Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
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
Rate
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Related Parties Notes Payable, continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2012, 2013, 2014, and 2016, we
entered into 6-month term loan agreements with an officer of the Company in the amounts of $155,000, $210,000, $150,000 and
$40,000, all respectively. The notes included warrants for issuances of 204,438 shares of common stock at $0.92 per share.
The warrants expired unexercised on March 1, 2017. The note matured and in March 2020 the full outstanding principal balance
of $495,000 and unpaid accrued interest of $213,010 was converted into 942,504 shares of common stock according to the Merger
Agreement.
|
|
7%
|
|
|
-
|
|
|
|
495,000
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2013, 2014 and 2017, we entered into 12-month term loan agreements with an officer of the Company in the amounts of $60,000, $50,000 and $10,000. The note matured and in March 2020 the full outstanding principal balance of $120,000 and unpaid accrued interest of $50,305 was converted into 228,328 shares of common stock according to the Merger Agreement.
|
|
7%
|
|
|
-
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2018, we entered into a long term note payable with an entity owned by an officer for $12,000 to be payable on July 10, 2020. The note matured and in March 2020 the full outstanding principal balance of $12,000 and unpaid accrued interest of $1,050 was converted into 17,407 shares of common stock according to the Merger Agreement.
|
|
12%
|
|
|
-
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2019, we entered into a term note payable with an entity owned by an officer for $130,000 to be paid on August 8, 2019. The note matured and in March 2020 the full outstanding principal balance of $130,000 and unpaid accrued interest of $9,078 was converted into 182,525 shares of common stock according to the Merger Agreement.
|
|
12%
|
|
|
-
|
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,505,100
|
|
Interest
expense on related party notes payable was $37,967 and $24,814 for the three months ended March 31, 2020 and 2019, respectively.
Accrued interest was $0 as of March 31, 2020.
Concurrently
with the consummation of the Merger, notes payable of $1,505,100 and accrued interest were converted to shares of Splash common
stock, which were exchanged for CMS shares. Pursuant to the terms of the conversion agreements, these investors have the right
to rescind the common shares received and receive replacement notes payable if we fail to raise $9 million in a secondary initial
public offering by September 30, 2020. As a result, these shares are classified as mezzanine equity in our condensed consolidated
balance sheet.
Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
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
Rate
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Convertible Bridge Loans Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In May 2015, we entered into a 3-month term loan agreement with an individual in the amount of $100,000. The annual interest rate for this bridge loan was 32% for the first 90 days, and 4% thereafter, compounded monthly.
|
|
See left
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
In October 2015, we entered into a 3-month term loan agreement with two individuals in the amount of $25,000. On December 26, 2018, the outstanding principal and accrued interest of $14,388 was consolidated into a new $39,388 term loan due August 26, 2020. In March 2020 the full outstanding principal balance of $39,388 and unpaid accrued interest of $5,973 was converted into 59,694 shares of common stock according to the Merger Agreement.
|
|
12%
|
|
|
-
|
|
|
|
39,388
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2015, we entered into a 3-month term loan with two individuals in the amount of $100,000. On December 26, 2018, the outstanding principal amount of $100,000 and accrued interest of $64,307 was consolidated into a new $164,307 term loan due August 26, 2020. In March 2020 the full outstanding principal balance of $164,307 and unpaid accrued interest of $24,916 was converted into 249,013 shares of common stock according to the Merger Agreement.
|
|
12%
|
|
|
-
|
|
|
|
164,307
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2016, 2017 and 2018, we entered into multiple
loan agreements with an entity in varying amounts. On December 26, 2018, the outstanding principal of $235,500 and accrued
interest of $155,861 was consolidated into a new $391,361 term due August 26, 2020. In March 2020 the full outstanding principal balance of $391,361
and unpaid accrued interest of $43,823 was converted into 435,184 shares of common stock according to the Merger Agreement.
|
|
12%
|
|
|
-
|
|
|
|
391,361
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2016, we entered into 3-month term loan agreements with an individual totaling $20,000. The loan was extended to August 14, 2020. In March 2020 the full outstanding principal balance of $20,000 and unpaid accrued interest of $10,096 was converted into 41,336 shares of common stock according to the Merger Agreement.
|
|
9%
|
|
|
-
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2014 through 2018, we entered into convertible
promissory note agreements with various terms ranging from 90 days to 18 months at 18% interest with an entity which were
consolidated into one loan at 12% in 2018 totaling $795,137 with a due date of August 26, 2020. In March 2020 the full outstanding principal balance of $795,137
and unpaid accrued interest of $89,037 was converted into 884,174 shares of common stock according to the Merger Agreement.
|
|
12%
|
|
|
-
|
|
|
|
795,137
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2015 and 2016, we entered into a series of
3-month term convertible promissory note agreements at 18% interest with an entity which were consolidated into one loan at
12% in 2018 totaling $692,471 with a due date of August 26, 2020. In March 2020 the full outstanding principal balance of $692,471
and unpaid accrued interest of $77,541 was converted into 770,012 shares of common stock according to the Merger Agreement.
|
|
12%
|
|
|
-
|
|
|
|
692,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100,000
|
|
|
$
|
2,202,664
|
|
During 2018, we issued convertible bridge loans
payable which are convertible, at the holders’ option, into shares of our common stock.
During 2018 multiple convertible bridge loans
payable to five counterparties, and related unpaid interest were consolidated into five new convertible bridge loans payable totaling
$2,082,665. The notes are of varying amounts and are due in August 2020, at an interest rate of 12%. We analyzed the notes and
concluded the conversion terms did not constitute beneficial conversion features. The principal amount and any accrued and unpaid
interest are convertible at the conversion price of a potential future offering of the Company.
Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
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 $93,785 and $70,480 for the three months ended March 31, 2020 and 2019, respectively.
Accrued interest was $147,215 at March 31, 2020.
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 $247,215.
Concurrently
with the consummation of the Merger, notes payable of $2,102,664 and accrued interest were converted to shares of Splash common
stock, which were exchanged for CMS shares. Pursuant to the terms of the conversion agreements, these investors have the right
to rescind the common shares received and receive replacement notes payable if we fail to raise $9 million in a secondary initial
public offering by September 30, 2020. As a result, these shares are classified as mezzanine equity in our condensed consolidated
balance sheet.
|
|
Interest
Rate
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Revenue Financing Arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During August 2015, we entered into a
3-month term loan agreement with an entity in the amount of $50,000, with required daily payments of $999. we entered into
two additional 3-month loan agreements with the entity in 2016 in the amounts of $60,000 and $57,000, with required daily
payments of $928 and $713, respectively. The term loans matured and remain unpaid. On February 23, 2017, the 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 $65,978.
|
|
10%
|
|
|
28,032
|
|
|
|
28,032
|
|
|
|
|
|
|
|
|
|
|
|
|
During November 2016, we entered into a short-term loan agreement with an entity in the amount of $55,000 with required daily payments of $1,299. The note was in default as of December 31, 2018. In 2019, we entered into a settlement agreement with monthly installment payments of $6,000. The loan is scheduled to be fully repaid in 2020.
|
|
12%
|
|
|
17,435
|
|
|
|
17,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,464
|
|
|
$
|
45,464
|
|
Interest expense on the revenue financing arrangements
was $25,067 and $1,723 for the year ended March 31, 2020 and 2019, respectively. Accrued interest was $39,221 at March 31, 2020.
Bridge
Loan Payable
We issued an additional bridge loan in October
2018 for $2 million with a one-year maturity to GMA Bridge Fund LLC (“GMA”). This bridge loan contains a 10% administration
fee of which the full $200,000 was accrued at December 31, 2019 and included in bridge loan payable, net. We incurred $271,670
of loan costs, which was fully amortized at December 31, 2019. Interest on the bridge loan was 0.5% monthly for the first six months
and 0.75% monthly for the next six months. At the same time the debt was issued, we entered into a separate agreement in which
GMA provided consulting services for one year (“Consulting Agreement”). We compensated GMA for the Consulting Agreement
services by issuance of a warrant with a 5-year term to acquire 1,362,922 shares of our common stock at an exercise price of $0.01
per share. The warrant vested immediately. The value of the warrant, based on a Black-Scholes option pricing model, was $991,423
and was expensed in full in 2018. Interest expense on the bridge loan for the three months ended March 31, 2020 was $49,584 and
accrued interest at March 31, 2020 was $0.
As
part of GMA’s conversion agreement, we replaced the original warrants to purchase 1 million shares and granted additional
warrants. To purchase 1 million shares. The value of the warrants based on a Black-Scholes option pricing model, was $1,657,805,
and was expensed.
Concurrently
with the consummation of the Merger, the $2,500,000 note payable of was converted to shares of Splash common stock, which were
exchanged for CMS shares. Pursuant to the terms of the conversion agreements, GMA has the right to rescind the common shares received
and receive replacement notes payable if we fail to raise $9 million in a secondary initial public offering by September 30, 2020.
As a result, these shares are classified as mezzanine equity in our condensed consolidated balance sheet.
Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
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 2020 and 2019, we are required to make monthly payments of $45,000 and $39,000, respectively.
The
unpaid amount of royalties was $45,000 at March 31, 2020. Guaranteed minimum royalty payments totaled $135,000 and $117,000 for
the three months ended March 31, 2020 and 2019, which is included in general and administrative expenses.
Note
6 – Deficiency in Stockholders’ Equity
Common Stock
In 2019, we issued 1,846,078 shares of our
common stock in exchange for services provided to us. The shares were valued at $0.73 per share. We recognized share-based compensation
expense of $1,354,500, which is classified within the contracted services line on the Statement of Operations. At March 31, 2020,
we issued 817,753 shares of common stock in exchange for services provided to us. The shares were valued at $0.73 per share. We
recognized share-based compensation expense of $600,000, which is classified within the contracted services line on the Statement
of Operations.
Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock are
subject to adjustment in the event of any recapitalization, dividend, split, combination, or other similar event. Series A Convertible
Preferred Stock were issued in units, with each unit consisting of one share of Series A Convertible Preferred Stock, par value
$0.001, and one common stock purchase warrant. The warrants entitle the holders to purchase one share of the Company’s common
stock at a price of $0.73 per share during the five-year period commencing on the date of the issuance of the warrants. Series
A Preferred Stock rank, with respect to dividend rights and rights upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company (Liquidation Event), as senior in preference and priority to the common stock, par value $0.001, and
any other class or series of equity security established and designated by the Company’s Board of Directors and in parity
with Series B Convertible Preferred Stock. Liquidation preference is 150% of the original issue price, which totaled $4,500,000
at December 31, 2019. The liquidation preference ranks in parity with Series B Preferred Stock.
The holders of the Series A Preferred Stock
are entitled to receive cash dividends when and if declared, out of any assets available, prior to any declaration or payment of
any dividend on any other class of preferred stock and common stock of the Company at an annual rate of 8% of the original issue
price (equal to $0.06 per share per annum based on $0.73 per share purchase price). The cumulative dividend amounted to $1,364,361
as of March 31, 2020. We have not accrued this amount at December 31, 2019 as the dividends were not payable until when and if
declared by the board as previously mentioned. Such dividends are cumulative and convertible into common stock under the same terms
as the Series B Preferred Stock.
Each holder of Series A Preferred Stock shall
be entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall be entitled to that number
of votes equal to the number of shares of common stock into which the holder's shares of Series A Preferred Stock could then be
converted at the record date for the determination of stockholders entitled to vote on such matters or, if no such record date
is established, at the date such vote is taken or any written consent of stockholders is solicited, and the holders of shares of
Series A Preferred Stock and Common Stock shall vote together (or tender written consents in lieu of a vote) as a single class
on all matters submitted to the stockholders of the Company.
Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and non-assessable
shares of common stock as is determined by dividing the Series A original issue price ($0.73 per share) by the conversion price
($0.62 per share) in effect at the time of conversion, subject to certain dilution protections. The conversion price at which shares
of common stock shall be deliverable upon conversion of Series A Preferred Stock without the payment of additional consideration
by the holder thereof shall initially be $0.62 per share. All accrued and unpaid dividends may be converted by each holder of Series
A Preferred Stock into common stock by first determining the number of shares of Series A Preferred Stock that could be purchased
based on the Series A original issue price then in effect and then determining the number of shares of common stock such additional
shares of Series A Preferred Stock are convertible into.
Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
Notes
to the Condensed Consolidated Financial Statements
Note
6 – Deficiency in Stockholders’ Equity, continued
Series A Convertible Preferred Stock,
continued
Upon the consummation of an underwritten public
offering of the common stock of the Company ("IPO"), each share of Series A Preferred Stock shall automatically be converted
into such number of fully paid and non-assessable shares of common stock at a conversion price equal to the lesser of (i) the conversion
price in effect immediately prior to the consummation of the IPO or (ii) fifty percent (50%) of the public offering price of the
Common Stock in the IPO. All accrued and unpaid dividends may be converted by each holder of Series A Preferred Stock into common
stock by first determining the number of shares of Series A Preferred Stock that could be purchased based on the Series A original
issue price then in effect and then determining the number of shares of common stock such additional shares of Series A Preferred
Stock are convertible into.
Concurrently with the consummation of the Merger,
Series A Preferred Stock of 3,000,000 shares and accrued dividends of 1,605,130 shares were converted to shares of Splash common
stock, which were exchanged for 6,276,432 of CMS shares. Pursuant to the terms of the conversion agreements, these investors have
the right to rescind the common shares received and receive preferred stock replacements shares if we fail to raise $9 million
in a secondary initial public offering by September 30, 2020. These shares are classified in equity as part of Stockholders’
Equity section of the condensed consolidated balance sheet.
Series B Convertible Preferred Stock
During 2017, we issued 675,873 shares of Series
B Convertible Preferred Stock at $1.10 per share resulting in total proceeds of $736,350 along with 337,936 warrants for the Company’s
common stock. The warrants expire after 5 years and are exercisable at $1.10 per share.
In 2018, we issued 180,459 shares of Series
B Convertible Preferred Stock at $1.10 per share resulting in total proceeds of $198,609 along with 90,230 warrants for the Company’s
common stock. The warrants expire after 5 years and are exercisable at $1.10 per share.
We had issued Series B Convertible Preferred
shares in units, each unit consisting of one share of Series B Convertible Preferred Stock, par value $0.001, and one-third share
common stock warrant per share of Series B Convertible Preferred Stock, at a price of $1.10 per unit. Per the warrant agreement,
we issued to the purchasers five-year warrants to purchase shares of the Company’s Common Stock, par value $0.001, at an
exercise price of $1.10 per share. At December 31, 2019, 2,593,486 warrants were exercisable, respectively. Liquidation preference
is 150% of the original issue price, which totaled $9,315,693 at December 31, 2019. The liquidation preference ranks in parity
with Series A Preferred Stock.
The holders of the Series B Convertible Preferred
Stock are entitled to receive cash dividends, out of any assets available, prior to any declaration or payment of any dividend
on any other class of preferred stock and common stock, we except that it is in parity with Series A Preferred stock, at an annual
rate of 9% of the original issue price (equal to $0.10 per share per annum based on $0.73 per share purchase price). Such dividends
are cumulative and convertible to common stock under the same terms as the Series A Preferred Stock. The cumulative dividend amounted
to $2,179,134 as of March 31, 2020. We have not accrued this amount at December 31, 2019, as the dividends are not payable until
when and if declared by the board.
Each holder of Series B Preferred Stock shall
be entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall be entitled to that number
of votes equal to the number of shares of Common Stock into which the holder's shares of Series B Preferred Stock could then be
converted at the record date for the determination of stockholders entitled to vote on such matters or, if no such record date
is established, at the date such vote is taken or any written consent of stockholders is solicited, and (b) the holders of shares
of Series B Preferred Stock and Common Stock shall vote together (or tender written consents in lieu of a vote) as a single class
on all matters submitted to the stockholders of the Company.
Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
Notes
to the Condensed Consolidated Financial Statements
Note
6 – Deficiency in Stockholders’ Equity, continued
Series B Convertible Preferred Stock,
continued
Each share of Series B Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing the Series B original issue price ($1.10 per share) by the conversion price
($0.94 per share) in effect at the time of conversion, subject to certain dilution protections. The conversion price at which shares
of Common Stock shall be deliverable upon conversion of Series B Preferred Stock without the payment of additional consideration
by the holder thereof shall initially be $0.94 per share. All accrued and unpaid dividends may be converted by each holder of Series
B Preferred Stock into Common Stock by first determining the number of shares of Series B Preferred Stock that could be purchased
based on the Series B Original Issue Price then in effect and then determining the number of shares of Common Stock such additional
shares of Series B Preferred Stock are convertible into.
Upon the consummation of an underwritten public
offering of the Common Stock of the Company ("IPO"), each share of Series B Preferred Stock shall automatically be converted
into such number of fully paid and non-assessable shares of Common Stock at a conversion price equal to the lesser of (i) the conversion
price in effect immediately prior to the consummation of the IPO or (ii) fifty percent (50%) of the public offering price of the
Common Stock in the IPO. All accrued and unpaid dividends may be converted by each holder of Series B Preferred Stock into Common
Stock by first determining the number of shares of Series B Preferred Stock that could be purchased based on the Series B original
issue price then in effect and then determining the number of shares of common stock such additional shares of Series B Preferred
Stock are convertible into.
Concurrently with the consummation of the Merger,
Series B Preferred Stock of 3,913,412 shares and accrued dividends of 1,702,449 shares were converted to shares of Splash common
stock, which were exchanged for 7,653,979 CMS shares. Pursuant to the terms of the conversion agreements, these investors have
the right to rescind the common shares received and receive preferred stock replacements shares if we fail to raise $9 million
in a secondary initial public offering by September 30, 2020. These shares are still considered equity within the Stockholder’s
Equity section of the condensed consolidated balance sheet.
Undesignated Preferred Stock
We have authorized a total of 27,258,436 shares
of preferred stock, of which 8,177,531 of such authorized shares of preferred stock remain undesignated at December 31, 2019. At
March 31, 2020 all remaining authorized preferred stock have been retired.
Treasury Stock
Since its inception, we have repurchased shares
from our shareholders. To date, we have repurchased 1,226,630 shares, of which 817,753 have been retired.
In connection with a 2018 consulting agreement,
we are committed to issue the 408,877 shares held in treasury upon the occurrence of certain events or milestones. We issued 136,292
shares in July 2018, 136,292 shares in July 2019 and 136,292 shares at March 31, 2020.
Warrant Issuance-Series A Convertible
Preferred Stock
As part of the sale and issuance of 4,088,765
shares of our Series A Convertible Preferred Stock, we issued 4,088,765 warrants to purchase shares of our common stock at a price
of $0.73 per share. The warrants had a five-year term and expired during 2019.
As an incentive to convert their Series A preferred
stock we issued 1,000,000 new warrants to purchase shares of SBG common stock at $0.18 per share. Concurrently with the consummation
of the Merger, these warrants were exchanged for 1,362,922 of CMS shares. These warrants have a 3-year term.
Warrant Issuance-Series B Convertible
Preferred Stock
As part of the sale and issuance of 5,333,675
shares of our Series B Convertible Preferred Stock, we issued 2,666,839 warrants to purchase shares of our common stock at a price
of $1.10 per share. The warrants have a 5-year term. At March 31, 2020, there are 1,935,409 warrants outstanding with a weighted
average remaining life of 0.6 years.
Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
Notes
to the Condensed Consolidated Financial Statements
Note
7 – Share-Based Payments
Warrant Issuance-GMA Consulting Services
We issued 1,362,922 warrants to purchase shares
of our common stock at $0.007 per share as part of our consulting agreement with GMA, at December 31, 2019, the weighted average
life of the outstanding warrants is 3.75 years.
The warrants
entitle the holder to purchase one share per warrant of the Company’s common stock at a price of $0.01 per
share during the five-year period commencing on October 2, 2018, or, if greater, the number of common shares with a market value
equivalent to two percent of the enterprise value of the Company at an exercise price of $0.008 per share.
As an incentive for GMA to convert their debt
and accrued interest into shares of common stock, we retired the original 1,362,922 warrants and issued 2,725,844 pre-merger new
warrants to purchase shares of our common stock at $0.18 per share. These warrants have a 3-year term.
Stock Plan
We have adopted the 2012 Stock Incentive Plan
for SBG (the “Plan”), which provides for the grant of common stock and stock options to employees. We have reserved
4,088,765 shares for issuance under the Plan. The option exercise price generally may not be less than the underlying stock’s
fair market value at the date of the grant and generally have a term of ten years. On December 31, 2018, the sole option holder
at the time, our CEO, exercised his options to purchase 2,657,698 shares of common stock at a purchase price of $0.12 per share,
totaling $312,000, which total purchase price was paid by the cancelation of the equivalent amount of debt owed by us to the CEO.
On December 7, 2019, our Board of Directors granted 1,124,410 options to certain employees and consultants. None of these options
were exercised at March 31, 2020. There are 1,124,410 options issued and outstanding under the Plan at March 31, 2020. As of March
31, 2020, the total number of options available for grant is 306,657.
We measure employee stock-based awards at the
grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award.
Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value
of our common stock, and for stock options, the expected life of the option, and expected stock price volatility and exercise price.
We used the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value
of stock- based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s
judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially
different for future awards. The expected life of stock options was estimated using the “simplified method,” which
calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, we have
limited historical information to develop reasonable expectations about future exercise patterns and employment duration for its
stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant.
For stock price volatility, we use comparable public companies as a basis for its expected volatility to calculate the fair value
of options granted. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of
the option. The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in
the period in which estimates are revised.
We recognized stock-based compensation expense
of $265,589 for the year ended December 31, 2019. There was no unrecognized compensation cost related to stock option awards at
March 31, 2020.
Concurrently with the consummation of the
Merger, options to purchase 825,000 SBC shares were converted to options to purchase 1,124,410 CMS shares.
|
|
Options
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding
- beginning of year
|
|
|
1,124,410
|
|
|
$
|
0.73
|
|
Granted
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled/forfeited
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding
- March 31, 2020
|
|
|
1,124,410
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March, 31 2020
|
|
|
1,124,410
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
Weighted
average grant date fair value of options during year
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average duration to expiration of outstanding options at March 31, 2020
|
|
|
4.8
|
|
|
|
|
|
Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
Notes
to the Condensed Consolidated Financial Statements
Note
8 – Related Parties
During
the normal course of business, we incurred expenses related to services provided by our CEO or Company expenses paid by our CEO,
resulting in related party payables, net of $473,057 as of March 31, 2020. The related party payable to the CEO bears no interest
payable and is due on demand. We also assumed a $50,000 note for the President of WesBev who is the majority shareholder of CMS.
There
are related party notes payable of $0 outstanding as of March 31, 2020 as discussed in Note 4.
Note
9 – Investment in Salt Tequila USA, LLC
On
December 9, 2013, we entered into a marketing and distribution agreement with SALT Tequila USA, LLC (“SALT”) in Mexico
for the manufacturing of our product line. The agreement was for a one-year term with an additional two-year renewal. On December
28, 2015, the agreement was extended through 2020. In the December 9, 2013 agreement, we received a 5% ownership interest in SALT,
12 months after the date of the agreement we received an additional 5% ownership interest in SALT, and 24 months after the date
of the agreement we received an additional 5% interest, resulting in a total interest of 15% in SALT. We have not recorded the
cost of the investment or our share of its results of operations as the amounts are considered immaterial.
SALT
also has sold product to an unrelated international alcohol distributor, American Spirits Exchange, for preliminary market testing
in 9 of 16 states that they distribute to, that are government-controlled alcohol resellers. In 2019 we had no sales for SALT
Tequila. On December 31, 2018, we created a Mexican subsidiary, Splash MEX SA DE CV (“Splash Mex”) for the exporting
of SALT Tequila from Mexico to the USA, South and Central Americas. Splash Mex will also act as the manufacturing and distribution
agent of TapouT in Central and South Americas. Applications for the appropriate licenses required for import and wholesale of
alcohol in the USA have been completed for at the Federal and State levels. These licenses will permit direct alcohol sales to
distributors and wholesalers thereby limiting the use of agents for importing SALT Tequila to the USA for distribution.
On
March 26, 2020, we entered into a new amended stock sale and purchase agreement. The agreement is for $1,000,000 to be paid in
4 tranches of $250,000 and entitles us to additional equity interest in Salt Tequila USA, LLC as follows:
Once
all tranches are paid-out we will have a total equity stake of 37.5% of Salt Tequila USA, LLC.
Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
Notes
to the Condensed Consolidated Financial Statements
Note
10 – Operating Lease Obligations
Effective
July 2018, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced July 1, 2018
and is scheduled to expire after 36 months, on June 30, 2021.
Prior
to the current lease, we entered into a lease agreement in 2014 for the right to use and occupy office space. The lease term commenced
November 1, 2014 and was scheduled to expire after 62 months, on March 31, 2020. The lease was terminated in February 2018.
Effective
November 2019, we entered into a new lease agreement for our NY affiliate. The lease is for six months and will expire on April
30, 2020. This lease was not subjected to the new lease standard, Topic 842.
Effective
November 2019, we entered into a new lease with Interport Logistics, LLC. The lease term commenced on November 11, 2019 and is
scheduled to expire on November 11, 2020.
Effective
May 2019, we entered into a new lease in Mexico. The lease commenced May 1, 2019 and is scheduled to expire after 24 months, on
April 1, 2021.
The
following table presents the discounted present value of minimum lease payments for our office and warehouses to the amounts reported
as financial lease liabilities on the condensed consolidated balance sheet at March 31, 2020:
Undiscounted Future Minimum Lease Payments
|
|
Operating Lease
|
|
|
|
|
|
2020
|
|
$
|
78,483
|
|
2021
|
|
|
59,191
|
|
Thereafter
|
|
|
26,012
|
|
Total
|
|
|
163,686
|
|
Amount representing imputed interest
|
|
|
(7,255
|
)
|
Total operating lease liability
|
|
|
156,431
|
|
Current portion of operating lease liability
|
|
|
92,304
|
|
Operating lease liability, non-current
|
|
$
|
64,127
|
|
The
table below presents information for lease costs related to our operating leases at March 31, 2020:
Operating lease cost:
|
|
|
|
Amortization of leased assets
|
|
$
|
72,884
|
|
Interest of lease liabilities
|
|
|
7,657
|
|
Total operating lease cost
|
|
$
|
80,541
|
|
The
table below presents lease-related terms and discount rates at March 31, 2020:
Remaining term on leases
|
|
31 months
|
Incremented borrowing rate
|
|
5.0%
|
Canfield
Medical Supply, Inc.
[Splash
Beverage Group, Inc., A Wholly Owned Subsidiary]
Notes
to the Condensed Consolidated Financial Statements
Note
11 – Line of Credit
At
March 31, 2020 CMS owed $72,000 to a financial institution under a revolving line of credit which is classified within other current
liabilities. The line of credit is secured by the assets of CMS is due on demand, and bears interest at variable rates approximately
6.1% at March 31, 2020. Interest expense under the note was approximately $1,100 during the three months ended March 31, 2020.
Note
12 – Business Combinations
As
stated in Note 1, we consummated the merger of CMS on March 31, 2020 which was accounted for as a reverse merger.
The value of our merger was approximately $9.2
million based on the valuation of the CMS equity on the date of consummation.
The
following summarizes our allocation of the purchase price for the acquisition:
Cash and cash equivalents
|
|
$
|
72,442
|
|
Accounts receivable
|
|
$
|
311,586
|
|
Inventory
|
|
$
|
21,415
|
|
Property and equipment
|
|
$
|
38,110
|
|
Goodwill
|
|
$
|
9,448,832
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
719,221
|
|
Purchase price
|
|
$
|
9,173,164
|
|
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 merger we are committed
to our previous preferred stock and debt holders to raise $9 million in a secondary IPO, as defined in the agreements.
Stock
Price Guarantee
We
have a commitment to issue additional shares associated with specific stock price guarantee granted to an investor. See Note 4.