Endovia Health Sciences, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Splash Beverage Group, Inc. Condensed Consolidated Financial Statements September 30, 2023 1 Splash Beverage Group, Inc. Condensed Consolidated Balance Sheets September 30, 2023 and December 31, 2022 September 30, 2023 December 31, 2022 Assets (unaudited) Current assets: Cash and cash equivalents $ 96,121 $ 4,431,745 Accounts receivable, net 1,512,693 1,812,110 Prepaid expenses 225,446 348,036 Inventory 2,907,461 3,721,307 Other receivables 376,905 344,376 Total current assets 5,118,626 10,657,574 Non-current assets: Deposit $ 49,398 $ 49,290 Goodwill 256,823 256,823 Intangible assets, net 4,564,037 4,851,377 Investment in Salt Tequila USA, LLC 250,000 250,000 Operating lease right of use asset 619,559 750,042 Property and equipment, net 385,603 489,597 Total non-current assets 6,125,420 6,647,129 Total assets $ 11,244,046 $ 17,304,703 Liabilities and Stockholders’ Equity Liabilities: Current liabilities Accounts payable and accrued expenses $ 4,199,476 $ 3,383,187 Liability to issue shares — 91,800 Operating lease liabilities - current 259,072 268,749 Notes payable, current portion 5,548,830 1,080,257 Due to related party 426,000 — Shareholder advance 200,000 — Accrued interest payable 496,384 141,591 Total current liabilities 11,129,762 4,965,584 Long-term liabilities: Notes payable 408,801 2,536,319 Operating lease liabilities - noncurrent 363,313 480,666 Total long-term liabilities 772,114 3,016,985 Total liabilities 11,901,876 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, 42,902,185 shares issued, 42,902,185 shares outstanding at September 30, 2023 and 41,085,520 shares issued, 41,085,520 shares outstanding at December 31, 2022 42,902 41,086 Additional paid in capital 126,648,371 121,632,547 Accumulated other comprehensive loss ( 8,448 ) ( 20,472 ) Accumulated deficit ( 127,340,655 ) ( 112,331,027 ) Total stockholders’ equity ( 657,830 ) 9,322,134 Total liabilities and stockholders’ equity $ 11,244,046 $ 17,304,703 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Splash Beverage Group, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss For the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited) Three months ended September 30 Nine months ended September 30, 2023 2022 2023 2022 Net revenues 5,144,069 4,870,407 16,161,747 13,295,921 Cost of goods sold ( 3,847,202 ) ( 3,101,807 ) ( 11,326,298 ) ( 8,886,508 ) Gross profit 1,296,867 1,768,600 4,835,449 4,409,413 Operating expenses: Contracted services 382,096 438,004 1,094,398 1,196,852 Salary and wages 1,195,916 1,262,935 3,794,179 3,180,198 Non-cash share-based compensation 367,244 1,697,201 1,224,101 7,039,695 Other general and administrative 3,048,779 2,734,377 8,617,013 7,698,231 Sales and marketing 626,363 746,965 2,105,559 1,918,420 Total operating expenses 5,620,398 6,879,482 16,835,250 21,033,396 Loss from continuing operations ( 4,323,531 ) ( 5,110,882 ) ( 11,999,801 ) ( 16,623,983 ) Other income/(expense): Interest income 348 158 1,668 2,867 Interest expense ( 221,488 ) ( 66,193 ) ( 561,249 ) ( 225,543 ) Other Income — — 49,819 — Amortization of debt discount ( 1,125,410 ) — ( 2,500,065 ) — Total other expense ( 1,346,550 ) ( 66,035 ) ( 3,009,827 ) ( 222,676 ) Provision for income taxes — — — — Net loss from continuing operations, net of tax ( 5,670,081 ) ( 5,176,917 ) ( 15,009,628 ) ( 16,846,659 ) Net loss from discontinued operations, net of tax — — — ( 199,154 ) Gain on sale of discontinued operations — 33,116 — 148,748 Income (Loss) from discontinued operations — 33,116 — ( 50,406 ) Net loss $ ( 5,670,081 ) $ ( 5,143,801 ) $ ( 15,009,628 ) $ ( 16,897,065 ) Other Comprehensive Income Foreign currency translation Income 29,406 — 12,024 — Total Comprehensive Loss $ ( 5,640,675 ) $ ( 5,143,801 ) $ ( 14,997,604 ) $ ( 16,897,065 ) Loss per share - continuing operations Basic and diluted $ ( 0.13 ) $ ( 0.14 ) $ ( 0.36 ) $ ( 0.46 ) Weighted average number of common shares outstanding - continuing operations Basic and diluted 42,812,058 37,364,031 41,991,259 36,417,222 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Splash Beverage Group, Inc. Condensed Consolidated Statement of Changes in Stockholders’ Equity For the Three and Nine months ended September 30, 2023 and 2022 (Unaudited) Total Accumulated Other Stockholders' Common Stock Additional Comprehensive Accumulated Equity Shares Amount Paid-In 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 223,596 224 1,206,287 — — 1,206,511 Issuance of warrants and options for services — — 1,242,697 — — 1,242,697 Issuance of common stock for services 550,000 550 1,112,845 — — 1,113,395 Issuance of common stock and warrants for cash 2,300,000 2,300 8,065,100 — — 8,067,400 Net loss — — — — ( 5,994,407 ) ( 5,994,407 ) Balances at March 31, 2022 36,669,828 $ 36,670 $ 111,107,117 — $ ( 96,634,964 ) $ 14,508,822 Issuance of warrants for services — — 1,174,289 — — 1,174,289 Issuance of common stock for services 500,000 500 1,429,500 — — 1,430,000 Issuance of common stock and warrants for cash 100,000 100 109,900 — — 110,000 Accumulated Comprehensive Income - Translation — — — ( 6,570 ) — ( 6,570 ) Net loss — — — — ( 5,758,857 ) ( 5,758,857 ) Balances at June 30, 2022 37,269,828 $ 37,270 $ 113,820,805 $ ( 6,570 ) $ ( 102,393,821 ) $ 11,457,685 Issuance of warrants for services — — 1,036,066 — — 1,036,066 Issuance of common stock for APA 380,959 381 ( 381 ) — — — Issuance of common stock and warrants for cash 2,000,000 2,000 2,631,500 — — 2,633,500 Accumulated Comprehensive Income - Translation — — — 8,795 — 8,795 Net loss — — — — ( 5,143,801 ) ( 5,143,801 ) Balances at September 30, 2022 39,650,787 $ 39,651 $ 117,487,990 $ 2,225 $ ( 107,537,622 ) $ 9,992,245 Balances at December 31, 2022 41,085,520 $ 41,086 $ 121,632,546 $ ( 20,472 ) $ ( 112,331,026 ) $ 9,322,134 Common stock issuable and beneficial conversion feature on convertible 12-month promissory note — — 1,786,468 — — 1,786,468 Issuance of warrants for services — — 215,760 — — 215,760 Accumulated Comprehensive loss – translation, net — — — ( 1,609 ) — ( 1,609 ) Net loss — — — — ( 3,729,299 ) ( 3,729,299 ) Balances at March 31, 2023 41,085,520 $ 41,086 $ 123,634,774 $ ( 22,081 ) $ ( 116,060,325 ) $ 7,593,454 Issuance of common stock on convertible instruments 1,500,000 1,500 ( 1,500 ) — — — Share based compensation — — 509,232 — — 509,232 Issuance of common stock for services 216,666 216 223,449 — — 223,665 Issuance of warrants on convertible instruments — — 1,269,669 — — 1,269,669 Accumulated Comprehensive loss – translation, net — — — ( 15,773 ) — ( 15,773 ) Net loss — — — — ( 5,610,249 ) ( 5,610,249 ) Balances at June 30, 2023 42,802,186 $ 42,802 $ 125,635,624 $ ( 37,854 ) $ ( 121,670,574 ) $ 3,969,998 Debt discount from convertible instrument — — 79,817 — — 79,817 Share based compensation — — 300,912 — — 300,912 Issuance of common stock for services 99,999 100 66,232 — — 66,332 Issuance of warrants on convertible instruments — — 565,786 — — 565,786 Accumulated Comprehensive loss – translation, net — — — 29,406 — 29,406 Net loss — — — — ( 5,670,081 ) ( 5,670,081 ) Balances at September 30, 2023 42,902,185 $ 42,902 $ 126,648,371 $ ( 8,448 ) $ ( 127,340,655 ) $ ( 657,830 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Splash Beverage Group, Inc. Condensed Consolidated Statement Cash Flows For the Nine Months Ended September 30, 2023 and 2022 (Unaudited) 2023 2022 Net loss $ ( 15,009,628 ) $ ( 16,897,065 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 403,948 306,900 Amortization of debt discount 2,500,065 — ROU assets, net 3,453 4,888 Loss (gain) from sale of discontinued operation — 50,407 Common stock issued for services 289,998 — Non-cash share-based compensation 1,224,101 7,107,684 Changes in working capital items: Accounts receivable, net 299,417 ( 364,161 ) Inventory, net 813,846 ( 1,660,852 ) Prepaid expenses and other current assets 90,061 ( 398,328 ) Deposits ( 108 ) 281,635 Accounts payable and accrued expenses 526,290 732,139 Accrued interest payable 354,792 12,101 Net cash used in operating activities - continuing operations ( 8,503,765 ) ( 10,824,652 ) Cash flows from investing activities: Capital expenditures ( 12,613 ) ( 45,420 ) Net cash used in investing activities - continuing operations ( 12,613 ) ( 45,420 ) Cash flows from financing activities: Proceeds from issuance of common stock — 10,810,900 Cash advance from related party 426,000 — Cash advance from shareholder 200,000 ( 280,500 ) Proceeds from issuance of debt 4,300,000 45,420 Principal repayment of debt ( 757,270 ) ( 1,285,861 ) Net cash provided by financing activities - continuing operations 4,168,730 9,289,959 Net cash effect of exchange rate changes on cash 12,024 — Net change in cash and cash equivalents ( 4,335,624 ) ( 1,580,113 ) Cash and cash equivalents, beginning of year 4,431,745 4,181,383 Cash and cash equivalents, end of period $ 96,121 $ 2,601,270 Supplemental disclosure of cash flow information: Cash paid for Interest $ 206,456 $ 164,107 Supplemental disclosure of non-cash investing and financing activities Notes payable and accrued interest converted to common stock (223,596 shares) — 1,206,511 Non-cash debt discount in the form of issuance of equity instruments and beneficial conversion feature in conjunction with convertible notes 3,099,940 — The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 1 – Business Organization and Nature of Operations 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. 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 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”) and Copa di Vino Wine Group, Inc. (“Copa di Vino”). Canfield Medical Supply, Inc. (“CMS”) (as discontinued operations), was consolidated until September 30, 2022. All intercompany balances have been eliminated in consolidation. 6 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements 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 ended September 30, 2022, the Company reclassified $ 617,553 from cost of goods sold to other general and administrative cost in the condensed consolidated statement of operations and comprehensive loss, which consisted of $ 176,504 of shipping and handling and $ 441,049 of Amazon selling fees. In the nine months ended September 30, 2022, the Company reclassified $ 1,753,208 from cost of goods sold to other general and administrative cost in the condensed consolidated statement of operations and comprehensive loss, which consisted of $ 602,479 of shipping and handling and $ 1,150,729 of Amazon selling fees. These reclassifications had no impact on net loss. 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 cash equivalents at September 30, 2023 or December 31, 2022. At September 30, 2023 the Company’s cash on deposit with financial institutions, at times, had not exceed federally insured limits of $ 250,000 . 7 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued 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 September 30, 2023 and December 31, 2022, our accounts receivable amounts are reflected net of allowances of $ 14,634 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 September 30, 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 $ 253,603 and $ 66,146 at September 30, 2023 and December 31, 2022, respectively. Property and Equipment The Company records property and equipment at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic useful lives of assets, which range from 3 - 39 years. Company management reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. Depreciation expense totaled $ 38,242 and $ 27,762 for the three months ended September 30, 2023 and September 30, 2022, respectively. For the nine months ended September 30, 2023 and September 30, 2022 depreciation expense totaled $ 98,285 and $ 101,991 respectively. Property and equipment as of September 30, 2023 and December 31, 2022 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 233,323 282,988 Leasehold improvements 723,639 713,068 Computer Software 5,979 — Office furniture & equipment 7,657 13,636 Total cost 2,176,596 2,163,983 Accumulated depreciation ( 1,790,993 ) ( 1,674,385 ) Property, plant & equipment, net 385,603 489,597 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. 8 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Fair Value of Financial Instruments Financial Accounting Standards Board (“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 September 30, 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. 9 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued 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. 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. Other General and Administrative Expenses Other General and Administrative expenses include 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, shipping and handling cost and other cost. 10 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Shipping and Handling Costs The Company includes costs associated with the outbound shipping and handling of finished goods as a component of other general and administrative expenses in the consolidated statements of operations and comprehensive loss. Shipping and handling are not separately billed to the customers and are included in fees charged to the customer and are recorded as revenue when earned. The Company incurred $ 1,279,189 and $ 1,268,636 of shipping and handling costs for the three months ending September 30, 2023 and 2022 respectively. The Company incurred $ 4,016,394 and $ 3,261,266 of shipping and handling costs for the nine months ending September 30, 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” . 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 award’s vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock-based awards. Income Taxes The Company uses 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. The Company records 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 September 30, 2023 and December 31, 2022. 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. 11 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Net income (loss) per share The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common 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. For the three months ended September 30, 2023 and September 30, 2022 the Company recorded advertising expenses of $ 248,512 and $ 746,965 , respectively. The Company recorded advertising expense of $ 1,075,127 and $ 1,918,420 for the nine months ended September 30, 2023 and 2022, respectively. 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. 12 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued 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. In October 2021, the FASB issued ASU 2021-08, Business Combinations - Accounting for contract assets and contract liabilities from contracts with customers (Topic 805), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Revenues from contracts with customers (Topic 606). For public companies, the guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted the guidance during fiscal year 2023. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. 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 gain of $ 13,632 and $ 4,345 for the three months ended September 30, 2023 and 2022 respectively and net gain of $ 12,023 and net loss of $2,225 ( 2,225 ) for the nine months ending September 30, 2023 and 2022 respectively. 13 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements 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 $15 million for nine-month period ended September 30, 2023 and accumulated deficit of approximately $127.3 million through September 30, 2023. During the nine-month period ended September 30, 2023, the Company’s net cash used in operating activities totaled approximately $8.5 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. 14 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 3 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable and Revenue Financing Arrangements Notes payable are generally non-recourse and secured by all Company owned assets. Schedule of notes payable Interest Rate September 30, 2023 December 31, 2022 Notes Payable and Convertible 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 % 494,204 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 15 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements In August 2022, the Company entered into a 56-months auto loan in the amount of $ 45,420 . 2.35 % 35,367 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 — 2,000,000 — 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 — 16 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements 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 100 % 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 100 % 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 — Total notes payable $ 9,057,571 $ 5,514,841 Less notes discount ( 3,099,940 ) ( 1,898,265 ) Less current portion ( 5,548,830 ) ( 1,080,257 ) Long-term notes payable $ 408,801 $ 2,536,319 Interest expense on notes payable was $ 207,087 and $ 65,007 for the three months ended September 30, 2023 and 2022, respectively. Interest expense on notes payable was $ 546,849 and $ 217,123 for the nine months ended September 30, 2023 and 2022, respectively. Accrued interest was $ 496,384 as of September 30, 2023. The Company’s effective interest rate was 41.07 % for the nine months ended September 30, 2023. As of September 30, 2023, the Company’s convertible note balances are convertible into 9,222,251 shares of common stock. Shareholder Advances As of February 23, 2023, the Company received a shareholder advance for $ 200,000 with a 12 % interest rate and interest expense was $ 14,400 for the nine months ended September 30, 2023. 17 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 4 – Licensing Agreement and Royalty Payable The Company has a licensing agreement with ABG TapouT, LLC (“TapouT”), providing the Company with licensing rights to the brand “TapouT” (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. The Company is required to pay a 6% royalty on net sales, as defined, and are required to make minimum monthly payments of $ 55,000 in 2023 and $ 54,450 in 2022. There were no unpaid royalties at September 30, 2023. The Company paid the guaranteed minimum royalty payments of $ 165,000 and $ 163,350 for the three months ended September 30, 2023 and 2022 respectively and $ 495,000 and $ 490,050 for the nine months ending September 30, 2023 and 2022 respectively, which is included in general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss. In connection with the Copa di Vino APA, the Company acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”). On February 16, 2018, Copa di Vino entered into three separate license agreements with 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 in 2027. The asset is being amortized over a 10 -year useful life. Note 5– Stockholders’ Equity Common Stock During the period ended September 30, 2023, the Company entered into a private placement offering to purchase convertible instruments that convert into the Company’s common stock up to an aggregate of $ 8,500,000 . The Company received gross proceeds of $ 4,300,000 from the issuance of convertible instruments with 3,725,000 shares and 1,000,000 warrants. In the three months and nine months ended September 30, 2023, the Company granted share-based awards to certain consultants totaling 99,999 and 316,666 shares of common stock, respectively, at a weighted average price of $0.66 and $0.91, respectively, recognized share-based compensation of $ 66,332 and $ 289,998 , respectively. In the nine months ended September 30, 2023, the Company issued 100,000 shares in satisfaction of a $ 91,800 liability to issue shares recorded in December 2022. 18 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements Note 5 – Stockholders’ Equity, continued Stock Plans 2020 Plan In July 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%. The following is a summary of the Company’s stock option activity during the period ended September 30, 2023: Schedule of stock option activity Stock options Weighted average exercise price of outstanding stock options Weighted average remaining life (Yrs) Balance January 01, 2023 * 1,151,000 $ 1.12 Granted 65,000 1.08 Exercises — — Cancelled — — Balance March 31, 2023 1,216,000 $ 1.12 Granted 3,376,008 1.13 Exercises — — Cancelled — — Balance - June 30, 2023 4,592,008 $ 1.13 Exercisable - June 30, 2023 3,608,923 $ 1.12 Granted — — Exercises — — Cancelled — — Balance - September 30, 2023 4,592,008 $ 1.13 $ 6.41 Exercisable - September 30, 2023 3,608,923 $ 1.12 $ 5.68 * These prices are reflective of the price modification made on April 24, 2023. The Company recognized $ 300,912 and $ 1,025,903 of share-based compensation during the three months and nine months ended September 30, 2023. 19 Splash Beverage Group, Inc. Notes to the Consolidated Financial Statements The following is a summary of the Company’s Warrant activity. Schedule of warrant activity Warrants Weighted average exercise price of outstanding warrants Weighted average remaining term (Yrs) Balance December 31, 2022 14,343,896 $ 1.85 Granted — — Balance March 31, 2023 14,343,896 $ 1.85 Granted 575,000 0.25 Exercises 68,146 2.19 Cancelled 2,345,677 2.32 Balance - June 30, 2023 12,505,073 $ 1.68 3.19 Granted 425,000 0.25 Exercises — — Cancelled — — Balance - September 30, 2023 12,930,073 $ 1.63 2.93 Note 6 – Related Parties During the normal course of business, the Company incurs expenses related to services provided by the CEO for Company expenses paid by the CEO. 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, was an 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 Note Payable had a balance outstanding of $ 494,204 at September 30,2023. On June 22, 2023, the Company received an interest free short-term loan from the CEO for $ 250,000 . In August and September 2023, the Company received an interest free short-term loan from the CEO for $ 165,000 and expense payable of $ 11,000 . The loan is expected to be repaid within the current year. Note 7 – Investment in Salt Tequila USA, LLC The Company has a marketing and distribution agreement with SALT Tequila USA, LLC (“SALT”) for the manufacturing of our Tequila product line in Mexico. The Company has a 22.5 % percentage ownership interest in SALT, this investment is carried at cost less impairment, the investment does not have a readily determinable fair value. The Company has the right to increase our ownership to 37.5 %. 20 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 8 – Leases The Company has various operating lease agreements primarily related to real estate and office space. The Company’s real estate leases represent a majority of the lease liability. Lease payments are mainly fixed. Any variable lease payments, including utilities, common area maintenance are expensed during the period incurred. Variable lease costs were immaterial for the three months and nine-month period ended September 30, 2023 and 2022. A majority of the real estate leases include options to extend the lease. Management reviews 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 the Company’s condensed consolidated statement of operations and comprehensive loss. Operating lease cost was $ 273,631 and $ 263,159 during the nine-month period ended September 30, 2023 and 2022, respectively. The following table sets forth the maturities of our operating lease liabilities and reconciles the respective undiscounted payments to the operating lease liabilities in the consolidated balance sheet at September 30, 2023: Schedule of operating lease liability Undiscounted Future Minimum Lease Payments Operating Lease 2023 (Three months remaining) 71,416 2024 286,168 2025 287,193 2026 17,856 Total 662,633 Amount representing imputed interest ( 40,248 ) Total operating lease liability 622,385 Current portion of operating lease liability 259,072 Operating lease liability, non-current $ 363,313 The table below presents lease-related terms and discount rates at September 30, 2023: Schedule of lease-related terms and discount rates Remaining term on leases 1 to 33 months Incremental borrowing rate 5.0 to 9.0 % 21 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 9 – Segment Reporting The Company has two reportable operating segments: (1) the manufacture and distribution of non-alcoholic and alcoholic brand beverages, and (2) the e-commerce sale of beverages. These operating segments are managed respectively, and each segment’s major customers have different characteristics. Segment Reporting is evaluated by our Chief Executive Officer and Chief Financial Officer. Schedule of segment reporting information Three Months Ended September 30 Nine Months Ended September 30 Revenue 2023 2022 2023 2022 Splash Beverage Group $ 1,104,878 $ 1,147,248 $ 4,130,817 $ 3,980,794 E-Commerce 4,039,191 3,723,159 12,030,930 9,315,127 Net revenues, continuing operations 5,144,069 4,870,407 16,161,747 13,295,921 Contribution after Marketing Splash Beverage Group ( 652,727 ) ( 430,049 ) ( 1,468,563 ) ( 1,278,987 ) E-Commerce 1,323,231 1,451,684 4,198,453 3,769,980 Total contribution after marketing 670,504 1,021,635 2,729,890 2,490,993 Contracted services 382,096 438,004 1,094,398 1,196,852 Salary and wages 1,195,916 1,262,935 3,794,179 3,180,198 Non-cash share-based compensation 367,244 1,697,201 1,224,101 7,039,695 Other general and administrative 3,048,779 2,734,377 8,617,013 7,963,231 Loss from continuing operations $ ( 4,323,531 ) $ ( 5,110,882 ) $ ( 11,999,801 ) $ ( 16,623,983 ) Total assets September 30, 2023 December 31, 2022 Splash Beverage Group $ 9,599,010 $ 14,723,553 E-Commerce 1,645,036 2,581,150 Total assets $ 11,244,046 $ 17,304,703 22 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 10 – Commitment and Contingencies The Company is 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 the Company does 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. Note 11 – Subsequent Events In October, 2023, the Company received approximately $ 1.9 million from the issuance of senior secured convertible notes, a convertible promissory note and a merchant agreement. The senior convertible notes have an eighteen-month term, accrue interest at 12% and are convertible into shares of common stock of the Company at $0.85 per share and include 100% warrant coverage. The convertible promissory note has a two-and-a-half-month term and accrues interest at a fixed amount of $ 50,000 . The notes that matured in October 2023 were extended by the note holders to March 31, 2024. The maturity dates of the related party notes were extended to March 31, 2024. 23