Item 7. Management’s Discussion and Analysis
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be
read in conjunction with the Audited Consolidated Financial Statements and Notes to Audited Consolidated Financial Statements filed herewith.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking.
These statements are based on current expectations and assumptions that are subject to risk, uncertainties, and other factors. These
statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions
or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this
Annual Report, and other factors that we may not know.
Business Overview
Canfield Medical Supply, Inc. (“CMS”)
a company’s whose common stock was quoted on the OTCQB entered into an Agreement and Plan of Merger with SBG Acquisition Inc. (“Merger
Sub”), a Nevada Corporation wholly-owned by Canfield, and Splash Beverage Group, II 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 Canfield. The Merger was consummated on March 31, 2020.
As the owners and management of Splash had 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.
On July 31, 2020, CMS changed its name to Splash
Beverage Group, Inc. (“SBG”). On June 11, 2021, SBG’s common stock and warrant to purchase common stock began trading
on the NYSE American under the symbols “SBEV” and SBEV WT,” respectively.
On November 8, 2021, SBG reincorporated into the
State of Nevada and became a Nevada corporation.
Our principal offices are located at 1314 E. Las Olas Blvd, Suite 221,
Fort Lauderdale, Florida 33301. Our website address is www.splashbeveragegroup.com. We have not incorporated by reference into this Annual
Report on Form 10-K the information that can be assessed through our website and you should not consider it to be part of this Annual
Report on Form 10-K.
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Results of Operations for the Year Ended December
31, 2023, compared to Year Ended December 31, 2022.
Revenue
Revenues for the year ended December 31, 2023 were
$18.9 million compared to revenues of $18.1 million for the year ended December 31, 2022. The increase in sales was mainly due to an
increase in our E-commerce segment of $0.4 million and an increase in our Splash Beverage Group segment of $0.3 million.
Cost of Goods Sold
Cost of goods sold for the year ended December 31,
2023 were $13.3 million compared to cost of goods sold for the year ended December 31, 2022 of $12.2 million. The $1.1 million increase
in cost of goods sold was due to our increased sales and inflation.
Operating Expenses
Operating expenses for the year ended December 31,
2023 were $20.9 million compared to $27.3 million for the year ended December 31, 2022. Non cash-operating expenses related to share
issuance was $1.2 million as of December 31, 2023 compared to $7.4 million in December 31, 2022. The remaining operating expense decrease
of $0.2 million was due to decreases in sales and marketing expense and other general and administrative expenses of $1.0 million, which
were offset by an increase of $0.8 million in salary and wages.
Other Income/(Expense)
Other expense for the year ended December 31, 2023
were $5.7 million compared to $0.2 million for the year ended December 31, 2022. The other expense increase of $5.5 million is mainly
driven by an increase in amortization of debt discount of $3.8 million and a $1.9 million increase in interest expense.
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.
In addition, the Company has an active registration statement on Form S-3 to facilitate raising additional funds.
As of December 31, 2023, we had total cash of $379,978,
as compared with $4,431,745 at December 31, 2022. The decrease was primarily due to expenses relating to operating the business.
Net cash used for continuing operating activities
during the year ended December 31, 2023, was $10.2 million as compared to the net cash used by continuing operating activities for the
year ended December 31, 2022, of $14.0 million. The primary reason for the change in net cash used was due to an increase of $3.8 million
in amortization of debt and a decrease of $0.6 million in losses of the business, offset by a decrease of $16.5 million in working capital.
Net cash used for discontinued operating activities during the year ended December 31, 2023, was $0 as compared to $0.03 million for
the year ended December 31, 2022.
Net cash used for investing activities during the
year ended December 31, 2023, was $0.01 as compared to the net cash used for investing activities during the year ended December 31,
2022, of $0.1 million. The net cash used in the year 2023 was for a capital expenditure for building improvements.
Net cash provided by financing activities during
the year ended December 31, 2023, was $6.1 million compared to $14.4 million provided from financing activities for the year ended December
31, 2022. During the year ended December 31, 2023, we received $0 from the issuance of common stock compared to $11.4 million during
the year ending December 31, 2022. We received $6.6 million and $4.0 million proceeds from the issuance of debt in years ending December
31, 2023 and 2022, respectively. In the year ending December 31, 2023, $0.2 million was received from a shareholder advance and a $0.4
million shareholder advance was repaid in the year ending December 31, 2022. Principal repayment of debt of $1.0 million and $0.6 million
were made in years ending December 31, 2023 and 2022 respectively. In the year ending December 31, 2023 a cash advance from related party
of $0.4 million was received.
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In order to have sufficient cash to fund our operations,
we 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. We 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 we 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 issuance of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we 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. We may also be required to recognize non-cash expenses in connection with certain securities
we 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 we 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 we reduce our operations accordingly, we may be required to curtail
or cease operations.
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 7A. Quantitative and
Qualitative Disclosures about Market Risk.
Not applicable for smaller reporting companies.
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