SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FRESH VINE WINE, INC.
TABLE OF CONTENTS
i
Cautionary Statement Concerning Forward-Looking Statements
We make forward-looking statements in this Quarterly Report on Form 10-Q. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “should,” “would,” “could,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and elsewhere such Annual Report and in this Quarterly Report on Form 10-Q.
While we believe we have identified material risks, these risks and uncertainties are not exhaustive. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements in this report represent our views as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements whether as a result of new information, future developments or otherwise, and we do not intend to do so.
Forward-looking statements include, but are not limited to, statements about:
| ● | our ability to continue as a going concern in the absence of obtaining additional financing; |
| ● | our ability to hire additional personnel and to manage the growth of our business; |
| ● | our reliance on our brand name, reputation and product quality; |
| ● | our ability to adequately address increased demands that may be placed on our management, operational and production capabilities. |
| ● | the effectiveness of our advertising and promotional activities and investments; |
| ● | our reliance on celebrities to endorse our wines and market our brand; |
| ● | general competitive conditions, including actions our competitors may take to grow their businesses; |
| ● | fluctuations in consumer demand for wine; |
| ● | overall decline in the health of the economy and consumer discretionary spending; |
| ● | the occurrence of adverse weather events, natural disasters, public health emergencies, including the COVID-19 pandemic, or other unforeseen circumstances that may cause delays to or interruptions in our operations; |
| ● | risks associated with disruptions in our supply chain for grapes and raw and processed materials, including corks, glass bottles, barrels, winemaking additives and agents, water and other supplies; |
| ● | the impact of COVID-19 on our customers, suppliers, business operations and financial results; |
| ● | disrupted or delayed service by the distributors we rely on for the distribution of our wines; |
| ● | our ability to successfully execute our growth strategy, including continuing our expansion in the direct-to-consumer sales channel; |
| ● | quarterly and seasonal fluctuations in our operating results; |
| ● | our success in retaining or recruiting, or changes required in, our officers, key employees or directors; |
ii
| ● | our ability to protect our trademarks and other intellectual property rights, including our brand and reputation; |
| ● | our ability to comply with laws and regulations affecting our business, including those relating to the manufacture, sale and distribution of wine; |
| ● | the risks associated with the legislative, judicial, accounting, regulatory, political and economic risks and conditions; |
| ● | claims, demands and lawsuits to which we are, and may in the future, be subject and the risk that our insurance or indemnities coverage may not be sufficient; |
| ● | our ability to operate, update or implement our IT systems; |
| ● | our ability to successfully pursue strategic acquisitions and integrate acquired businesses; |
| ● | our ability to implement additional finance and accounting systems, procedures and controls in order to satisfy public company reporting requirements; |
| ● | our potential ability to obtain additional financing when and if needed; |
| ● | Nechio & Novak, LLC’s significant influence over us; |
| ● | the potential liquidity and trading of our securities; and |
| ● | the future trading prices of our common stock and the impact of securities analysts’ reports on these prices. |
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this report. Although we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
iii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
1
FRESH VINE WINE, INC.
BALANCE SHEETS
(unaudited)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Accounts receivable - related party | ||||||||
| Accounts receivable - other | - | |||||||
| Receivables with recourse | ||||||||
| Due from related parties | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Prepaid expenses (long-term) | ||||||||
| Intangible assets - net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Payroll tax payable | - | |||||||
| Accrued compensation | ||||||||
| Accrued expenses | ||||||||
| Accrued expenses - related party | ||||||||
| Secured borrowings | ||||||||
| Deferred revenue | ||||||||
| Promissory note - related party | - | |||||||
| Due to related parties | ||||||||
| Total current liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $ | ||||||||
| Preferred stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholder’s Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to the financial statements
2
FRESH VINE WINE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Wholesale revenue | $ | $ | ||||||
| Direct to consumer revenue | ||||||||
| Related party service revenue | - | |||||||
| Total Revenue | ||||||||
| Cost of revenues | ||||||||
| Gross Profit | ||||||||
| Selling, general and administrative expenses | ||||||||
| Equity-based compensation | ||||||||
| Operating Income (Loss) | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Net Income (Loss) | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares Outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Net Loss per Share – Basic | $ | ( | ) | $ | ( | ) | ||
| Net Loss per Share – Diluted | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to the financial statements
3
FRESH VINE WINE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited)
| Mezzanine Equity | Member Contributions | Stockholders’ Equity | Additional | |||||||||||||||||||||||||||||||||||||||||||||||||
| Class F Partner Investor Units | Class F | Class W | Common Stock | Preferred Stock | Paid-In | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Member units issued | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Mezzanine Equity | Member Contributions | Stockholders’ Equity | Additional | |||||||||||||||||||||||||||||||||||||||||||||||||
| Class F Partner Investor Units | Class F | Class W | Common Stock | Preferred Stock | Paid-In | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the financial statements
4
FRESH VINE WINE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Amortization | ||||||||
| Equity-based compensation | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Accounts receivable - related party | ( | ) | ||||||
| Accounts receivable - other | ( | ) | ||||||
| Receivables with recourse | ( | ) | ||||||
| Related party receivables | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other | ( | ) | ||||||
| Accounts payable | ||||||||
| Payroll tax payable | - | |||||||
| Accrued compensation | ( | ) | ||||||
| Accrued expenses | ||||||||
| Accrued expenses - related parties | ( | ) | ||||||
| Deferred revenue | ||||||||
| Related party payables | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Payments of related party notes payable | ( | ) | ||||||
| Proceeds from secured borrowings | ( | ) | ||||||
| Proceeds from issuance of member units | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net Increase (Decrease) in Cash | ( | ) | ||||||
| Cash - Beginning of Period | ||||||||
| Cash - End of Period | $ | $ | ||||||
| Supplemental disclosure of non-cash activities: | 2022 | 2021 | ||||||
| Issuance of units for prepaid marketing services | $ | $ | ||||||
See accompanying notes to the financial statements
5
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Business
Fresh Vine Wine, Inc. (the Company), a Nevada corporation, is a premium wine brand built to complement consumers’ healthy and active lifestyles. The Company provides a competitively priced premium product that is blended to deliver several important benefits, such as low-cal, low-sugar, low-carb. The Company’s wines are also gluten-free and keto and vegan friendly.
The Company’s revenue is comprised primarily of wholesale and direct to consumer (DTC) sales, and representation and distribution services. Wholesale revenue is generated through sales to distributors located in states throughout the United States of America. DTC revenue is generated from individuals purchasing wine directly from the Company through club membership and the Company’s website. Representation and distribution service revenue is generated from related parties by providing such related parties with access to new markets and distribution channels. Service revenues are expected to suspend at the end of the current calendar quarter to allow the company’s lean team to prioritize on the growth and expansion of the Fresh Vine Wine brand.
Basis of Presentation
The Company’s financial statements have been prepared and are presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The financial statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the financial statements. In certain instances, amounts reported in prior period financial statements have been reclassified to conform to the current financial statement presentation.
Corporate Conversion
On
December 8, 2021, in relation to preparing for its initial public offering (“IPO”), Fresh Grapes, LLC filed a certificate
of conversion, whereby Fresh Grapes, LLC effected a corporate conversion from a Texas limited liability company to a Nevada corporation
and changed its name to Fresh Vine Wine, Inc. Pursuant to the corporate conversion, units of membership interest in the limited liability
company were converted into shares of common stock of the corporation at a conversion ratio of
Initial Public Offering
On
December 17, 2021, the Company completed its IPO whereby it sold
6
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
Liquidity, Going Concern, and Management Plan
Although the Company’s revenue generated during the first quarter
of 2022 represents a
We currently hold no debt and will require and seek debt or equity financing in the near term to sustain our existing operations. If adequate financing is not available, we may be forced to curtail our near-term growth priorities, take measures to severely reduce our expenses and business operations, or discontinue them completely. Such financing may be dilutive.
At our current pace of incurring expenses, and without receipt of additional financing, we project that our existing cash will be sufficient to fund our current operations into the fourth quarter of 2022, after which additional financing will be needed to continue to satisfy our obligations. As a result, we may defer certain investments in additional inventory, curtail its sales and marketing efforts and staffing, and take other measures to reduce our expenses and business operations as the Company works to obtain debt or equity financing to help support short-term working capital needs, as it has no debt on its balance sheet. These measures may negatively impact the success of our near-term or longer-term growth objectives and prospects.
Additional financing may not be available to us on terms favorable to us or at all. If additional financing is available, it may be highly dilutive to our existing shareholders and may otherwise include burdensome or onerous terms. Our inability to raise additional working capital at all or to raise it in a timely manner would negatively impact our ability to fund our operations, to generate revenues, grow our business and otherwise execute our business plan, leading to the reduction or suspension of our operations and ultimately potentially forcing us to cease operations altogether. Should this occur, the value of any investment in our securities could be adversely affected.
These factors call into question our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include allowance for doubtful accounts, allowance for inventory obsolescence, the useful lives of intangible assets, equity-based compensation for employees and non-employees, and the valuation of deferred tax assets.
7
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
Cash
The Company maintains its accounts at two financial institutions. At times throughout the year the Company’s cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
Accounts Receivable
Accounts receivable consists of amounts owed to the Company for sales of the Company’s products on credit and are reported at net realizable value. Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial conditions. The Company estimates allowances for future returns and doubtful accounts based upon historical experience and its evaluation of the current status of receivables. Accounts considered uncollectible are written off against the allowance. As of March 31, 2022 and December 31, 2021, there was no allowance for doubtful accounts.
The Company periodically factors outstanding accounts receivable, with full recourse, at a percentage of face value. See Note 10 for further discussion of this arrangement.
Inventories
Inventories primarily include bottled wine which is carried at the lower of cost (calculated using the first-in-first-out (“FIFO”) method) or net realizable value.
The Company reduces the carrying value of inventories that are obsolete or for which market conditions indicate cost will not be recovered to estimated net realizable value. The Company’s estimate of net realizable value is based on analysis and assumptions including, but not limited to, historical experience, future demand and market requirements. Reductions to the carrying value of inventories are recorded in cost of revenues. As of March 31, 2022 and December 31, 2021 there was no allowance for inventory obsolescence.
Intangible Assets
The
Company assesses for impairment intangible assets with finite useful lives which are amortized on a systematic basis over their estimated
useful lives. The amortization period and amortization method for an intangible asset with a finite useful life reflects the pattern
in which the assets’ future economic benefits are expected to be consumed. Where the pattern cannot be reliably determined, the straight-line
method is used. The amortization period and method is reviewed at least at each financial year-end. Amortization of intangible assets
with fixed determinable lives is recorded on a straight-line basis over
Deferred Offering Costs
Deferred offering costs primarily consist of legal, accounting, SEC filing fees, and any other fees relating to the Company’s initial public offering. The deferred offering costs were capitalized as incurred and were offset against proceeds from the sale of shares of common stock at the closing of the Company’s IPO.
Revenue Recognition
The Company’s total revenue reflects the sale of wine domestically in the U.S. to wholesale distributors or DTC and related party service revenues. Under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when control of the promised good is transferred to the customer in an amount that reflects the consideration for which the Company is expected to be entitled to receive in exchange for those products. Each contract includes a single performance obligation to transfer control of the product to the customer. Control is transferred when the product is either shipped or delivered, depending on the shipping terms, at which point the Company recognizes the transaction price for the product as revenue. The Company has elected to account for shipping and handling as a fulfillment activity, with amounts billed to customers for shipping and handling included in total revenue.
8
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
Revenue Recognition (continued)
The Company also generates revenue through membership in its wine club. Wine club members pay a monthly fee, which varies depending on level of membership, and are entitled to receive quarterly shipments of wine, free shipping, and discounts on other wine and merchandise purchased. The Company recognizes revenue for the monthly membership dues when product is delivered. Any membership dues received before product is delivered is recorded as deferred revenue on the Company’s balance sheet.
The Company has determined that related party service revenue should be recognized over the period of time it provides such services. ASC 606 also notes that when another party is involved in providing goods or services to a customer, the entity should determine whether the nature of its promise is a performance obligation to provide the specified goods or services itself (that is, the entity is a principal) or to arrange for those goods or services to be provided by the other party (that is, the entity is an agent). The Company does not bear responsibility for inventory losses and does not have pricing determination; therefore, the Company would be considered the agent and revenue should be recognized as net sales. Service revenues are expected to suspend at the end of the current calendar quarter to allow the Company’s lean team to prioritize the growth and expansion of the Fresh Vine Wine brand.
Products are sold for cash or on credit terms. Credit terms are established in accordance with local and industry practices, and typically require payment within 30-60 days of delivery or shipment, as dictated by the terms of each agreement. The Company has elected the practical expedient to not account for significant financing components as its payment terms are less than one year, and the Company determines the terms at contract inception. The Company’s sales terms do not allow for the right of return except for matters related to manufacturing defects, which are not material.
Disaggregated Revenue Information
The following table presents the percentages of total revenue disaggregated by sales channels for the three month periods ended March 31, 2022 and 2021:
| Three months ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Wholesale | % | % | ||||||
| Direct to consumer | % | % | ||||||
| Related party service | % | % | ||||||
| Total revenue | % | % | ||||||
Contract Balances
When the Company receives pre-orders or payment from a customer prior to transferring the product under the terms of a contract, the Company records deferred revenue, which represents a contract liability. The Company will record deferred revenue when cash is collected from customers prior to the wine shipment date. The Company does not recognize revenue until control of the wine is transferred and the performance obligation is met. When the Company does not receive payment from a customer prior to or at the transfer of the product under the terms of a contract, the Company records accounts receivable, which represents a contract asset.
9
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
Contract Balances (continued)
The following table reflects the changes in the contract liability balance during the year ended December 31, 2021 and the three month period ended March 31, 2022:
| December 31, 2020 | December 31, 2021 | March 31, 2022 | ||||||||||
| Outstanding at beginning of period | $ | $ | $ | |||||||||
| Increase (decrease) attributable to: | ||||||||||||
| Upfront payments | ||||||||||||
| Revenue recognized | ( | ) | ( | ) | ||||||||
| Outstanding at end of period | $ | $ | $ | |||||||||
Fair Value of Financial Instruments
The Company’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adheres to the Financial Accounting Standards Board (FASB) fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| ● | Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the Company at the measurement date. |
| ● | Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
| ● | Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. |
The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
The carrying values of cash, accounts receivable, accounts payable, deferred revenue and other financial working capital items approximate fair value at March 31, 2022 and December 31, 2021, due to the short maturity nature of these items.
Income Taxes
The Company recognizes uncertain tax positions in accordance with ASC 740 on the basis of evaluating whether it is more likely than not that the tax positions will be sustained upon examination by tax authorities. For those tax positions that meet the more-likely-than not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement. The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of March 31, 2022 and December 31, 2021, and as such, no interest or penalties were recorded to income tax expense. As of March 31, 2022 and December 31, 2021, the Company has no unrecognized tax benefits. There are no unrecognized tax benefits included on the balance sheet that would, if recognized, impact the effective tax rate. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months.
10
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
Prior to the conversion, the Company was a limited liability company and therefore was a disregarded legal entity for income tax purposes. Accordingly, no benefit for income taxes was recorded prior to the conversion.
Income Taxes (continued)
For years before 2019, the Company is not subject to U.S. federal or state income tax examinations. The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of general and administrative expenses.
Equity-Based Compensation
The
Company measures equity-based compensation cost at the grant date based on the fair value of the award and recognizes the compensation
expense over the requisite service period, which is generally the vesting period. The Company recognizes any forfeitures as they occur.
As of March 31, 2022, there was $
The Company measures equity-based compensation when the service inception date precedes the grant date based on the fair value of the award as an accrual of equity-based compensation and adjusts the cost to fair value at each reporting date prior to the grant date. In the period in which the grant occurs, the cumulative compensation cost is adjusted to the fair value at the date of the grant. As of March 31, 2022 and December 31, 2021, there no accrued equity-based compensation.
Effective December 9, 2021, the Company adopted an equity incentive plan which allows for the granting of incentive and non-qualified stock options, restricted and unrestricted stock and stock units, stock appreciation rights, performance units and other stock-based awards to current and prospective employees and directors of, and consultants and advisors to, the Company.
See Note 7 for further discussion of equity-based compensation incurred in 2022 and 2021.
Advertising
The
Company expenses the costs of advertising as incurred. Advertising expense for the three month periods ended March 31, 2022 and 2021
was approximately $
Application of New or Revised Accounting Standards
Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), a company constituting an “emerging growth company” is, among other things, entitled to rely upon certain reduced reporting requirements and is eligible to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies.
The Company is an emerging growth company and has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocable opts out of the extended transition period provide in the JOBS Act.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability between organizations by recording assets and liabilities on the balance sheet relating to both operating and finance leases with terms longer than 12 months, and disclosing key information about the lease terms. Topic 842, Leases, supersedes Topic 840. This guidance will be effective for the Company beginning with the year ended December 31, 2022, with early adoption permitted. The Company does not currently have any leases that require disclosure under Topic 842.
11
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
Recently Issued Accounting Pronouncements (continued)
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments–Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, and also issued subsequent amendments to the initial guidance, collectively, ASC 326, to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that requires the reflection of expected credit losses and will also require consideration of a broader range of reasonable and supportable information to determine credit loss estimates. For many entities with financial instruments, the standard will require the use of a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which may result in the earlier recognition of credit losses on financial instruments. This guidance will be effective for the Company beginning with the year December 31, 2023, with early adoption permitted.
Net Loss per Share
Basic net loss per share is determined by dividing net loss attributable to shareholders by the weighted-average shares outstanding during the period. Diluted EPS reflects potential dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period increased by the numbers of additional common shares that would have been outstanding if all potential common shares had been issued and were dilutive. However, potentially dilutive securities are excluded from the computation of diluted EPS to the extent that their effect is anti-dilutive. The following table shows the components of diluted shares for the three month periods ending:
| March 31, 2022 | March 31, 2021 | |||||||
| Weighted average shares outstanding – basic | ||||||||
| Dilutive effect of shares authorized | ||||||||
| Shares used in computing net loss per share – diluted | ||||||||
At March 31, 2022,
Mezzanine Equity
Due
to the contingently redeemable nature of Class F partner investor units issued in March 2021, the Company classified these units as temporary
equity in the mezzanine section of the balance sheet prior to its conversion to a C-Corporation. These units were recorded at their initial
carrying value, which equaled fair value as determined as of the issue date in March 2021. Upon the Company’s conversion from a
limited liability company to a C-Corporation in December 2021, these units were redeemed and converted to
| 2. | INVENTORIES |
Inventories consist of the following at:
| March 31, 2022 | December 31, 2021 | |||||||
| Inventory – finished goods | $ | $ | ||||||
| Inventory – merchandise | ||||||||
| Total | $ | $ | ||||||
12
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
| 3. | PREPAID EXPENSES AND OTHER ASSETS |
Prepaid expenses and other assets consist of the following at:
| March 31, 2022 | December 31, 2021 | |||||||
| Prepaid license and fees | $ | $ | ||||||
| Prepaid marketing expenses – current | ||||||||
| Prepaid marketing expenses – long-term | ||||||||
| Prepaid insurance | ||||||||
| Inventory deposits | ||||||||
| Other prepaid expenses | ||||||||
| Total | $ | $ | ||||||
| 4. | INTANGIBLE ASSETS |
Intangible assets subject to amortization consist of the following at:
| Useful Life | March 31, 2022 | December 31, 2021 | ||||||||
| Trademarks | $ | $ | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||||
| Intangible assets – net | $ | $ | ||||||||
Amortization
expense for intangibles for the three month periods ended March 31, 2022 and 2021 was $
The estimated amortization expense for the periods subsequent to March 31, 2022 is as follows:
| Trademarks | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| After 2026 | ||||
| $ | ||||
| 5. | DEFERRED REVENUE |
Deferred revenue represents amounts received prior to period-end but earned in the following period. Deferred revenue consists of the following at:
| March 31, 2022 | December 31, 2021 | |||||||
| Orders not yet shipped | $ | $ | ||||||
| Direct to consumer prepayments | ||||||||
| Deferred revenue | $ | $ | ||||||
13
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
| 6. | STOCKHOLDERS’ EQUITY |
The Company had one class of member units through March 2021. Prior to March 2021, the Company had 105 member units issued and outstanding as of December 31, 2020. There was no limitation on the number of Units that may be issued by the Company. Units had no par value. Each member had one vote for each unit owned.
During
March 2021, the Company amended its operating agreement to create three classes of units, designated as Class F, Class W and Class P.
The Company authorized
Class
W and Class P units were non-voting units. Further, Class P units were not entitled to distributions until certain hurdle provisions
as set by Board of Managers at the time of the award would be met and the units were fully vested. Any issued units vest
Corporate Conversion
On
December 8, 2021, in connection with its IPO, Fresh Grapes, LLC filed a certificate of conversion, whereby Fresh Grapes, LLC effected
a corporate conversion from a Texas limited liability company to a Nevada corporation and changed its name to Fresh Vine Wine, Inc. Pursuant
to the conversion, units of membership interest in the limited liability company were converted into shares of common stock of the corporation
at a conversion ratio of
Initial Public Offering
On
December 17, 2021, the Company completed its IPO whereby it sold
| 7. | EQUITY-BASED COMPENSATION |
In
March 2021, the Company authorized
14
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
| 7. | EQUITY-BASED COMPENSATION (continued) |
In March 2021, the Company issued
The estimated expense for various marketing and advertising services in exchange for Class F partner investor units, now common stock, described in the preceding paragraph for the periods subsequent to March 31, 2022 is as follows:
| Advertising and Marketing Expense | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| $ | ||||
In
August 2021, the Company entered into an employment agreement to hire a Chief Executive Officer. As part of this agreement, the Company
issued
15
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
| 7. | EQUITY-BASED COMPENSATION (continued) |
In
November 2021, the Company executed founder option agreements with four Class F members. The terms of the agreements grant each founder
the right and option to purchase common stock up to
The
Company also granted to the underwriter a 45-day option to purchase up to
As of March 31, 2022, the underwriter options and founders’ options to purchase common shares of the Company outstanding were as follows:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Number of | Average Exercise | Remaining Contractual | ||||||||||
| Options | Price | Term (Years) | ||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | ||||||||||||
| Forfeited | ( | ) | ||||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||
| Exercisable at March 31, 2022 | $ | |||||||||||
Warrants
On
December 17, 2021, in connection with the Company’s IPO, the Company granted to the underwriter warrants to purchase up to
As of March 31, 2022, the underwriter warrants to purchase common shares of the Company outstanding were as follows:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Number of | Average Exercise | Remaining Contractual | ||||||||||
| Warrants | Price | Term (Years) | ||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||
| Exercisable at March 31, 2022 | $ | |||||||||||
16
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
| 7. | EQUITY-BASED COMPENSATION (continued) |
There was no net impact recognized by the Company in the accompanying statements as the warrants and stock options issued to the underwriter were equity-based awards issued for services rendered by the underwriter for the IPO that was offset by the Company recognizing the fair value as direct incremental costs associated with the IPO by reducing paid-in capital for the same amount.
Restricted Stock Units
On December 17, 2021, the Company granted
On January 18, 2022, the Company granted
On March 2, 2022, the Company granted
On March 2, 2022, the Company granted
On March 30, 2022,
As of March 31, 2022, the restricted stock units of the Company outstanding were as follows:
| Weighted Average | ||||||||
| Remaining | ||||||||
| Number of | Contractual | |||||||
| RSUs | Term (Years) | |||||||
| Outstanding at December 31, 2021 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Outstanding at March 31, 2022 | ||||||||
Stock Options
On
March 11, 2022, the Company granted the option to purchase
17
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
Stock Options (continued)
On
March 30, 2022, in addition to
As of March 31, 2033, the options to purchase common shares of the Company outstanding were as follows:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Number of | Average Exercise | Remaining Contractual | ||||||||||
| Options | Price | Term (Years) | ||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||
| Exercisable at March 31, 2022 | $ | |||||||||||
The
Company uses the Black-Scholes option-pricing model to estimate the fair value of equity-based awards. The inputs for the Black-Scholes
valuation model require management’s significant assumptions. Prior to the Company’s IPO, the price per share of common stock
was determined by the Company’s board based on recent prices of common stock sold in private offerings. Subsequent to the IPO,
the price per share of common stock is determined by using the closing market price on the New York Stock Exchange on the grant date.
The risk-free interest rates, ranging from
| 8. | INCOME TAXES |
Components of the provision for income taxes for the three month period ended March 31, 2022 and the year ended December 31, 2021 were as follows:
| March 31, 2022 |
December 31, 2021 |
|||||||
| Current | $ | $ | ||||||
| Deferred | ||||||||
| Total | $ | $ | ||||||
18
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
| 8. | INCOME TAXES (continued) |
Following the conversion of Fresh Grapes, LLC to Fresh Vine Wine, Inc. on December 7, 2021, Fresh Vine Wine, Inc. will begin filing federal and state returns where required. No income tax benefit was recorded for the three month period ended March 31, 2022 due to net losses and recognition of a valuation allowance. The following table represents a reconciliation of the tax expense computed at the statutory federal rate and the Company’s tax expense for the three months ended March 31, 2022 and the year ended December 31, 2021:
| March 31, 2022 |
December 31, 2021 |
|||||||||||
| Tax expense (benefit) at statutory rate | $ | ( |
) | % | $ | ( |
) | |||||
| State income tax expense (benefit), net of federal tax effect | ( |
) | % | ( |
) | |||||||
| Change in valuation allowance on deferred tax assets | ( |
%) | ||||||||||
| Conversion from LLC to C Corporation | ||||||||||||
| Income tax expense (benefit) | $ | % | $ | |||||||||
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet basis differences. In accordance with ASC 740, “Income Taxes,” the Company recorded a valuation allowance to fully offset the net deferred tax asset, because it is more likely than not that the Company will not realize future benefits associated with these deferred tax assets at December 31, 2021. The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Deferred tax assets: | ||||||||
| Accrual to cash | $ | $ | ||||||
| Deferred revenue | ||||||||
| Stock based compensation | ||||||||
| Net operating losses | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets: | $ | $ | ||||||
At March 31, 2022, the Company had federal and state net operating
loss carryforwards of approximately $
| 9. | SUPPLIER AND CUSTOMER CONCENTRATION |
The
Company has an agreement with an unrelated party for various wine making activities, including production, bottling, labeling, and packaging.
The Company purchases finished goods through blanket sales orders that require a
The Company also engages with other suppliers for the purchase of a select varietal of wine to be offered in limited quantities. There are no formal agreements due to the infrequency of activity with these suppliers.
A significant portion of the Company’s wholesale revenue comes
from a single customer that operates in several markets. For the three month period ended March 31, 2022,
19
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
| 10. | COMMITMENTS AND CONTINGENCIES |
During March 2021, the Company entered into two license agreements
with the Class F partner investors for marketing and advertising services. The agreements require ongoing payments of $
The estimated expense for the periods subsequent to March 31, 2022 is as follows:
| Advertising and Marketing Expense | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| $ | ||||
Sponsorship Agreements
During
2020, the Company entered into multiple sponsorship agreements with unrelated parties within the sports and entertainment industry. The
terms of the agreements range from two to
The estimated expense for the sponsorship agreements as described above for the periods subsequent to March 31, 2022 is as follows:
| Advertising and Marketing Expense | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| $ | ||||
20
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
Accounts Receivable Financing
In September 2021, the Company entered into an agreement with an unrelated
party to pledge eligible accounts receivable for a cash advance at a percentage of the outstanding amount, with the remaining balance
due upon collection from the customer. The agreement has an initial term of one year which will automatically renew for successive one
year terms unless the Company provides a notice of termination at least 60 days prior to the termination date. The receivables are pledged
with full recourse, which means the Company bears the risk of nonpayment and, therefore, does not meet the definition of a factoring arrangement
under ASC 310-10-05-6. The amounts advanced to the Company are classified as a secured loan on the Company’s balance sheet and any
fees computed on the outstanding amounts are treated as interest expense on the Company’s statement of operations. The Company had
pledged approximately $
| 11. | TRANSACTIONS WITH RELATED PARTIES |
In September 2021, the Company issued a promissory note to a Class
F member in exchange for $
In October 2021, the Company issued an additional promissory note to
a Class F member in exchange for $
In addition to the agreements discussed in Note 10, the Company had an arrangement with Rabbit Hole Equity, LLC (RHE), a related party due to common ownership, under which RHE provided development, administrative and financial services to the Company. RHE is solely owned by the majority member of Nechio and Novak, LLC, which is the majority shareholder of the Company. Under the agreement, the Company will pay or reimburse RHE, as applicable, for any expenses it, or third parties acting on its behalf, incurs for the Company. For any selling, general and administrative activities performed by RHE or RHE employees, RHE, as applicable, charged back the employee salaries and wages, rent and related utilities. Beginning in December 2021, the Company now incurs employee salary and wage expenses, rent, and utilities directly.
In addition to the expenses paid by RHE to be reimbursed by the Company, several other related parties have incurred expenses or advanced cash to be reimbursed by the Company. Damian Novak is the Executive Chairman of the Company and majority member of Nechio and Novak, LLC, which is a majority shareholder of the Company. Damian Novak is also the majority member of Kratos Advisory, LLC, Appellation Brands, LLC, TC Healthcare, LLC and is the sole member of Rabbit Hole Equity DTP, LLC. The Company will pay or reimburse, as applicable, for any expenses the related parties incur while acting on behalf of the Company.
Additionally, the Company records receivables related to any expenses incurred on behalf of or cash advances to related entities.
21
FRESH VINE WINE, INC.
Notes to Financial Statements
March 31, 2022 and 2021
| 11. | TRANSACTIONS WITH RELATED PARTIES (continued) |
In October 2021, the Company entered into a service agreement with
Appellation Brands, LLC, a related party due to common ownership in the wine industry, to provide representation and distribution services.
The Company provides access to new markets and retail and wholesale customers to the related party. In exchange for these services, the
Company receives a management fee of $
Amounts due to related parties were as follows as of March 31, 2022 and December 31, 2021:
| 2022 | 2021 | |||||||
| Rabbit Hole Equity, LLC | $ | $ | ||||||
| Appellation Brands, LLC | ||||||||
| $ | $ | |||||||
Amounts due from related parties were as follows as of March 31, 3022 and December 31, 2021:
| 2022 | 2021 | |||||||
| Damian Novak | $ | $ | ||||||
| Appellation Brands, LLC | $ | $ | ||||||
| TC Healthcare, LLC | ||||||||
| Kratos Advisory, LLC | ||||||||
| $ | $ | |||||||
| 12. | SUBSEQUENT EVENTS |
In April 2022, the Company amended its agreement with Whetstone Consulting
to include additional bonus commissions ranging from $
On May 13, 2022, Appellation Brands, LLC delivered notice of its intention to terminate its agreement with the Company pursuant to which the Company has provided representation and distribution services. The Company and Appellation Brands, LLC are in discussions regarding the terms and conditions of such termination, including payment for amounts owed to the Company from Appellation Brand, LLC for services performed prior to such termination.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to those statements as included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. See “Cautionary Note Regarding Forward-looking Statements” included elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in Part I “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Overview
Fresh Vine Wine, Inc. is a premier producer of low carb, low calorie, premium wines in the United States. Founded in 2019, Fresh Vine Wine brings an innovative “better-for-you” solution to the wine market. We currently sell five varietals: Cabernet Sauvignon, Pinot Noir, Chardonnay, and Rosé, and a limited Reserve Napa Cabernet Sauvignon,. All varietals are produced and bottled in Napa, California.
Our wines are distributed across the United States and Puerto Rico through wholesale, retail, and direct-to-consumer (DTC) channels. We are able to conduct wholesale distribution of our wines in all 50 states and Puerto Rico, and we are licensed to sell through DTC channels in 42 states. We hold active relationships with wholesale distributors in 32 states and are actively working with leading distributors, including Southern Glazer’s Wine & Spirits (SGWS), Johnson Brothers, and Republic National Distributing Company (RNDC), to expand our presence across the contiguous United States.
Our wines are priced strategically to appeal to mass markets and sell at a list price between $15 and $23 per bottle. Given the Fresh Vine Wine brand’s celebrity backing, “better-for-you” appeal, and overall product quality, we believe that it presents today’s consumers with a unique value proposition within this price category. Additionally, Fresh Vine Wine is one of very few products available at this price point that includes a named winemaker, Jamey Whetstone.
Our marketing activities focus primarily on consumers in the 21-to-34 year old demographic with moderate to affluent income and on those with a desire to pursue a healthy and active lifestyles, which is reinforced through our sports marketing partnerships across all four major United States professional sports leagues.
Our asset-light operating model allows us to utilize third-party assets, including land and production facilities. This approach helps us mitigate many of the risks associated with agribusiness, such as isolated droughts or fires. Because we source product inputs from multiple geographically dispersed vendors, we reduce reliance on any one vendor and benefit from broad availability/optionality of product inputs. This is particularly important as a Napa-based wine producer where droughts or fires can have an extremely detrimental impact to a company’s supply chain if not diversified.
The Company delivered strong first quarter 2022 operational results and is looking forward to inclusion in the summer, fall and spring retail resets for both large and national chains. The Company has invested in inventory year to date May 2022, specifically advanced purchases of wine in response to increased demand. The Company believes that this increase in inventory will allow the Company to meet balance of year demand and mitigate supply chain risks the industry is facing. The Company has added headcount in the first quarter 2022 to support operational growth and national sales distribution.
Key Financial Metrics
We use net revenue, gross profit (loss), net income (loss) and EBITDA to evaluate the performance of Fresh Vine Wine. We also use the non-financial key metrics of cases sold and point of distribution (PODs). For the quarter ending, March 31, 2022, Fresh Vine Wine branded offerings sold over 6,000 cases of wine (approximately 300,000 5oz glasses), an approximate 100% increase over the fourth quarter of 2021. The Company added 1,034 PODs in the quarter ending March 31, 2022, bringing total PODS to 1,945, up from 911 PODS as of December 31, 2021. These metrics are useful in helping us to identify trends in our business, prepare financial forecasts and make capital allocation decisions, and assess the comparable health of our business relative to our direct competitors.
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net revenue | $ | 929,125 | $ | 119,925 | ||||
| Gross profit | $ | 317,073 | $ | 53,718 | ||||
| Net income (loss) | $ | (4,286,243 | ) | $ | (1,322,941 | ) | ||
| EBITDA | $ | (4,269,873 | ) | $ | (1,322,828 | ) | ||
23
Net revenue
Net revenue represents all revenues less discounts, promotions, and excise taxes. Net revenue is driven through wine sales, merchandise sales, wine club membership dues and service fees.
Gross profit (loss)
Gross profit (loss) is equal to our net revenue less cost of revenues (or cost of goods sold). Cost of revenues is comprised of all direct product costs such as juice, bottles, caps, corks, labels, capsules, and shipping. Additionally, we also categorize boxes and quality assurance testing within our cost of revenues. As we increase wholesale revenues, we expect compressed margins sharing the product margin with our distributors.
EBITDA
EBITDA is a financial measure that we calculate as operating profits before interest, taxes, depreciation and amortization. We use this metric to evaluate business performance in comparison to budgets, forecasts, and prior year financial results, providing a measure that management believes reflects the Company’s core operating performance and overall health.
We believe the presentation of EBITDA is relevant and useful for investors because it allows investors to assess the Company’s operating performance and makes it easier to compare our results with other similar companies, despite the potential impacts of varying financial or capital structures, depreciation benefits, or tax strategies. In addition, we believe this measure is among the measures used by investors, analysts and peers in our industry for purposes of evaluating and comparing our operating performance to other companies.
The following table provides a reconciliation of EBITDA to the most comparable financial measure reported under U.S. GAAP, net loss, for the periods presented:
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net loss | $ | (4,286,243 | ) | $ | 1,322,941 | ) | ||
| Adjustments to net loss | ||||||||
| Interest | 16,250 | 0 | ||||||
| Amortization | $ | 120 | $ | 113 | ||||
| EBITDA | $ | (4,269,873 | ) | $ | (1,322,828 | ) | ||
Components of Results of Operations and Trends That May Impact Our Results of Operations
Net Revenue
Our net revenue consist primarily of wine sales to distributors and retailers, which together comprise our wholesale channel, and directly to individual consumers through our DTC channel. Net revenues generally represent wine sales and shipping, when applicable, and to a lesser extent branded merchandise and wine club memberships. For wine and merchandise sales, revenues are generally recognized at time of shipment. For Wine Club memberships, revenues are recognized quarterly at the time of fulfilment and only after the club member has made three consecutive (monthly) payments.
We refer to the volume of wine we sell in terms of cases. Each case contains 12 standard bottles, in which each bottle has a volume of 750 milliliters. Cases are sold through Wholesale/Retail or DTC channels.
24
The following factors and trends in our business have driven net revenue growth since January 1, 2021, and are expected to be key drivers of our net revenue for the foreseeable future:
Brand recognition: As we expand our marketing presence and drive visibility through traditional and modern marketing methods, we expect to build awareness and name recognition for Fresh Vine Wine in consumers’ minds. Brand awareness will be built substantially through social media channels, where we are able to immediately access more than 30 million potential consumers through our celebrities’ Instagram and Facebook platforms. Additionally, it will be built through complementary sports marketing partnerships across the National Football League, National Hockey League, National Basketball Association, and Major League Baseball.
Portfolio evolution: As a relatively new, high-growth brand, we expect and seek to learn from our consumers. We will continuously evolve and refine our products to meet our consumers’ specific needs and wants, adapting our offering to maximize value for our consumers and stakeholders. Our growth mindset, coupled with our differentiated production and distribution platform, will enable us to accelerate growth and deliver on our value proposition over time.
One way in which we will evolve our portfolio is through product extensions. Fresh Vine Wine currently has five varietals (Cabernet Sauvignon, Cabernet Sauvignon Reserve, Pinot Noir, Chardonnay, and Rosé) within its product portfolio, and we can use the same knowledge and supplier networks to launch new varietals with much greater efficiency than we were previously able to achieve. We expect to launch a sixth varietal, Sauvignon Blanc, late in the second calendar quarter of 2022.
Distribution expansion and acceleration: Purchasing by distributors and loyal accounts that continue to feature our wines are key drivers of net revenue. We plan to continue broadening our distributor network, adding new geographies, and increasing each distributor’s average order size as we accelerate growth.
Opportunistic evaluation of strategic acquisitions: With strong internal knowledge and a depth of experience in private equity and the broader financial services industry, we intend to maintain a strategic and opportunistic approach to evaluating acquisitions and growing through acquisition. We will also remain open to other inorganic growth activities, including joint ventures and strategic alliances, as we seek to accelerate this business to market. While we have not identified any prospective targets to date, we consider this a core competency of our leadership team and believe that this presents us with a viable growth alternative as we move forward.
Seasonality: In line with industry norms, we anticipate our net revenue to peak during the quarter spanning from October through December due to increased consumer demand around the major holidays. This is particularly true in our DTC revenue channel, where marketing programs will often be aligned with the holiday season and product promotions will be prevalent.
Revenue Channels
Our sales and distribution platform is built upon a highly developed network of distributor accounts. Within this network, we have signed agreements in place with several of the nation’s largest distributors including Southern Glazer’s Wine & Spirits and RNDC, among others. While we are actively working with these distributors in certain markets, they operate across the United States and we intend to grow our geographic/market presence through these relationships. The development of these relationships and impacts to our related product mix will impact our financial results as our channel mix shifts.
| ● | Wholesale channel: Consistent with sales practices in the wine industry, sales to retailers and distributors occur below SRP (Suggested Retail Price). We work closely with distributors to increase wine volumes and the number of products sold by their retail accounts in their respective territories. |
| ● | DTC channel: Wines sold through our DTC channels are generally sold at SRP, although we do periodically offer various promotions. Our DTC channel continues to grow as a result of a number of factors, including expanded e-commerce sites and social media capabilities. |
| ● | Related party services: We have entered into service agreements with related parties in the wine industry to provide representation and distribution services. Service revenues are expected to suspend at the end of the current calendar quarter to allow the company’s lean team to prioritize the growth and expansion of the Fresh Vine Wine brand. |
25
Wholesale channel sales made on credit terms generally require payment within 30 days of delivery; however our credit terms with Southern Glazer’s Wine & Spirits requires payment within 60 days of delivery. During periods in which our net revenue channel mix reflects a greater concentration of wholesale sales, we typically experience an increase in accounts receivable for the period to reflect the change in sales mix; payment collections in the subsequent period generally reduce our accounts receivable balance and have a positive impact on cash flows.
While we seek to increase revenue across all channels, we expect the majority of our future revenue to be driven through the wholesale channel. We intend to maintain and expand relationships with existing distributors and form relationships with new distributors as we work to grow the company. With multiple varietals within the Fresh Vine Wine portfolio, we consider ourselves to be a ‘one-stop shop’ for better-for-you wines. We continue to innovate with new products at competitive price points and strive to enhance the experience as we increase revenue with new and existing consumers.
In the DTC channel, our comprehensive approach to consumer engagement in both online and traditional forums is supported by an integrated e-commerce platform. Our marketing efforts target consumers who have an interest in healthy and active lifestyles. We make every attempt to motivate consumers toward a simple and easy purchasing decision using a combination of defined marketing programs and a modernized technology stack.
Increasing customer engagement is a key driver of our business and results of operations. We continue to invest in our DTC channel and in performance marketing to drive customer engagement. In addition to developing new product offerings and cross-selling wines in our product portfolio, we focus on increasing customer conversion and retention. As we continue to invest in our DTC channel, we expect to increase customer engagement and subsequently deliver greater satisfaction. We also distribute our wines via other wine e-commerce sites such as Wine.com and Vivino.com and plan to continue to add affiliate retail websites.
Net Revenue Percentage by Channel
We calculate net revenue percentage by channel as net revenue made through our wholesale channel to distributors, through our wholesale channel directly to retail accounts, and through our DTC channel, respectively, as a percentage of our total net revenue. We monitor net revenue percentage across revenue channels to understand the effectiveness of our distribution model and to ensure we are employing resources effectively as we engage customers.
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Wholesale | 57 | % | 46 | % | ||||
| Direct to consumer | 27 | % | 54 | % | ||||
| Related party service | 16 | % | 0 | % | ||||
| 100 | % | 100 | % | |||||
Cost of Revenues
Cost of revenues (or cost of goods sold). Cost of revenues is comprised of all direct product costs such as juice, bottles, caps, corks, labels, and capsules. Additionally, we also categorize boxes and quality assurance testing within our cost of revenues. We expect that our cost of revenues will increase as our net revenue increases. As the volume of our product inputs increase, we intend to work to renegotiate vendor contracts with key suppliers to reduce overall product input costs as a percentage of net revenue.
Additionally, the Company includes shipping fees in all DTC revenues. These fees are paid by end consumers at time of order and subsequently itemized within the cost of each individual sale.
As a commodity product, the cost of wine fluctuates due to annual harvest yields and the availability of juice. This macroeconomic consideration is not unique to Fresh Vine Wine, although we are conscious of its potential impact to our product cost structure.
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Gross Profit (Loss)
Gross profit (loss) is equal to our net revenue less cost of revenues. As we grow our business in the future, we expect gross profit to increase as our revenue grows and as we optimize our cost of revenues.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses consist of selling expenses, marketing expenses, and general and administrative expenses. Selling expenses consist primarily of direct selling expenses in our wholesale and DTC channels, including payroll and related costs, product samples, processing fees, and other outside service fees or consulting fees. Marketing expenses consist primarily of advertising costs to promote brand awareness, contract fees incurred as a result of significant sports marketing agreements, customer retention costs, payroll, and related costs. General and administrative expenses consist primarily of payroll and related costs.
Equity-Based Compensation
Equity-based compensation consists of the accounting expense resulting from our issuance of equity or equity-based grants issued in exchange for employee or non-employee services. We measure equity-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is generally the vesting period. We recognize any forfeitures as they occur.
Results of Operations
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net revenue | $ | 929,125 | $ | 119,925 | ||||
| Cost of revenues | 612,052 | 66,207 | ||||||
| Gross profit (loss) | 317,073 | 53,718 | ||||||
| Selling, general and administrative expenses | 2,705,200 | 649,733 | ||||||
| Equity-based compensation | 1,902,584 | 727,583 | ||||||
| Loss from operations | (4,290,711 | ) | (1,323,598 | ) | ||||
| Other income | 4,468 | 657 | ||||||
| Net loss | $ | (4,286,243 | ) | $ | (1,322,941 | ) | ||
Comparison of the Three Months ended March 31, 2022 and 2021
Net Revenue, Cost of Revenues and Gross Profit
We had net revenue in in the first quarter of 2021 of $119,925. Net revenue in in the first quarter of 2022 increased to $929,125. The increase in net revenue was attributable to our increasing presence in the wholesale market and an increase in wine club membership. During the first quarter of 2022, we generated net revenue of $529,840 from our wholesale distribution channel, $248,401 of net revenue from our direct-to-consumer sales channel, and $150,884 from our services channel. This revenue distribution represents 57%, 27% and 16%, respectively, of our net revenue during the period. Service revenues are expected to suspend at the end of the current calendar quarter to allow the company’s lean team to prioritize the growth and expansion of the Fresh Vine Wine brand.
| Three months ended March 31, | Change | |||||||||||
| 2022 | 2021 | $ | ||||||||||
| Net revenue | $ | 929,125 | $ | 119,925 | $ | 809,200 | ||||||
| Cost of revenues | $ | 612,052 | $ | 66,207 | $ | 545,845 | ||||||
| Gross profit (loss) | $ | 317,073 | $ | 53,718 | $ | 263,355 | ||||||
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Selling, general and administrative expenses
Selling, general and administrative expenses increased $2,055,467, or 316%, to approximately $2.7 million for the three months ended March 31, 2022, compared to $649,733 for the three months ended March 31, 2021. Selling, general and administrative expense increases were largely driven by increases in selling expense related to our sponsorship agreements in the sports and entertainment industry, from $47,042 for the three months ended March 31, 2021 to $303,200 for the three months ended March 31, 2022, marketing expenses, from $163,852 for the three months ended March 31, 2021 to $500,188 for the three months ended March 31, 2022, and general and administrative expenses, from $438,838 for the three months ended March 31, 2021 to $1,901,812 for the comparable 2022 quarter. The year-over-year increase in marketing expenses primarily resulted from increased advertising and social media marketing. The year-over-year increase in general and administrative expenses is the result of increased staffing and salaries as operational activity increased from 2021 to 2022. We typically expect selling expenses to follow our sales volume growth as the activities are intended to generate revenues.
| Three months ended March 31, | Change | |||||||||||
| 2022 | 2021 | $ | ||||||||||
| Selling expenses | $ | 303,200 | $ | 47,042 | $ | 256,158 | ||||||
| Marketing expenses | 500,188 | 163,852 | 336,336 | |||||||||
| General and administrative expenses | 1,901,812 | 438,839 | 1,462,973 | |||||||||
| Total selling, general and administrative expenses | $ | 2,705,200 | $ | 649,733 | $ | 2,055,467 | ||||||
Cash Flows
Net cash provided by (used in) operating activities was ($4,542,945) and ($162,116) for the three months ended March 31, 2022 and March 31, 2021, respectively. Cash used in operating activities increased in the 2022 period primarily because of increased staffing as operations increased and advertising expenses due to increased sponsorships and marketing agreements during 2022.
Net cash used in investing activities was $0 for the three months ended March 31, 2022 and March 31, 2021.
Net cash used in financing activities was $370,838 and net cash provided by financing activities was $200,000 for the three months ended March 31, 2022 and March 31, 2021, respectively. The cash used in the three months ended March 31, 2022 was primarily to pay off outstanding debt. The cash provided in the three months ended March 31, 2021 was primarily due to proceeds from issuance of member units.
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows provided by (used in): | ||||||||
| Operating activities | $ | (4,542,945 | ) | $ | (162,116 | ) | ||
| Investing activities | 0 | 0 | ||||||
| Financing activities | (370,838 | ) | 200,000 | |||||
| Net (decrease) increase in cash | $ | (4,913,783 | ) | $ | 37,884 | |||
Liquidity and Capital Resources
Our primary cash needs are for working capital purposes, such as driving awareness through advertising and marketing spend, adding staff, funding operations, and purchasing inventory. Prior to our December 2021 initial public offering, we funded our operational cash requirements primarily with funds advanced from Damian Novak, our Executive Chairman and co-founder, and entities affiliated with Mr. Novak. We also received proceeds from the sale of Class W Units representing membership interests in the Company, which converted into common stock upon our December 2021 conversion to a corporation (the “LLC Conversion”), and we received short term loans in the form of promissory notes from two of our equity holders, which supplement the loans from Mr. Novak and his affiliates as sources of operating capital, along with limited cash flows from our operating activities. See “Financing Transactions” below.
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We have incurred losses and negative cash flows from operations since our inception in May 2019, including an operating loss of $4,290,711 for the three months ended March 31, 2022 and operating losses of approximately $9.97 million and $1.3 million during the years ended December 31, 2021 and 2020, respectively. As of March 31, 2022, we had an accumulated deficit of $4,903,594 and a total stockholders’ equity of $14,614,081.
As of March 31, 2022, we had $11,150,158 in cash, accounts receivable (including receivables with recourse) of $857,288, inventory of $785,648, prepaid expenses of $3,554,256 of which $2,641,339 is current prepaid expenses. On March 31, 2022, current assets amounted to $15,813,846 and current liabilities were $2,116,552 resulting in a working capital surplus (with working capital defined as current assets minus current liabilities) of $13,697,294.
We expect to incur losses in future periods as we continue to invest in our business. The Company incurred net losses of $4,286,243 and $1,322,941 for the three months ended March 31, 2022 and 2021, respectively. As reflected on its statements of cash flows, the Company’s net cash used in operating activities during the quarters ended March 31, 2022, and December 31, 2021, was $4,542,945 and $3,778,330, respectively.
Although the Company’s revenue generated during the first quarter of 2022 represents a 43% increase over its revenues generated in the fourth quarter of 2021, the Company’s operating expenses have outpaced its revenues over those periods. The Company has incurred increased expenses and cash outflows to purchase inventory in advance of retail placement and in efforts to mitigate supply chain risks, invest in sales and marketing activities and increase our Company staffing and infrastructure to position us for future growth. These investments are critical to position us for future growth including entry into distribution agreements with large regional and national retailers. The Company expects to continue to generate negative cash flows from operations as it implements its plan to invest in inventory for the balance of the year to mitigate potential supply chain challenges. The Company had cash on hand of $8,097,467 as of May 13, 2022. Since March 31, 2022, the Company has purchased or placed deposits on inventory for approximately $2.1 million dollars, with year to date inventory deposits and purchases exceeding $3.5 million dollars. The Company currently holds no debt and plans to seek debt or equity financing to fund its near-term operations.
At the Company’s current pace of incurring expenses, and without receipt of additional financing, the Company projects that its existing cash will be sufficient to fund its current operations into the fourth quarter of 2022, after which additional financing will be needed to continue to satisfy its obligations. As a result, the Company may defer certain investments in additional inventory, curtail its sales and marketing efforts and staffing, and take other measures to reduce its expenses and business operations as the Company works to obtain additional debt or equity financing to help support short-term working capital needs, as it has no debt on its balance sheet. These measures may negatively impact the success of the Company’s near-term or longer-term growth objectives and prospects.
We do not have any committed sources of additional capital. Company management does not know whether additional financing will be on terms favorable or acceptable to us when needed. If additional financing is available, it may be dilutive to existing shareholders and may otherwise include burdensome or onerous terms. The Company’s inability to raise additional working capital at all or to raise it in a timely manner would negatively impact its ability to fund operations, to generate revenues, grow its business and otherwise execute its business plan, which could lead to the reduction or suspension of operations and ultimately potentially forcing the Company to cease operations altogether. These factors call into questions the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Financing Transactions
We have funded our operations through a combination of debt and equity financings.
Since the Company’s inception in May 2019, Damian Novak, our Executive Chairman and co-founder, and affiliates of Mr. Novak have incurred expenses on our behalf or advanced funds to us from time to time as needed to satisfy our working capital requirements and expenses. The reimbursable expenses and advances were reflected as related party payables on our balance sheet and were not evidenced promissory notes or other written documentation. On December 17, 2021, we used a portion of the proceeds from our initial public offering to repay $2.0 million, representing the outstanding amount of these related party payables, net of related party receivables that Mr. Novak and his affiliates owed to us at that time.
In November 2020, we sold 50,000 Class W Units representing membership interests in the Company to an investor at a price of $5.00 per unit, for gross proceeds of $250,000. Such Class W Units converted into an aggregate of 309,672 shares of our common stock upon the LLC Conversion.
In January 2021, we sold 40,000 Class W Units representing membership interests in the Company to an investor at a price of $5.00 per unit, for gross proceeds of $200,000. Such Class W Units converted into an aggregate of 247,738 shares of our common stock upon the LLC Conversion.
During the period from April 2021 through September 2021, we sold an aggregate of 60,388 Class W Units representing membership interests in the Company to investors at a price of $34.94 per unit, for gross proceeds of $2,109,945. Such Class W Units converted into an aggregate of 374,017 shares of our common stock upon the LLC Conversion.
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In September 2021, the Company entered into an agreement with an unrelated party to pledge certain eligible accounts receivable for a cash advance at a percentage of the outstanding amount, with the remaining balance due upon collection from the customer. The agreement has an initial term of one year which will automatically renew for successive one year terms unless the Company provides a notice of termination at least 60 days prior to the termination date. The receivables are pledged with full recourse, which means we bear the risk of non-payment. The amounts advanced to the Company are classified as a secured loan on our balance sheet and any fees computed on the outstanding amounts are treated as interest expense on our statement of operations. The Company had pledged approximately $243,000 of customer accounts which is recorded as receivables with recourse, and has secured borrowings of approximately $16,231 as of March 31, 2022.
In September 2021, we issued a $216,000 promissory note to a stockholder of the Company that became due and payable upon the December 17, 2021 closing of our initial public offering. In October 2021, we issued another $216,000 promissory note to a different stockholder of the Company that became due and payable upon the December 17, 2021 closing of our initial public offering. Collectively, the stockholders holding these notes owned approximately 3.63% of our outstanding shares immediately prior to our initial public offering.
In December 2021, we completed an initial public of our common stock, in which we sold 2,200,000 shares. The shares began trading on the NYSE American on December 14, 2021. The shares were sold at an initial public offering price of $10.00 per share, resulting in net proceeds to the Company of approximately $19.2 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Critical Accounting Policies and Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.
While all significant accounting policies are more fully described in Note 1 (Summary of Significant Accounting Policies) to our financial statements, we believe that the following accounting policies and estimates are critical to our business operations and understanding of our financial results.
Allowance for Doubtful Accounts
Accounts receivable consists of amounts owed to us for sales of our products on credit and are reported at net realizable value. Credit terms are extended to customers in the normal course of business. We perform ongoing credit evaluations of our customers’ financial conditions. We estimate allowances for future returns and doubtful accounts based upon historical experience and its evaluation of the current status of receivables. Accounts considered uncollectible are written off against the allowance. As of March 31, 2022 and 2021 there was no allowance for doubtful accounts.
Allowance for Inventory Obsolescence
Inventories primarily include bottled wine which is carried at the lower of cost (calculated using the first-in-first-out (“FIFO”) method) or net realizable value. We reduce the carrying value of inventories that are obsolete or for which market conditions indicate cost will not be recovered to estimated net realizable value. Our estimate of net realizable value is based on analysis and assumptions including, but not limited to, historical experience, future demand and market requirements. Reductions to the carrying value of inventories are recorded in cost of revenues. As of March 31, 2022 and 2021 there was no allowance for inventory obsolescence.
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Useful Lives of Intangible Assets
We assess intangible assets with finite useful lives which are amortized on a systematic basis over their estimated useful lives. The amortization period and amortization method for an intangible asset with a finite useful life reflects the pattern in which the assets’ future economic benefits are expected to be consumed. Where the pattern cannot be reliably determined, the straight-line method is used. The amortization period and method are reviewed at least at each financial year-end. Amortization of intangible assets with fixed determinable lives is recorded on a straight-line basis over 10 years for trademarks.
Equity-Based Compensation
We measure equity-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is generally the vesting period. We recognize any forfeitures as they occur.
We measure equity-based compensation when the service date precedes the grant date based on the fair value of the award as an accrual of equity-based compensation and adjusts the cost to fair value at each reporting date prior to the grant date. In the period in which the grant occurs, the cumulative compensation cost is adjusted to the fair value at the date of the grant.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.
Accounting Standards and Recent Accounting Pronouncements
See Note 1 (Summary of Significant Accounting Policies) to our audited financial statement for a discussion of recent accounting pronouncements.
Emerging Growth Company Status
Pursuant to the JOBS Act, a company constituting an “emerging growth company” is, among other things, entitled to rely upon certain reduced reporting requirements and is eligible to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are an emerging growth company and have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. Our financial statements may, therefore, not be comparable to those of other public companies that comply with such new or revised accounting standards.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of March 31, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of March 31, 2022 due to the material weaknesses in internal control over financial reporting as described below.
Material Weakness Remediation Activities
Management had previously determined that there were material weaknesses in our internal control over financial reporting resulting from (i) our failure to maintain adequate controls to identify and record transactions incurred by related parties on behalf of the Company, (ii) a lack of segregation of incompatible duties the limited number of the Company employees responsible for accounting and reporting functions, (iii) a lack of regular and timely review of the Company’s accounts receivable subledger, and (iv) the improper application of an assumption used to calculate the fair value of warrants issued to the Company’s underwriters at the closing of the Company’s initial public offering. In an effort to remediate the material weakness in our internal control over financial reporting described above, we intend to take the actions and implement the processes described below.
Accounting for Related Party Transactions. The Company intends to develop and implement a process for capturing related party transactions as they occur, including maintaining related supporting documentation and performing monthly reconciliations, to ensure timely, accurate, and complete financial reporting.
Lack of Segregation of Duties. To ensure timely and accurate financial reporting, management is designing processes to keep authorization, recordkeeping, custody of assets, and reconciliation duties separate, and intends to reevaluate its overall staffing levels within the accounting, finance and information technology departments and may hire additional staff to enable segregation of duties.
Review of Accounts Receivable Subledgers. The Company intends to implement policies requiring regular and timely review of accounts receivable subledgers to prevent and detect possible accuracy issues, existence issues, and ensure the subledger is complete.
Accounting for Equity-Based Compensation. , As part of reevaluating its overall staffing levels within the accounting and finance department, the Company may seek to retain additional resources with qualifications that include a high level of experience with complex accounting transactions and application of U.S. GAAP.
Once the above actions and processes have been in operation for a sufficient period of time for our management to conclude that the material weaknesses has been fully remediated and our internal controls over financial reporting are effective, we will consider these material weaknesses fully addressed.
Changes in Internal Control Over Financial Reporting
There were no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the three months ended March 31, 2022 that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the potential risks and uncertainties discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as well as the updated risk factor set forth below.
We will require additional debt or equity financing in the near term to sustain our existing operations, and if adequate financing is not available, we may be forced curtail our near-term growth priorities, take measures to severely reduce our expenses and business operations, or discontinue them completely. Such financing may be dilutive. Our need for near-term financing calls into question our ability to remain a going concern. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
See “Exhibit Index” following the signature page of this Quarterly Report on Form 10-Q for a description of the documents that are filed as Exhibits to this Quarterly Report on Form 10-Q or incorporated by reference herein.
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SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FRESH VINE WINE, INC. | ||
| Date: May 16, 2022 | By: | /s/ Janelle Anderson |
| Janelle Anderson | ||
| Chief Executive Officer | ||
| Date: May 16, 2022 | By: | /s/ Ellen Scipta |
| Ellen Scipta | ||
| Chief Financial Officer |
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EXHIBIT INDEX
FRESH VINE WINE, INC.
FORM 10-Q
| Exhibit Number |
Description | |
| 10.1*# | Form of Employee Restricted Stock Agreement under the Fresh Vine Wine, Inc. 2021 Equity Incentive Plan | |
| 31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certifications of Principal Executive Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * | Filed herewith. |
| # | Management contract or compensatory plan |
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