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, 2023
☐
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
Securities registered pursuant to Section 12(g) of the Act: None
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 $40,216,244.
On March 29, 2024, there were 45,129,687 shares of
Common Stock issued and outstanding.
SPLASH BEVERAGE GROUP, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
Page
PART I 1
Item 1. Business 1
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 21
Item 2. Properties 22
Item 3. Legal Proceedings 22
Item 4. Mine Safety Disclosures 22
Item 6. Selected Financial Data 22
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 25
Item 8. Financial Statements and Supplementary Data F-1
Item 9A. Controls and Procedures 26
Item 9B. Other Information 26
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 26
PART III 27
Item 10. Directors, Executive Officers and Corporate Governance 27
Item 11. Executive Compensation 32
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 wholly owned 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.
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 volume
and sales revenue. 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. Recognizing this opportunity Splash continues to shape its operating
model to be vertically integrated with our e-commerce platform, Qplash, which purchases local and regional brands for developing a direct
line of sales to boutique retail stores and consumers.
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.
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In December 2020, Splash Beverage
Group Inc. purchased the key assets of the Copa DI Vino® single serve wine company. The operations and IP for Copa DI
Vino® are wholly owned by Splash and incorporated in the state of Nevada under the name Copa DI Vino® Wine
Group Inc.
In addition, Splash has a joint
venture with SALT Naturally Flavored Tequila and Pulpoloco sangria that comes in a biodegradable can.
The Company’s leadership
understands the importance of infusing beverage brands with strong popular culture and lifestyle elements that drive trial, belief and,
most importantly, repeat purchases.
Our 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 with
brands such as Red Bull and companies such as Gallo Winery and Republic National Distributing Company (RNDC Texas). Our President &
CMO, Bill Meissner, has led major beverage brands including Sparkling Ice, Fuze, Sweet Leaf Tea and Jones Soda. Our CFO, Stacy McLaughlin,
has over 15 years of experience in public company accounting and finance, with an emphasis on reporting, fundraising and mergers and
acquisitions. Our Senior Vice President of Sales, James Allred, has over 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. We apply this philosophy 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 platform 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 limit risk, and significantly reduce development expenses 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, Coca-Cola, FUZE Beverage, NOS Energy, PepsiCo, SoBe Beverages, AB InBev, 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, improves our relationship with distributors and reduces the overall cost of infrastructure.
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The Company also believes the
distribution landscape in the beverage category is changing rapidly. Tech-enabled business models are thriving and direct to consumer,
office and home solutions are projected to continue to gain traction as beverage alcohol regulations evolve. A core strategy for us is
to optimize 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 also import Pulpoloco Sangria in 3 flavors.
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 various Anheuser-Busch & Miller-Coors distributorships, and other distributors in multiple U.S. states. Additionally, SALT is
for sale in Mexico. SALT has also launched in Guatemala and Japan and efforts continue to grow the brand’s international presence.
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 produce, market, sell and
distribute the following sports beverages under the brand name TapouT:
● TapouT Performance
● TapouT Energy
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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 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 exercise 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 it 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 celebrities 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.
(CdV) 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”).
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 of going anywhere without the need for a bottle, corkscrew or glass. The company also has a growing
keg wine business for on-premises restaurants and bars.
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.
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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. The business-to-business
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 has warehouses that ship from both California and Pennsylvania.
Our Competitive Strengths
We believe the following competitive strengths
contribute to the 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.
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 and distillers.
Our TapouT Performance and SALT
products are manufactured in the United States and Mexico, respectively 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.
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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
For our beverage-alcohol products,
we operate within what is referred to as a “Three Tier Distribution System” where manufacturers are not permitted to 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 own
operations, AB ONE. This provides SBG very effective distribution capabilities.
Intellectual Property
During the fiscal year ended December 31, 2023, we
were granted a trademark for Copa DI Vino®. The United States Patent and Trademark Office issued the trademark on March
12, 2024, providing our company exclusive rights to use the trademark in connection with the product categories specified in this Form
10-K.
Employees
We have 32 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.
Recent Developments
In January 2024, the Company
entered into a convertible note with an individual in the amount of $250,000. The note has an eighteen-month term, accrues interest at
12% and is convertible into shares of common stock of the Company at $0.50 per share, which also includes 200% warrants at $0.25
In January 2024, the Company
entered into a commercial loan in the amount of $500,000. The total cost of the loan is $250,000 and is paid in weekly increments of
6.97% of the current receivable balance.
In February 2024, the Company
entered into a convertible note with an individual in the amount of $150,000. The note has an eighteen-month term, accrues interest at
12% and is convertible into shares of common stock of the Company at $0.40 per share, which also includes 250% warrants at $0.25.
In March 2024, the Company received
a $109,000 cash advance from our chief executive officer, resulting in a related party payable. This note bears 0% interest.
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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’s 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 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.
Available Information
We file annual, quarterly, and current reports, proxy
statements and other information with the U.S. Securities Exchange Commission (the “SEC”). These filings are available to
the public through the SEC’s website at http://www.sec.gov. All statements made in any of our securities filings, including all
forward-looking statements or information, are made as of the date of the document in which the statement is included unless otherwise
specified, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to
do so by law.
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 auditors have included an explanatory paragraph
in their opinion regarding our ability to continue as a going concern. If we are unable to continue as a going concern, our securities
will have little or no value.
Rose, Snyder & Jacobs LLP,
our independent registered public accounting firm for the fiscal year ended December 31, 2023, has included an explanatory paragraph
in their opinion that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2023, indicating
that our current liquidity position raises substantial doubt about our ability to continue as a going concern. If we are unable to improve
our liquidity position, we may not be able to continue as a going concern.
We have sustained recurring losses
and we have had working capital and stockholders’ equity deficits. These prior losses and expected future losses have had,
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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, financing 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.
Management recognizes that it
may be required to obtain additional resources via issuances of indebtedness or equity to successfully execute its business plans. No
assurances can be given that management will be successful in raising additional capital, if needed, or on acceptable terms. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern for the next 12 months. These financial statements
do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.
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, our ability to execute on our acquisition strategy and our ability to generate revenues. We incurred a net
loss of $21.0 million for the year ended December 31, 2023.
Our accumulated deficit increased to $133.3 million as of December 31, 2023, compared
to the prior year’s deficit of $112.3 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:
● 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,
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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, available positions within the retailer’s
planograms, 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.
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 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, PET, fiber-board, labels and cardboard cartons, flavorings and sweeteners. These component
and ingredient costs are subject to fluctuation. If there were to be 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.
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 markets. 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.
9
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” brands.
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.
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, some of which may 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.
10
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.
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 SALT Tequila,
Pulpoloco Sangria or TapouT performance drinks 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 these
brands. 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.
11
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 2024 and
beyond. Due to the price sensitivity of our products, we may not always 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 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, and 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