U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission File Number 001-40471
SPLASH BEVERAGE GROUP, INC.
(Exact name of registrant as specified in its charter)
1314 E Las Olas Blvd. Suite 221
Fort Lauderdale, FL33301
(Address of principal executive offices) (Zip
code)
(954)745-5815
(Registrant’s telephone number, including
area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $0.001 par value per share SBEV NYSE American LLC
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes
☒No
Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐
Yes ☒No
Indicate by check mark whether the registrant (i)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. ☒Yes☐
No
Indicate by checkmark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit such files). ☒Yes☐ No
Indicate by checkmark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company,” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark
if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has
filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☐
If securities are registered pursuant to Section 12(b)
of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a
shell company (as defined in rule 12b-2 of the Act). ☐ Yes ☒No
The aggregate market value of the Registrant’s
common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business
day of the Registrant’s most recently completed second quarter was $91,048,293.
On March 31, 2023, there were 41,085,520 shares of
Common Stock issued and outstanding.
SPLASH BEVERAGE GROUP, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2021
TABLE OF CONTENTS
Page
PART I 1
Item 1. Business 2
Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments 24
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Mine Safety Disclosures 24
Item 6. Selected Financial Data 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 26
Item 8. Financial Statements and Supplementary Data F-1
Item 9A. Controls and Procedures 27
Item 9B. Other Information 27
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 27
PART III 28
Item 10. Directors, Executive Officers and Corporate Governance 28
Item 11. Executive Compensation 34
Item 14. Principal Accounting Fees and Services 36
Item 15. Exhibits and Financial Statement Schedules 37
Signatures 38
i
PART I
Except
as otherwise indicated, references to “we”, “us”, “our”, “Splash”, “SBG” and
the “Company” refer to Splash Beverage Group, Inc. and its whollyowned
subsidiaries.
This
Annual Report on Form 10-K (this “Annual Report”) contains “forward-looking statements” Forward-looking statements
reflect our current view about future events. When used in this Report, the words “anticipate,” “believe,” “estimate,”
“expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions,
as they relate to us or our management, identify forward-looking statements. Such statements include, but are not limited to, statements
contained in this Report relating to our business strategy, our future operating results and liquidity and capital resources outlook.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future
conditions. Because forward–looking statements relate to the future, they are subject to inherent uncertainties, risks and changes
in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking
statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore
against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from
those in the forward-looking statements include, without limitation, our ability to raise capital to fund continuing operations; our ability
to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition
from other providers and products; our ability to develop and commercialize products and services; changes in government regulation; our
ability to complete capital raising transactions; and other factors (including the risks contained in the section of this Annual Report
entitled “Risk Factors”) relating to our industry, our operations and results of operations. Actual results may differ significantly
from those anticipated, believed, estimated, expected, intended or planned.
Factors
or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of
them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including
the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements
to actual results.
MARKET AND INDUSTRY DATA
This Annual Report on Form 10-K
contains statistical data, estimates and forecasts that are based on independent industry publications or other publicly available
information, as well as other information based on our internal sources. While we believe the industry and market data included in this
Annual Report on Form 10-K are reliable and based on reasonable assumptions, the data involves many assumptions and limitations, and you
are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data
contained in these industry publications and other publicly available information. The industry in which we operate is subject to a high
degree of uncertainty and risk due to a variety of factors, including those described in the sections titled “Cautionary Note Regarding
Forward-Looking Statements” and “Risk Factors” included in this Annual Report on Form 10-K.
TRADEMARKS AND TRADE NAMES
We own or have rights to various
trademarks, service marks and trade names that we use in connection with the operation of our business. This Annual Report on Form 10-K
may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use
or display of third parties’ trademarks, service marks, trade names or products in this Annual Report on Form 10-K is not intended
to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks
and trade names referred to in this Annual Report on Form 10-K may appear without the ®, TM or SM symbols, but such
references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or
the right of the applicable licensor to these trademarks, service marks and trade names.
1
Except
as otherwise indicated, references to “we”, “us”, “our”, “Splash”, “SBG” and
the “Company” refer to Splash Beverage Group, Inc. and its wholly owned
subsidiaries.
Item 1. Business.
Company Overview
Splash is a portfolio company
managing multiple brands across several growth segments within the consumer beverage industry. Splash has built organizational capabilities
and an infrastructure enabling it to incubate and/or acquire brands with the intention of efficiently accelerating them to higher volumes.
The management team has proven capabilities in building consumer franchises and marketing and distributing multiple brands of beverages
within the non-alcoholic and alcoholic segments. Manufacturing is typically outsourced to third party co-packers and distillers, or in
select cases for a brand such as Copa Di Vino wines, performed within our own facility in Oregon.
We believe the distribution landscape
in the beverage industry is changing rapidly as tech-enabled e-commerce business models are thriving. Direct to consumer, office or home
solutions are projected to continue to gain traction in the future. To address this opportunity Splash continues to shape its operating
model to be vertically integrated building an e-commerce platform, Qplash, which purchases local and regional brands for developing a
direct line of sales to small retail stores.
Splash’s wholly owned subsidiary,
Splash Beverage Group II, Inc. 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). Splash has license rights to the TapouT Performance
brand in North America (Including US Territories and Military Bases), United Kingdom, Brazil, South Africa, Scandinavia, Peru, Colombia,
Chile and Guatemala.
In addition, Splash has a joint
venture with SALT Naturally Flavored Tequila, Copa Di Vino wines and Pulpoloco, sangrias that comes in a biodegradable can.
The Company leadership understand
the importance of infusing beverage brands with strong pop culture and lifestyle elements which drives trial, belief and, most importantly,
repeat purchases.
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The management team led by Robert
Nistico has over 28 years of experience in all levels of the three-tier distribution system used in the beverage industry working on brands
such as Red Bull and companies such as Gallo Winery and RNCC Texas. The President & CMO, Bill Meissner, has led major beverage brands
as Sparkling Ice, Fuze, Sweet Leaf Tea and Jones Soda. The CFO, Ron Wall, has over 25 years of experience in the alcohol beverage industry
with Diageo and William Grant & Sons. The Senior Vice President of Sales, James Allred, has 25+ years’ experience in the beverage
industry predominately with Anheuser-Busch.
Our Strategy
Our strategy is to combine the
traditional approach of manufacturing, distributing, and marketing of beverages, with early-stage brands that have a reasonable level
of pre-existing brand awareness and market presence, or have attributes that we believe to be purely innovative. We believe this allows
us to break through the clutter of numerous brand introductions and dilute risk. This philosophy is applied regardless of whether the
brand is 100% owned or a joint venture.
For acquisition or joint venture
consideration, we prefer to work with brands that already have one or more of the following in place:
● Some level of preexisting brand awareness
● Regional presence that can be expanded
● Licensing an existing brand name (TapouT for example)
● Innovation to an existing attractive category (such as flavored tequila)
● A near term clear path to profitability
We believe this model provides
us with two paths to success: one, developing our wholly owned core brands and two, the ability to tap into high growth, early-stage brands
ready to scale. This platform allows us to significantly reduce development expense while simultaneously increasing efficiencies for all
brands in our portfolio.
Our management team has over 120
years of combined experience in the beverage industry, including decades of successful brand introductions by our management team
(Gallo, Red Bull, Bacardi, Diageo, Sparkling Ice, Jones Soda, FUZE Beverage, NOS Energy, SoBe Beverages, Muscle Milk, Marley Beverages),
we believe our ability to break through the distribution and retail bottlenecks makes us an attractive joint venture partner to many new
brand owners.
Splash has the ability to fully
own a brand or be flexible to engage in business ventures structured with a revenue split, or an equity position.
The benefit to Splash in these
shared brand ownerships is the ability to avoid the development costs for new products. This model spreads our risk over several brands,
contributes to our economies of scale, and improves our relationship with distributors and reduces the overall cost of infrastructure.
The Company also believe the distribution
landscape in the beverage category is changing rapidly. Tech-enabled business models are thriving and direct to consumer, office or home
solutions are projected to continue to gain traction as beverage alcohol regulations evolve. A core strategy for us is to build onto the
early success we’re seeing with the Qplash online platform, our consumer-packaged goods retail division and our first entry point
into the growing e-commerce channel.
Products
We currently produce,
distribute and market SALT Naturally Flavored Tequila (“SALT”), a 100% agave 80 proof line of flavored tequilas, “TapouT
Performance,” a line of performance beverages that complete in the hydration and energy categories, Copa Di Vino single serve wine
by the glass and import Pulpoloco Sangria in 3 flavors.
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The following is a description
of these products.
SALT Flavored Tequila
We oversee production, distribute,
and market the following flavors under the brand name SALT Naturally Flavored Tequila:
● Citrus flavor
● Berry flavor
● Chocolate flavor
Vodka, rum, and brown spirits
have experienced significant growth when flavors are introduced, and we expect this growth of flavors to continue, as the tequila category
continues to rapidly expand.
SALT is currently being distributed
by Republic National Distribution Co., various Anheuser-Busch & Miller-Coors distributorships, and other distributors in multiple
U.S. states. Additionally, SALT is for sale in Mexico. Several South American countries are expected to launch SALT during 2023.
SALT is a business venture between
the Company and SALT USA, LLC. All aspects of manufacturing, logistics, distribution and marketing are our responsibility.
TapouT Performance Isotonic Sports Drinks
We will produce, market, sell
and distribute the following sports beverages under the brand name TapouT:
● TapouT Performance:
● TapouT Energy: Launching in 2023
4
TapouT Performance Beverages are
a line of unique advanced performance beverages containing ingredients known for various functional benefits including, focus, cognition,
energy, recuperative and cell regeneration which promotes better absorption of nutrients, increase hydration and cellular recovery. They
are exclusively formulated with GRAS (FDA Designation “Generally Regarded As Safe”) ingredients versus controversial ingredients
often used in many competitive products. TapouT Performance Beverages are all natural with a highly innovative proprietary blends designed
to enhance physical and or mental performance.
TapouT, formally associated with
the UFC and mixed martial arts has been producing branded clothing and light equipment for over 23 years and has a high level of aided
and unaided brand awareness.
TapouT License Agreement
We have the rights under a License
Agreement with ABG TapouT (the “License Agreement”) to produce, market, sell and distribute TapouT sports beverages in
North America (including US Territories and Military Bases), United Kingdom, Brazil, South Africa, Australia, Scandinavia, Peru, Colombia,
Chile and Guatemala. The beverages covered by the License Agreement include sports drinks, energy drinks, energy shots, electrolyte chews,
energy bars, water, protein, and teas.
We pay a 6% royalty of net sales
or a guaranteed minimum annual royalty of $660,000, whichever is greater. The License Agreement will expire on December 31, 2025 with
a renewal option through December 31, 2028 at which time will be reviewed and renegotiated if necessary.
We have the right to use the TapouT
brand to market, advertise and promote for sale our TapouT beverages and branded products. As part of the alliance, Splash commits to
investing 2% of sales in marketing to the TapouT Performance Brand. TapouT provides marketing collateral for advertising and promotion
and has influential relationships with select celebrity and athletic talent. TapouT agrees to use reasonable efforts to request its retained
celebrities and/or athletes be present at autograph signings, tradeshows and other similar events.
Copa di Vino Wine Group, Inc. and Related Financing
On December 24, 2020, the
Company entered into an Asset Purchase Agreement with CdV, pursuant to which the Company purchased certain assets and assumed certain
liabilities that comprise the CdV business for a total purchase price of $5,980,000, payable in the combination of $2,000,000 in cash,
a $2,000,000 convertible promissory note to CdV and a variable number of shares of the Company’s common stock based on an attainment
of revenue hurdles.
In conjunction with the acquisition,
the Company also entered into a Revenue Loan and Security Agreement (the “Loan and Security Agreement”) by and among the Company,
Robert Nistico, additional Guarantor and each of the subsidiary guarantors from time-to-time party thereto (each a “Guarantor”,
and, collectively, the “Guarantors”), and Decathlon Alpha IV, L.P. (the “Lender”). The Loan and Security Agreement
provided for a revenue-based credit facility of $1,578,237 (the “Gross Amount”) with the Lender (the “Credit Facility”).
5
Copa di Vino Wine Group, Inc.
Copa Di Vino is the leading producer
of premium wine by the glass in the United States. The Copa-di-Vino product line is highly innovative as a ready to drink wine glass capable
to go anywhere without the need for a bottle, corkscrew or glass.
Through our acquisition of Copa
di Vino Corporation, we are now able to offer nine varietals of wine: Pinot Grigio, Riesling, Merlot, Chardonnay, White Zinfandel, Moscato,
Red Blend, Sauvignon Blanc and Cabernet Sauvignon. In addition to its wine varietals, Copa di Vino also procures Pulpoloco, a sangria
which is encased in an eco-friendly fiber based can from Spain. The rights to utilize this packaging for multiple categories were conveyed
to SBG in conjunction with the distribution rights.
6
E-commerce
“Qplash” is a wholly
owned division of Splash. It is our first entry point into the growing e-commerce channel. The division sells beverages online through www.qplash.com,
and third-party storefronts such as Amazon.com. Inside of the division, there are two primary customer groups: business to business retailers,
which in turn offer the products to their customers, and business to consumer, selling direct to end users. This program allows businesses
to control inventory, order with payment terms, and offer the convenience of delivery directly to each store.
Currently Qplash offers
over 1,500 listings and have warehouses that ship from both California and Pennsylvania.
Discontinued Business - Canfield Medical Supply,
Inc.
Canfield Medical Supply, Inc.
(“CMS”) is a provider of home medical equipment, supplies and services (which relate to the equipment sales) in Ohio’s
Mahoning Valley, Western Pennsylvania and Northern West Virginia, with an emphasis on providing for patients with mobility-related limitations
who have had strokes, hip or knee replacements, and other surgeries after they are discharged from a hospital or rehab center. CMS is
a legacy segment of the business and in December 2020, management discontinued operations and the business was sold in the second Quarter
of 2022.
Our Competitive Strengths
We believe the following competitive strengths
contribute to Company’s success and differentiate us from our competitors:
● An established distribution network through global sales channels;
● Long-term relationships with retailers and the establishment of chains;
● Premium customer service;
● A highly experienced management team;
● Strategically selected, dedicated sales professionals;
● Celebrity and professional athlete endorsement of our brands.
7
Manufacturing and Co-packing
We are responsible for the manufacturing
of Copa di Vino, TapouT Performance and SALT. The Copa di Vino product line is bottled at our manufacturing facility in The Dalles, Oregon.
Pulpoloco is imported from Spain as a finished product.
Although we are responsible for
manufacturing TapouT Performance and SALT, we do not directly manufacture these products, but instead outsource such manufacturing to
third party bottlers and contract packers.
Our TapouT Performance and Salt
products are manufactured in the United States and Mexico under separate arrangements with each party. Our co-packaging arrangements are
terminable upon request and do not obligate us to produce any minimum quantities of products within specified periods.
We purchase concentrates, flavors,
dietary ingredients, cans, bottles, caps, labels, and other components and ingredients for our beverage products from our suppliers, which
are delivered to our manufacturing operations and various third-party bottlers and co-packers. In some cases, certain common supplies
may be purchased by our various third-party bottlers and co-packers. Depending on the product, the third-party bottlers or packers add
filtered water and/or other ingredients (including dietary ingredients) for the manufacture and packaging of the finished products into
our approved containers in accordance with our formulas.
Distribution
We operate within what is referred
to as a “Three Tier Distribution System” where manufacturers do not typically sell directly to retailers, but instead contract
for local and regional distribution with independent distributors. These distributors typically have geographic rights to distribute major
beverage brands and call on every store in a given area such as major cities or regions. Our management team has extensive experience
working within this channel and believes that we will be successful in building a strong network of these distributors.
In addition to working with these
independent distributors, we also have distribution arrangements with national retail accounts to distribute some of our products directly
through their warehouse operations. Most notably, SBG executed a distribution agreement with AB-InBev, for distribution with their owned
operations, AB ONE. This provides SBG very effective distribution capabilities.
Employees
We have 40 full-time employees, including
non-officer employees and our executive officers. None of our employees are represented
by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.
Listing on the NYSE American
Our common stock and warrants
are listed on the NYSE American exchange under the ticker symbols “SBEV” and “SBEV WT,” respectively.
8
Corporate Information
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.
Splash executed a reverse merger
with a fully reporting, public entity called Canfield Medical Supply, Inc. and became a wholly-owned subsidiary of Canfield Medical Supply
Inc. on March 31, 2020. At the time of the merger Canfield state of incorporation was Colorado. At the time of the merger Canfield’s
common stock was quoted on the OTCQB.
On July 31, 2021, 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 WT,” respectively
On November 8, 2021, we changed
our state of incorporation from Colorado to Nevada.
Our principal offices are located
at 1314 E. Las Olas Blvd, Suite 221, Fort Lauderdale, Florida 33301. Our main telephone number is (954) 745-5815. 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.
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 “Cautionary Note Concerning 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
Risks Related to our Business
Our business could be materially and adversely
affected by the lingering impact of the global COVID-19 pandemic or other epidemics and outbreaks.
The COVID-19 pandemic had disrupted and affected our business
operations, which has led to business and supply chain disruptions. The lingering effects of the pandemic are likely to continue to disrupt
our business and supply chain in the future. For example, our ability to gain new retail authorizations could be impacted by restrictions
in retail outlets and our ability to generate sales and brand awareness in bars and restaurants could be impacted if restrictions are
place on these establishments. However, given the unpredictable nature of COVID-19 and its variants, it is difficult, if not
impossible, to predict, whether any government-imposed restrictions will be reimposed at previous levels or enhanced in one or more ways
impacting our business operations or those of third parties upon which we rely. The COVID-19 pandemic, including associated
business interruptions and recovery, as well as other possible epidemics or outbreaks of other contagions could result in a material adverse
impact on our or our current or anticipated customers’ or suppliers’ business operations, including reduction or suspension
of operations in the U.S. or other parts of the world. Our design and engineering operations, among others, cannot all be conducted remotely
and often require on-site access to materials and equipment. We have customers, suppliers, and partners with international operations,
and our customers, suppliers, and partners also depend on suppliers and manufacturers worldwide, which means that our business and prospects
could be affected by the lingering effects of the COVID-19 pandemic anywhere in the world. Depending upon the duration of the
lingering effects of the COVID-19 pandemic and the associated business interruptions, our customers, suppliers, manufacturers,
and partners may suspend or delay their engagements with us. We and our customers’ and suppliers’ response to the lingering
effects of the COVID-19 pandemic may prove to be inadequate and they may be unable to continue their respective operations in
the manner they had prior to the outbreak or the worsening of the outbreak, and we may consequently endure interruptions, reputational
harm, delays in our product development, and shipments, all of which could have an adverse effect on our business, operating results,
and financial condition. In addition, we cannot assure you as to the timing of the economic recovery given the lingering effects of the
pandemic, which could have a material adverse effect on our target markets and our business.
9
If we are unable to continue as a going concern,
our securities will have little or no value.
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.
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 $21.7
million for the year ended December 31, 2022. Our accumulated deficit increased to $112.3
million as of December 31, 2022, compared to the prior year’s deficit of $90.6
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.
If we are not able to successfully execute on
our future operating plans and objectives, 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.
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.
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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. 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.
Additionally, failure to introduce
new brands, products or product extensions into the marketplace as current ones mature and to meet the changing preferences of consumers
could prevent us from gaining market share and achieving long-term profitability. Product lifecycles can vary and consumer 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. Consumer 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... If we do not adequately
anticipate or adjust to respond to these and other changes in consumer preferences, we may not be able to maintain and grow our brand
image and our sales may 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.
The principal raw materials we
use include glass bottles, aluminum cans, labels and cardboard cartons, flavorings and sweeteners. These 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.
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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. 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.
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
and alcoholic beverages, 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.
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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 may experience a reduced demand for some of our products due to
health concerns (including obesity) and legislative initiatives against sweetened beverages.
Consumers are concerned about
health and wellness; public health officials and government officials are increasingly vocal about obesity and its consequences. There
has been a trend among some public health advocates and dietary guidelines to recommend a reduction in sweetened beverages, as well as
increased public scrutiny, new taxes on sugar-sweetened beverages (as described below), and additional governmental regulations concerning
the marketing and labeling/packing of the beverage industry. Additional or revised regulatory requirements, whether labeling, tax or otherwise,
could have a material adverse effect on our financial condition and results of operations. Further, increasing public concern with respect
to sweetened beverages could reduce demand for our beverages and increase desire for more low-calorie soft drinks, water, enhanced water,
coffee-flavored beverages, tea, and beverages with natural sweeteners. We are continuously working to reduce calories and sugar in our
TapouT products while launching new products, to pair with existing brand extensions that round out our diversified portfolio.
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.
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.
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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.
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.
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.
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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 COVID-19, labor strikes or other reasons, could impair the manufacture, distribution