Endovia Health Sciences, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 229 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID: 468 ) F-3 Consolidated Balance Sheets December 31, 2023 and December 31, 2022 F-4 Consolidated Statements of Operations For the Years Ended December 31, 2023 and December 31 2022 F-5 Consolidated Statements of Changes in Stockholders’ Equity For the years ended December 31, 2023 and 2022 F-6 Consolidated Statements of Cash Flows For the Year Ended December 30, 2023 and 2022 F-7 Notes to the Consolidated Financial Statements F-8 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 sheet of Splash Beverage Group, Inc. (the “Company”) at December 31, 2022, and the related consolidated statements operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2022, 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, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, 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 audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the December 31, 2022 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. Intangible Assets Impairment Assessments As described in Note 2 to the consolidated financial statements, the Company has intangible assets of approximately $4.9 million at December 31, 2022. 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 valuation techniques utilizing undiscounted and discounted after-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 cashflows; long-term 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 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 Fort Lauderdale, Florida March 31, 2023 We served as the Company’s auditor from 2020 to March 2023. F- 2 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 sheet of Splash Beverage Group, Inc. at December 31, 2023, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Going Concern Uncertainty The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit and a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. Rose, Snyder & Jacobs LLP We have served as the Company’s auditor since 2023 Encino, CA March 29, 2024 F- 3 Splash Beverage Group, Inc. Consolidated Balance Sheets December 31, 2023 and December 31, 2022 December 31, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 379,978 $ 4,431,745 Accounts Receivable, net 890,631 1,812,110 Prepaid Expenses 220,320 348,036 Inventory 2,252,469 3,721,307 Other receivables 233,850 344,376 Total current assets 3,977,248 10,657,574 Non-current assets: Deposit 49,446 49,290 Goodwill 256,823 256,823 Intangibles assets, net 4,459,309 4,851,377 Investment in Salt Tequila USA, LLC 250,000 250,000 Right of use assets 556,140 750,042 Property and equipment, net 349,802 489,597 Total non-current assets 5,921,520 6,647,129 Total assets $ 9,898,768 $ 17,304,703 Liabilities and Stockholders’ Equity Liabilities: Current liabilities Accounts payable and accrued expenses $ 4,444,286 $ 3,383,187 Right of use liability, current portion 262,860 268,749 Related party notes payable 380,000 — Notes payable, net of discounts 7,748,518 1,080,257 Liability to issue shares — 91,800 Shareholder advances 200,000 — Accrued interest payable 1,714,646 141,591 Total current liabilities 14,750,310 4,965,584 Long-term Liabilities: Notes payable, net of discounts 457,656 2,536,319 Right of use liability, net of current portion 296,128 480,666 Total long-term liabilities 753,784 3,016,985 Total liabilities $ 15,504,094 $ 7,982,569 Stockholders’ equity: Preferred stock, $ 0.001 par value, 5,000,000 shares authorized, no shares issued — — Common Stock, $ 0.001 par, 300,000,000 shares authorized, 44,330,099 and 41,085,520 shares issued and outstanding, at December 31, 2023 and December 31, 2022, respectively 44,330 41,086 Additional paid in capital 127,701,710 121,632,547 Accumulated Other Comprehensive Income ( 16,583 ) ( 20,472 ) Accumulated deficit ( 133,334,783 ) ( 112,331,027 ) Total stockholders’ equity ( 5,605,326 ) 9,322,134 Total liabilities and stockholders’ equity $ 9,898,768 $ 17,304,703 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Splash Beverage Group, Inc. Consolidated Statements of Operations For the Years Ended December 31, 2023 and December 31, 2022 2023 2022 Net revenues $ 18,850,152 $ 18,087,486 Cost of goods sold ( 13,281,457 ) ( 12,168,621 ) Gross margin 5,568,695 5,918,865 Operating expenses: Contracted services 1,402,572 1,505,788 Salary and wages 5,003,392 4,179,403 Non-cash share-based compensation 1,169,858 7,409,884 Other general and administrative 10,786,011 11,411,535 Sales and marketing 2,493,520 2,806,888 Total operating expenses 20,855,353 27,313,498 Loss from continuing operations ( 15,286,658 ) ( 21,394,633 ) Other income/(expense): Other Income/expense ( 30,328 ) — Interest income 2,634 6,068 Interest expense ( 1,856,777 ) ( 251,497 ) Amortization of debt discount ( 3,832,628 ) — Total other expense ( 5,717,099 ) ( 245,429 ) Provision for income taxes — — Net (loss) from continuing operations, net of tax ( 21,003,757 ) ( 21,640,062 ) Net (loss) income from discontinued operations, net of tax — ( 199,154 ) Gain on discontinued operations — 148,747 Net income (loss) from discontinued operations, net of tax — ( 50,407 ) Net loss $ ( 21,003,757 ) $ ( 21,690,469 ) Other comprehensive loss Foreign currency translation gain (loss) 3,889 ( 20,472 ) Total comprehensive loss ( 20,999,868 ) ( 21,710,941 ) Loss per share - continuing operations Basic and Diluted ( 0.49 ) ( 0.58 ) Weighted average number of common shares outstanding - continuing operations Basic and Diluted 42,449,631 37,389,990 Income (loss) per share - discontinued operations Basic and Diluted ( 0.00 ) ( 0.00 ) Weighted average number of common shares outstanding - discontinued operations Basic and Diluted 42,449,631 37,389,990 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Splash Beverage Group, Inc. Consolidated Statements of Changes in Stockholders’ Equity For the Years ended December 31, 2023 and 2022 Common stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ Equity Shares Amount Capital Income Deficit (Deficit) Balances at December 31, 2021 33,596,232 33,596 99,480,188 — ( 90,640,557 ) 8,873,227 Issuance of common stock on convertible instruments 377,796 378 1,514,533 — — 1,514,911 Issuance of warrants for services — — 3,849,144 — 3,849,144 Issuance of warrants on convertible instruments — — 1,898,265 — — 1,898,265 Issuance of common stock for services 2,215,363 2,215 3,466,722 — — 3,468,937 Issuance of common stock and warrants for cash 4,896,129 4,896 11,423,695 — 11,428,591 Accumulated Comprehensive Income - Translation — — — ( 20,472 ) — ( 20,472 ) Net loss — ( 21,690,469 ) ( 21,690,469 ) Balances at December 31, 2022 41,085,520 41,086 121,632,547 ( 20,472 ) ( 112,331,026 ) 9,322,134 Note discount created from issuance of common stock and warrants on convertible instruments 2,275,000 2,275 4,585,975 — — 4,588,250 Share based compensation — — 840,817 — — 840,817 Conversion of notes payable to common stock 452,914 453 229,891 — — 230,344 Issuance of common stock for services 516,665 516 412,481 — — 412,997 Accumulated Comprehensive Income - Translation — — — 3,889 — 3,889 Net loss — — — — ( 21,003,757 ) ( 21,003,757 ) Balances at December 31, 2023 44,330,099 44,330 127,701,710 ( 16,583 ) ( 133,334,783 ) ( 5,605,326 ) The accompanying notes are an integral part of these consolidated financial statements F- 6 Splash Beverage Group, Inc. Consolidated Statements Cash Flows For the Year Ended December 30, 2023 and 2022 2023 2022 Net loss $ ( 21,003,757 ) $ ( 21,690,469 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 545,977 936,020 ROU assets, net 3,474 4,093 Amortization of debt discount 3,832,628 — Gain from sale of discontinued operation — 84,375 Non-cash share based compensation 1,169,858 7,318,081 Changes in working capital items: Accounts receivable, net 921,479 ( 697,658 ) Inventory, net 1,468,838 ( 1,797,828 ) Prepaid expenses and other current assets 238,241 ( 43,294 ) Deposits ( 157 ) 281,596 Accounts payable and accrued expenses 1,061,101 1,594,300 Accrued Interest payable 1,573,055 ( 29,861 ) Net cash used in operating activities - continuing operations ( 10,189,263 ) ( 14,040,644 ) Net cash used in operating activities - discontinued operations — ( 32,774 ) Cash Flows from Investing Activities: Capital Expenditures ( 14,113 ) ( 102,698 ) Net cash used in investing activities -– continuing operations ( 14,113 ) ( 102,698 ) Net cash used in investing activities - discontinued operations — — Cash Flows from Financing Activities: Proceeds from issuance of Common stock — 11,428,591 Cash advance (repayment) from shareholder 200,000 ( 390,500 ) Related party cash advance 380,000 — Proceeds from issuance of debt 6,610,681 4,045,420 Principal repayment of debt ( 1,042,961 ) ( 636,560 ) Net cash provided by financing activities - continuing operations 6,147,720 14,446,951 Net cash provided by financing activities - discontinued operations — — Net cash effect of exchange rate changes on cash 3,889 ( 20,472 ) Net Change in Cash and Cash Equivalents ( 4,051,767 ) 250,362 Cash and Cash Equivalents, beginning of year 4,431,745 4,181,383 Cash and Cash Equivalents, end of year $ 379,978 $ 4,431,745 Supplemental Disclosure of Cash Flow Information: Cash paid for Interest $ 243,087 $ 204,594 Supplemental Disclosure of Non-Cash Investing and Financing Activities Convertible notes payable and accrued interest converted to common stock (377,796 shares) $ — $ 1,514,911 Convertible notes payable and accrued interest converted to common stock (452,914 shares) $ 230,000 $ — The accompanying notes are an integral part of these consolidated financial statements. F- 7 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 1 – Business Organization and Nature of Operations Splash Beverage Group (“SBG” or “Splash”), formally Canfield Medical Supply, Inc. (“CMS”) was incorporated in the State of Ohio on September 3, 1992, and changed domicile to Colorado on April 18, 2012. CMS was in the business of home health services, primarily the selling of durable medical equipment and medical supplies to the public, nursing homes, hospitals and other end users. On December 31, 2019, CMS entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly owned by CMS, and Splash Beverage Group, Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of CMS. The Merger was consummated on March 31, 2020. As the owners and management of Splash have voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (that is with Splash as the acquiring entity), followed by a recapitalization. As part of the recapitalization, previously issued shares of SBG preferred stock have been reflected as shares of common stock that were received in the Merger. These common shares have been retrospectively presented as outstanding for all periods. Splash specializes in the manufacturing process, distribution, and sales & marketing of various beverages across multiple channels. Splash operates in both the non-alcoholic and alcoholic beverage segments. Additionally, Splash operates its own vertically integrated B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilities and visibility. In July 2020 the Company filed a Certificate of Amendment of Articles of Incorporation of CMS with the Secretary of State of the State of Colorado, pursuant to which the Company changed its name from CMS. to Splash Beverage Group, Inc. On July 31, 2020, we received approval from FINRA to change the Company’s name from CMS to Splash Beverage Group, Inc. Our new ticker symbol is SBEV. On December 24, 2020, SBG consummated an Asset Purchase Agreement (the “Copa APA”) with Copa DI Vino ® Corporation (“CdV”), to purchase certain assets and assume certain liabilities that comprise the Copa DI Vino ® business for a total purchase price of $ 5,980,000 , payable in the combination of $ 2,000,000 in cash (“Cash Consideration”), $ 2,000,000 convertible promissory note (the “Convertible Note”) to Seller and a variable number of shares of the Company’s common stock based on a attainment of revenue hurdles. CdV is one of the leading producers of premium wine by the glass in the United States with its primary offices and facilities in The Dalles, Oregon. On February 2021, Management initiated a plan to divest its CMS business. As a result, the assets and operations of CMS have been retrospectively reflected as discontinued operations. On November 12, 2021 the Company changed its state of Domicile from Colorado to Nevada. In coordination with up listing to the NYSE on June 11, 2021 the Company consummated a 1.0 for 3.0 reverse stock split. All common stock shares stated herein have been adjusted to reflect the split. Note 2 – Summary of Significant Accounting Policies Basis of Presentation and Consolidation These consolidated financial statements include the accounts of Splash and its wholly owned subsidiaries, Holdings and Splash Mex, CMS (as discontinued operations), and CdV. All intercompany balances have been eliminated in consolidation. F- 8 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Our investment in Salt Tequila USA, LLC is accounted for at cost, as the company does not have the ability to exercise significant influence. Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Certain reclassifications have been made to the prior period financial statements to conform to the current period classifications. These reclassifications had no impact on net loss. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents and Concentration of Cash Balance We consider all highly liquid securities with an original maturity of three months or less to be cash equivalents. We had no cash equivalents at December 31, 2023 or December 31, 2022. Our cash in bank deposit accounts, at times, may exceed federally insured limits of $ 250,000 . At December 31, 2023, the Company’s cash on deposit with financial institutions, at times, had not exceed federally insured limits of $250,000. The Company had approximately $ 3.8 million over the federally insured limits in 2022. Our cash in uninsured foreign bank accounts was $ 0 and $ 1,941 at December 31, 2023 and December 31, 2022, respectively. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivables are carried at their estimated collectible amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. We establish provisions for losses on accounts receivable on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions. At December 31, 2023 and December 31, 2022, our accounts receivable amounts are reflected net of allowances of $ 183,089 and $ 13,683 , 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, 2023 and December 31, 2022 consisted of raw materials, work-in-process, and finished goods held for distribution. The cost elements of inventory consist of purchase of products, transportation, and warehousing. We establish provisions for excess or inventory near expiration based on management’s estimates of forecast turnover of inventories on hand and under contract. A significant change in the timing or level of demand for certain products as compared to forecast amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on inventory. We manage inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The amount of our reserve was $ 290,524 and $ 66,146 at December 31, 2023 and December 31, 2022, respectively. Property and Equipment We record property and equipment at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic useful lives of assets, which range from 3 - 20 years. Company management reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. F- 9 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Depreciation expense totaled $ 153,908 and $ 182,886 for the years ended December 31, 2023 and 2022 respectively. Property and equipment consisted of the following: Schedule of property and equipment 2023 2022 Auto 45,420 45,420 Machinery & equipment 1,160,578 1,108,870 Buildings & Tanks 233,323 282,988 Leasehold improvements 723,638 713,068 Computer Software 5,979 — Office furniture & equipment 9,157 13,636 Total cost 2,178,095 2,163,983 Accumulated depreciation ( 1,828,293 ) ( 1,674,385 ) Property, plant & equipment, net 349,802 489,597 Excise taxes The Company pays alcohol excise taxes based on product sales to both the Oregon Liquor Control Commission and to the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (TTB). The Company also pays taxes to the State of Florida – Division of Alcoholic Beverages and Tobacco. The Company is liable for the taxes upon the removal of product from the Company’s warehouse on a per gallon basis. The federal tax rate is affected by a small winery tax credit provision which decreases based upon the number of gallons of wine production in a year rather than the quantity sold. Fair Value of Financial Instruments Financial Accounting Standards (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: 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, 2023 and December 31, 2022, consistent with recent negotiations of notes payable and due to the short duration of maturities. Revenue Recognition We recognize revenue under ASC 606, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects what we expect to receive in exchange for the transfer of goods or services to customers. F- 10 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued We recognize revenue when our performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control of our products is transferred upon delivery to the customer. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring goods and is presented net of provisions for customer returns and allowances. The amount of consideration we receive and revenue we recognize varies with changes in customer incentives we offer to our customers and their customers. Sales taxes and other similar taxes are excluded from revenue. Distribution expenses to transport our products, and warehousing expense after manufacture are accounted for in Other General and Administrative cost. Cost of Goods Sold Cost of goods sold include the costs of products, packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or impaired inventory. The cost of transportation from production site to other 3 rd party warehouses or customer is included in Other General and Administrative cost. Other General and Administrative Expenses Other General and Administrative expenses include Amazon selling fees, royalty cost for selling TapouT, cost of transportation from production site to other 3 rd party warehouses or customers, insurance cost, consulting cost, legal and audit fees, investor relations expenses, travel & entertainment expenses, occupancy cost and other cost. Stock-Based Compensation We account for stock-based compensation in accordance with ASC 718,” Compensation - Stock Compensation” . Under the fair value recognition provisions, cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. We use the Black-Scholes option pricing model to determine the fair value of stock options. We early adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns accounting treatment for such awards to non-employees with the existing guidance on employee share-based compensation in ASC 718. We measure stock-based awards at the grant-date fair value for employees, directors and consultants and recognize compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of our common stock, and for stock options and warrants, the expected life of the option and warrant, and expected stock price volatility and exercise price. We used the Black-Scholes option pricing model to value its stock-based awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The expected life of stock options/warrants were estimated using the “simplified method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, we have limited historical information to develop reasonable expectations about future exercise patterns. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, we use comparable public companies as a basis for its expected volatility to calculate the fair value of award. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the award. The estimation of the number of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised. F- 11 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Income Taxes We use the liability method of accounting for income taxes as set forth in ASC 740,” Income Taxes” . Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. We record a valuation allowance when it is not more likely than not that the deferred tax assets will be realized. Company management assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50 % likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. Company management has determined that there are no material uncertain tax positions at December 31, 2023 and December 31, 2022. See not 13. Net income (loss) per share The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included in the computation if the effect would be anti-dilutive. Weighted average number of shares outstanding excludes anti-dilutive common stock equivalents, including warrants to purchase shares of common stock and warrants granted by our Board that have not been exercised totaling 74,007,680 . 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 $ 1,721,547 and $ 732,618 for the years ended December 30, 2023 and 2022, 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. The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives, included in other intangible assets, net in the accompanying consolidated balance sheets, were as follows: Schedule of identifiable intangible assets December 31, 2023 Gross Amount Accumulated Amortization Amortization Period Finite: (in years) Brands $ 4,459,000 $ 891,803 15 Customer Relationships 957,000 191,400 15 License 360,000 233,488 11 Total Intangible Assets $ 5,776,000 $ 1,316,691 F- 12 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued At the time of acquisition, the Company estimates the fair value of the acquired identifiable intangible assets based upon the facts and circumstances related to the particular intangible asset. Inherent in such estimates are judgments and estimates of future revenue, profitability, cash flows and appropriate discount rates for any present value calculations. The Company preliminarily estimates the value of the acquired identifiable intangible assets and then finalizes the estimated fair values during the purchase allocation period, which does not extend beyond 12 months from the date of acquisition. The Company’s amortization expense for acquired identifiable intangible assets with finite useful lives was $ 392,068 for fiscal years 2023 and 2022. Estimated amortization expense for acquired identifiable intangible assets for fiscal year 2024 and the succeeding years is as follows: Schedule of future intangible asset amortization expense useful lives Future Intangible Asset Amortization Expense Fiscal Year: 2024 $ 392,068 2025 392,068 2026 392,068 2027 392,068 2028 363,580 Thereafter 2,527,457 Total $ 4,459,309 Long-lived assets The Company evaluates long-lived assets for impairment on an annual basis, when relocating or closing a facility, or when events or changes in circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques. Foreign Currency Gain/Losses Foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates. Gain or losses from these translation adjustments are included in the consolidated statement of operations and other comprehensive (loss) income as foreign currency translation gains or losses. Translation gains and losses that arise from the translation of net assets from functional currency to the reporting currency, as well as exchange gains and losses on intercompany balances, are included in Other Comprehensive Losses. The Company incurred a foreign currency translation net gain during the year ended December 31, 2023 of $ 3,889 and a foreign currency translation net loss during the year ended December 31, 2022 of $ 20,472 . Recent Accounting Pronouncements Adoption of FASB ASU 2020-06 In August 2020, the Financial Accounting Standards Board (FASB) issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments and contracts by removing certain models that were previously required to be applied. The amendments are effective for the fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact this update will have on its consolidated financial Statements. F- 13 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 3 – Liquidity, Capital Resources and Going Concern Considerations During 2023, the Company received $ 6.6 million from the issuance of debt. This event served to mitigate the conditions that previously raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s consolidated financial statements have been prepared on the basis of US GAAP for a going concern, on the premise that the Company is able to meet its obligations as they come due in the normal course of business. The Company sustained a net loss of approximately $ 21 .0 million and negative cash flows from operating activities of approximately $ 10.2 million for the year ended December 31, 2023. To date the Company has generated cash flows from issuances of equity and indebtedness. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of March 29, 2024, the Company has incurred significant losses from operations and has experienced negative cash flows from operating activities. Additionally, the Company’s current liabilities exceed its current assets, and it has a working capital deficit. Management’s plans in regard to these matters include actions to sustain the Company’s operations, such as seeking additional funding to meet its obligations and implement its business plan. However, there is no assurance that the Company will be successful in implementing its plans or in raising additional funds. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unable to continue as a going concern, adjustments would be necessary to the carrying values of its assets and liabilities and the reported amounts of revenues and expenses could be materially affected. F- 14 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 4 – Notes Payable, Related Party Notes Payable, and Revenue Financing Arrangements Notes payable are generally nonrecourse and secured by all Company owned assets. Schedule of notes payable Interest Rate December 31, 2023 December 31, 2022 Notes Payable In March 2014, the Company 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 unexercised on February 28, 2017. The loan and interest was paid off in February 2023 8 % — 200,000 In December 2020, the Company entered into a 56- month loan with a company in the amount of $ 1,578,237 . The loan requires payments of 3.75 % through November 2022 and 4.00 % through September 2025 of the previous month’s revenue. Note is due September 2025. Note is guaranteed by a related party see note 6. 17 % 371,693 1,044,445 In April 2021, the Company entered into various six-month loans with individuals totaling in the amount of $ 168,000 . The loans had an original maturity of October 2021 with principal and interest due at maturity with conversion price of $ 3.30 per share. The loans were extended to March 31, 2024. 7 % 168,000 168,000 In May 2021, the Company entered into various six-month loans with individuals totaling in the amount of $ 60,000 . The loans had an original maturity of October 2021 with principal and interest due at maturity with conversion price of $ 3.30 per share. The loans were extended to March 31, 2024. 7 % 60,000 60,000 In August 2022, we entered into a 56-months auto loan in the amount of $ 45,420 . 2.35 % 32,996 42,396 In December 2022, the Company entered into various eighteen-month loans with individuals totaling in the amount of $ 4,000,000 . The notes included 100 % warrant coverage. The loans mature in June 2024 with principal and interest due at maturity with conversion price of $ 1.00 per share. 12 % 4,000,000 4,000,000 In February 2023, the Company entered into a twelve-month loan with an entity in the amount of $ 2,000,000 . The convertible note included the issuance of 1,500,000 shares of common stock . The loan matures in February 2024 with conversion price of $ 0.85 per share and is non-interest bearing — % 1,769,656 — In May 2023, the Company entered into various eighteen-month loans with individuals totaling in the amount of $ 800,000 . The notes included 50 % warrant coverage. The loans mature in November 2024 with principal and interest due at maturity with conversion price of $ 1.00 per share. 12 % 800,000 — In June 2023, the Company entered into various eighteen-month loans with individuals totaling in the amount of $ 350,000 . The notes included 50 % warrant coverage. The loans mature in December 2024 with principal and interest due at maturity with conversion price of $ 1.00 per share. 12 % 350,000 — In July 2023, the Company entered into a twelve-month loan with an individual in the amount of $ 750,000 . The note included 50 % warrant coverage. The loan matures in July 2024 with principal and interest due at maturity with conversion price of $ 1.00 per share. 12 % 750,000 — In July 2023, the Company entered into a twelve-month loan with an individual in the amount of $ 100,000 . The note included 50 % warrant coverage. The loan matures in January 2025 with principal and interest due at maturity with conversion price of $ 1.00 per share. 12 % 100,000 — In August 2023, the Company entered into a twelve-month loan with an individual in the amount of $ 300,000 . The convertible note included the issuance of 150,000 shares of common stocks. The loan matures in August 2024 with principal and interest due at maturity with conversion price of $ 0.85 per share and is non-interest bearing. — 300,000 — In October 2023, the Company entered into a three-month loan with an individual in the amount of $ 500,000 . The loan matures in January 2024 with principal and interest due at maturity. The loan was extended to March 2024. 10 % 500,000 — In October 2023, the Company entered into a loan with an individual in the amount of $ 196,725 The loan matures in March 2024. Note is guaranteed by a related party. — 91,785 — In October 2023, the Company entered into a loan with an individual in the amount of $ 130,000 . The loan requires payment of 17 % of daily Shopify sales. — 88,431 — In October 2023, the Company entered into a eighteen-month loan with individuals totaling in the amount of $ 1,250,000 . The note included 100 % warrant coverage. The loan matures in April 2025 with principal and interest due at maturity with conversion price of $ 1.00 per share 12 % 1,250,000 — In December 2023, we entered into a 2.5-month loan with an individual in the amount of $ 450,000 . The loan had a maturity of March 2024 with principal and interest due at maturity. 10 % 450,000 — Total notes payable $ 11,082,561 $ 5,514,841 Less notes discount ( 2,876,387 ) ( 1,898,265 ) Less current portion ( 7,748,518 ) ( 1,080,257 ) Long-term notes payable $ 457,656 $ 2,536,319 F- 15 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 4 – Notes Payable, Shareholder Notes Payable, and Revenue Financing Arrangements, continued Interest expense on notes payable was $ 1,836,377 and $ 246,090 for the years ended December 31, 2023 and 2022, respectively. Accrued interest was $ 1,714,646 and $ 141,591 at December 31, 2023 and December 31, 2022, respectively. The Company’s effective interest rate was 60.17 % for the year ended December 31, 2023. As of December 31, 2023, the Company’s convertible note balances are convertible into 11,127,500 shares of common stock. Notes discount of $ 2,876,387 and $ 1,898,265 for the year ending December 31, 2023 and 2022 respectively is related to the discounted warrants and common shares issued in connection with the notes. Schedule of notes payable Interest Rate December 31, 2023 December 31, 2022 Shareholder Notes Payable In February 2023, we entered into a loan with an individual in the amount of $ 200,000 . The annual interest rate is 12 % 12 % 200,000 — Less current portion ( 200,000 ) — Long-term notes payable $ — $ — Interest expense on related party notes payable was $ 20,400 and $ 5,407 for the years ended December 31, 2023 and 2022, respectively. 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 (i) energy drinks, (ii) energy bars, (iii) coconut water, (iv) electrolyte gum/chews, (v) energy shakes, (vi) powdered drink mix, (viii) water (including enhanced water), (vii) energy shots, (viii) teas, and (ix) sports drinks sold in the North America (including US Territories and Military Bases), United Kingdom, Brazil, South Africa, Australia, Scandinavia, Peru, Colombia, Chile and Guatemala. Under the terms of the agreement, we are required to pay a 6% royalty on net sales, as defined. In 2023 and 2022, we are required to make monthly payments of $ 55,000 and $ 54,450 , respectively. There were no unpaid royalties at December 31, 2023 and 2022. We paid the guaranteed minimum royalty payments of $ 660,000 and $ 653,400 for the years ended December 31, 2023 and 2022, which is included in general and administrative expenses. In connection with the Copa Asset Purchase Agreement, we acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, the Copa DI Vino ® 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 Common Stock During the twelve-months ended December 31, 2022, we issued 4,596,129 shares of common stock as part of the public offerings, 1,834,404 shares in exchange for services, 380,959 shares in connection with the purchase of Copa DI Vino ® , 377,796 shares on conversion of convertible instruments, and 300,000 shares for cash. F- 16 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 6 – Stockholders’ Equity, continued Private Placement Memorandum (PPM) In July 2022, we issued 100,000 shares of common stock of the Company, at a purchase price of $ 1.10 per share. In December 2022, we issued 200,000 shares of common stock of the Company, at a purchase price of $ 1.00 per share this placement included 100 % warrant coverage. In December 2022, we issued Convertible Notes for 4,000,000 shares at $ 1.00 per share with warrants to purchase 4,000,000 shares of common stock at $ 0.25 per share. Stock Plans 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 4,259,008 1.13 2,846,068 Total 4,259,008 1.13 2,846,068 In 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 2020 Plan has an “evergreen” feature, which provides for the annual increase in the number of shares issuable under the plan by an amount equal to 5% of the number of issued and outstanding common shares at year end, unless otherwise adjusted by the Board of Directors. At January 1, 2023 and 2022, the number of shares issuable under the 2020 plan increased by 2,054,276 and 1,679,812 shares, respectively. In October 2023, the shareholders voted to increase the number of shares issuable under the Plan to 7.5%. At December 31, 2023 the number of shares authorized under the 2020 plan is 2,846,068 . F- 17 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 6 – Stockholders’ Equity, continued The following is a summary of the Company’s stock option activity: Schedule of stock option activity Options December 31, 2023 December 31, 2022 Number of Options Weighted Average Exercise Price Number of Options Weighted Average Exercise Price Balance - January 1, 2023* 1,151,000 $ 1.12 1,065,000 2.60 Granted 3,441,008 1.13 146,000 $ 2.31 Exercises — — — — Cancelled 333,000 1.18 60,000 2.60 Balance – December 31, 2023 4,259,008 $ 1.13 1,151,000 $ 2.56 Exercisable – December 31, 2023 3,910,787 $ 1.12 732,746 $ 2.58 * These prices are reflective of the price modification made on April 24, 2023. In May 2022, we granted 146,000 options to purchase common stock to employees and consultants, these options vest between one and four years and were valued at $ 336,926 on the grant date. . In the three months ending June 30, 2023, the Company granted 3,376,008 options to employees and directors at weighted average strike price of $ 1.13 , weighted average expected life of 6.0 years, weighted average volatility of 264.3 %, weighted average risk-free rate of 3.6 % and no dividend. On April 24, 2023, the Company modified the price of 4,134,008 options to $ 1.12 from a weighted average price of $ 2.56 . The options have a weighted average expected life of 6.3 years, weighted average volatility of 266.7 %, weighted average risk-free rate of 3.6 % and no dividend. Following ASC Topic 718 the Company recognized an incremental expense from the modification of the option pricing resulting in an expense of $ 7,348 that was reflected in the quarter. The Company determined the grant date fair value of the options granted using the Black Scholes Method using the following assumptions: Schedule of stock option assumption December 31, 2023 December 31, 2022 Risk-free interest rates 0.84 % 0.84 % Exercise price $ 1.08 – 1.36 $ 2.60 Expected life 5 years 5 years Expected volatility 160.0 % 160.0 % Expected dividends — — During the year ended December 31, 2023, the fair value of options granted amounted to $ 1,060,602 . As of December 31, 2023, the intrinsic value of stock options outstanding and exercisable was $ 0 . Stock compensation expense for the years ended December 31, 2023 and 2022 was $ 840,817 and $ 1,146,965 , respectively. F- 18 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 6 – Stockholders’ Equity, continued At December 31, 2023, there was approximately $ 300,000 of unrecognized compensation costs related to stock options which will be recognized over the weighted average remaining years of 0.84 . The following is a summary of the Company’s Warrant activity Schedule of warrant activity Warrants December 31, 2023 December 31, 2022 Number of Warrants Weighted Average Exercise Price Number of Warrants Weighted Average Exercise Price Balance – beginning of the year 14,343,896 $ 1.85 10,143,896 $ 2.51 Granted 2,250,000 0.58 4,200,000 0.25 Exercises 68,146 2.19 — — Cancelled 2,345,677 2.32 — — Balance - end of the year 14,180,073 $ 1.56 14,343,896 $ 1.85 The fair value of warrants recognized in the period has been estimated using the Black-Scholes option pricing model with the following assumptions. Schedule of assumptions used in Black-Scholes option pricing model December 31, 2023 December 31, 2022 Risk-free interest rates 3.84 % 3.99 % Exercise price $ 0.55 $ 0.96 Expected life 5 years 5 years Expected volatility 228.3 % 228.3 % Expected dividends — — 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. In conjunction with the acquisition of Copa DI Vino ® , the Company also entered into a Revenue Loan and Security Agreement (the “Loan and Security Agreement”) by and among the Company, Robert Nistico, additional Guarantor and each of the subsidiary guarantors from time-to-time party thereto (each a “Guarantor”, and, collectively, the “Guarantors”), and Decathlon Alpha IV, L.P. (the “Lender”). The Loan and Security Agreement provided for a revenue-based credit facility of $ 1,578,237 (the “Gross Amount”) with the Lender (the “Credit Facility”). There was $ 371,693 outstanding and $ 989,702 accrued interest under this agreement as of December 31, 2023. Additionally, the Company is subject to $ 757,554 of penalties associated with this agreement as of December 31, 2023. The lender has agreed to waive the penalties in the event the Company repays the loan obligation in full prior to maturity. The Company intends to pay off the obligation prior to maturity. On September 29, 2023, the Company also entered into a Purchase and Sales Future Receivables Agreement (the “Loan and Security Agreement”) by and among the Company, Robert Nistico, additional Guarantor and each of the subsidiary guarantors from time-to-time party thereto (each a “Guarantor”, and, collectively, the “Guarantors”), and Knightsbridge Funding LLC (the “Lender”). The Loan and Security Agreement provided a loan of $ 165,000 , with the gross and interest amount of $ 241,725 with the Lender (the “Credit Facility”). There was $ 99,185 outstanding under this agreement as of December 31, 2023. There were related party advances from our chief executive officer in the amount of $ 0.4 million outstanding as of December 31, 2023 and a shareholder note payable outstanding in the amount of $ 200,000 as of December 31, 2023. F- 19 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements 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. Note 9 – Lease We have various operating lease agreements primarily related to real estate and office space. Our real estate leases represent a majority of our lease liability. Our lease payments are mainly fixed. Any variable lease payments, including utilities and common area maintenance are expensed during the period incurred. Variable lease costs were immaterial for the years ended December 31, 2023 and 2022. A majority of our real estate leases include options to extend the lease. We review all options to extend at the inception of the lease and account for these options when they are reasonably certain of being exercised. Operating lease expense is recognized on a straight-line basis over the lease term and is included in operating expense on our consolidated statement of operations. Operating lease cost was $ 363,890 and $ 315,980 during the years ended December 31, 2023 and 2022, respectively. The following table sets for the maturities of our operating lease liabilities and reconciles the respective undiscounted payments to the operating lease liabilities in the consolidated balance sheet at December 31, 2023: Schedule of operating lease liabilities Undiscounted Future Minimum Lease Payments Operating Lease 2024 $ 286,168 2025 287,193 2026 17,857 Total 591,218 Amount representing imputed interest ( 32,230 ) Total operating lease liability 558,988 Current portion of operating lease liability ( 262,860 ) Operating lease liability, non-current $ 296,128 The table below presents information for lease costs related to our operating leases at December 31, 2023: Schedule of lease costs Operating lease cost: Amortization of leased assets $ 330,728 Interest of lease liabilities 33,162 Total operating lease cost $ 363,890 The table below presents lease- related terms and discount rates at December 31, 2023: Schedule of lease- related terms and discount rates Remaining term on leases 30 months Incremented borrowing rate 5.0 % F- 20 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 10 – Segment Reporting We have two reportable operating segments: (1) the manufacture and distribution of non-alcoholic and alcoholic beverages, and (2) the retail sale of beverages and groceries online. These operating segments are managed separately and each segment’s major customers have different characteristics. Segment Reporting is evaluated by our chief operating decision maker, which continues to be our chief executive officer. Schedule of segment reporting information Revenue For the Year Ended, December 31, 2023 For the Year Ended, December 31, 2022 Splash Beverage Group $ 5,072,479 $ 4,759,586 E-Commerce 13,777,673 13,327,900 Total Revenues continuing operations $ 18,850,152 $ 18,087,486 Total Revenues discontinuing operations $ — $ 385,174 Contribution after Marketing expenses 2023 2022 Splash Beverage Group $ ( 1,749,163 ) $ ( 2,202,790 ) E-Commerce 4,824,338 5,314,767 Total Contribution after Marketing expenses continuing operations 3,075,175 3,111,977 Contracted services 1,402,572 1,505,788 Salary and wages 5,003,392 4,179,403 Non-cash share-based compensation 1,169,858 7,409,884 Other general and administrative 10,786,011 11,411,535 Loss from continuing operations $ ( 15,286,658 ) $ ( 21,394,633 ) Total Assets December 31, 2023 December 31, 2022 Splash Beverage Group $ 9,188,213 $ 14,723,553 E-Commerce 710,555 2,581,150 Total Assets $ 9,898,768 $ 17,304,703 Splash Beverage Group revenue increased for the year ending December 31, 2023 versus December 31, 2022 by $0.3 million or 7% with the main contribution from the increase in revenue coming from TapouT and Pulpoloco. The contribution after marketing expenses increased by $0.04 million for the year ending December 31, 2023 versus December 31, 2022 due to increased sales partially offset by cost increases. E-Commerce revenue increased for the year ending December 31, 2023 versus December 31, 2022 by $0.4 million driven by expanded territory coverage, new products being sold and increased cart size when customers checking out. Contribution after Marketing expenses declined by $0.4 million due to increase by cost. Note 11 – 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. F- 21 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 12 – Registration Statement Underwriting Agreement On June 10, 2021, we entered into an underwriting agreement (“Underwriting Agreement”) relating to an underwritten public offering (the “Offering”) of common stock, (the “Common Stock”) and warrants to purchase one share of Common Stock (the “Warrants”). Pursuant to the Offering, we 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, we received net proceeds of approximately $13.2 million. On February 17, 2022, we entered into an underwriting agreement (“Underwriting Agreement”) relating to an underwritten public offering (the “Offering”) of common stock, (the “Common Stock”) to purchase one share of Common Stock. Pursuant to the Offering, we sold 2,300,000 shares of Common Stock for total gross proceeds of approximately $9.2 million. After deducting the underwriting commissions, discounts, and offering expenses payable by we, we received net proceeds of approximately $7.9 million. On September 22, 2022, we entered into an underwriting agreement (“Underwriting Agreement”) relating to an underwritten public offering (the “Offering”) of common stock, (the “Common Stock”) to purchase one share of Common Stock. Pursuant to the Offering, we sold 2,296,129 shares of Common Stock for total gross proceeds of approximately $ 3.6 million. After deducting the underwriting commissions, discounts, and offering expenses, we received net proceeds of approximately $ 3.1 million. Representative’s Warrants On June 15, 2021, pursuant to the Underwriting Agreement, the Company issued 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 13 – 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 about 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, 2023, the Company’s net operating loss carryforward for Federal income tax purposes was $ 108,922,763 , 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 amounted to $ 90,921,071 , which can be carried forward indefinitely. There was no income tax expense or benefit for the years ended December 31, 2023 and 2022 due to the full valuation allowance recorded. F- 22 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 13 – Tax Provision, continued 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 2023 2022 Federal Statutory Tax Rate 21.00 % 21.00 % Permanent Differences ( 0.89 )% ( 3.80 )% Change in Valuation Allowance ( 20.11 )% ( 17.20 )% 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 or liabilities 2023 2022 Deferred Tax Assets: Net Operating Losses $ 27,606,474 $ 22,758,336 Deferred Rent — 380 Accrued Interest/Interest Expense Limitation 1,518,618 1,263,639 Total deferred tax assets 29,125,092 24,022,355 Deferred Tax Liabilities: Depreciation ( 120,502 ) ( 93,476 ) Total deferred tax liabilities ( 120,502 ) ( 93,476 ) Less: Valuation allowance ( 29,004,590 ) ( 23,928,879 ) 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 2023. Note 14 – Subsequent Events In January 2024, the Company entered into a convertible note with an individual in the amount of $ 250,000 . The note has an eighteen-month 18 term, accrues interest at 12 % and is convertible into shares of common stock of the Company at $ 0.50 per share, which also includes 200% warrants at $ 0.25 In January 2024, the Company entered into a commercial loan in the amount of $ 500,000 . The total cost of the loan is $ 250,000 and is paid in weekly increments of 6.97 % of the current receivable balance. In February 2024, the Company entered into a convertible note with an individual in the amount of $ 150,000 . The note has an eighteen-month 18 term, accrues interest at 12 % and is convertible into shares of common stock of the Company at $ 0.40 per share, which also includes 250% warrants at $ 0.25 . In March 2024, the Company received a $ 109,000 cash advance from our chief executive officer, resulting in a related party payable. This note bears 0 % interest. We have notes that expire in 2024 that we plan to extend or payoff. F- 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.