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
From 2020, we have been engaged
in the beverage businesses, although we have not generated revenue since February 2025.
The Company’s efforts to commercialize its beverage
products as described under “Business”. In addition, the Company is pursuing potential strategic alternatives, including a
potential acquisition as described above under “Business-Letter of Intent.”
RESULTS OF OPERATIONS
Our consolidated financial statements
have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability
and realization of assets and classification of liabilities that might be necessary should we be unable to continue our operation. Our
results of operations reflect our continuing operations and reflect losses from discontinued operations related to the discontinuation
of our Copa Di Vino businesses. All financial information has been restated to reflect our discontinued operations for all periods presented.
25
For the year ended December
31, 2025 compared with the year ended December 31, 2024
The following table sets forth
our revenues, expenses and net loss for the years ended December 31, 2025 and 2024.
For the Year Ended December 31,
Foreign currency translation gain (loss) (47,532 ) (6,147,477 )
Results of Operations for the Year Ended December
31, 2025, compared to Year Ended December 31, 2024.
Revenue
Revenues for the year ended December 31, 2025
were $0.07 million compared to revenues of $0.8 million for the year ended December 31, 2024. The $0.73 million decrease in
sales primarily due to a shortage of operating capital which hindered our ability to obtain inventory and generate sales. The
Company did not make any sales in the 2025 calendar year after March 2025 due to its lack of capital resources. The Company is
seeking to raise at least $3 million in the fiscal year ending December 31, 2026 in order to re-establish portions of
its prior business through the sale of tequila products.
Cost of Goods Sold
Cost of goods sold for the year ended December 31, 2025 were $0.06 million compared
to cost of goods sold for the year ended December 31, 2024 of $0.29 million. The $0.23 million decrease in cost of goods sold was due
to our decreased sales. The Company did not make any sales in the 2025 calendar year after March 2025 due to its lack of capital resources.
Operating Expenses
Operating expenses for the year ended December 31, 2025 were $14.2 million compared
to $9.8 million for the year ended December 31, 2024. The increase in operating expenses was primarily due to an increase of approximately
$8.6 million of Non-cash share-based compensation partially offset by decreased by a reduced contract services of $0.17 million and reduced
salary and wages of $0.32 million and reduced sales and marketing of $0.4 million. The reductions in operational and general and administrative
expenses related to our lack of sales activities in 2025 due to the lack of adequate capital.
Other Income/(Expense)
Other expenses for the year ended December 31, 2025 were $10.2 million compared
to $7.7 million for the year ended December 31, 2024. The other expense increased of $2.5 million for the year ended December 31, 2025
compared to the year ended December 31, 2024.
26
During 2025, the Company recognized a $5.6 million
loss on extinguishment of debt in connection with the exchange of certain outstanding loans, including principal and accrued interest
totaling approximately $12.6 million, for preferred stock. This non-cash expense significantly contributed to the increase in other expense.
Interest expense for the year ended December 31, 2025 was $2.6 million compared to $3.7 million for the year ended December 31, 2024,
representing a decrease of approximately $1.8 million. The decrease was primarily attributable to the debt exchange transaction described
above, which reduced outstanding borrowings and related interest obligations.
Amortization of debt discount decreased from $3.7
million in 2024 to $1.9 million in 2025 due to the reduction in debt balances following the exchange transactions. In addition, the Company
recorded a $0.5 million inventory write-off during 2025. These increases in expense were partially offset by the absence of a $0.3 million
legal settlement reserve recorded in 2024 that did not recur in 2025.
Discontinued Operations
Due
to the lack of working capital to fund operations, it formed a license agreement with a 3rd party to allow the continued
production and flow of product to the customers so that it could later be recovered as the funding challenges were then deemed as only
temporary. As the lack of funding persisted through the full year of 2025 the company subsequently determined it no longer intends to
relaunch the product line. As a result, accordingly, the Company has classified the related assets and liabilities associated with
its CdV as discontinued operations in its consolidated balance sheets and the results of its logistics and transportation services business
has been presented as discontinued operations in its consolidated statements of operations for all periods presented as the discontinuation
of its business had a major effect on its operations and financial results. Unless otherwise noted, discussion in the other notes to consolidated
financial statements refers to the Company’s continuing operations.
The following table summarizes the results of operations
of discontinued operations:
Year Ended December 31,
Cost of revenues, excluding depreciation and amortization 416,913 2,878,688
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.
Due to our lack of capital, we did not generate any revenue between March 2025
and February of 2026. In order to generate material revenue, we require at least $3,000,000
of working capital in order to acquire inventory and re-commence minimal operations. This includes our plans for our Chispo business and
general and administrative expenses. Our lack of cash resources has prevented us from carrying on our commercialization activities. In
addition, our lack of working capital has prevented us from marketing our products.
27
In addition, we would need additional capital to acquire
and fund the operations of any business we may acquire in a business combination in the future, including potentially Medterra if we can
structure, negotiate and pursue a transaction under the Letter of Intent with that entity. See “Part I, Item 1-Business-Recent Developments-Letter
of Intent” at page 2. See also Item 1A – “ Risk Factors”.
We have historically raised capital to fund our operations
and capital needs through the issuance of debt and equity securities. In August 2025, the Company issued convertible promissory notes
with individuals in the aggregate principal amount of $424,560. These loans mature in May or June 2026 and have an interest rate of 22%
per annum. In September 2025 we sold secured convertible promissory notes in the principal amount of $2,200,000 for total gross proceeds
of $2,000,000, which notes do not bear any interest absent an event of default, and mature on September 22, 2026.
In September 2025 we also entered into the ELOC Agreement
which subject to certain conditions including obtaining and maintaining the registration of the shares on an effective registration statement
allows us to access additional capital, we plan to access and deploy such capital to re-commence certain of our operations and to establish
new operations as described in this Report. From January 27, 2026 through April 14, 2026, the Company has sold 4,840,254 shares under
the ELOC Agreement for total gross proceeds of $1,917,709. The Company has recently been relying upon the ELOC Agreement as a source of
liquidity. Its ability to generate material capital is in large part based on the future liquidity and the market price of our Common
Stock.
In November 2025, the Company borrowed $500,000 from two accredited investors
and issued senior promissory notes with a combined original principal amount of $588,235, reflecting a 15% original issue discount. The
notes mature on February 12, 2026, accrue interest at 6% starting 30 days after issuance, and include customary default provisions. The
notes also permit the holders, at their discretion, to apply outstanding principal, accrued interest, and any Company securities they
hold as consideration for participation in future equity, equity-linked, or debt financings.
From June through December 2025, we raised a total
of $1,300,000 from the sale of 1,300 shares of Series A-1 Convertible Preferred Stock (“Series A-1”), Class A Warrants to
purchase 325,000 shares of Common Stock and Class B Warrants to purchase 325,000 shares of Common Stock.
In December 2025, the Company
entered into agreements to issue a total of 113,636 shares of Common Stock and 1,136 shares of Series D Convertible Preferred Stock to
holders of options to purchase a total of up to $600,000 shares of Common Stock in exchange for the termination of such options.
We intend to fund our future operations through the
issuance of equity securities until such a time as our business achieves profitability. However, 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. Financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations,
or other similar arrangements with third parties, we may have to pledge or relinquish valuable assets or rights on terms that may not
be favorable to us and/or may reduce the value of our Common Stock. 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 preferred
stock 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.
28
As such, we have concluded that such plans do not
alleviate the substantial doubt about our ability to continue as a going concern for one year from the date the accompanying financial
statements are issued. There is therefore substantial doubt about our ability to continue as a going concern.
Because our Common Stock is listed on the NYSE American,
we cannot issue any indebtedness while listed due to our negative stockholders’ equity as described in this Report. Further we need
to raise material equity in order to complete the Medterra acquisition plan to use the ELOC to support our minimal working capital needs
but that requires our stock to trade actively enough; otherwise the investor will sell any Common Stock we issue which will depress the
price to a point where our Common Stock will automatically be delisted.
As of April 14, 2026, the Company had total cash and
cash equivalents of $732,307.
Net cash used for continuing operating activities
during the year ended December 31, 2025, was $4.8 million as compared to the net cash used by continuing operating activities for the
year ended December 31, 2024, of $7.3 million. In 2025, we had a loss on debt extinguishment of $5.6 million arising from debt to equity
exchanges, and non-cash share based compensation of $8.6 million related to warrants issued to our directors, officers and certain employees.
Net cash provided by financing activities during
the year ended December 31, 2025 was $5.1 million compared to $7.5 million provided from financing activities for the year ended December
31, 2024. The Company received $4.3 and $$9.5 million in proceeds from the issuance of debt in years ending December 31, 2025 and 2024,
respectively. The Company received $1,300,000 and $0 in proceeds from the issuance of equity securities in years ending December 31,
2025 and 2024, respectively.
Warrants
Effective July 31, 2025, the Company issued 5,050,000
Warrants to its officers, directors and certain employees. As of April 14, 2026, our Board of Directors agreed to cancel the Warrants
subject to each person as applicable agreeing to cancel them. As of the date of this Report, 1,350,000 Warrants held by former employees
remain outstanding and all other Warrants have been canceled. The Company intends to pursue its remedies with respect to the remaining
Warrants.
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.
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.
29
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.
30
Item 8. Financial Statements
and Supplementary Data.
Financial Statements Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 468) F-2
Consolidated Balance Sheets December 31, 2025 and December 31, 2024 F-3
Notes to the Consolidated Financial Statements F-7
F-1
Report of Independent Registered Public Accounting
Firm (PCAOB ID: 468)
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, 2025 and 2024, and the related consolidated statements of operations, changes in stockholders’
equity and cash flows for the years ended December 31, 2025 and 2024, 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, 2025 and 2024, and the results of its operations and its cash flows for the years ended December
31, 2025 and 2024, 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.
We determined that there are no critical audit matters.
Rose, Snyder & Jacobs LLP
We have served as the Company’s auditor since 2024
Encino, CA
April 15, 2026
468
F-2
Splash Beverage Group, Inc.
Consolidated Balance Sheets
Assets
Current assets:
Assets of discontinued operations — 872,674
Non-current assets:
Assets of discounted operations — 182,598
Liabilities and Stockholders’ Deficit
Liabilities:
Current liabilities
Right of use liability, current portion 50,720 58,840
Long-term liabilities:
Right of use liability, net of current portion 2,976 53,697
Stockholders’ deficit:
Accumulated other comprehensive income 33,828 81,180
Shares and per share amounts are reflective of the
1 for 40 reverse split that occurred on March 27, 2025.
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
Splash Beverage Group, Inc.
Consolidated Statements of Operations
Operating expenses:
Other income/(expense):
Interest income — 1,991
Loss on inventory write off (449,205 ) —
Loss on Extinguishment of debt (5,560,482 ) —
Change in FV derivative (20,406 ) —
Provision for income taxes — —
Discontinued operations:
Loss from discontinued operations, net of tax (885,563 ) (6,147,477 )
Preferred Stock Dividends (831,944 ) —
Other comprehensive loss
Foreign currency translation gain (loss) $ (47,352 ) $ 97,763
Loss per share - continuing operations – Basic and Diluted (11.56 ) (13.09 )
Loss per share - discontinued operations Basic and Diluted (0.41 ) (4.59 )
Net income (loss) per share - Basic and Diluted (11.97 ) (17.68 )
Weighted average number of common shares outstanding - continuing operations
Shares and per share amounts are reflective of the
1 for 40 reverse split that occurred 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 Changes in Stockholders’ Equity
Issuance of Preferred stock A — — 1,000 1 — — — — — — 999 — — — 1,000
Dividends payable — — — — — — — — — — — — — (831,944 ) (831,944 )
Shares and per share amounts are reflective of the
1 for 40 reverse split that occurred on March 27, 2025.
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:
Loss from intangible impairment — 4,324,064
Change in FV of derivative liability 20,406 —
Loss on extinguishment of debt 5,560,482 —
Changes in working capital items:
Prepaid expenses and other current assets 205,287 (53,542 )
Liability to issue shares — —
Cash flows from investing activities - continuing operations
Capital expenditures — —
Net cash used in investing activities - continuing operations — —
Cash flows from financing activities - continuing operations:
Cash advance (repayment) from related party — 9,000
Proceeds from sale of preferred stock 1,300,000 —
Cash flows from discontinued operations
Investing cash flows — —
Financing cash flows — —
Net cash provided by (used in) discontinued operations 30,879 (492,756 )
Net cash effect of exchange rates on cash (47,352 ) 97,763
Cash and cash equivalents, beginning of year 13,789 167,168
Cash and cash equivalents, end of period $ 281,435 $ 13,789
Supplemental Disclosure of Cash Flow Information:
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Shares and per share amounts are reflective of the
1 for 40 reverse split that occurred on March 27, 2025.
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 (“the Company” or “Splash”),
is a Nevada corporation originally incorporated in the State of Ohio in1992.
Splash specialized in the manufacturing process, distribution,
and sales and marketing of various beverages across multiple channels. Splash operated 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.
On December 24, 2020, the Company 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.
Splash Beverage Group, Inc. historical mission was to identify, acquire, and build
early stage or under-valued beverage brands that have strong growth potential within its distribution system. Splash’s distribution
system was comprehensive in the US and is also seeking to expand to select attractive international markets. Through its division Qplash,
Splash’s distribution reach included e-commerce access to both business-to-business (B2B) and business-to-consumer (B2C) customers.
Prior to pausing its operations in February 2025, Qplash marketed well known beverage brands to customers throughout the US that prefer
delivery direct to their office, facilities, and or homes.
On March 27, 2025, the Company implemented a 1.0
for 40.0 reverse stock split. All Common Stock shares stated herein have been adjusted to reflect the split. The purpose of this reverse
split was to maintain the company’s listing on the NYSE American.
On June 25, 2025, the Company entered into an Asset Purchase Agreement (the
“Asset Purchase Agreement”) with a third party (the “Seller”) under which the Seller sold certain water assets
located in Costa Rica to the Company in exchange for $20 million of Series C Convertible Preferred Stock (the “Series C”).
The Company issued the Series C to the Seller. Section 1.04 of the Asset Purchase Agreement required the Seller to deliver the water assets
by December 31, 2025 or pay the Company $20 million in cash. Section 1.04 of the Asset Purchase Agreement further stated that failure
to deliver either the water assets or the $20 million by December 31, 2025 rendered the Series C to be “null, void, and of no further
force or effect.” The Seller failed to comply with either requirement. As a result, on April 14, 2026, the Board of Directors of
the Company terminated the Asset Purchase Agreement and cancelled the Series C, effective December 31, 2025.
Due to a lack of working capital, the Company has not generated revenue since
February 2025. Currently, the Company’s operations are being conducted by its President, a full-time employee, its Chief Financial
Officer, a part-time employee, and its controller, a consultant. Periodically, the President communicates with beverage industry people
including former customers, distributors and suppliers. Due to its lack of adequate capital to acquire inventory , the Company has not
generated revenue since February 2025. The Company purchased a small amount of inventory in December 2025 in advance of the selection
of the Company’s tequila as the house tequila for Senor Frog in certain markets. The Company intends to further its commercialization
of its beverage business upon its receipt of sufficient capital. In the interim, beyond the Senor Frog opportunity, the Company intends
to focus its efforts on distribution of the Chispo brand tequila, and re-launching its Qplash platform primarily to provide an online
supplement to sales of these products.
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, 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. 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.
CORRECTION OF
PRIOR PERIOD ERROR
The
Company identified a material prior period error in the Consolidated Balance Sheet and Statement of Stockholders Equity recognition of
water rights. On June 25, 2025, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with
a third party (the “Seller”) under which the Seller sold certain water assets located in Costa Rica to the Company in
exchange for $20 million of Series C Convertible Preferred Stock (the “Series C”). The Company issued the Series C to the
Seller. Section 1.04 of the Asset Purchase Agreement required the Seller to deliver the water assets by December 31, 2025 or pay
the Company $20 million in cash. Section 1.04 of the Asset Purchase Agreement further stated that failure to deliver either the water
assets or the $20 million by December 31, 2025 rendered the Series C to be “null, void, and of no further force or effect.”
The Seller failed to comply with either requirement. As a result, on April 14, 2026, the Board of Directors of the Company terminated
the Asset Purchase Agreement and cancelled the Series C effective December 31, 2025.
The Company assessed
the materiality of this change in presentation on prior period consolidated financial statements in accordance with SEC Staff Accounting
Bulletin No. 99, “Materiality,” (ASC Topic 250, Accounting Changes and Error Corrections). Based on this assessment, the
Company concluded that these error corrections in its Consolidated Statements of Cash Flows are to the previously presented consolidated
financial statements. The corrections had an impact on the Consolidated Balance Sheet sand Consolidated Statements of Changes in Stockholders’
Equity, and notes to these consolidated financial statements, for any previously presented interim periods ended June 30, 2025 and September
30, 2025. Accordingly, the Company corrected the previously reported errors in the annual report for the years ended December 31, 2025
and 2024 in this Annual Report on Form 10-K.
The financial reporting
periods affected by this error include the Company’s previously reported unaudited consolidated financial statements for the periods
ended June 30, 2025 and September 30, 2025. In addition, the Company expects to present the corrected interim 2025 amounts in its 2026
consolidated interim financial statements upon the filing of each of its Quarterly Reports on Form 10-Q on a year-to-date basis as a
correction to applicable 2025 periods. A summary of the immaterial corrections to the Company’s previously reported audited
consolidated financial statements follows.
Corrected Consolidated
Balance Sheet and Statement of Stockholder equity for the periods listed below:
Corrected Consolidated Balance Sheet and Statement of Stockholder equity
As Reported Correction As Corrected
As Reported Correction As Corrected
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, 2025 or December 31, 2024.
At December 31, 2025 and December 31, 2024, the Company’s
cash on deposit with financial institutions had not exceeded federally insured limits of $250,000.
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, 2025 and December 31, 2024, our accounts receivable amounts are reflected net of allowances
of $15,748 and $396,855, respectively.
F-8
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies, continued
Inventory
Inventory is stated at the lower of cost or net realizable
value, accounted for using the weighted average cost method. During the year ended December 31, 2025, the Company wrote off approximately
$0.5 million of inventory due to product expiration, as the inventory was determined to be unsaleable and had no recoverable value. The
inventory balances at December 31, 2025 and December 31, 2024 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 $0 and $621,178 at December 31, 2025 and
December 31, 2024, 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.
The Company disposed of Copa Di Vino fixed assets during the year ended December 31, 2025 and recognized a loss of approximately $43,812
on the disposal.
Depreciation expense totaled $148,070 and $148,229
for the years ended December 31, 2025 and 2024 respectively. Property and equipment consisted of the following:
Schedule of property and equipment
Machinery & equipment — —
Buildings & Tanks — —
Leasehold improvements — —
Excise taxes
The following taxes are paid when we sell tequila
or other alcoholic beverages.
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:
F-9
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 2 – Summary of Significant Accounting
Policies, continued
The liabilities and indebtedness presented on the
consolidated financial statements approximate fair values at December 31, 2025 and December 31, 2024, consistent with recent negotiations
of notes payable and due to the short duration of maturities.
The following table
presents the derivative financial instruments, the Company’s only financial liabilities, measured
and recorded at fair value on the Company’s consolidated
balance sheet on a recurring basis, and their level within the fair value hierarchy as of December 31, 2025 and December 31, 2024:
Schedule of derivative financial instruments
Creation of derivative liability 554,258
Reclassification to equity (385,082 )
December 31, 2025
Schedule of derivative liability
Amount Level 1 Level 2 Level 3
Embedded conversion derivative liability $ $ — $ — $ 189,582
December 31, 2024
Amount Level 1 Level 2 Level 3
Embedded conversion derivative liability $ — $ — $ — $ —
Total $ — $ — $ — $ —
The table below shows the option-pricing model inputs
used by the Company to value the derivative liability at each measurement date:
Schedule of option-pricing model inputs
Expected term .50 years —
Expected average volatility 109% - 122 % —
Expected dividend yield — —
Risk-free interest rate 4.43 % —
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, 2025 and December 31, 2024. 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.
Schedule of net loss per common share
Dividends on Series A-1 and B preferred stock (831,944 ) —
Net loss per common share $ (11.97 ) $ (17.68 )
Advertising
Historically, we conducted 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 $64,811 and $486,942 for the years ended December 31, 2025 and 2024, 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.
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Splash Beverage Group, Inc.