Endovia Health Sciences, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. 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. (f/k/a Canfield medical supply, Inc.) (the “Company”) at December 31, 2020 and 2019, and the related consolidated statements operations, deficiency in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Going Concern Uncertainty The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has sustained recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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. F- 1 Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below 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. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Intangible Assets Impairment Assessments As described in Notes 2 and 8 to the consolidated financial statements, the Company has goodwill of $5.7 million at December 31, 2020. In most cases, no directly observable market inputs are available to measure the fair value to determine if the asset is impaired. Therefore, an estimate is derived indirectly and is based on net present value techniques utilizing post-tax cash flows and discount rates. The estimates that management used in calculating the net present values depend on assumptions specific to the nature of the management service activities with regard to the amount and timing of projected future cash flows; long-term professional service forecasts; actions of competitors (competing services), future tax and discount rates. The principal considerations for our determination that performing procedures relating to the intangible assets impairment assessment is a critical audit matter are the significant judgment by management when developing the net present value of the intangible assets. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the amount and timing of projected future cash flows and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of the net present value techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions used by management, including the amount and timing of projected future cash flows and the discount rate. Evaluating management’s assumptions related to the amount and timing of projected future cash flows and the discount rate involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the intangible assets, the consistency with external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit. /s/ Daszkal Bolton LLP Daszkal Bolton LLP We have served as the Company’s auditor since 2020 Fort Lauderdale, Florida March 5, 2021 F- 2 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Consolidated Balance Sheets December 31, 2020 and December 31, 2019 December 31, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 380,000 $ 42,639 Accounts Receivable, net 484,858 11,430 Prepaid Expenses 173,414 5,449 Inventory, net 798,273 304,012 Other receivables 90,919 7,132 Assets from discontinued operations 316,572 - Total current assets 2,244,036 370,662 Non-current assets: Deposit $ 77,686 $ 34,915 Goodwill 5,672,823 - Investment in Salt Tequila USA, LLC 250,000 - Right of use asset, net 80,479 162,008 Quart Vin License 219,512 - Property and equipment, net 681,352 37,729 Total non-current assets 6,981,852 234,652 Total assets $ 9,225,888 $ 605,314 Liabilities and Deficiency in Stockholders' Equity Liabilities: Current liabilities Accounts payable and accrued expenses $ 1,521,818 $ 703,905 Right of use liability - current 57,478 81,502 Due to related parties 368,904 429,432 Bridge loan payable, net - 2,200,000 Related party notes payable 1,333,333 1,505,100 Convertible Loan Payable 100,000 2,202,664 Notes payable, current portion 999,736 875,000 Royalty payable - 39,000 Revenue financing arrangements - 45,467 Shareholder advances - 46,250 Accrued interest payable 442,748 1,604,498 Accrued interest payable - related parties - 546,362 Liabilities from discontinued operations 591,642 Total current liabilities 5,415,659 10,279,180 Long-term Liabilities: Related party notes payable - noncurrent 666,667 - Notes payable - noncurrent 1,240,044 - Liability to issue shares in APA 1,980,000 - Right of use liability - noncurrent 25,521 82,238 Total long-term liabilities 3,912,232 82,238 Total liabilities 9,327,891 10,361,398 Common stock, (mezzanine shares) 12,605,283 shares, contingently convertible to notes payable at December 31, 2020 9,248,720 - Deficiency in stockholders' equity: Common Stock, $0.001 par, 150,000,000 shares authorized, 63,471,129 and 44,021,382 shares issued 63,471,129 and 43,885,090 outstanding, at December 31, 2020 and 2019, respectively 63,471 44,021 Additional paid in capital 52,175,541 22,095,403 Treasury Stock, $0.001 par, 100,000 shares at cost - (50,000 ) Accumulated deficit (61,589,735 ) (31,845,506 ) Total deficiency in stockholders' equity (9,350,724 ) (9,756,083 ) Total liabilities, mezzanine shares and deficiency in stockholders' equity $ 9,225,888 $ 605,314 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Consolidated Statements of Operations For the Year Ended December 31, 2020 and 2019 2020 2019 Net revenues $ 2,975,939 $ 20,387 Cost of goods sold (2,251,816 ) (245,500 ) Gross margin 724,123 (225,113 ) Operating expenses: Contracted services 5,606,335 2,109,146 Salary and wages 7,925,609 1,078,730 Other general and administrative 4,346,836 1,006,603 Sales and marketing 146,579 67,467 Total operating expenses 18,025,359 4,261,946 Loss from operations (17,301,236 ) (4,487,059 ) Other income/(expense): Other Income 17,786 - Interest income 8 132 Interest expense (1,980,871 ) (665,195 ) Gain from debt extinguishment 36,610 16,391 Total other (expense) (1,926,467 ) (648,672 ) Provision for income taxes - - Net loss from continuing operations (19,227,703 ) (5,135,731 ) Net income from discontinued operations, net of tax (9,446,853 ) - Net loss $ (28,674,556 ) $ (5,135,731 ) Net loss per share (basic diluted) Continuing operations (0.35 ) (0.13 ) Discontinued operations (0.17 ) - Net loss per share $ (0.52 ) $ (0.13 ) Weighted average number of common shares outstanding 55,615,276 41,064,985 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Consolidated Statement of Deficiency in Stockholders’ Equity For the year ended December 31, 2020 and 2019 Total Common Stock Treasury Stock Additional Paid-In Accumulated Stockholders' Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balances at December 31, 2018 40,165,002 40,165 272,585 $ (100,000 ) $ 18,938,480 $ (26,709,776 ) $ (7,831,132 ) Issuance of Common stock for cash 2,146,601 2,146 0 - 1,572,854 - $ 1,575,000 Issuance of Common stock for services 1,709,785 1,709 0 - 1,252,914 - 1,254,623 Issuance of series B convertible preferred stock - - 0 - - - - Issuance of Common stock from treasury - - (136,292 ) 50,000 49,900 - 99,900 Warrants issued in connection with debt modification - - 0 - 15,667 - 15,667 Share-based compensation - - 0 - 265,589 - 265,589 Net loss - - - - - (5,135,730 ) (5,135,730 ) Balances at December 31, 2019 44,021,389 44,021 136,293 $ (50,000 ) $ 22,095,403 $ (31,845,506 ) $ (9,756,083 ) Issuance of common stock for convertible debt - - - - 145,579 - 145,579 Incremental beneficial conversion for preferred A - - - - 240,770 (240,770 ) - Issuance of warrants on convertible instruments - - - - 11,999,415 (828,903 ) 11,170,512 Issuance of options 180,936 181 - - (181 ) - - Issuance of common stock for services 2,669,598 2,670 (136,293 ) 50,000 5,292,350 - 5,345,020 Issuance of common stock for cash 4,686,006 4,686 - - 3,240,954 - 3,245,640 Issuance of common stock for acquisition 11,913,200 11,913 - - 9,161,251 - 9,173,164 Net loss - - - - - (28,674,556 ) (28,674,556 ) Balances at December 31, 2020 63,471,129 63,471 - - 52,175,541 (61,589,735 ) (9,350,725 ) The accompanying notes are an integral part of these consolidated financial statements. F- 5 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Consolidated Statement Cash Flows For the Year Ended December 31, 2020 and 2019 2020 2019 Net loss $ (28,674,556 ) $ (5,135,731 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 113,299 9,334 Amortization of ROU Asset 81,529 53,194 Gain from debt extinguishment - (16,391 ) Non-cash interest expense (1,790,438 ) 15,667 Share-based compensation 2,329,280 1,620,092 Liability to issue shares in APA 1,980,000 - Non-cash acquisition costs 3,578,212 - Other noncash changes 1,976,09 360,923 Changes in working capital items: Accounts receivable, net (385,297 ) (11,428 ) Inventory, net (220,310 ) (27,224 ) Prepaid expenses and other current assets (251,752 ) (1,233 ) Deposits (31,535 ) (20,513 ) Accounts payable and accrued expenses (64,364 ) (127,167 ) Royalty payable (39,000 ) 17,938 Accrued Interest payable 82,326 604,211 Net cash used in operating activities – continuing operations (21,316,556 ) (2,658,328 ) Net cash used in operating activities – discontinued operations (9,794 ) - Cash Flows from Investing Activities: Capital Expenditures (91,066 ) (12,552 ) Investment in Salt Tequila USA, LLC (250,000 ) - Cash used for Copa acquisition (500,000 ) - Net cash acquired in Canfield merger 72,442 - Net cash used in investing activities – continuing operations (768,624 ) (12,552 ) Net cash used in investing activities – discontinued operations (11,628 ) - Cash Flows from Financing Activities: Proceeds from issuance of Common stock 20,182,503 1,575,000 Cash advance from shareholder - 153,582 Repayment of cash advance (46,250 ) - Proceeds from issuance of debt 2,439,472 130,000 Principal repayment of debt - (31,641 ) Reduction of ROU Liability (80,741 ) (51,462 ) Net cash provided by financing activities – continuing operations 22,494,984 1,775,479 Net cash provided by financing activities – discontinued operations - - Net Change in Cash and Cash Equivalents 388,381 (895,401 ) Cash and Cash Equivalents, beginning of year 42,639 938,040 Cash and Cash Equivalents, end of year $ 431,020 $ 42,639 Supplemental Disclosure of Cash Flow Information: Cash paid for Interest $ - $ 23,851 Supplemental Disclosure of Non-Cash Investing and Financing Activities Notes payable and accrued interest converted to common stock (12,605,283 shares) $ 9,248,720 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 6 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 1 – Business Organization and Nature of Operations Splash Beverage Group (“SBG”), f/k/a Canfield Medical Supply, Inc. (the “CMS”), was incorporated in the State of Ohio on September 3, 1992, and changed domicile to Colorado on April 18, 2012. CMS is in the business of home health services, primarily the selling of durable medical equipment and medical supplies to the public, nursing homes, hospitals and other end users. On December 31, 2019, CMS entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly-owned by CMS, and Splash Beverage Group, Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of CMS. The Merger was consummated on March 31, 2020. As the owners and management of Splash have voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (that is with Splash as the acquiring entity), followed by a recapitalization. As part of the recapitalization, previously issued shares of SBG preferred stock have been reflected as shares of common stock that were received in the Merger. These common shares have been retrospectively presented as outstanding for all periods. Splash specializes in the manufacturing, distribution, and sales & marketing of various beverages across multiple channels. Splash operates in both the non-alcoholic and alcoholic beverage segments. Additionally, Splash operates its own vertically integrated B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilities and visibility. On July 2, 2020, CMS received a Certificate of Good Standing from the State of Colorado. This certificate allowed us to change our name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc. a Colorado company. On July 31, 2020, we received approval from FINRA to change the Company’s name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc. Our new ticker symbol is SBEV. On December 24, 2020, SBG consummated an Asset Purchase Agreement(the “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. F- 7 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, 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 Beverage Group and its wholly owned subsidiaries, Holdings and Splash Mex, in addition to the accounts of the CMS from March 31, 2020, and Copa from December 1, 2020 the merger/acquisition effective date. All intercompany balances have been eliminated in consolidation. Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). The accompanying consolidated financial statements have been prepared by us. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the year ended December 31, 2020 and 2019 have been made. Use of Estimates The preparation of the 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, 2020 and 2019. Our cash in bank deposit accounts, at times, may exceed federally insured limits of $250,000. At December 31, 2020 we had bank accounts over the federally insured limits by approximately $29,300. Our bank deposit accounts in Mexico ($2,400) are uninsured. F- 8 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are carried at their estimated collectible amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. We establish provisions for losses on accounts receivable on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions. At December 31, 2020 and 2019, our accounts receivable amounts are reflected net of allowances of $0 and $11,430, 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, 2020 and 2019 consisted of raw materials, work-in-process, and finished goods held for distribution. The cost elements of inventory consist of purchase of products, transportation, and warehousing. We establish provisions for excess or inventory near expiration are based on management’s estimates of forecast turnover of inventories on hand and under contract. A significant change in the timing or level of demand for certain products as compared to forecast amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on inventory. We manage inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The amount of our reserve was $366,109 and $150,974 at December 31, 2020 and 2019, respectively. 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 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. Property and Equipment We record property and equipment at cost when purchased. Depreciation is recorded for property, equipment, leasehold improvements, and software using the straight-line method over the estimated economic useful lives of assets, which range from 3-39 years. Company management reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. Depreciation expense totaled $55,616 and $19,781 for the year ended December 31, 2020 and 2019, respectively. Property and equipment as of December 31, 2020 and 2019 consisted of the following: 2020 2019 Property and equipment, at cost 718,884 88,758 Accumulated depreciation (37,532 ) (51,029 ) Property and equipment, net 681,352 37,729 Licensing Agreements The initial amount of the TapouT agreement as entered into by one of the founders prior to the Company’s assumption in 2013 was $4,000,000 to be paid over several years pursuant to a guaranteed minimum royalty agreement. Royalty costs incurred under the agreements, guaranteed minimum royalty amounts, are expensed as incurred. We have not made any payments to Salt Tequila USA, LLC under the licensing agreement due to the immaterial level of our sales to date from the brand. In connection with the Copa APA, we acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”) 1/4 Vin has the right to license certain patents and patent applications relating to inventions, systems, and methods used in the Company’s manufacturing process. In exchange for notes payable, 1/4 Vin granted the Company a nonexclusive, royalty-bearing, non-assignable, nontransferable, terminable license which would continue until the subject equipment is no longer in service or the patents expire. Amortization will be approximately $31,000 annually until the license agreement is fully amortized. The asset is being amortized over a 10 year useful life. F- 9 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Fair Value of Financial Instruments Financial Accounting Standards (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The liabilities and indebtedness presented on the consolidated financial statements approximate fair values at December 31, 2020 and 2019, consistent with recent negotiations of notes payable and due to the short duration of maturities. Convertible Instruments U.S. GAAP requires the bifurcation of certain conversion rights contained in convertible indebtedness and account for them as free standing derivative financial instruments according to certain criteria. This criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable U.S. GAAP. When bifurcation is required, the embedded conversion options are bifurcated from the convertible note, resulting in the recognition of discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. With respect to convertible preferred stock, we record a dividend for the intrinsic value of conversion options embedded in preferred securities based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares. F- 10 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Revenue Recognition We recognize revenue under ASC 606, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects what we expect to receive in exchange for the transfer of goods or services to customers. We recognize revenue when our performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control of our products is transferred upon delivery to the customer. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring goods and is presented net of provisions for customer returns and allowances. The amount of consideration we receive and revenue we recognize varies with changes in customer incentives we offer to our customers and their customers. Sales taxes and other similar taxes are excluded from revenue. Distribution expenses to transport our products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses. Cost of Goods Sold Cost of goods sold include the costs of products, packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or impaired inventory. Stock-Based Compensation We account for stock-based compensation in accordance with ASC 718, “ Compensation - Stock Compensation” . Under the fair value recognition provisions, cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. We use the Black-Scholes option pricing model to determine the fair value of stock options. We early adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns accounting treatment for such awards to non-employees with the existing guidance on employee share-based compensation in ASC 718. 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, 2020 and 2019. Net loss per share The net loss per share is computed by dividing the net 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. 2020 2019 Numerator Net loss from continuing applicable to common shareholders $ (19,227,703 ) $ (5,135,731 ) Net loss from discontinued applicable to common shareholders $ (9,446,853 ) $ - Denominator Weighted average number of common shares outstanding 55,615,276 41,064,985 Net loss per share from continuing operations (basic diluted) $ (0.35 ) $ (0.13 ) Net income per share from discontinued operations (basic diluted) $ (0.17 ) $ - F- 11 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Weighted average number of shares outstanding excludes anti-dilutive common stock equivalents, including warrants to purchase 3 million shares of common stock for nominal consideration. 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 $146,579 and $4,767 for the years ended December 31, 2020 and 2019, respectively. Related Parties We are indebted to certain members of our Board of Directors at December 31, 2020 and 2019. Transactions between us and the Board members are summarized in Notes 4 and 8. Goodwill 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. During 2020, the company recorded an impairment charge associated with the CMS acquisition. See Note 17. Long-lived assets The Company evaluates long-lived assets for impairment on an annual basis, when relocating or closing a facility, or when events or changes in circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques. Recent Accounting Pronouncements In June 2016, that FASB issued ASU 2016-13, “ Financial Instruments – Credit Losses ” (Topic 326). This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Management is currently assessing the new standard but does not believe that it would have a material effect. Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances. Note 3 – Going Concern The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our business operations have not yet generated significant revenues, and we have sustained net losses of approximately $28.7 million during the year ended December 31, 2020 and have an accumulated deficit of approximately $61.6 million at December 31, 2020. In addition, we have current liabilities in excess of current assets of approximately $3.2 million at December 31, 2020. Further, we are in default on approximately $1.0 million of indebtedness, including accrued interest. Our ability to continue as a going concern in the foreseeable future is dependent upon our ability to generate revenues and obtain sufficient long-term financing to meet current and future obligations and deploy such to produce profitable operating results. Management has evaluated these conditions and plans to raise capital as needed and to generate revenues to satisfy our capital needs. No assurance can be given that we will be successful in these efforts. These factors, among others, raise substantial doubt about our ability to continue as a going concern for a reasonable period of time. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. F- 12 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 4 – Debt Notes payable are generally nonrecourse and secured by all Company owned assets. Interest Rate December 31, 2020 December 31, 2019 Notes Payable In October 2013, we entered into a short-term loan agreement with an entity in the amount of $25,000. The note matured and in March 2020 the full outstanding principal balance of $25,000 and unpaid accrued interest of $11,345 was converted into 234,767 shares of common stock. 7 % $ - $ 25,000 In February 2014, we entered into a 12-month term loan agreement with an individual in the amount of $200,000. The note included warrants for 66,146 shares of common stock at $0.73 per share. The warrants expired and were not exercised by February 28, 2017. The note matured and remains in default. 15 % 150,000 150,000 In March 2014, we entered into a 12-month term loan agreement with an individual in the amount of $500,000. The note included warrants for 681,461 shares of common stock at $0.92 per share. The warrants expired and unexercised by February 28, 2017. The note matured and in March 2020 the full outstanding principal balance of $500,000 and unpaid accrued interest of $373,065 was converted into 1,124,802 shares of common stock. 15 % - 500,000 In March 2014, we entered into a short-term loan agreement with an entity in the amount of $200,000. The note included warrants for 272,584 shares of common stock at $0.94 per share. The warrants expired and unexercised by February 28, 2017. The loans matured and remains in default. 8 % 200,000 200,000 In May 2020, we entered into a two year loan with an entity under the Paycheck Protection Program established by the CARES Act in the amount of $89,612. The note requires monthly payments of principal and interest starting in December 2020 and maturing in May 2020. We expect $73,167 of the loan amount to be forgiven in accordance with the CARES Act. 1 % 89,612 - In June 2020, we entered into a six-month loan with an individual in the amount of $100,000. The loans matured and remains in default. 12 % 100,000 - In August 2020, we entered into a nine-month loan with a company in the amount of $112,000. The loan requires 9 monthly payments of principal and interest in the amount of $12,246.66 with the final payment due May 2021. 4.8 % 62,719 - Notes payable for license agreements due in 36 monthly payments of $10,000, interest imputed at 10%, maturing in January 2021. N/A 59,212 - In December 2020, we entered into a 56 month loan with a company in the amount of $1,578,237. The loan requires variable payments and performance interest based on a percentage of revenue. Various 1,578,237 - $ 2,239,780 $ 875,000 Interest expense on notes payable was $50,592 and $105,966 for the years ended December 31, 2020 and 2019, respectively. Accrued interest was $271,533 and $581,693 at 31, 2020 and December 31, 2019, respectively. Concurrently with the consummation of the Merger with CMS, notes payable of $525,000 and accrued interest were converted to shares of Splash common stock, which were exchanged for Splash Beverage Group, Inc. [Formerly known as Canfield Medical Supply, Inc.] shares. Pursuant to the terms of the conversion agreements, these investors have the right to rescind the common shares received and receive replacement notes payable if we fail to raise $9 million in a secondary initial public offering by September 30, 2020 (subsequently extended to April 30, 2021). As a result, these shares are classified as mezzanine equity in our consolidated balance sheet. See Note 18. F- 13 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 4 –Debt, continued Interest Rate December 31, 2020 December 31, 2019 Related Parties Notes Payable During 2012, we entered into two 6-month term loan agreements with an entity, totaling $150,000. The notes included warrants for 68,146 shares of common stock at $0.73 per share which expired unexercised in 2017. The note matured and in March 2020 the full outstanding principal balance of $41,500 and unpaid accrued interest of $31,515 was converted into 98,726 shares of common stock. 7 % $ - $ 41,500 In March 2014, we entered into a $50,000 12-month term loan agreement. The note included warrants for 136,292 shares of common stock at $0.92 per share. The warrants expired unexercised on February 28, 2017. The note matured and in March 2020 the full outstanding principal balance of $50,000 and unpaid accrued interest of $24,145 was converted into 99,252 shares of common stock. 8 % - 50,000 During 2015, we entered into a 12-month term loan agreement with an individual in the amount $250,000. The note matured and in March 2020 the full outstanding principal balance of $250,000 and unpaid accrued interest of $101,850 was converted into 98,726 shares of common stock. 8 % - 250,000 In February 2012, we entered into a loan agreement with an officer of the Company in the amount of $100. On September 25, 2018 an additional $10,500 loan agreement was entered into. The note matured and in March 2020 the full outstanding principal balance of $10,600 and unpaid accrued interest of $1,189 was converted into 15,734 shares of common stock. 7 % - 10,600 During 2013, 2014, 2015, and 2016, we entered into several 12-month term loan agreements with an officer of the Company in the amounts of $57,000, $225,000, $105,000, and $9,000, respectively. The note matured and in March 2020 the full outstanding principal balance of $396,000 and unpaid accrued interest of $146,828 was converted into 727,344 shares of common stock. 7 % - 396,000 Continued on next page F- 14 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 4 –Debt, continued Interest Rate December 31, 2020 December 31, 2019 Related Parties Notes Payable, continued During 2012, 2013, 2014, and 2016, we entered into 6-month term loan agreements with an officer of the Company in the amounts of $155,000, $210,000, $150,000 and $40,000, all respectively. The notes included warrants for issuances of 204,438 shares of common stock at $.092 per share. The warrants expired unexercised on March 1, 2017. The note matured and in March 2020 the full outstanding principal balance of $495,000 and unpaid accrued interest of $213,010 was converted into 942,504 shares of common stock. 7 % - 495,000 During 2013, 2014 and 2017, we entered into 12-month term loan agreements with an officer of the Company in the amounts of $60,000, $50,000 and $10,000. The note matured and in March 2020 the full outstanding principal balance of $120,000 and unpaid accrued interest of $50,305 was converted into 228,328 shares of common stock. 7 % - 120,000 During 2018, we entered into a long term note payable with an entity owned by an officer for $12,000 to be payable on July 10, 2020. The note matured and in March 2020 the full outstanding principal balance of $12,000 and unpaid accrued interest of $1,050 was converted into 17,407 shares of common stock. 12 % - 12,000 In December 2020, we entered into a 18 month loan with an individual in the amount of $2,000,000. The loan requires 18 monthly amortized payments of principal and interest in the amount of $144,444 with the final payment due June 2022. 2 % 2,000,000 - During 2019, we entered into a term note payable with an entity owned by an officer for $130,000 to be paid on August 8, 2019. The note matured and in March 2020 the full outstanding principal balance of $130,000 and unpaid accrued interest of $9,078 was converted into 182,525 shares of common stock. 12 % - 130,000 $ 2,000,000 $ 1,505,100 Interest expense on related party notes payable was $37,967 and $95,183 for the year ended December 31, 2020 and 2019, respectively. Accrued interest was $0 and $546,362 as of December 31, 2020 and December 31, 2019. Concurrently with the consummation of the Merger with CMS, notes payable of $1,505,100 and accrued interest were converted to shares of Splash common stock, which were exchanged for Splash Beverage Group, Inc. [Formerly known as Canfield Medical Supply, Inc.] shares. Pursuant to the terms of the conversion agreements, these investors have the right to rescind the common shares received and receive replacement notes payable if we fail to raise $9 million in a secondary initial public offering by September 30, 2020 (subsequently extended to April 30, 2021). As a result, these shares are classified as mezzanine equity in our consolidated balance sheet. See Note 18. F- 15 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 4 –Debt, continued Interest Rate September 30, 2020 December 31, 2019 Convertible Bridge Loans Payable In May 2015, we entered into a 3-month term loan agreement with an individual in the amount of $100,000. The annual interest rate for this bridge loan was 32% for the first 90 days, and 4% thereafter, compounded monthly. This loan matured and remains in default. See left $ 100,000 $ 100,000 In October 2015, we entered into a 3-month term loan agreement with two individuals in the amount of $25,000. On December 26, 2018, the outstanding principal and accrued interest of $14,388 was consolidated into a new $39,388 term loan due August 26, 2020. In March 2020 the full outstanding principal balance of $39,388 and unpaid accrued interest of $5,973 was converted into 59,694 shares of common stock. 12 % - 39,388 In June 2015, we entered into a 3-month term loan with two individuals in the amount of $100,000. On December 26, 2018, the outstanding principal amount of $100,000 and accrued interest of $64,307 was consolidated into a new $164,307 term loan due August 26, 2020. In March 2020 the full outstanding principal balance of $164,307 and unpaid accrued interest of $24,916 was converted into 249,013 shares of common stock. 12 % - 164,307 During 2016, 2017 and 2018, we entered into multiple loan agreements with an entity in varying amounts. On December 26, 2018, the outstanding principal of $235,500 and accrued interest of $155,861 was consolidated into a new $391,361 term due August 26, 2020. In March 2020 the full outstanding principal balance of $391,361 and unpaid accrued interest of $43,823 was converted into 435,184 shares of common stock. 12 % - 391,361 During 2016, we entered into 3-month term loan agreements with an individual totaling $20,000. The loan was extended to August 14, 2020. In March 2020 the full outstanding principal balance of $20,000 and unpaid accrued interest of $10,096 was converted into 41,336 shares of common stock. 9 % - 20,000 During 2014 through 2018, we entered into convertible promissory note agreements with various terms ranging from 90 days to 18 months at 18% interest with an entity which were consolidated into one loan at 12% in 2018 totaling $795,137 with a due date of August 26, 2020. In March 2020 the full outstanding principal balance of $795,137 and unpaid accrued interest of $89,037 was converted into 884,174 shares of common stock. 12 % - 795,137 During 2015 and 2016, we entered into a series of 3-month term convertible promissory note agreements at 18% interest with an entity which were consolidated into one loan at 12% in 2018 totaling $692,471 with a due date of August 26, 2020. In March 2020 the full outstanding principal balance of $692,471 and unpaid accrued interest of $77,541 was converted into 770,012 shares of common stock. 12 % - 692,471 $ 100,000 $ 2,202,664 F- 16 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 4 –Debt, continued Interest expense on the convertible bridge loans payable was $117,785 and $310,865 for the year ended December 31, 2020 and 2019, respectively. Accrued interest was $117,785 and $439,344 as of December 31, 2020 and December 31, 2019. On April 24, 2017, a note holder filed a complaint against the Company for a promissory note in default. The note holder is requesting summary judgment in the amount of $271,215. Concurrently with the consummation of the Merger, notes payable of $2,102,664 and accrued interest were converted to shares of Splash common stock, which were exchanged for Splash Beverage Group, Inc. [Formerly known as Canfield Medical Supply, Inc.] shares. Pursuant to the terms of the conversion agreements, these investors have the right to rescind the common shares received and receive replacement notes payable if we fail to raise $9 million in a secondary initial public offering by September 30, 2020 (subsequently extended to April 30, 2021). As a result, these shares are classified as mezzanine equity in our consolidated balance sheet. See Note 18. Interest Rate 2020 2019 Revenue Financing Arrangements During August 2015, we entered into a 3-month term loan agreement with an entity in the amount of $50,000, with required daily payments of $999. we entered into two additional 3-month loan agreements with the entity in 2016 in the amounts of $60,000 and $57,000, with required daily payments of $928 and $713, respectively. The term loans have been paid. 10 % - 28,032 During November 2016, we entered into a short-term loan agreement with an entity in the amount of $55,000 with required daily payments of $1,299. The note was in default as of December 31, 2018. In 2019, we entered into a settlement agreement with monthly installment payments of $6,000. The loan was fully repaid in 2020. 12 % - 17,435 $ - $ 45,464 Interest expense on the revenue financing arrangements was $25,067 and $2,557 for the year ended December 31, 2020 and 2019, respectively. Accrued interest was $0 and $32,154 at December 31, 2020 and December 31, 2019. Bridge Loan Payable We issued a bridge loan in October 2018 for $2 million with a one-year maturity to GMA Bridge Fund LLC (“GMA”). This bridge loan contains a 10% administration fee of which the full $200,000 was accrued at December 31, 2019 and included in bridge loan payable, net. We incurred $271,670 of loan costs, which was fully amortized at December 31, 2019. Interest on the bridge loan was 0.5% monthly for the first six months and 0.75% monthly for the next six months. At the same time the debt was issued, we entered into a separate agreement in which GMA provided consulting services for one year (“Consulting Agreement”). We compensated GMA for the Consulting Agreement services by issuance of a warrant with a 5-year term to acquire 1,362,922 shares of our common stock at an exercise price of $0.01 per share. The warrant vested immediately. The value of the warrant, based on a Black-Scholes option pricing model, was $991,423 and was expensed in full in 2018. Interest expense on the bridge loan for the year ended December 31, 2020 and 2019 was $0 and $137,637 and accrued interest at December 31, 2020 and 2019 was $0 and $166,240. As part of GMA’s conversion agreement, we reissued the original warrants to purchase 1 million shares and granted additional warrants. To purchase 1 million shares. The value of the warrants based on a Black-Scholes option pricing model, was $1,657,805, and was expensed. Concurrently with the consummation of the Merger, the $2,500,000 note payable of was converted to shares of Splash common stock, which were exchanged for Splash Beverage Group, Inc. [Formerly known as Canfield Medical Supply, Inc.] shares. Pursuant to the terms of the conversion agreements, GMA has the right to rescind the common shares received and receive replacement notes payable if we fail to raise $9 million in a secondary initial public offering by September 30, 2020 (subsequently extended to April 30, 2021). As a result, these shares are classified as mezzanine equity in our consolidated balance sheet. See Note 18 F- 17 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 5 – Licensing Agreement and Royalty Payable We have a licensing agreement with ABG TapouT, LLC (“TapouT”), providing us with licensing rights to the brand “TapouT” on energy drinks, energy shots, water, teas and sports drinks for beverages sold in the United States of America, its territories, possessions, U.S. military bases and Mexico. Under the terms of the agreement, we are required to pay a 6% royalty on net sales, as defined. In 2020 and 2019, we are required to make monthly payments of $45,000 and $39,000, respectively. There were no unpaid royalties at December 31, 2020. We paid the guaranteed minimum royalty payments of $540,000 and $468,000 for the years ended December 31, 2020 and 2019, which is included in general and administrative expenses. In connection with the Copa APA, we acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”)On February 16, 2018, the Copa di Vino entered into three separate license agreements with 1/4 Vin SARL, (1/4 Vin). 1/4 Vin has the right to license certain patents and patent applications relating to inventions, systems, and methods used in the Company’s manufacturing process. In exchange for notes payable, 1/4 Vin granted the Company a nonexclusive, royalty-bearing, non-assignable, nontransferable, terminable license which would continue until the subject equipment is no longer in service or the patents expire. Amortization will be approximately $31,000 annually until the license agreement is fully amortized. The asset is being amortized over a 10 year useful life. Note 6 – Deficiency in Stockholders’ Equity Common Stock In 2019, we issued 1,846,078 shares of our common stock in exchange for services provided to us. The shares were valued at $0.73 per share. We recognized share-based compensation expense of $1,354,500, which is classified within the contracted services line on the Statement of Operations. In 2020, we issued 490,652 shares to an existing shareholder under a 3-year consulting agreement dated December 2019. The shareholder fulfilled his performance obligation in full and the board approved issuance of the shares. In 2020, we entered into multiple subscription and consulting agreements for $8,540,659 in exchange for 7,355,604 of our common stock. Private Placement Memorandum (PPM) Our Board of Directors has determined that it is in the best interests of the Corporation and its stockholders to obtain working capital by conducting a private placement offering of 2,727,272 shares of the common stock of the Company, $0.001 value per share at a purchase price of $1.10 per share for aggregate gross proceeds of $3,000,000. As part of the PPM, each purchaser will receive a warrant to purchase one share for every two shares purchased. We completed our PPM by issuing a total of 2,790,909 of shares with gross proceeds of $3,070,000. The shares listed in this section is already included in the 7.4 million shares listed within the Common Stock section of this note. Treasury Stock From time to time, we have repurchased shares from our shareholders. Since its inception, we have repurchased shares from our shareholders. To date, we have repurchased 1,226,630 shares, of which 817,753 have been retired. In connection with a 2018 consulting agreement, we were committed to issue the 408,877 shares held in treasury upon the occurrence of certain events or milestones. We issued 136,292 shares in July 2018, 136,292 shares in July 2019 and 136,292 shares on March 31, 2020. Warrant Issuance-Common Stock As part of the sale and issuance of 4,088,765 shares of our Series A Convertible Preferred Stock, we issued 4,088,765 warrants to purchase shares of our common stock at a price of $0.73 per share. The warrants had a five-year term and expired during 2019. As an incentive to convert their Series A preferred stock we issued 1,000,000 new warrants to purchase shares of SBG common stock at $0.18 per share. Concurrently with the consummation of the Merger, these warrants were exchanged for warrants to purchase 1,362,922 of Splash Beverage Group, Inc. [Formerly known as Canfield Medical Supply, Inc.] shares. These warrants have a 3-year term. Warrant Issuance-Common Stock As part of the sale and issuance of 5,333,675 shares of our Series B Convertible Preferred Stock, we issued 2,666,839 warrants to purchase shares our common stock at a price of $1.10 per share. The warrants have a 5-year term. At December 31, 2020, there are 912,052 warrants outstanding. As part of the sale of 300,000 shares of common stock, we issued 975,000 warrants to purchase shares of our common stock at a price of $0.25 per share. These warrants have a 3-year term. During the third quarter of 2020, the holder exercised these warrants and received 975,000 shares of the Company’s common stock. F- 18 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 7 – Share-Based Payments Warrant Issuance-GMA Consulting Services We issued 1,362,922 warrants to purchase shares of our common stock at $0.007 per share as part of our consulting agreement with GMA, at December 31, 2020, the weighted average life of the outstanding warrants is 2.75 years. The warrants entitle the holder to purchase one share per warrant of our common stock at a price of $0.01 per share during the five-year period commencing on October 2, 2018, or, if greater, the number of common shares with a market value equivalent to two percent of the enterprise value of the Company at an exercise price of $0.008 per share. As an incentive for GMA to convert their debt and accrued interest into shares of common stock, we retired the original 1,362,922 warrants and issued 2,725,844 pre-merger new warrants to purchase shares of our common stock at $0.18 per share. These warrants have a 3-year term starting March 31, 2020. Stock Plan We have adopted the 2012 Stock Incentive Plan for SBG (the “Plan”), which provides for the grant of common stock and stock options to employees. We have reserved 4,088,765 shares for issuance under the Plan. The option exercise price generally may not be less than the underlying stock’s fair market value at the date of the grant and generally have a term of ten years. On December 7, 2019, our Board of Directors granted 1,124,410 options to certain employees and consultants. None of these options were exercised at December 31, 2020. As of December 31, 2020, the total number of options available for grant is 306,657 under this plan. We measure employee stock-based awards at the grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of our common stock, and for stock options, the expected life of the option, and expected stock price volatility and exercise price. We used the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock- based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The expected life of stock options was estimated using the “simplified method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, we have limited historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, we use comparable public companies as a basis for its expected volatility to calculate the fair value of options granted. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised. We recognized stock-based compensation expense of $265,589 for the year ended December 31, 2019. There was no unrecognized compensation cost related to stock option awards for the year ended December 31, 2020. Concurrently with the consummation of the Merger, options to purchase 825,000 SBG shares were converted to options to purchase 1,124,410 Splash Beverage Group, Inc. [Formerly known as Canfield Medical Supply, Inc.] shares. Weighted Average Options Exercise Price Outstanding - Beginning of 2019 - $ - Granted 1,124,410 $ 0.77 Exercised - $ - Cancelled/forfeited - $ - Outstanding - December 31, 2019 1,124,410 $ 0.77 Granted 2,634,500 $ 0.75 Exercised - $ - Cancelled/forfeited - $ - Outstanding - December 31, 2020 3,758,910 $ 0.76 Exercisable at December 31, 2020 3,758,910 $ 0.76 Weighted average grant date fair value of options during year 2,634,500 Weighted average duration to expiration of outstanding options at December 31, 2020 4.6 In August 2020, we adopted a new incentive plan. The 2020 Long-Term Incentive Compensation Plan (the “Plan”) is established by Splash Beverage Group, Inc., a Colorado corporation (the “Company”), to create incentives which are designed to motivate Participants to put forth maximum effort toward the success and growth of the Company and to enable the Company to attract and retain experienced individuals who by their position, ability and diligence are able to make important contributions to the Company’s success. Toward these objectives, the Plan provides for the grant of Options, Restricted Stock Awards, Stock Appreciation Rights (“SARs”), Performance Units and Performance Bonuses to Eligible Employees and the grant of Nonqualified Stock Options, Restricted Stock Awards, SARs and Performance Units to Consultants and Eligible Directors, subject to the conditions set forth in the Plan. At December 31, 2020, the board approved the granting of 2,634,500 warrants were issued under this new plan. These warrants expire in 5 years. F- 19 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 8 – Related Parties During the normal course of business, we incurred expenses related to services provided by our CEO or Company expenses paid by our CEO, resulting in related party payables, net of $368,904 and $429,432 as of December 31, 2020 and 2019. The related party payable to the CEO bears no interest payable and is due on demand. There are related party notes payable of $2,000,000 outstanding as of December 31, 2020 as discussed in Note 4. Note 9 – Investment in Salt Tequila USA, LLC On December 9, 2013, we entered into a marketing and distribution agreement with SALT Tequila USA, LLC (“SALT”) in Mexico for the manufacturing of our SALT product line. The agreement was for a one-year term with an additional two-year renewal. On December 28, 2015, the agreement was extended through 2020. In the December 9, 2013 agreement, we received a 5% ownership interest in SALT, 12 months after the date of the agreement we received an additional 5% ownership interest in SALT, and 24 months after the date of the agreement we received an additional 5% interest, resulting in a total interest of 15% in SALT. SALT also has product at a unrelated international alcohol distributor, American Spirits Exchange, for preliminary market testing in 9 of 16 states that they distribute to, that are government-controlled alcohol resellers. In 2019 we had no sales for SALT Tequila. On December 31, 2018, we created a Mexican subsidiary, Splash MEX SA DE CV (“Splash Mex”) for the exporting of SALT Tequila from Mexico to the USA, South and Central Americas. Splash Mex will also act as the manufacturing and distribution agent of TapouT in Central and South Americas. Applications for the appropriate licenses required for import and wholesale of alcohol in the USA have been completed for at the Federal and State levels. These licenses will permit direct alcohol sales to distributors and wholesalers thereby limiting the use of agents for importing SALT Tequila to the USA for distribution. On March 26, 2020, we entered into an amended stock sale and purchase agreement. The agreement is for $1,000,000 to be paid in 4 tranches of $250,000 and entitles us to additional equity interest in Salt Tequila USA, LLC as follows: ● Tranche 1 – 7.5% ● Tranche 2 – 5.0% ● Tranche 3 – 5.0% ● Tranche 4 – 5.0% Once all tranches are paid-out we will have a total equity stake of 37.5% of Salt Tequila USA, LLC. During 2020, we paid the first tranche of $250,000 resulting in a total interest of 22.5%. F- 20 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 10 – Operating Lease Obligations Effective July 2018, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced July 1, 2018 and is scheduled to expire after 36 months, on June 30, 2021. Effective November 2019, we entered into a 6-month lease agreement for our NY affiliate which expired on April 30, 2020. Effective November 2019, we entered into a new lease with Interport Logistics, LLC. The lease term commenced on November 11, 2019 and is scheduled to expire on November 11, 2020. We are in the process of negotiating a new lease with Interport Logistics, LLC. Effective May 2019, we entered into a new lease in Mexico. The lease commenced May 1, 2019 and is scheduled to expire after 24 months, on April 1, 2021. We are in the process of negotiating a new lease for our Mexican warehouse. The following table presents the discounted present value of minimum lease payments for our office and warehouses to the amounts reported as financial lease liabilities on the consolidated balance sheet at December 31, 2020: Undiscounted Future Minimum Lease Payments Operating Lease 2021 $ 59,291 Thereafter 26,673 Total 85,964 Amount representing imputed interest (2,965 ) Total operating lease liability 82,999 Current portion of operating lease liability 57,478 Operating lease liability, non-current $ 25,521 The table below presents information for lease costs related to our operating leases at December 31, 2020: Operating lease cost: Amortization of leased assets $ 114,032 Interest of lease liabilities 10,776 Total operating lease cost $ 124,808 The table below presents lease-related terms and discount rates at December 31, 2020: Remaining term on leases 9 to 25 months Incremented borrowing rate 5.0 % Note 11 – Line of Credit At December 31, 2020 SBG owed $68,000 to a financial institution under a revolving line of credit. The line of credit is secured by the assets of SBG is due on demand, and bears interest at variable rates approximately 6.1% at December 31, 2020. As part of the acquisition of Copa di Vino the LOC was paid off. Note 12 – PPP Loan On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond the point of origin. On March 20, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. In response to the COVID-19 outbreak in the United States, the CARES Act (the “Act”) was passed by Congress and signed into law on March 27, 2020. In connection with the CARES Act, the Company and its subsidiary applied for and received loans with an original aggregate principal balance of approximately $158,000. These loans and interest will be forgiven as long as the funds are used for qualifying expenditures as outlined in the Act. The loans bear interest at 1%, with an 18 month term, and has a 6-month initial payment deferral. See Note 4. F- 21 Splash Beverage Group, Inc. [f/k/a Canfield Medical Supply, Inc.] Notes to the Consolidated Financial Statements Note 13 – Business Combinations CMS-SGB Merger: As stated in Note 1, we consummated the merger of SBG on March 31, 2020 which was accounted for as a reverse merger. The value of our merger was approximately $9.2 million based on the valuation of the SBG equity on the date of consummation. The following summarizes our allocation of the purchase price for the acquisition: Cash and cash equivalents $ 72,442 Accounts receivable $ 311,586 Inventory $ 21,415 Property and equipment $ 38,110 Goodwill $ 9,448,832 Accounts payable, accrued expenses and other liabilities $ 719,221 Purchase price $ 9,173,164 During 2020, the goodwill associated with the CMS merger was impaired. See Note 17. SBG-Copa Acquisition: As stated in Note 1, we consummated the acquisition of Copa di Vino Company on December 24, 2020. The purchase price consideration was comprised of $1.5 million in debt, $0.5 million in cash and $2.0 million in contingent shares, for total consideration of approximately $6.0 million. The following summarizes our allocation of the purchase price for the acquisition: Purchase Accounting Accounts receivable, net 88,131 Other current assets 11,236 Inventory 273,951 Property and equipment, net 663,273 License agreement, net 222,095 Goodwill 5,672,823 Total identifiable assets 6,931,509 Accounts payable and accrued expenses 882,279 Note payable 69,212 Equity 5,980,000 Total liabilities and equity 6,931,509 Note 14 – Segment Reporting The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Executive Officer and Chief Financial Officer. Note: The Copa di Vino business is included in our Splash Beverage Group segment. Revenue 2020 2019 Splash Beverage Group 404,128 20,387 E-Commerce 1,896,599 - Medical Devices (Discontinued) 675,213 - Total Revenues 2,975,940 20,387 Total assets 2020 2019 Splash Beverage Group 8,403,670 446,288 B2C Business 505,646 159,026 Medical Devices (Discontinued) 316,572 - Total Assets 9,225,888 605,314 Note 15 – Commitment and Contingencies We are a party to asserted claims and are subject to regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but we do not anticipate that the outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations. Capital Raise In connection with the CMS merger we are committed to our previous preferred stock and debt holders to raise $9 million in a secondary IPO, private placement and debt as defined in the agreements. See Note 18. Stock Price Guarantee We have a commitment to issue additional shares associated with specific stock price guarantee granted to an investor. See Note 4. F- 22 Note 16 – Income Taxes The Company has evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax planning strategies to determine which deferred tax assets are more likely than not to be realized in the future. Due to uncertainty to the Company’s ability to utilize its deferred tax assets, the Company has recorded a full valuation allowance against its deferred tax assets. At December 31, 2020, the Company’s net operating loss carryforward for Federal income tax purposes was $49,495,907, which will be available to offset future taxable income. If not used, these carry forwards will begin to expire in 2032, except for the net operating losses generated January 1, 2018 and after, which can be carried forward indefinitely. There was no income tax expense or benefit for the years ended December 31, 2020 and 2019 due to the full valuation allowance recorded. The reconciliation of the income tax benefit is computed at the U.S. federal statutory rate as follows: 2020 2019 Federal Statutory Tax Rate 21.00 % 21.00 % Permanent Differences (4.63 %) (6.56 %) Change in Valuation Allowance (16.37 %) (14.44 %) Net deferred tax asset - - The tax effects of temporary differences which give rise to the significant portions of deferred tax assets or liabilities at December 31 are as follows: 2020 2019 Deferred Tax Assets: Net Operating Losses $ 12,544,738 $ 5,887,022 Deferred Rent 380 1,381 Accrued Interest/Interest Expense Limitation 1,031,967 962,838 Total deferred tax assets 13,577,085 6,851,241 Deferred Tax Liabilities: Depreciation (179,561 ) (7,354 ) Total deferred tax liabilities (179,561 ) (7,354 ) Less: Valuation allowance (13,397,525 ) (6,843,887 ) Total Net Deferred Tax Assets $ - $ - The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The open tax years subject to examination with respect to the Company's operations are 2015 through 2020. Note 17 – Goodwill In accordance with ASC 350, Intangibles—Goodwill and Other, we test goodwill for impairment for each reporting unit on an annual basis, or when events or circumstances indicate the fair value of a reporting unit is below its carrying value. Our goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in business combinations. The goodwill generated from the business combinations is primarily related to the value placed on the employee workforce and expected synergies. Judgment is involved in determining if an indicator or change in circumstances relating to impairment has occurred. Such changes may include, among others, a significant decline in expected future cash flows, a significant adverse change in the business climate, and unforeseen competition. We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit. Factors we consider in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of its reporting units, sustained decrease in its share price, and other relevant entity specific events. If the management determines on the basis of qualitative factors that the fair value of the reporting unit is more likely than not less than the carrying value, then we perform a quantitative test for that reporting unit. The fair value of each reporting unit is compared to the reporting unit’s carrying value, including goodwill. Subsequent to the adoption on January 1, 2017 of Accounting Standards Update (“ASU”) No. 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment, if the fair value of a reporting unit is less than its carrying value, we recognize an impairment equal to the excess carrying value, not to exceed the total amount of goodwill allocated to that reporting unit. At December 31, 2020, our management determined that an impairment charge of approximately $9.5 million, was necessary to reduce the goodwill relating to our Medical Device Segment The impairment charge was primarily related to the net cash flow projection of that business unit. Note 18 – Subsequent Events During the first quarter of 2021 we initiated a private sale of securities pursuant to a Private Placement Memorandum (“PPM”) to raise $4,000,000 in exchange of the for the issuance of shares of our common stock at a price of $1.10 per share. Pursuant to the PPM, participants also received warrants to purchase additional shares (one warrant for each two shares purchased) at a strike price of $1.10 per share. As of the date of this filing, we issued 3,637,064 shares, and received proceeds of $4.0 million. As of February 22, 2021, we have raised more $9 million, which resulted in the cancellation of the rescission rights held by certain investors as part of the terms of their conversion agreements. In June 2020, we entered into a six-month loan with an individual in the amount of $100,000. During the first quarter of 2021, we paid back the entire note plus accrued interest in the amount of $108,000. F- 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.