Endovia Health Sciences, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Splash Beverage Group, Inc. Condensed Consolidated Financial Statements March 31, 2024 1 Splash Beverage Group, Inc. Condensed Consolidated Balance Sheets March 31, 2024 and December 31, 2023 March 31, 2024 December 31, 2023 Assets (unaudited) Current assets: Cash and cash equivalents $ 14,757 $ 379,978 Accounts receivable, net 755,899 890,631 Prepaid expenses 365,059 220,320 Inventory 1,471,712 2,252,469 Other receivables 229,015 233,850 Total current assets 2,836,442 3,977,248 Non-current assets: Deposits $ 49,462 $ 49,446 Goodwill 256,823 256,823 Intangible assets, net 4,361,292 4,459,309 Investment in Salt Tequila USA, LLC 250,000 250,000 Right of use assets 491,859 556,140 Property and equipment, net 312,589 349,802 Total non-current assets 5,722,025 5,921,520 Total assets $ 8,558,467 $ 9,898,768 Liabilities and Stockholders’ Equity Liabilities: Current liabilities Accounts payable and accrued expenses $ 4,945,173 $ 4,444,286 Right of use liability, current portion 266,704 262,860 Related party notes payable 375,000 380,000 Notes payable, net of discounts 9,013,690 7,748,518 Shareholder advances 200,000 200,000 Accrued interest payable 2,222,398 1,714,646 Total current liabilities 17,022,965 14,750,310 Long-term liabilities: Notes payable, net of discounts 810,166 457,656 Right of use liability – net of current portion 228,024 296,128 Total long-term liabilities 1,038,190 753,784 Total liabilities 18,061,155 15,504,094 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, 46,382,099 shares issued, 44,330,099 shares outstanding at March 31, 2024 and December 31, 2023 46,382 41,330 Additional paid in capital 127,221,573 127,701,710 Accumulated other comprehensive loss ( 24,020 ) ( 16,583 ) Accumulated deficit ( 136,746,623 ) ( 133,334,783 ) Total stockholders’ equity ( 9,502,688 ) ( 5,605,326 ) Total liabilities and stockholders’ equity $ 8,558,467 $ 9,898,768 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 Months Ended March 31, 2024 and 2023 (Unaudited) Three months ended March 31, 2024 2023 Net revenues $ 1,540,680 $ 5,822,727 Cost of goods sold ( 1,377,065 ) ( 4,061,228 ) Gross profit 163,615 1,761,499 Operating expenses: Contracted services 218,829 381,005 Salary and wages 1,234,926 1,234,127 Non-cash share-based compensation 556,672 215,760 Other general and administrative 1,201,031 2,648,701 Sales and marketing 202,454 736,827 Total operating expenses 3,413,912 5,216,420 Loss from continuing operations ( 3,250,297 ) ( 3,454,921 ) Other income/(expense): Other income ( 1,495 ) 140,404 Amortization of debt discount ( 886,838 ) ( 247,661 ) Interest Income 332 — Interest expense ( 532,599 ) ( 167,121 ) Total other expense ( 1,420,600 ) ( 274,378 ) Provision for income taxes — — Net loss from continuing operations, net of tax ( 4,670,897 ) ( 3,729,299 ) Net loss $ ( 4,670,897 ) $ ( 3,729,299 ) Other comprehensive loss foreign currency translation loss, net of tax ( 7,437 ) ( 1,609 ) Total comprehensive loss ( 4,678,334 ) ( 3,730,908 ) Loss per share - continuing operations Basic and dilutive $ ( 0.10 ) $ ( 0.10 ) Weighted average number of common shares outstanding - continuing operations Basic and dilutive 44,793,831 37,389,990 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 months ended March 31, 2024 and 2023 (Unaudited) Common Shares Amount Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total stockholders’ equity 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 Share based compensation — — 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 Balances at December 31, 2023 44,330,099 $ 44,330 $ 127,701,710 $ ( 16,583 ) $ ( 133,334,783 ) $ ( 5,605,326 ) Issuance of common stock for note extension 200,000 200 107,800 — — 108,000 Share based compensation — — 271,672 — — 271,672 Adoption of ASU 2020-06 ( 2,191,103 ) 1,259,057 ( 932,046 ) Issuance of warrants on convertible instruments — — 768,346 — — 768,346 Conversion of notes payable to common stock 1,552,000 1,552 386,448 — — 388,000 Issuance of common stock for services 300,000 300 176,700 — — 177,000 Accumulated Comprehensive loss – translation, net — — — ( 7,437 ) — ( 7,437 ) Net loss — — — — ( 4,670,897 ) ( 4,670,897 ) Balances at March 31, 2024 46,382,099 $ 46,382 $ 127,221,573 $ ( 24,020 ) $ ( 136,746,623 ) $ ( 9,502,688 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Splash Beverage Group, Inc. Condensed Consolidated Statement of Cash Flows For the Three Months Ended March 31, 2024 and 2023 (Unaudited) 2024 2023 Net loss $ ( 4,670,897 ) $ ( 3,729,299 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 135,231 130,618 Amortization of debt discount 886,838 247,661 ROU assets, net 21 427 Non-cash share-based compensation 556,672 215,760 Changes in working capital items: Accounts receivable, net 134,732 ( 378,571 ) Inventory, net 780,757 576,514 Prepaid expenses and other current assets ( 139,903 ) ( 723,988 ) Deposits ( 15 ) ( 78 ) Accounts payable and accrued expenses 500,887 ( 464,195 ) Accrued interest payable 507,752 21,324 Net cash used in operating activities ( 1,307,925 ) ( 4,103,827 ) Cash flows from investing activities: Capital expenditures — ( 10,571 ) Net cash used in investing activities — ( 10,571 ) Cash flows from financing activities: Cash advance (repayment) from related party ( 5,000 ) — Cash advance from shareholder — 200,000 Proceeds from issuance of debt 1,465,500 2,000,000 Principal repayment of debt ( 509,858 ) ( 369,941 ) Net cash provided by financing activities 950,142 1,830,059 Net cash effect of exchange rate changes on cash ( 7,437 ) ( 1,609 ) Net change in cash and cash equivalents ( 365,221 ) ( 2,285,948 ) Cash and cash equivalents, beginning of year 379,978 4,431,745 Cash and cash equivalents, end of period $ 14,757 $ 2,145,797 Supplemental disclosure of cash flow information: Cash paid for Interest $ 24,847 $ 145,797 Supplemental disclosure of non-cash investing and financing activities Notes payable and accrued interest converted to common stock (1,552,000 shares in 2024) 388,000 — Non-cash debt discount in the form of issuance of shares and beneficial conversion feature in conjunction with convertible notes 661,677 1,786,468 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 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 2023 Annual Report on Form 10-K, filed with the SEC on March 31,2024 (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”). All intercompany balances have been eliminated in consolidation. 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 confirm to accounting principles generally accepted in the United States of America (GAAP). 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 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 March 31, 2024 or December 31, 2023. Our cash in bank deposit accounts, at times, may exceed federally insured limits of $ 250,000 . At March 31, 2024 and December 31, 2023, the Company’s cash on deposit with financial institutions, at times, had not exceeded federally insured limits of $250,000. 6 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 March 31, 2024 and December 31, 2023, our accounts receivable amounts are reflected net of allowances of $ 208,186 and $ 183,089 , 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 March 31, 2024 and December 31, 2023 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 $ 253,128 and $ 290,524 at March 31, 2024 and December 31, 2023, 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 $ 37,214 and $ 46,701 for the three months ended March 31, 2024 and March 31, 2023, respectively. Property and equipment as of March 31, 2024 and December 31, 2023 consisted of the following: Schedule of property and equipment 2024 2023 Auto 45,420 45,420 Machinery & equipment 1,160,278 1,160,578 Buildings 233,323 233,323 Leasehold improvements 723,639 723,638 Computer Software 5,979 5,979 Office furniture & equipment 9,157 9,157 Total cost 2,178,095 2,178,095 Accumulated depreciation ( 1,865,506 ) ( 1,828,293 ) Property, plant & equipment, net 312,589 349,802 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. 7 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 (“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, 2024 and December 31, 2023, consistent with recent negotiations of notes payable and due to the short duration of maturities and market rates of interest. Embedded debt costs in convertible debt instruments In August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ ASU 2020-06 ”) which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition was permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted no earlier than the fiscal year beginning after December 15, 2020. The Company has adopted ASU 2020-06 effective January 1, 2024 and has removed the effects of any embedded conversion features from certain of our convertible instruments. 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. 8 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued 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 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. 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. 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. 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 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. 9 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued 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 March 31, 2024 and December 31, 2023. 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. 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 81,014,017 . 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 $ 77,627 and $ 195,048 for the three months ended March 31, 2024 and 2023, 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. 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 intangible assets finite useful lives March 31, 2024 Gross Amount Accumulated Amortization Amortization Period Finite: (in years) Brands $ 4,459,000 $ 966,120 15 Customer Relationships 957,000 207,350 15 License 360,000 241,238 11 Total Intangible Assets $ 5,776,000 $ 1,414,708 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 $ 98,017 for the three months ended March 31, 2024 and 2023. Estimated amortization expense for acquired identifiable intangible assets for fiscal year 2024 and the succeeding years is as follows: 10 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued Schedule of estimated amortization expense Future Intangible Asset Amortization Expense Fiscal Year: 2024 (9 months) $ 294,051 2025 392,068 2026 392,068 2027 392,068 2028 363,580 Thereafter 2,527,457 Total $ 4,361,292 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. 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 $ 7,437 and $ 1,609 for the three months ending March 31, 2024 and 2023 respectively. Liquidity, Capital Resources and Going Concern Considerations 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 historically has incurred significant losses and negative cash flows from operation since inception and had net-loss of approximately $ 4.7 million for three-month period ended March 31, 2024 and accumulated deficit of approximately $136.7 million 136,746,623 through March 31, 2024. During the three-month period ended March 31, 2024, the Company’s net cash used in operating activities totaled approximately $ 1.3 million. Additionally, the Company’s current liabilities exceed its current assets, and it has a working capital deficit. During the year ended December 31, 2023, the Company sustained a net loss of approximately $ 21 .0 million and used cash in operating activities of $ 10.2 million, which excludes non-cash charges and financing activities. To date the Company has generated cash flows from issuances of equity and indebtedness. 11 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies, continued The Company received approximately $ 1.5 million from the issuance of debt for the three months ending March 31, 2024. This event served to mitigate the conditions that previously raised substantial doubt about the Company’s ability to continue as a going concern. 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. If the Company is unable to raise additional funding to meet its working capital needs in the future, it may be forced to delay, reduce, or cease its operations. 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. Recent Accounting Pronouncements In August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”) which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition was permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted no earlier than the fiscal year beginning after December 15, 2020. The Company has adopted ASU 2020-06 effective January 1, 2024, the Company recorded approximately $ 2.2 million as a reduction to the additional paid in capital and added approximately $ 1.3 million to the opening retained earnings in accordance with the authoritative guidance under ASU 2020-06. All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company. 12 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 3 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable Notes payable are generally nonrecourse and secured by all Company owned assets. Schedule of notes payable and convertible notes payable Interest Rate March 31, 2024 December 31, 2023 Notes Payable and Convertible Notes Payable 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 % 294,779 371,693 In April 2021, the Company entered into a six-month loan with an individual in the amount of $ 84,000 . The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to October 31, 2024. 7 % 168,000 168,000 In May 2021, the Company entered into a six-month loan with an individual in the amount of $ 50,000 . The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to October 31, 2024. 7 % 60,000 60,000 In August 2022, the Company entered into a 56-months auto loan in the amount of $ 45,420 . 2.35 % 30,635 32,996 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. The loan was extended to May, 2024. — % 1,381,656 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 % 800,000 800,000 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 % 350,000 350,000 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 % 750,000 750,000 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 % 100,000 100,000 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. — % 300,000 300,000 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 June 2024. 10 % 500,000 500,000 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. — % 71,061 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 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. The loan was extended to June 2024. 10 % 450,000 450,000 In January 2024, we entered into a loan in the amount of $ 500,000 . The loan had a maturity of March 2024 with principal and interest due at maturity. It was paid off with a new loan in April 2024 — % 178,572 — In January 2024, we entered into a 18-month loan with an individual in the amount of $ 250,000 . The note included 100 % warrant coverage. The loan had a maturity of July 2025 with principal and interest due at maturity with conversion price of $ 0.50 per share. 12 % 250,000 — In February 2024, we entered into a 18-month loan with an individual in the amount of $ 150,000 . The note included 100 % warrant coverage. The loan had a maturity of August 2025 with principal and interest due at maturity with conversion price of $ 0.40 per share. 12 % 150,000 — In February 2024, we entered into a 6-month loan with an individual in the amount of $ 315,000 . The note included 60 % warrant coverage. The loan had a maturity of August 2024 with principal and interest due at maturity with conversion price of $ 0.38 per share 12 % 315,000 — In February 2024, the Company entered into a 18-month loan with an entity in the amount of $ 250,000 . The note included 100 % warrant coverage. The loan matures in August 2025 with principal and interest due at maturity with conversion price of $ 0.46 per share 12 % 250,000 — Total notes payable $ 11,649,703 $ 11,082,561 Less notes discount ( 1,825,847 ) ( 2,876,387 ) Less current portion ( 9,013,690 ) ( 7,748,518 ) Long-term notes payable $ 810,166 $ 457,656 13 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 3 – Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued Interest expense on notes payable was $ 533,578 and $ 167,121 for the three months ended March 31, 2024 and 2023, respectively. Accrued interest was $ 501,752 for the three months ended March 31, 2024. The Company recognized approximately $ 886,838 and approximately $ 247,661 of interest expense attributable to the amortization of the debt discount during the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, and Dece mber 31, 2023, the balance of the unamortized debt discount was $ 1,825,848 and $ 1,944,348 respectively. The Company adopted ASU 2020-06 on January 1, 2024, which resulted in the reversal of the original bifurcated derivative (BCF) amount to additional paid in capital for $ 2,191,103 , reversal of the unamortized debt discount related to the bifurcated derivative (BCF) for $ 932,047 with the balance being recorded through retained earnings for $ 1,259,056 . Schedule of notes payable Interest Rate March 31, 2024 March 31, 2023 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 % 200,000 200,000 Less current portion ( 200,000 ) ( 200,000 ) Long-term notes payable $ — $ — Interest expense on related party notes payable was $ 6,000 and $ 0 for the three months ended March 31, 2024 and 2023, respectively. The Company’s effective interest rate was 21.85 % for the three months ended March 31, 2024. As of March 31, 2024, the Company’s convertible note balances are convertible into 14,615,036 shares of common stock 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 2024 and 2023. There were no unpaid royalties at March 31, 2024. The Company paid the guaranteed minimum royalty payments of $ 165,000 for the three months ended March 31, 2024 and 2023 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. 14 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 5– Stockholders’ Equity Common Stock In February 2023, the Board of Directors approved a private placement offering of 2,000,000 shares of the common stock of the Company, $ 0.001 value per share at a purchase price of $ 1.00 per share for aggregate gross proceeds of $ 2,000,000 (“SPA”). As part of the SPA, each purchaser received additional restricted shares equal to 750 units for every $1,000 purchased. During the three-months ended March 31, 2024, we issued 300,000 shares in exchange for services, 200,000 shares for extension of note, 1,552,000 shares on conversion of convertible instruments, and 300,000 shares for service. Stock Plan 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 total number of shares that may be issued under the 2020 plan was 2,313,133 at the time the 2020 plan was adopted as of March 31, 2024. 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. At January 1, 2023 and 2024, the number of shares issuable under the 2020 plan increased by 2,054,276 and 2,984,276 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: Schedule of stock option activity Options March 31, 2024 March 31, 2023 Number of Options Weighted Average Exercise Price Number of Options Weighted Average Exercise Price Balance - January 1* 4,259,008 $ 1.13 1,151,000 $ 2.56 Granted 630,000 0.59 65,000 1.08 Exercises — — — — Cancelled — — — — Balance – March 31, 4,889,008 $ 1.06 1,216,000 $ 2.48 Exercisable – March 31, 4,332,344 $ 1.06 732,746 $ 2.58 During the three-month period ended March 31, 2024 and March 31, 2023, the company granted 630,000 and 65,000 options to new employees under the 2020 plan. The fair value of stock options granted in the period has been measured at $ 272,263 using the Black-Scholes option pricing model with the following assumptions: exercise price $ 0.59 , expected life 10 years, expected volatility 82.28 %, expected dividends 0 %, risk free rate 4.0 %. 15 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 5 – Stockholders’ Equity, continued Common Stock Issuable, Liability to Issue Stock and Shareholder Advances Outstanding balance for shareholder advances on March 31, 2024 and 2023 was $ 200,000 . Note 6 – Related Parties During the normal course of business, the Company incurred expenses related to services provided by the CEO or Company expenses paid by the 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 Note Payable with a balance of $ 294,779 at March 31, 2024 and $ 371,693 at March 31,2023. There were related party advances from our chief executive officer in the amount of approximately $ 0.4 million outstanding as of March 31, 2024 and approximately $ 0.4 million as of December 31, 2023. A shareholder note payable outstanding in the amount of $ 200,000 as of March 31, 2024. 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 %. Note 8 – Leases The Company has various operating lease agreements primarily related to real estate and office. 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 quarter ended March 31, 2024 and 2023. 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 operating expense on the Company’s condensed consolidated statement of operations and comprehensive loss. Operating lease cost was $ 97,953 and $ 93,328 during the period ended March 31, 2024 and 2023, 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, 2022 Schedule of maturities of operating lease liabilities Undiscounted Future Minimum Lease Payments Operating Lease 2024 (Nine months remaining) 214,752 2025 287,193 2026 17,857 Total 519,802 Amount representing imputed interest ( 20,074 ) Total operating lease liability 494,728 Current portion of operating lease liability 266,704 Operating lease liability, non-current $ 228,024 16 Splash Beverage Group, Inc. Notes to the Condensed Consolidated Financial Statements Note 8 –Leases, continued The table below presents lease-related terms and discount rates at March 31, 2024: Schedule of lease-related terms and discount rates Remaining term on leases 1 to 27 months Incremental borrowing rate 5.0 % 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 separately and each segment’s major customers have different characteristics. Segment Reporting is evaluated by our Chief Executive Officer and Chief Financial Officer. Note: The Copa di Vino business is included in our Splash Beverage Group segment. Schedule of segment reporting information Revenue, net March 31, 2024 March 31, 2023 Splash Beverage Group 1,200,282 1,898,968 E-Commerce 340,398 3,923,759 Total revenues, net, continuing operations $ 1,540,680 $ 5,822,727 Contribution after Marketing March 31, 2024 March 31, 2023 Splash Beverage Group ( 33,481 ) ( 286,930 ) E-Commerce ( 5,358 ) 1,311,602 Total contribution after marketing $ ( 38,839 ) $ 1,024,672 Contracted services 218,829 381,005 Salary and wages 1,234,926 1,234,127 Non-cash share-based compensation 556,672 215,760 Other general and administrative 1,201,031 2,648,701 Loss from continuing operations $ ( 3,250,297 ) $ ( 3,454,921 ) Total assets March 31, 2024 December 31, 2023 Splash Beverage Group 8,396,166 9,188,213 E-Commerce 162,301 710,555 Total assets $ 8,558,467 $ 9,898,768 17 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 April 2024, one of the initial notes was paid off and extended to a higher amount of financing. This transaction involved the complete repayment of our original loan and the acquisition of a new loan to the amount of $ 815,000 . In May 2024, 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 loan matures in November 2026 with principal and interest due at maturity with conversion price of $ 0.40 per share. The Company granted 75,000 shares in April to one of the Board directors under the 2020 plan. 18