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 Consolidated Financial Statements (unaudited) and Related Notes
herewith.
Business Overview
Splash Beverage Group ("SBG"), f/k/a Canfield Medical Supply, Inc. (the "CMS"),
was incorporated in the State of Ohio on September 3, 1992, and changed domicile
to Colorado on April 18, 2012.
On December 31, 2019, CMS entered into an Agreement and Plan of Merger (the
"Merger Agreement") with SBG Acquisition Inc. ("Merger Sub"), a Nevada
Corporation wholly-owned by CMS, and Splash Beverage Group, Inc. a Nevada
corporation ("Splash") pursuant to which Merger Sub merged with and into Splash
(the "Merger") with Splash as the surviving company and a wholly-owned
subsidiary of CMS. The Merger was consummated on March 31, 2020.
Prior to the Merger, CMS was in the business of home health services, primarily
the selling of durable medical equipment and medical supplies to the public,
nursing homes, hospitals and other end users and the Company continues to
operate the home health supply business as a separate division.
As the owners and management of Splash have voting and operating control of CMS
following the Merger, the Merger transaction was accounted for as a reverse
acquisition (that is with Splash as the acquiring entity), followed by a
recapitalization.
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As part of the recapitalization, previously issued shares of SBG preferred stock
have been reflected as shares of common stock that were received in the Merger.
These common shares have been retrospectively presented as outstanding for all
periods.
Splash specializes in the manufacturing, distribution, and sales & marketing of
various beverages across multiple channels. Splash operates in both the
non-alcoholic and alcoholic beverage segments. Additionally, Splash operates its
own vertically integrated B-to-B and B-to-C E-commerce distribution platform
called Qplash, further expanding its distribution abilities and visibility.
In July, 2020, the Company changes its name from Canfield Medical Supply, Inc.
to Splash Beverage Group, Inc. Our new ticker symbol is SBEV.
On December 24, 2020, SBG consummated an Asset Purchase Agreement(the "APA")
with Copa di Vino Corporation ("CdV"), to purchase certain assets and assume
certain liabilities that comprise the Copa di Vino business for a total purchase
price of $5,980,000, payable in the combination of $2,000,000 in cash ("Cash
Consideration"), $2,000,000 convertible promissory note (the "Convertible Note")
to Seller and a variable number of shares of the Company's common stock based on
a attainment of revenue hurdles. CdV is one of the leading producers of premium
wine by the glass in the United States with its primary offices and facilities
in The Dalles, Oregon.
Results of Operations for the Three Months Ended June 30, 2021 compared to Three
Months Ended June 30, 2020.
Revenue
Revenues for the three months ended June 30, 2021 were $3,287,760 compared to
revenues of $412,729 for the three months ended June 30, 2020. The $2,875,031
increase in sales is due to an increase within our vertically integrated B2B and
B2C e-commerce distribution platform called Qplash ($1,430,558). This platform
sells goods on both Amazon and Shopify. In addition, we had increased sales from
Copa di Vino Wine Group, Inc., our single-serve wine and Pulpoloco Sangria
businesses ($1,462,000). Cost of goods sold for the three months ended June 30,
2021 were $2,382,707 compared to cost of goods sold for the three months ended
June 30, 2020 of $218,751. The $2,163,956 increase in cost of goods sold for the
three-month period ended June 30, 2021 is primarily due to our increased sales,
and as our sales increased, our cost of sales for those sales correspondingly
increased.
Operating Expenses
Operating expenses for the three months ended June 30, 2021 were $7,612,759
compared to $609,457 for the three months ended June 30, 2020. The $7,003,302
increase in our operating expenses was primarily a result of recording the
warrants issued pursuant to certain private placements conducted by the Company,
increased headcount from the Copa acquisition and the addition of new sales
reps, professional fees ($1,446,946) and shipping costs ($557,815). The net loss
for the three months ended June 30, 2021 was $6,761,004 as compared to a net
loss of $402,166 for the three months ended June 30, 2020. The increase in net
loss is due to our increase in operating expenses offset by our increase in
revenues.
Interest Expense
Interest expenses for the three months ended June 30, 2021 were $149,376
compared to $21,854 for the three months ended June 30, 2020. The $127,522
increase in our interest expenses was primarily a result of additional debt
taken on in Q2 2021.
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Results of Operations for the Six Months Ended June 30, 2021 compared to Six
Months Ended June 30, 2020.
Revenue
Revenues for the six months ended June 30, 2021 were $5,426,684 compared to
revenues of $524,732 for the six months ended June 30, 2020. The $4,901,952
increase in sales is due to an increase within our vertically integrated B2B and
B2C e-commerce distribution platform called Qplash ($2,631,737). This platform
sells goods on both Amazon and Shopify. In addition, we had increased sales from
Copa di Vino Wine Group, Inc., our single-serve wine and Pulpoloco Sangria
businesses ($2,212,300). Cost of goods sold for the six months ended June 30,
2021 were $4,000,211 compared to cost of goods sold for the six months ended
June 30, 2020 of $325,965. The $3,674,246 increase in cost of goods sold for the
six-month period ended June 30, 2021 is primarily due to our increased sales,
and as our sales increased, our cost of sales for those sales correspondingly
increased.
Operating Expenses
Operating expenses for the six months ended June 30, 2021 were $12,279,421
compared to $2,165,539 for the six months ended June 30, 2020. The $10,113,882
increase in our operating expenses was primarily a result of recording the
warrants issued pursuant to certain private placements conducted by the Company,
increased headcount from the Copa acquisition and the addition of new sales
reps, professional fees ($6,666,141) and shipping costs ($882,795). The net loss
for the six months ended June 30, 2021 was $11,241,510 as compared to a net loss
of $3,850,945 for the six months ended June 30, 2020. The decrease in net loss
is due to our increase in operating expenses offset by our increase in
revenues.
Interest Expense
Interest expenses for the six months ended June 30, 2021 were $241,587 compared
to $1,935,491 for the six months ended June 30, 2020. The $1,693,904 decrease in
our interest expenses was primarily a result of recording a finance charge of
$1,821,426 associated with warrants issued to one of our note holders in Q1 2020
offset by interest expense recorded in the period.
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 June 30, 2021, we had total cash and cash equivalents of $11,943,753, as
compared with $380,000 at December 31, 2020. The increase is primarily due to
cash received from private placements conducted by us and our S1/A registration
statement where we raised $15,000,000.
Net cash used for operating activities during the six months ended June 30, 2021
was $7,664,506 as compared to the net cash used by operating activities for the
six months ended June 30, 2020 of $1,783,007. The primary reasons for the change
in net cash used is due to losses sustained and increases in inventory, offset
by non-cash expenses relating to warrant expense ($2,010,615) and share-based
compensation ($2,100,953).
Net cash used for investing activities during the six months ended June 30, 2021
was $0 as compared to the net cash used by operating activities for the six
months ended June 30, 2020 of $154,341. The net cash used in the first quarter
of 2020 was primarily due to the $150,000 payment made to SALT Tequila USA.
Net cash provided by financing activities during the six months ended June 30,
2021 was $19,468,746 compared to $1,941,018 provided from financing activities
for the six months ended June 30, 2020. During the six months ended June 30,
2021, we received $21,028,065 from investors, which was offset by repayments to
shareholders and debt holders of $1,159,319.
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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 the next two
years.
? 2021 $594,000
? 2022 $653,400
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, capital expenditures or capital resources.
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