Endovia Health Sciences, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Regarding Forward-Looking Statements The information in this discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements that are not of historical fact may be deemed to be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue”, the negative of the terms or other comparable terminology. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in other reports or registration statements filed with the United States Securities and Exchange Commission. These factors may cause our actual results to differ materially from any forward-looking statements. We disclaim any obligation to publicly update these statements or disclose any difference between actual results and those reflected in these statements. Unless the context otherwise requires, references in this Form 10-Q to “we,” “us,” “our,” or the “Company” refer to Splash Beverage Group and its subsidiaries. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements (unaudited) and Related Notes herewith. Business Overview Splash Beverage Group (“SBG” or “Splash”), f/k/a Canfield Medical Supply, Inc. (the “CMS”), was incorporated in the State of Ohio on September 3, 1992, and changed domicile to Colorado on April 18, 2012. 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. Prior to the Merger, 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 and the Company continues to operate the home health supply business as a separate division. 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. 27 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 changes its name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc. Our new ticker symbol is SBEV. On December 24, 2020, SBG consummated an Asset Purchase Agreement(the “APA”) with Copa di Vino Corporation (“CdV”), to purchase certain assets and assume certain liabilities that comprise the Copa di Vino business for a total purchase price of $5,980,000, payable in the combination of $2,000,000 in cash (“Cash Consideration”), $2,000,000 convertible promissory note (the “Convertible Note”) to Seller and a variable number of shares of the Company’s common stock based on a attainment of revenue hurdles. CdV is one of the leading producers of premium wine by the glass in the United States with its primary offices and facilities in The Dalles, Oregon. Results of Operations for the Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020. Revenue Revenues for the three months ended September 30, 2021 were $2,827,393 compared to revenues of $692,974 for the three months ended September 30, 2020. A significant portion of the $2,134,419 increase in sales is due to an increase within our vertically integrated B2B and B2C e-commerce distribution platform called Qplash. This platform sells goods on both Amazon and Shopify. In addition, we had increased sales from Copa di Vino Wine Group, Inc., our single-serve wine and Pulpoloco Sangria businesses. Cost of goods sold for the three months ended September 30, 2021 were $2,007,544 compared to cost of goods sold for the three months ended September 30, 2020 of $349,037. The $1,658,507 increase in cost of goods sold for the three-month period ended September 30, 2021 is primarily due to our increased sales, and as our sales increased, our cost of sales for those sales correspondingly increased. Operating Expenses Operating expenses for the three months ended September 30, 2021 were $12,892,079 compared to $2,733,435 for the three months ended September 30, 2020. The $10,158,644 increase in our operating expenses was primarily a result of recording the warrants issued pursuant to certain private placements conducted by the Company, and options and stock approved by the Board ($3,010,013), increased headcount from the Copa acquisition and the addition of new sales reps, professional fees ($6,391,514) and shipping costs ($521,315). The net loss for the three months ended September 30, 2021 was $12,169,894 as compared to a net loss of $2,351,814 for the three months ended September 30, 2020. The increase in net loss is due to our increase in operating expenses offset by our increase in revenues. 28 Interest Expense Interest expenses for the three months ended September 30, 2021 were $100,128 compared to $23,110 for the three months ended September 30, 2020. The $77,018 increase in our interest expenses was primarily a result of additional debt taken on in Q2 2021. Results of Operations for the Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020. Revenue Revenues for the nine months ended September 30, 2021 were $8,254,078 compared to revenues of $1,217,709 for the nine months ended September 30, 2020. The $7,036,369increase in sales is due to an increase within our vertically integrated B2B and B2C e-commerce distribution platform called Qplash ($4,902,088). This platform sells goods on both Amazon and Shopify. In addition, we had increased sales from Copa di Vino Wine Group, Inc., our single-serve wine and Pulpoloco Sangria businesses ($3.085,299). Cost of goods sold for the nine months ended September 30, 2021 were $6,011,755 compared to cost of goods sold for the nine months ended September 30, 2020 of $744,024. The $5,267,731 increase in cost of goods sold for the nine-month period ended September 30, 2021 is primarily due to our increased sales, and as our sales increased, our cost of sales for those sales correspondingly increased. Operating Expenses Operating expenses for the nine months ended September 30, 2021 were $25,171,500 compared to $4,774,571 for the nine months ended September 30, 2020. The $20,396,929 increase in our operating expenses was primarily a result of recording the warrants issued pursuant to certain private placements conducted by the Company, and options and stock approved by the Board ($7,407,976), increased headcount from the Copa acquisition and the addition of new sales reps, professional fees ($8,996,732) and shipping costs ($1,404,110). The net loss for the nine months ended September 30, 2021 was $23,170,917 as compared to a net loss of $6,173,943 for the nine months ended September 30, 2020. The decrease in net loss is due to our increase in operating expenses offset by our increase in revenues. Interest Expense Interest expenses for the nine months ended September 30, 2021 were $341,715 compared to $1,958,601 for the nine months ended September 30, 2020. The $1,616,886 decrease in our interest expenses was primarily a result of recording a finance charge of $1,821,426 associated with warrants issued to one of our note holders in Q1 2020 offset by interest expense recorded in the period. LIQUIDITY AND CAPITAL RESOURCES Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. As of September 30, 2021, we had total cash and cash equivalents of $8,144,171, as compared with $380,000 at December 31, 2020. The increase is primarily due to cash received from private placements conducted by us and our S1/A registration statement where we raised $15,000,000. 29 Net cash used for operating activities during the nine months ended September 30, 2021 was $11,615,297 as compared to the net cash used by operating activities for the nine months ended September 30, 2020 of $4,311,170. The primary reasons for the change in net cash used is due to losses sustained and increases in inventory, offset by non-cash expenses relating to warrant expense ($5,665,464) and share-based compensation ($8,212,864). Net cash used for investing activities during the nine months ended September 30, 2021 was $0 as compared to the net cash used by operating activities for the nine months ended September 30, 2020 of $154,341. The net cash used in the first quarter of 2020 was primarily due to the $150,000 payment made to SALT Tequila USA. Net cash provided by financing activities during the nine months ended September 30, 2021 was $19,597,565 compared to $5,081,594 provided from financing activities for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, we received $21,393,065 from investors, which was offset by repayments to shareholders and debt holders of $1,795,188. CONTRACTUAL OBLIGATIONS Minimum Royalty Payments: We have a licensing agreement with ABG TapouT, LLC (“TapouT”). Under the licensing agreement, we have minimum royalty payments to TapouT for the next two years. ● 2021 $594,000 ● 2022 $653,400 Inventory Purchase Commitments : None. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for Smaller Reporting Companies. 30