10-K: Splash Beverage Group Faces Delisting Threat Amidst Steep Revenue Decline and Going Concern Doubts

Splash Beverage Group, Inc. reported a significant revenue drop and substantial net losses for fiscal year 2024, leading to a 'going concern' audit opinion and a formal delisting notice from NYSE American.

Summary

• Revenue for the year ended December 31, 2024, decreased by $14.7 million to $4.2 million, down from $18.9 million in 2023.
• The decrease in sales was primarily due to a $1.7 million reduction in beverage sales and an approximate $13 million (88.5%) decrease in Qplash e-commerce platform revenues due to low inventory.
• Net loss for fiscal year 2024 was $23.8 million, compared to $21.0 million in 2023.
• Accumulated deficit increased to $155.8 million as of December 31, 2024, from $133.3 million in the prior year.
• Cash and cash equivalents significantly decreased to $15,346 as of December 31, 2024, from $379,978 at December 31, 2023.
• Net cash used in operating activities was $8.0 million in 2024, an improvement from $10.2 million in 2023, primarily due to increased non-cash share-based compensation and decreased business losses, partially offset by a decrease in working capital.
• The company recorded an intangible asset impairment loss of $4.3 million during 2024, reducing intangible assets to $0.
• Interest expense increased by $1.0 million to $2.9 million in 2024, driven by new loans totaling $3.2 million with higher interest rates.
• The relationship between TapouT LLC and the company was terminated in Q1 2024, with active settlement discussions ongoing and a $330,000 legal reserve established.
• A 1-for-40 reverse stock split was approved and became effective on March 27, 2025, to maintain NYSE American listing.
• NYSE American initiated delisting proceedings on April 7, 2025, due to the company's failure to regain compliance with stockholders' equity requirements and failure to timely file its Form 10-K for 2024.
• The company issued 1,000 shares of Series A Preferred Stock to CEO Robert Nistico for $1,000, carrying 25,000 votes per share, solely for voting on increasing authorized shares.
• 650 shares of Series A-1 Convertible Redeemable Preferred Stock were issued for $650,000, convertible into common stock at 80% of VWAP (floor $1.25, ceiling $4.00), with a 12% annual dividend.
• 126,710 shares of Series B Convertible Redeemable Preferred Stock were issued in exchange for approximately $12.67 million of outstanding promissory notes, convertible at $6.00 per share (subject to beneficial ownership limits) with a 12% annual dividend.
• 20,000 shares of Series C Convertible Preferred Stock were issued for the acquisition of exclusive water rights in Costa Rica, convertible at a fixed price of $3.00 per share, with no dividend or voting rights.
• As of June 30, 2025, there were 1,899,876 shares of Common Stock issued and outstanding.
• The company has 21 full-time employees and operates manufacturing for Copa DI Vino in Oregon, while outsourcing SALT Tequila production to Mexico.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by a significant revenue decline, substantial net losses, critical liquidity issues, and a 'going concern' audit opinion. The formal delisting notice from NYSE American and the need for dilutive capital raises primarily for compliance and working capital, rather than growth, indicate a highly precarious situation. The intangible asset impairment further underscores the negative outlook.

Positives

• Net cash used in operating activities decreased to $8.0 million in 2024 from $10.2 million in 2023, indicating some improvement in operational cash burn.
• The company successfully exchanged approximately $12.67 million of outstanding promissory notes for Series B Preferred Stock, which enhances the balance sheet, reduces interest expense, and improves shareholder equity position, a key step in regaining NYSE American compliance.
• Acquired exclusive water rights and related assets to an underground network of aquifers in Costa Rica, valued at approximately $20 million, providing a potential new strategic asset.
• Maintained an established distribution network through global sales channels and a hybrid distribution model.
• Management team has extensive experience in the beverage industry, including successful brand introductions and distribution expertise.

Negatives

• Reported a substantial net loss of $23.8 million for 2024 and an accumulated deficit of $155.8 million, indicating ongoing unprofitability.
• Significant revenue decline of $14.7 million (78%) in 2024, primarily due to decreased beverage sales and an 88.5% drop in e-commerce revenue due to low inventory and limited liquidity.
• Cash and cash equivalents plummeted to $15,346 at year-end 2024, raising severe liquidity concerns.
• Auditors included an explanatory paragraph regarding 'going concern' uncertainty, indicating substantial doubt about the company's ability to continue operations.
• Received a formal notice from NYSE American on April 7, 2025, commencing delisting proceedings due to non-compliance with stockholders' equity requirements and failure to timely file the 2024 Form 10-K.
• Incurred a $4.3 million intangible asset impairment loss in 2024, reflecting a decline in the value of its brands and customer relationships.
• Increased interest expense by $1.0 million in 2024 due to new loans with higher interest rates.
• Termination of the TapouT license agreement in Q1 2024, removing a brand from the portfolio.
• Identified a material weakness in internal controls related to dedicated services billing and revenue recognition, which could lead to material misstatements.
• The 1-for-40 reverse stock split, while aimed at maintaining listing, often signals financial distress and can be dilutive to existing shareholders.

Risks

• Inability to continue as a going concern due to recurring losses, negative cash flows, and working capital/stockholders' equity deficits, potentially leading to loss of investment.
• Failure to obtain additional financing on acceptable terms or in sufficient amounts to fund operations and execute business plans.
• Material weaknesses in internal control over financial reporting, which may lead to untimely or inaccurate financial reporting and material misstatements.
• Inability to successfully execute future operating plans, including increasing sales volume, improving gross margins, and managing operating expenses, which could further impact financial condition.
• Strategic initiatives, including acquisitions and divestitures, may not be successful, could divert management attention, and create customer uncertainty.
• Failure to successfully integrate acquired businesses or realize anticipated benefits from acquisitions.
• Demand for products may be adversely affected by changes in consumer preferences or inability to innovate, market, or distribute effectively.
• Volatility in the price or availability of raw materials, packaging, energy, and labor could increase operating costs and reduce profitability.
• International trade disputes, including tariffs, could adversely impact business by increasing costs or delaying inventory delivery.
• Changes in government regulation or failure to comply with existing regulations could negatively affect business, financial condition, and results of operations.
• Inability to maintain brand name recognition and acceptance of products in a brand-conscious industry.
• Competition from traditional and large, well-financed beverage manufacturers could adversely affect distribution relationships and hinder market expansion.
• Legislative or regulatory changes, such as new taxes on beverages, could reduce demand or increase costs.
• Reliance on distributors, retailers, and brokers could affect efficient and profitable distribution and marketing, and their failure to perform adequately could adversely affect sales.
• Difficulty in predicting timing and amount of sales due to distributors not being required to place minimum orders.
• Inadequate management of inventory levels could lead to higher storage costs, increased trade spend, inventory spoilage, and damaged relationships with distributors.
• Failure to maintain relationships with independent contract manufacturers could disrupt production and increase costs.
• Volatility of energy prices and increased regulations may adversely impact gross margin.
• Disruption within the supply chain, contract manufacturing, or distribution channels due to external events (weather, natural disaster, etc.) could impair operations.
• Reliance on key flavor suppliers; inability to source flavors on acceptable terms could disrupt business.
• Inability to attract and retain key personnel, leading to adverse effects on efficiency and operations.
• Failure to protect trademarks and trade secrets could harm brand and competitive effectiveness.
• Product recalls or other product quality issues could damage reputation and affect profitability.
• Litigation or legal proceedings could expose the company to significant liabilities and damage its reputation.
• Risks inherent in sales of products in international markets, including economic volatility, political conditions, and regulatory changes.
• Water scarcity and poor quality could negatively impact costs and capacity, particularly for products like wine.
• Fluctuations in quantity and quality of grape supply could adversely affect wine production and quality.
• Contamination of wines could force product destruction, recalls, and damage reputation.
• Failure or interruption of information technology infrastructure or cybersecurity attacks could adversely impact operations and financial position.
• Failure to comply with personal data protection and privacy laws could lead to adverse publicity, enforcement actions, and litigation.
• Third-party service providers and business partners failing to fulfill commitments could negatively affect financial results.
• Quarterly results may fluctuate due to seasonality, making period-to-period comparisons unreliable.
• Changes in accounting standards and subjective assumptions could significantly affect financial results.
• Dependence on a single distiller in Mexico for SALT tequila production; failure to perform or loss of services could lead to lost sales and credibility.
• Regulatory decisions and changes in the legal, regulatory, and tax environment in Mexico and the U.S. could limit business activities or increase costs for tequila products.
• Substantial competition in the alcoholic and non-alcoholic beverage industry, including from larger, well-financed companies.
• Uncertainty in financial markets and adverse changes in general economic or political conditions could adversely affect the industry and business.
• Limited operating history makes it difficult to forecast future results, making investment highly speculative.
• Future sales of common stock or the perception of such sales could cause stock price to decline.
• Issuance of preferred stock without stockholder approval could adversely affect voting power of common stockholders or change in control.
• Issuance of multiple classes of preferred stock will result in immediate and substantial dilution to existing stockholders upon conversion.
• Volatility in the price of common stock, influenced by financial results, industry developments, and general market conditions.
• Concentrated ownership by certain principal stockholders limits voting power of other stockholders.
• No expectation of paying dividends, meaning investors rely solely on stock price appreciation for economic gain.
• Potential delisting from NYSE American due to failure to maintain listing requirements, leading to reduced liquidity and difficulty in raising capital.

Future Outlook

The company anticipates continued significant operating losses for the foreseeable future and acknowledges the need to raise additional equity or debt capital to fund operations. There is no assurance that such financing will be available on acceptable terms. The company's ability to continue as a going concern is dependent on its ability to obtain additional financing and successfully execute its business plans, including increasing sales and managing costs. The company is actively working to regain compliance with NYSE American listing standards, including through debt-to-equity exchanges and timely financial filings.

Management Comments

• Management recognizes that it may be required to obtain additional resources via issuances of indebtedness or equity to successfully execute its business plans.
• We believe the distribution landscape in the beverage industry is changing rapidly as tech-enabled e-commerce business models are thriving.
• Our management team has over 80 years of combined experience in the beverage industry, including decades of successful brand introductions.
• We believe our ability to break through the distribution and retail bottlenecks makes us an attractive joint venture partner to many new brand owners.
• The company is undertaking these transactions to exchange debt for equity as part of its effort to regain compliance with the shareholder equity requirements of the NYSE American.

Industry Context

The beverage industry is highly competitive, with rapid changes in distribution models, including the rise of tech-enabled e-commerce and direct-to-consumer solutions. Consumer preferences are shifting towards health and nutrition, and flavored alcoholic beverages are experiencing growth. The industry is also subject to various governmental regulations and potential new taxes on sweetened beverages. Geopolitical events and trade disputes can impact supply chains and costs. Splash Beverage Group's strategy to combine traditional distribution with e-commerce and focus on early-stage brands with pre-existing awareness or innovation aligns with some industry trends, but its significant financial challenges and delisting threat indicate an inability to effectively capitalize on these trends or compete with larger, more resourced players.

Comparison to Industry Standards

• The company's significant revenue decline of 78% in 2024 and recurring net losses are substantially worse than typical growth and profitability benchmarks for established beverage companies.
• The 'going concern' opinion from auditors is a critical red flag, indicating severe financial distress, which is not typical for healthy publicly traded companies in the beverage sector.
• The company's negative stockholders' equity of $(18.6) million and failure to meet NYSE American listing standards (requiring $2M, $4M, or $6M equity depending on loss history) are significantly below industry financial health benchmarks and exchange requirements.
• The 1-for-40 reverse stock split is a measure often taken by companies facing delisting due to low share price, contrasting with stable or growing companies that typically do not need such actions.
• The reliance on debt and dilutive equity raises for working capital and compliance, rather than growth, indicates a weaker financial position compared to industry peers that fund growth through operational cash flow or less dilutive means.
• The impairment of intangible assets to $0 suggests a complete loss of value in previously acquired brands and customer relationships, which is a severe outcome compared to successful brand management in the industry.

Management Changes

Corporate Governance

Legal Proceedings

• The licensing agreement between TapouT LLC and the company was terminated in Q1 2024. The parties are engaged in active and constructive settlement discussions, and the company anticipates any final settlement will not exceed the amounts already recorded in its legal reserve and accrued accounts payable ($330,000).

Related Party Transactions

• In conjunction with the Copa DI Vino acquisition, the company entered into a Revenue Loan and Security Agreement with Decathlon Alpha IV, L.P., guaranteed by Robert Nistico (CEO). As of December 31, 2024, $195,927 was outstanding with $1,800,023 in accrued interest.
• In April 2024, the company entered into a Merchant Cash Advance Agreement with Cobalt Funding Solutions, guaranteed by Robert Nistico (CEO), with $455,335 outstanding as of December 31, 2024.
• In September and November 2024, the company entered into Merchant Cash Advance Agreements with Timeless Funding LLC, guaranteed by Robert Nistico (CEO), with $85,260 and $311,713 outstanding respectively as of December 31, 2024.
• Related party advances from the Chief Executive Officer (Robert Nistico) amounted to $0.4 million outstanding as of December 31, 2024.
• A shareholder note payable of $200,000 was outstanding as of December 31, 2024, with a 12% annual interest rate and a conversion price of $14.0 per share, including 14,285 shares of warrant coverage.
• In June 2025, the company issued 1,000 shares of Series A Preferred Stock to Robert Nistico (CEO) for an aggregate purchase price of $1,000.

Stakeholder Impact

• **Shareholders:** Face significant dilution from ongoing and future equity issuances (common, Series A-1, B, C preferred stock) and the 1-for-40 reverse stock split. The delisting threat from NYSE American poses a major risk to liquidity and market value of their investment. The 'going concern' opinion indicates a high risk of losing their entire investment.
• **Employees:** The company's financial instability and recurring losses could impact job security, compensation, and morale. Management turnover, including multiple CFO changes, may create uncertainty.
• **Customers:** Low inventory levels, particularly for the Qplash e-commerce platform, could lead to product unavailability and reduced customer satisfaction. The termination of the TapouT license means one less brand offering.
• **Suppliers:** The company's liquidity issues and working capital deficits could lead to delays or difficulties in payments to suppliers, potentially straining relationships and affecting supply chain reliability.
• **Creditors:** The company's high level of debt, increased interest expense, and 'going concern' uncertainty indicate elevated credit risk. The debt-to-equity exchange for Series B preferred stock benefits some noteholders by converting debt, but other creditors may face repayment challenges.

Next Steps

• Company needs to raise additional equity or debt capital to fund continuing operations.
• Company must address material weaknesses in internal control over financial reporting.
• Company must regain compliance with NYSE American continued listing standards to avoid delisting.
• Company needs to file its tardy Form 10-K for the year ended December 31, 2024, and Form 10-Q for the three months ended March 31, 2025.
• Company is assisting with the search for a new Audit Chair following Dr. Paglia's resignation.
• Seller of Costa Rica water rights must deliver assets or $20 million by December 31, 2025, or Series C shares will be cancelled.

Key Dates

Recommendation

Keywords

Beverage Industry, Alcoholic Beverages, Non-alcoholic Beverages, SEC Filing, 10-K, Financial Performance, Liquidity, Going Concern, Delisting, NYSE American, Capital Raise, Preferred Stock, Common Stock, Reverse Stock Split, Copa DI Vino, SALT Tequila, Qplash, E-commerce, Distribution Network, Risk Factors, Corporate Governance, Financial Reporting, Internal Controls, Shareholder Equity, Consumer Packaged Goods