ITEM 1A. RISK FACTORS.
Our company and business involves
a number of challenges and risks. In addition to the other information in this report, you should consider carefully the following risk
factors in evaluating us and our business. The risks described below are not the only ones that we face. Additional risks not presently
known to us or that we currently deem immaterial may also affect our business, financial condition, operating results, or prospects. In
assessing these risks, you should also refer to the other information contained in this report, including our financial statements and
related notes.
Risks related to the recent acquisition of Amaze Software, Inc.
Combining the two companies
may be more difficult, costly or time-consuming than expected, and the anticipated benefits of the acquisition of Amaze Software may not
be realized.
The success of the acquisition
of Amaze Software, including anticipated benefits, will depend, in part, on Amaze Software’s and Fresh Vine’s ability to successfully
combine and integrate the businesses of Amaze Software and Fresh Vine in a manner that permits growth opportunities and does not materially
disrupt existing customer relations or result in decreased revenues due to loss of customers. It is possible that the integration process
could result in the disruption of either company’s or both companies’ ongoing businesses or inconsistencies in standards,
controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers,
and employees or to achieve the anticipated benefits of the acquisition. If Amaze Software and Fresh Vine experience difficulties with
the integration process, the anticipated benefits of the acquisition may not be realized fully or at all, or may take longer to realize
than expected. As with any acquisition, there also may be business disruptions that cause Amaze Software and/or Fresh Vine to lose customers.
Integration efforts between the two companies will also divert management attention and resources. These integration matters could have
an adverse effect on each of Amaze Software and Fresh Vine for an undetermined period. In addition, any cost savings of the acquisition
could be less than anticipated.
Risks related to our company and our business.
We have a limited operating history and have
generated limited revenue to date.
Our company was recently founded,
and we have a limited operating history on which to base an evaluation of our business and prospects. Our prospects must be considered
in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly
companies in new and evolving markets such as ours. The risks include, but are not limited to, an evolving business model and the management
of growth and product development. To address these risks, we must, among other things, implement and successfully execute our business
strategy and other business systems, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot
assure you that we will be successful in addressing the risks we may encounter, and our failure to do so could have a material adverse
effect on our business, prospects, financial condition and results of operations.
We have generated very limited
revenues to date, including revenues of approximately $299,000 and $1.8 million during fiscal 2024 and fiscal 2023, respectively. We have
incurred net losses of $2.5 million and $10.6 million during fiscal 2024 and 2023, respectively. We had an accumulated deficit of $29.2
million and $26.5 million at December 31, 2024 and 2023, respectively. We may never generate material revenues or achieve profitability.
We have not generated profits from operations
to date. The success and longevity of our company will depend on our ability to generate profits from future operations or obtain sufficient
capital through financing transactions to meet our business obligations.
The report of our independent
registered public accounting firm on our financial statements for the fiscal year ended December 31, 2024 included an explanatory paragraph
indicating that there is substantial doubt as to our ability to continue as a going concern for twelve months from the financial statement
issuance date. We incurred net losses of $2.5 million and $10.6 million during fiscal 2024 and 2023, respectively. Our cash balance at
December 31, 2024 was approximately $156,000. Our ability to continue as a going concern 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 need to hire additional executive officers
and other personnel.
Our executive management is currently
comprised of a Chief Executive Officer and a Chief Financial Officer, both of whom are serving in interim positions. The future success
of our Company will be dependent in part upon us locating and retaining qualified individuals who will serve as executive officers on
a permanent basis and lead our Company and our business operations, and on us locating additional members to serve on our board of directors
to help oversee and guide our company. We cannot predict with certainty when we will be able locate such individuals.
The success of our business depends heavily
on the strength of our wine brand.
Obtaining, maintaining and expanding
our reputation as a producer of premium wine among our customers and the premium wine market generally is critical to the success of our
business and our growth strategy. The premium wine market is driven by a relatively small number of active and well-regarded wine critics
within the industry who have outsized influence over the perceived quality and value of wines. If we are unable to maintain the actual
or perceived quality of our wines, including as a result of contamination or tampering, environmental or other factors impacting the quality
of our grapes or other raw materials, or if our wines otherwise do not meet the subjective expectations or tastes of one or more of a
relatively small number of wine critics, the actual or perceived quality and value of one or more of our wines could be harmed, which
could negatively impact not only the value of that wine, but also the value of the vintage, the particular brand or our broader portfolio.
The winemaking process is a long and labor-intensive process that is built around yearly vintages, which means that once a vintage has
been released we are not able to make further adjustments to satisfy wine critics or consumers. As a result, we are dependent on our winemakers
and tasting panels to ensure that every wine we release meets our exacting quality standards.
With the advent of social media,
word within the premium wine market spreads quickly, which can accentuate both the positive and the negative reviews of our wines and
of wine vintages generally. Public perception of our brands could be negatively affected by adverse publicity or negative commentary on
social media outlets, particularly negative commentary on social media outlets that goes “viral,” or our responses relating
to, among other things:
If we do not produce wines that
are well-regarded by the relatively small wine critic community, the wine market will quickly become aware and our reputation, wine brand,
business and financial results of our operations could be materially and adversely affected. In addition, if our wine receives negative
publicity or consumer reaction, whether as a result of our wines or wines of other producers, our wines in the same vintage could be
adversely affected. Unfavorable publicity, whether accurate or not, related to our industry, us, our winery brands, marketing, personnel,
operations, business performance or prospects could also unfavorably affect our corporate reputation, company value, ability to attract
high-quality talent or the performance of our business.
Any contamination or other
quality control issue could have an adverse effect on sales of the impacted wine or our broader portfolio of wines. If any of our wines
become unsafe or unfit for consumption, cause injury or are otherwise improperly packaged or labelled, we may have to engage in a product
recall and/or be subject to liability and incur additional costs. A widespread recall, multiple recalls, or a significant product liability
judgment against us could cause our wines to be unavailable for a period of time, depressing demand and our brand equity. Even if a product
liability claim is unsuccessful or is not fully pursued, any resulting negative publicity could adversely affect our reputation with existing
and potential customers and accounts, as well as our corporate and individual winery brands image in such a way that current and future
sales could be diminished. In addition, should a competitor experience a recall or contamination event, we could face decreased consumer
confidence by association as a producer of similar products.
Additionally, third parties may
sell wines or inferior brands that imitate our wine brand or that are counterfeit versions of our labels, and customers could be duped
into thinking that these imitation labels are our authentic wines. For example, there could be instances of potential counterfeiting.
A negative consumer experience with such a wine could cause them to refrain from purchasing our brands in the future and damage our brand
integrity. Any failure to maintain the actual or perceived quality of our wines could materially and adversely affect our business, results
of operations and financial results.
Damage to our reputation or loss
of consumer confidence in our wines for any of these or other reasons could result in decreased demand for our wines and could have a
material adverse effect on our business, operational results, and financial results, as well as require additional resources to rebuild
our reputation, competitive position and winery brand strength.
If our business grows, it will place increased
demands on our management, operational and production capabilities that we may not be able to adequately address. If we are unable to
meet these increased demands, our business will be harmed.
Unless we manage our growth effectively,
we may make mistakes in operating our business, such as inaccurate forecasting. The anticipated growth of our operations will place significant
demand on our management and operational resources. In order to manage growth effectively, we must implement and improve our operational
systems, procedures and controls on a timely basis. Our key personnel have limited experience managing this type of business. If we cannot
manage our business effectively, our business could suffer.
Our advertising and promotional investments
may affect our financial results but not be effective.
Consumer awareness is of great
importance to the success of businesses operating in the wine industry. We have incurred, and expect to continue to incur, significant
advertising and promotional expenditures to enhance our wine brand and raise consumer awareness, which we believe is vital to the long-term
success of our operations. These expenditures may adversely affect our results of operations in a particular quarter or even a full fiscal
year and may not result in increased sales. Variations in the levels of advertising and promotional expenditures have in the past caused,
and are expected in the future to continue to cause, variability in our quarterly results of operations. While we strive to invest only
in effective advertising and promotional activities in both the digital and traditional segments, it is difficult to correlate such investments
with sales results, and there is no guarantee that our expenditures will be effective in building brand strength or growing long term
sales.
We have relied heavily on celebrities to endorse
our wines and market our brand pursuant to license agreements which have been terminated.
Our
brand, and to a large extent our direct-to-consumer sales outlet, has been heavily dependent on the positive image and public popularity
of, and affinity towards, Nina Dobrev and Julianne Hough. Ms. Dobrev and Ms. Hough have served as celebrity spokespersons and ambassadors
of our company, have actively endorsed our wines on their sizable social media and other outlets, and are considered by many to be the
face of our brand. Under our license agreements with Ms. Dobrev and Jaybird Investments, LLC (an entity managed by Ms. Hough), each of
Ms. Dobrev and Ms. Hough granted us a license to use her pre-approved name, likeness, image, and other indicia of identity, as well as
certain content published by her on her social media and other channels, on and in conjunction with the sale and related pre-approved
advertising and promotion of our wine.
On
August 8, 2023, the Company received written letters from each of Ms. Dobrev and Jaybird Investments, LLC, notifying the Company that
it was in default of their respective license agreements based on failure to pay license fees and providing 30 day notice of termination
of their respective license agreements. Effective September 7, 2023, each license agreement terminated. Upon such termination, the rights
and licenses granted to us under such agreements were revoked and were required to cease the marketing and sale of products that feature
their name, likeness, image, and other indicia of identity after a 90 day run-off period. As a result, we will be required to refocus
our marketing and brand promotion efforts, which may adversely affect our business and results of operations.
We rely heavily on third-party suppliers and
service providers, and they may not continue to produce products or provide services that are consistent with our standards or applicable
regulatory requirements, which could harm our brand, cause consumer dissatisfaction, and require us to find alternative suppliers and
service providers.
We have strategically structured
our organization and operations with a view towards minimizing our capital investment requirements. We do this by leveraging a network
of third-party providers with industry experience and expertise that we use to perform various functions on our behalf. Specifically,
we contract with Fior di Sole, an industry leading packaging innovation and wine production company based in Napa Valley, California,
to serve as a “host winery” and permit us to occupy a portion of its production and warehouse facility and its production
equipment on an alternating proprietorship basis. Under this arrangement, we are able to use capacity at Fior di Sole’s production
facility at times mutually convenient to us and Fior di Sole to produce and bottle our wines. Fior di Sole is responsible for keeping
its production equipment in good operating order. Although we are solely responsible for managing and conducting our own winemaking activities,
we may request use of the Fior di Sole’s personnel to perform crush, fermentation, blending, cellar, warehousing, barrel topping
and/or bottling services for additional fees. Under a separate agreement, Fior di Sole provides us with bulk juice and blends, finishes,
bottles, stops, labels, and packages our wine. Fior di Sole provides these services on a purchase order basis, which purchase orders are
subject to the parties’ mutual agreement. This agreement was terminated in December 2023.
The Company relies heavily on
the third parties to manage the sales and distribution of our wine and manage our DTC marketing initiatives. We also utilize third parties
to help manage all of our regulatory licensing and compliance activities, and we utilize additional software tools available to the industry
to navigate and manage the complex state-by-state regulations that apply to our operations in the beverage alcohol industry.
We engage many of our third-party
suppliers and service providers on a purchase order basis or pursuant to agreements that are generally one year or less in duration. The
ability and willingness of these third parties to supply and provide services to us may be affected by competing orders placed by other
companies, the demands of those companies or other factors. If we experience significant increases in demand or need to replace a significant
third party supplier or service provider, there can be no assurance that alternative third party vendors will be available when required
on terms that are acceptable to us, or at all, or that any such vendor will allocate sufficient capacity to us in order to meet our requirements.
If we fail to replace a supplier or servicer provider in a timely manner or on commercially reasonable terms, we could incur product disruptions
and our operating results and financial condition could be materially harmed. Switching or adding additional vendors, particularly our
alternating proprietorship host winery, would also involve additional costs and require management time and focus.
Except for remedies that may
be available to us under our agreements with our third-party vendors, we cannot control whether or not they devote sufficient time and
resources to supporting our business operations. These third parties may also have relationships with other commercial entities, including
our competitors, for whom they may also be providing services, which could affect their performance on our behalf. If these third parties
do not successfully carry out their contractual duties or obligations or meet expected deadlines or need to be replaced for other reasons,
it could adversely impact our ability to meet consumers’ demands for our products or comply with regulatory requirements and subject
us to potential liability, any of which may harm the reputation of our company and our products.
Although we carefully manage
our relationships with our network of third-party vendors, there can be no assurance that we will not encounter challenges or delays in
the future or that these challenges or delays will not have a material adverse impact on our business, financial condition and prospects.
We face significant competition with an increasing
number of products and market participants that could materially and adversely affect our business, results of operations and financial
results.
Our industry is intensely competitive
and highly fragmented. Our wines compete with many other domestic and foreign wines. Our wines compete with popularly priced generic wines
and with other alcoholic and, to a lesser degree, non-alcoholic beverages, for drinker acceptance and loyalty, shelf space and prominence
in retail stores, presence, and prominence on restaurant wine lists and for marketing focus by the Company’s distributors, many
of which carry extensive portfolios of wines and other alcoholic beverages. This competition is driven by established companies as well
as new entrants in our markets and categories. In the United States, wine sales are relatively concentrated among a limited number of
large suppliers, including E&J Gallo, Constellation, Duckhorn, Trinchero, Jackson Family Wines, Ste. Michelle and The Wine Group,
and these and our other competitors may have more robust financial, technical, marketing and distribution networks and public relations
resources than we have. As a result of this intense competition, combined with our growth goals, we have experienced and may continue
to face upward pressure on our selling, marketing and promotional efforts and expenses. There can be no assurance that in the future we
will be able to successfully compete with our competitors or that we will not face greater competition from other wineries and beverage
manufacturers.
If we are unable to successfully
compete with existing or new market participants, or if we do not effectively respond to competitive pressures, we could experience reductions
in market share and margins that could have a material and adverse effect on our business, results of operations and financial results.
Consolidation of the distributors of our wines,
as well as the consolidation of retailers, may increase competition in an already crowded space and may have a material adverse effect
on our business, results of operations and financial results.
Other than sales made directly
to our consumers, the majority of our wine sales are made through distributors for resale to retail outlets, restaurants and hotels across
the United States. We expect sales to distributors to represent an increasingly substantial portion of our future net sales as we continue
to grow our network of wholesale distributors. Consolidation among wine producers, distributors, wholesalers, suppliers and retailers
could create a more challenging competitive landscape for our wines. In addition, we believe that the increased growth and popularity
of the retail e-commerce environment across the consumer product goods market, which accelerated during the COVID-19 pandemic and the
resulting quarantines, “stay at home” orders, travel restrictions, retail store closures, social distancing requirements and
other government action, has and is likely to continue to change the competitive landscape for our wines. Consolidation at any level could
hinder the distribution and sale of our wines as a result of reduced attention and resources allocated to our winery brands both during
and after transition periods, because our winery brands might represent a smaller portion of the new business portfolio. Furthermore,
consolidation of distributors may lead to the erosion of margins as newly consolidated distributors take down prices or demand more margin
from existing suppliers. Changes in distributors’ strategies, including a reduction in the number of brands they carry or the allocation
of resources for our competitors’ brands or private label products, may adversely affect our growth, business, financial results
and market share. Distributors of our wines offer products that compete directly with our wines for inventory and retail shelf space,
promotional and marketing support and consumer purchases. Expansion into new product categories by other suppliers or innovation by new
entrants into the market could increase competition in our product categories.
An increasingly large percentage
of our net sales is concentrated within a small number of wholesale customers. The purchasing power of large retailers is significant,
and they have the ability to command concessions. There can be no assurance that the distributors and retailers will purchase our wines
or provide our wines with adequate levels of promotional and merchandising support. The failure to bring on major accounts or the need
to make significant concessions to retain one or more such accounts could have a material and adverse effect on our business, results
of operations and financial position.
A reduction in consumer demand for wine, which
may result from a variety of factors, including demographic shifts and decreases in discretionary spending, could materially and adversely
affect our business, results of operations and financial results.
We rely on consumers’ demand
for our wine. Consumer preferences may shift due to a variety of factors, including changes in demographic or social trends, changes in
discretionary income, public health policies and perceptions and changes in leisure, dining and beverage consumption patterns. Our success
will require us to anticipate and respond effectively to shifts in consumer behavior and drinking tastes. If consumer preferences were
to move away from our wine brand, our results of operations would be materially and adversely affected.
A limited or general decline in
consumer demand could occur in the future due to a variety of factors, including:
• a general decline in economic or geopolitical conditions;
• increased activity of anti-alcohol groups;
Demand for premium wine brands,
like ours, may be particularly susceptible to changing economic conditions and consumer tastes, preferences and spending habits, which
may reduce our sales of these products and adversely affect our profitability. An unanticipated decline or change in consumer demand
or preference could also materially impact our ability to forecast for future production requirements, which could, in turn, impair our
ability to effectively adapt to changing consumer preferences. Any reduction in the demand for our wines would materially and adversely
affect our business, results of operations and financial results.
Due to the three-tier alcohol beverage distribution
system in the United States, we are heavily reliant on our distributors that resell alcoholic beverages in all states in which we do business.
A significant reduction in distributor demand for our wines would materially and adversely affect our sales and profitability.
Due to regulatory requirements
in the United States, we sell a significant portion of our wines to wholesalers for resale to retail accounts. A change in the relationship
with any of our significant distributors could harm our business and reduce our sales. The laws and regulations of several states prohibit
changes of distributors, except under certain limited circumstances, making it difficult to terminate or otherwise cease working with
a distributor for poor performance without reasonable justification, as defined by applicable statutes. Any difficulty or inability to
replace distributors, poor performance of our major distributors or our inability to collect accounts receivable from our major distributors
could harm our business. In addition, an expansion of the laws and regulations limiting the sale of our wine would materially and adversely
affect our business, results of operations and financial results. There can be no assurance that the distributors and accounts to which
we sell our wines will continue to purchase our wines or provide our wines with adequate levels of promotional support, which could increase
competitive pressure to increase sales and marketing spending and could materially and adversely affect our business, results of operations
and financial results.
Our marketing strategy involves continued expansion
into the direct-to-consumer channel, which may present risks and challenges for which we are not adequately prepared and which could negatively
affect our sales in these channels and our profitability.
A portion of our operating strategy
is to expand our sales of wine through this direct-to-consumer channel. However, the direct-to-consumer marketplace is highly competitive
and in recent years has seen the entrance of new competitors and products targeting similar customer groups as our business. To be competitive
and forge new connections with customers, we are continuing investment in the expansion of our direct-to-consumer channel. Such expansion
may require significant investment in e-commerce platforms, marketing, fulfilment, information technology (“IT”) infrastructure
and other known and unknown costs. The success of our direct-to-consumer sales channel depends on our ability to maintain the efficient
and uninterrupted operation of online order-processing and fulfilment and delivery operations. As such, we are heavily dependent on the
performance of our shipping and technology partners. Any system interruptions or delays could prevent potential customers from purchasing
our wines directly.
Our ability to ship wines directly
to our customers is the result of court rulings, including the U.S. Supreme Court ruling in Granholm v. Heald, which allow, in certain
circumstances, shipments to customers of wines from out-of-state wineries. Any changes to the judicial, legal, or regulatory framework
that reduce our ability to sell wines in most states using our direct-to-consumer sales channel could have a materially adverse effect
on our business, results of operations and financial results.
We may be unable to adequately
adapt to shifts in consumer preferences for points of purchase, such as an increase in at-home delivery during the COVID-19 pandemic,
and our competitors may react more rapidly or with improved customer experiences. A failure to react quickly to these and other changes
in consumer preferences, or to create infrastructure to support new or expanding sales channels may materially and adversely affect our
business, results of operations and financial results.
A failure to adequately prepare for adverse
events that could cause disruption to elements of our business, including the availability of bulk grapes, and the blending, inventory
aging or distribution of our wines could materially and adversely affect our business, results of operations and financial results.
Disruptions to our operations
caused by adverse weather, natural disasters, public health emergencies, including the COVID-19 pandemic, or unforeseen circumstances
may cause delays to or interruptions in our operations. Concerns regarding the availability of water for production is particular to companies
that produce and bottle wines in California. A consequence of any of these or supply or supply chain disruptions, including the temporary
inability to produce our wines due to the closure of our production sites, could prevent us from meeting consumer demand in the near term
or long term for our aged wines. For example, as result of the COVID-19 pandemic, our industry has experienced temporary supply chain
disruptions for certain processed materials, cardboard packaging, and glass, as well as increased strain on logistics networks and shipping
partners. The occurrence of any such disruptions during a peak time of demand for such processed materials could increase the magnitude
of the effect on our distribution network and sales. Failure to adequately prepare for and address any such disruptions could materially
and adversely affect our business, results of operations and financial results.
A catastrophic event causing
physical damage, disruption or failure at our production facility could adversely affect our business. Although our wines currently available
for sale do not require substantial aging, we expect that certain of our wines, including the Reserve Cabernet Sauvignon, require aging
for some period of time. As a result, we expect to maintain inventory of aged and maturing wines in warehouses. The loss of a substantial
amount of aged inventory through fire, accident, earthquake, other natural or man-made disaster, contamination or otherwise could significantly
reduce the supply of the affected wine or wines, including our aged wines, which are typically the highest priced and limited production
wines.
Any disruptions that cause forced
closure or evacuation could materially harm our business, results of operations and financial results. Additionally, should multiple closings
occur, we may lose guest confidence resulting in a reduction in direct sales, which could materially and adversely affect our business,
results of operations and financial results. If we expand our future operations to include tasting rooms, such closings would also negatively
impact visitation.
Inclement weather, drought, pests, plant diseases
and other factors could reduce the amount or quality of the grapes available to produce our wines, which could materially and adversely
affect our business, results of operations and financial results.
A shortage in the supply of quality
grapes may result from the occurrence of any number of factors that determine the quality and quantity of grape supply, including adverse
weather conditions (including heatwaves, frosts, drought and excessive rainfall), and various diseases, pests, fungi and viruses. We cannot
anticipate changes in weather patterns and conditions, and we cannot predict their impact on our operations if they were to occur. Any
shortage could cause an increase in the price of some or all of the grape varietals required for our wine production or a reduction in
the amount of wine we are able to produce, which could materially and adversely affect our business, results of operations and financial
results.
Factors that reduce the quantity
of grapes the growers with which we contract grow may also reduce their quality. Deterioration in the quality of our wines could harm
our winery brand strength, and a decrease in our production could reduce our sales and increase our expenses, both of which could materially
and adversely affect our business, results of operations and financial results.
If we are unable to obtain adequate supplies
of premium juice from third-party juice suppliers, the quantity or quality of our annual production of wine could be adversely affected,
causing a negative impact on our business, results of operations and financial condition.
The production of our wines and
the ability to fulfill the demand for our wines is restricted by the availability of premium grapes and juice from third-party growers.
If we are unable to source grapes and juice of the requisite quality, varietal and geography, among other factors, our ability to produce
wines to the standards, quantity and quality demanded by our customers could be impaired.
Factors including climate change,
agricultural risks, competition for quality, water availability, land use, wildfires, floods, disease, and pests could impact the quality
and quantity of grapes and bulk juice available to our company. Furthermore, these potential disruptions in production may drive up demand
for grapes and bulk juice creating higher input costs or the inability to purchase these materials. Following the 2020 wildfires in Northern
California, the price of bulk juice increased substantially in a very short period of time, leading to some wine producers reducing lot
sizes of certain wines. As a result, our financial results could be materially and adversely affected both in the year of the harvest
and future periods.
If we are unable to identify and obtain adequate
supplies of quality agricultural, raw and processed materials, including corks, glass bottles, barrels, winemaking additives and agents,
water and other supplies, or if there is an increase in the cost of the commodities or products, our profitability, production and distribution
capabilities could be negatively impacted, which would materially and adversely affect our business, results of operations and financial
condition.
We use grapes and other raw materials
to produce and package our wine, including corks, barrels, winemaking additives, and water, as well as large amounts of packaging materials,
including metal, cork, glass and cardboard. We purchase raw materials and packaging materials under contracts of varying maturities from
domestic and international suppliers.
Glass bottle costs are one of
our largest packaging components of cost of goods sold. In North America, glass bottles have only a small number of producers. The inability
of any of our glass bottle suppliers to satisfy our requirements could materially and adversely affect our business. In addition, costs
and programs related to mandatory recycling and recyclable materials deposits could be adopted in states of manufacture, imposing additional
and unknown costs to manufacture products utilizing glass bottles. The amount of water available for use is important to the supply of
our grapes and winemaking, other agricultural raw materials, and our ability to operate our business. If climate patterns change and droughts
become more severe, there may be a scarcity of water or poor water quality, which may affect our production costs, consistency of yields
or impose capacity constraints. We depend on sufficient amounts of quality water for operation of our wineries, as well as to conduct
our other operations. The suppliers of the grapes and other agricultural raw materials we purchase also depend upon sufficient supplies
of quality water for their vineyards and fields. Prolonged or severe drought conditions in the western United States or restrictions imposed
on irrigation options by governmental authorities could have an adverse effect on our operations in the region. If water available to
our operations or the operations of our suppliers becomes scarcer, restrictions are placed on our usage of water or the quality of that
water deteriorates, we may incur increased production costs or face manufacturing constraints which could negatively affect our production.
Even if quality water is widely available to us, water purification and waste treatment infrastructure limitations could increase our
costs or constrain operation of our production facilities. Any of these factors could materially and adversely affect our business, results
of operations and financial results.
Our production and shipping activities
also use energy in their operations, including electricity, propane and natural gas. Energy costs could rise in the future, which would
result in higher transportation, freight and other operating costs, such as ageing and bottling expenses. Our freight cost and the timely
delivery of our wines could be adversely affected by a number of factors that could reduce the profitability of our operations, including
driver shortages, higher fuel costs, weather conditions, traffic congestion, increased government regulation, and other matters. In addition,
increased labor costs or insufficient labor supply could increase our production costs.
Our supply and the price of raw
materials, packaging materials and energy and the cost of energy, freight and labor used in our productions and distribution activities
could be affected by a number of factors beyond our control, including market demand, global geopolitical events (especially their impact
on energy prices), economic factors affecting growth decisions, exchange rate fluctuations and inflation. To the extent any of these factors,
including supply of goods and energy, affect the prices of ingredients or packaging, or we do not effectively or completely hedge changes
in commodity price risks, or are unable to recoup costs through increases in the price of our finished wines, our business, results of
operations and financial results could be materially and adversely affected.
In addition to litigation that may arise from
time to time in the ordinary course of business, we have been engaged in litigation with our former Chief Operating Officer.
As disclosed under Item 3 -
Legal Proceedings, the Company has been a defendant in a lawsuit styled Timothy Michaels v. Fresh Vine Wine, Inc. filed May
27, 2022 in the Fourth Judicial District Court, Hennepin County, Minnesota. The lawsuit relates to a complaint filed by Mr. Michaels
resulting from the Company including a restricted “lock-up” legend on shares of the Company’s common stock issued to
Mr. Michaels pursuant to a settlement agreement that the Company entered into with Mr. Michaels following termination of his employment
and for not removing or directing the Company’s transfer agent to remove such legend. A jury trial commenced on January 23, 2024.
During trial, on January 24, 2024, the Company filed a motion for judgement in favor of the Company as a matter of law, which was denied
by the Court. On January 25, 2024, the jury in the lawsuit rendered a verdict against the Company awarding damages to Mr. Michaels in
the amount of $585,976. The damages awarded to Mr. Michaels by the trial court are not covered by the Company’s insurance policies.
Mr. Michaels has commenced garnishment proceedings against certain of the Company’s bank accounts and other third parties in an
attempt to collect on the judgement and such proceedings remain pending. The Company appealed the verdict and the court of appeals affirmed
the judgment in February 2025, awarding $21,644 in additional damages. On March 12, 2025 the Company petitioned the supreme court for
review and is awaiting the supreme court’s decision on its petition. As of December 31, 2024, Mr. Michaels collected $122,886 through
garnishments, which has left an accrual balance of approximately $485,000.
Although the Company believes
it has legal grounds to appeal the verdict, continued litigation and related actions may be expensive, the outcome of any litigation (including
any appeal) is difficult to predict, and the existence of litigation may impact the ability of management to focus on other business matters.
In addition, adverse judgments may result in an increase in future insurance premiums, and any judgments for which the Company is not
fully insured may result in a significant financial loss and may materially and adversely affect the Company’s business, results
of operations and financial results.
The impact of U.S. and worldwide economic trends
and financial market conditions could materially and adversely affect our business, liquidity, financial condition and results of operations.
We are subject to risks associated
with adverse economic conditions in the United States and globally, including economic slowdown, inflation, and the disruption, volatility
and tightening of credit and capital markets. Unfavorable global or regional economic conditions could materially and adversely impact
our business, liquidity, financial condition and results of operations. In general, positive conditions in the broader economy promote
customer spending on wine, while economic weakness, which generally results in a reduction of customer spending, may have a more pronounced
negative effect on spending on wine. Unemployment, tax increases, governmental spending cuts or a return of high levels of inflation could
affect consumer spending patterns and purchases of our wines and other alcoholic beverage products. Reduced consumer discretionary spending
and reduced consumer confidence could negatively affect the trend towards consuming premium wines and could result in a reduction of wine
and beverage alcohol consumption in the United States generally. In particular, extended periods of high unemployment, lower consumer
discretionary spending and low consumer confidence could result in lower sales of premium wine brands, including our wine, in favor of
wine brands which have a lower average sales price and generally have lower gross profit margins and lower overall sales, which could
negatively impact our business and results of operations. These conditions could also create or worsen credit issues, cash flow issues,
access to credit facilities and other financial hardships for us and our suppliers, distributors, accounts and consumers. An inability
of our suppliers, distributors and retailers to access liquidity could impact our ability to produce and distribute our wines.
If we are unable to secure and protect our intellectual
property in domestic and foreign markets, including trademarks for our wine brands and wines, the value of our wine brands and intellectual
property could decline, which could have a material and adverse effect on our business, results of operations and financial results.
Our future success depends on
our ability to protect our current and future wine brands and wines and to enforce and defend our trademarks and other intellectual property
rights. We rely on a combination of trademark, copyright and trade secret laws, as well as confidentiality procedures and contractual
restrictions, to secure and protect our intellectual property rights. We have been granted three (3) trademark registrations in the United
States for FRESH VINE®, FRESH VINE (Stylized)®, and our FV Logo®, and numerous trademark registrations in other countries
for the FRESH VINE mark, and we have filed, and may continue to file, trademark applications seeking to protect newly-developed wine brands.
We have also been granted a copyright registration in the first version of our website located at www.freshvine.com. While a copyright
exists in a work of art once it is fixed in tangible medium, we intend to continue to file copyright applications to protect newly-developed
works of art that are important to our business.
We cannot be sure that any trademark
office or copyright office will issue trademark registrations under any of our trademark applications, or copyright registrations under
any of our copyright applications. Third parties may oppose the registration of our trademark applications, contest our trademark rights
or copyrights, and petition to cancel our registered trademarks. We cannot assure you that we will be successful in defending our trademarks
or copyrights in actions brought by third parties. There is also a risk that we could fail to timely maintain or renew our trademark
registrations or otherwise protect our trademark rights or copyrights, which could result in the loss of those trademark rights (including
in connection with failure to maintain consistent use of these trademarks). If we fail to maintain our trademarks or a third party successfully
challenges our trademarks or copyrights, we could be forced to rebrand our wineries, wines, and other products, which could result in
a loss of winery brand recognition and could require us to devote additional resources to the development and marketing of new wine brands.
Notwithstanding any trademark
registrations or copyright registrations held by us, a third party could bring a lawsuit or other claim alleging that we have infringed
that third party’s trademark rights or copyrights. Any such claims, with or without merit, could require significant resources to
defend, could damage the reputation of our wine brands, could result in the payment of compensation (whether as a damages award or settlement)
to such third parties, and could require us to stop using our wine brands or otherwise agree to an undertaking to limit that use. In addition,
our actions to monitor and enforce trademark rights or copyrights against third parties may not prevent counterfeit products or products
bearing confusingly similar trademarks from entering the marketplace, which could divert sales from us, tarnish our reputation or reduce
the demand for our products or the prices at which we sell those products. Any enforcement litigation brought by us, whether or not successful,
could require significant costs and resources, and divert the attention of management, which could negatively affect our business, results
of operations and financial results. Third parties may also acquire and register domain names that are confusingly similar to or otherwise
damaging to the reputation of our trademarks, and we may not be able to prevent or cancel any such domain name registrations.
In addition to registered intellectual
property rights such as trademark registrations and copyright registrations, we rely on non-registered proprietary information, such as
trade secrets, confidential information, and know-how, including in connection with the crafting of our low calorie, low-carb, premium
tasting wines. In order to protect our proprietary information, we rely in part on agreements with our employees, independent contractors
and other third parties that place restrictions on the use and disclosure of this intellectual property. These agreements may be breached,
or this intellectual property, including trade secrets, may otherwise be disclosed or become known to our competitors, which could cause
us to lose any competitive advantage resulting from this intellectual property. To the extent that our employees, independent contractors
or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as
to the rights in related or resulting know-how and inventions. The loss of trade secret protection could make it easier for third parties
to compete with our products. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise
our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce
and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary
information could harm our business, financial condition, results of operations and competitive position.
We may not be fully insured against catastrophic
perils, including catastrophic loss or inaccessibility of wineries, production facilities and/or distribution systems resulting from fire,
wildfire, flood, wind events, earthquake and other perils, which may cause us to experience a material financial loss.
Although we currently store the
bulk of our wine inventory at our third-party warehouse in California, which is prone to seismic activity, wildfires and floods, among
other perils. If any of these facilities were to experience a catastrophic loss in the future, it could disrupt our operations, delay
production, shipments and our recognition of revenue, and result in potentially significant expenses to repair or replace the facility.
If such a disruption were to occur, we could breach agreements, our reputation could be harmed and our business and operating results
could be materially and adversely affected. Although we carry insurance to cover property and inventory damage and business interruption,
these coverages are subject to deductibles and self-insurance obligations, as well as caps on coverage that could be below the value of
losses we could incur in certain catastrophic perils. Furthermore, claims for recovery against our insurance policies can be time-consuming,
and may result in significant delays between when we incur damages and when we receive payment under our insurance policies. If one or
more significant catastrophic events occurred damaging our own or third-party assets and/or services, we could suffer a major financial
loss and our business, results of operations and financial condition could be materially and adversely affected.
Furthermore, increased incidence
or severity of natural disasters has adversely impacted our ability to obtain adequate property damage, inventory, and business interruption
insurance at financially viable rates, if at all. For example, we have observed certain insurers ceasing to offer certain inventory protection
policies, and we have supplemented our insurance coverage recently by purchasing policies at higher premiums. If these trends continue
and our insurance coverage is adversely affected, and to the extent we elect to increase our self-insurance obligations, we may be at
greater risk that similar future events will cause significant financial losses and materially and adversely affect our business, results
of operations and financial results.
From time to time, we may become subject to
litigation specifically directed at the alcoholic beverage industry, as well as litigation arising in the ordinary course of business.
Companies operating in the alcoholic
beverage industry may, from time to time, be exposed to class action or other private or governmental litigation and claims relating to
product liability, alcohol marketing, advertising or distribution practices, alcohol abuse problems or other health consequences arising
from the excessive consumption of or other misuse of alcohol, including underage drinking. Various groups have, from time to time, publicly
expressed concern over problems related to harmful use of alcohol, including drinking, and driving, underage drinking and health consequences
from the misuse of alcohol. These campaigns could result in an increased risk of litigation against the Company and our industry. Lawsuits
have been brought against beverage alcohol companies alleging problems related to alcohol abuse, negative health consequences from drinking,
problems from alleged marketing or sales practices and underage drinking. While these lawsuits have been largely unsuccessful in the past,
others may succeed in the future.
From time to time, we may also
be party to other litigation in the ordinary course of our operations, including in connection with commercial disputes, enforcement or
other regulatory actions by tax, customs, competition, environmental, anti-corruption and other relevant regulatory authorities, or, securities-related
class action lawsuits, particularly following any significant decline in the price of our securities. Any such litigation or other actions
may be expensive to defend and result in damages, penalties, or fines as well as reputational damage to our company and our winery brands
and may impact the ability of management to focus on other business matters. Furthermore, any adverse judgments may result in an increase
in future insurance premiums, and any judgments for which we are not fully insured may result in a significant financial loss and may
materially and adversely affect our business, results of operations and financial results.
A failure of one or more of our key IT systems,
networks, processes, associated sites or service providers could have a material adverse impact on business operations, and if the failure
is prolonged, our financial condition.
We rely on IT systems, networks,
and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices),
software and technical applications and platforms, some of which are managed, hosted, provided, and used by third parties or their vendors,
to assist us in the management of our business. The various uses of these IT systems, networks and services include, but are not limited
to: hosting our internal network and communication systems; supply and demand planning; production; shipping wines to customers; hosting
our winery websites and marketing products to consumers; collecting and storing customer, consumer, employee, stockholder, and other data;
processing transactions; summarizing and reporting results of operations; hosting, processing and sharing confidential and proprietary
research, business plans and financial information; complying with regulatory, legal or tax requirements; providing data security; and
handling other processes necessary to manage our business.
Increased IT security threats
and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes, ransomware, unauthorized access
attempts, denial of service attacks, phishing, social engineering, hacking and other types of attacks pose a potential risk to the security
of our IT systems, networks and services, as well as the confidentiality, availability, and integrity of our data, and we have in the
past, and may in the future, experience cyberattacks and other unauthorized access attempts to our IT systems. Because the techniques
used to obtain unauthorized access are constantly changing and often are not recognized until launched against a target, we or our vendors
may be unable to anticipate these techniques or implement sufficient preventative or remedial measures. If we are unable to efficiently
and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our systems may become more
vulnerable to unauthorized access. In the event of a ransomware or other cyber-attack, the integrity and safety of our data could be
at risk, or we may incur unforeseen costs impacting our financial position. If the IT systems, networks or service providers we rely
upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information due to any number of
causes ranging from catastrophic events, power outages, security breaches, unauthorized use or usage errors by employees, vendors or
other third parties and other security issues, we may be subject to legal claims and proceedings, liability under laws that protect the
privacy and security of personal information (also known as personal data), litigation, governmental investigations and proceedings and
regulatory penalties, and we may suffer interruptions in our ability to manage our operations and reputational, competitive or business
harm, which may adversely affect our business, results of operations and financial results. In addition, such events could result in
unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or
misappropriated confidential information belonging to us or to our employees, stockholders, customers, suppliers, consumers or others.
In any of these events, we could also be required to spend significant financial and other resources to remedy the damage caused by a
security breach or technological failure and the reputational damage resulting therefrom, to pay for investigations, forensic analyses,
legal advice, public relations advice or other services, or to repair or replace networks and IT systems. As a result of the COVID-19
pandemic, a greater number of our employees are working remotely and accessing our IT systems and networks remotely, which may further
increase our vulnerability to cybercrimes and cyberattacks and increase the stress on our technology infrastructure and systems.
Our failure to adequately maintain and protect
personal information of our customers or our employees in compliance with evolving legal requirements could have a material adverse effect
on our business.
We collect, use, store, disclose
or transfer (collectively, “process”) personal information, including from employees and customers, in connection with the
operation of our business. A wide variety of local and international laws as well as regulations and industry guidelines apply to the
privacy and collecting, storing, use, processing, disclosure, and protection of personal information and may be inconsistent among countries
or conflict with other rules. Data protection and privacy laws and regulations are changing, subject to differing interpretations and
being tested in courts and may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.
A variety of data protection
legislation apply in the United States at both the federal and state level, including new laws that may impact our operations. For example,
the State of California has enacted the California Consumer Privacy Act of 2018 (“CCPA”), which generally requires companies
that collect, use, share and otherwise process “personal information” (which is broadly defined) of California residents to
make disclosures about their data collection, use, and sharing practices, allows consumers to opt-out of certain data sharing with third
parties or the sale of personal information, allows consumers to exercise certain rights with respect to any personal information collected
and provides a new cause of action for data breaches. In addition, a new privacy law, the California Privacy Rights Act (“CPRA”),
which significantly modifies the CCPA, was recently approved by ballot initiative during the November 3, 2021 general election. On January
1, 2023 the CCPA became effective and added additional privacy protection. This may require us to incur additional expenditures to ensure
compliance. Additionally, the Federal Trade Commission, and many state attorneys general are interpreting federal and state consumer protection
laws to impose standards for the online collection, use, dissemination, and security of data. The burdens imposed by the CCPA and other
similar laws that have been or may be enacted at the federal and state level may require us to modify our data processing practices and
policies and to incur additional expenditures in order to comply.
Foreign laws and regulations
relating to privacy, data protection, information security and consumer protection often are more restrictive than those in the United
States. The European Union, for example, traditionally has imposed stricter obligations under its laws and regulations relating to privacy,
data protection and consumer protection than the United States. In May 2018 the European Union’s new regulation governing data practices
and privacy called the General Data Protection Regulation, or GDPR, became effective and substantially replaced the data protection laws
of the individual European Union member states. The law requires companies to meet more stringent requirements regarding the handling
of personal data of individuals in the EU than were required under predecessor EU requirements. In the United Kingdom, a Data Protection
Bill that substantially implements the GDPR also became law in May 2018. The GDPR and other similar regulations require companies to give
specific types of notice and in some cases seek consent from consumers and other data subjects before collecting or using their data for
certain purposes, including some marketing activities. Outside of the European Union, many countries have laws, regulations, or other
requirements relating to privacy, data protection, information security, and consumer protection, and new countries are adopting such
legislation or other obligations with increasing frequency. Many of these laws may require consent from consumers for the use of data
for various purposes, including marketing, which may reduce our ability to market our products. There is no harmonized approach to these
laws and regulations globally. Consequently, we would increase our risk of non-compliance with applicable foreign data protection laws
by expanding internationally. We may need to change and limit the way we use personal information in operating our business and may have
difficulty maintaining a single operating model that is compliant. In addition, various federal, state and foreign legislative and regulatory
bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules
or guidance regarding privacy, data protection, information security and consumer protection.
Compliance with these and any
other applicable privacy and data protection laws and regulations is a rigorous and time-intensive process, and we may be required to
put in place additional mechanisms ensuring compliance with the new privacy and data protection laws and regulations. Our actual or alleged
failure to comply with any applicable privacy and data protection laws and regulations, industry standards or contractual obligations,
or to protect such information and data that we process, could result in litigation, regulatory investigations, and enforcement actions
against us, including fines, orders, public censure, claims for damages by employees, customers and other affected individuals, public
statements against us by consumer advocacy groups, damage to our reputation and competitive position and loss of goodwill (both in relation
to existing customers and prospective customers) any of which could have a material adverse effect on our business, financial condition,
results of operations, and cash flows. Additionally, if third parties that we work with, such as vendors or developers, violate applicable
laws or our policies, such violations may also place personal information at risk and have an adverse effect on our business. Even the
perception of privacy concerns, whether or not valid, may harm our reputation, subject us to regulatory scrutiny and investigations,
and inhibit adoption of our wines by existing and potential customers.
Risks related to regulation.
As a producer of alcoholic beverages, we are
regularly the subject of regulatory reviews, proceedings and audits by governmental entities, any of which could result in an adverse
ruling or conclusion, and which could have a material adverse effect on our business, financial condition, results of operations and future
prospects.
We are subject to extensive regulation
in the United States by federal, state, and local laws regulating the production, distribution and sale of consumable food items, and
specifically alcoholic beverages, including by the Alcohol and Tobacco Tax and Trade Bureau (the “TTB”) and the Food and Drug
Administration (the “FDA”). These and other regulatory agencies impose a number of product safety, labelling and other requirements
on our operations and sales. In California, where all of our wines are made, we are subject to alcohol-related licensing and regulations
by many authorities, including the Department of Alcohol Beverage Control (the “ABC”), which investigates applications for
licenses to sell alcoholic beverages, reports on the moral character and fitness of alcohol license applicants and the suitability of
premises where sales are to be conducted. We are also subject to regulatory compliance requirements in all states in which we sell our
wines. Any governmental litigation, fines, or restrictions on our operations resulting from the enforcement of these existing regulations
or any new legislation or regulations could have a material adverse effect on our business, results of operations and financial results.
Any government intervention challenging the production, marketing, promotion, distribution or sale of beverage alcohol or specific brands
could affect our ability to sell our wines. Because litigation and other legal proceedings can be costly to defend, even actions that
are ultimately decided in our favor could have a negative impact on our business, results of operations or financial results. Adverse
developments in major lawsuits concerning these or other matters could result in management distraction and have a material adverse effect
on our business. Changes to the interpretation or approach to enforcement of regulations may require changes to our business practices
or the business practices of our suppliers, distributors, or customers. The penalties associated with any violations or infractions may
vary in severity, and could result in a significant impediment to our business operations, and could cause us to have to suspend sales
of our wines in a jurisdiction for a period of time.
New and changing environmental requirements,
and new market pressures related to climate change, could materially and adversely affect our business, results of operations and financial
results.
There has been significant public
discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere have an adverse impact on global temperatures,
weather patterns and the frequency and severity of extreme weather and natural disasters. Federal regulations govern, among other things,