement with an entity in the amount of $ |
% | |||||||||||
| In May 2020, we entered into a two year loan with the SBA under the Paycheck Protection Program established by the CARES Act in the amount of $ |
% | |||||||||||
| In
June 2020, we entered into a six-month loan with an individual in the amount of $ |
% | |||||||||||
| In August 2020, we entered into a nine-month loan with a company in the amount of $ |
% | |||||||||||
| In September 2021, we entered into a twelve-month loan with a company in the amount of $ |
% | |||||||||||
| Notes payable for license agreements due in 36 monthly payments of $ |
% | |||||||||||
| In December 2020, we entered into a 56 month loan with a company in the amount of $ |
Various | |||||||||||
13
| In
April 2021, we entered into a six-month convertible note with an individual in the amount of $ | % | |||||||||||
| In
April 2021, we entered into a six-month convertible note with an individual in the amount of $ | % | |||||||||||
| In
May 2021, we entered into a six-month convertible note with an individual in the amount of $ | % | |||||||||||
| In
May 2021, we entered into a six-month convertible note with an individual in the amount of $ | % | |||||||||||
| In
May 2021, we entered into a six-month convertible note with an individual in the amount of $ | % | |||||||||||
| In
May 2021, we entered into a six-month convertible note with an individual in the amount of $ | % | |||||||||||
| Total notes payable | $ | $ | ||||||||||
| Less current portion | ( | ) | ( | ) | ||||||||
| Long-term notes payable | $ | $ |
Interest expense on notes payable was $
Interest expense on notes payable was $
14
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
| Schedule of debt | ||||||||||
| Interest Rate | September 30, 2021 | December 31, 2020 | ||||||||
| Related Parties Notes Payable | ||||||||||
| In December 2020, we entered into an 18 month loan with an individual in the amount of $ | ||||||||||
| Less current portion | ( | ) | ( | ) | ||||||
| Long-term notes payable | $ | $ | ||||||||
Interest expense on related party notes payable
was $
15
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
| Schedule of debt | ||||||||||
| Interest Rate | September 30, 2021 | December 31, 2020 | ||||||||
| Convertible Bridge Loans Payable | ||||||||||
| In May 2015, we entered into a 3-month term loan agreement with an individual in the amount of $ | See left | $ | $ | |||||||
16
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
Interest expense on the convertible bridge
loans payable was $
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 $
17
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 5 – Licensing Agreement and Royalty Payable
We have a licensing agreement with ABG TapouT,
LLC (“TapouT”), providing us with licensing rights to 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 a 6% royalty on net sales, as defined. In 2021 and 2020, we
are required to make monthly payments of $
There were
In connection with the Copa APA, we acquired
the license to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, the Copa di Vino entered into three
separate license agreements with 1/4 Vin SARL, (1/4 Vin). 1/4 Vin has the right to license certain patents and patent applications
relating to inventions, systems, and methods used in the Company’s manufacturing process. In exchange for notes payable,
1/4 Vin granted the Company a nonexclusive, royalty-bearing, non-assignable, nontransferable, terminable license which would continue
until the subject equipment is no longer in service or the patents expire. Amortization is approximately $
Note 6 – Stockholders’ Equity (Deficiency)
Common Stock
At March 31, 2020, we issued shares
of common stock in exchange for services provided to us. The shares were valued at $ per share. We recognized share-based compensation
expense of $, which is classified within the other general and administrative line on the Statement of Operations. At March
31, 2021, we issued shares of common stock in exchange for services provided to us. At September 30, 2021, we issued
shares of common stock in exchange for services provided to us. The shares were valued at a fair market value stock price based
on the agreement date. We recognized share-based compensation expense of $
18
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 6 – Deficiency in Stockholders’ Equity, continued
Private Placement Memorandum (PPM)
In July 2020, the Board of Directors has determined
that it is in the best interests of the Corporation and its stockholders to obtain working capital by conducting a private placement
offering of shares of the common stock and
In January 2021, the Board of Directors approved
a private placement offering of shares of the common stock of the Company, $ value per share at a purchase price
of $ per share for aggregate gross proceeds of $
Stock Plans
2012 Plan
On May 2012, the Board adopted the 2012 Stock Incentive Plan (the “2012 Plan”), which provided for the grant of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Restricted Stock Units and Stock Appreciation Rights to eligible recipients. The total number of shares that may be issued under the 2012 plan was .
The Board previously granted options to purchase
Concurrently with the consummation of the Merger,
the outstanding options to purchase shares were cancelled and replaced with warrants to purchase
2020 Plan
On August 2020, the Board adopted the 2020 Stock Incentive Plan (the “2020 Plan”), which provides for the grant of Options, Restricted Stock Awards, Stock Appreciation Rights, Performance Units and Performance Bonuses to consultants and eligible recipients. The total number of shares that may be issued under the 2020 plan was .
At September 30, 2021, all awards have been granted under the 2020 Plan.
19
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Warrants/Options
The total amount of outstanding warrants/options are summarized below:
| Schedule of Warrants Activity | |
| [A] | |
| [B] | |
| [C] | |
| [D] | |
| [E] | |
| [F] | |
| [G] | |
| [H] | |
| [I] | |
| [J] | |
| [K] | |
| [L] | |
| Total |
[A] Warrant Issuance-Series A Convertible Preferred Stock
As an incentive to convert their Series A preferred
stock, in March 2020, we issued
[B] Warrant Issuance-Series B Convertible Preferred Stock
As part of the sale and issuance of
[C] Warrant Issuance-GMA Bridge Holdings, LLC Consulting Services
We issued
[D] We issued warrants to purchase common stock of the Company in connection with the July 2020 private placement offering of shares of common stock
[E] We issued warrants to purchase common stock of the Company in connection with the January 2021 private placement offering of shares of common stock.
[F] We issued warrants to purchase common stock, as a replacement of cancelled outstanding options concurrent with the March 2020 Merger
20
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
[G] In December 2020 we granted warrants to purchase common stock of the Company to employees, consultants, and directors. These warrants vest over three years
[H] In December 2020 we granted warrants to purchase common stock of the Company to our board of directors. These warrants vest over two - three years
[I] In May 2021 we granted warrants to purchase common stock of the Company to a director. These warrants vest, equally, over three years
[J] We issued warrants to purchase
common stock of the Company in connection with the June 2021 underwritten public offering of
[K] In September 2021 we granted options to purchase common stock of the Company to employees, consultants, and directors. These options vest over three years.
[L] In September 2021 we granted warrants to purchase common stock of the Company to consultants. These warrants vest over three years.
Shareholder Advances and Liability to Issue Stock and Warrants
We have multiple agreements with consultants in the
amount of $
Note 7 – 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.
There are related party notes payable of $
Note 8 – Investment in Salt Tequila USA, LLC
The Company has a marketing and distribution agreement with SALT in Mexico for the manufacturing of our Tequila product line.
The Company has a
21
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 9 – 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
Effective November 2019, we entered into a
lease with Interport Logistics, LLC. The lease term commenced on
Effective May 2019, we entered into a lease
in Mexico. The lease commenced
Effective January 2021, we entered into a lease
agreement for the right to use and occupy office space in Sarasota Florida. The lease term commenced
Effective January 2021, we entered into a lease
agreement for the right to use and occupy office and manufacturing space located in Miami Florida. The lease term commenced
The following table presents the discounted present value of minimum lease payments for our office and warehouses to the amounts reported as operating lease liabilities on the consolidated balance sheet at September 30, 2021:
| Undiscounted Future Minimum Lease Payments | Operating Lease | |||
| 2021 (three months remaining) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total | ||||
| Amount representing imputed interest | ( | ) | ||
| Total operating lease liabilities | ||||
| Current portion of operating lease liabilities | ||||
| Operating lease liabilities, non-current | $ | |||
The table below presents information for lease costs related to our operating leases at September 30, 2021:
| Operating lease cost: | ||||
| Amortization of leased assets | $ | |||
| Interest of lease liabilities | ||||
| Total operating lease cost | $ |
The table below presents lease- related terms and discount rates at September 30, 2021:
| Summary of lease- related terms and discount rates | ||
| Remaining term on leases | ||
| Incremented borrowing rate |
22
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 10 – Line of Credit
At December 31, 2020 SBG owed $
Note 11 – PPP Loan
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond the point of origin. On March 20, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
In response to the COVID-19 outbreak in the
United States, the CARES Act (the “Act”) was passed by Congress and signed into law on March 27, 2020. In connection
with the CARES Act, the Company and its subsidiary applied for and received loans with an original aggregate principal balance
of approximately $
In April 2021, we received notification of forgiveness for the entire outstanding balance.
23
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 12 – Segment Reporting
The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Executive Officer and Chief Financial Officer.
Note: The Copa di Vino business is included in our Splash Beverage Group segment.
| Schedule of Segment Reporting Information | ||||||||||||||||
| Three-Months Ending | Nine-Months Ending | |||||||||||||||
| Revenue | Q3 2021 | Q3 2020 | Q3 2021 | Q3 2020 | ||||||||||||
| Splash Beverage Group | ||||||||||||||||
| E-Commerce | ||||||||||||||||
| Total Revenues continuing operations | ||||||||||||||||
| Total Revenues discontinued operations | ||||||||||||||||
| Total assets | Sept 2021 | Dec 2020 | ||||||
| Splash Beverage Group | ||||||||
| E-Commerce | ||||||||
| Medical Devices - discontinued operations | ||||||||
| Total Assets | ||||||||
24
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 13 – Commitment and 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 we do not anticipate that the outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations.
Capital Raise
In connection with the CMS merger we were committed
to our previous preferred stock and debt holders to raise $
In February 2021, we successfully raised the
$
Stock Price Guarantee
We have a commitment to issue additional shares associated with specific stock price guarantee granted to an investor. The stock price guarantee expired March 2021.
25
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 14 – Registration Statement
Underwriting Agreement
On June 10, 2021, the Company entered into
an underwriting agreement ( “Underwriting Agreement”) relating to an underwritten public offering (the “Offering”)
of common stock, no par value per share (the “Common Stock”) and warrants to purchase one share of Common Stock (the
“Warrants”). Pursuant to the Offering, the Company sold
Representative’s Warrants
On June 15, 2021, pursuant to the Underwriting
Agreement, the Company issued the Representative’s Warrants to purchase up to an aggregate of
Note 15 – Subsequent Events
On October 11, 2021, the Company called to order a special meeting with shareholders on record as of August 16, 2021. The Company sought approval to re-incorporate from Colorado to Nevada. The recommendation was approved.
In October 2021, the Company settled their lawsuit with an investor. See Note 4.
In October 2021, the matured notes listed in Note 4 have been extended.
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The information in this discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements that are not of historical fact may be deemed to be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue”, the negative of the terms or other comparable terminology. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in other reports or registration statements filed with the United States Securities and Exchange Commission. These factors may cause our actual results to differ materially from any forward-looking statements. We disclaim any obligation to publicly update these statements or disclose any difference between actual results and those reflected in these statements.
Unless the context otherwise requires, references in this Form 10-Q to “we,” “us,” “our,” or the “Company” refer to Splash Beverage Group and its subsidiaries.
The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements (unaudited) and Related Notes herewith.
Business Overview
Splash Beverage Group (“SBG” or “Splash”), f/k/a Canfield Medical Supply, Inc. (the “CMS”), was incorporated in the State of Ohio on September 3, 1992, and changed domicile to Colorado on April 18, 2012.
On December 31, 2019, CMS entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly-owned by CMS, and Splash Beverage Group, Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of CMS. The Merger was consummated on March 31, 2020.
Prior to the Merger, CMS was in the business of home health services, primarily the selling of durable medical equipment and medical supplies to the public, nursing homes, hospitals and other end users and the Company continues to operate the home health supply business as a separate division.
As the owners and management of Splash have voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (that is with Splash as the acquiring entity), followed by a recapitalization.
27
Splash specializes in the manufacturing, distribution, and sales & marketing of various beverages across multiple channels. Splash operates in both the non-alcoholic and alcoholic beverage segments. Additionally, Splash operates its own vertically integrated B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilities and visibility.
In July, 2020, the Company changes its name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc. Our new ticker symbol is SBEV.
On December 24, 2020, SBG consummated an Asset Purchase Agreement(the “APA”) with Copa di Vino Corporation (“CdV”), to purchase certain assets and assume certain liabilities that comprise the Copa di Vino business for a total purchase price of $5,980,000, payable in the combination of $2,000,000 in cash (“Cash Consideration”), $2,000,000 convertible promissory note (the “Convertible Note”) to Seller and a variable number of shares of the Company’s common stock based on a attainment of revenue hurdles. CdV is one of the leading producers of premium wine by the glass in the United States with its primary offices and facilities in The Dalles, Oregon.
Results of Operations for the Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020.
Revenue
Revenues for the three months ended September 30, 2021 were $2,827,393 compared to revenues of $692,974 for the three months ended September 30, 2020. A significant portion of the $2,134,419 increase in sales is due to an increase within our vertically integrated B2B and B2C e-commerce distribution platform called Qplash. This platform sells goods on both Amazon and Shopify. In addition, we had increased sales from Copa di Vino Wine Group, Inc., our single-serve wine and Pulpoloco Sangria businesses. Cost of goods sold for the three months ended September 30, 2021 were $2,007,544 compared to cost of goods sold for the three months ended September 30, 2020 of $349,037. The $1,658,507 increase in cost of goods sold for the three-month period ended September 30, 2021 is primarily due to our increased sales, and as our sales increased, our cost of sales for those sales correspondingly increased.
Operating Expenses
Operating expenses for the three months ended September 30, 2021 were $12,892,079 compared to $2,733,435 for the three months ended September 30, 2020. The $10,158,644 increase in our operating expenses was primarily a result of recording the warrants issued pursuant to certain private placements conducted by the Company, and options and stock approved by the Board ($3,010,013), increased headcount from the Copa acquisition and the addition of new sales reps, professional fees ($6,391,514) and shipping costs ($521,315). The net loss for the three months ended September 30, 2021 was $12,169,894 as compared to a net loss of $2,351,814 for the three months ended September 30, 2020. The increase in net loss is due to our increase in operating expenses offset by our increase in revenues.
28
Interest Expense
Interest expenses for the three months ended September 30, 2021 were $100,128 compared to $23,110 for the three months ended September 30, 2020. The $77,018 increase in our interest expenses was primarily a result of additional debt taken on in Q2 2021.
Results of Operations for the Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020.
Revenue
Revenues for the nine months ended September 30, 2021 were $8,254,078 compared to revenues of $1,217,709 for the nine months ended September 30, 2020. The $7,036,369increase in sales is due to an increase within our vertically integrated B2B and B2C e-commerce distribution platform called Qplash ($4,902,088). This platform sells goods on both Amazon and Shopify. In addition, we had increased sales from Copa di Vino Wine Group, Inc., our single-serve wine and Pulpoloco Sangria businesses ($3.085,299). Cost of goods sold for the nine months ended September 30, 2021 were $6,011,755 compared to cost of goods sold for the nine months ended September 30, 2020 of $744,024. The $5,267,731 increase in cost of goods sold for the nine-month period ended September 30, 2021 is primarily due to our increased sales, and as our sales increased, our cost of sales for those sales correspondingly increased.
Operating Expenses
Operating expenses for the nine months ended September 30, 2021 were $25,171,500 compared to $4,774,571 for the nine months ended September 30, 2020. The $20,396,929 increase in our operating expenses was primarily a result of recording the warrants issued pursuant to certain private placements conducted by the Company, and options and stock approved by the Board ($7,407,976), increased headcount from the Copa acquisition and the addition of new sales reps, professional fees ($8,996,732) and shipping costs ($1,404,110). The net loss for the nine months ended September 30, 2021 was $23,170,917 as compared to a net loss of $6,173,943 for the nine months ended September 30, 2020. The decrease in net loss is due to our increase in operating expenses offset by our increase in revenues.
Interest Expense
Interest expenses for the nine months ended September 30, 2021 were $341,715 compared to $1,958,601 for the nine months ended September 30, 2020. The $1,616,886 decrease in our interest expenses was primarily a result of recording a finance charge of $1,821,426 associated with warrants issued to one of our note holders in Q1 2020 offset by interest expense recorded in the period.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
As of September 30, 2021, we had total cash and cash equivalents of $8,144,171, as compared with $380,000 at December 31, 2020. The increase is primarily due to cash received from private placements conducted by us and our S1/A registration statement where we raised $15,000,000.
29
Net cash used for operating activities during the nine months ended September 30, 2021 was $11,615,297 as compared to the net cash used by operating activities for the nine months ended September 30, 2020 of $4,311,170. The primary reasons for the change in net cash used is due to losses sustained and increases in inventory, offset by non-cash expenses relating to warrant expense ($5,665,464) and share-based compensation ($8,212,864).
Net cash used for investing activities during the nine months ended September 30, 2021 was $0 as compared to the net cash used by operating activities for the nine months ended September 30, 2020 of $154,341. The net cash used in the first quarter of 2020 was primarily due to the $150,000 payment made to SALT Tequila USA.
Net cash provided by financing activities during the nine months ended September 30, 2021 was $19,597,565 compared to $5,081,594 provided from financing activities for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, we received $21,393,065 from investors, which was offset by repayments to shareholders and debt holders of $1,795,188.
CONTRACTUAL OBLIGATIONS
Minimum Royalty Payments:
We have a licensing agreement with ABG TapouT, LLC (“TapouT”). Under the licensing agreement, we have minimum royalty payments to TapouT for the next two years.
| ● | 2021 $594,000 |
| ● | 2022 $653,400 |
Inventory Purchase Commitments:
None.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for Smaller Reporting Companies.
30
ITEM 4. CONTROLS AND PROCEDURES
| (a) | Evaluation of Disclosure Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities and Exchange Commission Act of 1934 reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As further discussed below, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer concluded that, because of certain material weaknesses in our internal control over financial reporting our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of September 30, 2021. The material weaknesses relate to the absence of in-house accounting personnel with the ability to properly account for complex transactions and a lack of separation of duties between accounting and other functions.
We hired a consulting firm to advise us on technical issues related to U.S. generally accepted accounting principles as related to the maintenance of our accounting books and records and the preparation of our consolidated financial statements. Although we are aware of the risks associated with not having dedicated accounting personnel, we are also at an early stage in the development of our business. We anticipate expanding our accounting functions with dedicated staff and improving our internal accounting procedures and separation of duties when we can absorb the costs of such expansion and improvement with additional capital resources. In the meantime, management will continue to observe and assess our internal accounting function and make necessary improvements whenever they may be required. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements, and we could be required to restate our financial results. In addition, if we are unable to successfully remediate this material weakness and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements.
| (b) | Changes in Internal Controls over Financial Reporting |
There has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
31
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS
Not required for smaller reporting companies.
32
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
No disclosure required.
ITEM 5. OTHER INFORMATION
None.
33
ITEM 6. EXHIBITS
(a) Exhibits required by Item 601 of Regulation S-K.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SPLASH BEVERAGE GROUP, INC. | ||
| Date: November 15, 2021 | By: | /s/ Robert Nistico |
| Robert Nistico, Chairman and CEO | ||
| Date: November 15, 2021 | By: | /s/ Dean Huge |
| Dean Huge, CFO | ||
35