Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The following discussion and analysis should be read
in conjunction with the Audited Consolidated Financial Statements and Notes to Audited Consolidated Financial Statements filed herewith.
Business Overview
Canfield Medical Supply, Inc.
a company’s whose common stock was quoted on the OTCQB entered into an Agreement and Plan of Merger with SBG Acquisition Inc. (“Merger
Sub”), a Nevada Corporation wholly-owned by Canfield, and Splash Beverage Group, II Inc. a Nevada corporation (“Splash”)
pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned
subsidiary of Canfield. The Merger was consummated on March 31, 2020.
As the owners and management
of Splash had voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition
(that is with Splash as the acquiring entity), followed by a recapitalization.
On July 31, 2020, CMS changed
its name to Splash Beverage Group, Inc. (“SBG”). On June 11, 2021, SBG’s common stock and warrant to purchase common
stock began trading on the NYSE American under the symbols “SBEV” and SBEV WS,” respectively
On November 9, 2021, SBG reincorporated
into the State of Nevada and became a Nevada corporation.
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.
Results of Operations for the Year Ended December
31, 2021, compared to Year Ended December 31, 2020.
Revenue
Revenues for the year ended December 31, 2021, were
$11,316,002 compared to revenues of $2,300,126 for the year ended December 31, 2020. The $9,015,876 increase in sales was due to Salt
Tequila & TapouT Performance $170,220, Qplash – our vertically integrated B2B and B2C e-commerce distribution platform which
sells their products on Amazon and Shopify $4,898,798, and Copa di Vino business $3,946,858. Cost of goods sold for year ended December
31, 2021, were $8,734,413 compared to cost of goods sold for the year ended December 31, 2020, of $1,936,533. The $6,797,880 increase
in cost of goods sold for the year ended December 31, 2021, was primarily due to our increased sales, and as our sales increased, our
cost of sales for those sales correspondingly increased.
Operating Expenses
Operating expenses for the year ended December 31,
2021, were $31,664,511 compared to $18,025,359 for the year ended December 31, 2020. The $13,639,152 increase in our operating expenses
was primarily a result of recording expenses relating to non-cash warrants and share-based compensation for shares issued in exchange
for services $13,101,418, increase in salaries $2,358,075, increase in finance charges due to our S1 registration statement $841,294 and
shipping $1,708,586 within our e-commerce business. The net loss from continuing operations for the year ended December 31, 2021, was
$29,345,372 as compared to a net loss of $19,588,233 for the year ended December 31, 2020. The increase in net loss is due to our increase
in operating expenses slightly offset by our increase in revenues.
21
Other Income/(Expense)
Other expense for the year ended December 31, 2021
were $262,450 compared to $1,926,467 for the year ended December 31, 2020. The $1,664,017 decrease in our other expenses was primarily
a result of recording a finance charge of $1,236,254 associated with warrants issued to one of our note holders in 2020.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate
funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors
in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
In addition, the Company has an active registration statement on Form S-3 to facilitate raising additional funds.
As of December 31, 2021, we had total cash and cash
equivalents of $4,181,383, as compared with $380,000 at December 31, 2020. The increase was primarily due to issuances of notes payable
and stock subscription agreements offset by expenses relating to the operating the business.
Net cash used for continuing operating activities
during the year ended December 31, 2021, was $14,616,448 as compared to the net cash used by continuing operating activities for the year
ended December 31, 2020, of $21,316,556. The primary reasons for the change in net cash used was due to losses sustained and increases
for stock-based compensation, offset by other non-cash expenses. Net cash used for discontinued operating activities during the year ended
December 31, 2021, was $515,952 as compared to $60,815 for the year ended December 31, 2020.
Net cash used for continuing investing activities
during the year ended December 31, 2021, was $0 as compared to the net cash used by continuing investing activities for the year ended
December 31, 2020, of $768,624. The net cash used in the year 2020 was primarily due to the $250,000 for an additional investment in SALT
Tequila USA and $500,000 of cash paid relating to the Copa di Vino acquisition offset by $72,422 of cash obtained in the acquisition of
Canfield Medical Supply, Inc. Net cash used for discontinued investing activities was $0.
Net cash provided by financing activities during the
year ended December 31, 2021, was $18,933,783 compared to $22,494,984 provided from financing activities for the year ended December 31,
2020. During the year ended December 31, 2021, we received $20,021,065 from investors and related parties and we issued $1,934,541 of
debt used to pay debt holders and $261,245 is repayments to shareholder advances offset by $1,934,541 of the right of use liability.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk.
Not applicable for smaller reporting companies.
22
Item 8. Financial Statements and Supplementary
Data.
Financial Statements Page
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets December 31, 2021 and December 31, 2020 F-3
Notes to the Consolidated Financial Statements F-7
F-1
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders
Splash
Beverage Group, Inc.
Fort
Lauderdale, Florida
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Splash Beverage Group, Inc. at December 31, 2021 and 2020, and the related
consolidated statements operations, stockholders’ equity (deficit) and cash flows for each of the years in the two-year period
ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results
of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting
principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,
we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Valuation
of Intangible Assets in the Copa di Vino Company Acquisition
As
described in Notes 1 and 16 to the financial statements, during 2021 the Company completed the purchase price allocation for the December
24, 2020 acquisition of Copa di Vino Company (“CdV”) for consideration of approximately $6 million and the transaction was
accounted for as a business combination. The acquired intangible assets included Brand and Customer Relationships valued at approximately
$4.5 million and $1.0 million, respectively. The Company recorded the acquired intangible assets at the acquisition date fair value using
a Relief from Royalty discounted cash flow methodology to fair value Brand and a Multiple Period Excess Earnings approach to fair value
Customer Relationships. The methods used to estimate the fair value of acquired intangible assets involve significant assumptions. The
significant assumptions applied by management in estimating the fair value of acquired intangible assets included income projections
and discount rates.
The
principal considerations for our determination that performing procedures relating to the valuation of intangible assets in the CdV acquisition
is a critical audit matter are (1) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the
fair value of intangible assets acquired due to the significant judgment by management when developing the estimates and (2) significant
audit effort was required in evaluating the significant assumptions relating to the estimates, including the income projections and discount
rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these
procedures and evaluating the audit evidence obtained.
Addressing
the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial
statements. These procedures included testing the effectiveness of controls over the valuation of intangible assets including controls
over the development of the assumptions used in the valuation of the intangible assets. These procedures also included, among others,
reading the purchase agreement, and testing management’s process for estimating the fair value of intangible assets. Testing management’s
process included evaluating the appropriateness of the valuation models, testing the completeness, accuracy, and relevance of underlying
data used in the models, and testing the reasonableness of significant assumptions, including the income projections and discount rates.
Evaluating the reasonableness of the income projections involved considering the current performance of the acquired business, the consistency
with external market and industry data, and whether these assumptions were consistent with other evidence obtained in other areas of
the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of significant assumptions,
including the discount rates, by comparing them against discount rate ranges that were independently developed using publicly available
market data for comparable companies.
/s/
Daszkal Bolton LLP
Daszkal
Bolton LLP
We
have served as the Company’s auditor since 2020
Fort
Lauderdale, Florida
March
31, 2022
229
F-2
Splash Beverage Group, Inc.
Consolidated Balance Sheets
Assets
Current assets:
Non-current assets:
Liabilities and Stockholders’ Equity (Deficit)
Liabilities:
Current liabilities
Due to related parties — 368,904
Convertible Loan Payable — 100,000
Long-term Liabilities:
Related party notes payable - noncurrent — 666,667
Notes payable - noncurrent — 1,240,044
Liability to issue shares in APA — 1,980,000
Stockholders’ equity (deficit):
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
Splash Beverage Group, Inc.
Consolidated Statements of Operations
Operating expenses:
Salary and wages - non-cash share-based compensation 5,572,680 6,311,747
Other income/(expense):
Interest income 643 8
Provision for income taxes — —
Net income(loss) from discontinued operations, net of tax 294,550 (9,086,323 )
Loss per share - continuing operations
Weighted average number of common shares outstanding - continuing operations
Income(loss) per share - discontinued operations
Weighted average number of common shares outstanding - discontinued operations
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
Splash Beverage Group, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
Common stock and additional paid-in capital
Issuance of common stock for convertible debt — 145,579
Incremental beneficial conversion for preferred A — 240,770
Issuance of warrants on convertible instruments — 11,999,415
Issuance of warrants for services 7,267,421 (60 )
— —
Treasury stock
Beginning balances — (50,000 )
Issuance of common stock for services — 50,000
Ending balances — —
Accumulated deficit
Incremental beneficial conversion for preferred A — (240,770 )
Issuance of warrants on convertible instruments — (828,903 )
Net loss — —
Total stockholders’ equity (deficit), ending balances 8,873,227 (9,350,723 )
The accompanying notes are an
integral part of these consolidated financial statements
F-5
Splash Beverage Group, Inc.
Consolidated Statements Cash Flows
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash acquisition costs — 3,578,212
Changes in working capital items:
Prepaid expenses and other current assets (384,784 ) (251,752 )
Royalty payable — (39,000 )
Cash Flows from Investing Activities:
Capital Expenditures — (91,066 )
Investment in Salt Tequila USA, LLC — (250,000 )
Cash used for Copa acquisition — (500,000 )
Net cash acquired in Canfield merger — 72,442
Net cash used in investing activities - continuing operations — (768,624 )
Net cash used in investing activities - discontinued operations (11,628 )
Cash Flows from Financing Activities:
Cash advance from shareholder 390,500 —
Principal repayment of debt (1,673,296 ) —
Net cash provided by financing activities - discontinued operations — —
Cash and Cash Equivalents, beginning of year 380,000 42,639
Supplemental Disclosure of Cash Flow Information:
Cash paid for Interest $ 173,363 $ —
Supplemental Disclosure of Non-Cash Investing and Financing Activities
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 1 – Business Organization and Nature of Operations
Splash Beverage Group (“SBG” or “Splash”), formally Canfield Medical Supply, Inc. (“CMS”) was incorporated in the State of Ohio on September 3, 1992, and changed domicile
to Colorado on April 18, 2012. CMS was in the business of home health services, primarily the selling of durable medical equipment and
medical supplies to the public, nursing homes, hospitals and other end users.
On December 31, 2019, CMS entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly
owned by CMS, and Splash Beverage Group, Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and
into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of CMS. The Merger was consummated
on March 31, 2020.
As the owners and management of Splash have voting
and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (that is with Splash
as the acquiring entity), followed by a recapitalization.
As part of the recapitalization, previously issued
shares of SBG preferred stock have been reflected as shares of common stock that were received in the Merger. These common shares have
been retrospectively presented as outstanding for all periods.
Splash specializes in the manufacturing, distribution,
and sales & marketing of various beverages across multiple channels. Splash operates in both the non-alcoholic and alcoholic beverage
segments. Additionally, Splash operates its own vertically integrated B-to-B and B-to-C E-commerce distribution platform called Qplash,
further expanding its distribution abilities and visibility.
In July 2020 the Company filed a Certificate of Amendment
of Articles of Incorporation of CMS with the Secretary of State of the State of Colorado, pursuant to which the Company changed its name
from CMS. to Splash Beverage Group, Inc. On July 31, 2020, we received approval from FINRA to change the Company’s name from CMS
to Splash Beverage Group, Inc. Our new ticker symbol is SBEV.
On December 24, 2020, SBG consummated an Asset Purchase
Agreement (the “Copa APA”) with Copa di Vino Corporation (“CdV”), to purchase certain assets and assume certain
liabilities that comprise the Copa di Vino business for a total purchase price of $5,980,000, payable in the combination of $2,000,000
in cash (“Cash Consideration”), $2,000,000 convertible promissory note (the “Convertible Note”) to Seller and
a variable number of shares of the Company’s common stock based on a attainment of revenue hurdles. CdV is one of the leading producers
of premium wine by the glass in the United States with its primary offices and facilities in The Dalles, Oregon.
On February 2021, Management initiated a plan to divest its CMS business.
As a result, the assets and operations of CMS have been retrospectively reflected as discontinued operations. On November 12, 2021 the
Company changed its state of Domicile from Colorado to Nevada.
In coordination with uplisting to the NYSE on
June 11, 2021 the Company consummated a 1.0 for 3.0 reverse stock split. All common stock shares stated herein have been adjusted to
reflect the split.
F-7
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies
Basis of Presentation and Consolidation
These consolidated financial statements include the
accounts of Splash and its wholly owned subsidiaries, Holdings and Splash Mex, CMS (as discontinued operations), and CdV. All intercompany
balances have been eliminated in consolidation.
Our investment in Salt Tequila USA, LLC is accounted
for at cost, as the company does not have the ability to exercise significant influence.
Our accounting and reporting policies conform to accounting
principles generally accepted in the United States of America (GAAP).
Certain reclassifications have been made to the prior
period financial statements to conform to the current period classifications.
Use of Estimates
The preparation of consolidated financial statements
in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents and Concentration of Cash
Balance
We consider all highly liquid securities with an original
maturity of three months or less to be cash equivalents. We had no cash equivalents at December 31, 2021 or December 31, 2020.
Our cash in bank deposit accounts, at times, may
exceed federally insured limits of $250,000.
At December 31, 2021 we had $3,643,474over the federally insured limits. Our cash in uninsured foreign bank accounts was $10,749 at December 31, 2021.
Note 2 – Summary of Significant Accounting
Policies, continued
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivable are carried at their estimated
collectible amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. We
establish provisions for losses on accounts receivable on the basis of loss experience, known and inherent risk in the account balance,
and current economic conditions. At December 31, 2021 and December 31, 2020, our accounts receivable amounts are reflected net of allowances
of $45,203 and $0, respectively.
F-8
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Inventory
Inventory is stated at the lower of cost or net realizable
value, accounted for using the weighted average cost method. The inventory balances at December 31, 2021 and December 31, 2020 consisted
of raw materials, work-in-process, and finished goods held for distribution. The cost elements of inventory consist of purchase of products,
transportation, and warehousing. We establish provisions for excess or inventory near expiration are based on management’s estimates
of forecast turnover of inventories on hand and under contract. A significant change in the timing or level of demand for certain products
as compared to forecast amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions
for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on inventory. We
manage inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The
amount of our reserve was $223,223 and $366,109at December 31, 2021 and December 31, 2020, respectively.
Property and Equipment
We record property and equipment at cost when purchased.
Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic useful lives
of assets, which range from 3-39 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 $ 156,766 and $55,616
for the years ended December 31, 2021 and 2020 respectively. Property and equipment consisted of the following:
Schedule of Property and equipment
Excise taxes
The Company pays alcohol excise taxes based on product
sales to both the Oregon Liquor Control Commission and to the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau
(TTB). The company also pays taxes to the State of Florida – Division of Alcoholic Beverages and Tobacco. The Company is liable
for the taxes upon the removal of product from the Company’s warehouse on a per gallon basis. The federal tax rate is affected by
a small winery tax credit provision which decreases based upon the number of gallons of wine production in a year rather than the quantity
sold.
Paycheck Protection Program
The Company records Paycheck Protection Program (“PPP”)
loan proceeds in accordance with Accounting Standards Codification (“ASC”) 470, Debt. Debt is extinguished when either the
debtor pays the creditor or the debtor is legally released from being the primary obligor, either judicially or by the creditor. See
note 11.
F-9
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies, continued
Fair Value of Financial Instruments
Financial Accounting Standards (“FASB”)
guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
The liabilities and indebtedness presented on the consolidated financial
statements approximate fair values at December 30, 2021 and December 31, 2020, consistent with recent negotiations of notes payable and
due to the short duration of maturities.
Revenue Recognition
We recognize revenue under ASC 606, Revenue from Contracts
with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects
what we expect to receive in exchange for the transfer of goods or services to customers.
We recognize revenue when our performance obligations
under the terms of a contract with the customer are satisfied. Product sales occur once control of our products is transferred upon delivery
to the customer. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring goods and is
presented net of provisions for customer returns and allowances. The amount of consideration we receive and revenue we recognize varies
with changes in customer incentives we offer to our customers and their customers. Sales taxes and other similar taxes are excluded from
revenue.
Distribution expenses to transport our products, where
applicable, and warehousing expense after manufacture are accounted for within operating expenses.
F-10
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies, continued
Cost of Goods Sold
Cost of goods sold include the costs of products,
packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or impaired inventory.
Stock-Based Compensation
We account for stock-based compensation in accordance
with ASC 718, ”Compensation - Stock Compensation”. Under the fair value recognition provisions, cost is measured
at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is
generally the option vesting period. We use the Black-Scholes option pricing model to determine the fair value of stock options. We early
adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns accounting treatment for such
awards to non-employees with the existing guidance on employee share-based compensation in ASC 718.
We measure stock-based awards at the grant-date fair
value for employees, directors and consultants and recognizes compensation expense on a straight-line basis over the vesting period of
the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair
value of our common stock, and for stock options and warrants, the expected life of the option and warrant, and expected stock price
volatility and exercise price. We used the Black-Scholes option pricing model to value its stock-based awards. The assumptions used in
calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the
application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation
expense could be materially different for future awards. The expected life of stock options/warrants were estimated using the “simplified
method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity,
we have limited historical information to develop reasonable expectations about future exercise patterns. The simplified method is based
on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, we use comparable public companies
as a basis for its expected volatility to calculate the fair value of award. The risk-free interest rate is based on U.S. Treasury notes
with a term approximating the expected life of the award. The estimation of the number of awards that will ultimately vest requires judgment,
and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized
as an adjustment in the period in which estimates are revised.
Income Taxes
We use the liability method of accounting for income
taxes as set forth in ASC 740, ”Income Taxes”. Under the liability method, deferred taxes are determined based
on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in
effect during the years in which the basis differences reverse. We record a valuation allowance when it is not more likely than not that
the deferred tax assets will be realized.
Company management assesses its income tax positions
and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available
at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax
benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon
ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where there is less
than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. Company management
has determined that there are no material uncertain tax positions at December 31, 2021 and December 31, 2020. See not 15.
F-11
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies, continued
Net income (loss) per share
The net income (loss) per share is computed by dividing
the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable
upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included in the computation if the effect
would be anti-dilutive.
Weighted average number of shares outstanding excludes
anti-dilutive common stock equivalents, including warrants to purchase 3 million shares of common stock for nominal consideration. The
weighted average number of common shares calculation excludes 11,163,834 warrants which have been granted by our Board but have not been
exercised.
Advertising
We conduct advertising for the promotion of our products.
In accordance with ASC 720-35, advertising costs are charged to operations when incurred. We recorded advertising expense of $728,045
and $146,579 for the years ended December 30, 2021 and 2020, respectively.
Goodwill and other intangibles
Goodwill represents the excess of acquisition
cost over the fair value of the net assets acquired and is not subject to amortization. The Company reviews goodwill annually in the
fourth quarter for impairment or when circumstances indicate carrying value may exceed the fair value. This evaluation is performed at
the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less than carrying
value, a quantitative analysis is completed using either the income or market approach, or a combination of both. The income approach
estimates fair value based on expected discounted future cash flows, while the market approach uses comparable public companies and transactions
to develop metrics to be applied to historical and expected future operating results. At December 31, 2020, our management determined
that an impairment charge of approximately $9.2 million, was necessary to reduce the goodwill relating to our Medical Device Segment.
In 2021, the Company allocated the purchase price
of its acquisition of Copa di Vino, pursuant to a revaluation and goodwill was allocated as follows:
Schedule of Intangible assets and goodwill
F-12
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Long-lived assets
The Company evaluates long-lived assets for impairment
on an annual basis, when relocating or closing a facility, or when events or changes in circumstances may indicate the carrying amount
of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses
to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated
from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is
not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying
value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value
is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals
from third party brokers or using other valuation techniques.
Recent Accounting Pronouncements
Management does not believe that any other recently
issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting
pronouncements are issued, we will adopt those that are applicable under the circumstances.
Note 3 – Liquidity, Capital Resources
and Going Concern Considerations
At December 31, 2020, the company had a working capital
deficit of approximately $3.2 million. During 2021, the Company received approximately $20.0million and $0.9 million from the proceeds from the issuance common stock and debt. These events served to mitigate
the conditions that previously raised substantial doubt about the Company’s ability to continue as a going concern.
In February 2022, the Company received approximately $9.0 million
as part of a sale of stock registered pursuant to a registration statement on Form
S-3 See Note 17.
F-13
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party
Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable
Notes payable are generally nonrecourse and secured
by all Company owned assets.
Schedule of debt
Interest
Notes Payable
Long-term notes payable $ - $ 1,240,044
Interest expense on notes payable was $376,572 and $50,592 for the years
ended December 31, 2021 and 2020, respectively. Accrued interest was $171,452 and $271,533 at 31, 2021 and December 31, 2020, respectively.
F-14
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party
Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
Schedule of Notes payable
Related Parties Notes Payable
Long-term notes payable $ — $ 666,667
Interest expense on related party notes payable was
$26,409and $37,967for the years ended December 31, 2021 and 2020, respectively. Accrued interest was $0 at both December 31, 2021 and December 31, 2020.
F-15
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party
Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
Schedule of Notes payable
Convertible Bridge Loans Payable
F-16
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party
Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
Interest expense on the convertible bridge loans payable
was $26,667 and $117,785 for the year ended December 31, 2021 and 2020, respectively. Accrued
interest was $0 and $117,785 as of December 31, 2021 and December 31, 2020.
F-17
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 5 – Licensing Agreement and Royalty
Payable
We have a licensing agreement with ABG TapouT, LLC
(“TapouT”), providing us with licensing rights to the brand “TapouT” on energy drinks, energy shots, water, teas
and sports drinks for beverages sold in the United States of America, its territories, possessions, U.S. military bases and Mexico. Under
the terms of the agreement, we are required to pay a 6% royalty on net sales, as defined. In 2021 and 2020, we are required to make monthly
payments of $49,500 and $45,000, respectively.
There were no unpaid royalties at December 31, 2021.
We paid the guaranteed minimum royalty payments of $594,000 and $540,000 for the years ended December 31, 2021 and 2020, which is
included in general and administrative expenses.
In connection with the Copa APA, we acquired the license
to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, the Copa di Vino entered into three separate license
agreements with 1/4 Vin SARL, (1/4 Vin). 1/4 Vin has the right to license certain patents and patent applications relating to inventions,
systems, and methods used in the Company’s manufacturing process. In exchange for notes payable, 1/4 Vin granted the Company a nonexclusive,
royalty-bearing, non-assignable, nontransferable, terminable license which would continue until the subject equipment is no longer in
service or the patents expire. Amortization is approximately $31,000 annually until the license agreement is fully amortized. The asset
is being amortized over a 10-year useful life.
Note 6 – Stockholders’ Equity (Deficiency)
Common Stock
At March 31, 2020, we issued 272,584 shares of common stock in exchange
for services provided to us. At March 31, 2021, we issued 168,333 shares of common stock in exchange for services provided to us. At September
30, 2021, we issued 2,136,819 shares of common stock in exchange for services provided to us. At December 31, 2021, we issued 967,497
shares of common stock in exchange for services provided to us. For the year-ended December 31, 2021 the shares were valued at a fair
market value stock price based on the agreement date. We recognized share-based compensation expense of $11,128,066, which is classified
within the other general and administrative line on the Consolidated Statements of Operations.
F-18
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 6 – Deficiency in Stockholders’
Equity, continued
Private Placement Memorandum (PPM)
In July 2020, the Board of Directors has determined
that it is in the best interests of the Corporation and its stockholders to obtain working capital by conducting a private placement offering
of 930,303 shares of the common stock and 650,000 warrants to purchase common stock of the Company, $0.001 par value per share at a purchase
price of $3.30 per share for aggregate gross proceeds of $3,070,000.
In January 2021, the Board of Directors approved
a private placement offering of 1,212,121shares of the common stock of the Company, $0.001 value per share at a purchase price of $3.30 per share for aggregate gross proceeds
of $4,000,000(“PPM”). As part of the PPM, each purchaser received a warrant to purchase one share for every two shares purchased.
In February 2021, we completed our PPM by issuing a total of 1,212,355of shares and 606,179 warrants receiving gross proceeds of approximately $4,000,000.
Stock Plans
2012 Plan
On May 2012, the Board adopted the 2012 Stock Incentive
Plan (the “2012 Plan”), which provided for the grant of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock
Awards, Restricted Stock Units and Stock Appreciation Rights to eligible recipients. The total number of shares that may be issued under
the 2012 plan was 1,362,920.
Concurrently with the consummation of the Merger,
the outstanding options to purchase 374,803 shares were cancelled and replaced with warrants to purchase 374,804 shares at an exercise
price of $2.20, and the 2012 Plan was retired.
2020 Plan
On August 2020, the Board adopted the 2020 Stock Incentive
Plan (the “2020 Plan”), which provides for the grant of Options, Restricted Stock Awards, Stock Appreciation Rights, Performance
Units and Performance Bonuses to consultants and eligible recipients. The total number of shares that may be issued under the 2020 plan
was 2,313,133.
At December 31, 2021, 1,065,000 options have been
granted under the 2020 Plan.
The fair value of stock options recognized in the
period has been estimated using the Black-Scholes option pricing model.
Assumptions used in the options pricing model for the period
are provided below:
Schedule of assumptions used in Black-Scholes option pricing model
Risk-free interest rates 0.84 %
Exercise price $ 2.60
Expected life 5 years
Expected volatility 160.0 %
Expected dividends —
Assumptions used in the warrants pricing model for
the period are provided below:
Schedule of assumptions used in Black-Scholes option pricing model
Risk-free interest rates 0.93 %
Exercise price $ 1.85
Expected life 5 years
Expected volatility 165.3 %
Expected dividends —
The company recognized stock option expense of $283,473
for the year ended December 31, 2021. No forfeitures were recorded.
A summary of the Company’s stock option plan
and changes during the year ended is as follows:
Schedule of stock option plan
F-19
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Warrants/Options
The total amount of outstanding warrants/options are
summarized below:
Schedule of Warrant Options Activity
[A] Warrant Issuance-Series A Convertible