10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-41055

Winc, Inc.

(Exact name of registrant as specified in its charter)


Delaware	45-2988960
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1751 Berkeley St, Studio 3 Santa Monica, CA	90404
(Address of principal executive offices)	(Zip Code)

(800) 297-1760

(Registrant’s telephone number, including area code)

Not Applicable.

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

WBEV

The NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes ☒ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of December 8, 2021, the registrant had 13,159,170 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets (unaudited)	4
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)	5
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit (unaudited)	6
	Condensed Consolidated Statements of Cash Flows (unaudited)	7
	Notes to Unaudited Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77
Signatures		78

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements contained in this Quarterly Report other than statements of historical fact, are forward-looking statements, including statements regarding:



Estimates of our total addressable market, future results of operations, financial position, research and development costs, capital requirements and our needs for additional financing.



Our expectations about market trends and our ability to capitalize on these trends.



The impact on our business, financial condition and results of operation from the ongoing and global COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide.



Our ability to effectively and efficiently develop new brands of wines and introduce products in beverage categories beyond wine.



Our ability to efficiently increase online consumer acquisition.



Our ability to increase awareness of our portfolio of brands in order to successfully compete with other companies.



Our ability to maintain and improve our technology platform supporting our Winc digital platform.



Our ability to maintain and expand our relationship with wholesale distributors and retailers.



Our ability to continue to operate in a heavily regulated environment.



Our ability to establish and maintain intellectual property protection or avoid claims of infringement.



Our ability to hire and retain qualified personnel.



Our ability to obtain adequate financing.

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “preliminary,” “likely,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Any forward-looking statements made herein speak only as of the date of this Quarterly Report, and you should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or achievements reflected in the forward-looking statements will be achieved or will occur. Except as required by applicable law, we undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report or to conform these statements to actual results or revised expectations.

GENERAL

Unless the context otherwise requires, all references in this Quarterly Report to “we,” “us,” “our,” “Winc” or the “Company” refer to Winc, Inc. and its consolidated subsidiaries.

All reports we file with the SEC are available for download free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC’s website at www.sec.gov. We also make electronic copies of our reports available for download, free of charge, through our investor relations website at ir.winc.com as soon as reasonably practicable after filing such material with the SEC.

We may announce material business and financial information to our investors using our investor relations website at ir.winc.com. We therefore encourage investors and others interested in Winc to review the information that we make available on our website, in addition to following our filings with the SEC, webcasts, press releases and conference calls. Information contained on our website is not part of this Quarterly Report.

Risk Factor Summary

Our business is subject to numerous risks and uncertainties, including those described in Part II. Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:



We have a history of net losses and we may not be able to achieve or maintain profitability in the future.



Our historical growth may not be indicative of our future growth and, if we continue to grow rapidly, we may not be able to effectively manage our growth or evaluate our future prospects. If we fail to effectively manage our future growth or evaluate our future prospects, our business could be adversely affected.



Our quarterly operating results may fluctuate, which could cause our stock price to decline.



We must expend resources to maintain consumer awareness of our brand, build brand loyalty and generate interest in our brands. As our marketing strategies and channels evolve, our efforts may not be successful.



The success of our business depends heavily on the strength of brands, and our brands and reputation may be diminished due to real or perceived quality, safety, efficacy or environmental impact issues with our brands, which could have an adverse effect on our business, financial condition, results of operations and prospects.



If we fail to cost-effectively acquire new consumers or retain our existing consumers, our business could be adversely affected. Our sales and profit are dependent upon our ability to expand our existing consumer relationships and acquire new consumers.



Our ability to maintain our competitive position is largely dependent on the services of our senior management and other key personnel.



We rely on third-party suppliers, producers, retailers and other vendors, 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 of our products or services.



Our business may be adversely affected if we are unable to provide our consumers with a technology platform that is able to respond and adapt to rapid changes in technology, if our platform encounters disruptions in usability or if our consumers find our platform less usable or attractive than our competitors’.



Consumer demand for wine could decline for a variety of reasons. Reduced demand could harm our results of operations, financial condition and prospects.



The occurrence of an environmental catastrophe could disrupt our business. Climate change, wildfires, disease, pests, weather conditions and problems with water supply could also have adverse effects on our business.



Due to the legacy alcohol beverage distribution system in the United States, we are heavily reliant on wholesale distributors and government agencies that resell Alcoholic Beverages in all states. A significant reduction in wholesale distributor demand for our wines would materially and adversely affect our sales and profitability.



The consumer reception of the launch and expansion of our brands is inherently uncertain and may present new and unknown risks and challenges in production and marketing that we may fail to manage optimally and which could have a materially adverse effect on our business, results of operations and financial results.



If we are unable to obtain adequate supplies of premium grapes and bulk wine from third-party grape growers and bulk wine 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.



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.

PART I—FINANCIAL INFORMATION

Winc, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)


	September 30,			December 31,
	2021			2020
	(Unaudited)
Assets
Current assets:
Cash	$	1,612		$	7,008
Accounts receivable, net of allowance for doubtful accounts and sales returns of $0.7 million and $0.2 million as of September 30, 2021 and December 31, 2020, respectively		2,886			1,505
Inventory		22,371			11,880
Prepaid expenses and other current assets		4,463			3,046
Total current assets		31,332			23,439
Property and equipment, net		826			654
Intangible assets, net		9,834			—
Other assets		2,209			131
Total assets	$	44,201		$	24,224
Liabilities, Redeemable Convertible Preferred Stock, and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	5,482		$	3,673
Accrued liabilities		6,136			4,759
Contract liabilities		10,995			8,691
Current portion of long-term debt		1,205			1,526
Line of credit		5,500			—
Total current liabilities		29,318			18,649
Deferred rent		139			223
Warrant liabilities		3,746			1,067
Paycheck Protection Program note payable		—			1,364
Long-term debt, net		—			812
Early exercise stock option liability		1,974			—
Other liabilities		1,433			496
Total liabilities		36,610			22,611
Commitments and contingencies (Note 11)
Redeemable convertible preferred stock, $0.0001 par value, 80,083,782 and 71,512,354 shares authorized, 8,384,906 and 7,266,986 shares issued and outstanding, aggregate liquidation preference of $87,385 and $71,746 as of September 30, 2021 and December 31, 2020, respectively		68,884			56,462
Stockholders’ deficit:
Common stock, $0.0001 par value, 115,490,000 and 106,910,000 shares authorized as of September 30, 2021 and December 31, 2020, respectively, 3,153,906 and 945,794, shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		2			1
Treasury stock (168,750 shares outstanding as of both September 30, 2021 and December 31, 2020)		(7	)		(7	)
Additional paid-in capital		4,854			2,229
Accumulated deficit		(66,142	)		(57,072	)
Total stockholders’ deficit		(61,293	)		(54,849	)
Total liabilities, redeemable convertible preferred stock, and stockholders’ deficit	$	44,201		$	24,224

The accompanying notes are an integral part of these condensed consolidated financial statements.

Winc, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Net revenues	$	18,457		$	17,848		$	53,573		$	47,014
Cost of revenues		10,653			10,302			30,605			28,525
Gross profit		7,804			7,546			22,968			18,489
Operating expenses:
Marketing		3,700			4,824			11,678			11,772
Personnel		7,153			2,055			12,540			5,521
General and administrative		2,987			1,744			8,555			5,117
Production and operation		44			47			97			136
Creative development		131			19			287			73
Total operating expenses		14,015			8,689			33,157			22,619
Loss from operations		(6,211	)		(1,143	)		(10,189	)		(4,130	)
Other income (expense)
Interest expense		(127	)		(145	)		(548	)		(676	)
Change in fair value of warrant liabilities		248			—			(644	)		(229	)
Other income (expense), net		358			(27	)		2,330			(19	)
Total other income (expense), net		479			(172	)		1,138			(924	)
Loss before provision for income taxes		(5,732	)		(1,315	)		(9,051	)		(5,054	)
Income tax expense		1			9			17			15
Net loss	$	(5,733	)	$	(1,324	)	$	(9,068	)	$	(5,069	)
Net loss per common share:
Basic and diluted	$	(2.55	)	$	(1.49	)	$	(4.72	)	$	(5.70	)
Weighted-average common shares outstanding:
Basic and diluted		2,252,128			889,559			1,922,559			889,559

The accompanying notes are an integral part of these condensed consolidated financial statements.

Winc, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

(Unaudited)

(In thousands, except share amounts)


	Redeemable Convertible Preferred Stock					Common Stock				Treasury Stock					Promissory Notes for Common			Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount			Shares		Amount		Shares		Amount			Stock Issued			Capital			Deficit			Deficit
Balance at December 31, 2020		7,266,986	$	56,462			945,794	$	1		168,750	$	(7	)	$	-		$	2,229		$	(57,072	)	$	(54,849	)
Stock-based compensation expense		—		—			—		—		—		—			—			172			—			172
Stock option exercises		—		—			2,109,308		1		—		—			—			1,627			—			1,628
Vesting of early exercised stock options		—		—			—		—		—		—			—			5			—			5
Employee promissory notes issued for the exercise of stock options		—		—			—		—		—		—			(3,453	)		—			—			(3,453	)
Issuance of Series E Preferred Stock, net of $499 of issuance costs		332,220		4,162			—		—		—		—			—			—			—			—
Issuance of Series F Preferred Stock, net of $694 of issuance costs		714,272		7,272			—		—		—		—			—			—			—			—
Issuance of Series F Preferred Stock in connection with an acquisition		71,428		1,000			—		—		—		—			—			—			—			—
Net loss		—		—			—		—		—		—			—			—			(3,337	)		(3,337	)
Balance at June 30, 2021		8,384,906		68,896			3,055,102		2		168,750		(7	)		(3,453	)		4,033			(60,409	)		(59,834	)
Stock-based compensation expense		—		—			—		—		—		—			—			819			—			819
Stock option exercises		—		—			15,832		—		—		—			—			29			—			29
Vesting of early exercised stock options		—		—			—		—		—		—			—			(27	)		—			(27	)
Forgiveness of promissory notes receivable		—		—			—		—		—		—			3,453			—			—			3,453
Issuance costs of Series E preferred stock		—		(12	)		—		—		—		—			—			—			—			—
Net loss		—		—			—		—		—		—			—			—			(5,733	)		(5,733	)
Balance at September 30, 2021		8,384,906	$	68,884			3,070,934	$	2		168,750	$	(7	)	$	-		$	4,854		$	(66,142	)	$	(61,293	)


	Redeemable Convertible Preferred Stock					Common Stock				Treasury Stock					Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount			Shares		Amount		Shares		Amount			Capital		Deficit			Deficit
Balance at December 31, 2019		6,401,491	$	49,629			889,544	$	1		168,750	$	(7	)	$	1,936	$	(50,114	)	$	(48,184	)
Stock-based compensation expense		—		—			—		—		—		—			110		—			110
Issuance of Series D Preferred Stock, net of $1,831 of issuance costs		632,753		5,333			—		—		—		—			—		—			—
Net loss		—		—			—		—		—		—			—		(3,746	)		(3,746	)
Balance at June 30, 2020		7,034,244		54,962			889,544		1		168,750		(7	)		2,046		(53,860	)		(51,820	)
Stock-based compensation expense		—		—			—		—		—		—			64		—			64
Issuance of Series D preferred stock, net of $402 of issuance costs		32,631		(33	)		—		—		—		—			—		—			—
Issuance costs of Series E preferred stock		—		(436	)		—		—		—		—			—		—			—
Net loss		—		—			—		—		—		—			—		(1,324	)		(1,324	)
Balance at September 30, 2020		7,066,875	$	54,493			889,544	$	1