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.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking.
These statements are based on current expectations and assumptions that are subject to risk, uncertainties, and other factors. These statements
are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,”
“intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual
results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Annual Report, and other
factors that we may not know.
Business Overview
Canfield Medical Supply, Inc. (“CMS”)
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.
28
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 WT,” respectively.
On November 8, 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 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, 2024, compared to Year Ended December 31, 2023.
Revenue
Revenues
for the year ended December 31, 2024 were $4.2 million compared to revenues of $18.9
million for the year ended December 31, 2023. Part of the $14.7` million decrease in sales
was mainly due to a decrease in our beverage sales of $1.7 million. Additionally, revenues
from our vertically integrated B2B and B2C e-commerce distribution platform called Qplash
decreased approximately $13 million or 88.5% due to low inventory . Total sales declined
due to limited liquidity to procure inventory to drive third-party sales.
Cost of Goods Sold
Cost of goods sold for the year ended December 31,
2024 were $3.8 million compared to cost of goods sold for the year ended December 31, 2023 of $13.3 million. The $9.5 million decrease
in cost of goods sold was due to our decreased sales. The $8.4 million decrease in cost of goods sold was driven by decreased
sales in the e-commerce and $1.1 million was driven by beverage business.
Operating Expenses
Operating expenses for the year ended December 31,
2024 were $16.4 million compared to $20.9 million for the year ended December 31, 2023. The decrease in operating expenses was primarily
due to $1.7 million of marketing expense, $0.5 million of contracted services, $2.1 million of other general and administrative expenses
partially offset by increases of the non-cash expenses related to share issuance of $1.2 million. The loss of intangible impairment of
$4.2 million was recorded in the other general and administrative expenses.
Other Income/(Expense)
Other expenses for the year ended December 31, 2024
were $6.9 million compared to $5.7 million for the year ended December 31, 2023. The other expense increased of $1.2 million is mainly
driven by an increase in interest expense. Interest expenses for the year ended December 31, 2024 were $2.9 million compared to $1.9
million for the year ended December 31, 2023. The $1.0 million increase in interest expense is due to new loans with a principal of $3.2
million with higher interest rates. The Company also reserved $0.3 million for legal settlement. Offset by a decrease in
amortization of debt discount of $0.2 million and $0.03 million in other expenses.
29
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, 2024, we had total cash of $15,346,
as compared with $379,978 at December 31, 2023. The decrease was primarily due to expenses relating to operating the business.
Net cash used for continuing operating activities
during the year ended December 31, 2024, was $8.0 million as compared to the net cash used by continuing operating activities for the
year ended December 31, 2023, of $10.2 million. The primary reason for the change in net cash used was due to an increase of $1.2 million
in non-cash share-based compensation, and a decrease of $1.6 million in losses of the business, offset by a decrease of $0.6 million in
working capital.
Net cash used for investing activities during the
year ended December 31, 2024, was $0.01 million as compared to the net cash used for investing activities during the year ended December
31, 2023, of $0.01 million. The net cash used in the year 2024 was for machinery & equipment.
Net cash provided by financing activities during the
year ended December 31, 2024, was $7.5 million compared to $6.1 million provided from financing activities for the year ended December
31, 2023. Company received $9.5 million and $6.6 million proceeds from the issuance of debt in years ending December 31, 2024 and 2023,
respectively. No cash advance from shareholders in 2024, $0.2 million was received from a shareholder advance in the year ending December
31, 2023. Principal repayment of debt of $2.0 million and $1.0 million were made in years ending December 31, 2024 and 2023 respectively.
A cash advance from related party of $0.01 million and $0.4 million was received in 2024 and 2023 respectively.
In order to have sufficient cash to fund our operations,
we will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed
from any source or, if available, will be available on terms that are acceptable to us. We will be required to pursue sources of additional
capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive
to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for new investors.
Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and
the issuance of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur
substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing
and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities
we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed
financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost
of future financings. If the amount of capital we are able to raise from financing activities together with our revenues from operations,
is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to curtail
or cease operations.
Critical Accounting Estimates
The preparation of our consolidated financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as the disclosure of contingent assets
and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results could differ from those estimates.
30
Revenue
The Company faces significant judgment
in revenue recognition due to the complexities of the beverage industry’s competitive landscape and diverse distribution channels.
Determining the timing of revenue recognition involves assessing factors such as control transfer, returns, allowances, trade promotions,
and distributor sell-through data. Historical analysis, market trends assessment, and contractual term evaluations inform revenue recognition
judgments. However, inherent uncertainties persist, underscoring the critical nature of revenue recognition as it significantly impacts
financial statements and performance evaluation.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is established
based on historical experience, current economic conditions, and specific customer collection issues. Management evaluates the collectability
of accounts receivable on an ongoing basis and adjusts the allowance as necessary. Changes in economic conditions or customer creditworthiness
could result in adjustments to the allowance for doubtful accounts, impacting our reported financial results.
Inventory Valuation
We value inventory at the lower of cost or net realizable
value. Estimating the net realizable value of inventory involves significant judgment, particularly when market conditions change rapidly
or when excess or obsolete inventory exists. Management regularly assesses inventory quantities on hand, future demand forecasts, and
market conditions to determine whether write-downs to inventory are necessary.
Fair Value Measurements
We measure certain financial assets and liabilities
at fair value on a recurring basis. Fair value measurements involve significant judgment and estimation, particularly when observable
inputs are limited or not available. Management utilizes valuation techniques such as discounted cash flow models, market comparables,
and third-party appraisals to determine fair values.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk.
Not applicable for smaller reporting companies.
31
Item 8. Financial Statements and Supplementary
Data.
Financial Statements Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 468) F-2&3
Consolidated Balance Sheets December 31, 2024 and December 31, 2023 F-4
Notes to the Consolidated Financial Statements F-8
F-1
Report
of Independent Registered Public Accounting Firm (PCAOB ID: 468)
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, 2024 and 2023, and the related consolidated statements of operations, changes in stockholders’
equity and cash flows for the years ended December 31, 2024 and 2023, and the related notes (collectively referred to as the financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years ended December
31, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has an accumulated deficit and a working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 audit. 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters 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.
F-2
Evaluation of Intangible Assets for Impairment
Description of the Matter
As discussed in Note 2 to the consolidated financial statements, intangible
assets are tested for impairment at least annually or when events or circumstances indicate the fair value of the asset may be below its
carrying value. This analysis involves comparing events and circumstances such as general macroeconomic conditions, conditions specific
to the industry and company specific factors. These fair value estimates are sensitive to significant assumptions and judgments, such
as projections of operating expenditures, discount rates, and future levels of revenue.
The Company has experienced a decline in its reported amounts of Beverage
revenue and the Beverage operating segment has experienced losses from operations for the past several years. These factors were considered
a triggering event indicative of impairment, which resulted in an impairment assessment by management. Pursuant to current accounting
guidance, management performed a quantitative analysis and concluded that its intangible assets were impaired and the Company recorded
impairment charges of approximately $4.3 million during the year ended December 31, 2024. At December 31, 2024, the Company’s intangible
asset balance was $0.
Auditing management’s annual impairment tests was complex because
of the significant judgment required to evaluate management’s assumptions used to determine the fair value of the intangible assets.
How We Addressed the Matter
in our Audit
Our audit procedures related to the evaluation of intangible assets for
impairment included the following, among others:
3. With respect to the Company’s valuation of its intangible assets:
a. We assessed the qualifications and competence of management
Rose, Snyder & Jacobs LLP
We have served as the Company’s auditor since 2023
Encino, CA
July 11, 2025
F-3
Splash Beverage Group, Inc.
Consolidated Balance Sheets
Assets
Current assets:
Non-current assets:
Liabilities and Stockholders’ Equity
Liabilities:
Current liabilities
Long-term liabilities :
Right of use liability, net of current portion 53,697 296,128
Stockholders’ equity:
Accumulated other comprehensive income 81,180 (16,583 )
The share amounts above have been retroactively adjusted to reflect the
1 for 40 reverse stock split that took effect on March 27, 2025.
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
Splash Beverage Group, Inc.
Consolidated Statements of Operations
Operating expenses:
Other income/(expense):
Provision for income taxes — —
Other comprehensive loss
Foreign currency translation gain (loss) $ 97,763 $ 3,889
Loss per share - continuing operations
Weighted average number of common shares outstanding - continuing operations
The share amounts above have been retroactively adjusted to reflect the
1 for 40 reverse stock split that took effect on March 27, 2025.
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
Splash Beverage Group, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Shares Amount Capital Income Deficit (Deficit)
Accumulated Comprehensive Income - Translation — — — 3,889 — 3,889
Issuance of warrants on convertible instruments — — 4,327,247 — — 4,327,247
Accumulated Comprehensive Income - Translation — — — 97,763 — 97,763
The accompanying notes are an integral part of these
consolidated financial statements
F-6
Splash Beverage Group, Inc.
Consolidated Statements Cash Flows
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from intangible impairment 4,324,064 —
Changes in working capital items:
Cash Flows from Investing Activities:
Cash Flows from Financing Activities:
Cash advance (repayment) from shareholder — 200,000
Net cash effect of exchange rate changes on cash 97,763 3,889
Cash and Cash Equivalents, end of year $ 15,346 $ 379,978
Supplemental Disclosure of Cash Flow Information:
Supplemental Disclosure of Non-Cash Investing and Financing Activities
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
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 process, 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 up listing 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.
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, and CdV. All intercompany balances have been eliminated
in consolidation.
F-8
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies, continued
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. These reclassifications had no impact on net loss.
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, 2024 or December 31, 2023.
Our cash in uninsured foreign bank accounts was $4,817
and $0 at December 31, 2024 and December 31, 2023, respectively.
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivables 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, 2024 and December 31, 2023, our accounts receivable amounts are reflected net of allowances
of $300,827 and $183,089 , respectively.
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, 2024 and December 31, 2023 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 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 $621,178 and $290,524 at December 31, 2024 and December 31, 2023, 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 3-20 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.
F-9
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies, continued
Depreciation expense totaled $148,229 and $153,908
for the years ended December 31, 2024 and 2023 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.
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 31, 2024 and December 31, 2023, 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.
F-10
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies, continued
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, and
warehousing expense after manufacture are accounted for in Other General and Administrative cost.
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. The
cost of transportation from production site to other 3rd party warehouses or customer is included in Other General and Administrative
cost.
Other General and Administrative Expenses
Other General and Administrative expenses include Amazon selling fees, cost of
transportation from production site to other 3rd party warehouses or customers, insurance cost, consulting cost, legal and
audit fees, investor relations expenses, travel & entertainment expenses, occupancy cost and other cost.
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 recognize 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.
F-11
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies, continued
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, 2024 and December 31, 2023 . See note 13.
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 shares of common stock and warrants granted by our Board that have
not been exercised totaling 3,424,996.
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 $486,942
and $1,721,547 for the years ended December 30, 2024 and 2023, 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 the time of acquisition, the Company estimates
the fair value of the acquired identifiable intangible assets based upon the facts and circumstances related to the particular intangible
asset. Inherent in such estimates are judgments and estimates of future revenue, profitability, cash flows and appropriate discount rates
for any present value calculations. The Company preliminarily estimates the value of the acquired identifiable intangible assets and then
finalizes the estimated fair values during the purchase allocation period, which does not extend beyond 12 months from the date of acquisition.
The Company’s amortization expense for acquired identifiable intangible assets with finite useful lives was $392,068 for fiscal
years 2024 and 2023.
F-12
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
In accordance with ASC 350, Intangibles – Goodwill
and Other, the Company performed an impairment test for its Brand Name, Customer Relationships and license. Based on this assessment,
the Company determined that the carrying value of the intangible asset exceeded its fair value, resulting in an impairment loss of $4.3
million.
The impairment loss of $4.3 million was recorded in the statement of operations
within Selling, General, and Administrative Expenses. This impairment was primarily driven by the decline in the Company’s
sales and was calculated using the present value of future cash flows.
Gross Amount Accumulated Amortization Loss on Impairment Net Carrying Value
Finite:
Note 2 – Summary of Significant Accounting
Policies, continued
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.
Foreign Currency Gain/Losses
Foreign subsidiaries’ functional currency is
the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates.
Gain or losses from these translation adjustments are included in the consolidated statement of operations and other comprehensive (loss)
income as foreign currency translation gains or losses. Translation gains and losses that arise from the translation of net assets from
functional currency to the reporting currency, as well as exchange gains and losses on intercompany balances, are included in Other Comprehensive
Income. The Company incurred a foreign currency translation net gain during the year ended December 31, 2024 of $97,763 and a foreign
currency translation net gain during the year ended December 31, 2023 of $3,889.
Recent Accounting Pronouncements
Adoption of FASB ASU 2020-06
In
August 2020, the Financial Accounting Standards Board (FASB) issued ASU No. 2020-06, “Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06
simplifies the accounting for convertible instruments and contracts by removing certain models
that were previously required to be applied. The amendments are effective for the fiscal
years beginning after December 15, 2023, with early adoption permitted. The Company adopted
ASU 2020-06 effective January 1, 2024 and has removed the effects of any embedded conversion
features from certain of our convertible instruments as of that date.
F-13
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 3 – Liquidity, Capital Resources
and Going Concern Considerations
During 2024, the Company received $9.5 million from
issuance of debt.
The Company’s consolidated financial
statements have been prepared on the basis of US GAAP for a going concern, on the premise that the Company is able to meet its
obligations as they come due in the normal course of business. The Company sustained a net loss of approximately $22.9
million and negative cash flows from operating activities of approximately $0.37
million for the year ended December 31, 2024. To date the Company has generated cash flows from issuances of equity and
indebtedness.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As of July 11, 2025, the Company
has incurred significant losses from operations and has experienced negative cash flows from operating activities. Additionally, the Company’s
current liabilities exceed its current assets, and it has a working capital deficit.
Management’s plans in regard to these matters
include actions to sustain the Company’s operations, such as seeking additional funding to meet its obligations and implement its
business plan. However, there is no assurance that the Company will be successful in implementing its plans or in raising additional funds.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments
that might result from the outcome of this uncertainty. If the Company is unable to continue as a going concern, adjustments would be
necessary to the carrying values of its assets and liabilities and the reported amounts of revenues and expenses could be materially affected.
F-14
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Related Party
Notes Payable, and Revenue Financing Arrangements
Notes payable are generally nonrecourse and secured
by all Company owned assets.
Schedule of notes payable
Notes Payable and Convertible Notes Payable
F-15
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 – Notes Payable, Shareholder Notes Payable, and Revenue
Financing Arrangements, continued
Interest expense on notes payable was $3,702,611 and
$1,856,777 for the years ended December 31, 2024
and 2023, respectively. Accrued interest was $3,610,329, and $1,714,646
at December 31, 2024 and December 31, 2023, respectively.
The Company’s effective interest rate was 20.53% for the year ended December 31, 2024.
The Company’s convertible note balances
are convertible into 505,257
and 278,187 shares
of common stock for the years ended December 31, 2024 and 2023. These amounts are reflective of the 1 for 40 reverse split.
As of December 31, 2024,
and December 31, 2023, the balance of the unamortized debt discount was $3,677,143
and 28,474,946
respectively. The Company adopted ASU 2020-06 on January 1, 2024, which resulted in the reversal of the original
beneficial conversion feature (BCF) amount to additional paid in capital for $2,191,103,
reversal of the unamortized debt discount related to the beneficial conversion feature (BCF) for $932,047
with the balance being recorded through retained earnings for $1,259,056.
Notes discount of $3,251,106 and $3,832,628
for the year ending December 31, 2024 and 2023 respectively is related to the discounted warrants and common shares issued
in connection with the notes.
In June 2025, the Company exchanged
approximately $12.67
million of outstanding promissory notes for newly issued preferred equity. The Company is undertaking these transactions to exchange
debt for equity as part of its effort to regain compliance with the shareholder equity requirements of the NYSE American.
By exchanging debt for equity, the Company enhances balance sheet, reduces interest expense, and improves shareholder equity
position in furtherance of its goal of complying with exchange requirements. The exchange was the result of an agreement between
note holders and the company. The Company is still assessing the accounting impacts of these exchanges.
Schedule of notes payable
Shareholder Notes Payable
Long-term notes payable $ — $ —
Interest expense on related party notes payable was
$24,000 and $20,400 for the years ended December 31, 2024 and 2023, respectively.
As of December 31, 2024, the Company’s convertible
note balances are convertible into 553,631 shares of common stock
F-16
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 5 – Licensing Agreement and Royalty
Payable
The Company had a licensing agreement with ABG TapouT,
LLC (“TapouT”), providing the Company with licensing rights to the brand “TapouT” (i)energy drinks, (ii) energy
bars, (iii) coconut water, (iv) electrolyte gum/chews, (v) energy shakes, (vi) powdered drink mix, (viii) water (including enhanced water),
(vii) energy shots, (viii) teas, and (ix) sports drinks sold in the North America (including US Territories and Military Bases), United
Kingdom, Brazil, South Africa, Australia, Scandinavia, Peru, Colombia, Chile and Guatemala. The Company was required to pay a 6% royalty
on net sales, as defined, and are required to make minimum monthly payments of $55,000
in 2024 and 2023. The licensing agreement between TapouT LLC and the Company was terminated during
Q1 2024. The parties are engaged in active and constructive settlement discussions pursuant to the terms of the agreement’s termination
provisions. The Company anticipates that any final settlement will not exceed the amounts already recorded in its legal reserve and accrued
accounts payable.
The Company has accrued guaranteed minimum royalty payments $55,000 for the
year ended in December 2024. The royalty expense $55,000 is included in general and administrative expenses. The licensing agreement between
TapouT LLC and the Company has been terminated. The parties are engaged in active and constructive settlement discussions pursuant to
the terms of the agreement’s termination provisions. The Company anticipates that any final settlement will not exceed the amounts
already recorded in its legal reserve and accrued accounts payable. The Company has reserved $330,000 that is included in legal reserve
in the condensed consolidated statement of operations and comprehensive
loss.
In connection with the Copa Asset Purchase Agreement,
we acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, the Copa DI Vino®