0000950170-21-004627.txt : 20211115 0000950170-21-004627.hdr.sgml : 20211115 20211115163806 ACCESSION NUMBER: 0000950170-21-004627 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 85 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211115 DATE AS OF CHANGE: 20211115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Vintage Wine Estates, Inc. CENTRAL INDEX KEY: 0001834045 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 000000000 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-40016 FILM NUMBER: 211411582 BUSINESS ADDRESS: STREET 1: 937 TAHOE BOULEVARD STREET 2: SUITE 210 CITY: INCLINE VILLAGE STATE: NV ZIP: 89451 BUSINESS PHONE: 707-346-3640 MAIL ADDRESS: STREET 1: 937 TAHOE BOULEVARD STREET 2: SUITE 210 CITY: INCLINE VILLAGE STATE: NV ZIP: 89451 FORMER COMPANY: FORMER CONFORMED NAME: Bespoke Capital Acquisition Corp DATE OF NAME CHANGE: 20201125 10-Q 1 vwe-20210930.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2021

OR

 

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

 

Commission file number 001-40016

 

img7590540_0.jpg 

 

VINTAGE WINE ESTATES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

 

 

87-1005902

(State or other jurisdiction of incorporation or organization)

 

 

 

(I.R.S. Employer Identification No.)

______________________________

937 Tahoe Boulevard, Suite 210

Incline Village, Nevada 89451

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (877) 289-9463

______________________________

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, no par value per share

 

VWE

 

The Nasdaq Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

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 Act). Yes No ☒

As of November 1, 2021, 60,461,611 shares of the registrant’s common stock were outstanding.

 


 

Part 1. Financial Information

 

Item 1. Financial Statements

1

Condensed Consolidated Balance Sheet

1

Condensed Consolidated Statement of Operations and Comprehensive Income (Loss)

2

Condensed Consolidated Statement of Stockholders' Equity

3

Condensed Consolidated Statement of Cash Flows

4

Notes to the Condensed Consolidated Financial Statements

5

Note 1: Basis of Presentation and Significant Accounting Policies

5

Note 2: Merger and Reverse Recapitalization

10

Note 3: Inventory

11

Note 4: Property, Plant and Equipment

11

Note 5: Goodwill and Intangibles

11

Note 6: Accrued Liabilities

12

Note 7: Long-Term and Other Short-Term Obligations

13

Note 8: Fair Value Measurements

14

Note 9: Redeemable Stock and Redeemable Noncontrolling Interest

15

Note 10: Stockholders' Equity and Stock-Based Compensation

15

Note 11: Income Taxes

16

Note 12: Commitments and Contingencies

16

Note 13: Segment Information

16

Note 14: Earnings Per Share

17

Note 15: Related Party Transactions

18

Note 16: Subsequent Events

19

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

25

Item 4. Controls and Procedures

25

Part 2. Other Information

26

Item 1. Legal Proceedings

26

Item 1A. Risk Factors

26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3. Defaults Upon Senior Securities

27

Item 4. Mine Safety Disclosures

27

Item 5. Other Information

27

Item 6. Exhibits

27

Signatures

28

 

 

 


Table of Contents

Part I—Financial Information

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share amounts)

 

 

September 30, 2021

 

 

June 30, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

118,275

 

 

$

118,879

 

Restricted cash

 

 

4,800

 

 

 

4,800

 

Accounts receivable, net

 

 

13,791

 

 

 

14,639

 

Other receivables

 

 

16,894

 

 

 

14,044

 

Inventories

 

 

225,816

 

 

 

221,145

 

Prepaid expenses and other current assets

 

 

7,654

 

 

 

8,538

 

Total current assets

 

 

387,230

 

 

 

382,045

 

Property, plant, and equipment, net

 

 

217,962

 

 

 

213,673

 

Goodwill

 

 

109,895

 

 

 

109,895

 

Intangible assets, net

 

 

35,548

 

 

 

36,079

 

Other assets

 

 

1,596

 

 

 

1,806

 

Total assets

 

$

752,231

 

 

$

743,498

 

Liabilities, redeemable noncontrolling interest, and stockholders' equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Line of credit

 

$

98,722

 

 

$

87,351

 

Accounts payable

 

 

14,617

 

 

 

17,301

 

Accrued liabilities and other payables

 

 

26,488

 

 

 

25,078

 

Current maturities of long-term debt

 

 

22,964

 

 

 

22,964

 

Total current liabilities

 

 

162,791

 

 

 

152,694

 

Other long-term liabilities

 

 

2,767

 

 

 

2,767

 

Long-term debt, less current maturities

 

 

181,125

 

 

 

183,541

 

Interest rate swap liabilities

 

 

12,414

 

 

 

13,807

 

Deferred tax liability

 

 

16,752

 

 

 

16,752

 

Deferred gain

 

 

11,666

 

 

 

12,000

 

Total liabilities

 

 

387,515

 

 

 

381,561

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

1,685

 

 

 

1,682

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, no par value, 2,000,000 shares authorized, and none issued and outstanding at September 30, 2021 and June 30, 2021.

 

 

-

 

 

 

-

 

Common stock, no par value, 200,000,000 shares authorized, 60,461,611 and 60,461,611  issued and outstanding at September 30, 2021 and June 30, 2021.

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

360,732

 

 

 

360,732

 

Retained earnings

 

 

2,804

 

 

 

-

 

Total Vintage Wine Estates, Inc. stockholders' equity

 

 

363,536

 

 

 

360,732

 

Noncontrolling interests

 

 

(505

)

 

 

(477

)

Total stockholders' equity

 

 

363,031

 

 

 

360,255

 

Total liabilities, redeemable noncontrolling interest, and stockholders' equity

 

$

752,231

 

 

$

743,498

 

 

See notes to condensed consolidated financial statements.

 

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

(in thousands, except share and per share amounts)

 

 

Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

Net revenues

 

 

 

 

 

 

Wine and spirits

 

$

36,287

 

 

$

42,763

 

Nonwine

 

 

19,400

 

 

 

11,071

 

 

 

 

55,687

 

 

 

53,834

 

Cost of revenues

 

 

 

 

 

 

Wine and spirits

 

 

20,588

 

 

 

25,406

 

Nonwine

 

 

11,662

 

 

 

5,900

 

 

 

 

32,250

 

 

 

31,306

 

Gross profit

 

 

23,437

 

 

 

22,528

 

Selling, general, and administrative expenses

 

 

17,634

 

 

 

14,321

 

(Gain) on sale of property, plant, and equipment

 

 

(340

)

 

 

(356

)

Income from operations

 

 

6,143

 

 

 

8,563

 

Other income (expense)

 

 

 

 

 

 

Interest expense

 

 

(3,603

)

 

 

(3,382

)

Net unrealized gain on interest rate swap agreements

 

 

1,393

 

 

 

846

 

Other, net

 

 

39

 

 

 

190

 

Total other income (expense), net

 

 

(2,171

)

 

 

(2,346

)

Income before provision for income taxes

 

 

3,972

 

 

 

6,217

 

Income tax provision

 

 

1,193

 

 

 

856

 

Net income

 

 

2,779

 

 

 

5,361

 

Net income (loss) attributable to the noncontrolling interests

 

 

25

 

 

 

(304

)

Net income attributable to Vintage Wine Estates, Inc.

 

 

2,804

 

 

 

5,057

 

Accretion on redeemable Series B stock

 

 

-

 

 

 

1,835

 

Net income allocable to common stockholders

 

$

2,804

 

 

$

3,222

 

 

 

 

 

 

 

 

Net earnings per share allocable to common stockholders

 

 

 

 

 

 

Basic

 

$

0.05

 

 

$

0.12

 

Diluted

 

$

0.05

 

 

$

0.12

 

Weighted average shares used in the calculation of earnings per share allocable to common stockholders

 

 

 

 

 

 

Basic

 

 

60,461,611

 

 

 

21,920,583

 

Diluted

 

 

60,461,611

 

 

 

25,099,864

 

 

See notes to condensed consolidated financial statements.

 

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except share amounts)

 

 

Redeemable Non-Controlling
Interest Amount

 

 

 

Common Stock

 

 

Additional
Paid-In Capital

 

 

Retained
Earnings

 

 

Non-Controlling
Interests

 

 

 Total Stockholders' Equity

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

$

1,682

 

 

 

 

60,461,611

 

 

$

-

 

 

$

360,732

 

 

 

-

 

 

$

(477

)

 

$

360,255

 

Net income (loss)

 

 

3

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,804

 

 

 

(28

)

 

 

2,776

 

Balance, September 30, 2021

 

$

1,685

 

 

 

 

60,461,611

 

 

$

-

 

 

$

360,732

 

 

$

2,804

 

 

$

(505

)

 

$

363,031

 

 

 

 

Redeemable Non-Controlling
Interest Amount

 

 

 

Common Stock

 

 

Additional
Paid-In Capital

 

 

Retained
Earnings

 

 

Non-Controlling
Interests

 

 

 Total Stockholders' Equity

 

(in thousands, except share amounts)

 

 

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

 

$

1,382

 

 

 

 

26,460,375

 

 

$

-

 

 

$

92,940

 

 

$

15,191

 

 

$

(395

)

 

$

107,736

 

Accretion on redeemable stock

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

5,880

 

 

 

(5,880

)

 

 

-

 

 

 

-

 

Stock-based compensation expense

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

330

 

 

 

-

 

 

 

-

 

 

 

330

 

Net income

 

 

278

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,058

 

 

 

26

 

 

 

5,084

 

Balance, September 30, 2020

 

$

1,660

 

 

 

 

26,460,375

 

 

$

-

 

 

$

99,150

 

 

$

14,369

 

 

$

(369

)

 

$

113,150

 

 

See notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

2,779

 

 

$

5,361

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

4,034

 

 

 

2,706

 

Amortization of deferred loan fees and line of credit fees

 

 

99

 

 

 

119

 

Amortization of label design fees

 

 

120

 

 

 

79

 

Stock-based compensation expense

 

 

-

 

 

 

330

 

Provision for doubtful accounts

 

 

(15

)

 

 

15

 

Net unrealized gain on interest rate swap agreements

 

 

(1,393

)

 

 

(846

)

Gain on disposition of assets

 

 

(6

)

 

 

(22

)

Deferred gain on sale leaseback

 

 

(334

)

 

 

(334

)

Deferred rent

 

 

128

 

 

 

125

 

Change in operating assets and liabilities (net of effect of business combinations):

 

 

 

 

 

 

Accounts receivable

 

 

863

 

 

 

(730

)

Related party receivables

 

 

-

 

 

 

(316

)

Other receivables

 

 

(2,850

)

 

 

(2,066

)

Inventories

 

 

(4,671

)

 

 

(4,714

)

Prepaid expenses and other current assets

 

 

884

 

 

 

(3,347

)

Other assets

 

 

116

 

 

 

2,306

 

Accounts payable

 

 

(3,071

)

 

 

4,058

 

Accrued liabilities and other payables

 

 

1,356

 

 

 

6,387

 

Related party liabilities

 

 

-

 

 

 

(1,410

)

Net cash (used in) provided by operating activities

 

 

(1,961

)

 

 

7,701

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Proceeds from disposition of assets

 

 

6

 

 

 

22

 

Purchases of property, plant, and equipment

 

 

(7,792

)

 

 

(6,871

)

Label design expenditures

 

 

(59

)

 

 

(69

)

Net cash used in investing activities

 

 

(7,845

)

 

 

(6,918

)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Principal payments on line of credit

 

 

(6,304

)

 

 

(4,200

)

Proceeds from line of credit

 

 

17,675

 

 

 

5,100

 

Outstanding checks in excess of cash

 

 

387

 

 

 

69

 

Principal payments on long-term debt

 

 

(2,482

)

 

 

(3,416

)

Proceeds from long-term debt

 

 

-

 

 

 

4,152

 

Payments on acquisition payable

 

 

(74

)

 

 

(97

)

Net cash provided by financing activities

 

 

9,202

 

 

 

1,608

 

 

 

 

 

 

 

 

Net change in cash and restricted cash

 

 

(604

)

 

 

2,391

 

Cash and restricted cash, beginning of period

 

 

123,679

 

 

 

1,751

 

 

 

 

 

 

 

 

Cash and restricted cash, end of period

 

$

123,075

 

 

$

4,142

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

2,603

 

 

$

2,945

 

Income taxes

 

$

-

 

 

$

4

 

Noncash investing and financing activities:

 

 

 

 

 

 

Accretion of redemption value of Series B redeemable cumulative stock

 

$

-

 

 

$

1,835

 

Accretion of redemption value of Series A redeemable stock

 

$

-

 

 

$

4,045

 

 

See notes to condensed consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of all majority-owned or controlled subsidiaries, and all significant intercompany transactions and amounts have been eliminated. The results of businesses acquired or disposed of are included in the condensed consolidated financial statements from the date of the acquisition or up to the date of disposal, respectively.

References to "we", "our" and similar pronouns in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (this "Form 10-Q") refer to Vintage Wine Estates, Inc., and its majority owned subsidiaries or controlled subsidiaries unless the context requires otherwise.

Our fiscal year ends on June 30. References to fiscal 2021 and 2020 in these condensed consolidated financial statements are to the fiscal years ending or ended June 30, 2021 and June 30, 2020, respectively.

Our unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission ("SEC") instructions to Quarterly Reports on Form 10-Q and include the information and disclosures required by accounting principles generally accepted in the United States ("GAAP") for interim financial reporting.

The COVID-19 pandemic ("COVID-19") continues to affect the U.S. and global economies. Restrictions imposed by federal, state, and local governments have disrupted and will continue to disrupt our business. While many of the restrictions have expired, some are continuing and others are being reimplemented as COVID-19 continues to spread. We expect the COVID-19 pandemic to have a minimal impact on sales revenues, as we believe we are well-positioned to take advantage of increased direct-to-consumer sales platforms in lieu of in-person transactions.

In the opinion of management, all adjustments necessary for a fair statement of the condensed consolidated financial statements have been included. Except as disclosed elsewhere in this Form 10-Q, all such adjustments are of a normal and recurring nature. In addition, financial results presented for this fiscal 2022 interim period are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2022 or any other future interim or annual period. These condensed consolidated financial statements are unaudited and accordingly, should be read in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for fiscal year ended June 30, 2021, filed with the SEC on October 13, 2021. The June 30, 2021 condensed consolidated balance sheet was derived from the audited consolidated financial statements as of that date.

Merger and Reverse Recapitalization

We were formed in 2019 as Bespoke Capital Acquisition Corp. (“BCAC”), a special purpose acquisition company incorporated under the laws of the Province of British Columbia. BCAC was organized for the purpose of effecting an acquisition of one or more businesses or assets by way of a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or any other similar business combination involving BCAC.

On June 7, 2021, BCAC completed its business combination (the "Merger") with Legacy Vintage Wine Estates ("VWE") pursuant to a transaction agreement dated February 3, 2021 (as amended, the “Transaction Agreement”) by the merger of VWE Acquisition Sub Inc., a wholly owned subsidiary of BCAC (“merger sub”) with and into Legacy VWE, with Legacy VWE continuing as the surviving entity and as a wholly owned subsidiary of BCAC. In connection with the Merger, BCAC changed its jurisdiction of incorporation from the Province of British Columbia to the State of Nevada and BCAC changed its name to Vintage Wine Estates, Inc. Upon the consummation of the Merger, the Company received approximately $248.7 million, net of fees and expenses. See Note 2 for additional details regarding the transaction.

Significant Accounting Policies

A description of the Company’s significant accounting policies is included in the audited financial statements within its Annual Report on Form 10-K for the year ended June 30, 2021. Except as noted below, there have been no material changes in the Company’s significant accounting policies during the three months ended September 30, 2021.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Significant estimates include, but are not limited, to depletion allowance, allowance for doubtful accounts, the net realizable value of inventory, expected future cash flows including

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growth rates, discount rates, and other assumptions and estimates used to evaluate the recoverability of long-lived assets, estimated fair values of intangible assets in acquisitions, intangible assets and goodwill for impairment, amortization methods and periods, amortization period of label and package design costs, the estimated fair value of long-term debt, the valuation of interest rate swaps, contingent consideration, common stock, stock-based compensation, and accounting for income taxes. Actual results could differ materially from those estimates.

Cash

Cash consists of deposits held at financial institutions.

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet that sums to the total of the same such amounts as shown in the condensed consolidated statement of cash flows.

(in thousands)

 

September 30, 2021

 

 

September 30, 2020

 

 

June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

118,275

 

 

$

4,142

 

 

$

118,879

 

Restricted cash

 

 

4,800

 

 

-

 

 

 

4,800

 

Total cash, cash equivalents and restricted cash as shown in the condensed consolidated statement of cash flows

 

$

123,075

 

 

$

4,142

 

 

$

123,679

 

Restricted cash consists of cash that was deposited into a restricted cash account as collateral for the credit facility and is subject to release upon the completion of certain construction costs.

Interest Rate Swap Agreements

GAAP requires that an entity recognize all derivatives (including interest rate swaps) as either assets or liabilities on the consolidated balance sheets and measure these instruments at fair value. The Company has entered into interest rate swap agreements as a means of managing its interest rate exposure on its debt obligations. These agreements mitigate our exposure to interest rate fluctuations on our variable rate obligations. We have not designated these agreements as cash-flow hedges.

Accordingly, changes in the fair value of the interest rate swaps are included in the condensed consolidated statements of operations as a component of other income (expense). We do not enter into financial instruments for trading or speculative purposes.

Revenue Recognition

Point in Time —Revenue is recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for its arrangements, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We recognize revenue when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs when the product is shipped and title passes to the customer, and when control of the promised product or service is transferred to the customer. Our standard terms are free on board (“FOB”) shipping point, with no customer acceptance provisions. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

We account for shipping and handling as activities to fulfill our promise to transfer the associated products. Accordingly, we record amounts billed for shipping and handling costs as a component of net sales and classify such costs as a component of costs of sales. Our products are generally not sold with a right of return unless the product is spoiled or damaged. Historically, returns have not been significant to the Company.

Over Time —Certain long-term contracts at our B2B segment are for custom wine making services and include services such as fermentation, barrel aging, procurement of dry goods, bottling and cased goods. Additionally, we provide storage services for wine inventory of various customers.

We recognize revenue over time as the contract specific performance obligations are met.

Disaggregation of Revenue

The following tables summarizes revenue by geographic region for the three months ended September 30, 2021 and 2020, respectively:

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(in thousands)

 

September 30, 2021

 

 

September 30, 2020

 

Geographic regions:

 

 

 

 

 

 

United States

 

$

54,150

 

 

$

52,182

 

Canada

 

 

504

 

 

 

1,220

 

Europe, Middle East, & Africa

 

 

412

 

 

 

115

 

Asia Pacific

 

 

455

 

 

 

248

 

Other

 

 

166

 

 

 

69

 

Total net revenue

 

$

55,687

 

 

$

53,834

 

The following table provides a disaggregation of revenue based on the pattern of revenue recognition for the three months ended September 30, 2021 and 2020, respectively:

(in thousands)

 

September 30, 2021

 

 

September 30, 2020

 

Point in time

 

$

46,822

 

 

$

45,401

 

Over a period of time

 

 

8,865

 

 

 

8,433

 

Total net revenue

 

$

55,687

 

 

$

53,834

 

Concentrations of Risk

Financial instruments that potentially expose us to significant concentrations of credit risk consist primarily of cash and trade accounts receivable. We maintain the majority of our cash balances at multiple financial institutions that management believes are of high-credit quality and financially stable. At times, we have cash deposited with major financial institutions in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limits. At September 30, 2021 and June 30, 2021, we had $122.0 million and $121.6 million respectively, in one major financial institution in excess of FDIC insurance limits. We sell the majority of our wine through U.S. distributors and the direct-to-consumer channel. Receivables arising from these sales are not collateralized. We attempt to limit our credit risk by performing ongoing credit evaluations of our customers and maintaining adequate allowances for potential credit losses. The following table summarizes customer concentration for the three months ended:

 

 

September 30, 2021

 

September 30, 2020

Revenue as a percent of total revenue

 

 

 

 

Customer A

 

25.5%

 

31.0%

Customer B

 

12.6%

 

16.5%

Customer C

 

*

 

11.6%

Customer D

 

*

 

*

The following table summarizes customer concentration for the periods ended:

 

 

September 30, 2021

 

June 30, 2021

Receivables as a percent of total receivables

 

 

 

 

Customer A

 

32.8%

 

35.0%

Customer B

 

17.5%

 

21.0%

Customer C

 

*

 

*

Customer D

 

*

 

10.4%

* Customer revenue or receivables did not exceed 10% in the respective periods.

Revenue for the sales from Customer A are included in the Wholesale and Business-to-Business reporting segments, Customer B revenue within the Business-to-Business reporting segment, Customer C and Customer D within the Wholesale reporting segment.

Inventories

Inventories of bulk and bottled wines and spirits, and inventories of non-wine products and bottling and packaging supplies are valued at the lower of cost using the FIFO method or net realizable value. Costs associated with winemaking, and other costs associated with the manufacturing of products for resale, are recorded as inventory. Net realizable value is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset in question. Inventories are classified as current assets in accordance with recognized industry practice, although most wines and spirits are aged for periods longer than one year.

Business Combinations

Business combinations are accounted for under Accounting Standards Codification (“ASC”) 805—Business Combinations using the acquisition method of accounting under which all acquired tangible and identifiable intangible assets and assumed liabilities and applicable noncontrolling

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interests are recognized at fair value as of the respective acquisition date, while the costs associated with the acquisition of a business are expensed as incurred.

The allocation of purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, a market participant’s expectation of future cash flows from acquired customers, acquired trade names, useful lives of acquired assets, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from such estimates. During the measurement period, which is generally no longer than one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed. Upon the conclusion of the measurement period, any subsequent adjustments are recognized in operations.

Segment Information

We operate in three reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker (“CODM”), our Chief Executive Officer, allocates resources and assesses performance based upon discrete financial information at the segment level.

Income Taxes

Deferred income taxes are determined using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the expected recognition of a deferred income tax asset is considered to be unlikely.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize interest and penalties related to income tax matters as a component of income tax expense.

Earnout Shares

The Legacy VWE shareholders are entitled to receive up to an additional 5,726,864 shares of the Company’s common stock (the “Earnout Shares”). The Earnout Shares will be released if the price of our common stock meets certain thresholds in the 24 months following the closing of the Merger (see Note 2). The Earnout Shares meet the accounting definition of a derivative financial instrument, are considered to be indexed to the Company’s common stock and meet other conditions in ASC 815-40, Derivatives and Hedging: Contracts in Entity's Own Equity, to be classified as equity.

The Company’s obligation to issue the Earnout Shares is recorded as a dividend to the Legacy VWE shareholders at fair value as of the date of the Merger.

The fair value of the Earnout Shares was determined using a Monte Carlo valuation model, which requires significant estimates including the expected volatility of our common stock. The expected annual volatility of our common stock was estimated to be 55.0% as of the date of the Merger, based on the historical volatility of comparable publicly traded companies.

Redeemable Series A and Series B Stock

Prior to the Merger, Legacy VWE had Series A and B stock outstanding. All of the Series B stock and the majority of the Series A stock was classified as temporary equity due to the shares being redeemable at the option of the holder. The carrying value of the redeemable Series A stock and redeemable Series B stock was being accreted to their respective redemption values, using the effective interest method, from the date of issuance to the earliest date the holders can demand redemption. Accretion of redeemable Series B stock included the accretion of dividends and issuance costs. Increases to the carrying value of redeemable Series A stock and redeemable Series B stock were charged to retained earnings or, in its absence, to additional-paid-in-capital. Upon any repurchase of redeemable stock, the excess consideration paid over the carrying value at the time of repurchase is accounted for as a deemed dividend to the stockholders.

In conjunction with the closing of the Merger, a majority of the redeemable Series B stock was redeemed with the remaining redeemable Series B shares, along with all redeemable Series A shares, were converted into shares of the Company's common stock. All Series A and Series B shares which were converted into shares of the Company's common stock were retroactively adjusted using the exchange ratio and reclassified into permanent equity as a result of the Merger.

 

Earnings Per Share

Basic and diluted net income (loss) per share allocable to common stockholders is presented in conformity with the two-class method required for participating securities. We considered our Series B stock to be participating securities as, in the event a dividend is paid on Series A stock, the

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holders of Series B stock would be entitled to receive dividends on a basis consistent with the Series A stockholders. The two-class method determines net income per share for each class of common and participating securities according to dividends declared or accumulated as well as participation rights in undistributed earnings. The two-class method requires income available to stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Legacy VWE’s redeemable Series B stock was considered to be a participating security. Under the two-class method, any net loss attributable to common stockholders is not allocated to the Series B stock as the holders of the Series B stock did not have a contractual obligation to share in losses.

Basic net income (loss) per share is calculated by dividing the net income (loss) allocable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For purposes of the calculation of diluted net income (loss) per share, convertible debt (previously convertible into Legacy VWE Series A stock) and stock options and warrants to purchase common stock are considered potentially dilutive securities but are excluded from the calculation of diluted net income (loss) per share when their effect is antidilutive. As a result, in certain periods, diluted net loss per share is the same as the basic net loss per share for the periods presented.

The computation of net income (loss) available to Series A stockholders is computed by deducting the dividends declared, if any, and cumulative dividends, whether or not declared, in the period on Series B stock (whether paid or not) from the reported net income (loss).

As the Merger has been accounted for as a reverse recapitalization, the consolidated financial statements of the merged entity reflect the continuation of Legacy VWE’s consolidated financial statements, with the Legacy VWE Equity, which has been retroactively adjusted to the earliest period presented to reflect the legal capital of the legal acquirer, BCAC. As a result, net income (loss) per share was also restated for periods ended prior to the Merger.

Emerging Growth Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“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. We have 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 we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from the London Interbank Offered Rate, and other interbank offered rates expected to be discontinued, to alternative reference rates. The guidance in this ASU was effective upon its issuance; if elected, it is to be applied prospectively through December 31, 2022. The impact this ASU will have on our condensed consolidated financial statements will not be known until we have a modification to our financial instruments converting from LIBOR to another interest rate.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (“Topic 842”), which supersedes the guidance in ASC 840, Leases. The new standard, as amended by subsequent ASUs on Topic 842 and recent extensions issued by the FASB in response to COVID-19, requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Topic 842 will be effective for the Company for fiscal year ending June 30, 2023 and for interim periods in the year beginning July 1, 2024.

We have not yet determined the full effects of Topic 842 on its consolidated financial statements but do expect that it will result in a substantial increase in our long-term assets and liabilities and enhanced disclosures. Based on our initial assessment, we plan to be using the modified retrospective approach and electing the package of transition practical expedients for expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The adoption of this guidance will at least result in the recognition of operating lease right-of-use assets and operating lease liabilities in our vineyard leases with a weighted-average remaining lease term of less than 10 years upon the adoption on July 1, 2022.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in more

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timely recognition of credit losses. The guidance is effective for the Company for fiscal year ending on June 30, 2024 and interim periods beginning for the fiscal year commencing on July 1, 2023. Early adoption is permitted. We do not expect the adoption of this standard will have a significant impact on the consolidated financial statements given our historically low bad debt expense.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under existing GAAP, there is diversity in practice in accounting for the costs of implementing cloud computing arrangements that are service contracts. The amendments in ASU No. 2018-15 amend the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain costs as if the arrangement were an internal-use software project. The guidance is effective for the Company for the fiscal years beginning June 30, 2022 and interim periods beginning for the fiscal year commencing July 1, 2022. Early adoption is permitted, included in any interim period. We are currently evaluating the impact and timing of adopting ASU No. 2018-15.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The amendments in the updated guidance simplify the accounting for income taxes by removing certain exceptions and improving consistent application of other areas of the topic by clarifying the guidance. The amendments in this update are effective for the Company for fiscal year ending June 30, 2022 and for interim periods in the year beginning July 1, 2023. Early adoption is permitted. We are currently evaluating the impact and timing of adopting ASU 2019-12, however at this time, the adoption is not expected to have a significant impact on the consolidated financial statements. 

2. Merger and Reverse Recapitalization

On June 7, 2021, Legacy VWE and BCAC consummated the Merger, with Legacy VWE surviving the Merger as a wholly owned subsidiary of BCAC, which was renamed Vintage Wine Estates, Inc. Immediately prior to the closing of the Merger, the Company purchased 2,889,507 shares of Series B stock from TGAM Agribusiness Fund Holdings LP for $32.0 million, including unpaid cumulative dividends and all remaining shares of outstanding Series B stock of Legacy VWE were converted into shares of Legacy VWE Series A common stock. Upon the consummation of the Merger, each share of Legacy VWE Series A and Series B common stock issued and outstanding was canceled and converted into the right to receive 2.85708834472042 shares (the “Exchange Ratio”) of common stock of the Company. For periods prior to the Merger, the reported share and per share amounts have been retroactively converted (“Retroactive Conversion”) by applying the Exchange Ratio. VWE Legacy shareholders were issued 26,828,256 shares of the Company’s common stock of which 1,000,002 shares were placed in escrow to cover potential adjustments to the purchase price.

To satisfy the requirements of full repayment of the Company’s Paycheck Protection Program loan (the “PPP Loan”) upon a change of control, we placed into escrow $6.6 million in advance of the pending merger and reverser recapitalization. Funds held in escrow were released back to the Company upon receiving notification of the full forgiveness of the PPP loan prior to June 30, 2021.

In September 2021, upon finalization of the purchase price, all 1,000,002 shares of the shares in escrow were released to the VWE Legacy shareholders.

Upon the closing of the Merger, the Company's certificate of incorporation authorized 200,000,000 shares of common stock, no par value per share and 2,000,000 shares of preferred stock, no par value per share. As of June 7, 2021 (the "Closing Date"), there were 60,461,611 shares of the Company’s common stock issued and outstanding and warrants to purchase 26,000,000 shares of the Company’s common stock outstanding. There was no preferred stock outstanding as the Closing Date.

In connection with the Merger, BCAC entered into subscription agreements (each, a “Subscription Agreement”) with a two investors (each a “Subscriber”), pursuant to which the Subscribers agreed to purchase, and BCAC agreed to sell to the Subscribers, an aggregate of 10,000,000 shares of common stock (the “PIPE Shares”), for a purchase price of $10 per share and an aggregate purchase price of $100.0 million, in a private placement pursuant to the subscription agreements (the “PIPE”). The PIPE investment closed just prior to the consummation of the Merger.

The Merger is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, BCAC was treated as the “acquired” company and Legacy VWE was treated as the acquirer company for financial reporting purposes. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Legacy VWE issuing stock for the net assets of BCAC, accompanied by a recapitalization. The net assets of BCAC are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are those of Legacy VWE.

Earnout Shares

The VWE Legacy shareholders are entitled to receive up to an additional 5,726,864 shares of the Company’s common stock (the “Earnout Shares”) if at any point during the Earnout Period, from June 7, 2021 to June 7, 2023, the Company's closing share price on the Nasdaq or TSX on 20 trading days out of 30 consecutive trading days:

a)
is at or above $15 (but below $20), 50% of the Earnout Shares will be issued; and
b)
is at or above $20 (i) to the extent no Earnout Shares have previously been issued, 100% of the Earnout Shares or (ii) to the extent the event Earnout Shares were previously issued, 50% of the Earnout Shares will be issued.

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The Earnout Shares will be adjusted to reflect any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible common shares), reorganization, recapitalization, reclassification, combination and, exchange of shares or other like change. The Earnout Shares are indexed to the Company’s equity and meet the criteria for equity classification. The fair value of the Earnout Shares, $32.4 million, was recorded as a dividend to additional paid in capital due to the absence of retained earnings.

No Earnout Shares were issued as of September 30, 2021.

3. Inventory

A summary of inventory at September 30, 2021 and June 30, 2021 is as follows:

(in thousands)

 

September 30, 2021

 

 

June 30, 2021

 

Bulk wine and spirits

 

$

103,857

 

 

$

119,333

 

Bottled wine and spirits

 

 

106,482