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. We 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 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. The Splash brand portfolio
is growing and diverse, covering multiple categories that are exhibiting strong
growth in both the non-alcohol and alcohol sectors. Through its wholly owned
subsidiary Qplash, Splash's distribution reach includes e-commerce access to
both B2B and B2C customers. Q-plash markets well known beverage brands to
customers throughout the US that prefer delivery direct to their office,
facilities and or homes.
Splash was originally incorporated in the State of Nevada under the name TapouT
Beverages, Inc. for the purpose of acquiring the rights under a license
agreement with TapouT, LLC (Authentic Brands Group) for the right to use the
TapouT brand in connection with manufacturing and selling certain beverages.
On March 31, 2020, a wholly-owned subsidiary of a public entity called Canfield
Medical Supply, Inc. ("CMS") merged with and into Splash and Splash became a
wholly-owned subsidiary of CMS. At the time of the merger CMS's state of
incorporation was Colorado. At the time of the merger CMS's common stock was
quoted on the OTCQB.
On July 31, 2020, we changed our name from Canfield Medical Supply, Inc. to
Splash Beverage Group, Inc.
On June 11, 2021, our common stock and warrants to purchase common stock began
trading on the NYSE American under the symbols "SBEV" and SBEV WS," respectively
On November 8, 2021, we changed our state of incorporation from Colorado to
Nevada.
On June 30, 2022, Management completed its plan to divest its CMS's business.
In coordination with uplisting to the NYSE American on June 11, 2021 the Company
consummated a 1.0 for 3.0 reverse stock split.
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Results of Operations for the Three and Nine Months Ended September 30, 2022
compared to Three and Nine Months Ended September 30, 2021.
Net Revenue
Net revenues for the three and nine months ended September 30, 2022 were higher
compared to revenues for the three and nine months ended September 30, 2021 due
to an increase from our vertically integrated B2B and B2C e-commerce
distribution platform called Qplash (Qplash sells goods on both Amazon and
Shopify), a number of retail chain authorizations has led to increased
distribution on the beverage portfolio and a price increase on CdV.
Cost of Goods Sold
Cost of goods sold for the three and nine months ended September 30, 2022 were
higher compared to cost of goods sold for the three and nine months ended
September 30, 2021. The increase in cost of goods sold is primarily due to
higher sales at Qplash, incremental volumes in the beverage portfolio and higher
supply chain costs on both ingredients and freight.
Operating Expenses
Operating expenses for the three months ended September 30, 2022 were lower
compared to the three months ended September 30, 2021 due to a decrease in share
based compensation partially offset by increases in marketing expenses.
Operating expenses for the nine months ended September 30, 2022 were higher
compared to the nine months ended September 30, 2021 driven by an increase in
sales and marketing cost partially offset by lower non-cash compensation for
services cost. In September 2021 we granted 1,065,000 options to purchase common
stock of the Company to employees, consultants, and directors. These options
vest over three years.
Interest Expense
Interest expenses for the three and nine months ended September 30, 2022 were
lower compared to the three and nine months ended September 30, 2021 due to the
paydown of notes payable.
Net Loss
The net loss for the three months ended September 30, 2022 was lower compared to
the three months ended September 30, 2021. The decrease in the net loss is due
to our lower operating expenses and an increase in revenues. The net loss for
the nine months ended September 30, 2022 was lower compared to the nine months
ended September 30, 2021. The decrease in the net loss is due to our increase in
e-commerce revenue and lower operating expenses.
LIQUIDITY 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 September 30, 2022, we had total cash and cash equivalents of $2,601,270
as compared with $4,181,383 at December 31, 2021.
Net cash used for operating activities during the nine months ended September
30, 2022 was $10,626,135 as compared to the net cash used by operating
activities for the nine months ended September 30, 2021 of $11,615,297. The
primary reasons for the change in net cash used is due to losses sustained,
increases in inventory and costs incurred in connection with the company's shelf
registration statement on Form S-3.
For the nine months ended September 30, 2022, an SUV was purchased and financed
with a loan. We did not use or receive cash relating to investing activities
during the nine months ended September 30,2021
Net cash provided by financing activities during the nine months ended September
30, 2022 was $9,091,442 compared to $19,597,565 provided from financing
activities for the nine months ended September 30, 2021. During the nine months
ended September 30, 2022, we received $12,300,000 from investors from the
Company Shelf Registration Statement on Form S-3, which was offset by repayments
to debt holders of $1,285,861 and financing fees associated with the Shelf
Registration Statement $1,738,896.
Inventory increased for the three months ended September in preparation to
fulfil orders related to new retail chain authorizations.
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CONTRACTUAL OBLIGATIONS
Minimum Royalty Payments:
We have a licensing agreement with ABG TapouT, LLC ("TapouT"). Under the
licensing agreement, we have minimum royalty payments to TapouT for $653,400 in
2022.
Inventory Purchase Commitments:
None.
Off-Balance Sheet Arrangements
We 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, and capital expenditures or capital resources.
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