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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/14/23 Splash Beverage Group, Inc. 10-Q 6/30/23 55:4.4M Electro Filings LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 750K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 20K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 20K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 17K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 17K
11: R1 Cover HTML 73K
12: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 141K
13: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 34K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 102K
and Comprehensive Loss
15: R5 Condensed Consolidated Statements of Operations HTML 35K
and Comprehensive Loss (Parenthetical)
16: R6 Condensed Consolidated Statement of Changes in HTML 72K
Stockholders' Equity (Unaudited)
17: R7 Condensed Consolidated Statement Cash Flows HTML 100K
(Unaudited)
18: R8 Condensed Consolidated Statement Cash Flows HTML 21K
(Unaudited) (Parenthetical)
19: R9 Business Organization and Nature of Operations HTML 21K
20: R10 Summary of Significant Accounting Policies HTML 77K
21: R11 Notes Payable, Related Party Notes Payable, HTML 142K
Convertible Bridge Loans Payable and Revenue
Financing Arrangements
22: R12 Licensing Agreement and Royalty Payable HTML 23K
23: R13 Stockholders? Equity HTML 76K
24: R14 Related Parties HTML 24K
25: R15 Investment in Salt Tequila USA, LLC HTML 21K
26: R16 Leases HTML 29K
27: R17 Segment Reporting HTML 56K
28: R18 Commitment and Contingencies HTML 20K
29: R19 Subsequent Events HTML 23K
30: R20 Summary of Significant Accounting Policies HTML 133K
(Policies)
31: R21 Summary of Significant Accounting Policies HTML 29K
(Tables)
32: R22 Notes Payable, Related Party Notes Payable, HTML 133K
Convertible Bridge Loans Payable and Revenue
Financing Arrangements (Tables)
33: R23 Stockholders? Equity (Tables) HTML 57K
34: R24 Leases (Tables) HTML 28K
35: R25 Segment Reporting (Tables) HTML 48K
36: R26 Summary of Significant Accounting Policies HTML 37K
(Details)
37: R27 Summary of Significant Accounting Policies HTML 54K
(Details Narrative)
38: R28 Notes Payable, Related Party Notes Payable, HTML 115K
Convertible Bridge Loans Payable, Revenue
Financing Arrangements and Bridge Loan Payable
(Details)
39: R29 Notes Payable, Related Party Notes Payable, HTML 37K
Convertible Bridge Loans Payable and Revenue
Financing Arrangements (Details Narrative)
40: R30 Licensing Agreement and Royalty Payable (Details HTML 23K
Narrative)
41: R31 Stockholders' Equity (Details) HTML 50K
42: R32 Stockholders' Equity (Details 1) HTML 40K
43: R33 Stockholders? Equity (Details Narrative) HTML 78K
44: R34 Related Parties (Details Narrative) HTML 21K
45: R35 Investment in Salt Tequila USA, LLC (Details HTML 23K
Narrative)
46: R36 Leases (Details) HTML 31K
47: R37 Leases (Details 2) HTML 22K
48: R38 Leases (Details Narrative) HTML 19K
49: R39 Segment Reporting (Details) HTML 41K
50: R40 Subsequent Events (Details Narrative) HTML 34K
53: XML IDEA XML File -- Filing Summary XML 95K
51: XML XBRL Instance -- e4926_10q_htm XML 1.11M
52: EXCEL IDEA Workbook of Financial Report Info XLSX 95K
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i June 30, 2023
i ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission File No. i 001-40471
(Exact name of registrant as specified in its charter)
| i Nevada | i 34-1720075 | |
| (State or other jurisdiction of incorporation or formation) |
(I.R.S. employer identification number) |
| i 1314 E Las Olas Blvd. i Suite 221 |
| i Fort Lauderdale, i FL i 33301 |
| (Address of principal executive offices) (Zip code) |
( i 954) i 745-5815
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| American LLC | ||||
| American LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| i Non-accelerated filer ☒ | Smaller reporting company i ☒ Emerging growth company i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
As of August 14, 2023, there were shares of Common Stock issued and outstanding.
| SPLASH BEVERAGE GROUP, INC. |
| FORM 10-Q |
| June 30, 2023 |
| Page | ||
| PART I: FINANCIAL INFORMATION | ||
| ITEM 1: | FINANCIAL STATEMENTS | 1 |
| Condensed Consolidated Balance Sheets | 2 | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss | 3 | |
| Condensed Consolidated Statement of Changes in Shareholders’ Equity | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to the Condensed Consolidated Financial Statements | 6 | |
| ITEM 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 25 |
| ITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 29 |
| ITEM 4: | CONTROLS AND PROCEDURES | 29 |
| PART II: OTHER INFORMATION | ||
| ITEM 1 | LEGAL PROCEEDINGS | 30 |
| ITEM 1A: | RISK FACTORS | 30 |
| ITEM 2: | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 30 |
| ITEM 3: | DEFAULTS UPON SENIOR SECURITIES | 30 |
| ITEM 4: | MINE SAFETY DISCLOSURES | 30 |
| ITEM 5: | OTHER INFORMATION | 30 |
| ITEM 6: | EXHIBITS | 31 |
| SIGNATURES | 32 | |
| i |
PART I – FINANCIAL INFORMATION
Splash Beverage Group, Inc.
Condensed Consolidated Financial Statements
| 1 |
| Splash Beverage Group, Inc. |
| Condensed Consolidated Balance Sheets |
| June 30, 2023 and December 31, 2022 |
| June 30, 2023 | December 31, 2022 | |||||||
| Assets | (unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | i 903,235 | $ | i 4,431,745 | ||||
| Accounts receivable, net | i 1,954,508 | i 1,812,110 | ||||||
| Prepaid expenses | i 397,025 | i 348,036 | ||||||
| Inventory | i 3,447,292 | i 3,721,307 | ||||||
| Other receivables | i 192,942 | i 344,376 | ||||||
| Total current assets | i 6,895,002 | i 10,657,574 | ||||||
| Non-current assets: | ||||||||
| Deposit | $ | i 49,431 | $ | i 49,290 | ||||
| Goodwill | i 256,823 | i 256,823 | ||||||
| Intangible assets, net | i 4,662,054 | i 4,851,377 | ||||||
| Investment in Salt Tequila USA, LLC | i 250,000 | i 250,000 | ||||||
| Operating lease right of use asset | i 595,913 | i 750,042 | ||||||
| Property and equipment, net | i 423,844 | i 489,597 | ||||||
| Total non-current assets | i 6,238,065 | i 6,647,129 | ||||||
| Total assets | $ | i 13,133,067 | $ | i 17,304,703 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | i 3,307,836 | $ | i 3,383,187 | ||||
| Liability to issue shares | i — | i 91,800 | ||||||
| Operating lease liabilities - current | i 230,945 | i 268,749 | ||||||
| Notes payable, current portion | i 4,272,014 | i 1,080,257 | ||||||
| Shareholder advances | i 200,000 | i — | ||||||
| Due to related party | i 250,000 | i — | ||||||
| Accrued interest payable | i 300,658 | i 141,591 | ||||||
| Total current liabilities | i 8,561,453 | i 4,965,584 | ||||||
| Long-term liabilities: | ||||||||
| Notes payable | i 236,657 | i 2,536,319 | ||||||
| Operating lease liabilities - noncurrent | i 364,959 | i 480,666 | ||||||
| Total long-term liabilities | i 601,616 | i 3,016,985 | ||||||
| Total liabilities | i 9,163,069 | i 7,982,569 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued | i — | i — | ||||||
| Common Stock, $ par, shares authorized, shares issued, shares outstanding at June 30, 2023 and shares issued, shares outstanding at December 31, 2022 | i 42,802 | i 41,086 | ||||||
| Additional paid in capital | i 125,635,624 | i 121,632,547 | ||||||
| Accumulated other comprehensive loss | ( i 37,854 | ) | ( i 20,472 | ) | ||||
| Accumulated deficit | ( i 121,670,574 | ) | ( i 112,331,027 | ) | ||||
| Total stockholders’ equity | i 3,969,998 | i 9,322,134 | ||||||
| Total liabilities and stockholders’ equity | $ | i 13,133,067 | $ | i 17,304,703 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
| Splash Beverage Group, Inc. |
| Condensed Consolidated Statements of Operations and Comprehensive Loss |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| Three months ended June 30 | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net revenues | i 5,194,951 | i 4,498,940 | i 11,017,678 | i 8,425,514 | ||||||||||||
| Cost of goods sold | ( i 3,417,868 | ) | ( i 3,149,275 | ) | ( i 7,479,096 | ) | ( i 5,784,701 | ) | ||||||||
| Gross profit | i 1,777,083 | i 1,349,665 | i 3,538,582 | i 2,640,813 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Contracted services | i 331,297 | i 327,302 | i 712,302 | i 758,848 | ||||||||||||
| Salary and wages | i 1,364,136 | i 1,131,612 | i 2,598,263 | i 1,917,263 | ||||||||||||
| Non-cash share-based compensation | i 641,097 | i 2,772,369 | i 856,857 | i 5,342,494 | ||||||||||||
| Other general and administrative | i 2,919,533 | i 2,282,471 | i 5,568,234 | i 4,963,853 | ||||||||||||
| Sales and marketing | i 742,369 | i 665,059 | i 1,479,196 | i 1,171,455 | ||||||||||||
| Total operating expenses | i 5,998,432 | i 7,178,813 | i 11,214,852 | i 14,153,913 | ||||||||||||
| Loss from continuing operations | ( i 4,221,349 | ) | ( i 5,829,148 | ) | ( i 7,676,270 | ) | ( i 11,513,100 | ) | ||||||||
| Other income/(expense): | ||||||||||||||||
| Interest income | i 1,320 | i 2,709 | i 1,320 | i 2,709 | ||||||||||||
| Interest expense | ( i 172,641 | ) | ( i 73,471 | ) | ( i 339,762 | ) | ( i 159,350 | ) | ||||||||
| Other Income/Expense | ( i 90,585 | ) | i — | i 49,819 | ( i 1 | ) | ||||||||||
| Amortization of debt discount | ( i 1,126,994 | ) | i — | ( i 1,374,655 | ) | i — | ||||||||||
| Total other income/(expense) | ( i 1,388,900 | ) | ( i 70,762 | ) | ( i 1,663,278 | ) | ( i 156,642 | ) | ||||||||
| Provision for income taxes | i — | i — | i — | i — | ||||||||||||
| Net loss from continuing operations, net of tax | ( i 5,610,249 | ) | ( i 5,899,910 | ) | ( i 9,339,548 | ) | ( i 11,669,742 | ) | ||||||||
| Net income (loss) from discontinued operations, net of tax | i — | i 25,421 | i — | ( i 199,154 | ) | |||||||||||
| Gain on sale of discontinued operations | i — | i 115,632 | i — | i 115,632 | ||||||||||||
| Income of discontinued operations | i — | i 141,053 | i — | ( i 83,522 | ) | |||||||||||
| Net loss | $ | ( i 5,610,249 | ) | $ | ( i 5,758,857 | ) | $ | ( i 9,339,548 | ) | $ | ( i 11,753,264 | ) | ||||
| Other Comprehensive Income (Loss) | ||||||||||||||||
| Foreign currency translation loss | ( i 15,774 | ) | i — | ( i 17,382 | ) | i — | ||||||||||
| Total Comprehensive Income (Loss) | $ | ( i 5,626,023 | ) | $ | ( i 5,758,857 | ) | $ | ( i 9,356,930 | ) | $ | ( i 11,753,264 | ) | ||||
| (Loss) per share - continuing operations | ||||||||||||||||
| Basic and diluted | $ | ) | $ ) | $ | ) | $ | ) | |||||||||
| Weighted average number of common shares outstanding - continuing operations | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
Splash Beverage Group, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
For the Three and Six months ended June 30, 2023 and 2022
(Unaudited)
| Total | ||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balances at December 31, 2021 | i 33,596,232 | i 33,596 | — | — | i 99,480,188 | ( i 90,640,557 | ) | i 8,873,227 | ||||||||||||||||||||
| Issuance of common stock on convertible instruments | i 223,596 | i 224 | — | — | i 1,206,287 | — | i 1,206,510 | |||||||||||||||||||||
| Issuance of warrants for services | — | — | — | — | i 1,242,697 | — | i 1,242,697 | |||||||||||||||||||||
| Issuance of common stock for services | i 550,000 | i 550 | — | — | i 1,112,845 | — | i 1,113,395 | |||||||||||||||||||||
| Issuance of common stock and warrants for cash | i 2,300,000 | i 2,300 | — | — | i 8,065,100 | — | i 8,067,400 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | ( i 5,994,407 | ) | ( i 5,994,407 | ) | |||||||||||||||||||
| Balances at March 31, 2022 | i 36,669,828 | i 36,670 | — | — | i 111,107,116 | ( i 96,634,964 | ) | i 14,508,823 | ||||||||||||||||||||
| Issuance of warrants for services | — | — | — | i 1,174,289 | — | i 1,174,289 | ||||||||||||||||||||||
| Issuance of common stock for services | i 500,000 | i 500 | — | — | i 1,429,500 | — | i 1,430,000 | |||||||||||||||||||||
| Issuance of common stock and warrants for cash | i 100,000 | i 100 | — | — | i 109,900 | — | i 110,000 | |||||||||||||||||||||
| Accumulated Comprehensive Income - Translation | ( i 6,570 | ) | ( i 6,570 | ) | ||||||||||||||||||||||||
| Net loss | — | — | — | — | ( i 5,758,857 | ) | ( i 5,758,857 | ) | ||||||||||||||||||||
| Balances at June 30, 2022 | i 37,269,828 | i 37,270 | — | — | i 113,820,805 | ( i 102,400,391 | ) | i 11,457,684 | ||||||||||||||||||||
| Balances at December 31, 2022 | i 41,085,520 | $ | i 41,086 | $ | i 121,632,546 | $ | ( i 20,472 | ) | $ | ( i 112,331,026 | ) | $ | i 9,322,134 | |||||||||||
| Common stock issuable and beneficial conversion feature on convertible 12-month promissory note | — | — | i 1,786,468 | — | — | i 1,786,468 | ||||||||||||||||||
| Share based compensation | — | — | i 215,760 | — | — | i 215,760 | ||||||||||||||||||
| Accumulated Comprehensive loss – translation, net | — | — | — | ( i 1,609 | ) | — | ( i 1,609 | ) | ||||||||||||||||
| Net loss | — | — | — | — | ( i 3,729,299 | ) | ( i 3,729,299 | ) | ||||||||||||||||
| Balances at March 31, 2023 | i 41,085,520 | $ | i 41,086 | $ | i 123,634,774 | $ | ( i 22,081 | ) | $ | ( i 116,060,325 | ) | $ | i 7,593,454 | |||||||||||
| Issuance of common stock on convertible instruments | i 1,500,000 | i 1,500 | ( i 1,500 | ) | — | — | — | |||||||||||||||||
| Share based compensation | — | — | i 509,232 | — | — | i 509,232 | ||||||||||||||||||
| Issuance of common stock for services | i 216,666 | i 216 | i 223,449 | — | — | i 223,665 | ||||||||||||||||||
| Issuance of warrants on convertible instruments | — | — | i 1,269,669 | — | — | i 1,269,669 | ||||||||||||||||||
| Accumulated Comprehensive loss – translation, net | — | — | — | ( i 15,773 | ) | — | ( i 15,773 | ) | ||||||||||||||||
| Net loss | — | — | — | — | ( i 5,610,249 | ) | ( i 5,610,249 | ) | ||||||||||||||||
| Balances at June 30, 2023 | i 42,802,186 | i 42,802 | $ | i 125,635,624 | $ | ( i 37,854 | ) | $ | ( i 121,670,574 | ) | $ | i 3,969,998 |
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 Six Months Ended June 30, 2023 and 2022 |
| (Unaudited) |
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
i
Note 1 – Business Organization and Nature of Operations
Splash Beverage Group, Inc. (the “Company”, “Splash”) seeks to identify, acquire, and build early stage or under-valued beverage brands that have strong growth potential within its distribution system. Splash’s distribution system is comprehensive in the US and is now expanding to select attractive international markets. Through its division Qplash, Splash’s distribution reach includes e-commerce access to both business-to-business (B2B) and business-to-consumer (B2C) customers. Qplash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilities, and or homes.
i
Note 2 – Summary of Significant Accounting Policies
i
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. Accordingly, they do not include all the information and footnotes normally included in financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on March 31,2023 (the “Form 10-K”).
The accompanying condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
i
Basis of Presentation and Consolidation
These consolidated financial statements include the accounts of Splash and its wholly owned subsidiaries Splash Beverage Holdings LLC (“Holdings”), Splash International Holdings LLC (“International”), Splash Mex SA de CV (“Splash Mex”), Canfield Medical Supply, Inc. (“CMS”) (as discontinued operations), and Copa di Vino Wine Group, Inc. (“Copa di Vino”). All intercompany balances have been eliminated in consolidation.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Our investment in Salt Tequila USA, LLC is carried at cost less impairment, the investment does not have a readily determinable fair value.
Certain reclassifications have been made to the prior period financial statements to conform to the December 31, 2022 audited financial statement and the current period classifications. In the three months ended June 30, 2022, the Company reclassified $ i 676,510 from cost of goods sold to other general and administrative cost in the condensed consolidated statement of operations and comprehensive loss, which consisted of $ i 299,653 of shipping and handling and $ i 376,857 of Amazon selling fees. In the six months ended June 30, 2022, the Company reclassified $ i 1,135,655 from cost of goods sold to other general and administrative cost in the condensed consolidated statement of operations and comprehensive loss, which consisted of $ i 425,975 of shipping and handling and $ i 709,680 of Amazon selling fees. These reclassifications had no impact on net loss.
/ i
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
i
Cash Equivalents and Concentration of Cash Balance
The Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents. The Company had i i no / cash equivalents at June 30, 2023 or December 31, 2022.
The Company’s cash on deposit with financial institutions, at times, may exceed federally insured limits of $250,000. At June 30, 2023 the Company had $ i 56,836 in excess of the federally insured limits. The Company bank deposit amounts in Mexico of $ i 2,168, are uninsured.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
/ i
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at their estimated recoverable amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. The Company establishes provisions for losses on accounts receivable on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions. At June 30, 2023 and December 31, 2022, our accounts receivable amounts are reflected net of allowances of $ i 24,045 and $ i 13,683, respectively.
/ i
Inventory is stated at the lower of cost or net realizable value, accounted for using the weighted average cost method. The inventory balances at June 30, 2023 and December 31, 2022 consisted of raw materials, work-in-process, and finished goods held for distribution. The cost elements of inventory consist of purchase of products, transportation, and warehousing. The Company establish provisions for excess or inventory near expiration are based on management’s estimates of forecast turnover of inventories on hand and under contract. A significant change in the timing or level of demand for certain products as compared to forecast amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on inventory. The Company manages inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The amount of our reserve was $ i 0 and $ i 66,146 at June 30, 2023 and December 31, 2022, respectively.
/ i
The Company records property and equipment at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic useful lives of assets, which range from i 3- i 39 years. Company management reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable.
Depreciation expense totaled $ i 31,665 and $ i 43,534 for the three months ended June 30, 2023 and June 30, 2022, respectively. For the six months ended June 30, 2023 and June 30, 2022 depreciation expense totaled $ i 78,366 and $ i 74,229 respectively. Property and equipment as of June 30, 2023 and December 31, 2022 consisted of the following:
i /
/ i
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.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
i
Fair Value of Financial Instruments
Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
| Level 1 - | Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. | |
| Level 2 - | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). | |
| Level 3 - | Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. |
The liabilities and indebtedness presented on the condensed consolidated financial statements approximate fair values at June 30, 2023 and December 31, 2022, consistent with recent negotiations of notes payable and due to the short duration of maturities and market rates of interest.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
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The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects what the Company expects to receive in exchange for the transfer of goods or services to customers.
The Company recognizes revenue when the Company’s performance obligations under the terms of a contract with the customer are satisfied. Product sales occur for the Splash Beverage and E-commerce businesses once control of the Company’s products are transferred upon delivery to the customer. Revenue is measured as the amount of consideration that the Company expects to receive in exchange for transferring goods, and revenue is presented net of provisions for customer returns and allowances. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives offered to the Company’s customers and their customers. Sales taxes and other similar taxes are excluded from revenue.
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Cost of goods sold include the costs of products, packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or impaired inventory.
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Other General and Administrative Expenses
Other General and Administrative expenses include Amazon selling fees, royalty cost for selling TapouT, cost associated with the outbound shipping and handling of finished goods, insurance cost, consulting cost, legal and audit fees, Investor Relations expenses, travel & entertainment expenses, occupancy cost, shipping and handling cost and other cost.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
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The Company includes costs associated with the outbound shipping and handling of finished goods as a component of other general and administrative expenses in the consolidated statements of operations and comprehensive loss. Shipping and handling are not separately billed to the customers and are included in fees charged to the customer and are recorded as revenue when earned.
The Company incurred $ i 1,338,770 and $ i 1,129,705 of shipping and handling costs for the three months ending June 30, 2023 and 2022 respectively. The Company incurred $ i 2,737,205 and $ i 1,992,630 of shipping and handling costs for the six months ending June 30, 2023 and 2022 respectively. These amounts, which primarily relate to shipping, are recorded in other general and administrative expenses.
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The Company accounts for stock-based compensation in accordance with ASC 718, ”Compensation - Stock Compensation”. Under the fair value recognition provisions, cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the award’s vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock-based awards.
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The Company uses the liability method of accounting for income taxes as set forth in ASC 740, ”Income Taxes”. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. The Company records a valuation allowance when it is not more likely than not that the deferred tax assets will be realized.
Company management assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where there is less than i 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 June 30, 2023 and December 31, 2022.
The Company’s federal, state and local income tax returns prior to fiscal year 2019 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
The Company recognizes interest and penalties associated with tax matters, if any, as part of operating expenses and includes accrued interest and penalties with accrued expenses in the condensed interim balance sheets.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
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The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included in the computation if the effect would be anti-dilutive.
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The Company conducts advertising for the promotion of its products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. For the three months ended June 30, 2023 and June 30, 2022 the Company recorded advertising expenses of $ i 194,415 and $ i 131,327, respectively. The Company recorded advertising expense of $ i 389,462 and $ i 218,917 for the six months ended June 30, 2023 and 2022, respectively.
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Goodwill and Intangibles Assets
Goodwill represents the excess of acquisition cost over the fair value of the net assets acquired and is not subject to amortization. The Company reviews goodwill annually in the fourth quarter for impairment or when circumstances indicate carrying value may exceed the fair value. This evaluation is performed at the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less than carrying value, a quantitative analysis is completed using either the income or market approach, or a combination of both. The income approach estimates fair value based on expected discounted future cash flows, while the market approach uses comparable public companies and transactions to develop metrics to be applied to historical and expected future operating results.
Intangible assets consist of customer lists, brands and license agreements acquired in the acquisition of Copa Di Vino. The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives of 15 years.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies, continued
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The Company evaluates long-lived assets for impairment when events or changes in circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques.
i
The Company discloses a measurement of segment profit or loss that its chief operating decision maker (CODM) uses to assess segment performance and to make decisions about resource allocations for each reportable segment.
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Recent Accounting Pronouncements
On January 1, 2023, the Company adopted FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which requires the immediate recognition of management’s estimates of current and expected credit losses. Adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements or disclosures.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
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Foreign Currency Gains/Losses — foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates. Gains or losses from these translation adjustments are included in the condensed consolidated statement of operations and other comprehensive loss as foreign currency translation gains or losses. Translation gains and losses that arise from the translation of net assets from functional currency to the reporting currency, as well as exchange gains and losses on intercompany balances, are included in foreign currency translation in the condensed consolidated statement of operations and comprehensive loss. The Company incurred foreign currency translation net loss of $ i 15,773 and $ i 6,570 for the three months ended June 30, 2023 and 2022 respectively and net loss of $ i 17,382 and $ i 6,570 for the six months ending June 30, 2023 and 2022 respectively.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
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Liquidity and Going Concern Considerations
These condensed consolidated financial statements have been prepared assuming the Company will be able to continue as a going concern. The Company historically has incurred significant losses and negative cash flows from operation since inception and had net-loss of approximately $9.3 million for six-month period ended June 30, 2023 and accumulated deficit of approximately $121.7 million through June 30, 2023. During the six-month period ended June 30, 2023, the Company’s net cash used in operating activities totaled approximately $6.5 million.
If sales volumes do not meet the Company’s projections, expenses exceed the Company’s expectations, or the Company’s plans change, the Company may be unable to generate enough cash flow from operations to cover our working capital requirements. In such case, the Company may be required to adjust its business plan, by reducing marketing, lower its working capital requirements and reduce other expenses or seek additional financing.
In order to have sufficient cash to fund our operations, the Company will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. The Company will be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities the Company may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, the Company may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. The Company may also be required to recognize non-cash expenses in connection with certain securities the Company may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital the Company is able to raise from financing activities together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that the Company reduce our operations accordingly, the Company may be required to curtail or cease operations. As a result, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern for at least twelve months from the date of the consolidated financial statements being available to be issued.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
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Note 3 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable and Revenue Financing Arrangements
Notes payable are generally non-recourse and secured by all Company owned assets.
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| Schedule of notes payable | ||||||||||||
| Interest Rate |
June 30, 2023 |
December 31, 2022 | ||||||||||
| Notes Payable and Convertible Notes Payable | ||||||||||||
| In March 2014, the Company entered into a short-term loan agreement with an entity in the amount of $ i 200,000. The note included warrants for i 272,584 shares of common stock at $ per share. The warrants expired unexercised on February 28, 2017. The loan and interest was paid off in February 2023 | i 8 | % | i — | i 200,000 | ||||||||
| In December 2020, the Company entered into a 56- month loan with a company in the amount of $ i 1,578,237. The loan requires payments of i 3.75% through November 2022 and i 4.00% through September 2025 of the previous month’s revenue. Note is due September 2025. Note is guaranteed by a related party see note 6. | i 17 | % | i 672,695 | i 1,044,445 | ||||||||
| In April 2021, the Company entered into a six-month loan with an individual in the amount of $ i 84,000. The loan had an original maturity of October 2021 with principal and interest due at maturity with conversion price of $ i 3.30 per share. The loan was extended to October 2023. | i 7 | % | i 84,000 | i 84,000 | ||||||||
| In April 2021, the Company entered into a six-month loan with an individual in the amount of $ i 84,000. The loan had an original maturity of October 2021 with principal and interest due at maturity with conversion price of $ i 3.30 per share. The loan was extended to October 2023. | i 7 | % | i 84,000 | i 84,000 | ||||||||
| In May 2021, the Company entered into a six-month loan with an individual in the amount of $ i 50,000. The loan had an original maturity of October 2021 with principal and interest due at maturity with conversion price of $ i 3.30 per share. The loan was extended to October 2023. | i 7 | % | i 50,000 | i 50,000 | ||||||||
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
| In May 2021, the Company entered into a six-month loan with an individual in the amount of $ i 10,000. The loan had an original maturity of October 2021 with principal and interest due at maturity with conversion price of $ i 3.30 per share. The loan was extended to October 2023. | i 7 | % | i 10,000 | i 10,000 | ||||||||
| In August 2022, the Company entered into a 56-months auto loan in the amount of $ i 45,420. | i 2.35 | % | i 40,064 | i 42,396 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $ i 100,000. The note included i 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 100,000 | i 100,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $ i 250,000. The note included i 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 250,000 | i 250,000 | ||||||||
| In In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $ i 1,000,000. The note included i 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 1,000,000 | i 1,000,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $ i 250,000. The note included i 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 250,000 | i 250,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $ i 250,000. The note included i 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 250,000 | i 250,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $ i 250,000. The note included i 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 250,000 | i 250,000 |
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $ i 400,000. The note included i 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 400,000 | i 400,000 | ||||||||
| In December 2022, the Company entered into an eighteen-month loan with an individual in the amount of $ i 1,500,000. The note included i 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 1,500,000 | i 1,500,000 | ||||||||
| In February 2023, the Company entered into a twelve-month loan with an entity in the amount of $ i 2,000,000. The convertible note included 750 additional shares for each $ i 1,000 purchased. The loan matures in February 2024 with conversion price of $ i 1.00 per share. | i — | i 2,000,000 | i — | |||||||||
| In May 2023, the Company entered into an eighteen-month loan with an individual in the amount of $ i 100,000. The note included i 50% warrant coverage. The loan matures in November 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 100,000 | i — | ||||||||
| In May 2023, the Company entered into an eighteen-month loan with an individual in the amount of $ i 400,000. The note included i 50% warrant coverage. The loan matures in November 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 400,000 | i — | ||||||||
| In May 2023, the Company entered into an eighteen-month loan with an individual in the amount of $ i 200,000. The note included i 50% warrant coverage. The loan matures in November 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 200,000 | i — | ||||||||
| In May 2023, the Company entered into an eighteen-month loan with an individual in the amount of $ i 100,000. The note included i 50% warrant coverage. The loan matures in November 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 100,000 | i — |
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
| In June 2023, the Company entered into an eighteen-month loan with an individual in the amount of $ i 250,000. The note included i 50% warrant coverage. The loan matures in December 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 250,000 | i — | ||||||||
| In June 2023, the Company entered into an eighteen-month loan with an individual in the amount of $ i 100,000. The note included i 50% warrant coverage. The loan matures in December 2024 with principal and interest due at maturity with conversion price of $ i 1.00 per share. | i 12 | % | i 100,000 | i — | ||||||||
| Total notes payable | $ | i 8,088,418 | $ | i 5,514,841 | ||||||||
| Less notes discount | ( i 3,095,543 | ) | ( i 1,898,265 | ) | ||||||||
| Less current portion | ( i 4,272,014 | ) | ( i 1,080,257 | ) | ||||||||
| Long-term notes payable | $ | i 720,861 | $ | i 2,536,319 |
Interest expense on notes payable was $ i 170,078 and $ i 69,015 for the three months ended June 30, 2023 and 2022, respectively. Interest expense on notes payable was $ i 333,985 and $ i 150,715 for the six months ended June 30, 2023 and 2022, respectively. Accrued interest was $ i 137,743 and $ i 300,658 for the three months and six months ended June 30, 2023. The Company’s effective interest rate was i 33% for the six months ended June 30, 2023.
As of June 30, 2023, the Company’s convertible note balances are convertible into shares of common stock.
Shareholder Advances
As of February 23, 2023, the Company received a shareholder advance for $ with a % interest rate and is repayable on February 24, 2024.
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
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Note 4 – Licensing Agreement and Royalty Payable
The Company has a licensing agreement with ABG TapouT, LLC (“TapouT”), providing the Company with licensing rights to the brand “TapouT” (i)energy drinks, (ii) energy bars, (iii) coconut water, (iv) electrolyte gum/chews, (v) energy shakes, (vi) powdered drink mix, (viii) water (including enhanced water), (vii) energy shots, (viii) teas, and (ix) sports drinks sold in the North America (including US Territories and Military Bases), United Kingdom, Brazil, South Africa, Australia, Scandinavia, Peru, Colombia, Chile and Guatemala. The Company is required to pay a 6% royalty on net sales, as defined, and are required to make minimum monthly payments of $ i 55,000 in 2023 and $ i 54,450 in 2022.
There were no unpaid royalties at June 30, 2023. The Company paid the guaranteed minimum royalty payments of $ i 165,000 and $ i 163,350 for the three months ended June 30, 2023 and 2022 respectively and $ i 330,000 and $ i 326,700 for the six months ending June 30, 2023 and 2022 respectively, which is included in general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.
In connection with the Copa di Vino APA, the Company acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”). On February 16, 2018, Copa di Vino entered into three separate license agreements with 1/4 Vin. 1/4 Vin has the right to license certain patents and patent applications relating to inventions, systems, and methods used in the Company’s manufacturing process. In exchange for notes payable, 1/4 Vin granted the Company a nonexclusive, royalty-bearing, non-assignable, nontransferable, terminable license which would continue until the subject equipment is no longer in service or the patents expire. Amortization is approximately $31,000 annually until the license agreement is fully amortized in 2027. The asset is being amortized over a i 10-year useful life.
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Common Stock
During the period ended June 30, 2023, the Company entered into a private placement offering to purchase convertible instruments that convert into the Company’s common stock up to an aggregate of $ i 8,500,000. The Company received gross proceeds of $ i 1,150,000 from the issuance of convertible instruments with shares and i 575,000 warrants.
In the three months and six months ended June 30, 2023 the Company granted share-based awards to certain consultants totaling shares of common stock at a weighted average price of $1.10 and recognized share based compensation of $. In the three months and six months ended June 30, 2023 the Company issued shares in satisfaction of a $ liability to issue shares recorded in December 2022.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 5 – Stockholders’ Equity, continued
Stock Plans
2020 Plan
In July 2020, the Board adopted the 2020 Stock Incentive Plan (the “2020 Plan”), which provides for the grant of Options, Restricted Stock Awards, Stock Appreciation Rights, Performance Units and Performance Bonuses to consultants and eligible recipients.
The 2020 Plan has an “evergreen” feature, which provides for the annual increase in the number of shares issuable under the plan by an amount equal to 5% of the number of issued and outstanding common shares at year end, unless otherwise adjusted by the Board of Directors. At January 1, 2023 and 2022, the number of shares issuable under the 2020 plan increased by and shares, respectively.
The following is a summary of the Company’s stock option activity during the period ended June 30, 2023:
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| Schedule of stock option activity | ||||||||||||||
| Stock options | Weighted average exercise price of outstanding stock options | Weighted average remaining life (Yrs) | ||||||||||||
| Balance January 01, 2023 * | i 1,151,000 | $ | i 1.12 | |||||||||||
| Granted | i 65,000 | i 1.08 | ||||||||||||
| Exercises | i — | i — | ||||||||||||
| Cancelled | i — | i — | ||||||||||||
| Balance March 31, 2023 | i 1,216,000 | $ | i 1.12 | |||||||||||
| Granted | i 3,376,008 | i 1.13 | ||||||||||||
| Exercises | i — | i — | ||||||||||||
| Cancelled | i — | i — | ||||||||||||
| Balance - June 30, 2023 | i 4,592,008 | $ | i 1.13 | $ | ||||||||||
| Exercisable - June 30, 2023 | i 3,608,923 | $ | i 1.12 | $ | ||||||||||
| * | These prices are reflective of the price modification made on April 24, 2023. |
In the three months ending June 30, 2023, the Company granted options to employees and directors at weighted average strike price of $, weighted average expected life of years, weighted average volatility of %, weighted average risk-free rate of % and dividend. On April 24, 2023, the Company modified the price of options to $from a weighted average price of $. The options have a weighted average expected life of years, weighted average volatility of %, weighted average risk-free rate of % and dividend. Following ASC Topic 718 the Company recognized an incremental expense from the modification of the option pricing resulted in an expense of $that was reflected in the quarter. The grant date fair value of options granted during the six months ended June 30, 2023 was $. The Company recognized $ of share-based compensation during the six months ended June 30, 2023.
| 20 |
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
The following is a summary of the Company’s Warrant activity.
i
| Schedule of warrant activity | ||||||||||||||
| Warrants | Weighted average exercise price of outstanding warrants | Weighted
average remaining term (Yrs) | ||||||||||||
| Balance December 31, 2022 | i 14,343,896 | $ | i 1.85 | |||||||||||
| Granted | i — | i — | ||||||||||||
| Balance March 31, 2023 | i 14,343,896 | $ | i 1.85 | |||||||||||
| Granted | i 575,000 | i 0.25 | ||||||||||||
| Exercises | i 68,146 | i 2.19 | ||||||||||||
| Cancelled | i 2,345,677 | i 2.32 | ||||||||||||
| Balance - June 30, 2023 | i 12,505,073 | $ | i 1.68 | |||||||||||
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During the normal course of business, the Company incurs expenses related to services provided by the CEO for Company expenses paid by the CEO. In conjunction with the acquisition of Copa di Vino, the Company also entered into a Revenue Loan and Security Agreement (the “Loan and Security Agreement”) by and among the Company, Robert Nistico, was an additional Guarantor and each of the subsidiary guarantors from time-to-time party thereto (each a “Guarantor”, and, collectively, the “Guarantors”), and Decathlon Alpha IV, L.P. (the “Lender”). The Note Payable had a balance outstanding of $ i 672,695 at June 30,2023.
On June 22, 2023, the Company received an interest free short-term loan from the CEO for $ i 250,000. The loan is expected to be repaid within the current year.
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Note 7 – Investment in Salt Tequila USA, LLC
The Company has a marketing and distribution agreement with SALT Tequila USA, LLC (“SALT”) for the manufacturing of our Tequila product line in Mexico.
The Company has a i 22.5% percentage ownership interest in SALT, this investment is carried at cost less impairment, the investment does not have a readily determinable fair value. The Company has the right to increase our ownership to i 37.5%.
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Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
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The Company has various operating lease agreements primarily related to real estate and office space. The Company’s real estate leases represent a majority of the lease liability. Lease payments are mainly fixed. Any variable lease payments, including utilities, common area maintenance are expensed during the period incurred. Variable lease costs were immaterial for the three months and six month period ended June 30, 2023 and 2022. A majority of the real estate leases include options to extend the lease. Management reviews all options to extend at the inception of the lease and account for these options when they are reasonably certain of being exercised.
Operating lease expense is recognized on a straight-line basis over the lease term and is included in the Company’s condensed consolidated statement of operations and comprehensive loss. Operating lease cost was $ i 182,658 and $ i 175,734 during the six-month period ended June 30, 2023 and 2022, respectively.
The following table sets forth the maturities of our operating lease liabilities and reconciles the respective undiscounted payments to the operating lease liabilities in the consolidated balance sheet at June 30, 2023:
i /
The table below presents lease-related terms and discount rates at June 30, 2023:
i
| Summary of lease related terms and discount rates | ||||
| Remaining term on leases | i 1 to i 30 months | |||
| Incremental borrowing rate | i 5.0 | % |
| 22 |
Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
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The Company has two reportable operating segments: (1) the manufacture and distribution of non-alcoholic and alcoholic brand beverages, and (2) the e-commerce sale of beverages. These operating segments are managed respectively and each segment’s major customers have different characteristics. Segment Reporting is evaluated by our Chief Executive Officer and Chief Financial Officer.
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| Total assets | June 30, 2023 | December 31, 2022 | ||||||
| Splash Beverage Group | $ | i 10,627,238 | $ | i 14,723,553 | ||||
| E-Commerce | i 2,505,829 | i 2,581,150 | ||||||
| Total assets | $ | i 13,133,067 | $ | i 17,304,703 | ||||
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Splash Beverage Group, Inc.
Notes to the Condensed Consolidated Financial Statements
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Note 10 – Commitment and Contingencies
The Company is a party to asserted claims and are subject to regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations.
i
In July 2023, the Company received approximately $ i 0.85 million from a Private Placement issuance of convertible notes. The notes have a twelve to eighteen-month term, accrue interest at 12.0% and are convertible into shares of common stock of the Company at $1.00 per share, and include 50% warrant coverage. In August 2023, the Company received approximately $ i 1.1 million from a Private Placement issuance of a convertible note. The note has a twelve -month term, is non-interest bearing and is convertible into shares of common stock of the Company at $ per share, the note includes shares for every $ i 1,000 purchased in the note. These notes are part of a Securities Purchase Agreement to raise up to $ i 8.5 million to fund acquisitions, equipment purchases and working capital.
/
| 24 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The information in this discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements that are not of historical fact may be deemed to be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue”, the negative of the terms or other comparable terminology. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in other reports or registration statements filed with the United States Securities and Exchange Commission. These factors may cause our actual results to differ materially from any forward-looking statements. The Company disclaim any obligation to publicly update these statements or disclose any difference between actual results and those reflected in these statements.
Unless the context otherwise requires, references in this Form 10-Q to “we,” “us,” “our,” or the “Company” refer to Splash Beverage Group and its subsidiaries.
The following discussion and analysis should be read in conjunction with the Condensed Financial Statements (unaudited) and Notes to Condensed Financial Statements (unaudited) filed herewith.
Business Overview
Splash Beverage Group, Inc. (the “Company”, “Splash”) seeks to identify, acquire, and build early stage or under-valued beverage brands that have strong growth potential within its distribution system. Splash’s distribution system is comprehensive in the US and is now expanding to select attractive international markets. Through its division Qplash, Splash’s distribution reach includes e-commerce access to both business-to-business (B2B) and business-to-consumer (B2C) customers. Qplash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilities, and or homes.
Results of Operations for the Three Months and Six Months Ended June 30, 2023 compared to Three Months and Six Months Ended June 30, 2022.
Net Revenue
Net Revenues for the three months ended June 30, 2023 was $5,194,951 compared to revenues of $4,498,940 for the three months ended June 30, 2022. The $696,011 increase in sales is due to an increase from our vertically integrated B2B and B2C e-commerce distribution platform called Qplash which increased $924,428 offset by a decline in sales in the beverage business of $228,417 driven by phasing of purchases of Salt Tequila and Copa di Vino from our distributors.
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Revenue for the six months ended June 30, 2023 was $11,017,678 compared to revenues of $8,425,514 for the six months ended June 30, 2022. The $2,592,164 increase in sales is driven by increases in both the e-commerce and beverage businesses which increased $2,399,772 and $192,392 respectively. Qplash increased revenue was based on expanded territory coverage, new products being sold and increased cart size for customers. The beverage business largest contributors to the increase in revenues were TapouT and Pulpoloco.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2023 was $3,417,868 compared to cost of goods sold for the three months ended June 30, 2022 of $3,149,275. The $268,593 increase in cost of goods sold for the three-month period ended June 30, 2023 is driven by increased sales and product mix shifting to lower margin items in e-commerce business.
Cost of goods sold for the six months ended June 30, 2023 was $7,479,096 compared to cost of goods sold for the six months ended June 30, 2022 of $5,784,701. The $1,694,395 increase in cost of goods sold for the six-month period ended June 30, 2023 is driven by increased sales in both the e-commerce and beverage business.
Improvement in cost of goods sold compared to net revenue for the three month and six-month period ended June 30, 2023 versus June 30, 2022 is driven by higher margin products sold.
Operating Expenses
Operating expenses for the three months ended June 30, 2023 was $5,998,432 compared to $7,178,813 for the three months ended June 30, 2022 a decrease of $1,180,381. The decrease in operating expenses was primarily due to non-cash expenses partially offset by increases for the incorporation of new staff, benefit cost, freight cost and Amazon selling fees.
Operating expenses for the six months ended June 30, 2023 was $11,214,852 compared to $14,153,913 for the six months ended June 30, 2022 a decrease of $2,939,061. The decrease in operating expenses was primarily due to non-cash expenses partially offset by increases for the incorporation of new staff, benefit cost, marketing expense, freight cost and Amazon selling fees.
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Net Other Income and Expense
Interest expense for the three and six months ended June 30, 2023 was $172,641 and $339,762 respectively. For the three and six months ended June 30, 2022 the interest expenses was $73,472 and $159,350 respectively due to additional convertible notes issued in December 2022.
Included in Other Income for the three months ended June 30, 2023 was an insurance settlement of $57,429. For the three and six months ended June 30, 2022 the other income / expense $0.
Amortization of debt discount for the three months and six months ended June 30, 2023 was $1,126,994 and $1,374,655 respectively. For the three and six months ended June 30, 2022 the amortization of debt discount was $0.
LIQUIDITY, GOING CONCERN CONSIDERATIONS AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
As of June 30, 2023, the Company had total cash and cash equivalents of $903,235, as compared with $4,431,745 at December 31, 2022.
Net cash used for operating activities during the six months ended June 30, 2023 was $6,522,091 as compared to the net cash used by operating activities for the six months ended June 30, 2022 of $7,107,851. The driver for the change in net cash used is due to a reduction of inventory in 2023 and an increase of inventory to support sales commitments in 2022.
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Net cash provided by financing activities during the six months ended June 30, 2023 was $3,023,576. During the six months ended June 30, 2023, the Company received $3,150,000 for convertible notes, $200,000 from a shareholder advance and a $250,000 loan from a related party, which was offset by repayments to debt holders of $576,424.
In order to have sufficient cash to fund our operations, the Company will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to the Company. The Company will be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of new securities the Company may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuance of incentive awards under equity incentive plans, which may have additional dilutive effects. Further, the Company may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. The Company may also be required to recognize non-cash expenses in connection with certain securities the Company may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital the Company are able to raise from financing activities together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that the Company reduce our operations accordingly, the Company may be required to curtail or cease operations. As a result, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern for at least twelve months from the date of the consolidated financial statements being available to be issued.
CONTRACTUAL OBLIGATIONS
Share obligation:
None.
Minimum Royalty Payments:
The Company has a licensing agreement with ABG TapouT, LLC (“TapouT”). Under the licensing agreement, the Company has minimum royalty payments to TapouT of $330,00 for the six months remaining in 2023.
Inventory Purchase Commitments:
None.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
None.
Recently Issued Accounting Pronouncements
None.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for Smaller Reporting Companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end of the period covered by this Report. Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, because of certain material weaknesses in our internal controls over financial reporting, our disclosure controls and procedures were not effective as of June 30, 2023. The material weaknesses relate to a lack of segregation of duties between accounting and other functions and the absence of sufficient depth of in-house accounting personnel with the ability to properly account for complex transactions.
The Company plans to implement additional internal controls or enhance existing internal controls to strengthen its control environment. Subsequent to the quarter ended June 30, 2023, the Company is reviewing a plan to engage additional internal staff, external staff, or an advisory firm to provide support on technical issues related to U.S. GAAP as related to the maintenance of our accounting books and records and the preparation of our financial statements.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2023, the Company engaged an advisory firm to provide support on technical issues related to U.S. GAAP in preparation of our financial statements. Except as noted there were no additional changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
None.
No new risk factors noted since our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In the three months and six months ended June 30, 2023, the Company issued 1,150,000 shares in connection with convertible instruments. On May 10, 2023, the Company received $800,000 for the sale of convertible notes with 12.0% interest and eighteen-month term to four individual investors totaling 800,000 shares with an exercise price of $1.00 per share, the notes included 400,000 warrants with an exercise price of $0.25 per warrant. On June 28, 2023, the Company received $350,000 for the sale of convertible notes with 12.0% interest and eighteen-month term to two individual investors totaling 350,000 shares with an exercise price of $1.00 per share, the notes included 175,000 warrants with an exercise price of $0.25 per warrant. On August 10, 2023, the Company received $1,100,000 for the sale of a convertible note. The note has a twelve -month term, is non-interest bearing and is convertible into shares of common stock of the Company at $1.00 per share, the note includes 500 shares for every $1,000 purchased in the note. These notes were issued to fund acquisitions, equipment purchases and working capital.
In the three months and six months ended June 30, 2023, the Company issued 216,666 shares of common stock to consultants in exchange for services and recognized non-cash compensation on our Condensed Consolidated Statement of Operation in the amount of $131,866.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
No disclosure required.
None.
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(a) Exhibits required by Item 601 of Regulation S-K.
** Furnished herewith
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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: August 14, 2023 | By: | /s/ Robert Nistico |
| Robert Nistico, Chairman and CEO | ||
| (Principal Executive Officer) | ||
| Date: August 14, 2023 | By: | /s/ Ronald Wall |
| Ronald Wall, CFO | ||
| (Principal Accounting Officer and Principal Financial Officer) | ||
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 2/24/24 | ||||
| Filed on: | 8/14/23 | |||
| 8/10/23 | ||||
| For Period end: | 6/30/23 | |||
| 6/28/23 | ||||
| 6/22/23 | ||||
| 5/10/23 | 424B3 | |||
| 4/24/23 | 4 | |||
| 3/31/23 | 10-K, 10-Q, NT 10-Q | |||
| 2/23/23 | ||||
| 1/1/23 | ||||
| 12/31/22 | 10-K | |||
| 6/30/22 | 10-Q | |||
| 3/31/22 | 10-K, 10-Q, 3, 4, 8-K | |||
| 1/1/22 | ||||
| 12/31/21 | 10-K | |||
| 2/16/18 | ||||
| 2/28/17 | ||||
| List all Filings | ||||