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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 March 31, 2022

OR

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

 

img106225552_0.jpg 

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)

N/A

(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

 

NYSE American LLC

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, a 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.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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 May 10, 2022, the registrant had 13,213,378 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

TABLE OF CONTENTS

 

 

 

Page

Cautionary Note Regarding Forward-Looking Statements

2

Risk Factor Summary

5

 

 

 

PART I.

FINANCIAL INFORMATION

8

Item 1.

Condensed Consolidated Financial Statements (unaudited)

8

 

Condensed Consolidated Balance Sheets

8

 

Condensed Consolidated Statements of Operations

9

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

10

 

Condensed Consolidated Statements of Cash Flows

11

 

Notes to Unaudited Condensed Consolidated Financial Statements

12

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

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

72

Item 3.

Defaults Upon Senior Securities

72

Item 4.

Mine Safety Disclosures

72

Item 5.

Other Information

72

Item 6.

Exhibits

73

Signatures

74

 

i


 

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. 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. All statements contained in this Quarterly Report other than statements of historical fact, are forward-looking statements, including statements regarding:

our total addressable market, future results of operations, financial position, research and development costs, capital requirements and needs for additional financing;
our expectations about market trends and our ability to capitalize on these trends;
our business strategy and plans;
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 attract and retain consumers;
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 the Winc digital platform;
our ability to maintain and expand our relationships 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; and
our ability to obtain adequate financing and continue as a going concern.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report.

We have based the forward-looking statements contained in this Quarterly Report 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 and our other periodic filings with the SEC. 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. 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. Any forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, restructurings, joint ventures, partnerships or investments we may make.

These forward-looking statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

 

2


 

AVAILABLE INFORMATION

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.

GLOSSARY

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 condensed consolidated subsidiaries.



As used in this Quarterly Report, unless the context otherwise requires, reference to:

"ABC" means the California Department of Alcoholic Beverage Control;
 
“Alcoholic Beverages” means wine, spirits and beer and the “Alcoholic Beverages market” or “Alcoholic Beverages industry” means the wine, spirits and beer market in the United States;
 
“AOV” means average order value, which, for any period, represents the sum of DTC net revenues divided by the total orders placed in that period;
 
"BoC Credit Agreement" means that certain credit agreement, by and between the Company, BWSC, LLC and Pacific Mercantile Bank, dated as of December 15, 2020, as amended;
 
"BoC Line of Credit" means the $7.0 million revolving line of credit under the BoC Credit Agreement;
 
"CCPA" means the California Consumer Privacy Act of 2018;
 
“core brands” refers to the following brands: (i) “Summer Water” or “SW;” ​(ii) “Wonderful Wine Company” or “WWC”; (iii) “Lost Poet” or “LP;” ​(iv) “Folly of the Beast” or “Folly;” and (v) “Chop Shop, or “Chop;”
 
“CPG” means consumer product goods;
 
"CPRA" means the California Privacy Rights Act of 2020;
 
“DTC” means direct-to-consumer;
 
"DTSA" means the Defend Trade Secrets Act of 2016;
 
"EPA" means the U.S. Environmental Protection Agency;
 
"FDA" means the U.S. Food and Drug Administration;
 
"FTC" means the Federal Trade Commission;
 
"GDPR" means the European Union General Data Protection Regulation;
 

3


 

"IPO" means our initial public offering, which closed on November 15, 2021;
 
"JOBS Act" means the Jumpstart Our Business Startups Act of 2012;
 
"Multiplier" means Multiplier Capital II, LP;
 
"Multiplier LSA" means that certain loan and security agreement, dated as of December 29, 2017, by and among the Company and Multiplier, as amended;
 
"Multiplier Term Loan" means the $5.0 million term loan under the Multiplier LSA;
 
"OSHA" means the Occupational Safety and Health Administration;
 
"Sarbanes-Oxley Act" means the Sarbanes-Oxley Act of 2002;
 
"SEC" means the U.S. Securities and Exchange Commission;
"TTB" means the Alcohol and Tobacco Tax and Trade Bureau; and
 
"USDA" means the U.S. Department of Agriculture.

 

4


 

 

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. 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 need to secure additional funds for our liquidity needs and our existing debt obligations raise substantial doubt about our ability to continue as a going concern.
Our ability to raise capital in the future may be limited, we may be unable to secure funds for our liquidity needs, and our failure to raise capital when needed could prevent us from growing.
Failure to introduce and effectively market new brands may adversely affect our ability to continue to grow.
 
Our success is dependent upon our ability to expand our existing consumer relationships and acquire new consumers, and we must expend significant resources to maintain consumer awareness of our brand, build brand loyalty and generate interest in our brands. If we fail to cost-effectively acquire new consumers or retain our existing consumers, our business could be adversely affected.
 
We may not be able to compete successfully in our highly competitive market.
 
Our ability to maintain our competitive position is largely dependent on the services of our senior management and other key personnel.
 
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, financial condition, results of operations and prospects.
 
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 those of our competitors.
 
Our business performance by segment may be subject to significant variability.
 
Our business, including our costs and supply chain, is subject to risks associated with sourcing, production, warehousing, distribution and logistics, and the loss of any of our key suppliers or logistical service providers could negatively impact our business.
 
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.
 
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, financial condition, results of operations and prospects.
 

5


 

Our wholesale channel operations and revenues depend largely on independent wholesale distributors whose performance and continuity are not assured.
 
Consumer demand for Alcoholic Beverages could decline for a variety of reasons. Reduced demand could harm our results of operations, financial condition and prospects.

 
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.

 

6


 

 

7


 

PART I—FINANCIAL INFORMATION

Winc, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

4,272

 

 

$

4,883

 

Accounts receivable, net of allowance for doubtful accounts and sales returns of
 $
0.1 million and $0.2 million as of March 31, 2022 and December 31, 2021, respectively

 

 

3,761

 

 

 

2,575

 

Inventory

 

 

23,147

 

 

 

23,888

 

Prepaid expenses and other current assets

 

 

6,544

 

 

 

6,887

 

Total current assets

 

 

37,724

 

 

 

38,233

 

Property and equipment, net

 

 

753

 

 

 

496

 

Right of use lease assets

 

 

4,786

 

 

 

 

Intangible assets, net

 

 

11,274

 

 

 

11,537

 

Other assets

 

 

160

 

 

 

122

 

Total assets

 

$

54,697

 

 

$

50,388

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,541

 

 

$

4,040

 

Accrued liabilities

 

 

5,546

 

 

 

6,762

 

Contract liabilities

 

 

12,767

 

 

 

12,127

 

Short-term early exercise stock option liabilities

 

 

774

 

 

 

922

 

Lease liabilities, current

 

 

1,489

 

 

 

 

Line of credit

 

 

3,000

 

 

 

 

Total current liabilities

 

 

28,117

 

 

 

23,851

 

Lease liabilities, non-current

 

 

3,485

 

 

 

 

Early exercise stock option liability, non-current

 

 

658

 

 

 

839

 

Other liabilities

 

 

2,085

 

 

 

2,216

 

Total liabilities

 

 

34,345

 

 

 

26,906

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, par value $0.0001 per share; 300,000,000 shares authorized as of March 31, 2022 and December 31, 2021, 13,213,378 and 13,214,612, shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

1

 

 

 

2

 

Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized as of March 31, 2022 and December 31, 2021, zero shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Treasury stock (168,750 shares outstanding as of March 31, 2022 and December 31, 2021)

 

 

(7

)

 

 

(7

)

Additional paid-in capital

 

 

96,319

 

 

 

95,207

 

Accumulated deficit

 

 

(75,961

)

 

 

(71,720

)

Total stockholders’ equity

 

 

20,352

 

 

 

23,482

 

Total liabilities and stockholders’ equity

 

$

54,697

 

 

$

50,388

 

 

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

8


 

Winc, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2022

 

 

2021

 

 

Net revenues

 

$

18,457

 

 

$

17,465

 

 

Cost of revenues

 

 

11,014

 

 

 

9,626

 

 

Gross profit

 

 

7,443

 

 

 

7,839

 

 

Operating expenses:

 

 

 

 

 

 

 

Marketing

 

 

2,644

 

 

 

4,105

 

 

Personnel

 

 

4,208

 

 

 

2,416

 

 

General and administrative

 

 

4,833

 

 

 

2,152

 

 

Production and operation

 

 

150

 

 

 

34

 

 

Creative development

 

 

80

 

 

 

41

 

 

Total operating expenses

 

 

11,915

 

 

 

8,748

 

 

Loss from operations

 

 

(4,472

)

 

 

(909

)

 

Other income

 

 

 

 

 

 

 

Interest expense

 

 

(23

)

 

 

(140

)

 

Expense from change in fair value of warrant liabilities

 

 

 

 

 

(21

)

 

Other income, net

 

 

270

 

 

 

296

 

 

Gain on debt forgiveness from Paycheck Protection Program note payable

 

 

 

 

 

1,364

 

 

Total other income, net

 

 

247

 

 

 

1,499

 

 

(Loss) income before provision for (benefit from) income taxes

 

 

(4,225

)

 

 

590

 

 

Income tax expense (benefit)

 

 

16

 

 

 

(3

)

 

Net (loss) income

 

$

(4,241

)

 

$

593

 

 

Net (loss) income per common share:

 

 

 

 

 

 

 

Basic

 

$

(0.32

)

 

$

0.39

 

 

Diluted

 

$

(0.32

)

 

$

0.06

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

13,214,516

 

 

 

1,509,721

 

 

Diluted

 

 

13,214,516

 

 

 

10,296,291

 

 

 

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

9


 

Winc, Inc.

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

(Unaudited)

(In thousands, except share amounts)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

13,214,612

 

 

$

2

 

 

 

168,750

 

 

$

(7

)

 

$

95,207

 

 

$

(71,720

)

 

$

23,482

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

822

 

 

 

 

 

 

822

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

329

 

 

 

 

 

 

329

 

Stock cancellation

 

 

(1,234

)

 

 

(1

)

 

 

 

 

 

 

 

 

(39

)

 

 

 

 

 

(40

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,241

)

 

 

(4,241

)

Balance at March 31, 2022

 

 

13,213,378

 

 

 

1

 

 

 

168,750

 

 

 

(7

)

 

 

96,319

 

 

 

(75,961

)

 

 

20,352

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

72

 

Stock option exercises

 

 

 

 

 

 

 

 

875,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,042

 

 

 

 

 

 

1,042

 

Employee promissory notes issued for the exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,046

)

 

 

 

 

 

 

 

 

(1,046

)

Issuance of Series E Preferred Stock, net of $487 of issuance costs

 

 

332,220

 

 

 

4,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series F Preferred Stock, net of $694 of issuance costs

 

 

714,272

 

 

 

9,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

593

 

 

 

593

 

Balance at March 31, 2021

 

 

8,313,478

 

 

$

69,941

 

 

 

1,820,869

 

 

$

1

 

 

 

168,750

 

 

$

(7

)

 

$

(1,046

)

 

$

3,343

 

 

$

(56,479

)

 

$

(54,188

)

 

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

10


 

Winc, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net (loss) income

 

$

(4,241

)

 

$

593

 

Adjustments to reconcile net (loss) income to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

270

 

 

 

109

 

Amortization of debt issuance costs

 

 

13

 

 

 

46

 

Stock-based compensation

 

 

822

 

 

 

72

 

Bad debt expense

 

 

(49

)

 

 

 

Gain on debt forgiveness - Paycheck Protection Program note payable

 

 

 

 

 

(1,364

)

Other non-cash

 

 

61

 

 

 

17

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,138

)

 

 

(616

)

Inventory

 

 

740

 

 

 

(4,666

)

Prepaid expenses and other current assets

 

 

343

 

 

 

(2,706

)

Other assets

 

 

(39

)

 

 

199

 

Accounts payable

 

 

501

 

 

 

1,977

 

Accrued liabilities

 

 

(1,216

)

 

 

950

 

Contract liabilities

 

 

640

 

 

 

379

 

Other liabilities

 

 

4

 

 

 

1

 

Net cash used in operating activities

 

 

(3,289

)

 

 

(5,009

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(302

)

 

 

(112

)

Capitalized software development costs

 

 

(20

)

 

 

 

Net cash used in investing activities

 

 

(322

)

 

 

(112

)

Cash flows from financing activities

 

 

 

 

 

 

Borrowings on line of credit, net

 

 

3,000

 

 

 

 

Repayments of long-term debt

 

 

 

 

 

(417

)

Proceeds from issuance of preferred stock and warrants, net of issuance costs

 

 

 

 

 

13,479

 

Net cash provided by financing activities

 

 

3,000

 

 

 

13,062

 

Net (decrease) increase in cash

 

 

(611

)

 

 

7,941

 

Cash at beginning of period

 

 

4,883

 

 

 

7,008

 

Cash at end of period

 

$

4,272

 

 

$

14,949

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Interest paid

 

$

10

 

 

$

68

 

Taxes paid

 

$

2

 

 

$

9

 

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

Vesting of early exercised stock options

 

$

329

 

 

$

 

Right of use assets recorded upon adoption of ASC 842

 

$

5,197

 

 

$

 

Employee promissory notes issued for stock option exercises

 

$

 

 

$

1,046

 

 

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

11


 

Winc, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Description of Business

Winc, Inc. (the “Company” or “Winc”) is a Delaware corporation, which was originally incorporated on August 11, 2011. The Company is a producer of innovative alcoholic beverage products available for purchase through wholesale and direct-to-consumer (“DTC") channels. The Company’s products are available in the wholesale channel at premium retailers and restaurants throughout the country, including Whole Foods, Walmart and Target. In the DTC channel, the Company offers participation in its membership rewards program (“Insider Access”) that enables consumers to gain access to member-only pricing, emails, newsletters, special offers, and other updates to maximize their experience. Insider Access customers are charged a monthly fee in exchange for credits which the customer may redeem for the Company’s products at any time through the winc.com platform.

The Company develops its products in conjunction with winemakers, vineyards, distillers and manufacturers, both domestically and internationally, which are then transported to a centralized processing and distribution facility on California’s Central Coast.

Note 2. Basis of Presentation

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Winc and its wholly owned subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and are the responsibility of the Company’s management. These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes for the year ended December 31, 2021 as contained within the Company's filed Annual Report on Form 10-K, as filed with the SEC on March 30, 2022. The Company’s accounting policies are consistent with those presented in the audited condensed consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.

 

The accompanying condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated balance sheet at December 31, 2021 contained in the above-referenced Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year or any future interim periods.

 

Initial Public Offering and Reverse Stock Split

 

In November 2021, the Company completed its initial public offering ("IPO") through an underwritten sale of 1,692,308 shares of its common stock at a price of $13.00 per share. The aggregate net proceeds from the offering after deducting underwriting discounts and commissions and other offering expenses, were approximately $17.7 million.

 

Concurrent with the IPO, all then-outstanding shares of the Company's redeemable convertible preferred stock outstanding were automatically converted into an aggregate of 8,395,808 issued shares of common stock and reclassified into permanent equity. Following the IPO, there were no shares of redeemable convertible preferred stock outstanding.

 

In advance of the IPO, on October 12, 2021, the Company’s Board of Directors and stockholders approved an 8-to-1 reverse stock split of the Company’s outstanding capital stock. Common stock par value was not affected by the reverse split. All share and per share information included in the accompanying financial statements has been adjusted to reflect this reverse stock split.

Reclassifications

 

Certain reclassifications have been made to the prior periods’ condensed consolidated financial statements in order to conform to the current period presentation. These reclassifications did not impact any prior amounts of net loss or cash flows.

 

Going Concern

 

As of March 31, 2022, the Company had $4.3 million of cash and an accumulated deficit of $76.0 million. For the three months ended March 31, 2022, the Company had negative cash flows from operating activities of $3.3 million and incurred a net loss of $4.2 million. As of March 31, 2022, the Company had outstanding borrowings of $3.0 million on the $7.0 million BoC Line of Credit, which matures on June 30, 2022, and the Company borrowed an additional $2.0 million subsequent to quarter end for total outstanding borrowings under the BoC Line of Credit of $5.0 million as of the date of this Quarterly Report on Form 10-Q. Through March 31, 2022, the Company has been dependent on debt and equity financing to fund its operations, including proceeds raised from its IPO in November 2021.

 

The Company’s management believes it will continue to require third-party financing to support future operations until the Company achieves profitability. However, there can be no assurance that projected revenue growth and improvement in operating results will occur or that the Company will successfully implement its plans. In the event cash flows from operations and borrowings are not

12


 

sufficient, additional sources of financing, such as equity offerings, will be required in order to maintain the Company’s current and planned future operations.

 

If the Company is unable to extend the maturity date of the BoC Line of Credit or obtain alternative debt financing, there are no assurances that the Company will be able to repay the BoC Line of Credit at maturity. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

 

COVID-19 Pandemic

 

In response to the COVID-19 pandemic, extraordinary actions were initially taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of the COVID-19 pandemic in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. Some of these measures have since been rescinded, but the Company continues to take precautionary measures in order to minimize the risk of the virus to its employees and the communities in which it operates. While the impacts of the COVID-19 pandemic have generally stabilized during 2021 and 2022, there remains uncertainty around the broader implications of the COVID-19 pandemic on the Company’s results of operations and overall financial performance. The COVID-19 pandemic has, to date, not had a material adverse impact on the Company's results of operations or ability to raise funds to sustain operations. The economic effects of the pandemic and resulting long-term societal changes are currently not predictable, and the future financial impacts could vary from those foreseen.

 

Emerging Growth Company Status

 

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company 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 it: (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an emerging growth company.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Significant estimates include, but are not limited to, fair value of financial instruments, fair value of acquired assets, revenue recognition, and stock-based compensation. Actual results may differ materially from these estimates.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The following table summarizes the allowance for doubtful accounts (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Beginning balance

 

$

176

 

 

$

238

 

Provision

 

 

948

 

 

 

4,009

 

Write-offs, net

 

 

(978

)

 

 

(4,071

)

Ending balance

 

$

146

 

 

$

176

 

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2016-02, Accounting Standard Codification ("ASC") Leases (ASC 842) which supersedes FASB ASC 840, Leases (ASC 840) and provides principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. On January 1, 2022, the Company adopted ASC 842, which requires the recognition of right-of-use assets ("ROU assets") and related lease liabilities on the balance sheet using a modified retrospective approach. The condensed consolidated financial statements related to periods prior to January 1, 2022 were not restated, and continue to be reported under ASC 840, which did not require the recognition of operating lease liabilities on the balance sheet. As a result, the condensed consolidated financial statements related to periods prior to January 1, 2022 are not entirely comparative with current and future periods. As permitted under ASC 842, the Company elected several practical

13


 

expedients that permit the Company to not reassess (1) whether existing contracts are or contain a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. In addition, the Company has elected not to recognize short-term leases on its balance sheet.

 

For identified leases, the Company used its incremental borrowing rate to discount the related future payment obligations as of January 1, 2022 to determine its lease liability as of adoption. As of the adoption date, the Company recognized a lease liability of $5.3 million and a corresponding ROU asset of $5.2 million; there was no equity impact from the adoption. The difference between the lease liability and the ROU asset primarily represents the existing deferred rent liabilities before adoption, resulting from historical straight-lining of operating leases, which was effectively reclassified upon adoption to reduce the measurement of the ROU asset.

 

The Company records rent expense for operating leases, including leases of office locations, on a straight-line basis over the lease term. The straight-line calculation of rent expense includes rent escalations on certain leases, as well as lease incentives provided by the landlords, including payments for leasehold improvements and rent-free periods. The Company begins recognition of rent expense on the commencement date, which is generally the date that the asset is made available for use. The lease liability is included in lease liabilities, current and lease liabilities, noncurrent within the condensed consolidated balance sheet, which are reduced as lease related payments are made. The ROU asset is amortized on a periodic basis over the expected term of the lease. See Note 12 for additional information.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC 740) – Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company is electing to early adopt the standard for its fiscal year beginning January 1, 2022. Adoption of the new standard did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.

 

New Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (ASC 326), as amended, which sets forth a “current expected credit loss” model that requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to certain off-balance sheet credit exposures. The standard is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its condensed consolidated financial statements.

Note 3. Acquisition of Assets of Natural Merchants, Inc.

In May 2021, the Company purchased certain assets of a boutique wine importer, primarily consisting of relationships with certain suppliers, for a total purchase price of up to $13.0 million (comprised of up to $12.0 million in cash and $1.0 million in shares of the Company's Series F redeemable convertible preferred stock). The initial purchase price was $8.0 million cash and $1.0 million in shares of the Company's Series F redeemable convertible preferred stock (71,428 shares at $14.00 per share). The additional $4.0 million of cash payments are contingent upon achieving certain performance targets during 2021 and 2022 (up to $2.0 million of additional consideration in each year).

The acquisition was accounted for as an asset acquisition and resulted in the recognition of $10.0 million of intangible assets and $2.0 million of net working capital. The Company capitalized transaction costs of $0.4 million related to the acquisition. Additionally, at the acquisition date, the Company recognized $2.0 million of contingent consideration as a liability as it was concluded to be probable of being paid to the seller. The Company reassesses the contingent consideration on a quarterly basis and as of March 31, 2022, determined that $1.5 million and $1.8 million was probable of being paid to the seller in June 2022 and 2023, respectively. These amounts were capitalized as part of the cost of the assets acquired and allocated to increase the eligible assets on a relative fair value basis. The acquired intangible assets, primarily consisting of relationships with certain suppliers, have a useful life of