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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2022

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________to _________

 

Commission File Number 001-40471

 

SPLASH BEVERAGE GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   34-1720075
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

1314 E Las Olas Blvd. Suite 221

Fort Lauderdale, FL 33301

 


 (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
Warrants to purchase shares of Common Stock, $0.001 par value per share   SBEV-WT   NYSE American LLC

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

 

 

 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

 

Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Act). Yes No

 

The aggregate market value of the Registrant’s common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second quarter was $91,048,293.

 

On March 31, 2023, there were 41,085,520 shares of Common Stock issued and outstanding.

 

 

 

 

SPLASH BEVERAGE GROUP, INC.

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2021

 

TABLE OF CONTENTS

 

    Page
  PART I  1
     
Item 1. Business 2
Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments 24
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Mine Safety Disclosures 24
     
  PART II  24
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 24
Item 6. Selected Financial Data 25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 26
Item 8. Financial Statements and Supplementary Data F-1
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 27
Item 9A. Controls and Procedures 27
Item 9B. Other Information 27
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections  27
     
  PART III 28 
     
Item 10. Directors, Executive Officers and Corporate Governance 28
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 35
Item 13. Certain Relationships and Related Transactions and Director Independence 36
Item 14. Principal Accounting Fees and Services 36
     
  PART IV  37
     
Item 15. Exhibits and Financial Statement Schedules 37
  Signatures 38

 

i

 

PART I

 

Except as otherwise indicated, references to “we”, “us”, “our”, “Splash”, “SBG” and the “Company” refer to Splash Beverage Group, Inc. and its whollyowned subsidiaries.

 

This Annual Report on Form 10-K (this “Annual Report”) contains “forward-looking statements” Forward-looking statements reflect our current view about future events. When used in this Report, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements include, but are not limited to, statements contained in this Report relating to our business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, our ability to raise capital to fund continuing operations; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; our ability to develop and commercialize products and services; changes in government regulation; our ability to complete capital raising transactions; and other factors (including the risks contained in the section of this Annual Report entitled “Risk Factors”) relating to our industry, our operations and results of operations. Actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

MARKET AND INDUSTRY DATA

 

This Annual Report on Form 10-K contains statistical data, estimates and forecasts that are based on independent industry publications or other publicly available information, as well as other information based on our internal sources. While we believe the industry and market data included in this Annual Report on Form 10-K are reliable and based on reasonable assumptions, the data involves many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and other publicly available information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” included in this Annual Report on Form 10-K.

 

TRADEMARKS AND TRADE NAMES

 

We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This Annual Report on Form 10-K may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Annual Report on Form 10-K is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this Annual Report on Form 10-K may appear without the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, service marks and trade names.

 

1

 

 

Except as otherwise indicated, references to “we”, “us”, “our”, “Splash”, “SBG” and the “Company” refer to Splash Beverage Group, Inc. and its wholly owned subsidiaries.

 

Item 1. Business.

 

Company Overview

 

Splash is a portfolio company managing multiple brands across several growth segments within the consumer beverage industry. Splash has built organizational capabilities and an infrastructure enabling it to incubate and/or acquire brands with the intention of efficiently accelerating them to higher volumes. The management team has proven capabilities in building consumer franchises and marketing and distributing multiple brands of beverages within the non-alcoholic and alcoholic segments. Manufacturing is typically outsourced to third party co-packers and distillers, or in select cases for a brand such as Copa Di Vino wines, performed within our own facility in Oregon.

 

We believe the distribution landscape in the beverage industry is changing rapidly as tech-enabled e-commerce business models are thriving. Direct to consumer, office or home solutions are projected to continue to gain traction in the future. To address this opportunity Splash continues to shape its operating model to be vertically integrated building an e-commerce platform, Qplash, which purchases local and regional brands for developing a direct line of sales to small retail stores.

 

Splash’s wholly owned subsidiary, Splash Beverage Group II, Inc. was originally incorporated in the State of Nevada under the name TapouT Beverages, Inc. for the purpose of acquiring the rights under a license agreement with TapouT, LLC (Authentic Brands Group). Splash has license rights to the TapouT Performance brand in North America (Including US Territories and Military Bases), United Kingdom, Brazil, South Africa, Scandinavia, Peru, Colombia, Chile and Guatemala.

 

In addition, Splash has a joint venture with SALT Naturally Flavored Tequila, Copa Di Vino wines and Pulpoloco, sangrias that comes in a biodegradable can.

 

The Company leadership understand the importance of infusing beverage brands with strong pop culture and lifestyle elements which drives trial, belief and, most importantly, repeat purchases.

2

 

The management team led by Robert Nistico has over 28 years of experience in all levels of the three-tier distribution system used in the beverage industry working on brands such as Red Bull and companies such as Gallo Winery and RNCC Texas. The President & CMO, Bill Meissner, has led major beverage brands as Sparkling Ice, Fuze, Sweet Leaf Tea and Jones Soda. The CFO, Ron Wall, has over 25 years of experience in the alcohol beverage industry with Diageo and William Grant & Sons. The Senior Vice President of Sales, James Allred, has 25+ years’ experience in the beverage industry predominately with Anheuser-Busch.

 

Our Strategy

 

Our strategy is to combine the traditional approach of manufacturing, distributing, and marketing of beverages, with early-stage brands that have a reasonable level of pre-existing brand awareness and market presence, or have attributes that we believe to be purely innovative. We believe this allows us to break through the clutter of numerous brand introductions and dilute risk. This philosophy is applied regardless of whether the brand is 100% owned or a joint venture.

 

For acquisition or joint venture consideration, we prefer to work with brands that already have one or more of the following in place:

 

  Some level of preexisting brand awareness

 

  Regional presence that can be expanded

 

  Licensing an existing brand name (TapouT for example)

 

  Add to an underdeveloped and/or growing category capitalizing on consumer trends
     
  Innovation to an existing attractive category (such as flavored tequila)
     
  A near term clear path to profitability

 

We believe this model provides us with two paths to success: one, developing our wholly owned core brands and two, the ability to tap into high growth, early-stage brands ready to scale. This platform allows us to significantly reduce development expense while simultaneously increasing efficiencies for all brands in our portfolio.

 

Our management team has over 120 years of combined experience in the beverage industry, including decades of successful brand introductions by our management team (Gallo, Red Bull, Bacardi, Diageo, Sparkling Ice, Jones Soda, FUZE Beverage, NOS Energy, SoBe Beverages, Muscle Milk, Marley Beverages), we believe our ability to break through the distribution and retail bottlenecks makes us an attractive joint venture partner to many new brand owners.

 

Splash has the ability to fully own a brand or be flexible to engage in business ventures structured with a revenue split, or an equity position.

 

The benefit to Splash in these shared brand ownerships is the ability to avoid the development costs for new products. This model spreads our risk over several brands, contributes to our economies of scale, and improves our relationship with distributors and reduces the overall cost of infrastructure.

 

The Company also believe the distribution landscape in the beverage category is changing rapidly. Tech-enabled business models are thriving and direct to consumer, office or home solutions are projected to continue to gain traction as beverage alcohol regulations evolve. A core strategy for us is to build onto the early success we’re seeing with the Qplash online platform, our consumer-packaged goods retail division and our first entry point into the growing e-commerce channel.

 

Products

 

We currently produce, distribute and market SALT Naturally Flavored Tequila (“SALT”), a 100% agave 80 proof line of flavored tequilas, “TapouT Performance,” a line of performance beverages that complete in the hydration and energy categories, Copa Di Vino single serve wine by the glass and import Pulpoloco Sangria in 3 flavors.

 

3

 

 

 

The following is a description of these products.

 

SALT Flavored Tequila

 

A picture containing text, indoor

Description automatically generated

 

We oversee production, distribute, and market the following flavors under the brand name SALT Naturally Flavored Tequila:

 

  Citrus flavor

 

  Berry flavor

 

  Chocolate flavor

 

Vodka, rum, and brown spirits have experienced significant growth when flavors are introduced, and we expect this growth of flavors to continue, as the tequila category continues to rapidly expand.

 

SALT is currently being distributed by Republic National Distribution Co., various Anheuser-Busch & Miller-Coors distributorships, and other distributors in multiple U.S. states. Additionally, SALT is for sale in Mexico. Several South American countries are expected to launch SALT during 2023.

 

SALT is a business venture between the Company and SALT USA, LLC. All aspects of manufacturing, logistics, distribution and marketing are our responsibility.

 


TapouT Performance Isotonic Sports Drinks

 

A picture containing text

Description automatically generated

 

We will produce, market, sell and distribute the following sports beverages under the brand name TapouT:

 

  TapouT Performance:

 

  TapouT Energy: Launching in 2023

4

 

 

TapouT Performance Beverages are a line of unique advanced performance beverages containing ingredients known for various functional benefits including, focus, cognition, energy, recuperative and cell regeneration which promotes better absorption of nutrients, increase hydration and cellular recovery. They are exclusively formulated with GRAS (FDA Designation “Generally Regarded As Safe”) ingredients versus controversial ingredients often used in many competitive products. TapouT Performance Beverages are all natural with a highly innovative proprietary blends designed to enhance physical and or mental performance.

 

TapouT, formally associated with the UFC and mixed martial arts has been producing branded clothing and light equipment for over 23 years and has a high level of aided and unaided brand awareness.

 

TapouT License Agreement

 

We have the rights under a License Agreement with ABG TapouT (the “License Agreement”) to produce, market, sell and distribute TapouT sports beverages in North America (including US Territories and Military Bases), United Kingdom, Brazil, South Africa, Australia, Scandinavia, Peru, Colombia, Chile and Guatemala. The beverages covered by the License Agreement include sports drinks, energy drinks, energy shots, electrolyte chews, energy bars, water, protein, and teas.

 

We pay a 6% royalty of net sales or a guaranteed minimum annual royalty of $660,000, whichever is greater. The License Agreement will expire on December 31, 2025 with a renewal option through December 31, 2028 at which time will be reviewed and renegotiated if necessary.

 

We have the right to use the TapouT brand to market, advertise and promote for sale our TapouT beverages and branded products. As part of the alliance, Splash commits to investing 2% of sales in marketing to the TapouT Performance Brand. TapouT provides marketing collateral for advertising and promotion and has influential relationships with select celebrity and athletic talent. TapouT agrees to use reasonable efforts to request its retained celebrities and/or athletes be present at autograph signings, tradeshows and other similar events.

 

Copa di Vino Wine Group, Inc. and Related Financing

 

 On December 24, 2020, the Company entered into an Asset Purchase Agreement with CdV, pursuant to which the Company purchased certain assets and assumed certain liabilities that comprise the CdV business for a total purchase price of $5,980,000, payable in the combination of $2,000,000 in cash, a $2,000,000 convertible promissory note to CdV and a variable number of shares of the Company’s common stock based on an attainment of revenue hurdles.

 

In conjunction with the acquisition, the Company also entered into a Revenue Loan and Security Agreement (the “Loan and Security Agreement”) by and among the Company, Robert Nistico, additional Guarantor and each of the subsidiary guarantors from time-to-time party thereto (each a “Guarantor”, and, collectively, the “Guarantors”), and Decathlon Alpha IV, L.P. (the “Lender”). The Loan and Security Agreement provided for a revenue-based credit facility of $1,578,237 (the “Gross Amount”) with the Lender (the “Credit Facility”).

 

5

 

 

Copa di Vino Wine Group, Inc.

 

 

 

Copa Di Vino is the leading producer of premium wine by the glass in the United States. The Copa-di-Vino product line is highly innovative as a ready to drink wine glass capable to go anywhere without the need for a bottle, corkscrew or glass.

 

Through our acquisition of Copa di Vino Corporation, we are now able to offer nine varietals of wine: Pinot Grigio, Riesling, Merlot, Chardonnay, White Zinfandel, Moscato, Red Blend, Sauvignon Blanc and Cabernet Sauvignon. In addition to its wine varietals, Copa di Vino also procures Pulpoloco, a sangria which is encased in an eco-friendly fiber based can from Spain. The rights to utilize this packaging for multiple categories were conveyed to SBG in conjunction with the distribution rights.

 

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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. This program allows businesses to control inventory, order with payment terms, and offer the convenience of delivery directly to each store.

 

 Currently Qplash offers over 1,500 listings and have warehouses that ship from both California and Pennsylvania.

 

Discontinued Business - Canfield Medical Supply, Inc.

 

Canfield Medical Supply, Inc. (“CMS”) is a provider of home medical equipment, supplies and services (which relate to the equipment sales) in Ohio’s Mahoning Valley, Western Pennsylvania and Northern West Virginia, with an emphasis on providing for patients with mobility-related limitations who have had strokes, hip or knee replacements, and other surgeries after they are discharged from a hospital or rehab center. CMS is a legacy segment of the business and in December 2020, management discontinued operations and the business was sold in the second Quarter of 2022.

 

Our Competitive Strengths

 

We believe the following competitive strengths contribute to Company’s success and differentiate us from our competitors:

 

  An established distribution network through global sales channels;

 

  A hybrid distribution model that leverages multiple routes to market, including national chains, independent local markets and regional chains, and specialty food and C-Stores

 

  Long-term relationships with retailers and the establishment of chains;

 

  Premium customer service;

 

  Dynamic and sustainable product offerings of natural quality and freshness with health benefits;

 

  A highly experienced management team;

 

  Strategically selected, dedicated sales professionals;

 

  Qplash, our e-commerce platform, which provides us an integrated distribution platform for our non-alcoholic brands;

 

  Ability to execute and distribute across many geographies, on behalf of our licensed brand portfolio;
     
  Strong brand awareness through partnerships and acquisitions of brands with pre-existing brand awareness or viewed as truly innovative; and
     
  Celebrity and professional athlete endorsement of our brands.

7

 

Manufacturing and Co-packing

 

We are responsible for the manufacturing of Copa di Vino, TapouT Performance and SALT. The Copa di Vino product line is bottled at our manufacturing facility in The Dalles, Oregon. Pulpoloco is imported from Spain as a finished product.

 

Although we are responsible for manufacturing TapouT Performance and SALT, we do not directly manufacture these products, but instead outsource such manufacturing to third party bottlers and contract packers.

 

Our TapouT Performance and Salt products are manufactured in the United States and Mexico under separate arrangements with each party. Our co-packaging arrangements are terminable upon request and do not obligate us to produce any minimum quantities of products within specified periods.

 

We purchase concentrates, flavors, dietary ingredients, cans, bottles, caps, labels, and other components and ingredients for our beverage products from our suppliers, which are delivered to our manufacturing operations and various third-party bottlers and co-packers. In some cases, certain common supplies may be purchased by our various third-party bottlers and co-packers. Depending on the product, the third-party bottlers or packers add filtered water and/or other ingredients (including dietary ingredients) for the manufacture and packaging of the finished products into our approved containers in accordance with our formulas.

 

Distribution

 

We operate within what is referred to as a “Three Tier Distribution System” where manufacturers do not typically sell directly to retailers, but instead contract for local and regional distribution with independent distributors. These distributors typically have geographic rights to distribute major beverage brands and call on every store in a given area such as major cities or regions. Our management team has extensive experience working within this channel and believes that we will be successful in building a strong network of these distributors.

 

In addition to working with these independent distributors, we also have distribution arrangements with national retail accounts to distribute some of our products directly through their warehouse operations. Most notably, SBG executed a distribution agreement with AB-InBev, for distribution with their owned operations, AB ONE. This provides SBG very effective distribution capabilities.

 

Employees

 

 We have 40 full-time employees, including non-officer employees and our executive officers. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.

 

Listing on the NYSE American

 

Our common stock and warrants are listed on the NYSE American exchange under the ticker symbols “SBEV” and “SBEV WT,” respectively.

 

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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 state of incorporation was Colorado. At the time of the merger Canfield’s common stock was quoted on the OTCQB.

 

On July 31, 2021, we changed our name from Canfield Medical Supply, Inc. to Splash Beverage Group, Inc.

 

On June 11, 2021, our common stock and warrants to purchase common stock began trading on the NYSE American under the symbols “SBEV” and SBEV WT,” respectively

 

On November 8, 2021, we changed our state of incorporation from Colorado to Nevada.

 

Our principal offices are located at 1314 E. Las Olas Blvd, Suite 221, Fort Lauderdale, Florida 33301. Our main telephone number is (954) 745-5815. Our website address is www.splashbeveragegroup.com. We have not incorporated by reference into this Annual Report on Form 10-K the information that can be assessed through our website and you should not consider it to be part of this Annual Report on Form 10-K.

 

Item 1A. Risk Factors.

 

You should carefully consider the risks described below as well as other information provided to you in this document, including information in the section of this document entitled “Cautionary Note Concerning Forward Looking Statements.” If any of the following risks actually occur, the Company’s business, financial condition or results of operations could be materially adversely affected, the value of the Company’s Common Stock could decline, and you may lose all or part of your investment.

 

RISKS RELATED TO OUR BUSINESS

 

Risks Related to our Business

 

Our business could be materially and adversely affected by the lingering impact of the global COVID-19 pandemic or other epidemics and outbreaks.

 

The COVID-19 pandemic had disrupted and affected our business operations, which has led to business and supply chain disruptions. The lingering effects of the pandemic are likely to continue to disrupt our business and supply chain in the future. For example, our ability to gain new retail authorizations could be impacted by restrictions in retail outlets and our ability to generate sales and brand awareness in bars and restaurants could be impacted if restrictions are place on these establishments. However, given the unpredictable nature of COVID-19 and its variants, it is difficult, if not impossible, to predict, whether any government-imposed restrictions will be reimposed at previous levels or enhanced in one or more ways impacting our business operations or those of third parties upon which we rely. The COVID-19 pandemic, including associated business interruptions and recovery, as well as other possible epidemics or outbreaks of other contagions could result in a material adverse impact on our or our current or anticipated customers’ or suppliers’ business operations, including reduction or suspension of operations in the U.S. or other parts of the world. Our design and engineering operations, among others, cannot all be conducted remotely and often require on-site access to materials and equipment. We have customers, suppliers, and partners with international operations, and our customers, suppliers, and partners also depend on suppliers and manufacturers worldwide, which means that our business and prospects could be affected by the lingering effects of the COVID-19 pandemic anywhere in the world. Depending upon the duration of the lingering effects of the COVID-19 pandemic and the associated business interruptions, our customers, suppliers, manufacturers, and partners may suspend or delay their engagements with us. We and our customers’ and suppliers’ response to the lingering effects of the COVID-19 pandemic may prove to be inadequate and they may be unable to continue their respective operations in the manner they had prior to the outbreak or the worsening of the outbreak, and we may consequently endure interruptions, reputational harm, delays in our product development, and shipments, all of which could have an adverse effect on our business, operating results, and financial condition. In addition, we cannot assure you as to the timing of the economic recovery given the lingering effects of the pandemic, which could have a material adverse effect on our target markets and our business.

 

9

 

If we are unable to continue as a going concern, our securities will have little or no value.

 

We have sustained recurring losses and we have had a working capital and stockholders’ equity deficits. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. In addition, continued operations and our ability to continue as a going concern may be dependent on our ability to obtain additional financing in the near future and thereafter, and there are no assurances that such financing will be available to us at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to generate additional funds in the future through sales of our products, financings or from other sources or transactions, we will exhaust our resources and will be unable to continue operations. If we cannot continue as a going concern, our shareholders would likely lose most or all of their investment in us.

 

We have experienced recurring losses from operations and negative cash flows from operating activities and anticipate that we will continue to incur significant operating losses in the future.

 

We have experienced recurring losses from operations and negative cash flows from operating activities. We expect to continue to incur significant expenses related to our ongoing operations and generate operating losses for the foreseeable future. The size of our losses will depend, in part, on the rate of future expenditures and our ability to generate revenues. We incurred a net loss of $21.7 million for the year ended December 31, 2022. Our accumulated deficit increased to $112.3 million as of December 31, 2022, compared to the prior year’s deficit of $90.6 million.

 

We may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our financial condition. Our prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If our products do not achieve sufficient market acceptance and our revenues do not increase significantly, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.

 

If we are not able to successfully execute on our future operating plans and objectives, our financial condition and results of operation may be materially adversely affected, and we may not be able to continue as a going concern.

 

It is important that we meet our sales goals and increase sales going forward as our operating plan already reflects prior significant cost containment measures and may make it difficult to achieve top-line growth if further significant reductions become necessary. If we do not meet our sales goals, our available cash and working capital will decrease and our financial condition will be negatively impacted.

 

In order to be successful, we believe that we must, among other things:

 

  increase the sales volume and gross margins for our products;
     
  maintain efficiencies in operations;
     
  manage our operating expenses to sufficiently support operating activities;
     
  maintain fixed costs at or near current levels; and
     
  avoid significant increases in variable costs relating to production, marketing and distribution.

 

We may not be able to meet these objectives, which could have a material adverse effect on our results of operations. We have incurred significant operating expenses in the past and may do so again in the future and, as a result, will need to increase revenues in order to improve our results of operations. Our ability to increase sales will depend primarily on success in expanding our current markets, improving our distribution base, entering into Direct-To-Retail (DTR) arrangements with national accounts, and introducing new brands, products or product extensions to the market. Our ability to successfully enter new distribution areas and obtain national accounts will, in turn, depend on various factors, many of which are beyond our control, including, but not limited to, the continued demand for our brands and products in target markets, the ability to price our products at competitive levels, the ability to establish and maintain relationships with distributors in each geographic area of distribution and the ability in the future to create, develop and successfully introduce one or more new brands, products, and product extensions.

 

10

 

 

Demand for our products may be adversely affected by changes in consumer preferences or any inability on our part to innovate, market or distribute our products effectively, and any significant reduction in demand could adversely affect our business, financial condition or results of operations.

 

Our beverage portfolio is comprised of a number of unique brands with reputations and consumer imagery that have been built over time. Our investments in marketing as well as our strong commitment to product quality are intended to have a favorable impact on brand image and consumer preferences. If we do not adequately anticipate and react to changing demographics, consumer and economic trends, health concerns and product preferences, our financial results could be adversely affected.

 

Additionally, failure to introduce new brands, products or product extensions into the marketplace as current ones mature and to meet the changing preferences of consumers could prevent us from gaining market share and achieving long-term profitability. Product lifecycles can vary and consumer preferences and loyalties change over time. Although we try to anticipate these shifts and innovate new products to introduce to our consumers, we may not succeed. Consumer preferences also are affected by factors other than taste, such as health and nutrition considerations and obesity concerns, shifting consumer needs, changes in consumer lifestyles, increased consumer information and competitive product and pricing pressures. Sales of our products may be adversely affected by the negative publicity associated with these issues... If we do not adequately anticipate or adjust to respond to these and other changes in consumer preferences, we may not be able to maintain and grow our brand image and our sales may be adversely affected.

 

 Volatility in the price or availability of the inputs we depend on, including raw materials, packaging, energy and labor, could adversely impact our financial results.

 

The principal raw materials we use include glass bottles, aluminum cans, labels and cardboard cartons, flavorings and sweeteners. These ingredient costs are subject to fluctuation. Substantial increases in the prices of our ingredients, raw materials and packaging materials, to the extent that they cannot be recouped through increases in the prices of finished beverage products, would increase our operating costs and could reduce our profitability. If our supply of these raw materials is impaired or if prices increase significantly, it could affect the affordability of our products and reduce sales.

 

If we are unable to secure sufficient ingredients or raw materials including glass, sugar, and other key supplies, we might not be able to satisfy demand on a short-term basis.

 

11

 

 

Changes in government regulation or failure to comply with existing regulations could adversely affect our business, financial condition and results of operations.

 

Our business and properties are subject to various federal, state and local laws and regulations, including those governing the production, packaging, quality, labeling and distribution of beverage products. In addition, various governmental agencies have enacted or are considering additional taxes on soft drinks and other sweetened beverages. Changes in existing laws or regulations could require material expenses and negatively affect our financial results through lower sales or higher costs.

 

We compete in an industry that is brand-conscious, so brand name recognition and acceptance of our products are critical to our success.

 

Our business is dependent upon awareness and market acceptance of our products and brands by our target market, trendy, young consumers looking for a distinctive tonality in their beverage choices. In addition, our business depends on acceptance by our independent distributors and retailers of our brands as beverage brands that have the potential to provide incremental sales growth. If we are not successful in the revitalization and growth of our brand and product offerings, we may not achieve and maintain satisfactory levels of acceptance by independent distributors and retail consumers. Any failure of our brand to maintain or increase acceptance or market penetration would likely have a material adverse effect on our revenues and financial results.

 

Our brands and brand images are keys to our business and any inability to maintain a positive brand image could have a material adverse effect on our results of operations.

 

Our success depends on our ability to maintain brand image for our existing products and effectively build up brand image for new products and brand extensions. We cannot predict whether our advertising, marketing and promotional programs will have the desired impact on our products’ branding and on consumer preferences. In addition, negative public relations and product quality issues, whether real or imagined, could tarnish our reputation and image of the affected brands and could cause consumers to choose other products. Our brand image can also be adversely affected by unfavorable reports, studies and articles, litigation, or regulatory or other governmental action, whether involving our products or those of our competitors.

 

Competition from traditional and large, well-financed non-alcoholic and alcoholic beverage manufacturers may adversely affect our distribution relationships and may hinder development of our existing markets, as well as prevent us from expanding our markets.

 

The beverage industry is highly competitive. We compete with other beverage companies not only for consumer acceptance but also for shelf space in retail outlets and for marketing focus by our distributors, all of whom also distribute other beverage brands. Our products compete with all non-alcoholic and alcoholic beverages, most of which are marketed by companies with substantially greater financial resources than ours. Some of these competitors are placing severe pressure on independent distributors not to carry competitive brands such as ours. We also compete with regional beverage producers and “private label” hydration suppliers.

 

12

 

Increased competitor consolidations, market-place competition, particularly among branded beverage products, and competitive product and pricing pressures could impact our earnings, market share and volume growth. If, due to such pressure or other competitive threats, we are unable to sufficiently maintain or develop our distribution channels, we may be unable to achieve our current revenue and financial targets. Competition, particularly from companies with greater financial and marketing resources than ours, could have a material adverse effect on our existing markets, as well as on our ability to expand the market for our products.

 

We may experience a reduced demand for some of our products due to health concerns (including obesity) and legislative initiatives against sweetened beverages.

 

Consumers are concerned about health and wellness; public health officials and government officials are increasingly vocal about obesity and its consequences. There has been a trend among some public health advocates and dietary guidelines to recommend a reduction in sweetened beverages, as well as increased public scrutiny, new taxes on sugar-sweetened beverages (as described below), and additional governmental regulations concerning the marketing and labeling/packing of the beverage industry. Additional or revised regulatory requirements, whether labeling, tax or otherwise, could have a material adverse effect on our financial condition and results of operations. Further, increasing public concern with respect to sweetened beverages could reduce demand for our beverages and increase desire for more low-calorie soft drinks, water, enhanced water, coffee-flavored beverages, tea, and beverages with natural sweeteners. We are continuously working to reduce calories and sugar in our TapouT products while launching new products, to pair with existing brand extensions that round out our diversified portfolio.

 

Legislative or regulatory changes that affect our products, including new taxes, could reduce demand for products or increase our costs.

 

Taxes imposed on the sale of certain of our products by federal, state and local governments in the United States, or other countries in which we operate could cause consumers to shift away from purchasing our beverages. Several municipalities in the United States have implemented or are considering implementing taxes on the sale of certain “sugared” beverages, including non-diet soft drinks, fruit drinks, teas and flavored waters to help fund various initiatives. These taxes could materially affect our business and financial results.

 

Our reliance on distributors, retailers and brokers could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets and expand our business into other geographic markets.

 

Our ability to maintain and expand our existing markets for our products, and to establish markets in new geographic distribution areas, is dependent on our ability to establish and maintain successful relationships with reliable distributors, retailers and brokers strategically positioned to serve those areas. Most of our distributors, retailers and brokers sell and distribute competing products, including non-alcoholic and alcoholic beverages, and our products may represent a small portion of their businesses. The success of this network will depend on the performance of the distributors, retailers and brokers of this network. There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our products in localities that may not be receptive to our product. Our ability to incentivize and motivate distributors to manage and sell our products is affected by competition from other beverage companies who have greater resources than we do. To the extent that our distributors, retailers and brokers are distracted from selling our products or do not employ sufficient efforts in managing and selling our products, including re-stocking the retail shelves with our products, our sales and results of operations could be adversely affected. Furthermore, such third-parties’ financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sales activities.

 

Our ability to maintain and expand our distribution network and attract additional distributors, retailers and brokers will depend on a number of factors, some of which are outside our control. Some of these factors include:

 

  the level of demand for our brands and products in a particular distribution area;

 

  our ability to price our products at levels competitive with those of competing products; and

 

  our ability to deliver products in the quantity and at the time ordered by distributors, retailers and brokers.

 

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.

13

 

It is difficult to predict the timing and amount of our sales because our distributors are not required to place minimum orders with us.

 

Our independent distributors and national accounts are not required to place minimum monthly or annual orders for our products. In order to reduce their inventory costs, independent distributors typically order products from us on a “just in time” basis in quantities and at such times based on the demand for the products in a particular distribution area. Accordingly, we cannot predict the timing or quantity of purchases by any of our independent distributors or whether any of our distributors will continue to purchase products from us in the same frequencies and volumes as they may have done in the past. Additionally, our larger distributors and national partners may make orders that are larger than we have historically been required to fill. Shortages in inventory levels, supply of raw materials or other key supplies could negatively affect us.

 

If we do not adequately manage our inventory levels, our operating results could be adversely affected.

 

We need to maintain adequate inventory levels to be able to deliver products to distributors on a timely basis. Our inventory supply depends on our ability to correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly for new products, seasonal promotions and new markets. If we materially underestimate demand for our products or are unable to maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term basis. If we overestimate distributor or retailer demand for our products, we may end up with too much inventory, resulting in higher storage costs, increased trade spend and the risk of inventory spoilage. If we fail to manage our inventory to meet demand, we could damage our relationships with our distributors and retailers and could delay or lose sales opportunities, which would unfavorably impact our future sales and adversely affect our operating results. In addition, if the inventory of our products held by our distributors and retailers is too high, they will not place orders for additional products, which would also unfavorably impact our sales and adversely affect our operating results.

 

If we fail to maintain relationships with our independent contract manufacturers, our business could be harmed.

 

We do not manufacture our products but instead outsource the manufacturing process to third-party bottlers and independent contract manufacturers (co-packers). We do not own the plants or the majority of the equipment required to manufacture and package our beverage products, and we do not anticipate bringing the manufacturing process in-house in the future. Our ability to maintain effective relationships with contract manufacturers and other third parties for the production and delivery of our beverage products in a particular geographic distribution area is important to the success of our operations within each distribution area. We may not be able to maintain our relationships with current contract manufacturers or establish satisfactory relationships with new or replacement contract manufacturers, whether in existing or new geographic distribution areas. The failure to establish and maintain effective relationships with contract manufacturers for a distribution area could increase our manufacturing costs and thereby materially reduce gross profits from the sale of our products in that area. Poor relations with any of our contract manufacturers could adversely affect the amount and timing of product delivered to our distributors for resale, which would in turn adversely affect our revenues and financial condition. In addition, our agreements with our contract manufacturers are terminable at any time, and any such termination could disrupt our ability to deliver products to our customers.

 

The volatility of energy and increased regulations may have an adverse impact on our gross margin.

 

Over the past few years, volatility in the global oil markets has resulted in variable fuel prices, which many shipping companies have passed on to their customers by way of higher base pricing and increased fuel surcharges. If fuel prices increase, we expect to experience higher shipping rates and fuel surcharges, as well as energy surcharges on our raw materials. It is hard to predict what will happen in the fuel markets in 2021 and beyond. Due to the price sensitivity of our products, we may not be able to pass such increases on to our customers.

 

14

 

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, 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.

15

 

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 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, 2022, our intangible assets totaled approximately $5.81million.

 

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.

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 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.

 

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.

 

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We are dependent on a distiller in Mexico, to provide us with our finished SALT tequila product. Failure to obtain satisfactory performance from them or a loss of their services could cause us to lose sales, incur additional costs, and lose credibility in the marketplace.

 

We depend on a distiller in Mexico, a company in Jalisco, for the production, bottling, labeling, capping and packaging of our finished tequila product. We do not have a written agreement with our distiller in Mexico obligating it to produce our product. The termination of our relationship with our distiller in Mexico distiller or an adverse change in the terms of its services could have a negative impact on our business. If our distiller in Mexico increases its prices, we may not have alternative sources of supply at comparable prices and may not be able to raise the prices of our products to cover all, or even a portion, of the increased costs. In addition, if our distiller in Mexico fails to perform satisfactorily, fails to handle increased orders, or the loss of the services of our distiller in Mexico, along with delays in shipments of products, could cause us to fail to meet orders, lose sales, incur additional costs, and/or expose us to product quality issues. In turn, this could cause us to lose credibility in the marketplace and damage our relationships with our customers and consumers, ultimately leading to a decline in our business and results of operations.

 

Regulatory decisions and changes in the legal, regulatory and tax environment where our tequila is produced and where we operate could limit our business activities or increase our operating costs and reduce our margins.

 

Our business is subject to extensive regulation regarding production, distribution, marketing, advertising and labeling of beverage alcohol products in the U.S. and in Mexico, where our tequila is produced. We are required to comply with these regulations and maintain various permits and licenses. We are also required to conduct business only with holders of licenses to import, warehouse, transport, distribute, and sell spirits. We cannot assure you that these and other governmental regulations, applicable to our industry, will not change or become more stringent. Moreover, because these laws and regulations are subject to interpretation, we may not be able to predict when, and to what extent, liability may arise. Additionally, due to increasing public concern over alcohol-related societal problems, including driving while intoxicated, underage drinking, alcoholism and health consequences from the abuse of alcohol, various levels of government may seek to impose additional restrictions or limits on advertising or other marketing activities promoting beverage alcohol products. Failure to comply with any of the current or future regulations and requirements relating to our industry and products, could result in monetary penalties, suspension or even revocation of our licenses and permits. Costs of compliance with changes in regulations could be significant and could harm our business, as we may find it necessary to raise our prices in order to maintain profit margins, which could lower the demand for our products and reduce our sales and profit potential.

 

In addition, the distribution of beverage alcohol products is subject to extensive taxation both in the United States and internationally (and, in the United States, at both the federal and state government levels), and beverage alcohol products themselves are the subject of national import and excise duties in most countries around the world. An increase in taxation or in import or excise duties could also significantly harm our sales revenue and margins, both through the reduction of overall consumption and by encouraging consumers to switch to lower-taxed categories of beverage alcohol.

 

We face substantial competition in the alcoholic beverage industry, and we may not be able to effectively compete.

 

Consolidation among spirits producers, distributors, wholesalers, or retailers could create a more challenging competitive landscape for our products. Consolidation at any level could hinder the distribution and sale of our products as a result of reduced attention and resources allocated to our brands, both during and after transition periods, because our brands might represent a smaller portion of the new business portfolio. Expansion into new product categories by other suppliers, or innovation by new entrants into the market, could increase competition in our product categories. Changes to our route-to-consumer models or partners in important markets could result in temporary or longer-term sales disruption, higher implementation-related or fixed costs, and could negatively affect other business relationships we might have with that partner. Distribution network disruption or fluctuations in our product inventory levels with distributors, wholesalers, or retailers could negatively affect our results for a particular period.

 

Our competitors may respond to industry and economic conditions more rapidly or effectively than we do. Our competitors offer products that compete directly with ours for shelf space, promotional displays, and consumer purchases. Pricing, (including price promotions, discounting, couponing, and free goods), marketing, new product introductions, entry into our distribution networks, and other competitive behavior by our competitors could adversely affect our sales margins, and profitability.

 

Our business operations may be adversely affected by social, political and economic conditions affecting market risks and the demand for and pricing of our tequila products. These risks include:

 

  Unfavorable economic conditions and related low consumer confidence, high unemployment, weak credit or capital markets, sovereign debt defaults, sequestrations, austerity measures, higher interest rates, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations;

 

  Changes in laws, regulations, or policies – especially those that affect the production, importation, marketing, sale, or consumption of our beverage alcohol products;

  

20

 

  Tax rate changes (including excise, sales, tariffs, duties, corporate, individual income, dividends, capital gains), or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur;

 

  Dependence upon the continued growth of brand names;

 

  Changes in consumer preferences, consumption, or purchase patterns – particularly away from tequila, and our ability to anticipate and react to them; bar, restaurant, travel, or other on premise declines;

 

  Unfavorable consumer reaction to our products, package changes, product reformulations, or other product innovation;

 

  Decline in the social acceptability of beverage alcohol products in our markets;

 

  Production facility or supply chain disruption;

 

  Imprecision in supply/demand forecasting;

 

  Higher costs, lower quality, or unavailability of energy, input materials, labor, or finished goods;

 

 

Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher implementation related or fixed costs;

 

  Inventory fluctuations in our products by distributors, wholesalers, or retailers; Competitors’ consolidation or other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets;

 

  Insufficient protection of our intellectual property rights;

 

  Product recalls or other product liability claims; product counterfeiting, tampering, or product quality issues;

 

  Significant legal disputes and proceedings; government investigations (particularly of industry or company business, trade or marketing practices);

 

  Failure or breach of key information technology systems;

 

  Negative publicity related to our company, brands, marketing, personnel, operations, business performance or prospects; and

 

  Business disruption, decline, or costs related to organizational changes, reductions in workforce, or other cost-cutting measures, or our failure to attract or retain key executive or employee talent.

 

Uncertainty in the financial markets and other adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect our industry, business and results of operations.

 

Global economic uncertainties, including foreign currency exchange rates, affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. There can be no assurance that economic improvements will occur, or that they would be sustainable, or that they would enhance conditions in markets relevant to us.

 

Our limited operating history makes it difficult to forecast our future results, making any investment in us highly speculative.

 

We have a limited operating history, and our historical financial and operating information is of limited value in predicting our future operating results. We may not accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts. Our current and future expense levels are based largely on our investment plans and estimates of future revenue. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which could then force us to curtail or cease our business operations.

 

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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 tour 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, 2022, our ten (10) largest shareholders own or controlled approximately 35.5% of our outstanding common stock. If those stockholders act together, they would have the ability to have a substantial influence on matters submitted to our stockholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. As a result, our other stockholders may have little or no influence over matters submitted for shareholder approval. In addition, the ownership of such stockholders could preclude any unsolicited acquisition of us, and consequently, adversely affect the price of our common stock. These stockholders may make decisions that are adverse to your interests.

 

We do not expect to pay dividends and investors should not buy our Common Stock expecting to receive dividends.

 

We do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. 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.

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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.

 

Our common stock could be further diluted as the result of the issuance of additional common stock, convertible securities, warrants or options.

 

Our issuance of additional common stock, convertible securities, options and warrants could affect the rights of our stockholders, result in a reduction in the overall percentage holdings of our stockholders, could put downward pressure on the market price of our common stock, could result in adjustments to conversion and exercise prices of outstanding notes and warrants, and could obligate us to issue additional common stock to certain of our stockholders.

 

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Item 1B. Unresolved Staff Comments.


None

 

Item 2. Properties.

 

Splash’s physical office is located at 1500 Cordova Rd; Fort Lauderdale, FL 33316 and 1491 2nd Street, Sarasota FL 34236 while our business office is located at 1314 East Las Olas Blvd, Suite 221, Fort Lauderdale, FL 33301. Copa’s office/manufacturing facility is located at 901 E. 2nd Street; The Dalles, OR 97058.

 

Item 3. Legal Proceedings.

 

We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial conditions. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

 The Company’s Common Stock and tradeable warrants are quoted on the NYSE American under the symbol “SBEV” and “SBEV WS”.

 

Aggregate Number of Holders of Common Stock

 

As of March 31, 2023, there were 41,085,520 shares of Common Stock issued and outstanding. As of March 31, 2023, at our transfer agent and non-objecting beneficial owners totaled approximately 4,800 holders of record of our Common Stock.

 

Dividends

 

We have not declared any cash dividends on our common stock since inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business operations. Any decisions as to future payment of cash dividends will depend on our earnings and financial position and such other factors as the Board of Directors deems relevant.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

None.

 

Equity Compensation Plan Information

 

The following table gives information as of December 31, 2022, the end of the most recently completed fiscal year, about shares of common stock that have been issued under our Splash Beverage Group, Inc. 2020 Incentive Plan. Under the 2020 Incentive Plan we have 1,151,000 options outstanding as of December 31, 2022. See Note 6.

 

Plan Category  No. of Shares to be Issued Upon Exercise or Vesting of Outstanding Stock Options  Weighted Average Exercise Price of Outstanding Stock Options  Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plan approved by board of directors   1,151,000    2.56    1,899,509 
                
Total   1,151,000    2.56    1,899,509 

 

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Purchases of Equity Securities by the Issuer.

 

There were no repurchase of our common stock during the year ended December 31, 2022.

 

Item 6. Selected Financial Data.

 

This item is not required for Smaller Reporting Companies.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements and Notes to Audited Consolidated Financial Statements filed herewith.

 

Business Overview

 

Canfield Medical Supply, Inc. a company’s whose common stock was quoted on the OTCQB entered into an Agreement and Plan of Merger with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly-owned by Canfield, and Splash Beverage Group, II Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of Canfield. The Merger was consummated on March 31, 2020.

 

As the owners and management of Splash had voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (that is with Splash as the acquiring entity), followed by a recapitalization.

 

On July 31, 2020, CMS changed its name to Splash Beverage Group, Inc. (“SBG”). On June 11, 2021, SBG’s common stock and warrant to purchase common stock began trading on the NYSE American under the symbols “SBEV” and SBEV WT,” respectively

 

On November 8, 2021, SBG reincorporated into the State of Nevada and became a Nevada corporation.

 

Our principal offices are located at 1314 E. Las Olas Blvd, Suite 221, Fort Lauderdale, Florida 33301. Our main telephone number is (954) 745-5815. Our website address is www.splashbeveragegroup.com. We have not incorporated by reference into this Annual Report on Form 10-K the information that can be assessed through our website and you should not consider it to be part of this Annual Report on Form 10-K.

 

Results of Operations for the Year Ended December 31, 2022, compared to Year Ended December 31, 2021.

 

Revenue

 

Revenues for the year ended December 31, 2022 were $18.1m compared to revenues of $11.3m for the year ended December 31, 2021. The $6.8m increase in sales was mainly due to the increase in our ecommerce division distribution platform, Qplash of $6.4m.

 

Cost of Goods Sold

 

Cost of goods sold for year ended December 31, 2022 were $12.1m compared to cost of goods sold for the year ended December 31, 2021 of $8.3m. The $4.7m increase in cost of goods sold was due to our increased sales and inflation.

 

Operating Expenses

 

Operating expenses for the year ended December 31, 2022 were $27.3m compared to $33m for the year ended December 31, 2021. Non cash operating expenses related to share issuance was $7.4m as of December 31, 2022 compared $18.4m in December 31, 2021. The cash expense increase of $5.3m is mainly driven by an increase in sales and marketing cost of $2.0m to drive sales and promote the brands, delivery fees of $2.0m and an increase in Amazon selling fees of $0.6m associated with higher sales of Qplash division.

 

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Other Income/(Expense)

 

Other expense for the year ended December 31, 2022 were $245,429 compared to $262,450 for the year ended December 31, 2021. These cost are mainly interest expense.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. In addition, the Company has an active registration statement on Form S-3 to facilitate raising additional funds.

 

As of December 31, 2022, we had total cash of $4,431,745, as compared with $4,181,383 at December 31, 2021. The increase was primarily due to issuances of notes payable and stock subscription agreements offset by expenses relating to the operating the business.

 

Net cash used for continuing operating activities during the year ended December 31, 2022, was $14,061,116 as compared to the net cash used by continuing operating activities for the year ended December 31, 2021, of $14,697,179. The primary reason for the change in net cash used due to an increase of $0.4m in operating loss operating losses of the business, offset by a decrease of $1.2m in working capital Net cash used for discontinued operating activities during the year ended December 31, 2022, was $32,774 as compared to $515,952 for the year ended December 31, 2021 due to discontinuing the business on June 30, 2022.

 

Net cash used for investing activities during the year ended December 31, 2022, was $102,698 as compared to the net cash used for investing activities during the year ended December 31, 2021, of $0. The net cash used in the year 2022 was for a capital expenditure for out of home used for advertising and building improvements.

 

Net cash provided by financing activities during the year ended December 31, 2022, was $14,446,951 compared to $19,014,524 provided from financing activities for the year ended December 31, 2021. During the year ended December 31, 2022, we received $11,428,591 from the issuance of common stock compared to $19,630,565 during the year ending December 31, 2021. We received $4,045,420 and $928,000 proceeds from the issuance of debt in years ending December 31, 2022 and 2021 respectively. In the year ending December 31, 2022 $390,500 shareholder advance was repaid and in year ending December 31, 2021 $390,500 cash advance from shareholder was received. Principal repayment of debt $636,560 and $1,673,296 were made in years ending December 31, 2022 and 2021 respectively. In year ending December 31, 2021 a cash advance repayment of $261,245 was made.

 

In order to have sufficient cash to fund our operations, we will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. We will be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to curtail or cease operations.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable for smaller reporting companies.

 

26

 

 

Item 8. Financial Statements and Supplementary Data.

 

Financial Statements   Page
  Report of Independent Registered Public Accounting Firm (PCAOB ID: 229)   F-2
  Consolidated Balance Sheets December 31, 2022 and December 31, 2021   F-4
  Consolidated Statements of Operations For the Years Ended December 31, 2022 and December 31 2021   F-5
  Consolidated Statements of Changes in Stockholders’ Equity For the years ended December 31, 2022 and 2021   F-6
  Consolidated Statements of Cash Flows For the Year Ended December 30, 2022 and 2021   F-7
  Notes to the Consolidated Financial Statements   F-8

 

F-1

 

Report of Independent Registered Public Accounting Firm

  

 

To the Board of Directors and Stockholders

Splash Beverage Group, Inc.

Fort Lauderdale, Florida

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Splash Beverage Group, Inc. at December 31, 2022 and 2021, and the related consolidated statements operations, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

  

F-2

 

 

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

 

Intangible Assets Impairment Assessments

As described in Notes 2 and 4 to the consolidated financial statements, the Company has intangible assets of approximately $4.9 million at December 31, 2022. In most cases, no directly observable market inputs are available to measure the fair value to determine if the asset is impaired. Therefore, an estimate is derived indirectly and is based on valuation techniques utilizing undiscounted and discounted after-tax cash flows and discount rates. The estimates that management used in calculating the net present values depend on assumptions specific to the nature of the management service activities with regard to the amount and timing of projected future cash flows; long-term forecasts; actions of competitors (competing services), future tax and discount rates.

 

The principal considerations for our determination that performing procedures relating to the intangible assets impairment assessment is a critical audit matter are the significant judgment by management when developing the net present value of the intangible assets. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the amount and timing of projected future cash flows and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements These procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of the net present value techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions used by management, including the amount and timing of projected future cash flows and the discount rate. Evaluating management’s assumptions related to the amount and timing of projected future cash flows and the discount rate involved evaluating whether the assumptions used by management reasonable considering the current and past performance of the intangible assets, the consistency with external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit.

  

/s/ Daszkal Bolton LLP

 

Daszkal Bolton LLP

 

We have served as the Company’s auditor since 2020

Fort Lauderdale, Florida

March 31, 2023

F-3

 

 

Splash Beverage Group, Inc.
Consolidated Balance Sheets
December 31, 2022 and December 31, 2021
 

                 
    December 31, 2022   December 31, 2021
Assets                
Current assets:                
Cash and cash equivalents   $ 4,431,745     $ 4,181,383  
Accounts Receivable, net     1,812,110       1,114,452  
Prepaid Expenses     348,036       607,178  
Inventory     3,721,307       1,923,479  
Other receivables     344,376       41,939  
Assets from discontinued operations           473,461  
Total current assets     10,657,574       8,341,892  
                 
Non-current assets:                
Deposit     49,290       330,886  
Goodwill     256,823       256,823  
Intangibles assets, net     4,851,377       5,604,512  
Investment in Salt Tequila USA, LLC     250,000       250,000  
Right of use asset     750,042       1,031,472  
Property and equipment, net     489,597       569,785  
Total non-current assets     6,647,129       8,043,478  
                 
Total assets   $ 17,304,703     $ 16,385,370  
                 
Liabilities and Stockholders’ Equity                
                 
Liabilities:                
Current liabilities                
Accounts payable and accrued expenses   $ 3,383,187     $ 1,913,459  
Right of use liability     268,749       294,067  
Related party notes payable           653,081  
Notes payable     1,080,257       2,667,812  
Liability to issue shares     91,800        
Shareholder advances           390,500  
Accrued interest payable     141,591       171,452  
Liabilities from discontinued operations           389,086  
Total current liabilities     4,965,584       6,479,457  
                 
Long-term Liabilities:                
Notes payable     2,536,319       300,000  
Right of use liability     480,666       732,686  
Total long-term liabilities     3,016,985       1,032,686  
                 
Total liabilities   $ 7,982,569     $ 7,512,143  
                 
Stockholders’ equity:                
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued            
Common Stock, $0.001 par, 300,000,000 shares authorized, 41,085,520 and 33,596,232 shares issued and outstanding, at December 31, 2022 and December 31, 2021, respectively     41,086       33,596  
Additional paid in capital     121,632,547       99,480,188  
Accumulated Other Comprehensive Income     (20,472 )      
Accumulated deficit     (112,331,027 )     (90,640,557)  
Total stockholders’ equity     9,322,134       8,873,227  
                 
Total liabilities and stockholders’ equity   $ 17,304,703     $ 16,385,370  

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4

 

Splash Beverage Group, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2022 and December 31 2021
 

 

           
   2022  2021
Net revenues  $18,087,486   $11,316,002 
Cost of goods sold   (12,168,621)   (7,398,241)
Gross margin   5,918,865    3,917,761 
           
Operating expenses:          
Contracted services   1,505,788    1,584,830 
Salary and wages   4,179,403    3,807,492 
  Non-cash share-based compensation   7,409,884    18,395,488 
Other general and administrative   11,411,535    8,425,046 
Sales and marketing   2,806,888    787,827 
 Total operating expenses   27,313,498    33,000,683 
           
Loss from continuing operations   (21,394,633)   (29,082,922)
           
Other income/(expense):          
Other Income       3,632 
Interest income   6,068    643 
Interest expense   (251,497)   (442,807)
Gain from debt extinguishment       176,082 
Total other expense   (245,429)   (262,450)
           
Provision for income taxes        
           
Net (loss) from continuing operations, net of tax   (21,640,062)   (29,345,372)
           
Net (loss) income from discontinued operations, net of tax   (199,154)   294,550 
           
 Gain on discontinued operations   148,747     
           
Net income (loss) from discontinued operations, net of tax   (50,407)   294,550 
           
Net loss  $(21,690,469)  $(29,050,822)
Other Comprehensive loss          
Foreign Currency Translation loss   (20,472)    
           
Total Comprehensive Income   (21,710,941)   (29,050,822)
           
Loss per share - continuing operations          
Basic and Diluted   (0.58)   (1.01)
           
Weighted average number of common shares outstanding - continuing operations          
Basic and Diluted   37,389,990    28,900,292 
           
Income (loss) per share - discontinued operations          
Basic and Diluted   (0.00)   0.01 
           
Weighted average number of common shares outstanding - discontinued operations          
Basic and Diluted   37,389,990    28,900,292 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-5

 

Splash Beverage Group, Inc.
Consolidated Statements of Changes in StockholdersEquity
For the years ended December 31, 2022 and 2021
 

 

                               
   Common stock  Additional Paid-in  Accumulated Other Comprehensive  Accumulated  Total Stockholders Equity
   Shares  Amount  Capital  Income  Deficit  (Deficit)
Balances at December 31, 2020   21,157,043    21,157    52,217,855        (61,589,735)   (9,350,723)
Issuance of warrants for services             7,267,421              7,267,421 
Issuance of common stock for services   3,272,649    3,273    11,124,793              11,124,793 
Issuance of common stock and warrants for cash   4,954,779    4,955    19,625,610              19,625,610 
Mezzanine shares   4,201,761    4,202    9,244,518              9,244,518 
Net loss                      

(29,050,822)

    

(29,050,822)

 
Balances at December 31, 2021   33,596,232    33,596    99,480,188        (90,640,557)   8,873,227 
                               
Issuance of common stock on convertible instruments   377,796    378    1,514,533            1,514,911 
Issuance of warrants for services           3,849,144            3,849,144 
Issuance of warrants on convertible instruments           1,898,265            1,898,265 
Issuance of common stock for services   2,215,363    2,215    3,466,722            3,463,937 
Issuance of common stock and warrants for cash   4,896,129    4,896    11,423,695            11,428,591 
Accumulated Comprehensive Income - Translation               (20,472)        (20,472)
Net loss                   (21,690,469)   (21,690,469)
Balances at December 31, 2022   41,085,520    41,086    121,632,546    (20,472)   (112,331,026)   9,322,134 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-6

 

Splash Beverage Group, Inc.
Consolidated Statements Cash Flows
For the Year Ended December 30, 2022 and 2021
 

 

           
   2022  2021
       
Net loss  $(21,710,941)  $(29,050,822)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   936,020    111,567 
ROU asset, net   4,093    (7,239)
Gain from debt extinguishment       176,082 
Gain from sale of discontinued operation   84,375     
Non-cash warrant expense   7,318,081    16,291,167 
Changes in working capital items:          
Accounts receivable, net   (697,658)   (629,594)
Inventory, net   (1,797,828)   (1,125,206)
Prepaid expenses and other current assets   (43,294)   (384,784)
Deposits   281,596    (253,200)
Accounts payable and accrued expenses   1,594,300    446,146 
Accrued Interest payable   (29,861)   (271,296)
Net cash used in operating activities - continuing operations   (14,061,116)   (14,697,179)
           
Net cash used in operating activities - discontinued operations   (32,774)   (515,952)
           
Cash Flows from Investing Activities:          
Capital Expenditures   (102,698)    
           
Net cash used in investing activities -– continuing operations   (102,698)    
           
 Net cash used in investing activities - discontinued operations        
           
Cash Flows from Financing Activities:          
Proceeds from issuance of Common stock   11,428,591    19,630,565 
Cash advance (repayment) from shareholder   (390,500)   390,500 
Repayment of cash advance       (261,245)
Proceeds from issuance of debt   4,045,420    928,000 
Principal repayment of debt   (636,560)   (1,673,296)
           
Net cash provided by financing activities - continuing operations   14,446,951    19,014,524 
           
 Net cash provided by financing activities - discontinued operations        
           
Net Change in Cash and Cash Equivalents   250,362    3,801,383 
           
Cash and Cash Equivalents, beginning of year   4,181,383    380,000 
           
Cash and Cash Equivalents, end of year  $4,431,745   $4,181,383 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid for Interest  $204,594   $173,363 
 Cash paid for Taxes        
           
Supplemental Disclosure of Non-Cash Investing and Financing Activities          
Convertible notes payable and accrued interest converted to common stock (377,796 shares)   1,514,911     

  

 

The accompanying notes are an integral part of these consolidated financial statements.

F-7 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 1 – Business Organization and Nature of Operations

 

Splash Beverage Group (“SBG” or “Splash”), formally Canfield Medical Supply, Inc. (“CMS”) was incorporated in the State of Ohio on September 3, 1992, and changed domicile to Colorado on April 18, 2012. CMS was in the business of home health services, primarily the selling of durable medical equipment and medical supplies to the public, nursing homes, hospitals and other end users.

 

On December 31, 2019, CMS entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SBG Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly owned by CMS, and Splash Beverage Group, Inc. a Nevada corporation (“Splash”) pursuant to which Merger Sub merged with and into Splash (the “Merger”) with Splash as the surviving company and a wholly-owned subsidiary of CMS. The Merger was consummated on March 31, 2020.

 

As the owners and management of Splash have voting and operating control of CMS following the Merger, the Merger transaction was accounted for as a reverse acquisition (that is with Splash as the acquiring entity), followed by a recapitalization.

 

As part of the recapitalization, previously issued shares of SBG preferred stock have been reflected as shares of common stock that were received in the Merger. These common shares have been retrospectively presented as outstanding for all periods.

 

Splash specializes in the manufacturing process, distribution, and sales & marketing of various beverages across multiple channels. Splash operates in both the non-alcoholic and alcoholic beverage segments. Additionally, Splash operates its own vertically integrated B-to-B and B-to-C E-commerce distribution platform called Qplash, further expanding its distribution abilities and visibility.

 

In July 2020 the Company filed a Certificate of Amendment of Articles of Incorporation of CMS with the Secretary of State of the State of Colorado, pursuant to which the Company changed its name from CMS. to Splash Beverage Group, Inc. On July 31, 2020, we received approval from FINRA to change the Company’s name from CMS to Splash Beverage Group, Inc. Our new ticker symbol is SBEV.

 

On December 24, 2020, SBG consummated an Asset Purchase Agreement (the “Copa APA”) with Copa di Vino Corporation (“CdV”), to purchase certain assets and assume certain liabilities that comprise the Copa di Vino business for a total purchase price of $5,980,000, payable in the combination of $2,000,000 in cash (“Cash Consideration”), $2,000,000 convertible promissory note (the “Convertible Note”) to Seller and a variable number of shares of the Company’s common stock based on a attainment of revenue hurdles. CdV is one of the leading producers of premium wine by the glass in the United States with its primary offices and facilities in The Dalles, Oregon.

 

On February 2021, Management initiated a plan to divest its CMS business. As a result, the assets and operations of CMS have been retrospectively reflected as discontinued operations. On November 12, 2021 the Company changed its state of Domicile from Colorado to Nevada.

  

In coordination with up listing to the NYSE on June 11, 2021 the Company consummated a 1.0 for 3.0 reverse stock split. All common stock shares stated herein have been adjusted to reflect the split.

 

F-8 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation

 

These consolidated financial statements include the accounts of Splash and its wholly owned subsidiaries, Holdings and Splash Mex, CMS (as discontinued operations), and CdV. All intercompany balances have been eliminated in consolidation.

 

Our investment in Salt Tequila USA, LLC is accounted for at cost, as the company does not have the ability to exercise significant influence.

 

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP).

 

Certain reclassifications have been made to the prior period financial statements to conform to the current period classifications. These reclassifications had no impact on net loss.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash Equivalents and Concentration of Cash Balance

 

We consider all highly liquid securities with an original maturity of three months or less to be cash equivalents. We had no cash equivalents at December 31, 2022 or December 31, 2021.

 

Our cash in bank deposit accounts, at times, may exceed federally insured limits of $250,000. At December 31, 2022 we had approximately $3.8m over the federally insured limits. Our cash in uninsured foreign bank accounts was $1,941 at December 31, 2022.

  

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivables are carried at their estimated collectible amounts and are periodically evaluated for collectability based on past credit history with clients and other factors. We establish provisions for losses on accounts receivable on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions. At December 31, 2022 and December 31, 2021, our accounts receivable amounts are reflected net of allowances of $13,683 and $45,203, respectively.

 

F-9 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value, accounted for using the weighted average cost method. The inventory balances at December 31, 2022 and December 31, 2021 consisted of raw materials, work-in-process, and finished goods held for distribution. The cost elements of inventory consist of purchase of products, transportation, and warehousing. We establish provisions for excess or inventory near expiration are based on management’s estimates of forecast turnover of inventories on hand and under contract. A significant change in the timing or level of demand for certain products as compared to forecast amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on inventory. We manage inventory levels and purchase commitments in an effort to maximize utilization of inventory on hand and under commitments. The amount of our reserve was $66,146 and $223,223 at December 31, 2022 and December 31, 2021, respectively.

 

Property and Equipment

 

We record property and equipment at cost when purchased. Depreciation is recorded for property, equipment, and software using the straight-line method over the estimated economic useful lives of assets, which range from 3-20 years. Company management reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable.

 

Depreciation expense totaled $182,886 and $156,766 for the years ended December 31, 2022 and 2021 respectively. Property and equipment consisted of the following:

 

Schedule of Property and equipment          
   2022  2021
Auto   45,420     
Machinery & equipment   1,108,870    1,108,870 
Buildings & Tanks   282,988    279,543 
Leasehold improvements   713,068    662,537 
Office furniture & equipment   13,636    70,960 
Total cost   2,163,983    2,121,911 
Accumulated depreciation   (1,674,385)   (1,552,125)
Property, plant & equipment, net   489,597    569,785 

 

Excise taxes

 

The Company pays alcohol excise taxes based on product sales to both the Oregon Liquor Control Commission and to the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (TTB). The company also pays taxes to the State of Florida – Division of Alcoholic Beverages and Tobacco. The Company is liable for the taxes upon the removal of product from the Company’s warehouse on a per gallon basis. The federal tax rate is affected by a small winery tax credit provision which decreases based upon the number of gallons of wine production in a year rather than the quantity sold.

 

Employee Retention Credit (“ERC”)

 

The CARES Act provides an employee retention credit (“CARES Employee Retention credit”), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee through December 31, 2020. Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage caps on these credits through December 31, 2021. Based on these additional provisions, the tax credit is now equal to 70% of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $10,000 of qualified wages per quarter. The Company qualified for the tax credit under the CARES Act. Copa Di Vino received $211,300 which represents refunds for the quarters ended March, June and September 2021 Form 941 Employer Quarterly Federal Tax Returns.

F-10 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Fair Value of Financial Instruments

 

Financial Accounting Standards (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

 

  Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.

 

  Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).

 

  Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

 

The liabilities and indebtedness presented on the consolidated financial statements approximate fair values at December 31, 2022 and December 31, 2021, consistent with recent negotiations of notes payable and due to the short duration of maturities.

 

Revenue Recognition

 

We recognize revenue under ASC 606, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step model which depicts the recognition of revenue in an amount that reflects what we expect to receive in exchange for the transfer of goods or services to customers.

 

We recognize revenue when our performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control of our products is transferred upon delivery to the customer. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring goods and is presented net of provisions for customer returns and allowances. The amount of consideration we receive and revenue we recognize varies with changes in customer incentives we offer to our customers and their customers. Sales taxes and other similar taxes are excluded from revenue.

 

Distribution expenses to transport our products, and warehousing expense after manufacture are accounted for in Other General and Administrative cost.

F-11 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Cost of Goods Sold

 

Cost of goods sold include the costs of products, packaging, transportation, warehousing, and costs associated with valuation allowances for expired, damaged or impaired inventory. The cost of transportation from production site to other 3rd party warehouses or customer is included in Other General and Administrative cost.

 

Other General and Administrative Expenses

 

Other General and Administrative expenses includes Amazon selling fees, royalty cost for selling TapouT, cost of transportation from production site to other 3rd party warehouses or customers, Insurance cost, consulting cost, legal and audit fees, Investor Relations expenses, travel & entertainment expenses, occupancy cost and other cost.

 

Stock-Based Compensation

 

We account for stock-based compensation in accordance with ASC 718,”Compensation - Stock Compensation”. Under the fair value recognition provisions, cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. We use the Black-Scholes option pricing model to determine the fair value of stock options. We early adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which aligns accounting treatment for such awards to non-employees with the existing guidance on employee share-based compensation in ASC 718.

 

We measure stock-based awards at the grant-date fair value for employees, directors and consultants and recognizes compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of our common stock, and for stock options and warrants, the expected life of the option and warrant, and expected stock price volatility and exercise price. We used the Black-Scholes option pricing model to value its stock-based awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards. The expected life of stock options/warrants were estimated using the “simplified method,” which calculates the expected term as the midpoint between the weighted average time to vesting and the contractual maturity, we have limited historical information to develop reasonable expectations about future exercise patterns. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, we use comparable public companies as a basis for its expected volatility to calculate the fair value of award. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the award. The estimation of the number of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.

 

Income Taxes

 

We use the liability method of accounting for income taxes as set forth in ASC 740,”Income Taxes”. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. We record a valuation allowance when it is not more likely than not that the deferred tax assets will be realized.

 

Company management assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

 

For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. Company management has determined that there are no material uncertain tax positions at December 31, 2022 and December 31, 2021. See not 13.

F-12 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Net income (loss) per share

 

The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company’s convertible debt or preferred stock (if any), are not included in the computation if the effect would be anti-dilutive.

 

Weighted average number of shares outstanding excludes anti-dilutive common stock equivalents, including warrants to purchase shares of common stock and warrants granted by our Board but have not been exercised totaling 14,343,896.

 

Advertising

 

We conduct advertising for the promotion of our products. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. We recorded advertising expense of $732,618 and $728,045 for the years ended December 30, 2022 and 2021, respectively.

 

Goodwill and other intangibles

 

Goodwill represents the excess of acquisition cost over the fair value of the net assets acquired and is not subject to amortization. The Company reviews goodwill annually in the fourth quarter for impairment or when circumstances indicate carrying value may exceed the fair value. This evaluation is performed at the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less than carrying value, a quantitative analysis is completed using either the income or market approach, or a combination of both. The income approach estimates fair value based on expected discounted future cash flows, while the market approach uses comparable public companies and transactions to develop metrics to be applied to historical and expected future operating results.

 

F-13 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Long-lived assets

 

The Company evaluates long-lived assets for impairment on an annual basis, when relocating or closing a facility, or when events or changes in circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques.

 

Foreign Currency Gain/Losses

  

Foreign Currency Gain/Losses — foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates. Gain or losses from these translation adjustments are included in the consolidated statement of operations and other comprehensive (loss) income as foreign currency translation gains or losses. Translation gains and losses that arise from the translation of net assets from functional currency to the reporting currency, as well as exchange gains and losses on intercompany balances, are included in Other Comprehensive Losses. The Company incurred foreign currency translation net loss during the year ended December 31, 2022 of $20,472.

 

Recent Accounting Pronouncements

 

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

Note 3 – Liquidity, Capital Resources and Going Concern Considerations

 

During 2022, the Company received approximately $12.8 million and $4.0 million from the proceeds from the issuance common stock and debt, respectively. These events served to mitigate the conditions that previously raised substantial doubt about

the Company’s ability to continue as a going concern.

 

The Company’s consolidated financial statements have been prepared on the basis of US GAAP for a going concern, on the premise that Company’s ability to meet its obligations as they come due in the normal course of business. The Company sustained a net loss of approximately $21.7 million and negative cash flows from operating activities of approximately $14.1 million for the year ended December 31, 2022.  To date the Company has generated cash flows from issuances of equity and indebtedness.

 

Management believes that its current available resources will be sufficient to fund the Company’s planned expenditures over the next 12 months. However, 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 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 determine it shall be unable to continue as a going concern.

 

F-14 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 4 – Notes Payable, Related Party Notes Payable, and Revenue Financing Arrangements

 

Notes payable are generally nonrecourse and secured by all Company owned assets.

 

Schedule of Notes payable               
   Interest Rate  December 31, 2022  December 31, 2021
Notes Payable               
                
In March 2014, we entered into a short-term loan agreement with an entity in the amount of $200,000. The note included warrants for 272,584 shares of common stock at $0.94 per share. The warrants expired as unexercised. The loan matured and remains in default.   8%   200,000    200,000 
                
In September 2021, we entered into a twelve-month loan with a company in the amount of $208,000. The loan and interest was paid off in June 2022.   4.8%       116,478 
                
In December 2020, we entered into a 56 month loan with a company in the amount of $1,578,237. The loan requires payments of 3.75% through November 2022 and 4.00% through September 2025 of the previous months revenue   17%   1,044,445    1,423,334 
                
In April 2021, we entered into a six-month loan with a individual in the amount of $84,000. The loan matures in October 2021 with principal and interest due at maturity. The loan was extended to January 2023   7%   84,000    84,000 
                
In April 2021, we entered into a six-month loan with a individual in the amount of $84,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to January 2023   7%   84,000    84,000 
                
In May 2021, we entered into a six-month loan with a individual in the amount of $50,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to January 2023   7%   50,000    50,000 
                
In May 2021, we entered into a six-month loan with a individual in the amount of $500,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The principal and interest was converted into shares of common stock in February 2022   7%       500,000 
                
In May 2021, we entered into a six-month loan with an individual in the amount of $10,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to January 2023.   7%   10,000    10,000 
                
In May 2021, we entered into a six-month loan with a individual in the amount of $200,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The principal and interest was converted into shares of common stock in February 2022.   7%       200,000 
                
In November 2021, we entered into a one-year loan with a individual in the amount of $300,000. The loan had an original maturity of November 2021 with principal and interest due at maturity. The principal and interest was converted to shares of common stock in April 2022   7%       300,000 
                
In August 2022, we entered into a 56-months auto loan in the amount of $45,420.   2.35%   42,396     
                
In December 2022, we entered into an eighteen-month loan with an individual in the amount of $100,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity.   12%   100,000     
                
In December 2022, we entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity.   12%   250,000     
                
In December 2022, we entered into an eighteen-month loan with an individual in the amount of $1,000,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity.   12%   1,000,000     
                
  In December 2022, we entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity.   12%   250,000     
                
In December 2022, we entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity.   12%   250,000     
                
In December 2022, we entered into an eighteen-month loan with an individual in the amount of $250,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity.   12%   250,000     
                
  In December 2022, we entered into an eighteen-month loan with an individual in the amount of $400,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity.   12%   400,000     
                
  In December 2022, we entered into an eighteen-month loan with an individual in the amount of $1,500,000. The note included 100% warrant coverage. The loan matures in June 2024 with principal and interest due at maturity.   12%   1,500,000     
                
    Total notes payable   $5,514,841   $2,967,812 
                
    Less notes discount    (1,898,265)    
                
    Less current portion    (1,080,257)   (2,967,812)
                
    Long-term notes payable   $2,536,319   $ 

 

Interest expense on notes payable was $217,123 and $376,572 for the years ended December 31, 2022 and 2021, respectively. Accrued interest was $141,591 and $171,452 at December 31, 2022 and December 31, 2021, respectively.

 

Notes discount of $1,898,265 for the year ending December 31, 2022 is related to the discounted warrants on the December notes. The year ending December 31, 2021 did not have discounted warrants.

 

F-15 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 4 – Notes Payable, Related Party Notes Payable, and Revenue Financing Arrangements, continued

 

 

Schedule of Notes payable             
   Interest Rate  December
31, 2022
  December
31, 2021
Related Parties Notes Payable             
              
In December 2020, we entered into an 18 month loan with an individual in the amount of $2,000,000. The loan was paid off in June 2022  2.0%       653,081 
              
   Less current portion       (653,081)
              
   Long-term notes payable  $   $ 

 

Interest expense on related party notes payable was $5,407 and $26,409 for the years ended December 31, 2022 and 2021, respectively.

F-16 

 

 

 Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 5 – Licensing Agreement and Royalty Payable

 

We have a licensing agreement with ABG TapouT, LLC (“TapouT”), providing us with licensing rights to the brand “TapouT” on (i) energy drinks, (ii) energy bars, (iii) coconut water, (iv) electrolyte gum/chews, (v) energy shakes, (vi) powdered drink mix, (viii) water (including enhanced water), (vii) energy shots, (viii) teas, and (ix) sports drinks sold in the North America (including US Territories and Military Bases), United Kingdom, Brazil, South Africa, Australia, Scandinavia, Peru, Colombia, Chile and Guatemala.. Under the terms of the agreement, we are required to pay a 6% royalty on net sales, as defined. In 2022 and 2021, we are required to make monthly payments of $54,450 and $49,500, respectively.

 

There were no unpaid royalties at December 31, 2022 and 2021. We paid the guaranteed minimum royalty payments of $653,400 and $594,000 for the years ended December 31, 2022 and 2021, which is included in general and administrative expenses.

 

In connection with the Copa APA, we acquired the license to certain patents from 1/4 Vin SARL (“1/4 Vin”) On February 16, 2018, the Copa di Vino entered into three separate license agreements with 1/4 Vin SARL, (1/4 Vin). 1/4 Vin has the right to license certain patents and patent applications relating to inventions, systems, and methods used in the Company’s manufacturing process. In exchange for notes payable, 1/4 Vin granted the Company a nonexclusive, royalty-bearing, non-assignable, nontransferable, terminable license which would continue until the subject equipment is no longer in service or the patents expire. Amortization is approximately $31,000 annually until the license agreement is fully amortized. The asset is being amortized over a 10-year useful life.

 

Note 6 – Stockholders’ Equity

 

Common Stock

 

During the twelve-months ended December 31, 2022, we issued 4,596,129 shares of common stock as part of the public offerings, 1,834,404 shares in exchange for services, 380,959 shares in connection with the purchase of Copa di Vino, 377,796 shares on conversion of convertible instruments, and 300,000 shares for cash.

 

F-17 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 6 – Stockholders’ Equity, continued

 

Private Placement Memorandum (PPM)

 

In January 2021, the Board of Directors approved a private placement offering of 1,212,121 shares of the common stock of the Company, a purchase price of $3.30 per share for aggregate gross proceeds of $4,000,000 (“PPM”). As part of the PPM, each purchaser received a warrant to purchase one share for every two shares purchased. In February 2021, we completed our PPM by issuing a total of 1,212,355 of shares and 606,179 warrants receiving gross proceeds of approximately $4,000,000.

 

In July 2022, we issued 100,000 shares of common stock of the Company, at a purchase price of $1.10 per share. In December 2022, we issued 200,000 shares of common stock of the Company, at a purchase price of $1.00 per share this placement included 100% warrant coverage.

 

In December 2022, we issued Convertible Notes for 4,000,000 shares at $1.00 per share with warrants to purchase 4,000,000 shares of common stock at $0.25 per share.

 

Stock Plans

 

A summary of the Company’s stock option plan and changes during the year ended is as follows:

 

               
Plan Category  No. of Shares to be Issued Upon Exercise or Vesting of Outstanding Stock Options  Weighted Average Exercise Price of Outstanding Stock Options  Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities
Equity compensation plan approved by board of directors   1,151,000    2.56    1,899,509 
                
Total   1,151,000    2.56    1,899,509 

  

On August 2020, the Board adopted the 2020 Stock Incentive Plan (the “2020 Plan”), which provides for the grant of Options, Restricted Stock Awards, Stock Appreciation Rights, Performance Units and Performance Bonuses to consultants and eligible recipients.

 

F-18 

 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

The following is a summary of the Company’s stock option activity:

 

                                 
Options       December 31, 2022       December 31, 2021
                 
Balance - beginning of the year     1,065,000     $ 2.60              
                                 
Granted     146,000       2.31       1,065,000     $ 2.60  
Exercises                        
Cancelled     60,000       2.60              
                                 
Balance - end of the year     1,151,000     $ 2.56       1,065,000     $ 2.60  
                                 
 Exercisable – end of year     732,746      $ 2.58        334,998      $ 2.60   

 

In September 2021 we granted 1,065,000 options to purchase common stock of the Company to employees, consultants, and directors. These options vest over two years.

 

In May 2022, we granted 146,000 options to purchase common stock to employees and consultants, these options vest between one and four years.

 

The Company determined the grant date fair value of the options granted using the Black Scholes Method using the following assumptions:

 

          
   December 31, 2022  December 31, 2021
Risk-free interest rates   0.84%   2.99%
Exercise price  $2.60   $2.31 
Expected life   5 years    10 years 
Expected volatility   160.0%   228.3%
Expected dividends        

 

During the year ended December 31, 2022, 397,748 options vested with a weighted average grant date fair value of $2.55 Stock compensation expense for the years ended December 31, 2022 and 2021 was $1,146,965 and $3,971,926, respectively.

 

F-19 

 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

At December 31, 2022, there was 418,254 options unvested with an average grant date fair value of $2.54 and $379,144 of unrecognized compensation costs related to stock options which will be recognized over the weighted average remaining years of 0.84.

 

The following is a summary of the Company’s Warrant activity

 

                    
Warrants     December 31, 2022     December 31, 2021
             
Balance – beginning of the year   10,143,896   $2.51    6,213,898   $2.11 
                     
Granted   4,200,000    0.25    3,929,998    3.29 
Exercises                
Cancelled                
                     
Balance - end of the year   14,343,896   $1.85    10,143,896   $2.51 

 

In January 2021 we issued 606,179 warrants to purchase common stock of the Company in connection with the January 2021 private placement offering of 1,212,121 shares of common stock.

 

In May 2021 we granted 333,333 warrants to purchase common stock of the Company to a director. These warrants vest over two years.

 

We issued 3,750,000 warrants to purchase common stock of the Company in connection with the June 2021 underwritten public offering of 3,750,000 shares of common stock, in addition to 150,000 warrants to purchase common stock of the Company to the representative underwriter.

  

The fair value of warrants recognized in the period has been estimated using the Black-Scholes option pricing model with the following assumptions.

 

 

Schedule of assumptions used in Black-Scholes option pricing model         
    December 31, 2022   December 31, 2021
Risk-free interest rates 

3.99%

   0.93%
Exercise price   $0.96   $1.85 
Expected life   5 years    5 years 
Expected volatility   228.3%    165.3%
Expected dividends        

 

 

F-20 

 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 7 – Related Parties

 

During the normal course of business, we incurred expenses related to services provided by our CEO or Company expenses paid by our CEO, resulting in related party payables. In conjunction with the acquisition of Copa di Vino, 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”).

 

There were related party notes payable in the amount of $0.7 million outstanding as of December 31, 2021 and were repaid in 2022.

 

Note 8 – Investment in Salt Tequila USA, LLC

 

The Company has a marketing and distribution agreement with SALT in Mexico for the manufacturing of our Tequila product line.

 

The Company has a 22.5% percentage interest in SALT Tequila USA, LLC (“SALT”), and has the right to increase its ownership to 37.5%. This investment is accounted for at cost.

F-21 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 9 – Lease

 

We have various operating lease agreements primarily related to real estate and office. Our real estate leases represent a majority of our lease liability. Our lease payments are mainly fixed. Any variable lease payments, including utilities, common area maintenance are expensed during the period incurred. Variable lease costs were immaterial for the years ended December 31, 2022 and 2021. A majority of our real estate leases include options to extend the lease. We review all options to extend at the inception of the lease and account for these options when they are reasonably certain of being exercised.

 

Operating lease expense is recognized on a straight-line basis over the lease term and is included in operating expense on our consolidated statement of operations. Operating lease cost was $315,980 and $277,525 during the years ended December 31, 2022 and 2021, respectively.

 

The following table sets for the maturities of our operating lease liabilities and reconciles the respective undiscounted payments to the operating lease liabilities in the consolidated balance sheet at December 31, 2022:

Maturities of lease liabilities     
Undiscounted Future Minimum Lease Payments  Operating Lease
    
2023  $298,442 
2024   252,000 
2025   252,000 
Total   802,442 
Amount representing imputed interest   (53,027)
Total operating lease liability   749,415 
Current portion of operating lease liability   (268,749) 
Operating lease liability, non-current  $480,666 

 

The table below presents information for lease costs related to our operating leases at December 31, 2022:

 

Schedule of lease costs     
Operating lease cost:     
Amortization of leased assets  $623,232 
Interest of lease liabilities   94,081 
Total operating lease cost  $717,313 

 

The operating lease cost at December 31, 2022 was $315,980 and at December 31, 2021 was $277,525.

 

The table below presents lease- related terms and discount rates at December 31, 2022:

Summary of lease-related terms and discount rates     
Remaining term on leases   1 to months 36 
Incremented borrowing rate   5.0%

 

F-22 

 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 10 – Segment Reporting

 

We have two reportable operating segments: (1) the manufacture and distribution of non-alcoholic and spirits brand beverages, and (2) the retail sale of beverages and groceries online. These operating segments are managed separately and each segment’s major customers have different characteristics. Segment Reporting is evaluated by our Chief Executive Officer and Chief Financial Officer. Our medical device business was discontinued in 2021.

 

Schedule of Segment Reporting Information          
Revenue  For the period ended, December 31,
2022
  For the period ended, December 31,
2021
Splash Beverage Group   $4,759,586   4,459,409 
E-Commerce   13,327,900    6,856,593 
           
Total Revenues continuing operations   $18,087,486    $11,316,002 
           
Total Revenues discontinuing operations   $385,174    $1,112,878 

 

Contribution after Marketing expenses   2022   2021
Splash Beverage Group    $ (2,202,790 )    $ 242,045  
E-Commerce     5,314,767       2,887,889  
                 
Total Contribution after Marketing expenses continuing operations     3,111,977       3,129,934  
                 
 Contracted services     1,505,788        1,584,830   
 Salary and wages     4,179,403        3,807,492   
 Non-cash share-based compensation     7,409,884        18,395,488   
 Other general and administrative     11,411,535        8,425,046   
                 
 Loss from continuing operations    $ (21,394,633)       $ (29,082,922)   

 

Total Assets  December 31, 2022  December 31, 2021
Splash Beverage Group   $14,723,553    $14,998,597 
E-Commerce   2,581,150    913,312 
Medical Devices – Discontinued       473,461 
           
Total Assets   $17,304,703    $16,385,370 

  

Splash Beverage Group revenue increased for the year ending December 31, 2022 versus December 31, 2021 by $0.3m or 6.7% with largest contribution from TapouT and Pulpoloco. Contribution after Marketing expenses declined by $2.4m for the year ending December 31, 2022 versus December 31, 2021 driven by raw material cost increases and faster growth of lower margin brands affecting the overall mix of sales.

 

E-Commerce revenue increased for the year ending December 31, 2022 versus December 31, 2021 by $6.4m driven by expanded territory coverage, new products being sold and increased cart size when customers checking out. Contribution after Marketing expenses increased by $2.4m due to increased sales partially offset by cost increases.

 

Note 11 – Commitment and Contingencies

 

We are a party to asserted claims and are subject to regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but we do not anticipate that the outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations.

 

F-23 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

Note 12 – Registration Statement

 

Underwriting Agreement

 

On June 10, 2021, we entered into an underwriting agreement (“Underwriting Agreement”) relating to an underwritten public offering (the “Offering”) of common stock, (the “Common Stock”) and warrants to purchase one share of Common Stock (the “Warrants”). Pursuant to the Offering, we sold 3,750,000 shares of Common Stock and 4,312,500 Warrants, which include 562,500 Warrants sold upon the partial exercise of the Underwriters’ over-allotment, for total gross proceeds of approximately $15 million. After deducting the underwriting commissions, discounts, and offering expenses, we received net proceeds of approximately $13.2 million.

 

On February 17, 2022, we entered into an underwriting agreement (“Underwriting Agreement”) relating to an underwritten public offering (the “Offering”) of common stock, (the “Common Stock”) to purchase one share of Common Stock. Pursuant to the Offering, we sold 2,300,000 shares of Common Stock for total gross proceeds of approximately $9.2 million. After deducting the underwriting commissions, discounts, and offering expenses payable by we, we received net proceeds of approximately $7.9 million.

 

On September 22, 2022, we entered into an underwriting agreement (“Underwriting Agreement”) relating to an underwritten public offering (the “Offering”) of common stock, (the “Common Stock”) to purchase one share of Common Stock. Pursuant to the Offering, we sold 2,296,129 shares of Common Stock for total gross proceeds of approximately $3.6 million. After deducting the underwriting commissions, discounts, and offering expenses, we received net proceeds of approximately $3.1 million.

 

Representative’s Warrants

 

On June 15, 2021, pursuant to the Underwriting Agreement, the Company issued the Representative’s Warrants to purchase up to an aggregate of 150,000 shares of Common Stock. The Representative’s Warrants may be exercised beginning on December 10, 2021 until June 10, 2026. The initial exercise price of each Representative Warrant is $4.60 per share, which represents 115% of the Offering Price.

 

Note 13 – Tax Provision

 

The Company has evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax planning strategies to determine which deferred tax assets are more likely than not to be realized in the future. Due to uncertainty to the Company’s ability to utilize its deferred tax assets, the Company has recorded a full valuation allowance against its deferred tax assets.

 

At December 31, 2022, the Company’s net operating loss carryforward for Federal income tax purposes was $89,794,180, which will be available to offset future taxable income. If not used, these carry forwards will begin to expire in 2032, except for the net operating losses generated January 1, 2018 and after, which can be carried forward indefinitely.

 

There was no income tax expense or benefit for the years ended December 31, 2022 and 2021 due to the full valuation allowance recorded.

 

F-24 

 

 

Splash Beverage Group, Inc.

Notes to the Consolidated Financial Statements

 

The reconciliation of the income tax benefit is computed at the U.S. federal statutory rate as follows:

 

Schedule of Effective Income Tax Rate Reconciliation          
   2022  2021
       
Federal Statutory Tax Rate   21.00%   21.00%
Permanent Differences   (3.80)%   (4.00)%
Change in Valuation Allowance   (17.20)%   (17.00)%
Net deferred tax asset        

 

The tax effects of temporary differences which give rise to the significant portions of deferred tax assets or liabilities at December 31 are as follows:

 

Schedule of Deferred Tax Assets and Liabilities          
   2022  2021
Deferred Tax Assets:          
Net Operating Losses  $22,758,336   $18,430,306 
Deferred Rent   380    380 
Accrued Interest/Interest Expense Limitation   1,263,639    1,145,380 
Total deferred tax assets   24,022,355    19,576,065 
           
Deferred Tax Liabilities:          
Depreciation   (93,476)   (139,828)
Total deferred tax liabilities   (93,476)   (139,828)
           
Less: Valuation allowance   (23,928,879)   (19,436,237)
Total Net Deferred Tax Assets  $   $ 

 

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The open tax years subject to examination with respect to the Company’s operations are 2015 through 2022.

 

Note 14 – Subsequent Events

 

In February 2023 the $200,000 note payable that was in default was settled via payment of $302,667

 

In February 2023 the Company received $2.0 million from a Private Placement issuance of convertible notes. The notes convert into 3.5M shares of our common stock.

 

In February 2023 the Company transferred cash in bank deposits accounts to the maximum federally insured limits of $250,000 to minimize unissued funds. At March 29, 2023 we had $563,498 over the federally insured limits.

 

We have notes that expire in 2023 that we will extend or payoff.

  

F-25 

 

  

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

On March 9, 2023, the Company was advised by Daszkal Bolton, LLP (“Daszkal”), the Company’s independent registered public accounting firm, that Daszkal completed a business combination agreement with CohnReznick LLP (“CohnReznick”). As a result of this transaction, Daszkal will resign as the Company’s independent registered public accounting firm upon the Company filing its annual report on Form 10-K for the year ended December 31, 2022. The Company’s current Daszkal audit team is now part of CohnReznick and the Company expects it will likely engage CohnReznick to serve as the Company’s independent registered public accounting firm for the Company’s fiscal year ending December 31, 2023, but has not engaged CohnReznick at this time.

 

Daszkal’s reports on the Company’s financial statements for the past two years did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

 

During the years ended December 31, 2021 and 2020, and the subsequent interim periods through November 14, 2022, there were (i) no disagreements (as described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Daszkal on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Daszkal’s satisfaction, would have caused Daszkal to make reference thereto in its reports on the financial statements for such years; and (ii) no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K, except that Daszkal advised the Company of material weaknesses in its internal control over financial reporting as of December 31, 2021 and 2020.

 

Item 9A. Controls and Procedures.

 

(1) Evaluation of Disclosure Controls and Procedures

 

We have adopted and maintain disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Exchange Act), that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), to allow for timely decisions regarding required disclosure.

 

As required by Exchange Act Rule 13a-15, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based on the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to our limited resources our disclosure controls and procedures are not effective in providing material information required to be included in our periodic SEC filings on a timely basis and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure about our internal control over financial reporting discussed below Following the 2021 evaluation by management of the effectiveness of the design and operation of our disclosure controls and procedures we implemented new controls and process in 2022.

 

(2) Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Our internal control system was designed to, in general, provide reasonable assurance to our management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. Based on that assessment, our management has determined that as of December 31, 2022, our internal control over financial reporting was not effective due to material weaknesses related to a limited segregation of duties due to our limited resources and the small number of employees. Management has determined that this control deficiency constitutes a material weakness which could result in material misstatements of significant accounts and disclosures that could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. In addition, due to limited staffing, we are not always able to detect minor errors or omissions in reporting.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding management’s assessment of our internal control over financial reporting pursuant to temporary rules of the SEC.

 

(3) Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting other than items highlighted above, identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

 

Not applicable.

 

27

 

  

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The following table sets forth our executive officers and directors, their ages and position(s) with the Company.

 

Name   Age   Position
         
Robert Nistico   59   Chief Executive Officer and Director
         
Ronald Wall   55   Chief Financial Officer
         
William Meissner    56    President, Chief Marketing Officer 
         
Justin Yorke   56   Director
         
Peter McDonough   64   Director
         
Candace Crawford   67   Director

 

Directors are elected annually and hold office until the next annual meeting of the stockholders of the Company and until their successors are elected. Officers are elected annually by the Board of Directors (the “Board”) and serve at the discretion of the Board.

 

Robert Nistico, age 59, on March 31, 2020 became the Chief Executive Officer and a member of the Board of the Company. Since 2012, Mr. Nistico has served as the Chief Executive Officer and a member of the Board of Splash Beverage Group, Inc., prior to the Company’s acquisition by CMS. Mr. Nistico also served as the president of Viva Beverages, LLC from 2009 to 2011. Mr. Nistico was the fifth employee at Red Bull North America, Inc. where he worked from 1996 to 2007 and served as Vice President of Field Marketing and Sr. Vice President/General Manager. Mr. Nistico was instrumental in building the Red Bull brand in North and Central America and the Caribbean from no revenues to $1.45 billion in annual revenues. Earlier, he held the brand position of Regional Portfolio V.P and Division Manager for Diageo (formerly I.D.V. / Heublein), General Sales Manager for Republic National (formerly The Julius Schepps Company) and North Texas State Manager for The E & J Gallo Winery (and a variety of other management positions for those companies). Mr. Nistico serves as a director of Apollo Brands. Mr. Nistico has more than 27 years of experience in the beverage industry, including direct and indirect sales management, strategic brand management & marketing, finance, operations, production and logistics. Mr. Nistico holds a B.A. from the University of Colorado.

 

Ronald Wall, age 56, became Chief Financial Officer in May 2022. Mr. Wall is a collaborative finance executive with expertise leveraging analysis, insights and team approaches, driving organizational improvements, and implementing practices and controls. From 2016 to 2022, Mr. Wall served as the Chief Financial Officer for Americas of William Grant & Sons Inc., a premium spirits company. Previously, Mr. Wall served in various capacities at William Grant & Sons Inc., including Chief Financial Officer for North America, and Chief Financial Officer for the United States of America.

 

William Meissner, age 56, became the President and Chief Marketing Officer of the Company in May of 2020. Mr. Meissner is a proven leader with more than twenty years of success in growing consumer brand companies with both large multinational and medium sized entrepreneurial organizations. Meissner has held several other leadership and board director roles. Prior to Splash Meissner was a board director and CEO in a beverage vertical organized by a mid-cap PE firm designed to acquire and build emerging brands, where he acquired two legacy tea brands from Nestle, Sweet Leaf Tea and Tradewinds Tea. Meissner served as CEO and Board Director or Genesis Today, Inc. a plant based superfood and supplement company, CEO and Board Director of a joint venture between Distant Lands Coffee Inc. and Caffitaly Systems s.p.a called Tazza Pronto Inc., CEO and Board Director of Jones Soda Inc., President of Talking Rain Beverages, Inc., Chief Marketing Officer of Coca-Cola’s Fuze Beverages, Brand Director of PepsiCo’s SoBe Beverages and Category Manager of Nutritional Beverages for Tetra Pak Inc. Meissner has an MBA from the University of Pittsburgh’s Katz Graduate School of Business and a Bachelor’s degree from Michigan State University.

 

28

 

 

Justin Yorke, age 56, became a member of the Board of the Company on March 31, 2020. Since March 31, 2020, Mr. Yorke has also served as the Company’s Secretary. Mr. Yorke has over 25 years of experience in finance. Based in Hong Kong for over 10 years, he managed funds for a private Swiss Bank, Darier Henstch from 1997 to 2000. Prior to that, from 1995 to 1997, Mr. Yorke managed funds for Peregrine Investments and from 1990 to 1995 Unifund, Asia, Ltd, Hong Kong, a high net-worth family office headquartered Geneva, Switzerland. From 2000 to 2004, he was a partner at Asiatic Investment Management, based in San Francisco. Since 2004, Mr. Yorke has been a partner in San Gabriel Advisors, LLC and Arroyo Capital Management, LLC and is the manager of the San Gabriel Fund, JMW Fund and Richland Fund. The funds are highly diversified in focus with investment holdings, public, private equity and debt investments and real estate investments. He has a B.A. degree from UCLA. Mr. Yorke is the principal of WesBev LLC, which prior to the merger between CMS and our Company was the majority shareholder of the Company. He also is an acting director and audit committee chair of Processa Pharmaceuticals, (Nasdaq: PCSA). Mr. Yorke served as non-executive Chairman of Jed Oil and a Director/CEO at JMG Exploration.

 

Peter J. McDonough, age 64, has served as an independent director of the Company since October 5, 2020 and previously served as a member of the Board of Splash Beverage Group, Inc. prior to the Company’s acquisition by CMS. Mr. McDonough brings more than 30 years of executive leadership experience from an array of global industry leading consumer goods companies. Most recently, Mr. McDonough was Chief Executive Officer of Trait Biosciences, Inc. (2019-2022) after serving as an independent management consultant (2016-2018). Earlier, Mr. McDonough served as President, Chief Marketing and Innovation Officer for Diageo North America (2006-2015). Prior to joining Diageo, Mr. McDonough was Vice President, European Marketing at The Procter & Gamble Company (2004-2006), where he led the Duracell Battery and Braun Appliance marketing organizations. From 2002 to 2004, Mr. McDonough was a member of the graduate business school faculty and lecturer at the University of Canterbury in Christchurch, New Zealand. Prior to this academic post he served as Vice President of Marketing for Gillette North America’s Blade Razor & Grooming Products Business where he directed the market launch of industry leading brands like Mach3 Turbo and Venus Razors. Earlier in his career, Mr. McDonough served as Director of North American Marketing at Black & Decker where he was involved in launching the DeWalt Power Tool Company. Mr. McDonough received a B.A. from Cornell University and a Master of Business Administration from the Wharton School of Business. He is also an independent director on the Board of Franklin BSP Realty Trust (NYSE: FBRT).

 

Candace Crawford, age 67, has served as an independent director since May 24, 2021. Ms. Crawford is a highly accomplished senior executive and entrepreneur with more than 30 years of success across the food and beverage, consumer products, manufacturing, retail, and commercial real estate industries. Her broad areas of expertise include strategic planning, growth and growing businesses, financial acumen, P&L, operations, and governance. Since 2017, Ms. Crawford has served as an adviser and board member to various companies. Ms. Crawford has sat on the board of Vive Organic since February 2019-2022, when the Company was sold and the board of Skin Te since June 2018. She served as the CEO of Coco Libre from 2015 to 2017, when the Company was sold. Under her management, she was able to expand distribution, grow product innovation and build awareness of the flagship coconut water brand Coco Libre. Prior to this, she was the Chief Operating Officer and Chief Financial Officer at Zico Beverages LLC from 2009 to 2013, when the Company was sold. Before making her debut in the beverage world, Ms. Crawford was the Chief Financial Officer for five different companies including Metropolitan Theaters; Virgin Entertainment Group; Resort Theaters of America; OMP; and Ancora Capital. Ms. Crawford holds a Bachelor of Science in Business from the University of Southern California and is a Certified Public Accountant.

 

29

 

  

 Family Relationships

 

There are no family relationships among and between the issuer’s directors, officers, persons nominated or chosen by the issuer to become directors or officers, or beneficial owners of more than ten percent of any class of the issuer’s equity securities.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “reporting persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of copies of the reports filed with the SEC and the written representations of our directors and executive officers, we believe that all reporting requirements for fiscal year 2022 were complied with by each person who at any time during the 2022 fiscal year was a director or an executive officer or held more than 10% of our common stock, except for the following: Justin Yorke, Candace Crawford, Peter McDonough and Robert Nistico each filed a late Form 4 report on March 31, 2022, related to the granting of options to purchase our common stock on September 30, 2021; Ms. Crawford filed a late Form 4 report on April 5, 2022, related to the granting of options to purchase our common stock on May 16, 2021; Mr. Nistico filed a late Form 4 report on May 31, 2022, related to the purchase of our common stock on May 26, 2022; and Mr. Nistico filed a late Form 4 report on June 7, 2022, related to the purchase of our common stock on June 3, 2022.

 

Committees of the Board of Directors

 

Audit Committee

 

We have separately designated an Audit Committee. The Audit Committee is responsible for, among other things, the appointment, compensation, removal and oversight of the work of the Company’s independent registered public accounting firm, overseeing the accounting and financial reporting process of the Company, and reviewing related person transactions. Our Audit Committee is comprised of Peter McDonough and Candace Crawford. Under NYSE listing standards and applicable SEC rules, all the directors on the audit committee must be independent. Also, as a smaller reporting company, we are only required to maintain an audit committee of two independent directors. Our Board has determined that Peter McDonough and Candace Crawford are independent under NYSE listing standards and applicable SEC rules. Candace Crawford is the Chairperson of the audit committee. Each member of the audit committee is financially literate and our Board has determined that Candace Crawford qualifies as an “audit committee financial expert” as defined in applicable SEC rules. The Audit Committee operates under a written charter adopted by the Board of Directors, which can be found in on our website at www.splashbeveragegroup.com. During 2022, the Audit Committee held four meetings in person or through conference calls.

 

Compensation and Management Resources Committee

 

We have established a Compensation and Management Resources Committee of our Board of Directors. The purpose of the Compensation and Management Resources Committee is to assist the Board in discharging its responsibilities relating to executive compensation, succession planning for the Company’s executive team, and to review and make recommendations to the Board regarding employee benefit policies and programs, incentive compensation plans and equity-based plans.

 

The members of our Compensation and Management Resources Committee are Peter McDonough and Candace Crawford. Candace Crawford is the chairperson of the Compensation and Management Resources Committee.

 

Under NYSE listing standards, we are required to have at least two members of the compensation committee, all of whom must be independent directors. Our board of directors has determined that each of Peter J. McDonough and Candace Crawford is independent under NYSE listing standards. The Compensation and Management Resources Committee is responsible for, among other things, (a) reviewing all compensation arrangements for the executive officers of the Company and (b) administering the Company’s stock option plans. The Compensation and Management Resource Committee operates under a written charter adopted by the Board of Directors, which can be found on our website at www.splashbeveragegroup.com within the “Investor Information” section.

 

30

 

 

The duties and responsibilities of the Compensation and Management Resources Committee in accordance with its charter are to review and discuss with management and the Board the objectives, philosophy, structure, cost and administration of the Company’s executive compensation and employee benefit policies and programs; no less than annually, review and approve, with respect to the Chief Executive Officer and the other executive officers (a) all elements of compensation, (b) incentive targets, (c) any employment agreements, severance agreements and change in control agreements or provisions, in each case as, when and if appropriate, and (d) any special or supplemental benefits; make recommendations to the Board with respect to the Company’s major long-term incentive plans applicable to directors, executives and/or non-executive employees of the Company and approve (a) individual annual or periodic equity-based awards for the Chief Executive Officer and other executive officers and (b) an annual pool of awards for other employees with guidelines for the administration and allocation of such awards; recommend to the Board for its approval a succession plan for the Chief Executive Officer, addressing the policies and principles for selecting a successor to the Chief Executive Officer, both in an emergency situation and in the ordinary course of business; review programs created and maintained by management for the development and succession of other executive officers and any other individuals identified by management or the Compensation and Management Resources Committee; review the establishment, amendment and termination of employee benefits plans, review employee benefit plan operations and administration; and any other duties or responsibilities expressly delegated to the Compensation and Management Resources Committee by the Board from time to time relating to the Committee’s purpose.

 

The Compensation and Management Resources Committee may request any officer or employee of the Company or the Company’s outside counsel to attend a meeting of the Compensation and Management Resources Committee or to meet with any members of, or consultants to, the Compensation and Management Resources Committee. The Company’s Chief Executive Officer does not attend any portion of a meeting where the Chief Executive Officer’s performance or compensation is discussed, unless specifically invited by the Compensation and Management Resources Committee.

 

The Compensation and Management Resources Committee has the sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of director, Chief Executive Officer or other executive officer compensation or employee benefit plans and has sole authority to approve the consultant’s fees and other retention terms. The Compensation and Management Resources Committee also has the authority to obtain advice and assistance from internal or external legal, accounting or other experts, advisors and consultants to assist in carrying out its duties and responsibilities and has the authority to retain and approve the fees and other retention terms for any external experts, advisors or consultants.

 

During 2022, the Compensation Management Resources Committee held two meetings in person or through conference calls.

 

31

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee is responsible for overseeing the appropriate and effective governance of the Company, including, among other things, (a) nominations to the Board of Directors and making recommendations regarding the size and composition of the Board of Directors and (b) the development and recommendation of appropriate corporate governance principles. The Nominating and Corporate Governance Committee consists of Peter McDonough and Candace Crawford, each of whom is an independent director (as defined under Section 803 of the NYSE American LLC Company Guide). The Chairperson of the committee is Peter McDonough. The Nominating and Corporate Governance Committee operates under a written charter adopted by the Board of Directors, which can be found on our website at www.splashbeveragegroup.com within the “Investor Information” section.

 

The Nominating and Corporate Governance Committee adheres to the Company’s bylaws provisions and Securities and Exchange Commission rules relating to proposals by stockholders when considering director candidates that might be recommended by stockholders, along with the requirements set forth in the committee’s Policy with Regard to Consideration of Candidates Recommended for Election to the Board of Directors, also available on our website. The Nominating and Corporate Governance Committee of the Board of Directors is responsible for identifying and selecting qualified candidates for election to the Board of Directors prior to each annual meeting of the Company’s stockholders. In identifying and evaluating nominees for director, the Committee considers each candidate’s qualities, experience, background and skills, as well as other factors, such as the individual’s ethics, integrity and values which the candidate may bring to the Board of Directors.

 

During 2021, the Nominating and Corporate Governance Committee held two meetings in person or through conference calls.

 

Meetings of the Board of Directors same as above

 

During 2022, the Board of Directors held five meetings. During 2022, each member of our Board of Directors attended at least 75% of the aggregate of all meetings of our Board of Directors and of all meetings of committees of our Board of Directors on which such member served that were held during the period in which such director served.

 

The Board of Directors also approved certain actions by unanimous written consent.

 

Director Independence

 

The NYSE listing standards require that a majority of our Board be independent. Our Board has determined that Peter J. McDonough and Candace Crawford are “independent directors” as defined in the NYSE listing standards. Our independent directors will have regularly scheduled meetings at which only independent directors are present.

 

Involvement in Certain Legal Proceedings

 

Our Directors and Executive Officers have not been involved in any of the following events during the past ten years:

 

1. any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
   
2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
   
3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
   
4. being found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
   
5. being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
   
6. being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

32

 

7. Such person was the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

i. Any federal or state securities or commodities law or regulation; or

 

ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

8. Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

  

Board leadership structure and role in risk oversight

 

The Board of Directors oversees our business and affairs and monitors the performance of management. In accordance with corporate governance principles, the Board of Directors does not involve itself in day-to-day operations. The directors keep themselves informed through discussions with the Chief Executive Officer and other key executives, visits to the Company’s facilities, by reading the reports and other materials that we send them and by participating in Board and committee meetings. Each director’s term will continue until the election and qualification of his or her successor, or his or her earlier death, resignation or removal.

 

Code of Ethics

 

We have adopted a code of business conduct and ethics that applies to our directors, officers (including our Chief Executive Officer, Chief Financial Officer and any person performing similar functions) and employees. Our Code of Ethics is available at our website at www.splashbeveragegroup.com.

 

33

 

 

Item 11. Executive Compensation

 

The following table sets forth information for our two most recently completed fiscal years ending December 31, 2022 and December 31, 2021 concerning all of the compensation awarded to, earned by the executive officers named below.

 

Name  Year  Salary  Bonus  Other  Stock Awards  Options  Total
Robert Nistico   2022    325,000    100,000    14,400            439,000 
Robert Nistico   2021    325,000    162,500    14,400        1,378,000    1,879,900 
                                    
William Meissner   2022    325,000    90,000                415,000 
William Meissner   2021    325,000    162,500            260,000    747,500 
                                    
Ronald Wall   2022    217,708    60,000    28,429        254,100    560,237 
Dean Huge   2021    150,000    30,000        225,334        405,334 

 

Directors Compensation

 

During the fiscal year ended December 31, 2022, our directors were paid compensation in cash for serving as Directors of the Company.

 

Name  Year  Compensation  Options/Warrants  Total
Candace Crawford   2022    75,000        75,000 
Candace Crawford   2021    31,250    1,075,000    1,106,250 
                     
Peter McDonough   2022    69,996        69,996 
Peter McDonough   2021    29,165    325,000    354,165 
                     
Justin Yorke   2022             
Justin Yorke   2021        325,000    325,000 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table summarizes the total outstanding equity awards as of December 31, 2022, for each Named Executive Officer:

 

Name  Grant
Date
  Number of Securities Underlying Unexercised Options / Warrants Exercisable  Option / Warrant Awards Number of Securities Underlying Unexercised Options / Warrants Exercisable  Option
Exercise
Price
  Option
Expiration
Date
Robert Nistico  2/28/2020   159,008        2.19   2/27/2025
Robert Nistico  10/16/2020   1,000,000        2.25   10/15/2027
Robert Nistico  9/16/2021   530,000        2.60   9/15/2026
William Meissner  10/16/2020   416,667        2.25   10/15/2027
William Meissner   9/16/2021   66,666    33,334    2.60   9/15/2026
Ronald Wall  5/2/2022   27,750    83,250    2.31   5/2/2032

 

(1)Unless otherwise noted, the business address of each of the following individuals is 1314 East Las Olas Blvd, Suite 221 Fort Lauderdale, Florida 33301

34

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 31, 2023, and as adjusted to reflect the sale of common stock in this offering, for:

 

each of our current directors and executive officers;
   
all of our current directors and executive officers as a group; and
   
each person, or group of affiliated persons, who beneficially owned more than 5% of our common stock.

 

 Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially, subject to applicable community property laws. Unless otherwise specified, the address for each of the persons named in the table is 1314 E Las Olas Blvd. Suite 221, Fort Lauderdale, Florida 33301.

 

 Our calculation of the percentage of beneficial ownership prior to this offering is based on 25,655,515 shares of common stock outstanding as of March 31, 2023. We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under Rule 13d-3 of the Exchange Act of 1934, as amended (the “Exchange Act”), a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares: (i) voting power, which includes the power to vote or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person or persons, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person or persons (and only such person or persons) by reason of these acquisition rights.

 

Name  Shares of Common
Stock
  Percentage of
Common Stock
Executive Officers and Directors          
Robert Nistico   1,350,000    3.3%
           
Justin Yorke(1)   5,486,109    13.4%
           
Peter McDonough   22,716    0.1%
           
Candace Crawford        
           
William Meissner        
           
Ronald Wall        
           
Officers and Directors as a Group (6 individuals)   6,858,825    16.7%
5% or greater owners:          
LK Family Partnership   2,898,797    7.1%
           
Total   9,757,622    23.7%

 

  (1)  Of which 3,297,243 shares are held by Richland Fund LLC, 1,398,012 shares are held by JMW Fund LLC and 790,854 shares are held by San Gabriel LLC. All funds are managed by Mr. Yorke.

 

35

 

Item 13. Certain Relationships and Related Transactions and Director Independence.

 

 The following is a description of the transactions and series of similar transactions, since December 31, 2022, that we were a participant or will be a participant in, which:

 

the amount involved exceeds the lesser of $120,000 or one percent of the average of the smaller reporting company’s total assets at year-end for the last two completed fiscal years; and

 

any of our directors, executive officers, holders of more than 5% of our capital stock (which we refer to as “5% stockholders”) or any member of their immediate family had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers.

 

Item 14. Principal Accounting Fees and Services.

 

December 31, 2022

 

Audit  $193,000 
Audit related    
Tax   19,725 
Total  $212,725 

 

December 31, 2021

 

Audit  $182,430 
Audit related    
Tax   3,200 
Total  $185,630 

36

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

 

The following documents are filed as part of this Annual Report on Form 10-K:

 

1. Financial Statements. See the Financial Statements starting on page F-1.

 

2. Exhibits. The exhibits listed in the Exhibit Index, which appears immediately following the signature page and is incorporated herein by reference, and filed as part of this Annual Report on Form 10-K.

 

37

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  SPLASH BEVERAGE GROUP, INC. (Registrant)
     
Date: March 31, 2023 By: /s/ Robert Nistico
  Name: Robert Nistico
    Chairman of the Board and Chief Executive Officer
    (Principal Executive Officer)

 

Pursuant to the requirements of the Securities Act of 1934 this Annual Report on Form 10-K was signed by the following persons on behalf of the Registrant and in the capacities and on the dates stated:

 

Signature   Title   Date
         
/s/ Robert Nistico        
Robert Nistico   Chief Executive Officer and Director   March 31, 2023
    (Principle Executive Officer)    
         
/s/ Ronald Wall        
Ronald Wall   Chief Financial Officer, Treasurer   March 31, 2023
    (Principal Financial and Accounting Officer)    
/s/ Justin Yorke        
Justin Yorke   Director, Secretary   March 31, 2023
         
/s/Peter McDonough   Director   March 31, 2023
Peter McDonough        
         
/s/ Candace Crawford        
Candace Crawford    Director    March 31, 2023 

 

38

 

EXHIBIT INDEX

 

Exhibit No.   Description of Exhibit
     
1.1   Underwriting Agreement dated June 10, 2021 between Splash Beverage Group and EF Hutton, division of Benchmark Investments, LLC, as representative of the underwriters named therein (incorporated by reference herein to Exhibit 1.1 to the Current report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2021)
     
1.2   Underwriting Agreement dated June 10, 2021 between Splash Beverage Group and EF Hutton, division of Benchmark Investments, LLC, as representative of the underwriters named therein (incorporated by reference herein to Exhibit 1.1 to the Current report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2022)
     
1.3   Underwriting Agreement dated September 23, 2022, between Splash Beverage Group and EF Hutton, division of Benchmark Investments, LLC, as representative of the underwriters named therein (incorporated by reference herein to Exhibit 1.1 to the Current report on Form 8-K filed with the Securities and Exchange Commission on September 27, 2022)
     
2.1   Agreement and Plan of Merger dated December 31, 2019 by and among Canfield Medical Supply, Inc., SBG Acquisition, Inc., and Splash Beverage Group, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K dated January 7, 2020)
     
2.2   Form of Amendment No. 1 to the Agreement and Plan of Merger (incorporated by reference herein to Exhibit 10.1 filed with Form 8-K filed with the SEC on October 7, 2020)
     
3.1   Bylaws (incorporated by reference herein to Exhibit 3.2 filed with Form 8-K1 filed with the SEC on November 15, 2021)
     
3.2   Articles of Incorporation filed with the Secretary of State of Nevada (incorporated by reference herein to Exhibit 3.1 filed with Form8-K filed with the SEC on November 15, 2021)
     
3.3   Articles of Merger filed with the Secretary of State of the State of Nevada (incorporated by reference herein to Exhibit 2.2 filed with Form8-K filed with the SEC on November 15, 2021)
     
3.4   Statement of Merger filed with the Secretary of State of the State of Colorado (incorporated by reference herein to Exhibit 2.3 filed with Form8-K filed with the SEC on November 15, 2021)
     
4.1   Form of Common Stock Certificate (incorporated by reference to exhibit 4.1 filed with the Annual Report on Form 10-K filed with the SEC on March 31, 2022)
     
4.2   Form of Investor Warrant (incorporated by reference to exhibit 4.1 filed with the Current Report on Form 8-K filed with the SEC on June 15, 2021)
     
4.3   Warrant Agent Agreement between Splash Beverage Group Inc. and Equinity Trust Company dated as of June 15, 2001 (incorporated by reference to exhibit 10.1 filed with the Current Report on Form 8-K filed with the SEC on June 15, 2021)
     
4.4   Description of Capital Stock *

 

39

 

10.1   Form of SBG Warrant (incorporated by reference herein to Exhibit 10.4 filed with Form 8-K filed with the SEC on April 6, 2020)
     
10.2   Form of New Warrant (incorporated by reference herein to Exhibit 10.5 filed with Form 8-K filed with the SEC on April 6, 2020)
     
10.3   Form of Warrant (incorporated by reference herein to Exhibit 10.2 filed with Form 8-K filed with the SEC on August 18, 2020)
     
10.4   Revenue Loan and Security Agreement dated (incorporated by reference herein to Exhibit 10.1 filed with Form 8-K filed with the SEC on December 31, 2020)
     
10.5   Asset Purchase Agreement dated (incorporated by reference herein to Exhibit 10.2 filed with Form 8-K filed with the SEC on December 31, 2020)
     
10.6   Convertible Promissory Note dated (incorporated by reference herein to Exhibit 10.3 filed with Form 8-K filed with the SEC on December 31, 2020)
     
10.7   An Agreement Regarding Other Accounts Payable dated (incorporated by reference herein to Exhibit 10.4 filed with Form 8-K filed with the SEC on December 31, 2020)
     
10.8   Martin Employment Agreement dated (incorporated by reference herein to Exhibit 10.5 filed with Form 8-K filed with the SEC on December 31, 2020)
     
10.9   Non-Competition, Non-Solicitation and Confidential Information Agreement (incorporated by reference herein to Exhibit 10.6 filed with Form 8-K filed with the SEC on December 31, 2020)
     
10.10   Form of Subscription Agreement (incorporated by reference herein to Exhibit 10.1 filed with Form 8-K filed with the SEC on January 21, 2021)
     
10.11   Form of Warrant (incorporated by reference herein to Exhibit 10.2 filed with Form 8-K filed with the SEC on January 21, 2021)
     
10.12   Form of Subscription Agreement (incorporated by reference herein to Exhibit 10.1 filed with Form 8-K filed with the SEC on February 2, 2021)
     
10.13   Form of Warrant (incorporated by reference herein to Exhibit 10.2 filed with Form 8-K filed with the SEC on February 2, 2021)
     
10.14   Form of Subscription Agreement (incorporated by reference herein to Exhibit 10.1 filed with Form 8-K filed with the SEC on February 12, 2021)

 

40

 

10.15   Form of Warrant (incorporated by reference herein to Exhibit 10.2 filed with Form 8-K filed with the SEC on February 12, 2021)
     
10.16   Form of Subscription Agreement (incorporated by reference herein to Exhibit 10.1 filed with Form 8-K filed with the SEC on March 2, 2021)
     
10.17   Form of Warrant (incorporated by reference herein to Exhibit 10.2 filed with Form 8-K filed with the SEC on March 2, 2021)
     
21.1   Subsidiaries (incorporated by reference herein to Exhibit 21.1 filed with Form 10-K filed with the SEC on March 8, 2021)
     
23.1   Consent of Daszkal Bolton LLP*

 

31.1   Rule 13a-14(a)/ 15d-14(a) Certification of Principal Executive Officer*
     
31.2   Rule 13a-14(a)/ 15d-14(a) Certification of Principal Financial Officer*
     
32.1   Certification of CEO pursuant to 18. U.S.C. Section 1350 as adopted, pursuant to Section 906 of Sarbanes-Oxley Act of 2002**
     
32.2   Certification of CFO pursuant to 18. U.S.C. Section 1350 as adopted, pursuant to Section 906 of Sarbanes-Oxley Act of 2002**
     
*101.INS   Inline XBRL Instance Document (filed herewith)
*101.SCH   Inline XBRL Taxonomy Extension Schema (filed herewith)
*101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
*101.LAB   Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)
*101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
*101.DEF   Inline XBRL Taxonomy Definition Linkbase (filed herewith)
*104   Cover Page Interactive Data File (embedded within the Inline XBRL document filed as Exhibit 101)

 

  * Filed herewith
  ** Furnished herewith

 

41

 

 

 

  

 

 

 

EXHIBIT 4.4

 

DESCRIPTION OF CAPITAL STOCK

 

The following summarizes the material terms of the capital stock of Splash Beverage Group, Inc. (“Splash,” “our Company,” “we” or “us”). Splash is a corporation incorporated under the laws of the State of Nevada, and accordingly its internal corporate affairs are governed by Nevada Revised Statutes (NRS) and by its articles of incorporation (our “articles of incorporation”) and its by-laws, which are filed as exhibits to our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and available at www.sec.gov. The following summary is qualified in its entirety by reference to the applicable provisions of Nevada law and our articles of incorporation and by-laws, which are subject to future amendment in accordance with the provisions thereof. Our common stock is the only class of our securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Authorized Capital Stock

 

Our authorized capital stock consists of 300,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. The number of shares of our common stock and preferred stock issued and outstanding as of the date provided on the cover page of the Annual Report is 41.085,520 and 0, respectively.

 

Common Stock

 

Voting Rights. Each outstanding share is entitled to one vote upon each matter submitted to a vote at a meeting of shareholders, and each fractional share is entitled to a corresponding fractional vote on each such matter. Cumulative voting of shares of stock of the Company is not allowed or authorized in the election of the Board of Directors of the Company.

 

Dividends. Dividends in cash, property or shares may be paid upon the stock, as and when declared by our Board of Directors, out of funds of the Company to the extent and in the manner permitted by law.

 

Other Rights. The holders of our common stock have no preemptive rights and no rights to convert their common stock into any other securities, and our common stock is not subject to any redemption or sinking fund provisions.

 

Preferred Stock

 

Under our articles of incorporation and subject to the limitations prescribed by law, our Board of Directors may have such classes and preference of shares of preferred stock as the Board of Directors may determine from time to time.

 

When and if we issue additional shares of preferred stock, we will establish the applicable preemptive rights, dividend rights, voting rights, conversion privileges, redemption rights, sinking fund rights, rights upon voluntary or involuntary liquidation, dissolution or winding up and any other relative rights, preferences and limitations for the particular preferred stock series.

 

Anti-Takeover Effects of Provisions of Nevada Law, Our Articles of Incorporation and By-Laws

 

Nevada common law includes certain provisions, which may have the effect of delaying or deterring a change in control or in our management or encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include authorized blank check preferred stock, restrictions on business combinations, and the availability of authorized but unissued Common Stock.

 

Options and Warrants

 

As of the date provided on the cover page of the Annual Report, the Company had 1,151.000 options outstanding and 14,343,896 warrants outstanding.

 

Listing

 

Our common stock trades on the NYSE American under the symbol “SBEV”.

 

Transfer Agent and Registrar

 

VStock Transfer is serving as our transfer agent and registrar. They are located at 18 Lafayette Pl, Woodmere, NY 11598.

 

 

 

 

EXHIBIT 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Splash Beverage Group, Inc.

Fort Lauderdale, Florida

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-259865) and Form S-8 (No. 333-248109) of Splash Beverage Group, Inc., of our report dated March 31, 2023, relating to the consolidated financial statements of Splash Beverage Group, Inc. at and for the years ended December 31, 2022 and 2021, which appear in this Form 10-K.

 

/s/ Daszkal Bolton, LLP

 

Fort Lauderdale, Florida

March 31, 2023

 

 

 

 

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Robert Nistico, certify that:

 

1. I have reviewed this annual report on Form 10-K of Splash Beverage Group, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

 

(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within the registrant, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 31, 2023

 

/s/ Robert Nistico 

Robert Nistico

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Ronald Wall, certify that:

 

1. I have reviewed this annual report on Form 10-K of Splash Beverage Group, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the of the registrant as of, and for, the periods presented in this report;