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. The Company 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 Financial Statements (unaudited) and Notes to Condensed Financial Statements (unaudited) filed herewith. Business Overview Splash Beverage Group, Inc. (the “Company”, “Splash”) seeks to identify, acquire, and build early stage or under-valued beverage brands that have strong growth potential within its distribution system. Splash’s distribution system is comprehensive in the US and is now expanding to select attractive international markets. Through its division Qplash, Splash’s distribution reach includes e-commerce access to both business-to-business (B2B) and business-to-consumer (B2C) customers. Qplash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilities, and or homes. Results of Operations for the Three Months and Six Months Ended June 30, 2023 compared to Three Months and Six Months Ended June 30, 2022. Net Revenue Net Revenues for the three months ended June 30, 2023 was $5,194,951 compared to revenues of $4,498,940 for the three months ended June 30, 2022. The $696,011 increase in sales is due to an increase from our vertically integrated B2B and B2C e-commerce distribution platform called Qplash which increased $924,428 offset by a decline in sales in the beverage business of $228,417 driven by phasing of purchases of Salt Tequila and Copa di Vino from our distributors. 25 Revenue for the six months ended June 30, 2023 was $11,017,678 compared to revenues of $8,425,514 for the six months ended June 30, 2022. The $2,592,164 increase in sales is driven by increases in both the e-commerce and beverage businesses which increased $2,399,772 and $192,392 respectively. Qplash increased revenue was based on expanded territory coverage, new products being sold and increased cart size for customers. The beverage business largest contributors to the increase in revenues were TapouT and Pulpoloco. Cost of Goods Sold Cost of goods sold for the three months ended June 30, 2023 was $3,417,868 compared to cost of goods sold for the three months ended June 30, 2022 of $3,149,275. The $268,593 increase in cost of goods sold for the three-month period ended June 30, 2023 is driven by increased sales and product mix shifting to lower margin items in e-commerce business. Cost of goods sold for the six months ended June 30, 2023 was $7,479,096 compared to cost of goods sold for the six months ended June 30, 2022 of $5,784,701. The $1,694,395 increase in cost of goods sold for the six-month period ended June 30, 2023 is driven by increased sales in both the e-commerce and beverage business. Improvement in cost of goods sold compared to net revenue for the three month and six-month period ended June 30, 2023 versus June 30, 2022 is driven by higher margin products sold. Operating Expenses Operating expenses for the three months ended June 30, 2023 was $5,998,432 compared to $7,178,813 for the three months ended June 30, 2022 a decrease of $1,180,381. The decrease in operating expenses was primarily due to non-cash expenses partially offset by increases for the incorporation of new staff, benefit cost, freight cost and Amazon selling fees. Operating expenses for the six months ended June 30, 2023 was $11,214,852 compared to $14,153,913 for the six months ended June 30, 2022 a decrease of $2,939,061. The decrease in operating expenses was primarily due to non-cash expenses partially offset by increases for the incorporation of new staff, benefit cost, marketing expense, freight cost and Amazon selling fees. 26 Net Other Income and Expense Interest expense for the three and six months ended June 30, 2023 was $172,641 and $339,762 respectively. For the three and six months ended June 30, 2022 the interest expenses was $73,472 and $159,350 respectively due to additional convertible notes issued in December 2022. Included in Other Income for the three months ended June 30, 2023 was an insurance settlement of $57,429. For the three and six months ended June 30, 2022 the other income / expense $0. Amortization of debt discount for the three months and six months ended June 30, 2023 was $1,126,994 and $1,374,655 respectively. For the three and six months ended June 30, 2022 the amortization of debt discount was $0. LIQUIDITY, GOING CONCERN CONSIDERATIONS 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 June 30, 2023, the Company had total cash and cash equivalents of $903,235, as compared with $4,431,745 at December 31, 2022. Net cash used for operating activities during the six months ended June 30, 2023 was $6,522,091 as compared to the net cash used by operating activities for the six months ended June 30, 2022 of $7,107,851. The driver for the change in net cash used is due to a reduction of inventory in 2023 and an increase of inventory to support sales commitments in 2022. 27 Net cash provided by financing activities during the six months ended June 30, 2023 was $3,023,576. During the six months ended June 30, 2023, the Company received $3,150,000 for convertible notes, $200,000 from a shareholder advance and a $250,000 loan from a related party, which was offset by repayments to debt holders of $576,424. 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 the Company. 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 new 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 issuance of incentive awards under equity 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 are 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. CONTRACTUAL OBLIGATIONS Share obligation: None. Minimum Royalty Payments: The Company has a licensing agreement with ABG TapouT, LLC (“TapouT”). Under the licensing agreement, the Company has minimum royalty payments to TapouT of $330,00 for the six months remaining in 2023. Inventory Purchase Commitments : None. Off-Balance Sheet Arrangements The Company does 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. Critical Accounting Estimates None. Recently Issued Accounting Pronouncements None. 28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for Smaller Reporting Companies.