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.
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Our brands and brand images are keys to our
business and any inability to maintain a positive brand image could have a material adverse effect on our results of operations.
Our success depends on our ability
to maintain brand image for our existing products and effectively build up brand image for new products and brand extensions. We cannot
predict whether our advertising, marketing and promotional programs will have the desired impact on our products’ branding and
on consumer preferences. In addition, negative public relations and product quality issues, whether real or imagined, could tarnish our
reputation and image of the affected brands and could cause consumers to choose other products. Our brand image can also be adversely
affected by unfavorable reports, studies and articles, litigation, or regulatory or other governmental action, whether involving our
products or those of our competitors.
Competition from traditional and large, well-financed
non-alcoholic and alcoholic beverage manufacturers may adversely affect our distribution relationships and may hinder development of
our existing markets, as well as prevent us from expanding our markets.
The beverage industry is highly
competitive. We compete with other beverage companies not only for consumer acceptance but also for shelf space in retail outlets and
for marketing focus by our distributors, all of whom also distribute other beverage brands. Our products compete with all non-alcoholic
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.
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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.
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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
to attract and retain highly qualified employees in such areas as finance, sales, marketing and product development. We compete to hire
new employees, and, in some cases, must train them and develop their skills and competencies. We may not be able to provide our employees
with competitive salaries, and our operating results could be adversely affected by increased costs due to increased competition for
employees, higher employee turnover or increased employee benefit costs.
Changes to operations, policies
and procedures, which can often occur with the appointment of new personnel, can create uncertainty, may negatively impact our ability
to execute quickly and effectively, and may ultimately be unsuccessful. In addition, management transition periods are often difficult
as the new employees gain detailed knowledge of our operations, and friction can result from changes in strategy and management style.
Management turnover inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution.
Further, to the extent we experience
additional management turnover, our operations, financial condition and employee morale could be negatively impacted. In addition, competition
for top management is high and it may take months to find a candidate that meets our requirements. If we are unable to attract and retain
qualified management personnel, our business could suffer.
If we fail to protect our trademarks and trade
secrets, we may be unable to successfully market our products and compete effectively.
We rely on a combination of trademark
and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property rights. Failure to
protect our intellectual property could harm our brand and our reputation, and adversely affect our ability to compete effectively. Further,
enforcing or defending our intellectual property rights, including our trademarks,
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copyrights, licenses and trade
secrets, could result in the expenditure of significant financial and managerial resources. We regard our intellectual property, particularly
our trademarks and trade secrets to be of considerable value and importance to our business and our success, and we actively pursue the
registration of our trademarks in the United States and internationally. However, the steps taken by us to protect these proprietary
rights may not be adequate and may not prevent third parties from infringing or misappropriating our trademarks, trade secrets or similar
proprietary rights. In addition, other parties may seek to assert infringement claims against us, and we may have to pursue litigation
against other parties to assert our rights. Any such claim or litigation could be costly. In addition, any event that would jeopardize
our proprietary rights or any claims of infringement by third parties could have a material adverse effect on our ability to market or
sell our brands, profitably exploit our products or recoup our associated research and development costs.
As part of the licensing strategy
of our brands, we enter into licensing agreements under which we grant our licensing partners certain rights to use our trademarks and
other designs. Although our agreements require that the use of our trademarks and designs is subject to our control and approval, any
breach of these provisions, or any other action by any of our licensing partners that is harmful to our brands, goodwill and overall
image, could have a material adverse impact on our business.
We may be required in the future to record
a significant charge to earnings if our goodwill or intangible assets become impaired.
Under United States Generally
Accepted Accounting Principles (“U.S. GAAP”), we are required to review our intangible assets for impairment at least annually
or when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change
in circumstances indicating that the carrying value of our intangible assets may not be recoverable include, declining or slower than
anticipated growth rates for certain of our existing products, a decline in stock price and market capitalization, and slower growth
rates in our industry.
We may be required in the future
to record a significant charge to earnings during the period in which we determine that our intangible assets have been impaired. Any
such charge would adversely impact our results of operations. As of December 31, 2023, our intangible assets totaled approximately $4.71
million.
If we encounter product recalls or other product
quality issues, our business may suffer.
Product quality issues, real
or imagined, or allegations of product contamination, even when false or unfounded, could tarnish our image and could cause consumers
to choose other products. In addition, because of changing government regulations or implementation thereof, or allegations of product
contamination, we may be required from time to time to recall products entirely or from specific markets. Product recalls could affect
our profitability and could negatively affect brand image.
Our business is subject to many regulations and noncompliance is
costly.
The production, marketing and
sale of our beverages, including contents, labels, caps and containers, are subject to the rules and regulations of various federal,
provincial, state and local health agencies. If a regulatory authority finds that a current or future product or production batch or
“run” is not in compliance with any of these regulations, we may be fined, or production may be stopped, which would adversely
affect our financial condition and results of operations. Similarly, any adverse publicity associated with any noncompliance may damage
our reputation and our ability to successfully market our products. Furthermore, the rules and regulations are subject to change from
time to time and while we closely monitor developments in this area, we cannot anticipate whether changes in these rules and regulations
will impact our business adversely. Additional or revised regulatory requirements, whether labeling, environmental, tax or otherwise,
could have a material adverse effect on our financial condition and results of operations.
Significant additional labeling or warning
requirements may inhibit sales of affected products.
Various jurisdictions may seek
to adopt significant additional product labeling or warning requirements relating to the chemical content or perceived adverse health
consequences of certain of our products. These types of requirements, if they become applicable to one or more of our products under
current or future environmental or health laws or regulations, may inhibit sales of such products. In California, a law requires that
a specific warning appear on any product that contains a component listed by the state as having been found to cause cancer or birth
defects. This law recognizes no generally applicable quantitative thresholds below which a warning is not required. If a component found
in one of our products is added to the list, or if the increasing sensitivity of detection methodology that may become available under
this law and related regulations as they currently exist, or as they may be amended, results in the detection of an infinitesimal quantity
of a listed substance in one of our beverages produced for sale in California, the resulting warning requirements or adverse publicity
could affect our sales.
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Litigation or legal could expose us to significant
liabilities and damage our reputation.
We may become party to litigation
claims and legal proceedings. Litigation involves significant risks, uncertainties and costs, including distraction of management attention
away from our business operations. We evaluate litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes
and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and disclose
the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available
to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from
those envisioned by our current assessments and estimates. Our policies and procedures require strict compliance by our employees and
agents with all U.S. and local laws and regulations applicable to our business operations, including those prohibiting improper payments
to government officials. Nonetheless, our policies and procedures may not ensure full compliance by our employees and agents with all
applicable legal requirements. Improper conduct by our employees or agents could damage our reputation or lead to litigation or legal
proceedings that could result in civil or criminal penalties, including substantial monetary fines, as well as disgorgement of profits.
Additionally, there has been
public attention directed at the beverage alcohol industry, which we believe is due to concern over problems related to harmful use of
alcohol, including drinking and driving, underage drinking and health consequences from the misuse of alcohol. We could be exposed to
lawsuits relating to product liability or marketing or sales practices with respect to our alcoholic products. Adverse developments in
lawsuits concerning these types of matters or a significant decline in the social acceptability of beverage alcohol products that may
result from lawsuits could have a material adverse effect on our business, liquidity, financial condition and results of operations.
We are subject to risks inherent in sales of
products in international markets.
Our operations outside of the
United States, contribute to our revenue and profitability, and we believe that developing and emerging markets could present future
growth opportunities for us. However, there can be no assurance that existing or new products that we manufacture, distribute or sell
will be accepted or be successful in any particular foreign market, due to local or global competition, product price, cultural differences,
and consumer preferences or otherwise. There are many factors that could adversely affect demand for our products in foreign markets,
including our inability to attract and maintain key distributors in these markets; volatility in the economic growth of certain of these
markets; changes in economic, political or social conditions, the status and renegotiations of the North American Free Trade Agreement,
imposition of new or increased labeling, product or production requirements, or other legal restrictions; restrictions on the import
or export of our products or ingredients or substances used in our products; inflationary currency, devaluation or fluctuation; increased
costs of doing business due to compliance with complex foreign and U.S. laws and regulations. If we are unable to effectively
operate or manage the risks associated with operating in international markets, our business, financial condition or results of operations
could be adversely affected.
Water scarcity and poor quality could negatively impact our
costs and capacity.
Water is a main ingredient in
substantially all of our products, is vital to the production of the agricultural ingredients on which our business relies and is needed
in our manufacturing process. It also is critical to the prosperity of the communities we serve. Water is a limited resource in many
parts of the world, facing unprecedented challenges from overexploitation, increasing demand for food and other consumer and industrial
products whose manufacturing processes require water, increasing pollution and emerging awareness of potential contaminants, poor management,
lack of physical or financial access to water, sociopolitical tensions due to lack of public infrastructure in certain areas of the world
and the effects of climate change. As the demand for water continues to increase around the world, and as water becomes scarcer and the
quality of available water deteriorates, we may incur higher costs or face capacity constraints and the possibility of reputational damage,
which could adversely affect our profitability or net operating revenues in the long run.
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Fluctuations in quantity and quality of grape
supply could adversely affect our business.
A shortage in the supply of quality
grapes may result from a variety of factors that determine the quality and quantity of our grape supply, including weather conditions,
pruning methods, diseases and pests, the ability to buy grapes on long and short-term contracts and the number of vines producing grapes.
Any shortage in grape production could cause a reduction in the amount of wine we are able to produce, which could reduce sales and adversely
impact our results from operations. Factors that reduce the quantity of our grapes may also reduce their quality, which in turn could
reduce the quality or amount of wine we produce. Deterioration in the quality of our wines could harm our brand name, reduce sales and
adversely impact our business and results of operations.
Contamination of our wines could harm our business.
We are subject to certain hazards
and product liability risks, such as potential contamination, through tampering or otherwise, of ingredients or products. Contamination
of any of our wines could force us to destroy wine held in inventory and could cause the need for a product recall, which could significantly
damage our reputation for product quality. We maintain insurance against certain of these kinds of risks, and others, under various insurance
policies. However, the insurance may not be adequate or may not continue to be available at a price or on terms that are satisfactory
to us and this insurance may not be adequate to cover any resulting liability.
Our business and operations would be adversely
impacted in the event of a failure or interruption of our information technology infrastructure or as a result of a cybersecurity attack.
The proper functioning of our
own information technology (IT) infrastructure is critical to the efficient operation and management of our business. We may not
have the necessary financial resources to update and maintain our IT infrastructure, and any failure or interruption of our IT system could
adversely impact our operations. In addition, our IT is vulnerable to cyberattacks, computer viruses, worms and other malicious software
programs, physical and electronic break-ins, sabotage and similar disruptions from unauthorized tampering with our computer systems.
We believe that we have adopted appropriate measures to mitigate potential risks to our technology infrastructure and our operations
from these IT-related and other potential disruptions. However, given the unpredictability of the timing, nature and scope of any
such IT failures or disruptions, we could potentially be subject to downtimes, transactional errors, processing inefficiencies,
operational delays, other detrimental impacts on our operations or ability to provide products to our customers, the compromising of
confidential or personal information, destruction or corruption of data, security breaches, other manipulation or improper use of our
systems and networks, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation,
any of which could have a material adverse effect on our cash flows, competitive position, financial condition or results of operations.
If we fail to comply with personal data protection and privacy laws,
we could be subject to adverse publicity, government enforcement actions and/or private litigation, which could negatively affect our
business and operating results.
In the ordinary course of our
business, we receive, process, transmit and store information relating to identifiable individuals (“personal data”), primarily
employees, former employees and consumers with whom we interact. As a result, we are subject to various U.S. federal and state and foreign
laws and regulations relating to personal data. These laws have been subject to frequent changes, and new legislation in this area may
be enacted in other jurisdictions at any time. These laws impose operational requirements for companies receiving or processing personal
data, and many provide for significant penalties for noncompliance. These requirements with respect to personal data have subjected and
may continue in the future to subject the Company to, among other things, additional costs and expenses and have required and may in
the future require costly changes to our business practices and information security systems, policies, procedures and practices. Our
security controls over personal data, the training of employees and vendors on data privacy and data security, and the policies, procedures
and practices we implemented or may implement in the future may not prevent the improper disclosure of personal data by us or the third-party
service providers and vendors whose technology, systems and services we use in connection with the receipt, storage and transmission
of personal data. Unauthorized access or improper disclosure of personal data in violation of personal data protection or privacy laws
could harm our reputation, cause loss of consumer confidence, subject us to regulatory enforcement actions (including fines), and result
in private litigation against us, which could result in loss of revenue, increased costs, liability for monetary damages, fines and/or
criminal prosecution, all of which could negatively affect our business and operating results.
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If our third-party service providers and business
partners do not satisfactorily fulfill their commitments and responsibilities, our financial results could suffer.
In the conduct of our business,
we rely on relationships with third parties, including cloud data storage and other information technology service providers, suppliers,
distributors, contractors, joint venture partners and other external business partners, for certain functions or for services in support
of key portions of our operations. These third-party service providers and business partners are subject to similar risks as we are relating
to cybersecurity, privacy violations, business interruption, and systems and employee failures, and are subject to legal, regulatory
and market risks of their own. Our third-party service providers and business partners may not fulfill their respective commitments and
responsibilities in a timely manner and in accordance with the agreed-upon terms. In addition, while we have procedures in place for
selecting and managing our relationships with third-party service providers and other business partners, we do not have control over
their business operations or governance and compliance systems, practices and procedures, which increases our financial, legal, reputational
and operational risk. If we are unable to effectively manage our third-party relationships, or for any reason our third-party service
providers or business partners fail to satisfactorily fulfill their commitments and responsibilities, our financial results could suffer.
Our results of operations may fluctuate from
quarter to quarter for many reasons, including seasonality.
Our sales are seasonal, and we
experience fluctuations in quarterly results as a result of many factors. Companies similar to ours have historically generated a greater
percentage of our revenues during the warm weather months of April through September. Timing of customer purchases will vary each year
and sales can be expected to shift from one quarter to another. As a result, management believes that period-to-period comparisons of
results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results
expected for the fiscal year.
Changes in accounting standards and subjective
assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
The U.S. GAAP and related pronouncements,
implementation guidelines and interpretations with regard to a wide variety of matters that are relevant to our business, such as, but
not limited to, stock-based compensation, trade spend and promotions, and income taxes are highly complex and involve many subjective
assumptions, estimates and judgments by our management. Changes to these rules or their interpretation or changes in underlying assumptions,
estimates or judgments by our management could significantly change our reported results.
If we are unable to maintain effective disclosure
controls and procedures and internal control over financial reporting, our stock price and investor confidence could be materially and
adversely affected.
We are required to maintain both
disclosure controls and procedures and internal control over financial reporting that are effective. Because of their inherent limitations,
internal control over financial reporting, however well designed and operated, can only provide reasonable, and not absolute, assurance
that the controls will prevent or detect misstatements. Because of these and other inherent limitations of control systems, there is
only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions. The failure
of controls by design deficiencies or absence of adequate controls could result in a material adverse effect on our business and financial
results, which could also negatively impact our stock price and investor confidence.
We are dependent on a distiller in Mexico to
provide us with our finished SALT tequila product. Failure to obtain satisfactory performance from them or a loss of their services could
cause us to lose sales, incur additional costs, and lose credibility in the marketplace.
We depend on a distiller in Mexico,
a company in Jalisco, for the production, bottling, labeling, capping and packaging of our finished tequila product. We do not have a
written agreement with our distiller in Mexico obligating it to produce our product. The termination of our relationship with our distiller
in Mexico distiller or an adverse change in the terms of its services could have a negative impact on our business. If our distiller
in Mexico increases its prices, we may not have alternative sources of supply at comparable prices and may not be able to raise the prices
of our products to cover all, or even a portion, of the increased costs. In addition, if our distiller in Mexico fails to perform satisfactorily,
fails to handle increased orders, or the loss of the services of our distiller in Mexico, along with delays in shipments of products,
could cause us to fail to meet orders, lose sales, incur additional costs, and/or expose us to product quality issues. In turn, this
could cause us to lose credibility in the marketplace and damage our relationships with our customers and consumers, ultimately leading
to a decline in our business and results of operations.
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Regulatory decisions and changes in the legal,
regulatory and tax environment where our tequila is produced and where we operate could limit our business activities or increase our
operating costs and reduce our margins.
Our business is subject to extensive
regulation regarding production, distribution, marketing, advertising and labeling of beverage alcohol products in the U.S. and in Mexico,
where our tequila is produced. We are required to comply with these regulations and maintain various permits and licenses. We are also
required to conduct business only with holders of licenses to import, warehouse, transport, distribute, and sell spirits. We cannot assure
you that these and other governmental regulations, applicable to our industry, will not change or become more stringent. Moreover, because
these laws and regulations are subject to interpretation, we may not be able to predict when, and to what extent, liability may arise.
Additionally, due to increasing public concern over alcohol-related societal problems, including driving while intoxicated, underage
drinking, alcoholism and health consequences from the abuse of alcohol, various levels of government may seek to impose additional restrictions
or limits on advertising or other marketing activities promoting beverage alcohol products. Failure to comply with any of the current
or future regulations and requirements relating to our industry and products, could result in monetary penalties, suspension or even
revocation of our licenses and permits. Costs of compliance with changes in regulations could be significant and could harm our business,
as we may find it necessary to raise our prices in order to maintain profit margins, which could lower the demand for our products and
reduce our sales and profit potential.
In addition, the distribution
of beverage alcohol products is subject to extensive taxation both in the United States and internationally (and, in the United States,
at both the federal and state government levels), and beverage alcohol products themselves are the subject of national import and excise
duties in most countries around the world. An increase in taxation or in import or excise duties could also significantly harm our sales
revenue and margins, both through the reduction of overall consumption and by encouraging consumers to switch to lower-taxed categories
of beverage alcohol.
We face substantial competition in the alcoholic
and non-alcoholic beverage industry, and we may not be able to effectively compete.
Consolidation among spirits producers,
distributors, wholesalers, or retailers could create a more challenging competitive landscape for our products. Consolidation at any
level could hinder the distribution and sale of our products as a result of reduced attention and resources allocated to our brands,
both during and after transition periods, because our brands might represent a smaller portion of the new business portfolio. Expansion
into new product categories by other suppliers, or innovation by new entrants into the market, could increase competition in our product
categories. Changes to our route-to-consumer models or partners in important markets could result in temporary or longer-term sales disruption,
higher implementation-related or fixed costs, and could negatively affect other business relationships we might have with that partner.
Distribution network disruption or fluctuations in our product inventory levels with distributors, wholesalers, or retailers could negatively
affect our results for a particular period.
Our competitors may respond to
industry and economic conditions more rapidly or effectively than we do. Our competitors offer products that compete directly with ours
for shelf space, promotional displays, and consumer purchases. Pricing, (including price promotions, discounting, couponing, and free
goods), marketing, new product introductions, entry into our distribution networks, and other competitive behavior by our competitors
could adversely affect our sales margins, and profitability.
Our business operations may be adversely affected
by social, political and economic conditions affecting market risks and the demand for and pricing of our products. These risks include:
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● Dependence upon the continued growth of brand names;
● Production facility or supply chain disruption;
● Imprecision in supply/demand forecasting;
● Insufficient protection of our intellectual property rights;
● Failure or breach of key information technology systems;
Uncertainty in the financial markets and other
adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect
our industry, business and results of operations.
Global economic uncertainties,
including foreign currency exchange rates, affect businesses such as ours in a number of ways, making it difficult to accurately forecast
and plan our future business activities. There can be no assurance that economic improvements will occur, or that they would be sustainable,
or that they would enhance conditions in markets relevant to us.
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Our limited operating history makes it difficult
to forecast our future results, making any investment in us highly speculative.
We have a limited operating history,
and our historical financial and operating information is of limited value in predicting our future operating results. We may not accurately
forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us, and, therefore,
we may fail to make accurate financial forecasts. Our current and future expense levels are based largely on our investment plans and
estimates of future revenue. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected
revenue shortfall, which could then force us to curtail or cease our business operations.
Risks Related to Our Securities
An investment in our common stock is speculative
and there can be no assurance of any return on any such investment.
An investment in our common stock
is speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial
risks involved in an investment in the Company, including the risk of losing their entire investment.
Future sales of common stock, or the perception
of such future sales, by some of our existing stockholders could cause our stock price to decline.
The market price of our common
stock could decline as a result of sales of a large number of shares of our common stock in the market or the perception that these sales
may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell shares in the
future at a time and at a price that we deem appropriate.
From time to time, certain of
our stockholders may be eligible to sell all or some of their common shares by means of ordinary brokerage transactions in the open market
pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), subject to certain
limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current
public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities),
and current public information and notice requirements.
Our Board of Directors may issue and fix the terms of shares
of our Preferred Stock without stockholder approval, which could adversely affect the voting power of holders of our Common Stock or
any change in control of our Company.
Our Articles of Incorporation
authorize the issuance of up to 5,000,000 shares of “blank check” preferred stock, with par value $0.001 per share, with
such designation rights and preferences as may be determined from time to time by the Board of Directors. Our Board of Directors is empowered,
without shareholder approval, to issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights which
could adversely affect the voting power or other rights of the holders of our common stock. In the event of such issuances, the preferred
stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company.
Any such issuance would be subject to terms and conditions of any current offering that may disallow any such issuance.
Because certain principal stockholders own
a large percentage of our voting stock, other stockholders’ voting power may be limited.
As of December 31, 2023, our
ten (10) largest shareholders own or controlled approximately 21.2% of our outstanding common stock. If those stockholders act together,
they would have the ability to have a substantial influence on matters submitted to our stockholders for approval, including the election
and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. As a result,
our other stockholders may have little or no influence over matters submitted for shareholder approval. In addition, the ownership of
such stockholders could preclude any unsolicited acquisition of us, and consequently, adversely affect the price of our common stock.
These stockholders may make decisions that are adverse to your interests.
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We do not expect to pay dividends and investors
should not buy our Common Stock expecting to receive dividends.
We do not anticipate that we
will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment
in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. Therefore,
our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations.
There can be no assurances that our common
stock will not be subject to potential delisting if we do not continue to maintain the listing requirements of the NYSE American.
Since June 11, 2021, our common
stock has been listed on the NYSE American, under the symbol “SBEV”. The NYSE American has rules for continued listing,
including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing (i.e., being de-listed
from the NYSE American), would make it more difficult for shareholders to sell our common stock and more difficult to obtain accurate
price quotations on our common stock. This could have an adverse effect on the price of our common stock. Our ability to issue additional
securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially
and adversely affected if our common stock is not traded on a national securities exchange.
On October 6, 2023, the NYSE
American notified the Company that we were not in compliance with Section 1003(a)(i) of the continued listing standards set forth in
the NYSE American Company Guide (the “Company Guide”), requiring a listed company to have stockholders’ equity of (i)
at least $2.0 million if it has reported losses from continuing operations or net losses in two of its three most recent fiscal years.
The notice had no immediate impact on the listing of our common stock, subject to our compliance with the other continued listing requirements.
In accordance with applicable NYSE American procedures, we submitted a plan of compliance (the “Plan”) advising of the definitive
action(s) the Company has taken, is taking, or would take, that would bring us into compliance with the continued listing standards within
the 18 months of receipt of the notice. The NYSE American reviewed and accepted the Plan as a reasonable demonstration of an ability
to conform to the relevant standards in the 18-month period. On December 20, 2023, we received a notification (the “Plan Letter”),
with NYSE American acceptance of the proposed plan and further deficiency notice. In the Plan Letter the NYSE American indicated that
in addition to Section 1003(a)(i), the Company was also not in compliance with Section 1003(a)(ii) of the Company Guide, requiring a
listed company to have stockholders’ equity of at least $4.0 million if it has reported losses from continuing operations or net
losses in three of its four most recent fiscal years.
Our common stock will continue
to be listed and traded on the NYSE American during the 18-month period, subject to the Company’s compliance with the other continued
listing standards of the NYSE American and continued periodic review by the NYSE American of the Company’s progress with respect
to its Plan. There can be no assurance that the Company will be able to meet its goals set forth in the Plan. If we are unable to satisfy
the NYSE American rules and listing standards, or are unable to make progress on our Plan, our securities could be subject to delisting.
If the NYSE American were to
delist our securities from trading, we could face significant consequences, including, but not limited to, the following:
● a limited availability for market quotations for our securities;
● reduced liquidity with respect to our securities;
● limited amount of news and analyst coverage; and