| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Fresh Vine Wine, Inc. (“the Company”,
“our”, “we”), a Nevada corporation, is a premium wine brand built to complement consumers’ healthy and active
lifestyles. The Company provides a competitively priced premium product that is blended to deliver several important benefits, such as
low-cal, low-sugar, low-carb. The Company’s wines are also gluten-free and keto and vegan friendly. The Company’s revenue is comprised primarily
of wholesale and direct to consumer (DTC) sales, and representation and distribution services. Wholesale revenue is generated through
sales to distributors located in states throughout the United States of America. DTC revenue is generated from individuals purchasing
wine directly from the Company through club membership and the Company’s website. Basis of Presentation The Company’s financial statements have
been prepared and are presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The
financial statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the
fair presentation of the financial statements. In certain instances, amounts reported in prior period financial statements have been reclassified
to conform to the current financial statement presentation. Agreement and Plan of Merger On January 25, 2024, the Company, FVW Merger
Sub, Inc., a Colorado corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), and Notes, Live,
Inc., a Colorado corporation (“Notes Live”), entered into an Agreement and Plan of Merger (the “Merger Agreement”)
pursuant to which, among other things, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement,
Merger Sub will merge with and into Notes Live, with Notes Live continuing as a wholly-owned subsidiary of the Company and the surviving
corporation of the merger (the “Merger”). On July 31, 2024, the Merger Agreement was terminated. The Company will continue
to review other strategic opportunities. Liquidity, Going Concern, and Management
Plan Historically, the Company has incurred losses,
which has resulted in an accumulated deficit of approximately $28.6 million as of June 30, 2024. Cash flows used in operating activities
were approximately $947,000 and $4.2 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024,
the Company had an approximately $2.7 million working capital deficit, inclusive of approximately $145,000 in cash and $50,000 in
restricted cash. The Company has increased its liquidity by selling inventory at prices below cost, by significantly reducing staffing
levels and by the termination of celebrity endorsement contracts. The Company’s ability to continue as a going
concern is dependent on its ability to meet its liquidity needs through a combination of factors including but not limited to, cash and
cash equivalents, working capital and strategic capital raises. The ultimate success of these plans is not guaranteed. In considering our forecast for the next twelve
months and the current cash and working capital as of the filing of this Form 10-Q, such matters create a substantial doubt regarding
the Company’s ability to meet their financial needs and continue as a going concern. The Company received gross proceeds of approximately
$914,000 and $1 million from preferred stock offerings during the periods ended June 30, 2024 and December 31, 2023, respectively.
The Company will need to seek additional debt or equity financing to sustain existing operations. If adequate financing is not available,
the Company will be forced to take measures to severely reduce our expenses and business operations or discontinue them completely. Such
financing, if available, may be dilutive. At the current reduced pace of incurring expenses and with receipt of additional financing and
the receipt of proceeds from the expected sales of inventory, the Company projects that the existing cash balance will be sufficient to
fund current operations into the third quarter of 2024, after which additional financing or capital will be needed to satisfy obligations.
Additional financing may not be available on favorable terms or at all. If additional financing is available, it may be highly dilutive
to existing shareholders and may otherwise include burdensome or onerous terms. The Company’s inability to raise additional working
capital in a timely manner would negatively impact the ability to fund operations, generate revenues, maintain or grow the business and
otherwise execute the Company’s business plan, leading to the reduction or suspension of operations and ultimately potentially ceasing
operations altogether and initiating bankruptcy proceedings. Should this occur, the value of any investment in the Company’s securities
would be adversely affected. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern. Accounting Estimates Management uses estimates and assumptions in preparing
these financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.
Significant items subject to such estimates and assumptions include allowance for doubtful accounts, allowance for inventory obsolescence,
equity-based compensation for employees and non-employees, and the valuation of deferred tax assets. Cash The Company maintains its accounts at two financial
institutions. At times throughout the year, the Company’s cash balances may exceed amounts insured by the Federal Deposit Insurance
Corporation. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk. Restricted Cash Included in the cash balance is a balance of approximately
$50,000 and $100,000 as of June 30, 2024 and December 31, 2023, respectively, that the Company’s operating bank has required us
to maintain as a security for collectability of automated clearing house transactions. These funds are held in a separate account and
are not available for disbursements. Accounts Receivable Accounts receivable consists of amounts owed to
the Company for sales of the Company’s products on credit and are reported at net realizable value. Credit terms are extended to
customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial conditions.
The Company estimates allowances for future returns and doubtful accounts based upon historical experience and its evaluation of the current
status of receivables. Accounts considered uncollectible are written off against the allowance. As of June 30, 2024 and December 31, 2023
there was no allowance for doubtful accounts. Inventories Inventories primarily include bottled wine which
is carried at the lower of cost (calculated using the average cost method) or net realizable value. The Company reduces the carrying value of inventories
that are obsolete or for which market conditions indicate cost will not be recovered to estimated net realizable value. The Company’s
estimate of net realizable value is based on analysis and assumptions including, but not limited to, historical experience, future demand,
and market requirements. Reductions to the carrying value of inventories are recorded in cost of revenues. As of June 30, 2024 and
December 31, 2023, the Company had recorded an inventory allowance of approximately $154,000 and $112,000, respectively. Investment in Equity Securities The Company has elected the measurement alternative
for non-marketable equity securities under ASC 321 Investments – Equity Securities. In accordance with ASC 321, the non-marketable
equity securities are initially measured at cost and reviewed at year end for impairment and fair value changes. As of June 30, 2024,
there were no changes recorded for the value of the investment since the initial measurement. Revenue recognition The Company’s total
revenue reflects the sale of wine domestically in the U.S. to wholesale distributors or DTC customers. Under ASC Topic 606, Revenue
from Contracts with Customers The Company also generates
revenue through membership in its wine club. Wine club members pay a monthly fee, which varies depending on level of membership, and are
entitled to receive quarterly shipments of wine, free shipping, and discounts on other wine and merchandise purchased. The Company recognizes
revenue for the monthly membership dues when the product is delivered. Any membership dues received before the product is delivered is
recorded as deferred revenue on the Company’s balance sheet. ASC 606 notes that when
another party is involved in providing goods or services to a customer, the entity should determine whether the nature of its promise
is a performance obligation to provide the specified goods or services itself (that is, the entity is a principal) or to arrange
for those goods or services to be provided by the other party (that is, the entity is an agent). The Company does not bear responsibility
for inventory losses and does not have pricing determination; therefore, the Company would be considered the agent and revenue should
be recognized as net sales. Products are sold for cash or on credit terms.
Credit terms are established in accordance with local and industry practices, and typically require payment within 30-60 days of delivery
or shipment, as dictated by the terms of each agreement. The Company has elected the practical expedient to not account for significant
financing components as its payment terms are less than one year, and the Company determines the terms at contract inception. The Company’s
sales terms do not allow for the right of return. The following table presents
the percentages of total revenue disaggregated by sales channels for the three and six months ended June 30, 2024 and 2023:
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2024 2023 2024 2023
Wholesale 5.2 % 48.2 % 18.4 % 60.6 %
Direct to consumer 94.8 % 51.8 % 81.6 % 39.4 %
Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Fair Value of Financial Instruments The Company’s accounting for fair value
measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring
basis adheres to the Financial Accounting Standards Board (FASB) fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
● Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the Company at the measurement date.
● Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
● Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The level in the fair value hierarchy within which
a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The carrying values of cash, accounts receivable,
accounts payable, deferred revenue and other financial working capital items approximate fair value at June 30, 2024 and December 31,
2023, due to the short maturity nature of these items. Income Taxes The Company recognizes uncertain tax positions
in accordance with ASC 740 on the basis of evaluating whether it is more likely than not that the tax positions will be sustained upon
examination by tax authorities. For those tax positions that meet the more-likely-than not recognition threshold, the Company recognizes
the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement. The Company recognizes
interest and/or penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of June 30,
2024 or December 31, 2023, and as such, no interest or penalties were recorded to income tax expense. As of June 30, 2024 and December
31, 2023, the Company has no unrecognized tax benefits. There are no unrecognized tax benefits included on the balance sheet that would,
if recognized, impact the effective tax rate. The Company does not anticipate there will be a significant change in unrecognized tax benefits
within the next 12 months. Equity-Based Compensation The Company measures equity-based compensation
cost at the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period,
which is generally the vesting period. The Company recognizes any forfeitures as they occur. The Company measures equity-based compensation
when the service inception date precedes the grant date based on the fair value of the award as an accrual of equity-based compensation
and adjusts the cost to fair value at each reporting date prior to the grant date. In the period in which the grant occurs, the cumulative
compensation cost is adjusted to the fair value at the date of the grant. See Note 8 for further discussion of equity-based
compensation incurred in 2024 and 2023. Advertising The Company expenses the costs of advertising
as incurred. Advertising expenses were approximately $182,000 and $562,000 for the three months ended June 30, 2024 and 2023, respectively
and was approximately $327,000 and $1.2 million for the six months ended June 30, 2024 and 2023, respectively. Application of New or Revised Accounting
Standards Pursuant to the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”), a company constituting an “emerging growth company” is, among other things, entitled
to rely upon certain reduced reporting requirements and is eligible to take advantage of an extended transition period to comply with
new or revised accounting standards applicable to public companies. The Company is an emerging growth company and
has elected to use this extended transition period for complying with new or revised accounting standards that have different effective
dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii)
affirmatively and irrevocable opts out of the extended transition period provide in the JOBS Act. NYSE Listing Requirements On September 8, 2023, the Company received a written
notice (the “Notice”) from NYSE American stating that it was not in compliance with Section 1003(a)(ii) of the NYSE American
Company Guide (the “Company Guide”), which requires a listed company that has reported losses from continuing operations and/or
net losses in three of its four most recent fiscal years to maintain at least $4 million of stockholders’ equity. The Company
reported stockholders’ deficit of approximately $2.2 million as of June 30, 2024 and have had losses from continuing operations
and/or net losses in each of the fiscal years ended December 31, 2020, 2021, 2022 and 2023. As required by the NYSE American, the Company
submitted a plan to the NYSE American on October 9, 2023 addressing actions it has taken and how it intends to regain compliance with
the continued listing standards within the required 18 month period ending March 8, 2025. On November 21, 2023, the Company received notification
(the “Acceptance Letter”) from NYSE American that the Company’s plan to regain compliance with NYSE American’s
listing standards was accepted. The Acceptance Letter also stated that the Company is not in compliance with Section 1003(a)(i) of
the Company Guide, which requires an issuer to have stockholders’ equity of $2.0 million or more if it has reported losses from
continuing operations and/or net losses in two out of its three most recent fiscal years. NYSE American has granted the Company a plan
period through March 8, 2025 to regain compliance with Sections 1003(a)(i) and (ii) of the Company Guide. If the Company is not in compliance
with all continued listing standards by that date or if the Company does not make progress consistent with the plan during the plan period,
the Company will be subject to delisting proceedings. |
