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 disclaims 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 Quarterly Report on Form 10-Q to “we,” “us,” “our,” or the “Company” refer to Splash Beverage Group, Inc. 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” or “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. Recent Developments In May 2025, the Company issued 650 shares of Series A-1 Preferred Stock in exchange for approximately $650,000. Series A-1 shares are convertible into common stock, subject to shareholder approval, and further discussed in Note 5. Investors of A-1 Shares also received 162,500 1-year A Warrants exercisable into common stock at 80% of 5-day VWAP, and 162,500 5-year B Warrants exercisable into common stock at $4.00. The accounting treatment of this transaction is subject to further review and may be adjusted in the future. In June 2025, the Company issued 1,000 shares of Preferred A Stock to Robert Nistico, CEO, a related party. Preferred A is super voting preferred, not convertible into common stock. Mr. Nistico is the sole holder of Preferred A, which is further discussed in Note 5. In June 2025, the Company issued 126,710 shares of Series B Preferred Stock in exchange for approximately $12.7 million in previously outstanding convertible notes. The Series B shares are convertible into common stock, subject to shareholder approval and further discussed in Note 5. The accounting treatment of this transaction is subject to further review and may be adjusted in the future. 25 In June 2025, the Company acquired certain assets, including all contractual water rights to the aquifer located in Garabito, Puntarenas, Costa Rica. The Company issued 20,000 shares of Series C Preferred Stock as consideration, at an initial stated value of $1000 per share. Management determined that the transaction is an asset acquisition under ASC 805, as substantially all of the fair value is concentrated in a single identifiable asset—the water rights—and no substantive processes were acquired. The fair value of the acquired assets has been preliminarily estimated at $20 million and is subject to further evaluation and assessment. The Series C shares are convertible into common stock, subject to shareholder approval, and further discussed in Note 5. Results of Operations The Three Months and Six Months Ended June 30, 2025 compared to Three Months and Six Months Ended June 30, 2024 Revenue For the three months ended June 30, 2025, the Company did not record any sales compared to revenues of approximately $1.1 million for the three months ended June 30, 2024. This was primarily due to a shortage of operating capital which limited our ability to maintain inventory and fulfil orders. We remain committed to resolving these constraints and resuming normal business activities in the upcoming quarter. Revenue for the six months ended June 30, 2025 was $0.4 million compared to revenues of $2.6 million for the six months ended June 30, 2024. The $2.2 million decrease in sales is driven by decreases in both the e-commerce and beverage businesses. Cost of Goods Sold Cost of goods sold for the three months ended June 30, 2025 was less than $0.01 million compared to cost of goods sold for the three months ended June 30, 2024 of approximately $0.8 million. The decrease in cost of goods sold for the three-month period ended June 30, 2025 was primarily due to our decreased sales. Cost of goods sold for the six months ended June 30, 2025 was $0.5 million compared to cost of goods sold for the six months ended June 30, 2024 of $2.2 million. The $1.7 million decrease in cost of goods sold was driven by decreased sales in both the e-commerce and beverage business. Operating Expenses Operating expenses for the three months ended June 30, 2025 were $1.7 million compared to $3.9 million for the three months ended June 30, 2024, a decrease of $2.2 million. The decrease in our operating expenses was primarily due to non-cash expenses, new staff, benefit cost, freight cost and Amazon selling fees. Operating expenses for the six months ended June 30, 2025 were $3.6 million compared to $7.3 million for the six months ended June 30, 2024, a decrease of $3.7 million. The decrease in operating expenses was primarily due to non cash expenses, salary, marketing expense, freight cost and Amazon selling. The net loss for the three months ended June 30, 2025 was $8.5 million as compared to a net loss of approximately $5.3 million for the three months ended June 30, 2024. The net loss for the six months ended June 30, 2025 was $12.2 million as compared to a net loss of approximately $10.0 million for the six months ended June 30, 2024. The increase in net loss is due to loss on extinguishment of debt and offset by lower operating expenses and the decrease in amortization of debt discount. The Company did not meet its payroll obligations during the period from February to June 2025. As a result, employees were not paid for services rendered during that period. The unpaid wages have been fully accrued as liabilities in the accompanying financial statements. 26 Net Other Income and Expense Interest expenses for the three months ended June 30, 2025 were $0.6 million and for the three months ended June 30, 2024. Interest expenses for the six months ended June 30, 2025 were $1.2 million and for the six months ended June 30, 2024. Other income was $0 and $0.01 million for the three months ended June 30, 2025 and June 30, 2024, respectively. Amortization of debt discount for the three months ended June 30, 2025 was approximately $0.7 million compared to $1.0 million for the three months ended June 30, 2024. Amortization of debt discount for the six months ended June 30, 2025 was approximately $1.6 million compared to $1.9 million for six months ended June 30, 2024. 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. We plan to fund our operations through third party and related party debt/advances, private placement of restricted securities and the issuance of stock in a subsequent offering until such a time as the business achieves profitability or a business combination may be achieved. However, there can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are favorable to us. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves. As such, we have concluded that such plans do not alleviate the substantial doubt about our ability to continue as a going concern for one year from the date the accompanying financial statements are issued. Historically, we have funded operations primarily through the issuance of equity and debt securities. There is substantial doubt about our ability to continue as a going concern. As of June 30, 2025, the Company had total cash and cash equivalents of $17,213 as compared with $15,346 at December 31, 2024. Net cash used for operating activities during the six months ended June 30, 2025 was $1.4 million as compared to the net cash used by operating activities for the three months ended June 30, 2024 of $3.7 million. The primary reasons for the change in net cash used are decreases in interest payable, inventory and accrued. For the period ending June 30, 2025 and June 30, 2024, there were no capital asset transactions. Net cash provided by financing activities during the six months ended June 30, 2025 was $1.4 million compared to $3.7 million provided from financing activities for the six months ended June 30, 2024. During the six months ended June 30, 2025, the Company received $1.7 million for convertible note, which was offset by repayments to debt holders of $0.3 million and shareholder advance in the amount of $0.2 million was exchanged to Series A-1 Preferred Stock. Capital Resources In June 2025, we exchanged approximately $12.67 million of outstanding promissory notes and accrued interest for 126,710 shares of Series B 12% Convertible Preferred Stock. This transaction reduced outstanding debt, lowered interest expense, and improved our stockholders’ equity position. The Series B Preferred Stock accrues a 12% cumulative dividend and is convertible into common stock, subject to shareholder approval and an increase in authorized shares. This debt-to-equity conversion forms part of our broader plan to strengthen our balance sheet and regain compliance with NYSE American listing standards. Based on our current operating plan, existing cash resources will not be sufficient to fund operations over the next 12 months. Our future capital needs will depend on numerous factors, including revenue growth, gross margin trends, operating expense levels, working capital requirements, and the timing and extent of capital expenditures. We are evaluating opportunities to raise additional capital through equity or debt financings and may seek further debt restructurings to improve liquidity and reduce financing costs. 27 There can be no assurance that these plans will be successful. If we are unable to obtain adequate financing or generate positive cash flow from operations, we may need to further reduce operating expenses, curtail business development activities, sell assets, or pursue other strategic alternatives. CONTRACTUAL OBLIGATIONS There have been no material changes in our contractual obligations from the information disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Critical Accounting Estimates 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 comparable, and third-party appraisals to determine fair values. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for Smaller Reporting Companies.