Endovia Health Sciences, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Regarding Forward-Looking Statements The information in this discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements that are not of historical fact may be deemed to be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue”, the negative of the terms or other comparable terminology. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in other reports or registration statements filed with the United States Securities and Exchange Commission. These factors may cause our actual results to differ materially from any forward-looking statements. The Company disclaim any obligation to publicly update these statements or disclose any difference between actual results and those reflected in these statements. Unless the context otherwise requires, references in this Form 10-Q to “we,” “us,” “our,” or the “Company” refer to Splash Beverage Group and its subsidiaries. The following discussion and analysis should be read in conjunction with the Condensed Financial Statements (unaudited) and Notes to Condensed Financial Statements (unaudited) filed herewith. Business Overview Splash Beverage Group, Inc. (the “Company”, “Splash”) seeks to identify, acquire, and build early stage or under-valued beverage brands that have strong growth potential within its distribution system. Splash’s distribution system is comprehensive in the US and is now expanding to select attractive international markets. Through its division Qplash, Splash’s distribution reach includes e-commerce access to both business-to-business (B2B) and business-to-consumer (B2C) customers. Qplash markets well known beverage brands to customers throughout the US that prefer delivery direct to their office, facilities; and or homes. Results of Operations for the Three Months Ended March 31, 2024 compared to Three Months Ended March 31, 2023. Revenue Revenues for the three months ended March 31, 2024 were approximately $1.5 million compared to revenues of approximately $5.8 million for the three months ended March 31, 2023. The $4.3 million decrease in sales is due to a decrease in our beverage sales of $0.7 million. Our revenues from our vertically integrated B2B and B2C e-commerce distribution platform called Qplash decreased approximately $3.5 million or 91% due to low inventory. Total sales declined due to limited liquidity to procure inventory to drive third-party sales. Cost of Goods Sold Cost of goods sold for the three months ended March 31, 2024 were $1.4 million compared to cost of goods sold for the three months ended March 31, 2023 of approximately $4.1 million. The $2.7 million decrease in cost of goods sold for the three-month period ended March 31, 2024 is primarily due to our decreased sales. 19 Operating Expenses Operating expenses for the three months ended March 31, 2024 were $3.4 million compared to $5.2 million for the three months ended March 31, 2022 a decrease of $1.8 million. The decrease in our operating expenses was primarily due to non-cash expenses partially offset by increases for the incorporation of new staff, benefit cost, freight cost and Amazon selling fees. The net loss for the three months ended March 31, 2024 was $5.1 million as compared to a net loss of approximately $3.7 million for the three months ended March 31, 2023. The increase in net loss is due to higher debt discount and interest expenses. Net Other Income and Expense Interest expenses for the three months ended March 31, 2024 was $0.5 million compared to $0.2 million for the three months ended March 31, 2023. The $0.3 million increase in interest expense is due to new loans with a principal of $6.3 million. Other income was $0 and $0.1 million for the three months ended March 31, 2024 and March 31, 2023 respectively. The income in 2023 was related to an insurance settlement. Amortization of debt discount for the three months ended March 31, 2024 was approximately $0.9 million compared to $0.25 million for three months ended March 31, 2023. LIQUIDITY, GOING CONCERN CONSIDERATIONS AND CAPITAL RESOURCES Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. As of March 31, 2024, the Company had total cash and cash equivalents of $14,757, as compared with $379,978 at December 31, 2023. Net cash used for operating activities during the three months ended March 31, 2024 was $1.3 million as compared to the net cash used by operating activities for the three months ended March 31, 2023 of $4.0 million. The primary reasons for the change in net cash used are decreases in inventory, accrued expenses and accounts payable partially offset by increases in account receivables. For the period ending March 31, 2024, there were no capital asset transactions. For the period March 31, 2023, the Company had leasehold improvements of $10,571 related to our Copa Di Vino production site. Net cash provided by financing activities during the three months ended March 31, 2024 was $2.0 million compared to $1.8 million provided from financing activities for the three months ended March 31, 2023. During the three months ended March 31, 2024, the Company received $1.5 million for convertible note, which was offset by repayments to debt holders of $0.51 million and $0.05 million to related party cash advance. The Company Board has approved raising up to $8.0 million to fund acquisitions, equipment purchases and working capital. 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 are able to raise from financing activities together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that the Company reduce our operations accordingly, the Company may be required to curtail or cease operations. As a result, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern for at least twelve months from the date of the consolidated financial statements being available to be issued. CONTRACTUAL OBLIGATIONS Minimum Royalty Payments: The Company have a licensing agreement with ABG TapouT, LLC (“TapouT”). Under the licensing agreement, the Company has minimum royalty payments to TapouT of $495,000 for the nine months remaining in 2024. Inventory Purchase Commitments : None. 20 Off-Balance Sheet Arrangements The Company do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Critical Accounting Estimates The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as the disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Revenue The Company faces significant judgment in revenue recognition due to the complexities of the beverage industry’s competitive landscape and diverse distribution channels. Determining the timing of revenue recognition involves assessing factors such as control transfer, returns, allowances, trade promotions, and distributor sell-through data. Historical analysis, market trends assessment, and contractual term evaluations inform revenue recognition judgments. However, inherent uncertainties persist, underscoring the critical nature of revenue recognition as it significantly impacts financial statements and performance evaluation. Allowance for Doubtful Accounts The allowance for doubtful accounts is established based on historical experience, current economic conditions, and specific customer collection issues. Management evaluates the collectability of accounts receivable on an ongoing basis and adjusts the allowance as necessary. Changes in economic conditions or customer creditworthiness could result in adjustments to the allowance for doubtful accounts, impacting our reported financial results. Inventory Valuation We value inventory at the lower of cost or net realizable value. Estimating the net realizable value of inventory involves significant judgment, particularly when market conditions change rapidly or when excess or obsolete inventory exists. Management regularly assesses inventory quantities on hand, future demand forecasts, and market conditions to determine whether write-downs to inventory are necessary. Fair Value Measurements We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value measurements involve significant judgment and estimation, particularly when observable inputs are limited or not available. Management utilizes valuation techniques such as discounted cash flow models, market comparables, and third-party appraisals to determine fair values. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for Smaller Reporting Companies.