Splash(SBEV) - 2023 Q4 - Annual Report

Filing Information This section provides general company information, including incorporation details, principal offices, and stock exchange listings, along with filer status and outstanding securities. General Company Information Splash Beverage Group, Inc. (SBEV) is a Nevada-incorporated registrant with its principal executive offices in Fort Lauderdale, FL, with common stock and warrants listed on the NYSE American. - Registrant: SPLASH BEVERAGE GROUP, INC.[1] - State of Incorporation: Nevada[1] - Principal Executive Offices: Fort Lauderdale, FL[2] Trading Information | Title of each class | Trading Symbol | Name of each exchange on which registered | | :------------------ | :------------- | :---------------------------------------- | | Common Stock, $0.001 par value per share | SBEV | NYSE American LLC | | Warrants to purchase shares of Common Stock, $0.001 par value per share | SBEV-WT | NYSE American LLC | Filer Status and Securities The company is classified as a Non-accelerated filer and a Smaller reporting company, with 45.13 million shares of Common Stock outstanding as of March 29, 2024. Filer Status | Filer Status | Status | | :------------------------ | :----- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☐ | - Aggregate market value of common equity held by non-affiliates: $40,216,244 (as of the last business day of the most recently completed second quarter)[4] - Shares of Common Stock issued and outstanding: 45,129,687 (as of March 29, 2024)[5] PART I Item 1. Business Splash Beverage Group manages a diverse beverage portfolio, leveraging its Qplash e-commerce platform and hybrid distribution to incubate and acquire brands for accelerated growth. - Splash is a portfolio company managing multiple brands across several growth segments within the consumer beverage industry, with capabilities to incubate and/or acquire brands for accelerated volume and sales revenue[13] - The company is shaping its operating model to be vertically integrated with its e-commerce platform, Qplash, which purchases local and regional brands for direct sales to boutique retail stores and consumers[14] - Strategy involves combining traditional manufacturing, distribution, and marketing with early-stage brands that have pre-existing brand awareness or innovative attributes, aiming to limit risk and reduce development expenses[19][20] Company Overview SBG manages a diverse beverage portfolio, outsourcing most manufacturing, holding key brand licenses, and engaging in joint ventures. - Splash Beverage Group, Inc. (SBG) manages a portfolio of brands in the consumer beverage industry, including non-alcoholic and alcoholic segments[13] - Manufacturing is typically outsourced to third-party co-packers and distillers, except for Copa DI Vino wines, which are produced in their Oregon facility[13] - Splash's wholly owned subsidiary, Splash Beverage Group II, Inc., holds license rights to the TapouT Performance brand in North America and other international regions[15] - In December 2020, Splash acquired the key assets of Copa DI Vino, and also has joint ventures with SALT Naturally Flavored Tequila and Pulpoloco Sangria[16] Our Strategy The strategy combines traditional operations with early-stage brands, prioritizing awareness and profitability, while optimizing the Qplash e-commerce platform. - The company's strategy is to combine traditional beverage manufacturing, distribution, and marketing with early-stage brands that have pre-existing brand awareness or innovative attributes[19] - Acquisition or joint venture considerations prioritize brands with existing brand awareness, regional presence, licensing potential, ability to capitalize on consumer trends, innovation, and a clear path to profitability[20] - The platform model offers two paths to success: developing wholly-owned core brands and scaling high-growth, early-stage brands, which helps limit risk and reduce development expenses[20] - A core strategy is to optimize the Qplash online platform, the consumer-packaged goods retail division, as an entry point into the growing e-commerce channel[23] Products The product portfolio includes SALT Tequila, TapouT Performance drinks, Copa DI Vino wine, and Pulpoloco Sangria. - Current product portfolio includes SALT Naturally Flavored Tequila, TapouT Performance beverages, Copa DI Vino single-serve wine, and imported Pulpoloco Sangria[24] SALT Flavored Tequila SALT is a 100% agave flavored tequila, distributed internationally, with the company managing its manufacturing, logistics, distribution, and marketing. - SALT is a 100% agave 80 proof line of flavored tequilas, distributed by Anheuser-Busch & Miller-Coors distributorships in multiple U.S. states, Mexico, Guatemala, and Japan[24][26][27] - The company is responsible for all aspects of manufacturing, logistics, distribution, and marketing for SALT as part of a business venture with SALT USA, LLC[27] TapouT Performance Isotonic Sports Drinks TapouT Performance drinks enhance physical and mental performance, with Splash holding North American license rights and committing 2% of sales to marketing. - TapouT Performance Beverages are advanced performance drinks with GRAS (Generally Regarded as Safe) ingredients, designed to enhance physical and mental performance, hydration, and cellular recovery[33] - The company holds license rights to the TapouT brand for sports beverages in North America and other international territories, paying a 6% royalty on net sales or a minimum annual royalty of $0.66 million[15][35][36] - Splash commits 2% of sales to marketing the TapouT Performance Brand, leveraging TapouT's existing brand awareness and influential relationships with celebrities and athletes[34][37] Copa DI Vino Wine Group, Inc. Splash acquired Copa DI Vino for $5.98 million in 2020, making it a leading single-serve wine producer, also offering Pulpoloco sangria in eco-friendly packaging. - In December 2020, Splash acquired Copa DI Vino for $5,980,000, comprising cash, a convertible promissory note, and common stock, making it the leading producer of premium wine by the glass in the U.S.[38][41] - Copa DI Vino offers nine varietals of wine and also procures Pulpoloco, a sangria in eco-friendly fiber-based cans, with rights to utilize this packaging for multiple categories[42] E-commerce (Qplash) Qplash, a wholly-owned e-commerce division, sells beverages online to B2B and D2C customers, offering over 1,500 listings from two warehouses. - Qplash is a wholly-owned e-commerce division selling beverages online through www.qplash.com and third-party storefronts like Amazon.com[44] - Qplash serves both business-to-business retailers and direct-to-consumer end-users, offering over 1,500 listings and shipping from warehouses in California and Pennsylvania[44][45] Operational Aspects Competitive Strengths Competitive strengths include a global distribution network, hybrid model, strong retailer relationships, diverse products, experienced management, Qplash, and brand awareness. - Key competitive strengths include an established global distribution network, a hybrid distribution model, long-term retailer relationships, premium customer service, dynamic product offerings, an experienced management team, and the Qplash e-commerce platform[49] - The company also benefits from strong brand awareness through partnerships and acquisitions, and celebrity/professional athlete endorsements[49] Manufacturing and Co-packing Splash manufactures Copa DI Vino in-house and outsources TapouT and SALT production, sourcing components from various suppliers. - Splash is responsible for manufacturing Copa DI Vino (bottled in Oregon), TapouT Performance, and SALT Tequila (outsourced to third-party co-packers/distillers in the U.S. and Mexico)[46][47][48] - The company purchases concentrates, flavors, ingredients, and packaging components from suppliers, which are then used by manufacturing operations or third-party bottlers[50] Distribution The company uses a three-tier distribution system for alcohol and has national retail agreements, including with AB-InBev. - For beverage-alcohol products, Splash operates within a 'Three Tier Distribution System' using independent local and regional distributors[51] - The company also has distribution arrangements with national retail accounts, notably a distribution agreement with AB-InBev for distribution through their AB ONE operations[52] Intellectual Property Splash Beverage Group secured a trademark for Copa DI Vino in March 2024, granting exclusive rights for specific product categories. - Splash Beverage Group was granted a trademark for Copa DI Vino by the United States Patent and Trademark Office on March 12, 2024, providing exclusive rights for specified product categories[53] Employees The company employs 32 full-time staff, none unionized, and maintains positive employee relations. - The company has 32 full-time employees, none of whom are represented by a labor union, and reports good relations with its employees[54] Corporate and Recent Developments Listing on the NYSE American Splash Beverage Group's common stock and warrants are listed on the NYSE American under 'SBEV' and 'SBEV WT'. - Splash Beverage Group's common stock and warrants are listed on the NYSE American exchange under the ticker symbols 'SBEV' and 'SBEV WT,' respectively[55] Recent Developments Recent developments include convertible notes totaling $0.4 million, a $0.5 million commercial loan, and a $0.109 million CEO cash advance in early 2024. - In January 2024, the Company entered into a $0.25 million convertible note (12% interest, convertible at $0.50/share with 200% warrants at $0.25)[56] - Also in January 2024, a $0.5 million commercial loan was secured, with a total cost of $0.25 million, paid in weekly increments of 6.97% of the current receivable balance[56] - In February 2024, another $0.15 million convertible note was issued (12% interest, convertible at $0.40/share with 250% warrants at $0.25)[57] - In March 2024, the CEO provided a $0.109 million cash advance, resulting in a 0% interest related party payable[57] Corporate Information Splash was formed via a reverse merger in March 2020, changed its name in July 2021, and reincorporated to Nevada in November 2021. - Splash was originally incorporated in Nevada as TapouT Beverages, Inc., then underwent a reverse merger with Canfield Medical Supply, Inc. in March 2020[58][59] - The company changed its name to Splash Beverage Group, Inc. on July 31, 2021, and reincorporated from Colorado to Nevada on November 8, 2021[60][61] Available Information The company files annual, quarterly, and current reports, and other information with the SEC, available on its website. - The company files annual, quarterly, and current reports, proxy statements, and other information with the U.S. Securities Exchange Commission (SEC), available on the SEC's website[62] Item 1A. Risk Factors The company faces significant risks including going concern uncertainty, operational challenges, market competition, supply chain issues, and potential delisting from NYSE American. - Auditors have included an explanatory paragraph regarding the company's ability to continue as a going concern due to current liquidity position, recurring losses, and working capital/stockholders' equity deficits[65][66][67] - The company incurred a net loss of $21.0 million for the year ended December 31, 2023, and its accumulated deficit increased to $133.3 million[69] - The company is subject to potential delisting from the NYSE American due to non-compliance with stockholders' equity requirements ($2.0 million and $4.0 million thresholds for reported losses)[131][132] Risks Related to Our Business Business risks include going concern uncertainty, sales challenges, consumer shifts, cost volatility, competition, regulatory changes, and supply chain, personnel, IP, and cybersecurity issues. - The company's ability to continue as a going concern is uncertain, dependent on obtaining additional financing, which may not be available on reasonable terms[67][68] - Failure to meet sales goals, increase sales volume, manage operating expenses, and expand distribution could materially adversely affect financial condition[71][72][73] - Demand for products is sensitive to changes in consumer preferences, health concerns, and the company's ability to innovate and market effectively[74][75] - Volatility in raw material, packaging, energy, and labor costs, as well as supply chain disruptions, could increase operating costs and reduce profitability[76][89][90] - Intense competition from larger beverage manufacturers, legislative/regulatory changes (e.g., new taxes), and reliance on third-party distributors pose significant challenges[81][83][84] - Inability to attract and retain key personnel, protect intellectual property, or manage product quality issues (recalls, contamination) could harm business and reputation[92][95][100] - International market sales are subject to risks like local competition, economic volatility, regulatory changes, and currency fluctuations[105] - Water scarcity, grape supply fluctuations, and IT infrastructure failures or cybersecurity attacks could adversely impact operations and financial results[106][107][109] Risks Related to Our Securities Securities risks include speculative investment, potential stock price decline, preferred stock issuance, limited voting power, no dividends, and delisting risk from NYSE American non-compliance. - Investment in common stock is speculative, with no assurance of return, and investors risk losing their entire investment[125] - Future sales of common stock by existing stockholders or the perception of such sales could cause the stock price to decline[126] - The Board of Directors can issue preferred stock without stockholder approval, potentially affecting voting power or preventing a change in control[128] - Large percentage ownership by certain principal stockholders (21.2% by top 10 as of Dec 31, 2023) may limit other stockholders' voting power[129] - The company does not anticipate paying dividends, meaning economic gain relies solely on stock price appreciation[130] - The company received a notice from NYSE American in October 2023 for non-compliance with listing standards (stockholders' equity below $2.0 million and $4.0 million thresholds), posing a delisting risk[132][133] - Issuance of additional common stock, convertible securities, warrants, or options could dilute existing stockholders' holdings and put downward pressure on the stock price[135] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC. - No unresolved staff comments[136] Item 1C. Cybersecurity The company manages cybersecurity risks through established policies, periodic assessments, third-party consultants, and Board oversight, having experienced no material challenges. - The company has established policies and processes for assessing, identifying, and managing material risks from cybersecurity threats, integrated into its overall risk management systems[137] - Periodic risk assessments are conducted to identify threats, evaluate potential damage, and assess the sufficiency of existing safeguards, with primary responsibility resting with the President[138][139] - Third-party service providers are engaged to assist in designing, implementing, monitoring, and testing cybersecurity safeguards, and are required to certify their security measures[140] - The company has not encountered cybersecurity challenges that have materially impaired its operations or financial standing[141] Cybersecurity Risk Management Cybersecurity risk management involves integrated policies, periodic assessments, third-party consultants, and has not resulted in material operational or financial challenges. - Policies and processes are in place for assessing, identifying, and managing material cybersecurity risks, integrated into overall risk management[137] - Periodic risk assessments identify threats, potential damage, and evaluate existing safeguards, with the President overseeing the process[138][139] - Third-party consultants are engaged to assist with cybersecurity policies, procedures, monitoring, and testing[140] - The company has not experienced material cybersecurity challenges impacting operations or financial standing[141] Governance The Board's audit committee oversees cybersecurity risk management, with management implementing processes and escalating significant incidents to the CEO and CFO. - The Board of Directors' audit committee is responsible for overseeing the company's cybersecurity risk management processes[142] - Company management, including the information technology team under the President's direction, implements and maintains cybersecurity risk assessment and management processes[143] - Cybersecurity incidents are escalated to management, including the CEO and CFO, and significant breaches are reported to the audit committee[144] Item 2. Properties Splash Beverage Group maintains offices in Florida and an Oregon manufacturing facility for Copa DI Vino, but owns no real property. - Splash's physical offices are located at 1500 Cordova Rd; Fort Lauderdale, FL 33316 and 1491 2 Street, Sarasota FL 34236[145] - The business office is located at 1314 East Las Olas Blvd, Suite 221, Fort Lauderdale, FL 33301[145] - Copa DI Vino's office/manufacturing facility is located at 901 E. 2 Street; The Dalles, OR 97058[145] - The Company does not own any real property[145] Item 3. Legal Proceedings The company is not currently involved in material legal proceedings, though it may face claims in the ordinary course of business. - The company is not currently a party to any pending legal proceedings that are believed to have a material adverse effect on its business or financial conditions[146] - The company may be subject to various claims and legal actions arising in the ordinary course of business from time to time[146] Item 4. Mine Safety Disclosures This item is not applicable to Splash Beverage Group, Inc. - Not applicable[147] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock and warrants trade on NYSE American, with 45.1 million shares outstanding; no dividends are paid, and $13.8 million IPO proceeds were used for working capital. - Common Stock and tradeable warrants are publicly traded on the NYSE American under symbols 'SBEV' and 'SBEV WS'[149] - As of March 29, 2024, there were 45,129,687 shares of Common Stock issued and outstanding, held by approximately 273 holders of record[150] - The company has not declared cash dividends since inception and does not anticipate paying them in the foreseeable future, planning to retain future earnings for business operations[151] - No repurchases of common stock occurred during the year ended December 31, 2023[154] - Net proceeds of approximately $13.8 million from the June 2021 public offering were primarily used for working capital and general corporate purposes, with nearly all proceeds utilized by December 31, 2023[155][156] Common Stock Information Common stock and warrants trade on NYSE American; as of March 29, 2024, 45.1 million shares were outstanding among 273 holders. - The Company's Common Stock and tradeable warrants are publicly traded on the NYSE American under the symbol 'SBEV' and 'SBEV WS'[149] - As of March 29, 2024, there were 45,129,687 shares of Common Stock issued and outstanding, with approximately 273 holders of record[150] Dividends and Equity Plans The company has not paid dividends and plans to retain earnings; no securities were authorized under equity compensation plans as of the reporting date. - The company has not declared any cash dividends on its common stock since inception and does not anticipate paying such dividends in the foreseeable future, planning to retain future earnings for business operations[151] - No securities were authorized for issuance under equity compensation plans as of the reporting date, with relevant information incorporated by reference from Part III, Item 12[152][153] Use of Proceeds The June 2021 IPO generated $13.8 million in net proceeds, primarily used for working capital and general corporate purposes, with nearly all proceeds utilized by year-end 2023. - The company's initial public offering in June 2021 generated approximately $13.8 million in net proceeds, which were primarily used for working capital and general corporate purposes[155][156] - As of December 31, 2023, approximately all of the net proceeds from the underwritten public offering have been used[156] Item 6. {Reserved} This item is reserved and contains no information. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue increased to $18.9 million in 2023, but rising costs and other expenses led to liquidity challenges and going concern doubts, with critical accounting estimates requiring significant judgment. - The company's business overview details its formation through a reverse acquisition in March 2020, subsequent name change to Splash Beverage Group, Inc., and listing on the NYSE American in June 2021[158][159][160] Business Overview Splash Beverage Group was formed via a reverse acquisition in March 2020, changed its name in July 2020, and listed on NYSE American in June 2021. - Splash Beverage Group, Inc. was formed through a reverse acquisition of Canfield Medical Supply, Inc. in March 2020, with Splash as the acquiring entity[158][159] - The company changed its name to Splash Beverage Group, Inc. in July 2020 and began trading on the NYSE American in June 2021[159] Results of Operations (2023 vs 2022) Revenue Revenue increased by $0.8 million (4.4%) to $18.9 million, driven by growth in both E-commerce and Splash Beverage Group segments. Revenue Performance | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | Revenue | $18.9 | $18.1 | $0.8 | 4.4% | - Increase in sales mainly due to a $0.4 million increase in the E-commerce segment and a $0.3 million increase in the Splash Beverage Group segment[161] Cost of Goods Sold Cost of goods sold increased by $1.1 million (9.0%) to $13.3 million, primarily due to increased sales and inflation. Cost of Goods Sold Analysis | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :--------------- | :-------------- | :-------------- | :---------------- | :--------- | | Cost of Goods Sold | $13.3 | $12.2 | $1.1 | 9.0% | - The increase in cost of goods sold was due to increased sales and inflation[162] Operating Expenses Operating expenses decreased by $6.4 million (23.4%) to $20.9 million, mainly due to lower non-cash share-based compensation. Operating Expenses Analysis | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :--------------- | :-------------- | :-------------- | :---------------- | :--------- | | Operating Expenses | $20.9 | $27.3 | -$6.4 | -23.4% | - Non-cash share-based compensation decreased significantly from $7.4 million in 2022 to $1.2 million in 2023[163] - Other operating expense decrease of $0.2 million was due to decreases in sales and marketing expense and other general and administrative expenses of $1.0 million, offset by an increase of $0.8 million in salary and wages[163] Other Income/(Expense) Total other expense surged by $5.5 million (2750%) to $5.7 million, driven by increased debt discount amortization and interest expense. Other Income/(Expense) Summary | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----------------- | :-------------- | :-------------- | :---------------- | :--------- | | Total Other Expense | $5.7 | $0.2 | $5.5 | 2750% | - The increase in other expense was mainly driven by a $3.8 million increase in amortization of debt discount and a $1.9 million increase in interest expense[164] Liquidity and Capital Resources Cash and cash equivalents decreased by $4.05 million to $0.38 million, primarily due to operating expenses, necessitating additional capital raising. Cash Flow Summary | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | | :-------------------------------------- | :-------------- | :-------------- | :---------------- | | Cash and cash equivalents (End of Year) | $0.38 | $4.43 | -$4.05 | | Net cash used in operating activities | -$10.2 | -$14.0 | $3.8 |\ | Net cash provided by financing activities | $6.1 | $14.4 | -$8.3 | - The decrease in cash was primarily due to operating expenses[166] - The company will need to raise additional equity or debt capital to fund operations, with no assurance of availability or acceptable terms, potentially leading to dilution for existing stockholders[170] Critical Accounting Estimates Management's financial statements rely on significant estimates and assumptions that may differ from actual results. - Management makes significant estimates and assumptions in preparing financial statements, which could differ from actual results[171] Revenue Recognition Revenue recognition requires significant judgment due to industry complexities, assessing control transfer, returns, allowances, and trade promotions. - Significant judgment is required in revenue recognition due to the complexities of the beverage industry's competitive landscape and diverse distribution channels, assessing factors like control transfer, returns, allowances, and trade promotions[172] Allowance for Doubtful Accounts Allowance for doubtful accounts is based on historical data, economic conditions, and customer issues, with ongoing evaluation impacting results. - The allowance is based on historical experience, economic conditions, and specific customer collection issues, with ongoing evaluation and adjustments impacting financial results[173] Inventory Valuation Inventory is valued at the lower of cost or net realizable value, requiring judgment, especially with changing market conditions or obsolescence. - Inventory is valued at the lower of cost or net realizable value, requiring significant judgment in estimating net realizable value, especially with changing market conditions or excess/obsolete inventory[174] Fair Value Measurements Fair value measurements involve significant judgment and estimation, using techniques like discounted cash flow models and market comparables. - Fair value measurements for financial assets and liabilities involve significant judgment and estimation, utilizing valuation techniques like discounted cash flow models and market comparables[175] Item 7A. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable for smaller reporting companies. - Not applicable for smaller reporting companies[176] PART III Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2023 and 2022, including auditor's reports with a going concern uncertainty, and detailed notes on accounting policies and financial position. - The section includes the Report of Independent Registered Public Accounting Firm for both 2022 and 2023[177][178][188] - The 2023 auditor's opinion includes a 'Going Concern Uncertainty' paragraph, noting recurring losses, accumulated deficit, and working capital deficiency that raise substantial doubt about the company's ability to continue as a going concern[190] - The consolidated financial statements (Balance Sheets, Statements of Operations, Changes in Stockholders' Equity, Cash Flows) are presented for December 31, 2023, and 2022[195][198][200][202] Independent Auditor's Reports Report of Independent Registered Public Accounting Firm (2022) Daszkal Bolton LLP issued an unqualified opinion for 2022, noting intangible asset impairment assessment as a critical audit matter. - Daszkal Bolton LLP audited the 2022 financial statements, expressing an unqualified opinion[179] - A critical audit matter for 2022 was the significant judgment involved in intangible assets impairment assessments, particularly regarding projected future cash flows and discount rates[184][185] Report of Independent Registered Public Accounting Firm (2023) Rose, Snyder & Jacobs LLP issued an unqualified opinion for 2023, including a 'Going Concern Uncertainty' paragraph, with no critical audit matters. - Rose, Snyder & Jacobs LLP audited the 2023 financial statements, expressing an unqualified opinion[189] - The 2023 auditor's report includes a 'Going Concern Uncertainty' paragraph due to recurring losses, accumulated deficit, and working capital deficiency[190] - No critical audit matters were determined for the 2023 audit[194] Consolidated Financial Statements Consolidated Balance Sheets Total assets decreased by 42.8% to $9.9 million, while total liabilities increased by 94.2% to $15.5 million, resulting in a 160.1% decrease in stockholders' equity to -$5.6 million. Consolidated Balance Sheets Summary | Asset/Liability/Equity | Dec 31, 2023 ($) | Dec 31, 2022 ($) | Change ($) | Change (%) | | :--------------------- | :--------------- | :--------------- | :----------- | :--------- | | Total Assets | 9,898,768 | 17,304,703 | (7,405,935) | -42.8% | | Total Liabilities | 15,504,094 | 7,982,569 | 7,521,525 | 94.2% | | Total Stockholders' Equity | (5,605,326) | 9,322,134 | (14,927,460) | -160.1% | - Cash and cash equivalents decreased significantly from $4.43 million in 2022 to $0.38 million in 2023[196] - Current liabilities increased substantially from $4.97 million in 2022 to $14.75 million in 2023, primarily due to an increase in notes payable[196] - Accumulated deficit increased from $112.3 million in 2022 to $133.3 million in 2023[196] Consolidated Statements of Operations Net revenues increased by 4.2% to $18.9 million, but a 5.9% gross margin decrease and a 2229.4% surge in other expenses led to a $21.0 million net loss. Consolidated Statements of Operations Summary | Metric | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :------------------------- | :----------- | :----------- | :----------- | :--------- | | Net revenues | 18,850,152 | 18,087,486 | 762,666 | 4.2% | | Cost of goods sold | (13,281,457) | (12,168,621) | (1,112,836) | 9.1% | | Gross margin | 5,568,695 | 5,918,865 | (350,170) | -5.9% | | Total operating expenses | 20,855,353 | 27,313,498 | (6,458,145) | -23.6% | | Loss from continuing operations | (15,286,658) | (21,394,633) | 6,107,975 | -28.5% | | Total other expense | (5,717,099) | (245,429) | (5,471,670) | 2229.4% |\ | Net loss | (21,003,757) | (21,690,469) | 686,712 | -3.2% | | Loss per share - Basic and Diluted | (0.49) | (0.58) | 0.09 | -15.5% | - Net revenues increased by 4.2% in 2023, while cost of goods sold increased by 9.1%, leading to a 5.9% decrease in gross margin[199] - Total operating expenses decreased by 23.6%, primarily due to a significant reduction in non-cash share-based compensation[199] - Total other expense increased dramatically by 2229.4%, driven by amortization of debt discount and interest expense[199] Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity decreased by 160.1% to -$5.6 million, primarily due to a $21.0 million net loss, despite a $6.1 million increase in additional paid-in capital. Consolidated Statements of Changes in Stockholders' Equity Summary | Metric | Dec 31, 2023 ($) | Dec 31, 2022 ($) | Change ($) | | :------------------------- | :--------------- | :--------------- | :----------- | | Common stock (Amount) | 44,330 | 41,086 | 3,244 | | Additional Paid-in Capital | 127,701,710 | 121,632,547 | 6,069,163 | | Accumulated Deficit | (133,334,783) | (112,331,026) | (21,003,757) | | Total Stockholders' Equity | (5,605,326) | 9,322,134 | (14,927,460) | - Total stockholders' equity shifted from a positive $9.3 million in 2022 to a negative $5.6 million in 2023, primarily due to the net loss of $21.0 million[201] - Additional paid-in capital increased by $6.1 million, reflecting note discounts from common stock and warrant issuances, and share-based compensation[201] Consolidated Statements of Cash Flows Net cash used in operating activities decreased by $3.85 million, while net cash provided by financing activities decreased by $8.3 million, resulting in a $4.05 million net decrease in cash. Consolidated Statements of Cash Flows Summary | Cash Flow Activity | 2023 ($) | 2022 ($) | Change ($) | | :----------------------------- | :------------ | :------------ | :------------ | | Net cash used in operating activities | (10,189,263) | (14,040,644) | 3,851,381 | | Net cash used in investing activities | (14,113) | (102,698) | 88,585 | | Net cash provided by financing activities | 6,147,720 | 14,446,951 | (8,299,231) | | Net Change in Cash and Cash Equivalents | (4,051,767) | 250,362 | (4,302,129) | | Cash and Cash Equivalents, end of year | 379,978 | 4,431,745 | (4,051,767) | - Net cash used in operating activities decreased by $3.85 million, primarily due to an increase in amortization of debt and a decrease in business losses, offset by a decrease in working capital[167][203] - Net cash provided by financing activities decreased by $8.3 million, mainly due to no proceeds from common stock issuance in 2023 compared to $11.4 million in 2022, despite increased debt issuance[169][203] Notes to the Consolidated Financial Statements Note 1 – Business Organization and Nature of Operations SBG was formed via a reverse acquisition in March 2020, specializes in beverage manufacturing and distribution, operates Qplash, acquired Copa DI Vino for $5.98 million, and divested CMS. - Splash Beverage Group (SBG) was formed through a reverse acquisition of Canfield Medical Supply, Inc. (CMS) in March 2020, with Splash as the accounting acquirer[207][208] - SBG specializes in manufacturing, distribution, and sales & marketing of non-alcoholic and alcoholic beverages, and operates its own vertically integrated e-commerce platform, Qplash[209] - In December 2020, SBG acquired Copa DI Vino, a leading producer of premium wine by the glass, for $5,980,000[211] - The CMS business was divested in February 2021 and retrospectively reflected as discontinued operations[212] Note 2 – Summary of Significant Accounting Policies Key accounting policies cover consolidation, cost-method investments, inventory valuation, depreciation, revenue recognition, stock-based compensation, goodwill impairment, and amortization of finite-lived intangible assets. - Consolidated financial statements include Splash and its wholly-owned subsidiaries, with intercompany balances eliminated[213] - The investment in Salt Tequila USA, LLC is accounted for at cost, as the company does not exercise significant influence[215] - Key accounting policies include valuing inventory at the lower of cost or net realizable value, depreciating property and equipment using the straight-line method, and recognizing revenue when performance obligations are satisfied[221][222][230] - Stock-based compensation is measured at grant-date fair value using the Black-Scholes model and recognized over the vesting period[234][235] - Goodwill is reviewed annually for impairment, and identifiable intangible assets with finite lives are amortized over their useful lives (e.g., Brands, Customer Relationships, License)[243][244] Intangible Assets (2023) | Intangible Asset | Gross Amount (2023 $) | Accumulated Amortization (2023 $) | Amortization Period (years) | | :--------------- | :-------------------- | :-------------------------------- | :-------------------------- | | Brands | 4,459,000 | 891,803 | 15 | | Customer Relationships | 957,000 | 191,400 | 15 | | License | 360,000 | 233,488 | 11 | | Total | 5,776,000 | 1,316,691 | | Estimated Intangible Asset Amortization Expense | Fiscal Year | Estimated Intangible Asset Amortization Expense ($) | | :---------- | :-------------------------------------------------- | | 2024 | 392,068 | | 2025 | 392,068 | | 2026 | 392,068 | | 2027 | 392,068 | | 2028 | 363,580 | | Thereafter | 2,527,457 | | Total | 4,459,309 | Note 3 – Liquidity, Capital Resources and Going Concern Considerations Despite $6.6 million in debt issuance, the company's $21.0 million net loss, negative operating cash flow, and current liability deficit raise substantial doubt about its going concern ability. - The company received $6.6 million from debt issuance in 2023, which mitigated previous going concern doubts[251] - Despite this, the company sustained a net loss of $21.0 million and negative operating cash flows of $10.2 million in 2023, with current liabilities exceeding current assets[252][253] - Management plans to seek additional funding, but there is no assurance of success, raising substantial doubt about the company's ability to continue as a going concern[254] Note 4 – Notes Payable, Related Party Notes Payable, and Revenue Financing Arrangements Total notes payable increased to $11.1 million in 2023, with interest expense surging to $1.84 million at an effective rate of 60.17%, and convertible notes potentially issuing 11.1 million shares. Notes Payable Summary | Notes Payable Category | Dec 31, 2023 ($) | Dec 31, 2022 ($) | | :--------------------- | :--------------- | :--------------- | | Total notes payable | 11,082,561 | 5,514,841 | | Less notes discount | (2,876,387) | (1,898,265) | | Less current portion | (7,748,518) | (1,080,257) | | Long-term notes payable | 457,656 | 2,536,319 | - Interest expense on notes payable was $1,836,377 in 2023, significantly up from $246,090 in 2022, with an effective interest rate of 60.17% for 2023[262] - As of December 31, 2023, convertible note balances are convertible into 11,127,500 shares of common stock[263] - Shareholder notes payable amounted to $0.2 million at December 31, 2023, with interest expense of $0.0204 million for the year[264] Note 5 – Licensing Agreement and Royalty Payable The company has a TapouT licensing agreement with a 6% royalty or $0.66 million minimum, and a patent license from 1/4 Vin SARL with $31,000 annual amortization. - The company has a licensing agreement with ABG TapouT, LLC for the 'TapouT' brand, requiring a 6% royalty on net sales or guaranteed minimum annual payments ($660,000 in 2023)[265][266] - A license to certain patents from 1/4 Vin SARL, acquired with Copa Asset Purchase Agreement, involves notes payable and annual amortization of approximately $31,000 over a 10-year useful life[267] Note 6 – Stockholders' Equity Stockholders' equity changes reflect common stock issuances, an 'evergreen' 2020 Stock Incentive Plan (7.5% annual increase), and a 2023 option exercise price modification. - During 2022, the company issued common stock through public offerings, for services, in connection with the Copa DI Vino purchase, and upon conversion of convertible instruments[268] - The 2020 Stock Incentive Plan has an 'evergreen' feature, annually increasing shares by 5% of outstanding common shares (increased to 7.5% in October 2023)[272][273] Stock Option Activity | Stock Option Activity | Dec 31, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Balance - Jan 1 | 1,151,000 | 1,065,000 | | Granted | 3,441,008 | 146,000 | | Cancelled | 333,000 | 60,000 | | Balance - Dec 31 | 4,259,008 | 1,151,000 | | Exercisable - Dec 31 | 3,910,787 | 732,746 | - In April 2023, the company modified the exercise price of 4,134,008 options to $1.12 from $2.56, resulting in an incremental expense of $7,348[279] Warrant Activity | Warrant Activity | Dec 31, 2023 | Dec 31, 2022 | | :--------------- | :----------- | :----------- | | Balance - Jan 1 | 14,343,896 | 10,143,896 | | Granted | 2,250,000 | 4,200,000 | | Exercises | 68,146 | — | | Cancelled | 2,345,677 | — | | Balance - Dec 31 | 14,180,073 | 14,343,896 | Note 7 – Related Parties Related party transactions include a Revenue Loan and Security Agreement guaranteed by the CEO with $0.372 million outstanding and $0.99 million accrued interest, plus $0.4 million in CEO advances. - The company has a Revenue Loan and Security Agreement with Decathlon Alpha IV, L.P., guaranteed by Robert Nistico, with $371,693 outstanding and $989,702 accrued interest as of December 31, 2023[284] - Penalties of $757,554 associated with this agreement may be waived if the loan is repaid in full prior to maturity[284] - Related party advances from the CEO amounted to $0.4 million outstanding, and a shareholder note payable was $0.2 million outstanding as of December 31, 2023[286] Note 8 – Investment in Salt Tequila USA, LLC The company holds a 22.5% cost-method investment in SALT Tequila USA, LLC, with an option to increase ownership, and a marketing and distribution agreement in Mexico. - The company holds a 22.5% interest in SALT Tequila USA, LLC, with the right to increase ownership to 37.5%, and this investment is accounted for at cost[288] - Splash has a marketing and distribution agreement with SALT in Mexico for the manufacturing of its Tequila product line[288] Note 9 – Lease The company has operating lease agreements for real estate and office space, with fixed payments; operating lease cost increased to $0.364 million in 2023. - The company has various operating lease agreements, primarily for real estate and office space, with lease payments mainly fixed[289] - Operating lease cost was $363,890 in 2023, up from $315,980 in 2022[290] Lease Liability Components (2023) | Lease Liability Component | Amount (2023 $) | | :------------------------ | :-------------- | | Total operating lease liability | 558,988 | | Current portion | (262,860) | | Non-current portion | 296,128 | Note 10 – Segment Reporting The company operates in two segments: Splash Beverage Group (beverage manufacturing/distribution) and E-Commerce (online retail), with both segments showing revenue growth in 2023. - The company has two reportable operating segments: (1) manufacture and distribution of non-alcoholic and alcoholic beverages (Splash Beverage Group) and (2) online retail sale of beverages and groceries (E-Commerce)[292] Segment Revenue | Segment | 2023 Revenue ($) | 2022 Revenue ($) | Change ($) | Change (%) | | :-------------------- | :--------------- | :--------------- | :--------- | :--------- | | Splash Beverage Group | 5,072,479 | 4,759,586 | 312,893 | 6.6% | | E-Commerce | 13,777,673 | 13,327,900 | 449,773 | 3.4% | | Total Revenues | 18,850,152 | 18,087,486 | 762,666 | 4.2% | - Splash Beverage Group revenue increased by 7% due to TapouT and Pulpoloco, while E-Commerce revenue increased by $0.4 million driven by expanded territory, new products, and increased cart size[293][294] Segment Total Assets | Segment | 2023 Total Assets ($) | 2022 Total Assets ($) | Change ($) | | :-------------------- | :-------------------- | :-------------------- | :------------ | | Splash Beverage Group | 9,188,213 | 14,723,553 | (5,535,340) | | E-Commerce | 710,555 | 2,581,150 | (1,870,595) | | Total Assets | 9,898,768 | 17,304,703 | (7,405,935) | Note 11 – Commitment and Contingencies The company is involved in ordinary course claims and regulatory actions, but does not anticipate a material adverse effect. - The company is a party to asserted claims and regulatory actions in the ordinary course of business but does not anticipate a material adverse effect on its business or financial condition[295] Note 12 – Registration Statement The company completed public offerings in 2021 and 2022, raising $13.2 million, $7.9 million, and $3.1 million respectively, and issued Representative's Warrants. - The company completed several underwritten public offerings: June 2021 ($13.2 million net proceeds), February 2022 ($7.9 million net proceeds), and September 2022 ($3.1 million net proceeds)[297][298][299] - Representative's Warrants were issued in June 2021 to purchase up to 150,000 shares of Common Stock at an exercise price of $4.60 per share, exercisable until June 2026[300] Note 13 – Tax Provision The company has a full valuation allowance against deferred tax assets due to realizability uncertainty, with a $108.9 million net operating loss carryforward as of December 31, 2023. - The company has a full valuation allowance against its deferred tax assets due to uncertainty about their realizability[301] - As of December 31, 2023, the company has a net operating loss carryforward of $108,922,763 for Federal income tax purposes, with $90,921,071 generated after January 1, 2018, carrying forward indefinitely[302] - No income tax expense or benefit was recorded for 2023 and 2022 due to the full valuation allowance[303] Deferred Tax Assets/Liabilities | Deferred Tax Assets/Liabilities | 2023 ($) | 2022 ($) | | :------------------------------ | :----------- | :----------- | | Net Operating Losses | 27,606,474 | 22,758,336 | | Accrued Interest/Interest Expense Limitation | 1,518,618 | 1,263,639 | | Total deferred tax assets | 29,125,092 | 24,022,355 | | Total deferred tax liabilities | (120,502) | (93,476) | | Less: Valuation allowance | (29,004,590) | (23,928,879) |\ | Total Net Deferred Tax Assets | — | — | Note 14 – Subsequent Events Subsequent events include $0.4 million in convertible notes, a $0.5 million commercial loan, and a $0.109 million CEO cash advance in early 2024, with plans to manage expiring notes. - In January 2024, the company entered into a $0.25 million convertible note (12% interest, convertible at $0.50/share with 200% warrants at $0.25) and a $0.5 million commercial loan[306] - In February 2024, another $0.15 million convertible note was issued (12% interest, convertible at $0.40/share with 250% warrants at $0.25)[307] - In March 2024, the CEO provided a $0.109 million cash advance (0% interest related party payable)[307] - The company plans to extend or pay off notes expiring in 2024[308] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Splash Beverage Group reported no changes in or disagreements with accountants on accounting and financial disclosure. - No changes in and disagreements with accountants on accounting and financial disclosure[309] Item 9A. Controls and Procedures Disclosure controls and internal control over financial reporting were deemed ineffective as of December 31, 2023, due to limited resources and material weaknesses in segregation of duties. - As of December 31, 2023, the CEO and CFO concluded that disclosure controls and procedures were not effective due to limited resources[311] - Management determined that internal control over financial reporting was not effective as of December 31, 2023, due to material weaknesses related to limited segregation of duties[313] - New controls and processes were implemented in 2023 following the 2022 evaluation of disclosure controls and procedures[311] (1) Evaluation of Disclosure Controls and Procedures CEO and CFO concluded disclosure controls were ineffective as of December 31, 2023, due to limited resources, despite new controls implemented in 2023. - The CEO and CFO evaluated the effectiveness of disclosure controls and procedures as of December 31, 2023[311] - They concluded that due to limited resources, disclosure controls and procedures are not effective in providing material information on a timely basis[311] - New controls and processes were implemented in 2023 following the 2022 evaluation[311] (2) Management's Report on Internal Control over Financial Reporting Management deemed internal control over financial reporting ineffective as of December 31, 2023, due to material weaknesses in segregation of duties. - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2023[313] - It was determined that internal control over financial reporting was not effective due to material weaknesses related to a limited segregation of duties[313] - This material weakness could result in material misstatements that would not be prevented or detected[313] (3) Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the most recent fiscal quarter, beyond those noted in the evaluation. - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter, other than the items highlighted in the evaluation[315] Item 9B. Other Information Splash Beverage Group reported no other information required to be disclosed. - No other information to report[316] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Splash Beverage Group, Inc. - Not applicable[317] PART III Item 10. Directors, Executive Officers and Corporate Governance This section details executive officers and directors, including CEO Robert Nistico and CFO Stacy McLaughlin, and outlines Board committees, corporate governance, and the new Clawback Policy. Executive Officers and Directors | Name | Age | Position | | :--------------- | :-- | :------------------------- | | Robert Nistico | 60 | Chief Executive Officer and Director | | Stacy McLaughlin | 42 | Chief Financial Officer | | William Meissner | 57 | President, Chief Marketing Officer | | Justin Yorke | 57 | Director | | John Paglia | 56 | Director | | Bill Caple | 65 | Director | - Robert Nistico, CEO, has over 28 years of experience in the beverage industry, including roles at Red Bull and Gallo Winery[18][321] - Stacy McLaughlin, CFO since January 2024, has over 15 years of public company accounting and finance experience, including at Willdan Group, Inc. and KPMG LLP[18][322] - William Meissner, President & CMO, has over twenty years of experience in growing consumer brand companies, including leadership roles at Sparkling Ice, Fuze, and Sweet Leaf Tea[18][323] - The Board has an Audit Committee, Compensation and Management Resources Committee, and Nominating and Corporate Governance Committee, with John Paglia and Bill Caple identified as independent directors[329][331](in