Endovia Health Sciences, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Financial Statements Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets December 31, 2021 and December 31, 2020 F-3 Consolidated Statements of Operations For the Years Ended December 31, 2021 and December 31 2020 F-4 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) For the years ended December 31, 2021 and 2020 F-5 Consolidated Statements of Cash Flows For the Year Ended December 30, 2021 and 2020 F-6 Notes to the Consolidated Financial Statements F-7 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders Splash Beverage Group, Inc. Fort Lauderdale, Florida Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Splash Beverage Group, Inc. at December 31, 2021 and 2020, and the related consolidated statements operations, stockholders’ equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate. Valuation of Intangible Assets in the Copa di Vino Company Acquisition As described in Notes 1 and 16 to the financial statements, during 2021 the Company completed the purchase price allocation for the December 24, 2020 acquisition of Copa di Vino Company (“CdV”) for consideration of approximately $6 million and the transaction was accounted for as a business combination. The acquired intangible assets included Brand and Customer Relationships valued at approximately $4.5 million and $1.0 million, respectively. The Company recorded the acquired intangible assets at the acquisition date fair value using a Relief from Royalty discounted cash flow methodology to fair value Brand and a Multiple Period Excess Earnings approach to fair value Customer Relationships. The methods used to estimate the fair value of acquired intangible assets involve significant assumptions. The significant assumptions applied by management in estimating the fair value of acquired intangible assets included income projections and discount rates. The principal considerations for our determination that performing procedures relating to the valuation of intangible assets in the CdV acquisition is a critical audit matter are (1) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value of intangible assets acquired due to the significant judgment by management when developing the estimates and (2) significant audit effort was required in evaluating the significant assumptions relating to the estimates, including the income projections and discount rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls over the valuation of intangible assets including controls over the development of the assumptions used in the valuation of the intangible assets. These procedures also included, among others, reading the purchase agreement, and testing management’s process for estimating the fair value of intangible assets. Testing management’s process included evaluating the appropriateness of the valuation models, testing the completeness, accuracy, and relevance of underlying data used in the models, and testing the reasonableness of significant assumptions, including the income projections and discount rates. Evaluating the reasonableness of the income projections involved considering the current performance of the acquired business, the consistency with external market and industry data, and whether these assumptions were consistent with other evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of significant assumptions, including the discount rates, by comparing them against discount rate ranges that were independently developed using publicly available market data for comparable companies. /s/ Daszkal Bolton LLP Daszkal Bolton LLP We have served as the Company’s auditor since 2020 Fort Lauderdale, Florida March 31, 2022 229 F- 2 Splash Beverage Group, Inc. Consolidated Balance Sheets December 31, 2021 and December 31, 2020 December 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 4,181,383 $ 380,000 Accounts Receivable, net 1,114,452 484,858 Prepaid Expenses 607,178 173,414 Inventory 1,923,479 798,273 Other receivables 41,939 90,919 Assets from discontinued operations 473,461 316,572 Total current assets 8,341,892 2,244,036 Non-current assets: Deposit $ 330,886 $ 77,686 Goodwill and Intangibles 5,672,823 5,672,823 Investment in Salt Tequila USA, LLC 250,000 250,000 Right of use asset, net 1,031,472 80,479 Quart Vin License 188,512 219,512 Property and equipment, net 569,785 681,352 Total non-current assets 8,043,478 6,981,852 Total assets $ 16,385,370 $ 9,225,888 Liabilities and Stockholders’ Equity (Deficit) Liabilities: Current liabilities Accounts payable and accrued expenses $ 1,913,459 $ 1,521,818 Right of use liability - current 294,067 57,478 Due to related parties — 368,904 Related party notes payable 653,081 1,333,333 Convertible Loan Payable — 100,000 Notes payable, current portion 2,967,812 999,736 Shareholder advances 390,500 — Accrued interest payable 171,452 442,748 Liabilities from discontinued operations 389,086 591,642 Total current liabilities 6,779,457 5,415,659 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 732,686 25,521 Total long-term liabilities 732,686 3,912,232 Total liabilities 7,512,143 9,327,891 Common stock, (mezzanine shares) 12,605,283 shares, contingently convertible to notes payable at December 31, 2020 — 9,248,720 Stockholders’ equity (deficit): Common Stock, $ 0.001 par, 150,000,000 shares authorized, 33,596,234 and 21,157,043 shares issued 33,596,234 and 21,157,043 outstanding, at September 30, 2021 and December 31, 2020, respectively 33,596 21,157 Additional paid in capital 99,480,188 52,217,855 Accumulated deficit ( 90,640,557 ) ( 61,589,735 ) Total deficiency in stockholders’ equity 8,873,227 ( 9,350,723 ) Total liabilities, mezzanine shares and deficiency in stockholders’ equity $ 16,385,370 $ 9,225,888 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Splash Beverage Group, Inc. Consolidated Statements of Operations For the Years Ended December 31, 2021 and December 31 2020 2021 2020 Net revenues $ 11,316,002 $ 2,300,126 Cost of goods sold ( 8,734,413 ) ( 1,936,533 ) Gross margin 2,581,589 363,593 Operating expenses: Contracted services 1,584,830 5,606,335 Salary and wages 3,807,492 1,613,862 Salary and wages - non-cash share-based compensation 5,572,680 6,311,747 Other general and administrative 7,088,874 2,063,985 Other general and administrative - non-cash share-based compensation 12,822,808 2,282,851 Sales and marketing 787,827 146,579 Total operating expenses 31,664,511 18,025,359 Loss from continuing operations ( 29,082,922 ) ( 17,661,766 ) Other income/(expense): Other Income 3,632 17,786 Interest income 643 8 Interest expense ( 442,807 ) ( 1,980,871 ) Gain from debt extinguishment 176,082 36,610 Total other expense ( 262,450 ) ( 1,926,467 ) Provision for income taxes — — Net loss from continuing operations, net of tax ( 29,345,372 ) ( 19,588,233 ) Net income(loss) from discontinued operations, net of tax 294,550 ( 9,086,323 ) Net loss $ ( 29,050,822 ) $ ( 28,674,556 ) Loss per share - continuing operations Basic ( 1.02 ) ( 1.06 ) Diluted ( 1.02 ) ( 1.06 ) Weighted average number of common shares outstanding - continuing operations Basic 28,900,292 18,538,425 Diluted 28,900,292 18,538,425 Income(loss) per share - discontinued operations Basic 0.01 ( 0.49 ) Diluted 0.01 ( 0.49 ) Weighted average number of common shares outstanding - discontinued operations Basic 28,900,292 18,538,425 Diluted 31,922,743 18,538,425 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Splash Beverage Group, Inc. Consolidated Statements of Changes in Stockholders’ Equity (Deficit) For the years ended December 31, 2021 and 2020 2021 2020 Total stockholders’ equity (deficit), beginning balances ( 9,350,723 ) ( 9,756,083 ) Common stock and additional paid-in capital Beginning balances 52,239,012 22,139,424 Issuance of common stock for convertible debt — 145,579 Incremental beneficial conversion for preferred A — 240,770 Issuance of warrants on convertible instruments — 11,999,415 Issuance of warrants for services 7,267,421 ( 60 ) Issuance of common stock for services 11,128,066 5,294,129 Issuance of common stock for cash 19,630,565 3,250,562 Reclassification of Mezannine shares 9,248,720 9,169,193 — — Ending balances 99,513,784 52,239,012 Treasury stock Beginning balances — ( 50,000 ) Issuance of common stock for services — 50,000 Ending balances — — Accumulated deficit Beginning balances ( 61,589,735 ) ( 31,845,506 ) Incremental beneficial conversion for preferred A — ( 240,770 ) Issuance of warrants on convertible instruments — ( 828,903 ) Net loss ( 29,050,822 ) ( 28,674,556 ) Ending balances ( 90,640,557 ) ( 61,589,735 ) Net loss — — Total stockholders’ equity (deficit), ending balances 8,873,227 ( 9,350,723 ) The accompanying notes are an integral part of these consolidated financial statements F- 5 Splash Beverage Group, Inc. Consolidated Statements Cash Flows For the Year Ended December 30, 2021 and 2020 2021 2020 Net loss $ ( 29,050,822 ) $ ( 28,674,556 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 111,567 113,299 ROU asset, net 73,502 81,529 Gain from debt extinguishment 176,082 36,610 Non-cash warrant expense 7,267,431 ( 1,790,438 ) Share-based compensation 11,128,066 2,329,280 Liability to issue shares in APA ( 1,980,000 ) 1,980,000 Non-cash acquisition costs — 3,578,212 Other noncash changes ( 124,330 ) 1,939,440 Changes in working capital items: Accounts receivable, net ( 629,594 ) ( 385,297 ) Inventory, net ( 1,125,206 ) ( 220,310 ) Prepaid expenses and other current assets ( 384,784 ) ( 251,752 ) Deposits ( 253,200 ) ( 31,535 ) Accounts payable and accrued expenses 446,146 ( 64,364 ) Royalty payable — ( 39,000 ) Accrued Interest payable ( 271,296 ) 82,326 Net cash used in operating activities - continuing operations ( 14,616,448 ) ( 21,316,556 ) Net cash used in operating activities - discontinued operations ( 515,952 ) ( 60,815 ) Cash Flows from Investing Activities: Capital Expenditures — ( 91,066 ) Investment in Salt Tequila USA, LLC — ( 250,000 ) Cash used for Copa acquisition — ( 500,000 ) Net cash acquired in Canfield merger — 72,442 Net cash used in investing activities - continuing operations — ( 768,624 ) Net cash used in investing activities - discontinued operations ( 11,628 ) Cash Flows from Financing Activities: Proceeds from issuance of Common stock 19,630,565 20,182,503 Cash advance from shareholder 390,500 — Repayment of cash advance ( 261,245 ) ( 46,250 ) Proceeds from issuance of debt 928,000 2,439,472 Principal repayment of debt ( 1,673,296 ) — ROU liability, net ( 80,741 ) ( 80,741 ) Net cash provided by financing activities - continuing operations 18,933,783 22,494,984 Net cash provided by financing activities - discontinued operations — — Net Change in Cash and Cash Equivalents 3,801,383 337,361 Cash and Cash Equivalents, beginning of year 380,000 42,639 Cash and Cash Equivalents, end of year $ 4,181,383 $ 380,000 Supplemental Disclosure of Cash Flow Information: Cash paid for Interest $ 173,363 $ — 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. Notes to the Consolidated Financial Statements Note 1 – Business Organization and Nature of Operations Splash Beverage Group (“SBG” or “Splash”), formally Canfield Medical Supply, Inc. (“CMS”) was incorporated in the State of Ohio on September 3, 1992, and changed domicile to Colorado on April 18, 2012. CMS was in the business of home health services, primarily the selling of durable medical equipment and medical supplies to the public, nursing homes, hospitals and other end users. On December 31, 2019, CMS entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly owned by CMS, and Splash Beverage Group, Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of CMS. The Merger was consummated on March 31, 2020. As the owners and management of Splash have voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (that is with Splash as the acquiring entity), followed by a recapitalization. As part of the recapitalization, previously issued shares of SBG preferred stock have been reflected as shares of common stock that were received in the Merger. These common shares have been retrospectively presented as outstanding for all periods. Splash specializes in the manufacturing, distribution, and sales & marketing of various beverages across multiple channels. Splash operates in both the non-alcoholic and alcoholic beverage segments. Additionally, Splash operates its own vertically integrated B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilities and visibility. In July 2020 the Company filed a Certificate of Amendment of Articles of Incorporation of CMS with the Secretary of State of the State of Colorado, pursuant to which the Company changed its name from CMS. to Splash Beverage Group, Inc. On July 31, 2020, we received approval from FINRA to change the Company’s name from CMS to Splash Beverage Group, Inc. Our new ticker symbol is SBEV. On December 24, 2020, SBG consummated an Asset Purchase Agreement (the “Copa APA”) with Copa di Vino Corporation (“CdV”), to purchase certain assets and assume certain liabilities that comprise the Copa di Vino business for a total purchase price of $ 5,980,000 , payable in the combination of $ 2,000,000 in cash (“Cash Consideration”), $ 2,000,000 convertible promissory note (the “Convertible Note”) to Seller and a variable number of shares of the Company’s common stock based on a attainment of revenue hurdles. CdV is one of the leading producers of premium wine by the glass in the United States with its primary offices and facilities in The Dalles, Oregon. On February 2021, Management initiated a plan to divest its CMS business. As a result, the assets and operations of CMS have been retrospectively reflected as discontinued operations. On November 12, 2021 the Company changed its state of Domicile from Colorado to Nevada. In coordination with uplisting to the NYSE on June 11, 2021 the Company consummated a 1.0 for 3.0 reverse stock split. All common stock shares stated herein have been adjusted to reflect the split. F- 7 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies Basis of Presentation and Consolidation These consolidated financial statements include the accounts of Splash and its wholly owned subsidiaries, Holdings and Splash Mex, CMS (as discontinued operations), and CdV. All intercompany balances have been eliminated in consolidation. Our investment in Salt Tequila USA, LLC is accounted for at cost, as the company does not have the ability to exercise significant influence. Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Certain reclassifications have been made to the prior period financial statements to conform to the current period classifications. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents and Concentration of Cash Balance We consider all highly liquid securities with an original maturity of three months or less to be cash equivalents. We had no cash equivalents at December 31, 2021 or December 31, 2020. Our cash in bank deposit accounts, at times, may exceed federally insured limits of $ 250,000 . At December 31, 2021 we had $ 3,643,474 over the federally insured limits. Our cash in uninsured foreign bank accounts was $ 10,749 at December 31, 2021. Note 2 – Summary of Significant Accounting Policies, continued Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are carried at their estimated collectible amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. We establish provisions for losses on accounts receivable on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions. At December 31, 2021 and December 31, 2020, our accounts receivable amounts are reflected net of allowances of $ 45,203 and $ 0 , respectively. F- 8 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Inventory Inventory is stated at the lower of cost or net realizable value, accounted for using the weighted average cost method. The inventory balances at December 31, 2021 and December 31, 2020 consisted of raw materials, work-in-process, and finished goods held for distribution. The cost elements of inventory consist of purchase of products, transportation, and warehousing. We establish provisions for excess or inventory near expiration are based on management’s estimates of forecast turnover of inventories on hand and under contract. A significant change in the timing or level of demand for certain products as compared to forecast amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on inventory. We manage inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The amount of our reserve was $ 223,223 and $ 366,109 at December 31, 2021 and December 31, 2020, respectively. Property and Equipment We record property and equipment at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic useful lives of assets, which range from 3 - 39 years. Company management reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. Depreciation expense totaled $ 156,766 and $ 55,616 for the years ended December 31, 2021 and 2020 respectively. Property and equipment consisted of the following: Schedule of Property and equipment 2021 2020 Machinery & equipment 1,108,870 1,108,870 Buildings 279,543 234,343 Leasehold improvements 662,538 662,538 Office furniture & equipment 70,960 70,960 Total cost 2,121,911 2,076,711 Accumulated depreciation ( 1,552,125 ) ( 1,395,359 ) Property, plant & equipment, net 569,786 681,352 Excise taxes The Company pays alcohol excise taxes based on product sales to both the Oregon Liquor Control Commission and to the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (TTB). The company also pays taxes to the State of Florida – Division of Alcoholic Beverages and Tobacco. The Company is liable for the taxes upon the removal of product from the Company’s warehouse on a per gallon basis. The federal tax rate is affected by a small winery tax credit provision which decreases based upon the number of gallons of wine production in a year rather than the quantity sold. Paycheck Protection Program The Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with Accounting Standards Codification (“ASC”) 470, Debt. Debt is extinguished when either the debtor pays the creditor or the debtor is legally released from being the primary obligor, either judicially or by the creditor. See note 11. F- 9 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Fair Value of Financial Instruments Financial Accounting Standards (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: 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 30, 2021 and December 31, 2020, consistent with recent negotiations of notes payable and due to the short duration of maturities. Revenue Recognition We recognize revenue under ASC 606, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects what we expect to receive in exchange for the transfer of goods or services to customers. We recognize revenue when our performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control of our products is transferred upon delivery to the customer. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring goods and is presented net of provisions for customer returns and allowances. The amount of consideration we receive and revenue we recognize varies with changes in customer incentives we offer to our customers and their customers. Sales taxes and other similar taxes are excluded from revenue. Distribution expenses to transport our products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses. F- 10 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Cost of Goods Sold Cost of goods sold include the costs of products, packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or impaired inventory. Stock-Based Compensation We account for stock-based compensation in accordance with ASC 718, ” Compensation - Stock Compensation” . Under the fair value recognition provisions, cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. We use the Black-Scholes option pricing model to determine the fair value of stock options. We early adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns accounting treatment for such awards to non-employees with the existing guidance on employee share-based compensation in ASC 718. We measure stock-based awards at the grant-date fair value for employees, directors and consultants and recognizes compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of our common stock, and for stock options and warrants, the expected life of the option and warrant, and expected stock price volatility and exercise price. We used the Black-Scholes option pricing model to value its stock-based awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The expected life of stock options/warrants were estimated using the “simplified method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, we have limited historical information to develop reasonable expectations about future exercise patterns. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, we use comparable public companies as a basis for its expected volatility to calculate the fair value of award. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the award. The estimation of the number of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised. Income Taxes We use the liability method of accounting for income taxes as set forth in ASC 740, ” Income Taxes” . Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. We record a valuation allowance when it is not more likely than not that the deferred tax assets will be realized. Company management assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50 % likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. Company management has determined that there are no material uncertain tax positions at December 31, 2021 and December 31, 2020. See not 15. F- 11 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Net income (loss) per share The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included in the computation if the effect would be anti-dilutive. Weighted average number of shares outstanding excludes anti-dilutive common stock equivalents, including warrants to purchase 3 million shares of common stock for nominal consideration. The weighted average number of common shares calculation excludes 11,163,834 warrants which have been granted by our Board but have not been exercised. Advertising We conduct advertising for the promotion of our products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. We recorded advertising expense of $ 728,045 and $ 146,579 for the years ended December 30, 2021 and 2020, respectively. Goodwill and other intangibles Goodwill represents the excess of acquisition cost over the fair value of the net assets acquired and is not subject to amortization. The Company reviews goodwill annually in the fourth quarter for impairment or when circumstances indicate carrying value may exceed the fair value. This evaluation is performed at the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less than carrying value, a quantitative analysis is completed using either the income or market approach, or a combination of both. The income approach estimates fair value based on expected discounted future cash flows, while the market approach uses comparable public companies and transactions to develop metrics to be applied to historical and expected future operating results. At December 31, 2020, our management determined that an impairment charge of approximately $9.2 million, was necessary to reduce the goodwill relating to our Medical Device Segment. In 2021, the Company allocated the purchase price of its acquisition of Copa di Vino, pursuant to a revaluation and goodwill was allocated as follows: Schedule of Intangible assets and goodwill 2021 2020 Customer list 957,000 — Brands 4,459,000 — Goodwill 256,823 5,672,823 Total 5,672,823 5,672,823 F- 12 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Long-lived assets The Company evaluates long-lived assets for impairment on an annual basis, when relocating or closing a facility, or when events or changes in circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques. Recent Accounting Pronouncements Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances. Note 3 – Liquidity, Capital Resources and Going Concern Considerations At December 31, 2020, the company had a working capital deficit of approximately $ 3.2 million. During 2021, the Company received approximately $ 20.0 million and $0.9 million from the proceeds from the issuance common stock and debt. These events served to mitigate the conditions that previously raised substantial doubt about the Company’s ability to continue as a going concern. In February 2022, the Company received approximately $ 9.0 million as part of a sale of stock registered pursuant to a registration statement on Form S-3 See Note 17. F- 13 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable Notes payable are generally nonrecourse and secured by all Company owned assets. Schedule of debt Interest Rate December 31, 2021 December 31, 2020 Notes Payable 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 as unexercised. The note was paid off in Q2 2021. 15 % — 150,000 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 as unexercised. The loan matured and remains in default. 8 % 200,000 200,000 In May 2020, we entered into a two year loan with the SBA under the Paycheck Protection Program established by the CARES Act in the amount of $ 94,833 . The note requires monthly payments of principal and interest starting in December 2020 and maturing in May 2021. We received 100% forgiveness in Q2 2021. See note 13. 1 % — 89,612 In June 2020, we entered into a six-month loan with an individual in the amount of $ 100,000 . The loan matured in December 2020 with principal and interest due at maturity. The loan and unpaid interest was settled in 2021 for $ 217,500 . 12 % — 100,000 In August 2020, we entered into a nine-month loan with a company in the amount of $ 112,000 . The loan required 9 amortized payments of principal and interest in the amount of $ 12,246 with the final payment due September 2020. This note was paid off in 2021 4.8 % — 62,719 In September 2021, we entered into a twelve-month loan with a company in the amount of $ 208,000 . The loan requires 12 amortized payments with the final payment due August 2022. 4.8 % 116,478 — Notes payable for license agreements due in 36 monthly payments of $ 10,000 , interest imputed at 10%, and matured in January 2021. 10.0 % — 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 payments of 3.75% of the previous months revenue. Note is due September 2025, 17 % 1,423,334 1,578,237 In April 2021, we entered into a six-month loan with a individual in the amount of $ 84,000 . The loan matures in October 2021 with principal and interest due at maturity. The loan was extended to April 2022. 7 % 84,000 — In April 2021, we entered into a six-month loan with a individual in the amount of $ 84,000 . The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to April 2022. 7 % 84,000 — In May 2021, we entered into a six-month loan with a individual in the amount of $ 50,000 . The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to April 2022. 7 % 50,000 — In May 2021, we entered into a six-month loan with a individual in the amount of $ 5000,000 . The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to April 2022. 7 % 500,000 — In May 2021, we entered into a six-month loan with a individual in the amount of $ 10,000 . The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to April 2022. 7 % 10,000 — In May 2021, we entered into a six-month loan with a individual in the amount of $ 200,000 . The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to April 2022. 7 % 200,000 — In November 2021, we entered into a one-year loan with a individual in the amount of $ 300,000 . The loan had an original maturity of November 2021 with principal and interest due at maturity. The loan was extended to April 2022. 7 % 300,000 — Total notes payable $ 2,967,812 $ 2,239,780 Less current portion ( 2,967,812 ) ( 999,736 ) Long-term notes payable $ - $ 1,240,044 Interest expense on notes payable was $ 376,572 and $ 50,592 for the years ended December 31, 2021 and 2020, respectively. Accrued interest was $ 171,452 and $ 271,533 at 31, 2021 and December 31, 2020, respectively. F- 14 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued Schedule of Notes payable Interest Rate December 31, 2021 December 31, 2020 Related Parties Notes Payable In December 2020, we entered into an 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 $ 114,444 with the final payment due June 2022. 2.0 % 653,081 2,000,000 Less current portion ( 653,081 ) ( 1,333,333 ) Long-term notes payable $ — $ 666,667 Interest expense on related party notes payable was $ 26,409 and $ 37,967 for the years ended December 31, 2021 and 2020, respectively. Accrued interest was $ 0 at both December 31, 2021 and December 31, 2020. F- 15 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued Schedule of Notes payable Interest Rate December 31, 2021 December 31, 2020 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. The loan was settled in 2021. See left $ — $ 100,000 F- 16 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 4 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued Interest expense on the convertible bridge loans payable was $ 26,667 and $ 117,785 for the year ended December 31, 2021 and 2020, respectively. Accrued interest was $ 0 and $ 117,785 as of December 31, 2021 and December 31, 2020. F- 17 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 5 – Licensing Agreement and Royalty Payable We have a licensing agreement with ABG TapouT, LLC (“TapouT”), providing us with licensing rights to the brand “TapouT” on energy drinks, energy shots, water, teas and sports drinks for beverages sold in the United States of America, its territories, possessions, U.S. military bases and Mexico. Under the terms of the agreement, we are required to pay a 6% royalty on net sales, as defined. In 2021 and 2020, we are required to make monthly payments of $ 49,500 and $ 45,000 , respectively. There were no unpaid royalties at December 31, 2021. We paid the guaranteed minimum royalty payments of $ 594,000 and $ 540,000 for the years ended December 31, 2021 and 2020, which is included in general and administrative expenses. In connection with the Copa APA, we acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, the Copa di Vino entered into three separate license agreements with 1/4 Vin SARL, (1/4 Vin). 1/4 Vin has the right to license certain patents and patent applications relating to inventions, systems, and methods used in the Company’s manufacturing process. In exchange for notes payable, 1/4 Vin granted the Company a nonexclusive, royalty-bearing, non-assignable, nontransferable, terminable license which would continue until the subject equipment is no longer in service or the patents expire. Amortization is approximately $ 31,000 annually until the license agreement is fully amortized. The asset is being amortized over a 10 -year useful life. Note 6 – Stockholders’ Equity (Deficiency) Common Stock At March 31, 2020, we issued 272,584 shares of common stock in exchange for services provided to us. At March 31, 2021, we issued 168,333 shares of common stock in exchange for services provided to us. At September 30, 2021, we issued 2,136,819 shares of common stock in exchange for services provided to us. At December 31, 2021, we issued 967,497 shares of common stock in exchange for services provided to us. For the year-ended December 31, 2021 the shares were valued at a fair market value stock price based on the agreement date. We recognized share-based compensation expense of $ 11,128,066 , which is classified within the other general and administrative line on the Consolidated Statements of Operations. F- 18 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 6 – Deficiency in Stockholders’ Equity, continued Private Placement Memorandum (PPM) In July 2020, the Board of Directors has determined that it is in the best interests of the Corporation and its stockholders to obtain working capital by conducting a private placement offering of 930,303 shares of the common stock and 650,000 warrants to purchase common stock of the Company, $0.001 par value per share at a purchase price of $3.30 per share for aggregate gross proceeds of $ 3,070,000 . In January 2021, the Board of Directors approved a private placement offering of 1,212,121 shares of the common stock of the Company, $0.001 value per share at a purchase price of $3.30 per share for aggregate gross proceeds of $ 4,000,000 (“PPM”). As part of the PPM, each purchaser received a warrant to purchase one share for every two shares purchased. In February 2021, we completed our PPM by issuing a total of 1,212,355 of shares and 606,179 warrants receiving gross proceeds of approximately $ 4,000,000 . Stock Plans 2012 Plan On May 2012, the Board adopted the 2012 Stock Incentive Plan (the “2012 Plan”), which provided for the grant of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Restricted Stock Units and Stock Appreciation Rights to eligible recipients. The total number of shares that may be issued under the 2012 plan was 1,362,920 . Concurrently with the consummation of the Merger, the outstanding options to purchase 374,803 shares were cancelled and replaced with warrants to purchase 374,804 shares at an exercise price of $ 2.20 , and the 2012 Plan was retired. 2020 Plan On August 2020, the Board adopted the 2020 Stock Incentive Plan (the “2020 Plan”), which provides for the grant of Options, Restricted Stock Awards, Stock Appreciation Rights, Performance Units and Performance Bonuses to consultants and eligible recipients. The total number of shares that may be issued under the 2020 plan was 2,313,133 . At December 31, 2021, 1,065,000 options have been granted under the 2020 Plan. The fair value of stock options recognized in the period has been estimated using the Black-Scholes option pricing model. Assumptions used in the options pricing model for the period are provided below: Schedule of assumptions used in Black-Scholes option pricing model December 31, 2021 Risk-free interest rates 0.84 % Exercise price $ 2.60 Expected life 5 years Expected volatility 160.0 % Expected dividends — Assumptions used in the warrants pricing model for the period are provided below: Schedule of assumptions used in Black-Scholes option pricing model December 31, 2021 Risk-free interest rates 0.93 % Exercise price $ 1.85 Expected life 5 years Expected volatility 165.3 % Expected dividends — The company recognized stock option expense of $ 283,473 for the year ended December 31, 2021. No forfeitures were recorded. A summary of the Company’s stock option plan and changes during the year ended is as follows: Schedule of stock option plan Plan Category No. of Shares to be Issued Upon Exercise or Vesting of Outstanding Stock Options Weighted Average Exercise Price of Outstanding Stock Options Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Equity compensation plan approved by board of directors 1,065,000 2.60 1,248,133 Total 1,065,000 2.60 1,248,133 F- 19 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Warrants/Options The total amount of outstanding warrants/options are summarized below: Schedule of Warrant Options Activity [A] 454,064 [B] 124,162 [C] 908,129 [D] 650,000 [E] 606,179 [F] 374,803 [G] 1,884,833 [H] 833,333 [I] 333,333 [J] 3,900,000 [K] 1,065,000 [L] 29,998 Total 11,163,834 [A] Warrant Issuance-Series A Convertible Preferred Stock As an incentive to convert their Series A preferred stock, in March 2020, we issued 333,333 new warrants to the holders of our Series A preferred stock to purchase shares of SBG common stock. Concurrently with the consummation of the Merger, these warrants were exchanged for warrants to purchase 454,064 of Splash Beverage Group, Inc. shares all of which were outstanding as of December 31, 2021. These warrants have a 3 -year term and expire March 2023. [B] Warrant Issuance-Series B Convertible Preferred Stock As part of the sale and issuance of 1,777,892 shares of our Series B Convertible Preferred Stock, we issued 888,946 warrants to purchase shares our common stock. The warrants have a 5 -year term and at December 31, 2021, there are 124,162 warrants outstanding. [C] Warrant Issuance-GMA Bridge Holdings, LLC Consulting Services We issued 454,307 warrants to purchase shares of our common stock as part of our consulting agreement with GMA Bridge Holdings, LLC (“GMA), at December 31, 2019. These warrants subsequently were exchanged for 908,615 warrants in March 2020 as an incentive for GMA to convert indebtedness and accrued interest into shares of our common stock. At December 31, 2021 all 908,615 warrants remain outstanding. [D] We issued 650,000 warrants to purchase common stock of the Company in connection with the July 2020 private placement offering of 930,303 shares of common stock [E] We issued 606,179 warrants to purchase common stock of the Company in connection with the January 2021 private placement offering of 1,212,121 shares of common stock. [F] We issued 374,803 warrants to purchase common stock, as a replacement of cancelled outstanding options concurrent with the March 2020 Merger F- 20 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements [G] In December 2020 we granted 1,884,833 warrants to purchase common stock of the Company to employees, consultants, and directors. These warrants vest over three years [H] In December 2020 we granted 833,333 warrants to purchase common stock of the Company to our board of directors. These warrants vest over two years [I] In May 2021 we granted 333,333 warrants to purchase common stock of the Company to a director. These warrants vest, equally, over two years [J] We issued 3,750,000 warrants to purchase common stock of the Company in connection with the June 2021 underwritten public offering of 3,750,000 shares of common stock, in addition to 150,000 warrants to purchase common stock of the Company to the representative underwriter. [K] In September 2021 we granted 1,065,000 options to purchase common stock of the Company to employees, consultants, and directors. These options vest over three years. [L] In September 2021 we granted 29,998 warrants to purchase common stock of the Company to consultants. These warrants vest over three years. A summary of the Company’s stock option plan and warrants and their respective changes during the year ended is as follows: Schedule of options and warrants Options December 31, 2021 Balance - beginning of the year — $ — Granted 1,065,000 2.60 Exercises — — Cancelled — — — Balance - end of the year 1,065,000 $ 2.60 Warrants December 31, 2021 Balance - beginning of the year 6,168,837 $ 2.11 Granted 3,929,998 3.29 Exercises — — Cancelled — — Balance - end of the year 10,098,835 $ 2.51 Shareholder Advances and Liability to Issue Stock and Warrants We have multiple agreements with consultants in the amount of $ 0.4 million to be paid by the issuance of the common stock of the Company. We incurred $ 0.3 million is investor relations costs which will be settled by us issuing the consultant common stock. The stock price will be valued using the 10-day average price of the company’s stock from the issuance date. As part of our private placement memoranda, we owe an investor 33,333 shares at $ 3.30 of the Company’s common stock. Note 7 – 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. There are related party notes payable of $ 0.7 and $ 1.3 million outstanding as of December 31, 2021 and 2020, respectively. See note 4. . Note 8 – Investment in Salt Tequila USA, LLC The Company has a marketing and distribution agreement with SALT in Mexico for the manufacturing of our Tequila product line. The Company has a 22.5 % percentage interest in SALT Tequila USA, LLC (“SALT”), and has the right to increase its ownership to 37.5 %. This investment is accounted for at cost. F- 21 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 9 – 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 , with original expiration on June 30, 2021 . We renewed the lease which is for an additional 36 months which expires on June 30, 2024. Effective November 2019, we entered into a lease with Interport Logistics, LLC. The lease term commenced on November 11, 2019 and is scheduled to expire on November 11, 2022 . Effective May 2019, we entered into a warehouse lease in Mexico. The lease commenced May 1, 2019 and was scheduled to expire after 24 months, on April 1, 2021 . We have negotiated a one-year extension for our Mexican warehouse. Effective January 2021, we entered into a lease agreement for the right to use and occupy office space in Sarasota Florida. The lease term commenced January 18, 2021 and is scheduled to expire after 18 months, on July 31, 2022 . Effective January 2021, we entered into a lease agreement for the right to use and occupy office space located in Miami Florida. The lease term commenced January 1, 2021 and is scheduled to expire after 60 months, on December 31, 2025 . The following table presents the discounted present value of minimum lease payments for our office and warehouses to the amounts reported as operating lease liabilities on the consolidated balance sheet at December 31, 2021: Maturities of lease liabilities Undiscounted Future Minimum Lease Payments Operating Lease 2022 342,273 2023 276,318 2024 252,000 2025 252,036 Total 1,122,626 Amount representing imputed interest ( 95,873 ) Total operating lease liability 1,026,753 Current portion of operating lease liability 294,067 Operating lease liability, non-current $ 732,686 The table below presents information for lease costs related to our operating leases at December 31, 2021: Lease costs Operating lease cost: Amortization of leased assets $ 287,335 Interest of lease liabilities 46,219 Total operating lease cost $ 333,554 The table below presents lease- related terms and discount rates at December 31, 2021: Summary of lease-related terms and discount rates Remaining term on leases 7 to months 48 Incremented borrowing rate 5.0 % F- 22 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 10 – 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 11 – 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. In April 2021, we received notification of forgiveness for the entire outstanding balance. F- 23 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 12 – 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. Schedule of Segment Reporting Information Revenue 2021 2020 Splash Beverage Group 4,459,409 404,128 E-Commerce 6,856,593 1,896,599 Total Revenues continuing operations 11,316,002 2,300,727 Total Revenues discontinuing operations 1,112,878 675,213 Total Assets 2021 2020 Splash Beverage Group 14,857,191 8,403,670 E-Commerce 913,312 505,646 Medical Devices - Discontinued 473,461 316,572 Total Assets 16,243,964 9,225,888 F- 24 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 13 – 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. Stock Price Guarantee We have a commitment to issue additional shares associated with specific stock price guarantee granted to an investor. The stock price guarantee expired March 2021. No additional shares were needed to be issued under the Stock Price Guarantee. F- 25 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 14 – Registration Statement Underwriting Agreement On June 10, 2021, the Company entered into an underwriting agreement ( “Underwriting Agreement”) relating to an underwritten public offering (the “Offering”) of common stock, no par value per share (the “Common Stock”) and warrants to purchase one share of Common Stock (the “Warrants”). Pursuant to the Offering, the Company sold 3,750,000 shares of Common Stock and 4,312,500 Warrants, which include 562,500 Warrants sold upon the partial exercise of the Underwriters’ over-allotment, for total gross proceeds of approximately $15 million. After deducting the underwriting commissions, discounts, and offering expenses payable by the Company, the Company received net proceeds of approximately $13.2 million. Representative’s Warrants On June 15, 2021, pursuant to the Underwriting Agreement, the Company issued the Representative’s Warrants to purchase up to an aggregate of 150,000 shares of Common Stock. The Representative’s Warrants may be exercised beginning on December 10, 2021 until June 10, 2026. The initial exercise price of each Representative Warrant is $ 4.60 per share, which represents 115% of the Offering Price. Note 15 – Tax Provision 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, 2021, the Company’s net operating loss carryforward for Federal income tax purposes was $ 72,717,718 , 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, 2021 and 2020 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: Schedule of Effective Income Tax Rate Reconciliation 2021 2020 Federal Statutory Tax Rate 21.00 % 21.00 % Permanent Differences ( 4.00 )% ( 4.63 )% Change in Valuation Allowance ( 17.00 )% ( 16.37 )% 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: Schedule of Deferred Tax Assets and Liabilities 2021 2020 Deferred Tax Assets: Net Operating Losses $ 18,430,306 $ 12,544,738 Deferred Rent 380 380 Accrued Interest/Interest Expense Limitation 1,145,380 1,031,967 Total deferred tax assets 19,576,065 13,577,085 Deferred Tax Liabilities: Depreciation ( 139,828 ) ( 179,561 ) Total deferred tax liabilities ( 139,828 ) ( 179,561 ) Less: Valuation allowance ( 19,436,237 ) ( 13,397,525 ) 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 2019 through 2021. Note 16 – Business Combinations 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 updated purchase price for the acquisition: Schedule of 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 Brands 4,459,000 Customer relationships 957,000 Goodwill 256,823 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 17 – Subsequent Events In February 2022, the Company received approximately $ 9 million as part of a drawdown of their S-3 in connection with the sale of 2.3 million common shares. Signed distribution agreement since December 31, 2021: ● Heimark Distributing – Southern California F- 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.