Fresh Vine Wine(VINE) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited consolidated financial statements for Q3 2022 and 2021 reveal increased net loss, higher cash usage in operations, and a going concern uncertainty due to recurring losses and financing needs Balance Sheet Summary (Unaudited) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $3,415,316 | $16,063,941 | | Inventories | $3,930,646 | $159,060 | | Total Current Assets | $9,165,660 | $18,257,537 | | Total Assets | $10,023,168 | $19,252,694 | | Liabilities & Equity | | | | Total Current Liabilities | $1,881,197 | $2,176,704 | | Total Liabilities | $1,881,197 | $2,176,704 | | Total Stockholder's Equity | $8,141,971 | $17,075,990 | Statement of Operations Summary (Unaudited) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Total Net Revenue | $2,484,086 | $1,050,765 | | Gross Profit | $434,436 | $343,692 | | Operating Loss | $(11,426,913) | $(8,095,292) | | Net Loss | $(11,405,173) | $(8,094,635) | | Net Loss per Share (Basic & Diluted) | $(0.91) | $(0.97) | Statement of Cash Flows Summary (Unaudited) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(12,261,556) | $(2,011,612) | | Net cash (used in) provided by financing activities | $(387,069) | $2,236,527 | | Net (Decrease) Increase in Cash | $(12,648,625) | $224,665 | | Cash - End of Period | $3,415,316 | $229,150 | - Management has expressed substantial doubt about the Company's ability to continue as a going concern, with existing cash projected to fund operations only into the first quarter of 2023, after which additional financing will be needed to satisfy obligations[35][37] - The company has significant supplier and customer concentration, with substantially all inventory purchases from a single supplier, and two national distributor customers accounting for approximately 70% of wholesale revenue for the nine months ended September 30, 2022[86][88] Management's Discussion and Analysis of Financial Condition and Results of Operations This MD&A section details the company's business overview, operational results, and liquidity, highlighting significant revenue growth offset by increased costs and a wider net loss, alongside critical liquidity challenges requiring additional financing - The company operates as a premier producer of low-carb, low-calorie premium wines, utilizing an asset-light model by sourcing from third-party facilities to mitigate agribusiness risks, with distribution across the U.S. and Puerto Rico via wholesale, retail, and DTC channels[110][111][114] Comparison of Operating Results (Nine Months Ended Sep 30) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $2,484,086 | $1,050,765 | $1,433,321 | 136% | | Cost of revenues | $2,049,650 | $707,073 | $1,342,577 | 190% | | Gross profit | $434,436 | $343,692 | $90,744 | 26% | - Selling, general and administrative expenses for the nine months ended September 30, 2022, increased by 208% compared to the same period in 2021, driven by one-time charges from a leadership transition, increased staffing, and higher costs associated with being a public company[140] - The company faces significant liquidity issues, with an operating loss of $11.4 million for the nine months ended Sep 30, 2022, and management projects existing cash of $3.4 million is only sufficient to fund operations into Q1 2023, raising substantial doubt about its ability to continue as a going concern without securing additional financing[146][150][152] - In response to liquidity pressures, the company implemented cash preservation initiatives, reducing budgeted cash requirements by over $6.3 million for H2 2022, including a strategic restructuring in October 2022 that terminated ten internal sales employees and engaged third-party vendors for sales and marketing[153][108] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Fresh Vine Wine, Inc. is not required to provide quantitative and qualitative disclosures about market risk[169] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of September 30, 2022, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective as of September 30, 2022[171] - Material weaknesses were identified in internal controls related to: (i) recording related-party transactions, (ii) segregation of duties, (iii) review of accounts receivable, and (iv) accounting for warrants[172] - Remediation efforts include hiring a full-time Controller in Q2 2022 and implementing new processes for transaction capture, segregation of duties, and subledger reviews[172][178] PART II. OTHER INFORMATION Legal Proceedings The company is involved in two separate legal proceedings with former executives, Timothy Michaels and Janelle Anderson, regarding separation agreements and alleged retaliatory termination respectively - The Company is engaged in litigation with Timothy Michaels, its former Chief Operating Officer, over an alleged breach of his separation agreement[180][105] - The Company is also engaged in litigation with Janelle Anderson, its former Chief Executive Officer, who alleges her termination was retaliatory under the Minnesota Whistleblower Act[181][107] Risk Factors This section updates risk factors, specifically highlighting potential negative impacts from ongoing litigation with former executives, including defense costs, reputational damage, and financial losses - An updated risk factor highlights the potential negative impacts of litigation with former COO Timothy Michaels and former CEO Janelle Anderson[183] - Risks from the litigation include significant defense costs, reputational damage to the company and its brands, management distraction, and potential financial losses not fully covered by insurance[183] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities to report for the period[184] Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[185] Mine Safety Disclosures This item is not applicable to the company's business operations - Mine safety disclosures are not applicable to the company's business[186] Other Information The company reported no other information for this item - No other information was reported for this item[187] Exhibits This section refers to the Exhibit Index, listing documents filed as exhibits with the Quarterly Report on Form 10-Q, including officer certifications and XBRL data - The report includes exhibits such as CEO/CFO certifications (pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act) and Inline XBRL documents[194]