10-K: Fresh Vine Wine Amends Bylaws and Files Annual Report Amidst Merger Plans

Fresh Vine Wine, Inc. files its annual report and amends its bylaws, while also detailing its planned merger with Notes Live, Inc.

Summary

• Fresh Vine Wine, Inc. has amended its bylaws, effective January 25, 2024, covering various aspects of corporate governance, including stockholder meetings, director responsibilities, and officer roles.
• The company's annual report for the fiscal year ended December 31, 2023, shows a net revenue of $1.8 million and a net loss of $10.6 million.
• The report highlights an anticipated merger with Notes Live, Inc., a live entertainment and hospitality company, with a valuation of $350.8 million for Notes Live and $18 million for Fresh Vine, plus any net cash surplus.
• The merger is expected to result in pre-merger Notes Live shareholders owning approximately 95.1% of the combined company and pre-merger Fresh Vine stockholders owning approximately 4.9%.
• Fresh Vine is required to engage in a sale, license, transfer, disposition, divestiture or other monetization transaction, or winding down of its current wine production business as a condition to the merger.
• The company's existing wine business has faced challenges, including the termination of celebrity endorsement agreements and reliance on third-party suppliers.
• The company's financial statements include a going concern warning due to recurring losses and limited cash reserves.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including a going concern warning and a substantial net loss. While a merger is planned, the company's future is uncertain, and the overall tone is negative from an investment perspective.

Positives

• The company has established relationships with wholesale distributors in all 50 states and Puerto Rico.
• The company has a capital-efficient and scalable operational structure.
• The company has a differentiated product offering of premium, Napa Valley wines within the better-for-you segment.
• The company has an award-winning winemaker, Jamey Whetstone, consulting on its wines.
• The company has a strategic omnichannel marketing approach.

Negatives

• The company has a limited operating history and has generated limited revenue to date.
• The company has not generated profits from operations to date.
• The company has relied heavily on celebrities to endorse its wines and market its brand pursuant to license agreements which have been terminated.
• The company is heavily reliant on third-party suppliers and service providers.
• The company has been engaged in litigation with its former Chief Operating Officer.
• The company has a material weakness in its internal control over financial reporting.
• The company has a working capital deficit of approximately $1.3 million as of December 31, 2023.

Risks

• The Exchange Ratio in the merger will not change based on the market price of the company's common stock.
• The company's stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience.
• Failure to complete the merger may result in the company paying a termination fee to Notes Live.
• The company is substantially dependent on its remaining employees to facilitate the consummation of the merger.
• The company's ability to complete the Fresh Vine Legacy Transaction is uncertain.
• The company has a limited operating history and has generated limited revenue to date.
• The company has not generated profits from operations to date.
• The company's business growth will place increased demands on its management, operational and production capabilities.
• The company's advertising and promotional investments may not be effective.
• The company faces significant competition with an increasing number of products and market participants.
• A reduction in consumer demand for wine could materially and adversely affect the company's business.
• The company is heavily reliant on distributors that resell alcoholic beverages in all states in which it does business.
• The company's marketing strategy involves continued expansion into the direct-to-consumer channel, which may present risks and challenges for which it is not adequately prepared.
• Inclement weather, drought, pests, plant diseases and other factors could reduce the amount or quality of the grapes available to produce the company's wines.
• The company may be unable to identify and obtain adequate supplies of quality agricultural, raw and processed materials, or the cost of the commodities or products may increase.
• The company may not be fully insured against catastrophic perils, which may cause it to experience a material financial loss.
• The company may fail to develop and/or maintain adequate internal control over financial reporting.
• The company's operating results and share price may be volatile, and the market price of its common stock may drop below the price you pay.
• The company may require additional debt and equity capital to pursue its business objectives and respond to business opportunities, challenges, or unforeseen circumstances.

Future Outlook

The company's future is heavily dependent on the completion of the merger with Notes Live, Inc. and the successful transition of its business operations. The company's ability to continue as a going concern is uncertain without additional financing.

Management Comments

• The company is assessing the options available to it, including the possibility of appealing the verdict in the Timothy Michaels lawsuit.
• The company is working to reduce its operating expenses, including reducing its warehousing costs, while continuing to provide customers the opportunity to experience its wine and supporting its current retail customers and those purchasing via the company's wine club or from its website.
• The company is working with advisors to assess and improve its liquidity position, including from the sale of existing inventory.

Industry Context

The wine industry is highly competitive, with numerous domestic and international producers. The company is attempting to differentiate itself through its focus on the 'better-for-you' segment and its Napa Valley production.

Comparison to Industry Standards

• The company's financial results are significantly below industry standards for established wine producers, with a net loss of $10.6 million on revenue of $1.8 million.
• The company's reliance on third-party suppliers and distributors is common in the industry, but its lack of control over its supply chain presents a risk.
• The company's marketing strategy, which previously relied heavily on celebrity endorsements, is now being reevaluated, which is a common challenge for brands that have relied on celebrity endorsements.
• The company's going concern warning is a significant concern, as it indicates a high level of financial distress.
• The company's planned merger with Notes Live, Inc. is a significant departure from its current business model and is not a typical strategy for a wine producer.

Management Changes

Corporate Governance

Legal Proceedings

• The company was a defendant in a lawsuit styled Timothy Michaels v. Fresh Vine Wine, Inc. and a jury rendered a verdict against the company awarding damages to Mr. Michaels in the amount of $585,976.25.
• The company was served with a complaint alleging that the company has failed to design, construct, maintain and operate its Internet website to be fully accessible to and independently usable by blind or visually-impaired persons.

Related Party Transactions

• The company had an arrangement with Rabbit Hole Equity, LLC, a related party due to common ownership, under which RHE provided development, administrative and financial services to the company.
• The company previously entered into a service agreement with Appellation Brands, LLC, a related party due to common ownership in the wine industry, to provide representation and distribution services.
• The company entered into a consulting agreement with Whetstone Consulting, through which its winemaker, Jamey Whetstone, does business.

Stakeholder Impact

• Shareholders will experience significant dilution in the merger with Notes Live, Inc.
• Employees may be affected by the restructuring and potential sale of the wine business.
• Customers may experience changes in product availability and marketing strategies.
• Suppliers may be affected by the company's potential sale or winding down of its wine production business.
• Creditors may be at risk due to the company's financial difficulties and going concern warning.

Next Steps

• The company needs to complete the merger with Notes Live, Inc.
• The company needs to complete the Fresh Vine Legacy Transaction.
• The company needs to obtain stockholder approval for the merger.
• The company needs to regain compliance with NYSE American listing requirements.
• The company needs to secure additional financing to continue operations.

Key Dates

Keywords

wine, merger, bylaws, annual report, Notes Live, stockholders, directors, officers, financial results, insider trading, equity, compensation, Napa Valley, distribution, DTC, going concern