Item 1A. Risk
Factors.
You should carefully consider the risks
described below as well as other information provided to you in this document, including information in the section of this document
entitled “Information Regarding Forward Looking Statements.” If any of the following risks actually occur, the Company’s
business, financial condition or results of operations could be materially adversely affected, the value of the Company’s
Common Stock could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
An occurrence of an uncontrollable
event such as the COVID-19 pandemic may negatively affect our operations and our ability to raise capital.
The occurrence of
an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social
distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and
professional advisors. This event may also limit our ability to raise capital which as noted above could trigger certain rescission
rights which could result in the Company’s incurring additional debt and preferred holders who may take preference over
other common holders. These factors, in turn, may not only impact our operations, financial condition and demand for our products
but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our
filing obligations with the Commission.
If we are unable to continue as
a going concern, our securities will have little or no value.
Although our audited
financial statements for the year ended December 31, 2020 were prepared under the assumption that we would continue our operations
as a going concern, the report of our independent registered public accounting firm that accompanies our financial statements for
the year ended December 31, 2020 contains a going concern qualification in which such firm expressed substantial doubt about
our ability to continue as a going concern, based on the financial statements at that time. Specifically, we have sustained recurring
losses and we have had a working capital and stockholders’ equity deficits. These prior losses and expected future losses
have had, and will continue to have, an adverse effect on our financial condition. In addition, continued operations and our ability
to continue as a going concern may be dependent on our ability to obtain additional financing in the near future and thereafter,
and there are no assurances that such financing will be available to us at all or will be available in sufficient amounts or on
reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.
If we are unable to generate additional funds in the future through sales of our products, financings or from other sources or
transactions, we will exhaust our resources and will be unable to continue operations. If we cannot continue as a going concern,
our shareholders would likely lose most or all of their investment in us.
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We have experienced recurring losses
from operations and negative cash flows from operating activities and anticipate that we will continue to incur significant
operating losses in the future.
We have experienced
recurring losses from operations and negative cash flows from operating activities. We expect to continue to incur significant
expenses related to our ongoing operations and generate operating losses for the foreseeable future. The size of our losses will
depend, in part, on the rate of future expenditures and our ability to generate revenues. We incurred a net loss of $28.7 million for
the year ended December 31, 2020. Our accumulated deficit increased to $61.6 million as of December 31, 2020 compared
to the prior year’s deficit of $35.6 million.
We may encounter unforeseen
expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our financial condition. Our
prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If
our products do not achieve sufficient market acceptance and our revenues do not increase significantly, we may never become profitable.
Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure
to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand
our business, diversify our product offerings or continue our operations. A decline in the value of our company could cause you
to lose all or part of your investment.
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If we are not able to successfully
execute on our future operating plans, our financial condition and results of operation may be materially adversely affected,
and we may not be able to continue as a going concern.
It is important that
we meet our sales goals and increase sales going forward as our operating plan already reflects prior significant cost containment
measures and may make it difficult to achieve top-line growth if further significant reductions become necessary. If we do not
meet our sales goals, our available cash and working capital will decrease and our financial condition will be negatively impacted.
Demand
for our products may be adversely affected by changes in consumer preferences or any inability on our part to innovate, market
or distribute our products effectively, and any significant reduction in demand could adversely affect our business, financial
condition or results of operations.
Our beverage portfolio
is comprised of a number of unique brands with reputations and consumer imagery that have been built over time. Our investments
in marketing as well as our strong commitment to product quality are intended to have a favorable impact on brand image and consumer
preferences. Unfavorable publicity, or allegations of quality issues, even if false or unfounded, could tarnish our reputation
and brand image and may cause consumers to choose other products. In addition, if we do not adequately anticipate and react to
changing demographics, consumer and economic trends, health concerns and product preferences, our financial results could be adversely
affected.
Volatility in the price or availability
of the inputs we depend on, including raw materials, packaging, energy and labor, could adversely impact our financial results.
Our financial results
could be adversely impacted by changes in the cost or availability of raw materials and packaging. Continued growth would require
us to hire, retain and develop a highly skilled workforce and talented management team. Any unplanned turnover or our failure
to develop an adequate succession plan for current positions could erode our competitiveness. In addition, our financial results
could be adversely affected by increased costs due to increased competition for employees, higher employee turnover or increased
employee benefit costs.
Changes in government regulation
or failure to comply with existing regulations could adversely affect our business, financial condition and results of operations.
Our business and properties
are subject to various federal, state and local laws and regulations, including those governing the production, packaging, quality,
labeling and distribution of beverage products. In addition, various governmental agencies have enacted or are considering additional
taxes on soft drinks and other sweetened beverages. Changes in existing laws or regulations could require material expenses and
negatively affect our financial results through lower sales or higher costs.
We compete in an industry that is
brand-conscious, so brand name recognition and acceptance of our products are critical to our success.
Our business is dependent
upon awareness and market acceptance of our products and brands by our target market, trendy, young consumers looking for a distinctive
tonality in their beverage choices. In addition, our business depends on acceptance by our independent distributors and retailers
of our brands as beverage brands that have the potential to provide incremental sales growth. If we are not successful in the
revitalization and growth of our brand and product offerings, we may not achieve and maintain satisfactory levels of acceptance
by independent distributors and retail consumers. In addition, we may not be able to effectively execute our marketing strategies
in light of the various closures and event cancellations caused by the COVID-19 outbreak. Any failure of our brand to maintain
or increase acceptance or market penetration would likely have a material adverse effect on our revenues and financial results.
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Our brands and brand images are
keys to our business and any inability to maintain a positive brand image could have a material adverse effect on our results
of operations.
Our success depends
on our ability to maintain brand image for our existing products and effectively build up brand image for new products and brand
extensions. We cannot predict whether our advertising, marketing and promotional programs will have the desired impact on our
products’ branding and on consumer preferences. In addition, negative public relations and product quality issues, whether
real or imagined, could tarnish our reputation and image of the affected brands and could cause consumers to choose other products.
Our brand image can also be adversely affected by unfavorable reports, studies and articles, litigation, or regulatory or other
governmental action, whether involving our products or those of our competitors.
Competition from traditional and
large, well-financed non-alcoholic and alcoholic beverage manufacturers may adversely affect our distribution relationships and
may hinder development of our existing markets, as well as prevent us from expanding our markets.
The beverage industry
is highly competitive. We compete with other beverage companies not only for consumer acceptance but also for shelf space in retail
outlets and for marketing focus by our distributors, all of whom also distribute other beverage brands. Our products compete with
all non-alcoholic beverages and alcoholic, most of which are marketed by companies with substantially greater financial resources
than ours. Some of these competitors are placing severe pressure on independent distributors not to carry competitive brands such
as ours. We also compete with regional beverage producers and “private label” hydration suppliers.
Increased competitor
consolidations, market-place competition, particularly among branded beverage products, and competitive product and pricing pressures
could impact our earnings, market share and volume growth. If, due to such pressure or other competitive threats, we are unable
to sufficiently maintain or develop our distribution channels, we may be unable to achieve our current revenue and financial targets.
Competition, particularly from companies with greater financial and marketing resources than ours, could have a material adverse
effect on our existing markets, as well as on our ability to expand the market for our products.
We compete in an industry characterized
by rapid changes in consumer preferences and public perception, so our ability to continue developing new products to satisfy
our consumers’ changing preferences will determine our long-term success.
Failure to introduce
new brands, products or product extensions into the marketplace as current ones mature and to meet our consumers’ changing
preferences could prevent us from gaining market share and achieving long-term profitability. Product lifecycles can vary and
consumers’ preferences and loyalties change over time. Although we try to anticipate these shifts and innovate new products
to introduce to our consumers, we may not succeed. Customer preferences also are affected by factors other than taste, such as
health and nutrition considerations and obesity concerns, shifting consumer needs, changes in consumer lifestyles, increased consumer
information and competitive product and pricing pressures. Sales of our products may be adversely affected by the negative publicity
associated with these issues. In addition, there may be a decreased demand for our product as a result of the COVID-19 outbreak. If
we do not adequately anticipate or adjust to respond to these and other changes in customer preferences, we may not be able to
maintain and grow our brand image and our sales may be adversely affected.
Legislative or regulatory changes
that affect our products, including new taxes, could reduce demand for products or increase our costs.
Taxes imposed on the
sale of certain of our products by federal, state and local governments in the United States, or other countries in which we operate
could cause consumers to shift away from purchasing our beverages. Several municipalities in the United States have implemented
or are considering implementing taxes on the sale of certain “sugared” beverages, including non-diet soft drinks,
fruit drinks, teas and flavored waters to help fund various initiatives. These taxes could materially affect our business and
financial results.
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Our reliance on distributors, retailers
and brokers could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets
and expand our business into other geographic markets.
Our ability to maintain
and expand our existing markets for our products, and to establish markets in new geographic distribution areas, is dependent
on our ability to establish and maintain successful relationships with reliable distributors, retailers and brokers strategically
positioned to serve those areas. Most of our distributors, retailers and brokers sell and distribute competing products, including
non-alcoholic and alcoholic beverages, and our products may represent a small portion of their businesses. The success of this
network will depend on the performance of the distributors, retailers and brokers of this network. There is a risk that the mentioned
entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient
retailers or positioning our products in localities that may not be receptive to our product. Our ability to incentivize and motivate
distributors to manage and sell our products is affected by competition from other beverage companies who have greater resources
than we do. To the extent that our distributors, retailers and brokers are distracted from selling our products or do not employ
sufficient efforts in managing and selling our products, including re-stocking the retail shelves with our products, our sales
and results of operations could be adversely affected. Furthermore, such third-parties’ financial position or market share
may deteriorate, which could adversely affect our distribution, marketing and sales activities.
Our ability to maintain
and expand our distribution network and attract additional distributors, retailers and brokers will depend on a number of factors,
some of which are outside our control. Some of these factors include:
We may not be able
to successfully manage all or any of these factors in any of our current or prospective geographic areas of distribution. Our
inability to achieve success with regards to any of these factors in a geographic distribution area will have a material adverse
effect on our relationships in that particular geographic area, thus limiting our ability to maintain or expand our market, which
will likely adversely affect our revenues and financial results.
It is difficult to predict the timing
and amount of our sales because our distributors are not required to place minimum orders with us.
Our independent distributors
and national accounts are not required to place minimum monthly or annual orders for our products. In order to reduce their inventory
costs, independent distributors typically order products from us on a “just in time” basis in quantities and at such
times based on the demand for the products in a particular distribution area. Accordingly, we cannot predict the timing or quantity
of purchases by any of our independent distributors or whether any of our distributors will continue to purchase products from
us in the same frequencies and volumes as they may have done in the past. Additionally, our larger distributors and national partners
may make orders that are larger than we have historically been required to fill. Shortages in inventory levels, supply
of raw materials or other key supplies could negatively affect us.
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If we do not adequately manage our inventory levels,
our operating results could be adversely affected.
We need to maintain
adequate inventory levels to be able to deliver products to distributors on a timely basis. Our inventory supply depends on our
ability to correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly
for new products, seasonal promotions and new markets. If we materially underestimate demand for our products or are unable to
maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term basis. If we overestimate
distributor or retailer demand for our products, we may end up with too much inventory, resulting in higher storage costs, increased
trade spend and the risk of inventory spoilage. If we fail to manage our inventory to meet demand, we could damage our relationships
with our distributors and retailers and could delay or lose sales opportunities, which would unfavorably impact our future sales
and adversely affect our operating results. In addition, if the inventory of our products held by our distributors and retailers
is too high, they will not place orders for additional products, which would also unfavorably impact our sales and adversely affect
our operating results.
If we fail to maintain relationships
with our independent contract manufacturers, our business could be harmed.
We do not manufacture
our products but instead outsource the manufacturing process to third-party bottlers and independent contract manufacturers (co-packers).
We do not own the plants or the majority of the equipment required to manufacture and package our beverage products, and we do
not anticipate bringing the manufacturing process in-house in the future. Our ability to maintain effective relationships with
contract manufacturers and other third parties for the production and delivery of our beverage products in a particular geographic
distribution area is important to the success of our operations within each distribution area. We may not be able to maintain
our relationships with current contract manufacturers or establish satisfactory relationships with new or replacement contract
manufacturers, whether in existing or new geographic distribution areas. The failure to establish and maintain effective relationships
with contract manufacturers for a distribution area could increase our manufacturing costs and thereby materially reduce gross
profits from the sale of our products in that area. Poor relations with any of our contract manufacturers could adversely affect
the amount and timing of product delivered to our distributors for resale, which would in turn adversely affect our revenues and
financial condition. In addition, our agreements with our contract manufacturers are terminable at any time, and any such termination
could disrupt our ability to deliver products to our customers.
Increases in costs or shortages
of raw materials could harm our business and financial results.
The principal raw
materials we use include glass bottles, aluminum cans, labels and cardboard cartons, aluminum closures, flavorings, sucrose/inverted
pure cane sugar and sucralose. In addition, certain of our contract manufacturing arrangements allow such contract manufacturers
to increase their charges to us based on their own cost increases. These manufacturing and ingredient costs are subject to fluctuation.
Substantial increases in the prices of our ingredients, raw materials and packaging materials, to the extent that they cannot
be recouped through increases in the prices of finished beverage products, would increase our operating costs and could reduce
our profitability. If our supply of these raw materials is impaired or if prices increase significantly, it could affect the affordability
of our products and reduce sales.
If we are unable to
secure sufficient ingredients or raw materials including glass, sugar, and other key supplies, we might not be able to satisfy
demand on a short-term basis. Moreover, in the past there have been industry-wide shortages of certain concentrates, supplements
and sweeteners and these shortages could occur again from time to time in the future, which could interfere with and delay production
of our products and could have a material adverse effect on our business and financial results.
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In addition, suppliers
could fail to provide ingredients or raw materials on a timely basis, or fail to meet our performance expectations, for a number
of reasons, including, for example, disruption to the global supply chain as a result of the COVID-19 outbreak, which could cause
a serious disruption to our business, increase our costs, decrease our operating efficiencies and have a material adverse effect
on our business, results of operations and financial condition.
The volatility of energy and increased
regulations may have an adverse impact on our gross margin.
Over the past few
years, volatility in the global oil markets has resulted in variable fuel prices, which many shipping companies have passed on
to their customers by way of higher base pricing and increased fuel surcharges. If fuel prices increase, we expect
to experience higher shipping rates and fuel surcharges, as well as energy surcharges on our raw materials. It is hard
to predict what will happen in the fuel markets in 2021 and beyond. Due to the price sensitivity of our products, we may
not be able to pass such increases on to our customers.
Disruption within our supply chain,
contract manufacturing or distribution channels could have an adverse effect on our business, financial condition and results
of operations.
Our ability, through
our suppliers, business partners, contract manufacturers, independent distributors and retailers, to make, move and sell products
is critical to our success. Damage or disruption to our suppliers or to manufacturing or distribution capabilities due to weather,
natural disaster, fire or explosion, terrorism, pandemics such as influenza and the novel coronavirus (COVID-19), labor strikes
or other reasons, could impair the manufacture, distribution and sale of our products. Many of these events are outside of our
control. Failure to take adequate steps to protect against or mitigate the likelihood or potential impact of such events, or to
effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations.
We rely upon our ongoing relationships
with our key flavor suppliers. If we are unable to source our flavors on acceptable terms from our key suppliers, we could suffer
disruptions in our business.
We currently purchase
our flavor concentrate from various flavor concentrate suppliers, and continually develop other sources of flavor concentrate
for each of our products. Generally, flavor suppliers hold the proprietary rights to their flavor specific ingredients. Although
we have the exclusive rights to flavor concentrates developed with our current flavor concentrate suppliers, while we have the
rights to the ingredients for our products, we do not have the list of ingredients for our flavor extracts and concentrates. Consequently,
we may be unable to obtain these exact flavors or concentrates from alternative suppliers on short notice. If we have to replace
a flavor supplier, we could experience disruptions in our ability to deliver products to our customers, which could have a material
adverse effect on our results of operations.
If we are unable to attract and
retain key personnel, our efficiency and operations would be adversely affected; in addition, management turnover causes uncertainties
and could harm our business.
Our success depends
on our ability to attract and retain highly qualified employees in such areas as finance, sales, marketing and product development.
We compete to hire new employees, and, in some cases, must train them and develop their skills and competencies. We may not be
able to provide our employees with competitive salaries, and our operating results could be adversely affected by increased costs
due to increased competition for employees, higher employee turnover or increased employee benefit costs.
Recently, we have
experienced significant changes in our key personnel, especially on our finance team, and more could occur in the future. Changes
to operations, policies and procedures, which can often occur with the appointment of new personnel, can create uncertainty, may
negatively impact our ability to execute quickly and effectively, and may ultimately be unsuccessful. In addition, management
transition periods are often difficult as the new employees gain detailed knowledge of our operations, and friction can result
from changes in strategy and management style. Management turnover inherently causes some loss of institutional knowledge, which
can negatively affect strategy and execution. Until we integrate new personnel, and unless they are able to succeed in their positions,
we may be unable to successfully manage and grow our business, and our financial condition and profitability may suffer.
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Further, to the extent
we experience additional management turnover, our operations, financial condition and employee morale could be negatively impacted. In
addition, competition for top management is high and it may take months to find a candidate that meets our requirements. If we
are unable to attract and retain qualified management personnel, our business could suffer. Moreover, our operations could be
negatively affected if employees are quarantined as the result of exposure to a contagious illness such as COVID-19.
If we lose the services of
our Chief Executive Officer, our operations could be disrupted and our business could be harmed.
Our business plan
relies significantly on the continued services of Robert Nistico, our Chief Executive Officer. If we were to lose the
services of Mr. Nistico, our ability to execute our business plan could be materially impaired. We are not aware of
any facts or circumstances that suggest he might leave us.
If we fail to protect our trademarks
and trade secrets, we may be unable to successfully market our products and compete effectively.
We rely on a combination
of trademark and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property
rights. Failure to protect our intellectual property could harm our brand and our reputation, and adversely affect our ability
to compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks, copyrights,
licenses and trade secrets, could result in the expenditure of significant financial and managerial resources. We regard our intellectual
property, particularly our trademarks and trade secrets to be of considerable value and importance to our business and our success,
and we actively pursue the registration of our trademarks in the United States and internationally. However, the steps taken by
us to protect these proprietary rights may not be adequate and may not prevent third parties from infringing or misappropriating
our trademarks, trade secrets or similar proprietary rights. In addition, other parties may seek to assert infringement claims
against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could
be costly. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties
could have a material adverse effect on our ability to market or sell our brands, profitably exploit our products or recoup our
associated research and development costs.
As part of the licensing
strategy of our brands, we enter into licensing agreements under which we grant our licensing partners certain rights to use our
trademarks and other designs. Although our agreements require that the use of our trademarks and designs is subject to our control
and approval, any breach of these provisions, or any other action by any of our licensing partners that is harmful to our brands,
goodwill and overall image, could have a material adverse impact on our business.
If we encounter product recalls
or other product quality issues, our business may suffer.
Product quality issues,
real or imagined, or allegations of product contamination, even when false or unfounded, could tarnish our image and could cause
consumers to choose other products. In addition, because of changing government regulations or implementation thereof, or allegations
of product contamination, we may be required from time to time to recall products entirely or from specific markets. Product recalls
could affect our profitability and could negatively affect brand image.
15
Our business is subject to many regulations and noncompliance
is costly.
The production, marketing
and sale of our beverages, including contents, labels, caps and containers, are subject to the rules and regulations of various
federal, provincial, state and local health agencies. If a regulatory authority finds that a current or future product or production
batch or “run” is not in compliance with any of these regulations, we may be fined, or production may be stopped,
which would adversely affect our financial condition and results of operations. Similarly, any adverse publicity associated with
any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules and regulations
are subject to change from time to time and while we closely monitor developments in this area, we cannot anticipate whether changes
in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether labeling,
environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.
Litigation or legal proceedings
could expose us to significant liabilities and damage our reputation.
We may become party
to litigation claims and legal proceedings. Litigation involves significant risks, uncertainties and costs, including distraction
of management attention away from our business operations. We evaluate litigation claims and legal proceedings to assess the likelihood
of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates,
we establish reserves and disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and
estimates are based on the information available to management at the time and involve a significant amount of management judgment.
Actual outcomes or losses may differ materially from those envisioned by our current assessments and estimates. Our policies and
procedures require strict compliance by our employees and agents with all U.S. and local laws and regulations applicable to our
business operations, including those prohibiting improper payments to government officials. Nonetheless, our policies and procedures
may not ensure full compliance by our employees and agents with all applicable legal requirements. Improper conduct by our employees
or agents could damage our reputation or lead to litigation or legal proceedings that could result in civil or criminal penalties,
including substantial monetary fines, as well as disgorgement of profits.
We are subject to risks inherent
in sales of products in international markets.
Our operations outside
of the United States, contribute to our revenue and profitability, and we believe that developing and emerging markets could present
future growth opportunities for us. However, there can be no assurance that existing or new products that we manufacture,
distribute or sell will be accepted or be successful in any particular foreign market, due to local or global competition, product
price, cultural differences, consumer preferences or otherwise. There are many factors that could adversely affect
demand for our products in foreign markets, including our inability to attract and maintain key distributors in these markets;
volatility in the economic growth of certain of these markets; changes in economic, political or social conditions, the status
and renegotiations of the North American Free Trade Agreement, imposition of new or increased labeling, product or production
requirements, or other legal restrictions; restrictions on the import or export of our products or ingredients or substances used
in our products; inflationary currency, devaluation or fluctuation; increased costs of doing business due to compliance with complex
foreign and U.S. laws and regulations. If we are unable to effectively operate or manage the risks associated with operating
in international markets, our business, financial condition or results of operations could be adversely affected.
Climate change may negatively affect
our business.
There is growing concern
that a gradual increase in global average temperatures may cause an adverse change in weather patterns around the globe resulting
in an increase in the frequency and severity of natural disasters. While warmer weather has historically been associated
with increased sales of our products similar to ours, changing weather patterns could have a negative impact on agricultural productivity,
which may limit availability or increase the cost of certain key ingredients. Also, increased frequency or duration of extreme
weather conditions may disrupt the productivity of our facilities, the operation of our supply chain or impact demand for our
products. In addition, the increasing concern over climate change may result in more regional, federal and global legal and regulatory
requirements and could result in increased production, transportation and raw material costs. As a result, the effects of climate
change could have a long-term adverse impact on our business and results of operations.
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Our business and operations would
be adversely impacted in the event of a failure or interruption of our information technology infrastructure or as a result of
a cybersecurity attack.
The proper functioning
of our own information technology (IT) infrastructure is critical to the efficient operation and management of our business. We
may not have the necessary financial resources to update and maintain our IT infrastructure, and any failure or interruption of
our IT system could adversely impact our operations. In addition, our IT is vulnerable to cyberattacks, computer viruses,
worms and other malicious software programs, physical and electronic break-ins, sabotage and similar disruptions from unauthorized
tampering with our computer systems. We believe that we have adopted appropriate measures to mitigate potential risks to our technology
infrastructure and our operations from these IT-related and other potential disruptions. However, given the unpredictability of
the timing, nature and scope of any such IT failures or disruptions, we could potentially be subject to downtimes, transactional
errors, processing inefficiencies, operational delays, other detrimental impacts on our operations or ability to provide products
to our customers, the compromising of confidential or personal information, destruction or corruption of data, security breaches,
other manipulation or improper use of our systems and networks, financial losses from remedial actions, loss of business or potential
liability, and/or damage to our reputation, any of which could have a material adverse effect on our cash flows, competitive position,
financial condition or results of operations.
Our results of operations may fluctuate
from quarter to quarter for many reasons, including seasonality.
Our sales are seasonal
and we experience fluctuations in quarterly results as a result of many factors. companies similar to ours have historically generated
a greater percentage of our revenues during the warm weather months of April through September. Timing of customer purchases will
vary each year and sales can be expected to shift from one quarter to another. As a result, management believes that period-to-period
comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future
performance or results expected for the fiscal year.
Changes in accounting standards
and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect
our financial results.
The United States
generally accepted accounting principles and related pronouncements, implementation guidelines and interpretations with regard
to a wide variety of matters that are relevant to our business, such as, but not limited to, stock-based compensation, trade spend
and promotions, and income taxes are highly complex and involve many subjective assumptions, estimates and judgments by our management.
Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management
could significantly change our reported results.
If we are unable to maintain effective
disclosure controls and procedures and internal control over financial reporting, our stock price and investor confidence could
be materially and adversely affected.
We are required to
maintain both disclosure controls and procedures and internal control over financial reporting that are effective. Because of
their inherent limitations, internal control over financial reporting, however well designed and operated, can only provide reasonable,
and not absolute, assurance that the controls will prevent or detect misstatements. Because of these and other inherent limitations
of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential
future conditions. The failure of controls by design deficiencies or absence of adequate controls could result in a material adverse
effect on our business and financial results, which could also negatively impact our stock price and investor confidence.
Due to the size of
the Company, we have an inherent material weakness relating to Internal Controls over Financial Reporting.
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We are dependent on a distiller
in Mexico, to provide us with our finished SALT tequila product. Failure to obtain satisfactory performance from them or a loss
of their services could cause us to lose sales, incur additional costs, and lose credibility in the marketplace.
We depend on a distiller
in Mexico, a company in Jalisco, for the production, bottling, labeling, capping and packaging of our finished tequila product.
We do not have a written agreement with our distiller in Mexico obligating it to produce our product. The termination of our relationship
with our distiller in Mexico distiller or an adverse change in the terms of its services could have a negative impact on our business.
If our distiller in Mexico increases its prices, we may not have alternative sources of supply at comparable prices and may not
be able to raise the prices of our products to cover all, or even a portion, of the increased costs. In addition, if our distiller
in Mexico fails to perform satisfactorily, fails to handle increased orders, or the loss of the services of our distiller in Mexico,
along with delays in shipments of products, could cause us to fail to meet orders, lose sales, incur additional costs, and/or
expose us to product quality issues. In turn, this could cause us to lose credibility in the marketplace and damage our relationships
with our customers and consumers, ultimately leading to a decline in our business and results of operations.
Regulatory decisions and changes
in the legal, regulatory and tax environment where our tequila is produced and where we operate could limit our business activities
or increase our operating costs and reduce our margins.
Our business is subject
to extensive regulation regarding production, distribution, marketing, advertising and labeling of beverage alcohol products in
the U.S. and in Mexico, where our tequila is produced. We are required to comply with these regulations and maintain various permits
and licenses. We are also required to conduct business only with holders of licenses to import, warehouse, transport, distribute,
and sell spirits. We cannot assure you that these and other governmental regulations, applicable to our industry, will not change
or become more stringent. Moreover, because these laws and regulations are subject to interpretation, we may not be able to predict
when, and to what extent, liability may arise. Additionally, due to increasing public concern over alcohol-related societal problems,
including driving while intoxicated, underage drinking, alcoholism and health consequences from the abuse of alcohol, various
levels of government may seek to impose additional restrictions or limits on advertising or other marketing activities promoting
beverage alcohol products. Failure to comply with any of the current or future regulations and requirements relating to our industry
and products, could result in monetary penalties, suspension or even revocation of our licenses and permits. Costs of compliance
with changes in regulations could be significant and could harm our business, as we may find it necessary to raise our prices
in order to maintain profit margins, which could lower the demand for our products and reduce our sales and profit potential.
In addition, the distribution
of beverage alcohol products is subject to extensive taxation both in the United States and internationally (and, in the United
States, at both the federal and state government levels), and beverage alcohol products themselves are the subject of national
import and excise duties in most countries around the world. An increase in taxation or in import or excise duties could also
significantly harm our sales revenue and margins, both through the reduction of overall consumption and by encouraging consumers
to switch to lower-taxed categories of beverage alcohol.
We face substantial competition
in the alcoholic beverage industry and we may not be able to effectively compete.
Consolidation among
spirits producers, distributors, wholesalers, or retailers could create a more challenging competitive landscape for our products.
Consolidation at any level could hinder the distribution and sale of our products as a result of reduced attention and resources
allocated to our brands, both during and after transition periods, because our brands might represent a smaller portion of the
new business portfolio. Expansion into new product categories by other suppliers, or innovation by new entrants into the
market, could increase competition in our product categories. Changes to our route-to-consumer models or partners in important
markets could result in temporary or longer-term sales disruption, higher implementation-related or fixed costs, and could negatively
affect other business relationships we might have with that partner. Distribution network disruption or fluctuations in
our product inventory levels with distributors, wholesalers, or retailers could negatively affect our results for a particular
period.
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Our competitors may
respond to industry and economic conditions more rapidly or effectively than we do. Our competitors offer products that
compete directly with ours for shelf space, promotional displays, and consumer purchases. Pricing, (including price promotions,
discounting, couponing, and free goods), marketing, new product introductions, entry into our distribution networks, and other
competitive behavior by our competitors could adversely affect our sales margins, and profitability.
Our business operations may be adversely
affected by social, political and economic conditions affecting market risks and the demand for and pricing of our tequila products.
These risks include:
● Dependence upon the continued growth of brand names;
● Production facility or supply chain disruption;
● Imprecision in supply/demand forecasting;
● Insufficient protection of our intellectual property rights;
● Failure or breach of key information technology systems;
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Uncertainty in the financial markets
and other adverse changes in general economic or political conditions in any of the major countries in which we do business could
adversely affect our industry, business and results of operations.
Global economic uncertainties,
including foreign currency exchange rates, affect businesses such as ours in a number of ways, making it difficult to accurately
forecast and plan our future business activities. There can be no assurance that economic improvements will occur, or that they
would be sustainable, or that they would enhance conditions in markets relevant to us.
Our limited operating history makes
it difficult to forecast our future results, making any investment in us highly speculative.
We have a limited
operating history, and our historical financial and operating information is of limited value in predicting our future operating
results. We may not accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or
competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts. Our current and future expense
levels are based largely on our investment plans and estimates of future revenue. As a result, we may be unable to adjust our
spending in a timely manner to compensate for any unexpected revenue shortfall, which could then force us to curtail or cease
our business operations.
An investment in the Securities
is speculative and there can be no assurance of any return on any such investment.
An investment in the
Securities is speculative and there is no assurance that investors will obtain any return on their investment. Investors will
be subject to substantial risks involved in an investment in the Company, including the risk of losing their entire investment.
Future sales of common stock, or
the perception of such future sales, by some of our existing stockholders could cause our stock price to decline.
The market price of
our common stock could decline as a result of sales of a large number of shares of our common stock in the market or the perception
that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for
us to sell shares in the future at a time and at a price that we deem appropriate.
There is currently a limited liquid
trading market for the Company’s Common Stock.
Our common stock is
quoted on the OTCQB tier under the symbol “SBEV.” Trading in stocks quoted on the OTCQB is often thin and is characterized
by wide fluctuations in trading prices due to many factors that may be unrelated to a company’s operations or business prospects.
We cannot assure you that there will be a market in the future for our common stock.
OTCQB securities are
not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTCQB securities transactions
are conducted through a telephone and computer network connecting dealers in stocks. OTCQB issuers are traditionally smaller companies
that do not meet the financial and other listing requirements of a regional or national stock exchange.
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Our Board of Directors may issue
and fix the terms of shares of our Preferred Stock without stockholder approval, which could adversely affect the voting power
of holders of our Common Stock or any change in control of our Company.
Our Articles of Incorporation
authorize the issuance of up to 5,000,000 shares of “blank check” preferred stock, with no par value per share, with
such designation rights and preferences as may be determined from time to time by the Board of Directors. Our Board of Directors
is empowered, without shareholder approval, to issue shares of preferred stock with dividend, liquidation, conversion, voting
or other rights which could adversely affect the voting power or other rights of the holders of our Common Stock. In the event
of such issuances, the preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of our company.
Because certain principal stockholders
own a large percentage of our voting stock, other stockholders’ voting power may be limited.
As of December 31,
2020 our ten (10) largest shareholders own or controlled approximately 52% of our outstanding common stock. If those stockholders
act together, they would have the ability to have a substantial influence on matters submitted to our stockholders for approval,
including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially
all of our assets. As a result, our other stockholders may have little or no influence over matters submitted for shareholder
approval. In addition, the ownership of such stockholders could preclude any unsolicited acquisition of us, and consequently,
adversely affect the price of our common stock. These stockholders may make decisions that are adverse to your interests.
We do not expect to pay dividends
and investors should not buy our Common Stock expecting to receive dividends.
We do not anticipate
that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your
investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends.
Since we do not pay dividends, and if we are not successful in establishing an orderly trading market for our shares, then you
may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause
you to not see any return on your investment even if we are successful in our business operations. In addition, because we do
not pay dividends we may have trouble raising additional funds which could affect our ability to expand our business operations.
Our common stock may be considered
a “penny stock”, and thereby be subject to additional sale and trading regulations that may make it more difficult
to sell.
Our common stock may
be considered to be a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny
stock” under Section 3a51-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our common
stock may be a “penny stock” if it meets one or more of the following conditions: (i) the stock trades at a price
less than $5 per share; (ii) it is not traded on a “recognized” national exchange; or (iii) is issued by a company
that has been in business less than three years with net tangible assets less than $5 million.
Our common stock could be further
diluted as the result of the issuance of additional Common Shares, convertible securities, warrants or options.
Our issuance of additional
common stock, convertible securities, options and warrants could affect the rights of our stockholders, result in a reduction
in the overall percentage holdings of our stockholders, could put downward pressure on the market price of our common stock, could
result in adjustments to conversion and exercise prices of outstanding notes and warrants, and could obligate us to issue additional
Common Stock to certain of our stockholders.
Common Shares eligible for future
sale may adversely affect the market.
From time to time,
certain of our stockholders may be eligible to sell all or some of their Common Shares by means of ordinary brokerage transactions
in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant
to Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement.
Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), and current public
information and notice requirements.
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If we are not able to achieve our
objectives for our business, the value of an investment in our company could be negatively affected.
In order to be successful,
we believe that we must, among other things:
● increase the sales volume and gross margins for our products;
● maintain efficiencies in operations;
● manage our operating expenses to sufficiently support operating activities;
● maintain fixed costs at or near current levels; and
We may not be able
to meet these objectives, which could have a material adverse effect on our results of operations. We have incurred significant
operating expenses in the past and may do so again in the future and, as a result, will need to increase revenues in order to
improve our results of operations. Our ability to increase sales will depend primarily on success in expanding our current markets,
improving our distribution base, entering into Direct-To-Retail (DTR) arrangements with national accounts, and introducing new
brands, products or product extensions to the market. Our ability to successfully enter new distribution areas and obtain national
accounts will, in turn, depend on various factors, many of which are beyond our control, including, but not limited to, the continued
demand for our brands and products in target markets, the ability to price our products at competitive levels, the ability to
establish and maintain relationships with distributors in each geographic area of distribution and the ability in the future to
create, develop and successfully introduce one or more new brands, products, and product extensions.
Any future equity or debt issuances
by us may have dilutive or adverse effects on our existing shareholders.
From time to time,
we may issue additional shares of common stock or convertible securities. The issuance of these securities could dilute our shareholders’
ownership in our company and may include terms that give new investors rights that are superior to those of our current shareholders.
Moreover, any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any
event may have a dilutive impact on our shareholders’ ownership interest, which could cause the market price of our common
stock to decline.
You should consult your independent
tax advisor regarding any tax matters arising with respect to the Securities.
All prospective purchasers
of the Securities are advised to consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences
relevant to the purchase, ownership and disposition of the Securities.
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Our operations are susceptible to changing weather patterns
and other environmental factors.
Over the past several years, changing weather
patterns and climatic conditions have added to the unpredictability and frequency of natural disasters, such as hail storms, wildfires
and wind, snow and ice storms. Any such extreme weather condition could negatively impact the harvest of grapes at our vineyards
and/or the other vineyards that supply us with grapes for our wine. In particular, Oregon has an unpredictable rainfall pattern