Endovia Health Sciences, Inc. 10-K

Item 1. Business. Company Overview Splash is a portfolio company managing multiple brands across several growth segments within the consumer beverage industry. Splash has built organizational capabilities and an infrastructure enabling it to incubate and/or acquire brands with the intention of efficiently accelerating them to higher volumes. We have proven capabilities in building consumer franchises and marketing and distributing multiple brands of beverages within the non-alcoholic and alcoholic segments. Manufacturing is typically outsourced to third party co-packers and distillers, or in select cases for a brand such as Copa Di Vino wines, performed within our own facility in Oregon. We believe the distribution landscape in the beverage industry is changing rapidly as tech-enabled e-commerce business models are thriving. Direct to consumer, office or home solutions are projected to continue to gain traction in the future. To address this opportunity Splash continues to shape its operating model to be vertically integrated building a proprietary e-commerce platform, Qplash, which allows us to purchase local and regional brands for developing a direct line of sales at retail stores. Splash Beverage Group II, Inc. Splash’s wholly owned subsidiary, was originally incorporated in the State of Nevada under the name TapouT Beverages, Inc. for the purpose of acquiring the rights under a license agreement with TapouT, LLC (Authentic Brands Group ) for the right to use the TapouT Performance brand in connection with manufacturing and selling certain beverages. In 2014, Robert Nistico was hired as Chief Executive Officer and the Company’s name was changed to Splash Beverage Group, Inc. to reflect the revised business plan of being a manufacturer and distributor of several brands of beverages including both non-alcoholic and alcoholic brands. 1 Robert Nistico has over 28 years of experience in all levels of the three-tier distribution system used in the beverage industry. Prior to joining the Company, he led the Marley Beverage Company from startup to over $47 million in annual revenues and ultimately profitability in three and one-half years. Before that he was the 5th employee at Red Bull North America, Inc. and served as General Manager, VP of Field Marketing and Sr. Vice President & General Manager during his 11 years there. He was instrumental in building the Red Bull brand in North and Central America and the Caribbean. Under his leadership, revenues grew from $0 revenue to over $1.6 billion annually. Nistico began his career with the Gallo Winery, quickly ascending within that system between winery and senior positions in distribution with Premier Beverage and RNDC Texas. Mr. Nistico has assembled a team of experienced beverage industry professionals including SBG’s President & CMO, Bill Meissner, the former CEO and/or President of brands such as Sparkling Ice, Fuse and Jones Soda with the goal of replicating the business model of companies like Diageo of owning certain brands and managing others where there are synergies from a distribution standpoint. SBG however, has an additional strategic advantage of “brand incubation” with its own ecommerce platform. Splash has license rights to the TapouT Performance brand globally and has a joint venture with SALT Naturally Flavored Tequila, and Copa Di Vino wines & Pulpoloco sangrias, SBG’s first acquisition. Mr. Nistico and Company leadership understand the importance of infusing beverage brands with strong pop culture and lifestyle elements which drives trial, belief and, most importantly, repeat purchases. Our Strategy Our strategy is to combine the traditional approach of manufacturing, distributing, and marketing of beverages, with brands that have a reasonable level of pre-existing brand awareness and market presence, or have attributes that we believe to be purely innovative. We believe this allows us to break through the clutter of numerous brand introductions and dilute risk. This philosophy is applied regardless of whether the brand is 100% owned by us or a joint venture. For acquisition or joint venture consideration, we prefer to work with brands that already have one or more of the following in place: ● Some level of preexisting brand awareness ● Regional presence that can be expanded ● Licensing an existing brand name (TapouT for example) ● Add to an underdeveloped and/or growing category capitalizing on consumer trends ● Innovation to an existing attractive category (such as flavored tequila) We believe this model provides us with two paths to success: one, developing our wholly owned core brands and two, the ability to tap into high growth, early-stage brands ready to scale. This platform allows us to significantly reduce development expense while simultaneously increasing efficiencies for all brands in our portfolio. Most new single beverage brands have limited access to distribution and thus find it extremely difficult to obtain meaningful retail shelf presence. Our management team has over 120 years of combined experience in the beverage industry, including decades of successful brand introductions by our management team (Gallo, Red Bull, Bacardi, Diageo, Sparkling Ice, Jones Soda, FUZE Beverage, NOS Energy, SoBe Beverages, Muscle Milk, Marley Beverages), we believe our ability to break through the distribution and retail bottlenecks makes us an attractive joint venture partner to many new brand owners. Our preference is to own and control all aspects of any given brand. However, we have also been flexible to engage in business ventures structured with a revenue split, a marketing spend commitment from the brand founder and an earned equity position that constitutes control. We have proven that many partners are happy to award Splash an equity position in their brand in exchange for distribution, sales and marketing management within the distribution network which eliminates their need to invest in infrastructure. Our partners only need to manage a small base of corporate operations. The benefit to Splash in these shared brand ownerships is the ability to avoid the development costs for new products. This model spreads our risk over several brands, contributes to our economies of scale, and improves our relationship with distributors because we can provide them with a broader line of beverage products. Since our inception, we have seen consistent deal flow, having been approached by over 20 brands. We only engage with brands that fit comfortably within the guidelines noted above and which provide efficiencies or synergies within the beverage categories and retail channels we participate in. We also believe the distribution landscape in the beverage category is changing rapidly. Tech-enabled business models are thriving and direct to consumer, office or home solutions are projected to continue to gain traction as beverage alcohol regulations evolve. A core strategy for us is to build onto the early success we’re seeing with the Qplash online platform, our consumer-packaged goods retail division and our first entry point into the growing e-commerce channel. Products We currently produce, distribute and market SALT Naturally Flavored Tequila (“SALT”), a 100% agave 80 proof line of flavored tequilas, “TapouT Performance,” a hydration and recovery isotonic sport drink, Copa Di Vino single serve wine by the glass and import Pulpoloco Sangria in 3 flavors. 2 The following is a description of these products. SALT Flavored Tequila We produce, distribute, and market the following flavors under the brand name SALT Naturally Flavored Tequila: ● Citrus flavor ● Berry flavor ● Chocolate flavor We believe that SALT is the first line of 100% agave 80-proof flavored tequilas. Vodka, rum, and brown spirits have experienced significant growth when flavors are introduced, and we expect this growth of flavors to continue, as the tequila category continues to rapidly expand. SALT is currently being distributed by Republic National Distribution Co., Youngs Market, various Anheuser-Busch & Miller-Coors distributorships, and Major Brands Distribution Company, a wine and spirits distributor in the Mid-West to chains such as Walmart and Total Wine (which is the largest private wine and spirits chain in the U.S.), and others in multiple U.S. states. Additionally, SALT is for sale in Mexico. Several South American countries are expected to launch SALT during spring 2022. SALT is a business venture between our Company and SALT USA, LLC. All aspects of manufacturing, logistics, distribution and marketing are our responsibility. TapouT Performance Isotonic Sports Drinks We will produce, market, sell and distribute the following sports beverages under the brand name TapouT: ● TapouT Performance: ● TapouT Elite: Under consideration for 2022 ● TapouT Energy: Under consideration for 2022 ● TapouT Performance Mango Flavor: Under consideration for 2022 3 TapouT Performance is a unique advanced performance beverage containing ingredients known for recuperative and cell regeneration which promotes better absorption of nutrients, increase hydration and cellular recovery. It is exclusively formulated with GRAS (FDA Designation “Generally Regarded As Safe”) ingredients versus controversial ingredients often used in many competitive products. It can be taken before, during or after activity to enhance activation, hydration, and recovery. TapouT Performance is all natural and is balanced with a proprietary blend of 5 electrolytes, amino acids and a proprietary specialized ingredient blend of minerals and nutrients. TapouT , formally associated with the UFC and mixed martial arts has been producing branded clothing and light equipment for over 23 years and has a high level of aided and unaided brand awareness. TapouT License Agreement We have the rights under a License Agreement with ABG TapouT (the “License Agreement”) to produce, market, sell and distribute TapouT sports beverages globally. The beverages covered by the License Agreement include sports drinks, energy drinks, energy shots, electrolyte chews, energy bars, water, protein, and teas. We pay a 6% royalty of net sales or a guaranteed minimum annual royalty of $653,000, whichever is greater. The License Agreement will expire on December 31, 2028 at which time will be reviewed and renegotiated if necessary. We have the right to use the TapouT brand to market, advertise and promote for sale our TapouT beverages and branded products. As part of the alliance, Splash commits to investing 2% of sales in marketing the TapouT Performance Brand. TapouT provides marketing collateral for advertising and promotion and has influential relationships with select celebrity and athletic talent. TapouT agrees to use reasonable efforts to request its retained celebrities and/or athletes be present at autograph signings, tradeshows and other similar events. Copa di Vino Wine Group, Inc. and Related Financing On December 24, 2020, the Company entered into a Revenue Loan and Security Agreement (the “Loan and Security Agreement”) by and among the Company, Robert Nistico, 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 Loan and Security Agreement provided for a revenue-based credit facility of $1,578,237 (the “Gross Amount”) with the Lender (the “Credit Facility”). The Credit Facility matures on the earliest of (a) August 15, 2025, (b) immediately prior to a change in control of the Company, or (c) acceleration of the obligations, such as upon the occurrence of any event of default under the Loan and Security Agreement. If the Credit Facility is paid off after 6 months, the Company will pay interest at a rate starting at 0.5 times the amount advanced under the Credit Facility and up to 1.00 times the amount advanced if the Credit Facility is paid off after more than 24 months have elapsed from the effective date. The Credit Facility requires monthly payments, commencing on February 15, 2021, equal to the product of all revenue for the immediately preceding month and applicable revenue percentage, which is 3.75% in 2021 and 2022, 4.0% in 2023 and 2024. If the annual revenue is not equal to at least 80% of projected revenue, the applicable revenue percentage for all subsequent payments will automatically increase by 0.50%, without notice from the lender. Pursuant to the Loan and Security Agreement dated December 24, 2020, the Company instructed the Lender to pay $1,500,000 of the Gross Amount under the Credit Facility towards the purchase price in connection with the Company’s purchase of certain assets of Copa di Vino Corporation (“CdV”) and the balance of the Gross Amount was used for to pay off a line of credit for one of the Company’s other subsidiaries in order to make the Lender the first-in-line creditor. Pursuant to the Loan and Security Agreement, the Company granted the Lender a security interest in all of its assets as listed therein. Borrowings under the Credit Facility are subject to, among other things, a minimum borrowing/collateral base and pursuant to which the Company granted the Lender a security interest in its assets (as set forth and subject to the Loan and Security Agreement) as collateral under the Credit Facility. In addition, the Credit Facility requires the Company to, among other things (i) make representations and warranties regarding the collateral as well the Company’s business and operations, (ii) agree to certain indemnification obligations and (iii) agree to comply with various affirmative and negative covenants. Copa di Vino is the leading producer of premium wine by the glass in the United States. Founder James Martin discovered the concept on a bullet train adventure through the south of France. A year later he brought the technology to his hometown of The Dalles, Oregon located in the Columbia River Gorge. His passion for wine led to Copa di Vino – wine in a glass – a ready to drink wine glass that could go anywhere without the need for a bottle, corkscrew or glass. Copa di Vino Wine Group, Inc. Copa Di Vino is the leading producer of premium wine by the glass in the United States. Through our acquisition of Copa di Vino Corporation, we are now able to offer seven varietals of wine: Pinot Grigio, Riesling, Merlot, Chardonnay, White Zinfandel, Moscato, and Cabernet Sauvignon. In addition to its wine varietals, Copa di Vino also procures Pulpoloco, a sangria which is encased in a 100% biodegradable can made from paper, from Spain. The exclusive rights to this packaging we conveyed to SBG as a result of the acquisition. 4 On December 24, 2020, we entered into an Asset Purchase Agreement with CdV, pursuant to which the Company purchased certain assets and assumed certain liabilities that comprise the CdV business for a total purchase price of $5,980,000, payable in the combination of $2,000,000 in cash, a $2,000,000 convertible promissory note to CdV and a variable number of shares of the Company’s common stock based on a attainment of revenue hurdles. E-commerce “Qplash” is our consumer-packaged goods retail division and our first entry point into the growing e-commerce channel. The division sells beverages and groceries online through www.qplash.com , and third-party storefronts such as Amazon.com and Walmart.com. Inside of the division, there are two primary customer groups: business to business retail businesses, which in turn offer the products to their customers, and business to customer, selling direct to end users. Qplash sells to retailers through www.qplash.com . These retailers, generally in the high-end apparel space, buy beverages from Qplash and provide them to their customers in store to enhance their shopping experience. They offer high end beverages for customers to enjoy while shopping or to take on the go. This program allows businesses to control inventory, order with payment terms, and offers the convenience of delivery directly to each store. To the end user, we ship orders from our warehouses direct to their home or office. We offer competitive pricing, an easy and convenient transactional process, and a wide selection of products. Consumers can order from www.qplash.com , from our storefront on Amazon, or other third-party platforms. Amazon is a valuable revenue source as it allows us to access their loyal customer base and provides a high conversion rate as customers are comfortable navigating and checking out through their website. Currently we offer over 350 listings and have warehouses that ship from both California and Pennsylvania. Our objective is to offer 1,500 items by the fall of 2022. Additionally, this vertically integrated platform affords us a unique opportunity to incubate, accelerate and ultimately migrate brands to traditional distribution. Legacy Business - Canfield Medical Supply, Inc. Canfield Medical Supply, Inc. (“CMS”) is a provider of home medical equipment, supplies and services (which relate to the equipment sales) in Ohio’s Mahoning Valley, Western Pennsylvania and Northern West Virginia, with an emphasis on providing for patients with mobility-related limitations who have had strokes, hip or knee replacements, and other surgeries after they are discharged from a hospital or rehab center. Canfield is a legacy segment of the business and in December 2020, management announced our plan to discontinue CMS and will execute the business transfer agreement in the second Quarter of 2022. Our Competitive Strengths We believe the following competitive strengths contribute to Company’s success and differentiate us from our competitors: ● An established distribution network through global sales channels; ● A hybrid distribution model that leverages multiple routes to market, including national chains, independent local markets and regional chains, and specialty food and C-Stores ● Long-term relationships with retailers and the establishment of chains; ● Premium customer service; ● Dynamic and sustainable product offerings of natural quality and freshness with health benefits; ● A highly experienced management team; ● Strategically selected, dedicated sales professionals; ● Qplash, our e-commerce platform, which provides us instant coast to coast coverage and our own fully integrated distribution platform for all of our beverage categories; ● Ability to execute and distribute across many geographies, on behalf of our licensed brand portfolio; ● Strong brand awareness through partnerships and acquisitions of brands with pre-existing brand awareness or viewed as truly innovative; and ● Celebrity and professional athlete endorsement of our brands. 5 Manufacturing and Co-packing We are responsible for the manufacturing of the TapouT Performance and SALT. Although we are responsible for manufacturing TapouT Performance and SALT, we do not directly manufacture these products, but instead outsource such manufacturing to third party bottlers and contract packers. Our TapouT Performance and Salt products are manufactured by various third-party bottlers and co-packers situated throughout the United States under separate arrangements with each party. Our co-packaging arrangements are generally on a month-to-month basis or are terminable upon request and do not typically obligate us to produce any minimum quantities of products within specified periods. We purchase concentrates, flavors, dietary ingredients, cans, bottles, caps, labels, and other ingredients for our beverage products from our suppliers, which are delivered to our various third-party bottlers and co-packers. In some cases, certain common supplies may be purchased by our various third-party bottlers and co-packers. Depending on the product, the third-party bottlers or packers add filtered water and/or other ingredients (including dietary ingredients) for the manufacture and packaging of the finished products into our approved containers in accordance with our formulas. The Copa di Vino is bottled at our manufacturing facility in The Dalles, Oregon. Pulpoloco is imported from Spain. Distribution We operate within what is referred to as a “Three Tier Distribution System” where manufacturers do not typically sell directly to retailers, but instead contract for local and regional distribution with independent distributors. These distributors typically have geographic rights to distribute major beverage brands such as Budweiser, Pepsi, and Red Bull and call on every store in a given area such as major cities or regions. However, due to increasing costs over the last 20 years for these distributors to call on every store (sometimes referred to in the industry as “DSD” or direct store delivery), there has been a great deal of consolidation which has limited the options for new brands to gain distribution and retail shelf presence. Our management team believes that their history of success and experience working within this channel will allow us to be successful in building a strong network of these distributors. In addition to working with these independent distributors, we also have distribution arrangements with national retail accounts to distribute some of our products directly through their warehouse operations. Most notably, SBG executed a distribution agreement with AB-InBev, for distribution with their owned operations, AB ONE. This provides SBG very effective distribution capabilities. Employees We have 21 full-time employees, including non-officer employees and our executive officers. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. Listing on the NYSE American Our common stock and warrants are listed on the NYSE American exchange under the ticker symbols “SBEV” and “SBEV WS,” respectively. 6 Corporate Information Splash was originally incorporated in the State of Nevada under the name TapouT Beverages, Inc. for the purpose of acquiring the rights under a license agreement with TapouT, LLC (Authentic Brands Group) for the right to use the TapouT brand in connection with manufacturing and selling certain beverages. Splash executed a reverse merger with a fully reporting, public entity called Canfield Medical Supply, Inc. and became a wholly-owned subsidiary of Canfield Medical Supply Inc. At the time of the merger Canfield state of incorporation was Colorado. At the time of the merger Canfield’s common stock was quoted on the OtCQB. On July 31, 20221, we changed our name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc. On June 11, 2021, our common stock and warrants to purchase common stock began trading on the NYSE American under the symbols “SBEV” and SBEV WS,” respectively On November 8, 2021, we changed our state of incorporation from Colorado to Nevada. Our principal offices are located at 1314 E. Las Olas Blvd, Suite 221, Fort Lauderdale, Florida 33301. Our main telephone number is (954) 745-5815. Our website address is www.splashbeveragegroup.com . We have not incorporated by reference into this Annual Report on Form 10-K the information that can be assessed through our website and you should not consider it to be part of this Annual Report on Form 10-K.