ITEM 7. 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 prospect Annual Report on Form 10-K. 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 Annual Report on Form 10-K. 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 this Annual Report on Form 10-K.
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 $22 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.
Key Financial Metrics
We use net revenue, gross profit (loss), net income
(loss) and EBITDA to evaluate the performance of Fresh Vine Wine. 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.
Year ended December 31,
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Net revenue
Net revenue represents all revenues less discounts,
promotions, and excise taxes. Net revenue is driven through wine sales, merchandise sales, and wine club membership dues.
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, and capsules. Additionally, we also categorize boxes and quality assurance testing within our cost of revenues.
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:
Year ended December 31,
Adjustments to net loss
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.
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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 four varietals (Cabernet Sauvignon, 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.
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.
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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 plan to expand via other wine e-commerce sites such as Wine.com and Go-Puff.
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.
Year ended December 31,
Direct to consumer 46 % 18 %
Related party service 9 % 0 %
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
Year ended December 31,
Comparison of the Fiscal Years ended December 31, 2021
and 2020
Net Revenue, Cost of Revenues and Gross Profit
We had net revenue in fiscal 2020 of $217,074.
Net revenue in fiscal 2021 was $1,700,207. The increase in net revenue was attributable to our increasing presence in the wholesale market,
the launch of our wine club, and the introduction of service revenues. We generated net revenue of $772,711 during fiscal 2021 from our
wholesale distribution channel, $774,421 of net revenue from our direct-to-consumer sales channel, and $153,075 from our services channel.
This revenue distribution represents 45%, 46% and 9% , respectively, of our net revenue during the period.
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Year ended December 31, Change
Selling, general and administrative expenses
Selling, general and administrative expenses increased
$3,463,415, or 260%, to approximately $4.8 million for the fiscal year ended December 31, 2021 compared to $1.3 million for
the fiscal year ended December 31, 2020. Selling, general and administrative expense increases were largely driven by increases in
selling expenses, from $223,938 for the period ended December 31, 2020 to $364,204 for the fiscal year ended December 31, 2021,
marketing expenses, from approximately $161,387 for the period ended December 31, 2020 to $1,612,648 for the fiscal year ended December 31,
2021, and general and administrative expenses, from approximately $944,704 for the period ended December 31, 2020 to $2,816,593 for
the comparable fiscal 2021 period. The year-over-year increase in marketing expenses primarily resulted from our sponsorship agreements
in the sports and entertainment industry. The year-over-year increase in general and administrative expenses is the result of increased
salaries and wages as operational activity increased from 2020 to 2021 relating to the sales activity beginning in 2021. We typically
expect selling expenses to follow our sales volume growth as the activities are intended to generate revenues.
Year ended December 31, Change
Cash Flows
Net cash provided by (used in) operating activities
was ($5,789,943) and ($247,042) for the years ended December 31, 2021 and December 31, 2020, respectively. Cash used in operating activities
increased in the 2021 period primarily because of increased staffing as operations increased and advertising expenses due to increased
sponsorships and marketing agreements during 2021.
Net cash used in investing activities was $250 and
$4,313 for the years ended December 31, 2021 and December 31, 2020, respectively. Cash used in investing activities in the 2021 and 2020
periods was from the purchase of intangible assets.
Net cash provided by financing activities was $21,849,648
and $250,000 for the years ended December 31, 2021 and December 31, 2020, respectively. The cash provided in the year ended December 31,
2021 was primarily due to proceeds from the initial public offering.
Year ended December 31,
Cash flows provided by (used in):
Investing activities (250 ) (4,313 )
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Liquidity and Capital Resources
Our primary cash needs are for working capital purposes,
such as producing or purchasing inventory and funding operating and capital expenditures. 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 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.
We
used a portion of the net proceeds we received from our initial public offering to repay the net outstanding related party payables that
we owed to Mr. Novak and his affiliates and the promissory notes held by our equity holders. We are currently funding our operational
cash requirements with net proceeds from the sale of our common stock in our initial public offering, supplemented by cash flows from
our operating activities.
We have incurred losses and negative cash flows
from operations since our inception in May 2019, including net losses of approximately $9.97 million and $1.3 million during
the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of approximately
$617,000 and a total stockholders’ equity of approximately $17.1 million. We expect to incur losses in future periods as we
continue to increase our expenses in order to position us to grow our business and incur expenses associated with being a public company.
As of December 31, 2021, we had approximately $16.1
million in cash, accounts receivable (including receivables with recourse) of approximately $508,000, inventory of approximately $159,000,
prepaid expenses of approximately $2.1 million of which $1.2 million is current prepaid expenses. At December 31, 2021, current assets
amounted to approximately $18.3 million and current liabilities were approximately $2.2 million resulting in a working capital surplus
(with working capital defined as current assets minus current liabilities) of approximately $16.1 million.
We believe that our capital resources are sufficient
to support our operations for at least the next twelve months. Our ability to continue as a going concern in the future will be determined
by our ability to generate sufficient cash flow to sustain our operations and/or raise additional capital in the form of debt or equity
financing. We currently do not have any committed sources of additional capital. Our forecast of cash resources is forward-looking information
that involves risks and uncertainties, and the actual amount of our expenses could vary materially as a result of a number of factors.
We have based our estimates on assumptions that may prove to be wrong, and our revenue could prove to be less and our expenses higher
than we currently anticipate. Management does not know whether additional financing will be on terms favorable or acceptable to us when
needed, if at all. If we are unable to generate sufficient cash flow to fund our operations and adequate additional funds are not available
when required, management may need to curtail its sales and marketing efforts, which would adversely affect our business prospects, or
we may be unable to continue operations.
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.
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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.
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 $146,000 of customer accounts which is recorded as receivables with recourse, and
has secured borrowings of approximately $171,000 as of December 31, 2021.
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 audited 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 December 31, 2021 and 2020 there was no allowance for doubtful accounts.
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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 December 31, 2021 and 2020 there was no allowance for inventory obsolescence.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements and supplementary data are included beginning
on pages F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
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ITEM 9A. CONTROLS AND PROCEDURES.
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 December 31, 2021. 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 December 31, 2021 due to the material weaknesses in internal control over financial reporting as described
below.
Management’s Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal
control over financial reporting. As defined in the securities laws, internal control over financial reporting is a process designed by,
or under the supervision of, our principal executive and principal financial officer and effected by our Board of Directors, management,
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures
that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the acquisitions and dispositions
of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance
with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control
over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) as of December 31, 2021 based on the
criteria in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in 2013. Based upon this evaluation, we concluded that our internal control over financial reporting was
not effective as of December 31, 2021 due to the following material weaknesses.
Material Weaknesses in Internal Control Over Financial Reporting
Accounting for Related Party Transactions. Management has determined
that the Company does not maintain adequate controls to identify and record transactions incurred by related parties on behalf of the
Company. Transactions funded by the Company’s largest stockholder or its affiliates, or transactions paid by the Company on behalf
of related parties, may not be identified and recorded as part of the Company’s financial statements on timely basis. Management
has determined that this represents a material weakness in our internal control over financial reporting because failure to identify and
record such transactions could result in a material misstatement to the Company’s financial statements.
Lack of Segregation of Duties. Management has determined that
the limited number of the Company employees responsible for accounting and reporting functions results in a lack of segregation of incompatible
duties in that such employees have access to both physical assets and the related accounting records or to all phases of a transaction.
At December 31, 2021, our principal financial officer had access to the general ledger, access and authority to use Company credit cards,
authority to authorize cash disbursements under threshold amounts and access to inventories. Although the Company’s cash disbursements
and credit card transactions are subject to oversight, there is a lack of preventative controls with cash disbursements and credit card
transactions and limited or no controls with oversight of the general ledger and inventory records. In addition, an individual who serves
the Company’s information technology function has transactional access on both of the Company’s primary financial applications
and the Company’s principal financial offering has unrestricted administrative access to the Company’s accounting application.
As a result, a lack of preventative application controls exists to prevent or detect material misstatements in the financial statements
on a timely basis.
Review of Accounts Receivable Subledgers. A lack of regular
and timely review of the Company’s accounts receivable subledger resulted in certain accounts receivable being included in accounts
receivable aging that had either been previously collected, cancelled, or modified. Due to the lack of timely review, a material weakness
exists in the Company’s internal control over financial reporting.
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Accounting for Equity-Based Compensation. We did not maintain
effective controls regarding the improper application of an assumption used to calculate the fair value of warrants issued to the Company’s
underwriters, resulted in a material change in the grant-date fair of the award, and the improper classification of equity-based compensation
issued to the Company’s underwriters that is properly recorded as an offering cost.
Notwithstanding the material weakness in our internal control over
financial reporting, we have concluded that the consolidated financial statements and other financial information included in this report
fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented.
Material Weakness Remediation Activities
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.
This annual report does not include an attestation report of Wipfli,
LLP, our independent registered public accounting firm, regarding internal control over financial reporting. Our management report was
not subject to attestation by our independent registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act, which exempts nonaccelerated filers from the independent registered public accounting firm attestation requirement.
Changes in Internal Control Over Financial Reporting
There were no 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 December 31, 2021 that has materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
On January 1, 2022, the Company entered into a consulting
services agreement with FELCS, LLC, a limited liability company owned by Damian Novak, to provide consulting and advisory services to
the Company, including, among other things, assisting in and advising on the development of the Company’s marketing plans, materials
and objectives, assisting in the development and implementation of the Company’s growth strategies and processes, and advising on
the Company’s systems, policies and procedures. As compensation for such services, the Company’s pays FELCS, LLC a $25,000
monthly consulting fee. The consulting services agreement has an initial term of one year, will automatically renew for additional one
year periods unless either party gives the other written notice of non-renewal at least 30 days prior to the end of the then current term,
and may be terminated by either party upon 30 days prior written notice.. The foregoing summary of the consulting services agreement is
qualified in all respects by the consulting services agreement itself, a copy of which is attached as Exhibit 10.14 to this report and
incorporated by reference herein.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS.
Not Applicable.
43
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE.
Information in response to this Item will be set
forth in our definitive proxy statement or an amendment to this Form 10-K, to be filed with the SEC within 120 days after the end of the
fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Code of Ethics
We have adopted a code of conduct that applies to
all of our officers, employees and directors, and a separate code of ethics that applies to our Chief Executive Officer and senior financial
officers. Our code of conduct and code of ethics are available on our Internet website at ir.freshvinewine.com/info/.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to
this Item will be set forth in our definitive proxy statement or an amendment to this Form 10-K, to be filed with the SEC within 120 days
after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
Equity Compensation Plan Information
We maintain Fresh Vine Wine, Inc.’s 2021 Equity
Incentive Plan (the “2021 Plan”), which, as of December 31 is approved to grant up to an aggregate of 1,800,000 shares of
our common stock. The purpose of the 2021 Plan is to increase stockholder value and to advance the interests of the Company by furnishing
a variety of economic incentives designed to attract, retain and motivate employees, certain key consultants and directors of the Company.
Incentives may consist of opportunities to purchase or receive shares of our common stock or other incentive awards. At December 31, 2021,
377,777 shares were reserved for issuance pursuant to outstanding incentive grants, and 1,422,223 shares remained available for issuance
pursuant to future grants. The 2021 Plan was approved by Fresh Vine Wine, Inc.’s stockholders.
Effective November 30, 2021, we entered into stock
option agreements (the “Founders’ Option Agreements”) with four of our co-founders, Damian Novak, Rick Nechio, Nina
Dobrev and Julianne Hough. In connection with these agreements, we established a founders’ option pool comprised of 1,500,004 shares
of our common stock (the “Founders’ Option Pool”). Under the agreements, each co-founder was granted a ten-year option
to purchase 25% of the shares comprising the Founders’ Option Pool. The options will be exercisable, subject to the satisfaction
of vesting conditions, at a price per share equal to $10.00, which was the initial public offering price of our common stock in our initial
public offering.
44
The following table sets forth certain information
as of December 31, 2021 with respect to the 2021 Plan and the Founders’ Option Agreements.
Equity Compensation Plans Approved By Security Holders:
Equity Compensation Plans Not Approved By Security Holders:
Additional information in
response to this Item will be set forth in our definitive proxy statement or an amendment to this Form 10-K, to be filed with the SEC
within 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Information in response to this Item will be set
forth in our definitive proxy statement or an amendment to this Form 10-K, to be filed with the SEC within 120 days after the end of the
fiscal year covered by this Form 10-K, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Information in response to
this Item will be set forth in our definitive proxy statement or an amendment to this Form 10-K, to be filed with the SEC within 120 days
after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
45
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following exhibits and financial statements
are filed as part of, or are incorporated by reference into, this report:
(1) Financial Statements
The following financial statements
are filed with this Annual Report and can be found beginning at page F-1 of this report:
● Report of independent registered public accounting firm
● Statements of operations for the years ended December 31, 2021 and 2020
● Statements of cash flows for the years ended December 31, 2021 and 2020
● Notes to financial statements
(2) Financial Statement Schedules
Separate financial schedules
have been omitted because such information is inapplicable or is included in the financial statements or notes described above.
(3) Exhibits
See “Exhibit Index”
following the signature page of this Form 10-K for a description of the documents that are filed as Exhibits to this Annual Report on
Form 10-K or incorporated by reference herein.
ITEM 16. FORM 10-K SUMMARY.
Not applicable.
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 31, 2022
FRESH GRAPES, LLC
By: /s/ Janelle Anderson
Janelle Anderson Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints each of Janelle Anderson and Elliot Savoie, and each of them, as his or her true
and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such individual in any and all capacities,
to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as
fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or the individual’s substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates
indicated.
Signatures Title
/s/ Janelle Anderson Chief Executive Officer and Director March 31, 2022
Janelle Anderson (principal executive officer)
/s/ Elliot Savoie Chief Financial Officer and Secretary March 31, 2022
Elliot Savoie (principal financial and accounting officer)
/s/ Damian Novak Executive Chairman and Director March 31, 2022
Damian Novak
/s/ Rick Nechio President and Director March 31, 2022
Rick Nechio
/s/ Eric Doan Director March 31, 2022
Eric Doan
/s/ Michael Pruitt Director March 31, 2022
Michael Pruitt
/s/ Brad Yacullo Director March 31, 2022
Brad Yacullo
/s/ David Yacullo Director March 31, 2022
David Yacullo
47
EXHIBIT INDEX
FRESH VINE WINE, INC.
FORM 10-K
Exhibit Number Description
3.1* Plan of Conversion
48
23.1* Consent of Wipfli LLP
31.1* Section 302 Certification of the Chief Executive Officer
31.2* Section 302 Certification of the Chief Financial Officer
* Filed herewith.
# Management contract or compensatory plan
49
The audited financial statements for the periods ended December 31,
2021 and December 31, 2020 are included on the following pages:
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements:
Report of Independent Registered Public Accounting Firm F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Changes in Stockholders’ Equity (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
F-1
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Shareholders
Fresh Vine Wine, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Fresh Vine Wine,
Inc. (the “Company”) as of December 31, 2021 and 2020, and the related statements of operations, changes in stockholders’
equity (deficit), and cash flows for the years then ended and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2021 and 2020, and the results of its operations and cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control
over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Wipfli LLP
Minneapolis, Minnesota
March 31, 2022
We have served as the Company’s auditor since 2021.
F-2
FRESH VINE WINE, INC.