EDGAR 10-K Filing

Company CIK: 1553788
Filing Year: 2022
Filename: 1553788_10-K_2022_0001731122-22-000639.json

---

ITEM 1. BUSINESS
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. We have 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 a proprietary e-commerce platform, Qplash, which allows us to purchase local and regional brands for developing a direct line of sales at retail stores.
Splash Beverage Group II, Inc. Splash’s wholly owned subsidiary, 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 Performance brand in connection with manufacturing and selling certain beverages. In 2014, Robert Nistico was hired as Chief Executive Officer and the Company’s name was changed to Splash Beverage Group, Inc. to reflect the revised business plan of being a manufacturer and distributor of several brands of beverages including both non-alcoholic and alcoholic brands.
Robert Nistico has over 28 years of experience in all levels of the three-tier distribution system used in the beverage industry. Prior to joining the Company, he led the Marley Beverage Company from startup to over $47 million in annual revenues and ultimately profitability in three and one-half years. Before that he was the 5th employee at Red Bull North America, Inc. and served as General Manager, VP of Field Marketing and Sr. Vice President & General Manager during his 11 years there. He was instrumental in building the Red Bull brand in North and Central America and the Caribbean. Under his leadership, revenues grew from $0 revenue to over $1.6 billion annually. Nistico began his career with the Gallo Winery, quickly ascending within that system between winery and senior positions in distribution with Premier Beverage and RNDC Texas.
Mr. Nistico has assembled a team of experienced beverage industry professionals including SBG’s President & CMO, Bill Meissner, the former CEO and/or President of brands such as Sparkling Ice, Fuse and Jones Soda with the goal of replicating the business model of companies like Diageo of owning certain brands and managing others where there are synergies from a distribution standpoint. SBG however, has an additional strategic advantage of “brand incubation” with its own ecommerce platform.
Splash has license rights to the TapouT Performance brand globally and has a joint venture with SALT Naturally Flavored Tequila, and Copa Di Vino wines & Pulpoloco sangrias, SBG’s first acquisition. Mr. Nistico and 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.
Our Strategy
Our strategy is to combine the traditional approach of manufacturing, distributing, and marketing of beverages, with 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 by us 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)
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.
Most new single beverage brands have limited access to distribution and thus find it extremely difficult to obtain meaningful retail shelf presence. 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.
Our preference is to own and control all aspects of any given brand. However, we have also been flexible to engage in business ventures structured with a revenue split, a marketing spend commitment from the brand founder and an earned equity position that constitutes control. We have proven that many partners are happy to award Splash an equity position in their brand in exchange for distribution, sales and marketing management within the distribution network which eliminates their need to invest in infrastructure. Our partners only need to manage a small base of corporate operations.
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 because we can provide them with a broader line of beverage products.
Since our inception, we have seen consistent deal flow, having been approached by over 20 brands. We only engage with brands that fit comfortably within the guidelines noted above and which provide efficiencies or synergies within the beverage categories and retail channels we participate in.
We 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 hydration and recovery isotonic sport drink, Copa Di Vino single serve wine by the glass and import Pulpoloco Sangria in 3 flavors.
The following is a description of these products.
SALT Flavored Tequila
We produce, distribute, and market the following flavors under the brand name SALT Naturally Flavored Tequila:
● Citrus flavor
● Berry flavor
● Chocolate flavor
We believe that SALT is the first line of 100% agave 80-proof flavored tequilas. 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., Youngs Market, various Anheuser-Busch & Miller-Coors distributorships, and Major Brands Distribution Company, a wine and spirits distributor in the Mid-West to chains such as Walmart and Total Wine (which is the largest private wine and spirits chain in the U.S.), and others in multiple U.S. states. Additionally, SALT is for sale in Mexico. Several South American countries are expected to launch SALT during spring 2022.
SALT is a business venture between our Company and SALT USA, LLC. All aspects of manufacturing, logistics, distribution and marketing are our responsibility.
TapouT Performance Isotonic Sports Drinks
We will produce, market, sell and distribute the following sports beverages under the brand name TapouT:
● TapouT Performance:
● TapouT Elite: Under consideration for 2022
● TapouT Energy: Under consideration for 2022
● TapouT Performance Mango Flavor: Under consideration for 2022
TapouT Performance is a unique advanced performance beverage containing ingredients known for recuperative and cell regeneration which promotes better absorption of nutrients, increase hydration and cellular recovery. It is exclusively formulated with GRAS (FDA Designation “Generally Regarded As Safe”) ingredients versus controversial ingredients often used in many competitive products. It can be taken before, during or after activity to enhance activation, hydration, and recovery. TapouT Performance is all natural and is balanced with a proprietary blend of 5 electrolytes, amino acids and a proprietary specialized ingredient blend of minerals and nutrients.
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 globally. 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 $653,000, whichever is greater. The License Agreement will expire on 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 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 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”).
The Credit Facility matures on the earliest of (a) August 15, 2025, (b) immediately prior to a change in control of the Company, or (c) acceleration of the obligations, such as upon the occurrence of any event of default under the Loan and Security Agreement. If the Credit Facility is paid off after 6 months, the Company will pay interest at a rate starting at 0.5 times the amount advanced under the Credit Facility and up to 1.00 times the amount advanced if the Credit Facility is paid off after more than 24 months have elapsed from the effective date. The Credit Facility requires monthly payments, commencing on February 15, 2021, equal to the product of all revenue for the immediately preceding month and applicable revenue percentage, which is 3.75% in 2021 and 2022, 4.0% in 2023 and 2024. If the annual revenue is not equal to at least 80% of projected revenue, the applicable revenue percentage for all subsequent payments will automatically increase by 0.50%, without notice from the lender. Pursuant to the Loan and Security Agreement dated December 24, 2020, the Company instructed the Lender to pay $1,500,000 of the Gross Amount under the Credit Facility towards the purchase price in connection with the Company’s purchase of certain assets of Copa di Vino Corporation (“CdV”) and the balance of the Gross Amount was used for to pay off a line of credit for one of the Company’s other subsidiaries in order to make the Lender the first-in-line creditor. Pursuant to the Loan and Security Agreement, the Company granted the Lender a security interest in all of its assets as listed therein.
Borrowings under the Credit Facility are subject to, among other things, a minimum borrowing/collateral base and pursuant to which the Company granted the Lender a security interest in its assets (as set forth and subject to the Loan and Security Agreement) as collateral under the Credit Facility. In addition, the Credit Facility requires the Company to, among other things (i) make representations and warranties regarding the collateral as well the Company’s business and operations, (ii) agree to certain indemnification obligations and (iii) agree to comply with various affirmative and negative covenants.
Copa di Vino is the leading producer of premium wine by the glass in the United States. Founder James Martin discovered the concept on a bullet train adventure through the south of France. A year later he brought the technology to his hometown of The Dalles, Oregon located in the Columbia River Gorge. His passion for wine led to Copa di Vino - wine in a glass - a ready to drink wine glass that could go anywhere without the need for a bottle, corkscrew or glass.
Copa di Vino Wine Group, Inc.
Copa Di Vino is the leading producer of premium wine by the glass in the United States.
Through our acquisition of Copa di Vino Corporation, we are now able to offer seven varietals of wine: Pinot Grigio, Riesling, Merlot, Chardonnay, White Zinfandel, Moscato, and Cabernet Sauvignon. In addition to its wine varietals, Copa di Vino also procures Pulpoloco, a sangria which is encased in a 100% biodegradable can made from paper, from Spain. The exclusive rights to this packaging we conveyed to SBG as a result of the acquisition.
On December 24, 2020, we 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 a attainment of revenue hurdles.
E-commerce
“Qplash” is our consumer-packaged goods retail division and our first entry point into the growing e-commerce channel. The division sells beverages and groceries online through www.qplash.com, and third-party storefronts such as Amazon.com and Walmart.com. Inside of the division, there are two primary customer groups: business to business retail businesses, which in turn offer the products to their customers, and business to customer, selling direct to end users.
Qplash sells to retailers through www.qplash.com. These retailers, generally in the high-end apparel space, buy beverages from Qplash and provide them to their customers in store to enhance their shopping experience. They offer high end beverages for customers to enjoy while shopping or to take on the go. This program allows businesses to control inventory, order with payment terms, and offers the convenience of delivery directly to each store.
To the end user, we ship orders from our warehouses direct to their home or office. We offer competitive pricing, an easy and convenient transactional process, and a wide selection of products. Consumers can order from www.qplash.com, from our storefront on Amazon, or other third-party platforms. Amazon is a valuable revenue source as it allows us to access their loyal customer base and provides a high conversion rate as customers are comfortable navigating and checking out through their website.
Currently we offer over 350 listings and have warehouses that ship from both California and Pennsylvania. Our objective is to offer 1,500 items by the fall of 2022.
Additionally, this vertically integrated platform affords us a unique opportunity to incubate, accelerate and ultimately migrate brands to traditional distribution.
Legacy 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. Canfield is a legacy segment of the business and in December 2020, management announced our plan to discontinue CMS and will execute the business transfer agreement 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 instant coast to coast coverage and our own fully integrated distribution platform for all of our beverage categories;
● 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.
Manufacturing and Co-packing
We are responsible for the manufacturing of the TapouT Performance and SALT.
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 by various third-party bottlers and co-packers situated throughout the United States under separate arrangements with each party. Our co-packaging arrangements are generally on a month-to-month basis or are terminable upon request and do not typically obligate us to produce any minimum quantities of products within specified periods.
We purchase concentrates, flavors, dietary ingredients, cans, bottles, caps, labels, and other ingredients for our beverage products from our suppliers, which are delivered to our 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.
The Copa di Vino is bottled at our manufacturing facility in The Dalles, Oregon. Pulpoloco is imported from Spain.
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 such as Budweiser, Pepsi, and Red Bull and call on every store in a given area such as major cities or regions. However, due to increasing costs over the last 20 years for these distributors to call on every store (sometimes referred to in the industry as “DSD” or direct store delivery), there has been a great deal of consolidation which has limited the options for new brands to gain distribution and retail shelf presence. Our management team believes that their history of success and experience working within this channel will allow us to 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 21 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 WS,” respectively.
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. 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, 20221, 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 WS,” 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
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
An recurrence of the COVID-19 pandemic may negatively affect our operations and our ability to raise capital.
The recurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. This event may also limit our ability to raise capital which as noted above could trigger certain rescission rights which could result in the Company’s incurring additional debt and preferred holders who may take preference over other common holders. These factors, in turn, may not only impact our operations, financial condition and demand for our products but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Commission.
If we are unable to continue as a going concern, our securities will have little or no value.
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 $29.1 million for the year ended December 31, 2021. Our accumulated deficit increased to $91.0 million as of December 31, 2021, compared to the prior year’s deficit of $61.6 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.
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. In addition, there may be a decreased demand for certain products as a result of the COVID-19 outbreak. 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.
Changes in government regulation or failure to comply with existing regulations could adversely affect our business, financial condition and results of operations.
Our business and properties are subject to various federal, state and local laws and regulations, including those governing the production, packaging, quality, labeling and distribution of beverage products. In addition, various governmental agencies have enacted or are considering additional taxes on soft drinks and other sweetened beverages. Changes in existing laws or regulations could require material expenses and negatively affect our financial results through lower sales or higher costs.
We compete in an industry that is brand-conscious, so brand name recognition and acceptance of our products are critical to our success.
Our business is dependent upon awareness and market acceptance of our products and brands by our target market, trendy, young consumers looking for a distinctive tonality in their beverage choices. In addition, our business depends on acceptance by our independent distributors and retailers of our brands as beverage brands that have the potential to provide incremental sales growth. If we are not successful in the revitalization and growth of our brand and product offerings, we may not achieve and maintain satisfactory levels of acceptance by independent distributors and retail consumers. In addition, we may not be able to effectively execute our marketing strategies in light of the various closures and event cancellations caused by the COVID-19 outbreak. Any failure of our brand to maintain or increase acceptance or market penetration would likely have a material adverse effect on our revenues and financial results.
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.
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.
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.
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.
Recently, we have experienced significant changes in our key personnel, especially on our finance team, and more could occur in the future. Changes to operations, policies and procedures, which can often occur with the appointment of new personnel, can create uncertainty, may negatively impact our ability to execute quickly and effectively, and may ultimately be unsuccessful. In addition, management transition periods are often difficult as the new employees gain detailed knowledge of our operations, and friction can result from changes in strategy and management style. Management turnover inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution. Until we integrate new personnel, and unless they are able to succeed in their positions, we may be unable to successfully manage and grow our business, and our financial condition and profitability may suffer.
Further, to the extent we experience additional management turnover, our operations, financial condition and employee morale could be negatively impacted. In addition, competition for top management is high and it may take months to find a candidate that meets our requirements. If we are unable to attract and retain qualified management personnel, our business could suffer. Moreover, our operations could be negatively affected if employees are quarantined as the result of exposure to a contagious illness such as COVID-19.
If we lose the services of our Chief Executive Officer, our operations could be disrupted, and our business could be harmed.
Our business plan relies significantly on the continued services of Robert Nistico, our Chief Executive Officer. If we were to lose the services of Mr. Nistico, our ability to execute our business plan could be materially impaired. We are not aware of any facts or circumstances that suggest he might leave us.
If we fail to protect our trademarks and trade secrets, we may be unable to successfully market our products and compete effectively.
We rely on a combination of trademark and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property rights. Failure to protect our intellectual property could harm our brand and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks, copyrights, licenses and trade secrets, could result in the expenditure of significant financial and managerial resources. We regard our intellectual property, particularly our trademarks and trade secrets to be of considerable value and importance to our business and our success, and we actively pursue the registration of our trademarks in the United States and internationally. However, the steps taken by us to protect these proprietary rights may not be adequate and may not prevent third parties from infringing or misappropriating our trademarks, trade secrets or similar proprietary rights. In addition, other parties may seek to assert infringement claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could be costly. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material adverse effect on our ability to market or sell our brands, profitably exploit our products or recoup our associated research and development costs.
As part of the licensing strategy of our brands, we enter into licensing agreements under which we grant our licensing partners certain rights to use our trademarks and other designs. Although our agreements require that the use of our trademarks and designs is subject to our control and approval, any breach of these provisions, or any other action by any of our licensing partners that is harmful to our brands, goodwill and overall image, could have a material adverse impact on our business.
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, 2021, our goodwill totaled approximately $5.7 million.
If we encounter product recalls or other product quality issues, our business may suffer.
Product quality issues, real or imagined, or allegations of product contamination, even when false or unfounded, could tarnish our image and could cause consumers to choose other products. In addition, because of changing government regulations or implementation thereof, or allegations of product contamination, we may be required from time to time to recall products entirely or from specific markets. Product recalls could affect our profitability and could negatively affect brand image.
Our business is subject to many regulations and noncompliance is costly.
The production, marketing and sale of our beverages, including contents, labels, caps and containers, are subject to the rules and regulations of various federal, provincial, state and local health agencies. If a regulatory authority finds that a current or future product or production batch or “run” is not in compliance with any of these regulations, we may be fined, or production may be stopped, which would adversely affect our financial condition and results of operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we cannot anticipate whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether labeling, environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.
Significant additional labeling or warning requirements may inhibit sales of affected products.
Various jurisdictions may seek to adopt significant additional product labeling or warning requirements relating to the chemical content or perceived adverse health consequences of certain of our products. These types of requirements, if they become applicable to one or more of our products under current or future environmental or health laws or regulations, may inhibit sales of such products. In California, a law requires that a specific warning appear on any product that contains a component listed by the state as having been found to cause cancer or birth defects. This law recognizes no generally applicable quantitative thresholds below which a warning is not required. If a component found in one of our products is added to the list, or if the increasing sensitivity of detection methodology that may become available under this law and related regulations as they currently exist, or as they may be amended, results in the detection of an infinitesimal quantity of a listed substance in one of our beverages produced for sale in California, the resulting warning requirements or adverse publicity could affect our sales.
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, consumer preferences or otherwise. There are many factors that could adversely affect demand for our products in foreign markets, including our inability to attract and maintain key distributors in these markets; volatility in the economic growth of certain of these markets; changes in economic, political or social conditions, the status and renegotiations of the North American Free Trade Agreement, imposition of new or increased labeling, product or production requirements, or other legal restrictions; restrictions on the import or export of our products or ingredients or substances used in our products; inflationary currency, devaluation or fluctuation; increased costs of doing business due to compliance with complex foreign and U.S. laws and regulations. If we are unable to effectively operate or manage the risks associated with operating in international markets, our business, financial condition or results of operations could be adversely affected.
Water scarcity and poor quality could negatively impact our costs and capacity.
Water is a main ingredient in substantially all of our products, is vital to the production of the agricultural ingredients on which our business relies and is needed in our manufacturing process. It also is critical to the prosperity of the communities we serve. Water is a limited resource in many parts of the world, facing unprecedented challenges from overexploitation, increasing demand for food and other consumer and industrial products whose manufacturing processes require water, increasing pollution and emerging awareness of potential contaminants, poor management, lack of physical or financial access to water, sociopolitical tensions due to lack of public infrastructure in certain areas of the world and the effects of climate change. As the demand for water continues to increase around the world, and as water becomes scarcer and the quality of available water deteriorates, we may incur higher costs or face capacity constraints and the possibility of reputational damage, which could adversely affect our profitability or net operating revenues in the long run.
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.
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.
Due to the size of the Company, we have an inherent material weakness relating to Internal Controls over Financial Reporting
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;
● 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.
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 no par value per share, with such designation rights and preferences as may be determined from time to time by the Board of Directors. Our Board of Directors is empowered, without shareholder approval, to issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our common stock. In the event of such issuances, the preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company. 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, 2021, our ten (10) largest shareholders own or controlled approximately 36.6% of our outstanding common stock. If those stockholders act together, they would have the ability to have a substantial influence on matters submitted to our stockholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. As a result, our other stockholders may have little or no influence over matters submitted for shareholder approval. In addition, the ownership of such stockholders could preclude any unsolicited acquisition of us, and consequently, adversely affect the price of our common stock. These stockholders may make decisions that are adverse to your interests.
We do not expect to pay dividends and investors should not buy our Common Stock expecting to receive dividends.
We do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. Since we do not pay dividends, and if we are not successful in establishing an orderly trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we do not pay dividends we may have trouble raising additional funds which could affect our ability to expand our business operations.
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.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
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 2. PROPERTIES
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
Item 3. Legal Proceedings.
None.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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, 2022, there were 33,586,234 shares of Common Stock issued and outstanding. As of March 31, 2022, there were approximately 290 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, 2021, 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 2012 Incentive Plan we still have 1,124,410 options still outstanding as of December 31, 2021. 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 (Excluding Securities
Equity compensation plan approved by board of directors 1,065,000 2.60 1,248,133
Total 1,065,000 2.60 1,248,133
Purchases of Equity Securities by the Issuer.
There were no repurchase of our common stock during the year ended December 31, 2021.

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
This item is not required for Smaller Reporting Companies.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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 WS,” respectively
On November 9, 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, 2021, compared to Year Ended December 31, 2020.
Revenue
Revenues for the year ended December 31, 2021, were $11,316,002 compared to revenues of $2,300,126 for the year ended December 31, 2020. The $9,015,876 increase in sales was due to Salt Tequila & TapouT Performance $170,220, Qplash - our vertically integrated B2B and B2C e-commerce distribution platform which sells their products on Amazon and Shopify $4,898,798, and Copa di Vino business $3,946,858. Cost of goods sold for year ended December 31, 2021, were $8,734,413 compared to cost of goods sold for the year ended December 31, 2020, of $1,936,533. The $6,797,880 increase in cost of goods sold for the year ended December 31, 2021, was primarily due to our increased sales, and as our sales increased, our cost of sales for those sales correspondingly increased.
Operating Expenses
Operating expenses for the year ended December 31, 2021, were $31,664,511 compared to $18,025,359 for the year ended December 31, 2020. The $13,639,152 increase in our operating expenses was primarily a result of recording expenses relating to non-cash warrants and share-based compensation for shares issued in exchange for services $13,101,418, increase in salaries $2,358,075, increase in finance charges due to our S1 registration statement $841,294 and shipping $1,708,586 within our e-commerce business. The net loss from continuing operations for the year ended December 31, 2021, was $29,345,372 as compared to a net loss of $19,588,233 for the year ended December 31, 2020. The increase in net loss is due to our increase in operating expenses slightly offset by our increase in revenues.
Other Income/(Expense)
Other expense for the year ended December 31, 2021 were $262,450 compared to $1,926,467 for the year ended December 31, 2020. The $1,664,017 decrease in our other expenses was primarily a result of recording a finance charge of $1,236,254 associated with warrants issued to one of our note holders in 2020.
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, 2021, we had total cash and cash equivalents of $4,181,383, as compared with $380,000 at December 31, 2020. 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, 2021, was $14,616,448 as compared to the net cash used by continuing operating activities for the year ended December 31, 2020, of $21,316,556. The primary reasons for the change in net cash used was due to losses sustained and increases for stock-based compensation, offset by other non-cash expenses. Net cash used for discontinued operating activities during the year ended December 31, 2021, was $515,952 as compared to $60,815 for the year ended December 31, 2020.
Net cash used for continuing investing activities during the year ended December 31, 2021, was $0 as compared to the net cash used by continuing investing activities for the year ended December 31, 2020, of $768,624. The net cash used in the year 2020 was primarily due to the $250,000 for an additional investment in SALT Tequila USA and $500,000 of cash paid relating to the Copa di Vino acquisition offset by $72,422 of cash obtained in the acquisition of Canfield Medical Supply, Inc. Net cash used for discontinued investing activities was $0.
Net cash provided by financing activities during the year ended December 31, 2021, was $18,933,783 compared to $22,494,984 provided from financing activities for the year ended December 31, 2020. During the year ended December 31, 2021, we received $20,021,065 from investors and related parties and we issued $1,934,541 of debt used to pay debt holders and $261,245 is repayments to shareholder advances offset by $1,934,541 of the right of use liability.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable for smaller reporting companies.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Financial Statements
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets December 31, 2021 and December 31, 2020
Consolidated Statements of Operations For the Years Ended December 31, 2021 and December 31 2020
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) For the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows For the Year Ended December 30, 2021 and 2020
Notes to the Consolidated Financial Statements
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, 2021 and 2020, and the related consolidated statements operations, stockholders’ equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, 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.
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.
Valuation of Intangible Assets in the Copa di Vino Company Acquisition
As described in Notes 1 and 16 to the financial statements, during 2021 the Company completed the purchase price allocation for the December 24, 2020 acquisition of Copa di Vino Company (“CdV”) for consideration of approximately $6 million and the transaction was accounted for as a business combination. The acquired intangible assets included Brand and Customer Relationships valued at approximately $4.5 million and $1.0 million, respectively. The Company recorded the acquired intangible assets at the acquisition date fair value using a Relief from Royalty discounted cash flow methodology to fair value Brand and a Multiple Period Excess Earnings approach to fair value Customer Relationships. The methods used to estimate the fair value of acquired intangible assets involve significant assumptions. The significant assumptions applied by management in estimating the fair value of acquired intangible assets included income projections and discount rates.
The principal considerations for our determination that performing procedures relating to the valuation of intangible assets in the CdV acquisition is a critical audit matter are (1) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value of intangible assets acquired due to the significant judgment by management when developing the estimates and (2) significant audit effort was required in evaluating the significant assumptions relating to the estimates, including the income projections and discount rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls over the valuation of intangible assets including controls over the development of the assumptions used in the valuation of the intangible assets. These procedures also included, among others, reading the purchase agreement, and testing management’s process for estimating the fair value of intangible assets. Testing management’s process included evaluating the appropriateness of the valuation models, testing the completeness, accuracy, and relevance of underlying data used in the models, and testing the reasonableness of significant assumptions, including the income projections and discount rates. Evaluating the reasonableness of the income projections involved considering the current performance of the acquired business, the consistency with external market and industry data, and whether these assumptions were consistent with other evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of significant assumptions, including the discount rates, by comparing them against discount rate ranges that were independently developed using publicly available market data for comparable companies.
/s/ Daszkal Bolton LLP
Daszkal Bolton LLP
We have served as the Company’s auditor since 2020
Fort Lauderdale, Florida
March 31, 2022
Splash Beverage Group, Inc.
Consolidated Balance Sheets
December 31, 2021 and December 31, 2020
December 31, 2021 December 31, 2020
Assets
Current assets:
Cash and cash equivalents $ 4,181,383 $ 380,000
Accounts Receivable, net 1,114,452 484,858
Prepaid Expenses 607,178 173,414
Inventory 1,923,479 798,273
Other receivables 41,939 90,919
Assets from discontinued operations 473,461 316,572
Total current assets 8,341,892 2,244,036
Non-current assets:
Deposit $ 330,886 $ 77,686
Goodwill and Intangibles 5,672,823 5,672,823
Investment in Salt Tequila USA, LLC 250,000 250,000
Right of use asset, net 1,031,472 80,479
Quart Vin License 188,512 219,512
Property and equipment, net 569,785 681,352
Total non-current assets 8,043,478 6,981,852
Total assets $ 16,385,370 $ 9,225,888
Liabilities and Stockholders’ Equity (Deficit)
Liabilities:
Current liabilities
Accounts payable and accrued expenses $ 1,913,459 $ 1,521,818
Right of use liability - current 294,067 57,478
Due to related parties - 368,904
Related party notes payable 653,081 1,333,333
Convertible Loan Payable - 100,000
Notes payable, current portion 2,967,812 999,736
Shareholder advances 390,500 -
Accrued interest payable 171,452 442,748
Liabilities from discontinued operations 389,086 591,642
Total current liabilities 6,779,457 5,415,659
Long-term Liabilities:
Related party notes payable - noncurrent - 666,667
Notes payable - noncurrent - 1,240,044
Liability to issue shares in APA - 1,980,000
Right of use liability - noncurrent 732,686 25,521
Total long-term liabilities 732,686 3,912,232
Total liabilities 7,512,143 9,327,891
Common stock, (mezzanine shares) 12,605,283 shares, contingently convertible to notes payable at December 31, 2020 - 9,248,720
Stockholders’ equity (deficit):
Common Stock, $0.001 par, 150,000,000 shares authorized, 33,596,234 and 21,157,043 shares issued 33,596,234 and 21,157,043 outstanding, at September 30, 2021 and December 31, 2020, respectively
33,596
21,157
Additional paid in capital 99,480,188 52,217,855
Accumulated deficit (90,640,557 ) (61,589,735 )
Total deficiency in stockholders’ equity 8,873,227 (9,350,723 )
Total liabilities, mezzanine shares and deficiency in stockholders’ equity $ 16,385,370
$ 9,225,888
The accompanying notes are an integral part of these consolidated financial statements.
Splash Beverage Group, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2021 and December 31 2020
Net revenues $ 11,316,002 $ 2,300,126
Cost of goods sold (8,734,413 ) (1,936,533 )
Gross margin 2,581,589 363,593
Operating expenses:
Contracted services 1,584,830 5,606,335
Salary and wages 3,807,492 1,613,862
Salary and wages - non-cash share-based compensation 5,572,680 6,311,747
Other general and administrative 7,088,874 2,063,985
Other general and administrative - non-cash share-based compensation 12,822,808 2,282,851
Sales and marketing 787,827 146,579
Total operating expenses 31,664,511 18,025,359
Loss from continuing operations (29,082,922 ) (17,661,766 )
Other income/(expense):
Other Income 3,632 17,786
Interest income
Interest expense (442,807 ) (1,980,871 )
Gain from debt extinguishment 176,082 36,610
Total other expense (262,450 ) (1,926,467 )
Provision for income taxes - -
Net loss from continuing operations, net of tax (29,345,372 ) (19,588,233 )
Net income(loss) from discontinued operations, net of tax 294,550 (9,086,323 )
Net loss $ (29,050,822 ) $ (28,674,556 )
Loss per share - continuing operations
Basic (1.02 ) (1.06 )
Diluted (1.02 ) (1.06 )
Weighted average number of common shares outstanding - continuing operations
Basic 28,900,292 18,538,425
Diluted 28,900,292 18,538,425
Income(loss) per share - discontinued operations
Basic 0.01 (0.49
)
Diluted 0.01
(0.49 )
Weighted average number of common shares outstanding - discontinued operations
Basic 28,900,292 18,538,425
Diluted 31,922,743 18,538,425
The accompanying notes are an integral part of these consolidated financial statements.
Splash Beverage Group, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the years ended December 31, 2021 and 2020
Total stockholders’ equity (deficit), beginning balances (9,350,723 ) (9,756,083 )
Common stock and additional paid-in capital
Beginning balances 52,239,012 22,139,424
Issuance of common stock for convertible debt - 145,579
Incremental beneficial conversion for preferred A - 240,770
Issuance of warrants on convertible instruments - 11,999,415
Issuance of warrants for services 7,267,421 (60 )
Issuance of common stock for services 11,128,066 5,294,129
Issuance of common stock for cash 19,630,565 3,250,562
Reclassification of Mezannine shares 9,248,720 9,169,193
- -
Ending balances 99,513,784 52,239,012
Treasury stock
Beginning balances - (50,000 )
Issuance of common stock for services - 50,000
Ending balances - -
Accumulated deficit
Beginning balances (61,589,735 ) (31,845,506 )
Incremental beneficial conversion for preferred A - (240,770 )
Issuance of warrants on convertible instruments - (828,903 )
Net loss (29,050,822 ) (28,674,556 )
Ending balances (90,640,557 ) (61,589,735 )
Net loss - -
Total stockholders’ equity (deficit), ending balances 8,873,227 (9,350,723 )
The accompanying notes are an integral part of these consolidated financial statements
Splash Beverage Group, Inc.
Consolidated Statements Cash Flows
For the Year Ended December 30, 2021 and 2020
Net loss
$ (29,050,822 )
$ (28,674,556 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
111,567
113,299
ROU asset, net
73,502
81,529
Gain from debt extinguishment
176,082
36,610
Non-cash warrant expense
7,267,431
(1,790,438 )
Share-based compensation
11,128,066
2,329,280
Liability to issue shares in APA
(1,980,000 )
1,980,000
Non-cash acquisition costs
-
3,578,212
Other noncash changes
(124,330 )
1,939,440
Changes in working capital items:
Accounts receivable, net
(629,594 )
(385,297 )
Inventory, net
(1,125,206 )
(220,310 )
Prepaid expenses and other current assets
(384,784 )
(251,752 )
Deposits
(253,200 )
(31,535 )
Accounts payable and accrued expenses
446,146
(64,364 )
Royalty payable
-
(39,000 )
Accrued Interest payable
(271,296 )
82,326
Net cash used in operating activities - continuing operations
(14,616,448 )
(21,316,556 )
Net cash used in operating activities - discontinued operations
(515,952 )
(60,815 )
Cash Flows from Investing Activities:
Capital Expenditures
-
(91,066 )
Investment in Salt Tequila USA, LLC
-
(250,000 )
Cash used for Copa acquisition
-
(500,000 )
Net cash acquired in Canfield merger
-
72,442
Net cash used in investing activities - continuing operations
-
(768,624 )
Net cash used in investing activities - discontinued operations
(11,628 )
Cash Flows from Financing Activities:
Proceeds from issuance of Common stock
19,630,565
20,182,503
Cash advance from shareholder
390,500
-
Repayment of cash advance
(261,245 )
(46,250 )
Proceeds from issuance of debt
928,000
2,439,472
Principal repayment of debt
(1,673,296 )
-
ROU liability, net
(80,741 )
(80,741 )
Net cash provided by financing activities - continuing operations
18,933,783
22,494,984
Net cash provided by financing activities - discontinued operations
-
-
Net Change in Cash and Cash Equivalents
3,801,383
337,361
Cash and Cash Equivalents, beginning of year
380,000
42,639
Cash and Cash Equivalents, end of year
$ 4,181,383
$ 380,000
Supplemental Disclosure of Cash Flow Information:
Cash paid for Interest
$ 173,363
$ -
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Notes payable and accrued interest converted to common stock (12,605,283 shares)
-
9,248,720
The accompanying notes are an integral part of these consolidated financial statements.
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, 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 uplisting 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.
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.
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, 2021 or December 31, 2020.
Our cash in bank deposit accounts, at times, may exceed federally insured limits of $250,000. At December 31, 2021 we had $3,643,474 over the federally insured limits. Our cash in uninsured foreign bank accounts was $10,749 at December 31, 2021.
Note 2 - Summary of Significant Accounting Policies, continued
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable 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, 2021 and December 31, 2020, our accounts receivable amounts are reflected net of allowances of $45,203 and $0, respectively.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
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, 2021 and December 31, 2020 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 $223,223 and $366,109 at December 31, 2021 and December 31, 2020, 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 3-39 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 $ 156,766 and $55,616 for the years ended December 31, 2021 and 2020 respectively. Property and equipment consisted of the following:
Schedule of Property and equipment
Machinery & equipment 1,108,870 1,108,870
Buildings 279,543 234,343
Leasehold improvements 662,538 662,538
Office furniture & equipment 70,960 70,960
Total cost 2,121,911 2,076,711
Accumulated depreciation (1,552,125 ) (1,395,359 )
Property, plant & equipment, net 569,786 681,352
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.
Paycheck Protection Program
The Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with Accounting Standards Codification (“ASC”) 470, Debt. Debt is extinguished when either the debtor pays the creditor or the debtor is legally released from being the primary obligor, either judicially or by the creditor. See note 11.
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 30, 2021 and December 31, 2020, 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, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.
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.
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, 2021 and December 31, 2020. See not 15.
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 3 million shares of common stock for nominal consideration. The weighted average number of common shares calculation excludes 11,163,834 warrants which have been granted by our Board but have not been exercised.
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 $728,045 and $146,579 for the years ended December 30, 2021 and 2020, 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. At December 31, 2020, our management determined that an impairment charge of approximately $9.2 million, was necessary to reduce the goodwill relating to our Medical Device Segment.
In 2021, the Company allocated the purchase price of its acquisition of Copa di Vino, pursuant to a revaluation and goodwill was allocated as follows:
Schedule of Intangible assets and goodwill
Customer list 957,000 -
Brands 4,459,000 -
Goodwill 256,823 5,672,823
Total 5,672,823 5,672,823
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
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.
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
At December 31, 2020, the company had a working capital deficit of approximately $3.2 million. During 2021, the Company received approximately $20.0 million and $0.9 million from the proceeds from the issuance common stock and debt. These events served to mitigate the conditions that previously raised substantial doubt about the Company’s ability to continue as a going concern.
In February 2022, the Company received approximately $9.0 million as part of a sale of stock registered pursuant to a registration statement on Form S-3 See Note 17.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 - Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable
Notes payable are generally nonrecourse and secured by all Company owned assets.
Schedule of debt
Interest
Rate December 31, 2021 December 31, 2020
Notes Payable
In February 2014, we entered into a 12-month term loan agreement with an individual in the amount of $200,000. The note included warrants for 66,146 shares of common stock at $0.73 per share. The warrants expired as unexercised. The note was paid off in Q2 2021. 15 % - 150,000
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 May 2020, we entered into a two year loan with the SBA under the Paycheck Protection Program established by the CARES Act in the amount of $94,833. The note requires monthly payments of principal and interest starting in December 2020 and maturing in May 2021. We received 100% forgiveness in Q2 2021. See note 13. 1 % - 89,612
In June 2020, we entered into a six-month loan with an individual in the amount of $100,000. The loan matured in December 2020 with principal and interest due at maturity. The loan and unpaid interest was settled in 2021 for $217,500. 12 % - 100,000
In August 2020, we entered into a nine-month loan with a company in the amount of $112,000. The loan required 9 amortized payments of principal and interest in the amount of $12,246 with the final payment due September 2020. This note was paid off in 2021 4.8 % - 62,719
In September 2021, we entered into a twelve-month loan with a company in the amount of $208,000. The loan requires 12 amortized payments with the final payment due August 2022. 4.8 % 116,478 -
Notes payable for license agreements due in 36 monthly payments of $10,000, interest imputed at 10%, and matured in January 2021. 10.0 % - 59,212
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% of the previous months revenue. Note is due September 2025, 17 % 1,423,334 1,578,237
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 April 2022. 7 % 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 April 2022. 7 % 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 April 2022. 7 % 50,000 -
In May 2021, we entered into a six-month loan with a individual in the amount of $5000,000. The loan had an original maturity of October 2021 with principal and interest due at maturity. The loan was extended to April 2022. 7 % 500,000 -
In May 2021, we entered into a six-month loan with a 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 April 2022. 7 % 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 loan was extended to April 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 loan was extended to April 2022. 7 % 300,000 -
Total notes payable $ 2,967,812 $ 2,239,780
Less current portion (2,967,812 ) (999,736 )
Long-term notes payable $ - $ 1,240,044
Interest expense on notes payable was $376,572 and $50,592 for the years ended December 31, 2021 and 2020, respectively. Accrued interest was $171,452 and $271,533 at 31, 2021 and December 31, 2020, respectively.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 - Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
Schedule of Notes payable
Interest Rate December
31, 2021 December
31, 2020
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 requires 18 monthly amortized payments of principal and interest in the amount of $114,444 with the final payment due June 2022. 2.0% 653,081
2,000,000
Less current portion (653,081
) (1,333,333 )
Long-term notes payable $ - $ 666,667
Interest expense on related party notes payable was $26,409 and $37,967 for the years ended December 31, 2021 and 2020, respectively. Accrued interest was $0 at both December 31, 2021 and December 31, 2020.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 - Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
Schedule of Notes payable
Interest Rate December 31, 2021 December 31, 2020
Convertible Bridge Loans Payable
In May 2015, we entered into a 3-month term loan agreement with an individual in the amount of $100,000. The annual interest rate for this bridge loan was 32% for the first 90 days, and 4% thereafter, compounded monthly. The loan was settled in 2021. See left $ - $ 100,000
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 4 - Notes Payable, Related Party Notes Payable, Convertible Bridge Loans Payable, Revenue Financing Arrangements and Bridge Loan Payable, continued
Interest expense on the convertible bridge loans payable was $26,667 and $117,785 for the year ended December 31, 2021 and 2020, respectively. Accrued interest was $0 and $117,785 as of December 31, 2021 and December 31, 2020.
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 energy drinks, energy shots, water, teas and sports drinks for beverages sold in the United States of America, its territories, possessions, U.S. military bases and Mexico. Under the terms of the agreement, we are required to pay a 6% royalty on net sales, as defined. In 2021 and 2020, we are required to make monthly payments of $49,500 and $45,000, respectively.
There were no unpaid royalties at December 31, 2021. We paid the guaranteed minimum royalty payments of $594,000 and $540,000 for the years ended December 31, 2021 and 2020, 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 (Deficiency)
Common Stock
At March 31, 2020, we issued 272,584 shares of common stock in exchange for services provided to us. At March 31, 2021, we issued 168,333 shares of common stock in exchange for services provided to us. At September 30, 2021, we issued 2,136,819 shares of common stock in exchange for services provided to us. At December 31, 2021, we issued 967,497 shares of common stock in exchange for services provided to us. For the year-ended December 31, 2021 the shares were valued at a fair market value stock price based on the agreement date. We recognized share-based compensation expense of $11,128,066, which is classified within the other general and administrative line on the Consolidated Statements of Operations.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 6 - Deficiency in Stockholders’ Equity, continued
Private Placement Memorandum (PPM)
In July 2020, the Board of Directors has determined that it is in the best interests of the Corporation and its stockholders to obtain working capital by conducting a private placement offering of 930,303 shares of the common stock and 650,000 warrants to purchase common stock of the Company, $0.001 par value per share at a purchase price of $3.30 per share for aggregate gross proceeds of $3,070,000.
In January 2021, the Board of Directors approved a private placement offering of 1,212,121 shares of the common stock of the Company, $0.001 value per share at 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.
Stock Plans
2012 Plan
On May 2012, the Board adopted the 2012 Stock Incentive Plan (the “2012 Plan”), which provided for the grant of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Restricted Stock Units and Stock Appreciation Rights to eligible recipients. The total number of shares that may be issued under the 2012 plan was 1,362,920.
Concurrently with the consummation of the Merger, the outstanding options to purchase 374,803 shares were cancelled and replaced with warrants to purchase 374,804 shares at an exercise price of $2.20, and the 2012 Plan was retired.
2020 Plan
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. The total number of shares that may be issued under the 2020 plan was 2,313,133.
At December 31, 2021, 1,065,000 options have been granted under the 2020 Plan.
The fair value of stock options recognized in the period has been estimated using the Black-Scholes option pricing model.
Assumptions used in the options pricing model for the period are provided below:
Schedule of assumptions used in Black-Scholes option pricing model
December 31, 2021
Risk-free interest rates 0.84 %
Exercise price $ 2.60
Expected life 5 years
Expected volatility 160.0 %
Expected dividends -
Assumptions used in the warrants pricing model for the period are provided below:
Schedule of assumptions used in Black-Scholes option pricing model
December 31, 2021
Risk-free interest rates 0.93 %
Exercise price $ 1.85
Expected life 5 years
Expected volatility 165.3 %
Expected dividends -
The company recognized stock option expense of $283,473 for the year ended December 31, 2021. No forfeitures were recorded.
A summary of the Company’s stock option plan and changes during the year ended is as follows:
Schedule of stock option plan
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 1,065,000 2.60 1,248,133
Total 1,065,000 2.60 1,248,133
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Warrants/Options
The total amount of outstanding warrants/options are summarized below:
Schedule of Warrant Options Activity
[A] 454,064
[B] 124,162
[C] 908,129
[D] 650,000
[E] 606,179
[F] 374,803
[G] 1,884,833
[H] 833,333
[I] 333,333
[J] 3,900,000
[K] 1,065,000
[L] 29,998
Total 11,163,834
[A] Warrant Issuance-Series A Convertible Preferred Stock
As an incentive to convert their Series A preferred stock, in March 2020, we issued 333,333 new warrants to the holders of our Series A preferred stock to purchase shares of SBG common stock. Concurrently with the consummation of the Merger, these warrants were exchanged for warrants to purchase 454,064 of Splash Beverage Group, Inc. shares all of which were outstanding as of December 31, 2021. These warrants have a 3-year term and expire March 2023.
[B] Warrant Issuance-Series B Convertible Preferred Stock
As part of the sale and issuance of 1,777,892 shares of our Series B Convertible Preferred Stock, we issued 888,946 warrants to purchase shares our common stock. The warrants have a 5-year term and at December 31, 2021, there are 124,162 warrants outstanding.
[C] Warrant Issuance-GMA Bridge Holdings, LLC Consulting Services
We issued 454,307 warrants to purchase shares of our common stock as part of our consulting agreement with GMA Bridge Holdings, LLC (“GMA), at December 31, 2019. These warrants subsequently were exchanged for 908,615 warrants in March 2020 as an incentive for GMA to convert indebtedness and accrued interest into shares of our common stock. At December 31, 2021 all 908,615 warrants remain outstanding.
[D] We issued 650,000 warrants to purchase common stock of the Company in connection with the July 2020 private placement offering of 930,303 shares of common stock
[E] 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.
[F] We issued 374,803 warrants to purchase common stock, as a replacement of cancelled outstanding options concurrent with the March 2020 Merger
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
[G] In December 2020 we granted 1,884,833 warrants to purchase common stock of the Company to employees, consultants, and directors. These warrants vest over three years
[H] In December 2020 we granted 833,333 warrants to purchase common stock of the Company to our board of directors. These warrants vest over two years
[I] In May 2021 we granted 333,333 warrants to purchase common stock of the Company to a director. These warrants vest, equally, over two years
[J] 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.
[K] 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 three years.
[L] In September 2021 we granted 29,998 warrants to purchase common stock of the Company to consultants. These warrants vest over three years.
A summary of the Company’s stock option plan and warrants and their respective changes during the year ended is as follows:
Schedule of options and warrants
Options
December 31, 2021
Balance - beginning of the year - $ -
Granted 1,065,000 2.60
Exercises - -
Cancelled - -
-
Balance - end of the year 1,065,000 $ 2.60
Warrants
December 31, 2021
Balance - beginning of the year 6,168,837 $ 2.11
Granted 3,929,998 3.29
Exercises - -
Cancelled - -
Balance - end of the year 10,098,835 $ 2.51
Shareholder Advances and Liability to Issue Stock and Warrants
We have multiple agreements with consultants in the amount of $0.4 million to be paid by the issuance of the common stock of the Company. We incurred $0.3 million is investor relations costs which will be settled by us issuing the consultant common stock. The stock price will be valued using the 10-day average price of the company’s stock from the issuance date. As part of our private placement memoranda, we owe an investor 33,333 shares at $3.30 of the Company’s common stock.
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.
There are related party notes payable of $0.7 and $1.3 million outstanding as of December 31, 2021 and 2020, respectively. See note 4.
.
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.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 9 - Operating Lease Obligations
Effective July 2018, we entered into a lease agreement for the right to use and occupy office space. The lease term commenced July 1, 2018, with original expiration on June 30, 2021. We renewed the lease which is for an additional 36 months which expires on June 30, 2024.
Effective November 2019, we entered into a lease with Interport Logistics, LLC. The lease term commenced on November 11, 2019 and is scheduled to expire on November 11, 2022.
Effective May 2019, we entered into a warehouse lease in Mexico. The lease commenced May 1, 2019 and was scheduled to expire after 24 months, on April 1, 2021. We have negotiated a one-year extension for our Mexican warehouse.
Effective January 2021, we entered into a lease agreement for the right to use and occupy office space in Sarasota Florida. The lease term commenced January 18, 2021 and is scheduled to expire after 18 months, on July 31, 2022.
Effective January 2021, we entered into a lease agreement for the right to use and occupy office space located in Miami Florida. The lease term commenced January 1, 2021 and is scheduled to expire after 60 months, on December 31, 2025.
The following table presents the discounted present value of minimum lease payments for our office and warehouses to the amounts reported as operating lease liabilities on the consolidated balance sheet at December 31, 2021:
Maturities of lease liabilities
Undiscounted Future Minimum Lease Payments Operating Lease
342,273
276,318
252,000
252,036
Total 1,122,626
Amount representing imputed interest (95,873 )
Total operating lease liability 1,026,753
Current portion of operating lease liability 294,067
Operating lease liability, non-current $
732,686
The table below presents information for lease costs related to our operating leases at December 31, 2021:
Lease costs
Operating lease cost:
Amortization of leased assets $ 287,335
Interest of lease liabilities 46,219
Total operating lease cost $ 333,554
The table below presents lease- related terms and discount rates at December 31, 2021:
Summary of lease-related terms and discount rates
Remaining term on leases 7 to months 48
Incremented borrowing rate 5.0 %
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 10 - Line of Credit
At December 31, 2020 SBG owed $68,000 to a financial institution under a revolving line of credit. The line of credit is secured by the assets of SBG is due on demand, and bears interest at variable rates approximately 6.1% at December 31, 2020. As part of the acquisition of Copa di Vino the LOC was paid off.
Note 11 - PPP Loan
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond the point of origin. On March 20, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
In response to the COVID-19 outbreak in the United States, the CARES Act (the “Act”) was passed by Congress and signed into law on March 27, 2020. In connection with the CARES Act, the Company and its subsidiary applied for and received loans with an original aggregate principal balance of approximately $158,000. These loans and interest will be forgiven as long as the funds are used for qualifying expenditures as outlined in the Act. The loans bear interest at 1%, with an 18-month term and has a 6-month initial payment deferral. See Note 4.
In April 2021, we received notification of forgiveness for the entire outstanding balance.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 12 - Segment Reporting
The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Executive Officer and Chief Financial Officer.
Note: The Copa di Vino business is included in our Splash Beverage Group segment.
Schedule of Segment Reporting Information
Revenue
Splash Beverage Group 4,459,409 404,128
E-Commerce 6,856,593 1,896,599
Total Revenues continuing operations 11,316,002 2,300,727
Total Revenues discontinuing operations 1,112,878 675,213
Total Assets
Splash Beverage Group 14,857,191 8,403,670
E-Commerce 913,312 505,646
Medical Devices - Discontinued 473,461 316,572
Total Assets 16,243,964 9,225,888
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 13 - 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.
Stock Price Guarantee
We have a commitment to issue additional shares associated with specific stock price guarantee granted to an investor. The stock price guarantee expired March 2021. No additional shares were needed to be issued under the Stock Price Guarantee.
Splash Beverage Group, Inc.
Notes to the Consolidated Financial Statements
Note 14 - Registration Statement
Underwriting Agreement
On June 10, 2021, the Company entered into an underwriting agreement ( “Underwriting Agreement”) relating to an underwritten public offering (the “Offering”) of common stock, no par value per share (the “Common Stock”) and warrants to purchase one share of Common Stock (the “Warrants”). Pursuant to the Offering, the Company 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 payable by the Company, the Company received net proceeds of approximately $13.2 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 15 - 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, 2021, the Company’s net operating loss carryforward for Federal income tax purposes was $72,717,718, 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, 2021 and 2020 due to the full valuation allowance recorded.
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
Federal Statutory Tax Rate 21.00 % 21.00 %
Permanent Differences (4.00 )% (4.63 )%
Change in Valuation Allowance (17.00 )% (16.37 )%
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
Deferred Tax Assets:
Net Operating Losses $ 18,430,306 $ 12,544,738
Deferred Rent
Accrued Interest/Interest Expense Limitation 1,145,380 1,031,967
Total deferred tax assets 19,576,065 13,577,085
Deferred Tax Liabilities:
Depreciation (139,828 ) (179,561 )
Total deferred tax liabilities (139,828 ) (179,561 )
Less: Valuation allowance (19,436,237 ) (13,397,525 )
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 2019 through 2021.
Note 16 - Business Combinations
As stated in Note 1, we consummated the acquisition of Copa di Vino Company on December 24, 2020. The purchase price consideration was comprised of $1.5 million in debt, $0.5 million in cash and $2.0 million in contingent shares, for total consideration of approximately $6.0 million.
The following summarizes our allocation of the updated purchase price for the acquisition:
Schedule of purchase price for the acquisition
Purchase Accounting
Accounts receivable, net 88,131
Other current assets 11,236
Inventory 273,951
Property and equipment, net 663,273
License agreement, net 222,095
Brands 4,459,000
Customer relationships 957,000
Goodwill 256,823
Total identifiable assets 6,931,509
Accounts payable and accrued expenses 882,279
Note payable 69,212
Equity 5,980,000
Total liabilities and equity 6,931,509
Note 17 - Subsequent Events
In February 2022, the Company received approximately $9 million as part of a drawdown of their S-3 in connection with the sale of 2.3 million common shares.
Signed distribution agreement since December 31, 2021:
● Heimark Distributing - Southern California

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
(1) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities and Exchange Commission Act of 1934 reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As further discussed below, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer concluded that, because of certain material weaknesses in our internal control over financial reporting our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of December 31, 2021. The material weaknesses relate to the absence of in-house accounting personnel with the ability to properly account for complex transactions and a lack of separation of duties between accounting and other functions.
We hired a consulting firm to advise on technical issues related to U.S. generally accepted accounting principles as related to the maintenance of our accounting books and records and the preparation of our consolidated financial statements. Although we are aware of the risks associated with not having dedicated accounting personnel, we are also at an early stage in the development of our business. We anticipate expanding our accounting functions with dedicated staff and improving our internal accounting procedures and separation of duties when we can absorb the costs of such expansion and improvement with additional capital resources. In the meantime, management will continue to observe and assess our internal accounting function and make necessary improvements whenever they may be required. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements, and we could be required to restate our financial results. In addition, if we are unable to successfully remediate this material weakness and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements.
(2) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect all 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. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Based on our evaluation under the framework in Internal Control-Integrated Framework (2013), our management concluded that our internal control over financial reporting was ineffective as of December 31, 2021.
(3) Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting 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
Item 9B. Other Information.
None.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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
Chief Executive Officer and Director
Fatima Dhalla
Interim Chief Financial Officer
William Meissner
President, Chief Marketing Officer
Justin Yorke
Director
Peter McDonough
Director
Candace Crawford
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 57, 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.
Fatima Dhalla, 67, has served as the Company’s Interim Chief Financial Officer Since February 2022. Ms. Dhalla has provided consulting services to clients on the Sarbanes-Oxley Act of 2002, system implementation and financial reporting since 2017. From 2015 to 2017, Ms. Dhalla served as the Chief Financial Officer of Maverick Brands, LLC, a beverage company producing and selling coconut water. Ms. Dhalla is educated in the United Kingdom as a fellow of the Chartered Association of Certified Accountants in 1987.
William Meissner, 55, 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. Meissner is married with three children and enjoys mountain bike riding, golf and volunteering.
Justin Yorke, age 55, 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, (ticker: PCSA). Mr. Yorke served as non-executive Chairman of Jed Oil and a Director/CEO at JMG Exploration.
Peter J. McDonough, age 63, 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 66, 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 and the board of Skin Te since June 2018. She served as the CEO of Coco Libre from 2015 to 2017. 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. Before making her debut in the beverage world, Candace 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.
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 Exchange Act requires our directors and officers, and the persons who beneficially own more than 10% of our Common Stock, to file reports of ownership and changes in ownership with the SEC. Copies of all filed reports are required to be furnished to us pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the reports received by us and on the representations of the reporting persons, we believe that these persons have complied with all applicable filing requirements during the year ended December 31, 2021.
Delinquent Section 16(a) Reports
Based solely on the reports received by us and on the representations of the reporting persons, we believe that these persons have complied with all applicable filing requirements during the year ended December 31, 2021, with the exception of warrants to purchase common stock granted to Robert Nistico, Justin Yorke, Peter McDonough, and Candace Crawford on September 30, 2021 with an exercise price of $2.60 per warrant. The foregoing grants will be reported pursuant to Section 16 immediately following the filing of this Annual Report on Form 10-K.
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 2021, 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.
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 2021, the Compensation Management Resources Committee held two meetings in person or through conference calls.
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 Compensation Management Resources Committee held two meetings in person or through conference calls.
Meetings of the Board of Directors same as above
During 2021, the Board of Directors held five meetings. During 2021, 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.
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.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The following table sets forth information for our two most recently completed fiscal years concerning all of the compensation awarded to, earned by or paid to the executive officers named below.
Name Year Salary Bonus Stock Awards Options Total
Robert Nistico 325,000 162,500 - 750,000 1,237,500
Robert Nistico 325,000 162,500 - 1,378,000 1,865,500
Bill Meissner 272,500 - - 937,501 1,210,001
Bill Meissner 325,000 162,500 - 260,000 747,500
Dean Huge 150,000 30,000 - 450,000 630,000
Dean Huge 150,000 30,000 225,334 - 405,334
Directors Compensation
During the fiscal year ended December 31, 2021, our directors were paid compensation in both cash and options for serving as Directors of the Company.
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the total outstanding equity awards as of December 31, 2021, for each Named Executive Officer:
Name
Grant
Date
Number of Securities Underlying Unexercised Options Exercisable
Option Awards Number of Securities Underlying Unexercised Options Unexercisable
Option
Exercise
Price
Option
Expiration
Date
Robert Nistico
12/9/2019
159,008
-
2.19
12/8/2024
Robert Nistico
9/30/2021
176,667
353,333
2.60
9/29/2026
Bill Meissner
9/30/2021
33,333
66,667
2.60
9/29/2026

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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, 2022, 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 April 2, 2021. 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 1,310,070 3.9 %
Justin Yorke(1) 5,766,690 17.2 %
Peter McDonough 22,716 0.1 %
Candace Crawford - -
Officers and Directors as a Group (5 individuals) 7,099,475 21.1 %
5% or greater owners:
LK Family Partnership 1,788,376 5.3 %
Total 8,887,851 35.0 %
(1) Of which 2,812,000 shares are held by WesBev LLC, 1,398,011 shares are held by JMW Fund LLC, 790,853 shares are held by San Gabriel LLC and 765,825 shares are held by Richland Fund LLC. All funds are managed by Mr. Yorke.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence.
The following is a description of the transactions and series of similar transactions, since January 1, 2021, 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.
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, net of $0 as of March 31, 2021. The related party payable to the CEO bears no interest and is due on demand. We also assumed a $50,000 note for the President of WesBev LLC, a Nevada limited liability company (“WesBev”) who the majority shareholder of CMS
Effective June 21, 2019, WesBev acquired 2,666,667 shares of common stock from Michael J. West, a founder, director and former principal shareholder of the Company, consisting of approximately 69.7% of the issued and outstanding shares of the Company at the time of the purchase. As part of his agreement with WesBev, Mr. West undertook to appoint or cause the appointment of up to three persons nominated by WesBev to the board of directors of the Company. Effective June 21, 2019, the Company sold 112,000 shares of common stock to WesBev for $100,000. Following these stock purchases WesBev beneficially owned 2,812,000 shares.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
December 31, 2021
Audit $ 182,430
Audit related -
Tax 3,200
Total $ 185,630
December 31, 2020
Audit $ 120,352
Audit related -
Tax 3,200
Total $ 123,552
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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.
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.