Splash(US:SBEV)2023-03-31 20:12Business Strategy and Operations - Splash Beverage Group is focused on managing multiple brands within the consumer beverage industry, leveraging a vertically integrated e-commerce platform called Qplash to enhance distribution and sales[20] - Qplash currently offers over 1,500 product listings and ships from warehouses in California and Pennsylvania, targeting both business-to-business and direct-to-consumer sales[50] - The company aims to capitalize on the growing e-commerce channel as consumer preferences shift towards direct-to-consumer models[28] - Splash's product offerings include SALT Naturally Flavored Tequila, TapouT Performance beverages, and Copa Di Vino wines, with a focus on innovative and health-oriented products[29] - The company has established distribution agreements with major players like AB-InBev, enhancing its market reach and operational efficiency[57] - The management team has over 120 years of combined experience in the beverage industry, enhancing the company's ability to navigate distribution and retail challenges[26] - The company operates in both non-alcoholic and alcoholic beverage segments, with a focus on expanding its distribution capabilities through its Qplash platform[190] Financial Performance - Revenue for the year ended December 31, 2022, was $18.1 million, an increase of $6.8 million from $11.3 million in 2021, primarily due to a $6.4 million increase in the ecommerce division distribution platform, Qplash[156] - Total net revenues for the year ended December 31, 2022, were $18.09 million, a 60% increase from $11.32 million in 2021[182] - Cost of goods sold for the year ended December 31, 2022, was $12.1 million, up from $8.3 million in 2021, reflecting a $4.7 million increase due to higher sales and inflation[157] - Operating expenses for the year ended December 31, 2022, were $27.3 million, a decrease from $33 million in 2021, with non-cash operating expenses related to share issuance dropping from $18.4 million to $7.4 million[158] - The net loss for the year ended December 31, 2022, was $21.69 million, a decrease from a net loss of $29.05 million in 2021, representing a 25% improvement[182] - Total cash as of December 31, 2022, was $4.4 million, an increase from $4.2 million at the end of 2021, primarily due to issuances of notes payable and stock subscription agreements[161] - Total assets rose to $17.30 million in 2022, up from $16.39 million in 2021, marking an increase of approximately 5.5%[181] - Total liabilities increased to $7.98 million in 2022 from $7.51 million in 2021, reflecting a rise of about 6.3%[181] - Stockholders' equity improved to $9.32 million in 2022, compared to $8.87 million in 2021, indicating a growth of approximately 5%[181] Risks and Challenges - The company faces risks related to the lingering impact of the COVID-19 pandemic, which could disrupt business operations and supply chains, affecting sales and brand awareness[67] - The beverage industry is highly competitive, with significant pressure from larger companies that may hinder the company's market expansion and distribution relationships[81] - Changes in consumer preferences and health concerns regarding sweetened beverages could reduce demand for the company's products, impacting financial results[84] - The company relies on distributors and retailers for product distribution, and any failure in these relationships could adversely affect sales and operations[86] - The company is subject to various regulations that could increase costs or reduce demand for its products, impacting financial performance[78] - The company must successfully expand its current markets and introduce new products to improve financial results, as failure to do so could adversely affect operations[72] - The company is vulnerable to economic uncertainties, including fluctuations in foreign currency exchange rates, which could adversely affect business operations[128] - The company faces substantial competition in the alcoholic beverage industry, which could hinder its ability to effectively compete and maintain market share[124] Cash Flow and Financing - Net cash used for continuing operating activities during the year ended December 31, 2022, was $14.1 million, compared to $14.7 million in 2021, with a $0.4 million increase in operating losses offset by a $1.2 million decrease in working capital[162] - Net cash provided by financing activities for the year ended December 31, 2022, was $14.4 million, down from $19 million in 2021, with $11.4 million raised from the issuance of common stock compared to $19.6 million in 2021[164] - The company may need to raise additional equity or debt capital to fund operations, which could be dilutive to existing stockholders[165] - The company has experienced negative cash flows from operating activities and may need to secure additional financing to continue operations[68] Inventory and Production - The company emphasizes the importance of managing inventory levels to avoid adverse effects on operating results, highlighting the risks of underestimating or overestimating demand[89] - The company relies on independent contract manufacturers for production, and any failure to maintain these relationships could increase manufacturing costs and reduce gross profits[90] - Fluctuations in grape supply quality and quantity could reduce wine production, adversely affecting sales and operational results[111] - The company relies on a distiller in Mexico for the production of its finished SALT tequila product, and any failure in performance could lead to lost sales and increased costs[121] Regulatory and Compliance - The company is subject to extensive regulations regarding the production and distribution of beverage alcohol products, which could increase operating costs and reduce profit margins[122] - Changes in personal data protection laws could result in significant penalties for noncompliance, negatively affecting the company's business and operating results[114] - Regulatory changes and increased taxation on beverage alcohol products could harm sales revenue and profit margins[123] Management and Governance - The company does not expect to pay dividends in the foreseeable future, and investors should not purchase common stock expecting cash dividends[135] - The company must protect its intellectual property, as failure to do so could harm brand reputation and competitive ability, potentially leading to costly litigation[98] - Attracting and retaining qualified personnel is critical for operational efficiency, and increased competition for employees could raise costs and impact operating results[95] - The company may struggle to maintain effective internal controls over financial reporting, which could negatively impact stock price and investor confidence[119] Stock-Based Compensation - Stock-based compensation is measured at grant-date fair value and recognized as expense over the vesting period[217] - The Black-Scholes option pricing model is used to determine the fair value of stock options and warrants[218] - The expected life of stock options is estimated using the "simplified method," which averages the time to vesting and contractual maturity[218] - Subjective assumptions are required to determine the fair value of stock-based awards, leading to potential variability in future expense[218] - Changes in assumptions could result in materially different stock-based compensation expenses for future awards[218] - Management's estimates for stock-based compensation involve inherent uncertainties and judgment[218]