| Summary of Significant Accounting Policies | Note 2 –
Summary of Significant Accounting Policies Basis
of Accounting The
accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”), and the requirements of the U.S. Securities and Exchange Commission (the “SEC”)
for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by
U.S. GAAP can be condensed or omitted. Accordingly, they do not include all of the information and footnotes normally included in financial
statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes
thereto included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on March 31,2023 (the “Form 10-K”). The
accompanying condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments)
that management considers necessary for a fair presentation of its condensed financial position and results of operations for the interim
periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected
for the entire year. Basis of Presentation and Consolidation These consolidated financial statements include
the accounts of Splash and its wholly owned subsidiaries Splash Beverage Holdings LLC (“Holdings”), Splash International
Holdings LLC (“International”), Splash Mex SA de CV (“Splash Mex”), Canfield Medical Supply, Inc. (“CMS”) (as discontinued
operations), and Copa di Vino Wine Group, Inc. (“Copa di Vino”). All intercompany balances have been eliminated in
consolidation. Our investment in Salt Tequila USA, LLC is carried
at cost less impairment, the investment does not have a readily determinable fair value. Certain reclassifications have been made to the
prior period financial statements to conform to the December 31, 2022 audited financial statement and the current period
classifications. In the three months ending March 31, 2022 the Company reclassified $ 459,260 126,437 332,823 Use of Estimates The preparation of condensed consolidated financial
statements in conformity with U.S. 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 condensed 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 The Company considers all highly liquid
securities with an original maturity of three months or less to be cash equivalents. The Company had no The Company cash in bank deposit amounts, at times,
may exceed federally insured limits of $250,000. At March 31, 2023 the Company had $ 271,743 2,051 Accounts Receivable and Allowance
for Doubtful Accounts Accounts receivable are carried at their estimated
recoverable amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. The
Company establishes 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 March 31, 2023 and December 31, 2022, our accounts receivable amounts are reflected net
of allowances of $ 13,797
13,683 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 March 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. The Company 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. The Company
manages inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The
amount of our reserve was $ 0 66,146 Property and Equipment The Company 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 Depreciation expense totaled $ 46,701 30,695
Schedule of Property and equipment
2023 2022
Auto 45,420 45,420
Machinery & equipment 1,158,535 1,108,870
Buildings 233,323 282,988
Leasehold improvements 723,639 713,068
Computer Software 5,979 —
Office furniture & equipment 7,657 13,636
Total cost 2,174,553 2,163,983
Accumulated depreciation (1,713,336 ) (1,674,385 )
Property, plant & equipment, net 461,217 489,597 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 condensed consolidated financial statements approximate fair values at March 31, 2023 and December 31, 2022, consistent
with recent negotiations of notes payable and due to the short duration of maturities and market rates of interest. Revenue Recognition The Company recognizes 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 the Company expects to receive in exchange for the transfer of goods or services to customers. The Company recognizes revenue when the Company’s performance
obligations under the terms of a contract with the customer are satisfied. Product sales occur for the Splash Beverage and E-commerce
businesses once control of the Company’s products are transferred upon delivery to the customer. Revenue is measured as the amount
of consideration that the Company expects to receive in exchange for transferring goods, and revenue is presented net of provisions for
customer returns and allowances. The amount of consideration the Company receives and revenue the Company recognizes varies with changes
in customer incentives offered to the Company’s customers and their customers. Sales taxes and other similar taxes are excluded
from revenue. Shipping and Handling 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. In the three months ending March 31, 2022 the Company reclassified $ 459,260 126,437 332,823 Other General and Administrative Expenses Other General and Administrative expenses includes
Amazon selling fees, royalty cost for selling TapouT, cost associated with the outbound shipping and handling of finished goods,
insurance cost, consulting cost, legal and audit fees, Investor Relations expenses, travel & entertainment expenses, occupancy
cost and other cost. Shipping
and Handling The
Company incurred $ 1,374,328
and $ 803,318
of shipping and handling costs for the three
months ending March 31, 2023 and 2022 respectively. These amounts, which primarily relate to shipping, are recorded in other general
and administrative expenses. Stock-Based Compensation The Company accounts for stock-based compensation
in accordance with ASC 718, ” Compensation - Stock Compensation” Income Taxes The Company uses the liability method of accounting
for income taxes as set forth in ASC 740, ” Income Taxes” 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 The Company’s
federal, state and local income tax returns prior to fiscal year 2019 are closed and management continually evaluates expiring
statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company recognizes interest and penalties associated
with tax matters, if any, as part of operating expenses and includes accrued interest and penalties with accrued expenses in the condensed
interim balance sheets. 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 stock 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. Advertising The Company conducts advertising for the
promotion of its products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. The Company
recorded advertising expense of $ 195,048 87,590 Goodwill and Intangibles Assets 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. Intangible assets consist of customer lists,
brands and license agreements acquired in the acquisition of Copa Di Vino. The Company amortizes intangible assets with finite
lives on a straight-line basis over their estimated useful lives of 15 years. Long-lived assets The Company evaluates long-lived assets for impairment
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. Segment
reporting The Company discloses a measurement of segment profit
or loss that its chief operating decision maker (CODM) uses to assess segment performance and to make decisions about resource allocations
for each reportable segment. Recent Accounting Pronouncements On January 1, 2023, the Company adopted FASB issued
ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which requires the immediate recognition
of management’s estimates of current and expected credit losses. Adoption of this standard did not have a material impact on the
Company’s condensed consolidated financial statements or disclosures. Management does not believe that any recently issued,
but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements
are issued, the Company will adopt those that are applicable under the circumstances. Foreign Currency Gains/Losses Foreign Currency Gains/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. Gains or losses from these translation adjustments are
included in the condensed consolidated statement of operations and other comprehensive loss 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 foreign currency
translation in the condensed consolidated statement of operations and comprehensive loss. The Company incurred foreign
currency translation net loss of $ 1,609 0 Liquidity
and Going Concern Considerations These condensed consolidated financial statements have been prepared assuming
the Company will be able to continue as a going concern. The Company historically has incurred significant losses and negative cash flows
from operation since inception and had net-loss of approximately $3.7 million for three-month period ended March 31, 2023 and accumulated
deficit of approximately $116.1 million through March 31, 2023. During the three-month period ended March 31, 2023, the Company’s
net cash used in operating activities totaled approximately $4.1 million. If sales volumes do not meet the Company’s projections, expenses
exceed the Company’s expectations, or the Company’s plans change, the Company may be unable to generate enough cash flow from
operations to cover our working capital requirements. In such case, the Company may be required to adjust its business plan, by reducing
marketing, lower its working capital requirements and reduce other expenses or seek additional financing. In order to have sufficient cash to fund our operations, the Company will
need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed from any
source or, if available, will be available on terms that are acceptable to us. The Company will be required to pursue sources of additional
capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive
to existing stockholders. Also, the terms of securities the Company may issue in future capital transactions may be more favorable for
new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities,
and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, the
Company may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. The Company may also be required to recognize non-cash expenses in connection
with certain securities the Company may issue, such as convertible notes and warrants, which will adversely impact our financial condition.
Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact
the availability or cost of future financings. If the amount of capital the Company is able to raise from financing activities together
with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that the Company reduce our operations
accordingly, the Company may be required to curtail or cease operations. As a result, there is uncertainty regarding the Company’s ability
to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability
to continue as a going concern for at least twelve months from the date of the consolidated financial
statements being available to be issued. |
