This summary highlights selected information from this prospectus and does not contain all of the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including “Risk Factors” beginning on page 3 and the financial statements and related notes included in this prospectus.

Unless the context otherwise requires, references in this prospectus to the “Company,” “VWE,” “Vintage Wine Estates” “we,” “us,” “our” and similar terms refer to Vintage Wine Estates, Inc., a Nevada corporation, and its consolidated subsidiaries.

Vintage Wine Estates, Inc. is a leading vintner in the United States (“U.S.”), offering a collection of wines produced by award-winning, heritage wineries, popular lifestyle wines, innovative new wine brands, packaging concepts, as well as craft spirits. Our name brands include Layer Cake, Cameron Hughes, Clos Pegase, B.R. Cohn, Firesteed, Bar Dog, Kunde, Cherry Pie and many others. Since our founding over 20 years ago, we have grown organically through wine brand creation and through acquisitions to become the 14th largest wine producer based on cases of wine shipped in California.

Our mission is to maintain an entrepreneurial spirit, stay humble and focus on the customer. We respect the ways people buy wine at the estate wineries, at retail, in restaurants, on the telephone, on the internet, on television and by mail.

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, asset acquisition, share purchase, reorganization or other similar business combination involving BCAC.

On February 3, 2021, BCAC, VWE Acquisition Sub Inc., a wholly owned subsidiary of BCAC (“merger sub”), Vintage Wine Estates, Inc., a California corporation (“Legacy VWE”), Bespoke Sponsor Capital LP (the “Sponsor”), and Darrell D. Swank as the Seller Representative, entered into a transaction agreement (as amended, the “transaction agreement”). Following approval by the shareholders of BCAC and VWE and the satisfaction or waiver of other closing conditions, the transactions contemplated by the transaction agreement were consummated and closed on June 7, 2021 (the “Closing Date”).

Pursuant to the transaction agreement, on or prior to the Closing Date: (1) BCAC changed its jurisdiction of incorporation from the Province of British Columbia to the State of Nevada (the “domestication”); (2) merger sub merged with and into Legacy VWE (the “merger”) with Legacy VWE surviving the merger as a wholly owned subsidiary of BCAC; and (3) BCAC changed its name to Vintage Wine Estates, Inc. The domestication, the merger and the other transactions contemplated by the transaction agreement are collectively referred to herein as the “transactions.”

On February 3, 2021, prior to the execution of the transaction agreement, Wasatch (as defined below) acquired 956,618 shares of Legacy VWE Series A stock from former Legacy VWE stockholders for an aggregate price of $28 million, which converted into shares of common stock upon closing of the transactions. In addition, in connection with the transactions, BCAC, the Selling Stockholders and entered into subscription agreements for the sale and purchase, respectively, of 10.0 million shares of the Company’s common stock at $10.00 per share at the closing of the transactions for an aggregate amount of $100 million (the “PIPE Investment”). Such PIPE Investment shares were issued and sold to the Selling Stockholders on the Closing Date.

This prospectus relates to the offer and sale from time to time by the Selling Stockholders of up to 8,702,778 shares of common stock issued in the PIPE Investment.

 

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We are an “emerging growth company” as defined in Section 2(a) of the Securities Act, and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. We expect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and non-public companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the Jumpstart Our Business Startups Act (the “JOBS Act”). This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act and compliance with applicable laws, if, as an emerging growth company, we rely on such exemptions, we are not required to, among other things: (a) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"); (b) provide all of the compensation disclosures that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; (c) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (d) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2026, (b) the last date of our fiscal year in which we had total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors,” which represent challenges that we face in connection with the successful implementation of our strategy and growth of our business.

The mailing address of VWE’s principal executive office is 937 Tahoe Boulevard, Suite 210 Incline Village, Nevada 89451 and its telephone number is (877) 289-9463.

 

Issuer	Vintage Wine Estates, Inc.
Shares of common stock that may be offered and sold from time to time by the Selling Stockholders named herein or their permitted transferees	8,702,778
Shares of common stock outstanding	59,339,163 (as of April 30, 2023)
Use of Proceeds	We will not receive any proceeds from the sale of shares of common stock by the Selling Stockholders in this offering. See “Use of Proceeds.”
NASDAQ Global Market symbol	VWE’s common stock is listed on Nasdaq under the symbol “VWE.”
Risk factors	Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 3 and the other information in this prospectus for a discussion of the factors you should consider carefully before you decide to invest in our common stock.

 

 

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RISK FACTORS

In addition to the other information in this prospectus and our other filings with the SEC, you should carefully consider the risks and uncertainties described below, which could materially and adversely affect our business, financial condition and results of operations. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us.

Risks Related to Our Operations

The strength of our reputation is critical to our success and may be adversely effected by contamination or other quality control issues or other factors outside of our control.

Our reputation as a premier producer of wine and spirits among our customers and the wine industry is critical to the success of our business and our growth strategy. The wine market is driven by a relatively small number of active and well-regarded wine critics within the industry who have disproportionate influence over the perceived quality and value of wines. If we are unable to maintain the actual or perceived quality of our wines and other alcoholic beverage products, or if our wines otherwise do not meet the subjective expectations or tastes of one or more of a relatively small number of wine critics, the actual or perceived quality and value of one or more of our wines could be harmed, which could negatively impact not only the value of that wine, but also the value of the vintage, the particular brand or our broader portfolio. The winemaking process is a long and labor-intensive process that is built around yearly vintages, which means that once a vintage has been released we are not able to make further adjustments to satisfy wine critics or consumers. As a result, we are dependent on our winemakers and tasting panels to ensure that our wine products meet our exacting quality standards.

Any contamination or other quality control issue could have an adverse effect on sales of the impacted wine or our broader portfolio of winery brands. If any of our wines become unsafe or unfit for consumption, cause injury or are otherwise improperly packaged or labeled, we may have to engage in a product recall and/or be subject to liability and incur additional costs. A widespread recall, multiple recalls, or a significant product liability judgment against us could cause our wines to be unavailable for a period of time, depressing demand and our brand reputation. Even if a product liability claim is unsuccessful or is not fully pursued, any resulting negative publicity could adversely affect our reputation with existing and potential customers and accounts, as well as our corporate and individual winery brands image in such a way that current and future sales could be diminished. In addition, should a competitor experience a recall or contamination event, we could face decreased consumer confidence by association as a producer of similar products.

Additionally, third parties may sell wines or inferior brands that imitate our winery brands or that are counterfeit versions of our labels, and customers could confuse these imitation labels with our authentic wines. A negative consumer experience with such a wine could cause them to refrain from purchasing our brands in the future and damage our brand integrity. Any failure to maintain the actual or perceived quality of our wines could materially and adversely affect our business, results of operations and financial results.

Damage to our reputation or loss of consumer confidence in our wines for any of these or other reasons could result in decreased demand for our wines and could have a material adverse effect on our business, operational results and financial results, as well as require additional resources to rebuild our reputation, competitive position and winery brand strength.

Consumer demand for wine and alcoholic beverages could decline, which could adversely affect our results of operations.

We rely on consumers’ demand for our wine and other products. Consumer demand may decline due to a variety of factors, including a general decline in economic conditions, changes in the spending habits of consumers generally, a generational or demographic shift in consumer preferences, increased activity of anti-alcohol groups, increased state or federal taxes on alcoholic beverage products and concerns about the health consequences of consuming alcoholic beverage products. Furthermore, our ability to effectively manage production and inventory is inherently linked to actual and expected consumer demand for our products, particularly given the long product lead time and agricultural nature of the wine business. Unanticipated changes in consumer demand or preferences could have adverse effects on our ability to manage supply and capture growth opportunities, and substantial declines in the demand for one or more of our product categories could harm our results of operations, financial condition and prospects.

 

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We are subject to significant competition, which could adversely affect our profitability.

VWE’s wines compete for sales with thousands of other domestic and foreign wines. VWE’s wines also compete with other alcoholic beverages and, to a lesser degree, non-alcoholic beverages. As a result of this intense competition, we have been subject to, and may continue to be subject to, upward pressure on selling and promotional expenses. In addition, some of our competitors have greater financial, technical, marketing and public relations resources available to them than we do. These circumstances could adversely impact our revenues, margins, market share and profitability.

Our wholesale operations and wholesale revenues largely depend on independent distributors whose performance and continuity is not assured.

Our wholesale operations and wholesale revenues depend largely on independent distributors whose performance and continuity is not assured. Our wholesale operations generate revenue from products sold to distributors, who then sell them to off-premise retail locations such as grocery stores, specialty and multi-national retail chains, as well as on-premise locations such as restaurants and bars. Sales to distributors are expected to continue to represent a substantial portion of our revenues in the future. A change in relationships with one or more significant distributors could harm our business and reduce sales. The laws and regulations of several states prohibit changes of distributors except under certain limited circumstances, which makes it difficult to terminate a distributor for poor performance without reasonable cause as defined by applicable statutes. Difficulty or inability with respect to replacing distributors, poor performance of major distributors or inability to collect accounts receivable from major distributors could harm our business. There can be no assurance that existing distributors and retailers will continue to purchase our products or provide our products with adequate levels of promotional support. Consolidation at the retail tier, among club and chain grocery stores can be expected to heighten competitive pressure to increase marketing and sales spending or constrain or reduce prices.

The loss or significant decline of sales to one or more of our more important distributors, marketing companies or retailers could have adverse effects on our results of operations, financial condition and prospects.

We derive significant revenue from distributors and marketing companies such as Deutsch Family Wine and Spirits, Republic National Distributing Company and Southern Glazer’s Wine & Spirits, and from retail business customers such as Costco, Albertson’s and Target. The loss of one or more of these customers, or significant decline in the volume of sales made to them, could have adverse effects on our results of operations, financial condition and prospects.

Decreases in brand quality ratings by important rating organizations could adversely affect our business.

Many of VWE’s brands are issued ratings by local or national wine rating organizations. In the wine industry, higher product ratings usually translate into greater demand and higher pricing. Although some VWE brands have been rated highly in the past, and VWE believes its farming and winemaking activities are of a quality to generate good ratings in the future, VWE has no control over ratings issued by third parties, which may or may not be favorable in the future. Significant or persistent declines in the ratings issued to VWE wines could have adverse effects on its business.

We may not be fully insured against catastrophic events and losses, which may adversely affect our financial condition.

A significant portion of our activities are in California and the Pacific Northwest, which regions are increasingly prone to seismic activity, landslides, wildfires and other natural disasters (collectively, “catastrophes”). Although VWE insures against catastrophes, including through our use of a wholly-owned captive insurance company and by carrying insurance to cover our own property damage, business interruption and certain production assets, we may not be fully insured against all catastrophes, the occurrence of which may (i) disrupt our operations, (ii) delay production, shipments and revenue and (iii) result in significant expenses to repair or replace damaged vineyards or facilities. Any disruption caused by a catastrophe could adversely affect our business, results of operations or financial condition.

Our inability to protect trademarks and other intellectual property rights could adversely affect our business.

VWE’s business relies on intellectual property, mainly consisting of trademarks, customer lists and business practices. VWE does not register its business practices or customer lists, but they are kept highly confidential and considered trade secrets and, as such, are accessible to a very limited number of people within VWE. Although VWE believes that it does not rely significantly on any individual intellectual property right, a breach of confidentiality with respect to the customer lists or business practices, or loss of access to them, or the future expiration of intellectual property trademark rights, could have adverse impacts on VWE’s business.

 

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VWE relies in part on confidentiality agreements, ownership of intellectual property, and non-competition agreements with employees, vendors and third parties in order to protect its intellectual property. It is possible that these agreements could be breached and that VWE might lack an adequate remedy for breach. Disputes may arise concerning the ownership of intellectual property or the extent to which the confidentiality agreements remain in force. Furthermore, VWE’s trade secrets may become revealed to its competitors or developed independently by them, in which case VWE will not be able to enjoy exclusive use of some of its formulas or maintain confidentiality concerning its products.

The ongoing COVID-19 pandemic ("COVID-19") and its variants has had, and will likely continue to have, adverse effects on the economy and on our business.

COVID-19 and its variants are likely to adversely affect the economies and financial markets and could result in an economic downturn and a recession. It is uncertain how this would affect demand for our products. While VWE continues to see robust demand in its industry, and has seen little impact to its results of operations from COVID-19, the environment remains uncertain and it may not be sustainable over the longer term. The degree to which the pandemic ultimately impacts our business and results of operations will depend on future developments beyond our control, including the severity of the pandemic, the extent of actions to contain the virus, the availability and efficacy of a vaccine or other treatment, how quickly and to what extent normal economic and operating conditions can resume, and the severity and duration of the economic downturn that results from the pandemic.

Rising inflation may result in increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results of operations and the market price of our common stock.

Inflation has accelerated in the U.S. and globally due in part to global supply chain issues, a rise in energy prices, and strong consumer demand as economies continue to reopen from restrictions related to COVID-19. An inflationary environment can increase our cost of labor as well as our energy and other operating costs, which may have a material adverse impact on our financial results. In addition, economic conditions could impact and reduce the number of customers who purchase our products as credit becomes more expensive or unavailable. Although interest rates have increased and are expected to increase further, inflation may continue. Further, increased interest rates could have a negative effect on the securities markets generally, which may, in turn, have a material adverse effect on the market price of our common stock.

New lines of business or new products and services could subject us to additional risks.

VWE may invest in new lines of business, or may offer new products, such as within its spirits business or, upon federal legalization of cannabis, cannabis-infused beverages. There are risks and uncertainties associated with such efforts, particularly in instances where the markets are not fully developed or are evolving. In developing and marketing new lines of business and new products and services, VWE may invest significant time and resources. External factors, such as regulatory compliance obligations, competitive alternatives, lack of market acceptance and shifting consumer preferences, may also affect the successful implementation of a new line of business or a new product or service. With respect to cannabis-infused beverages, even if the federal government legalizes medical and/or adult-use cannabis, significant delays in the drafting and implementation of industry regulations and licensing and the costs associated with burdensome regulations and taxes could adversely impact VWE’s ability to operate profitably in the cannabis-infused beverage industry. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have adverse effects on VWE’s business, results of operations and financial condition.

Litigation relating to alcohol abuse or the misuse of alcohol could adversely affect our business.

Increased public attention has been directed at the beverage alcohol industry, which we believe is due to concern over problems related to alcohol abuse, including drinking and driving, underage drinking and health consequences from the misuse of alcohol. Adverse developments in these or similar lawsuits or a significant decline in the social acceptability of beverage alcohol products that could result from such lawsuits could materially adversely affect our business.

We are a party to an ongoing legal proceeding and, while we cannot predict the outcome of the proceedings and other contingencies with certainty, if we settle the claims or the proceedings are not decided in our favor, our business and financial condition could be materially adversely affected.

We have been, and may in the future be, subject to various legal and regulatory proceedings, including class action litigation. It is inherently difficult to assess the outcome of these matters, and there can be no assurance that we will prevail in any proceeding or litigation. Legal and regulatory matters of any degree of significance could result in substantial cost and diversion of our efforts, which by itself could have a material adverse effect on our financial condition and operating results.

 

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As disclosed in “Description of Business - Legal Proceedings,” purported securities class action lawsuits have been filed against the Company and certain current and former members of its management team, alleging that the defendants made material misstatements or omissions in certain of the Company's periodic reports filed with the SEC relating to, among other things, the Company’s business, operations, and prospects, including with respect to the Company’s inventory metrics and overhead burden. The lawsuits seek an unspecified amount of damages and an award of attorney’s fees, in addition to other relief. Additionally, the Company is involved in two disputes relating to an Asset Purchase Agreement (“APA”) and a related Non-Compete Agreement/Non-Solicitation Agreement (the “Non-Compete Agreement”) from a 2018 acquisition. Claimant collectively allege potential damages of approximately $3.0 million. The Company intends to vigorously defend itself against the claims. Failure to obtain a favorable resolution of the lawsuits could have a material adverse effect on our business, results of operations and financial condition. Currently, the amount of such material adverse effect cannot be reasonably estimated. In addition, the costs associated with defending and resolving the lawsuits and the ultimate outcome cannot be predicted. These matters are subject to inherent uncertainties and the actual cost will depend upon many unknown factors and management’s view of these factors may change in the future. Defending against these and any future lawsuits and legal proceedings, regardless of their merit, may involve significant expense, be disruptive to our business operations and divert our management’s attention and resources. Negative publicity surrounding the legal proceedings may also harm our reputation, our stock price, and adversely impact our business and financial condition.

Risks Related to Our Production Activities

Increases in the cost, disruption of supply or shortage of energy could adversely affect our business.

Our production facilities use a significant amount of energy in their operations, including electricity, propane and natural gas. Increases in the price, disruption of supply or shortage of energy sources, which may result from increased demand, natural disasters, power outages or other causes could increase our operating costs and negatively impact our profitability. VWE has experienced increases in energy costs in the past, and energy costs could rise in the future. In addition, we incur costs in connection with the transportation and distribution of our materials and products. Higher fuel costs will result in higher transportation, freight, and other operating costs, which could significantly increase our production costs and, correlatively, decrease our operating margins and profit.

If we are unable to obtain adequate supplies of grapes or other raw materials, or if there is an increase in the cost of such materials, or contamination to ingredients or products, our profitability and production of wine could be negatively impacted, which could materially and adversely affect our business, results of operations and financial condition.

We source our grapes from the vineyards that we own and control and from independent growers. Our production activities also require adequate supplies of other quality agricultural, raw and processed materials, including corks, glass bottles, barrels, winemaking additives and agents, water and other supplies. A shortage of, or contamination to grapes of the required variety and quality, or an inability to obtain a significant increase in the price of other requisite raw materials, could impair our ability to produce wines in the quantity and quality demanded by our customers and reduce our profitability.

Any such occurrences could adversely affect our business, results of operations and financial condition.

Drought or inclement weather could reduce the amount of water available for use in our growing and production activities, which could materially and adversely affect our business, results of operations and financial condition.

Water supply and adequate rainfall are critical to the supply of grapes, other agricultural raw materials and generally our ability to operate our business. If climate patterns change or droughts occur, there may be a scarcity of water or poor water quality, which could affect production costs, consistency of yields or impose capacity constraints. VWE depends on enough quality water for operation of its wineries, as well as to irrigate its vineyards and conduct other operations. The suppliers of the grapes and other agricultural raw materials purchased by VWE also depend upon sufficient supplies of quality water for their vineyards and fields. Prolonged or severe drought conditions or restrictions imposed on irrigation options by governmental authorities could have an adverse effect on our business, results of operations and financial condition.

Impacts from climate change and related government regulations may adversely affect our financial condition.

Our business depends upon agricultural activity and natural resources. There has been much public discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. Severe weather events and natural disasters, such as our experiences with drought, flooding, and/or wildfires in California, Oregon, or Washington, and climate change may negatively affect agricultural productivity in the regions from which we presently source our

 

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various agricultural raw materials or the energy supply powering our production facilities. Decreased availability of our raw materials may increase our cost of product sold. Severe weather events and natural disasters or changes in the frequency or intensity of weather events or natural disasters can also impact product quality and disrupt our supply chains, which may affect production operations, insurance cost and coverage, as well as delivery of our products to wholesalers, retailers, and consumers. Natural disasters such as severe storms, floods, and earthquakes may also negatively impact the ability of consumers to purchase our products.

We may experience significant future increases in the costs associated with environmental regulatory compliance, including fees, licenses, and the cost of capital improvements for our operating facilities to meet environmental regulatory requirements. In addition, we may be party to various environmental remediation obligations arising in the normal course of our business or relating to historical activities of businesses we acquire. Due to regulatory complexities, governmental or contractual requirements, uncertainties inherent in litigation, and the risk of unidentified contaminants in our current and former properties, the potential exists for remediation, liability, indemnification, and other costs to differ materially from the costs that we have estimated. We may incur costs associated with environmental compliance arising from events we cannot control, such as unusually severe droughts, floods, hurricanes, earthquakes, or fires, which could have a material adverse effect upon our business, liquidity, financial condition, and/or results of operations.

We could be negatively impacted by the occurrence of wine contamination.

We are subject to certain hazards and product liability risks, such as potential contamination, through tampering or otherwise, of ingredients or products. Contamination of our wine could result in destruction of our wine held in inventory and could cause the need for a product recall, which could significantly damage VWE’s reputation for product quality. We maintain insurance against certain of these kinds of risks, and others, under various insurance policies. However, our insurance may not be sufficient to fully cover any resulting liability or may not continue to be available at a price or on terms that are satisfactory to us.

Risks Related to Information Technology ("IT") and Cybersecurity

A failure of one or more of our key IT systems, networks, processes, associated sites or service providers could have a material adverse impact on business operations, and if the failure is prolonged, our financial condition.

We rely on IT systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software and technical applications and platforms, some of which are managed, hosted, provided and used by third parties or their vendors, to assist us in the operation of our business. The various uses of these IT systems, networks and services include, but are not limited to: hosting our internal network and communication systems; tracking bulk wine; supply and demand; planning; production; shipping wines to customers; hosting our winery websites and marketing products to consumers; collecting and storing customer, consumer, employee, stockholder, and other data; processing transactions; summarizing and reporting results of operations; hosting, processing and sharing confidential and proprietary research, business plans and financial information; complying with regulatory, legal or tax requirements; providing data security; and handling other processes necessary to manage our business.

Increased IT security threats and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking and other types of attacks pose a potential risk to the security of our IT systems, networks and services, as well as the confidentiality, availability, and integrity of our data, and we have in the past, and may in the future, experience cyberattacks and other unauthorized access attempts to our IT systems. Because the techniques used to obtain unauthorized access are constantly changing and often are not recognized until launched against a target, we or our vendors may be unable to anticipate these techniques or implement sufficient preventative or remedial measures.

If we are unable to maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our systems may become more vulnerable to unauthorized access. In the event of a ransomware or other cyber-attack, the integrity and safety of our data could be at risk or we may incur unforeseen costs impacting our financial position. If the IT systems, networks or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information due to any number of causes ranging from catastrophic events, power outages, security breaches, unauthorized use or usage errors by employees, vendors or other third parties and other security issues, we may be subject to legal claims and proceedings, liability under laws that protect the privacy and security of personal information (also known as personal data), litigation, governmental investigations and proceedings and regulatory penalties, and we may suffer interruptions in our ability to manage our operations and reputation, competitive or business harm, which may adversely affect our business, results of operations and financial results. In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or misappropriated confidential information

 

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belonging to us or to our employees, stockholders, customers, suppliers, consumers or others. In any of these events, we could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or technological failure and the reputational damage resulting therefrom, to pay for investigations, forensic analyses, legal advice, public relations advice or other services, or to repair or replace networks and IT systems.

As a result of the growing normalization of hybrid and remote work, a greater number of our employees are working remotely and accessing our IT systems and networks remotely, which may further increase our vulnerability to cybercrimes and cyberattacks and increase the stress on our technology infrastructure and systems. Although we maintain cyber risk insurance, this insurance may not be sufficient to cover all of our losses from any future breaches or failures of our IT systems, networks and services.

Our failure to adequately maintain and protect personal information of our customers or our employees in compliance with evolving legal requirements could have a material adverse effect on our business.

We collect, use, store, disclose or transfer (collectively, “process”) personal information, including from employees and customers, in connection with the operation of our business. A wide variety of local and international laws as well as regulations and industry guidelines apply to the privacy and collecting, storing, use, processing, disclosure and protection of personal information and may be inconsistent among countries or conflict with other rules. Data protection and privacy laws and regulations are changing, subject to differing interpretations and being tested in courts and may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

Compliance with applicable privacy and data protection laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance. Our actual or alleged failure to comply with any applicable privacy and data protection laws and regulations, industry standards or contractual obligations, or to protect such information and data that we process, could result in litigation, regulatory investigations, and enforcement actions against us, including fines, orders, public censure, claims for damages by employees, customers and other affected individuals, public statements against us by consumer advocacy groups, damage to our reputation and competitive position and loss of goodwill (both in relation to existing customers and prospective customers) any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Additionally, if third parties that we work with, such as vendors or developers, violate applicable laws or our policies, such violations may also place personal information at risk and have an adverse effect on our business. Even the perception of privacy concerns, whether valid, may harm our reputation, subject us to regulatory scrutiny and investigations, and inhibit adoption of our wines by existing and potential customers.

Risks Related to Regulation of Our Business

VWE’s failure to obtain or maintain necessary licenses or otherwise fail to comply with applicable laws and regulations could have adverse effects on its results of operations, financial condition and business.

A complex multi-jurisdictional regime governs alcoholic beverage manufacturing, distribution, sales, and marketing in the United States. The alcoholic beverages industry in which VWE operates is subject to extensive regulation by the Alcohol and Tobacco Tax and Trade Bureau (and other federal agencies), each state’s liquor authority, and potentially local authorities depending on location. These regulations and laws dictate such matters as licensing requirements, production, importation, ownership restrictions, trade, and pricing practices, permitted distribution channels, delivery, and prohibitions on sales to minors, permitted, and required labeling, and advertising and relations with wholesalers and retailers. These laws, regulations and licensing requirements may, and sometimes are, interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other legal mandates or with VWE’s business practices. Further, these laws, rules, regulations, and interpretations are constantly changing because of litigation, legislation, and agency priorities, and could result in increased regulation. VWE’s actual or asserted non-compliance with any such law, regulation or requirement could expose VWE to investigations, claims, litigation, injunctive proceedings and other criminal or civil proceedings by private parties and regulatory authorities, as well as license suspension, license revocation, substantial fines, and negative publicity, any of which could adversely affect VWE’s results of operations, financial condition, and business.

Failure to comply with environmental, health and safety laws and regulations would expose us to civil and criminal liability.

The laws and regulations concerning the environment, health and safety may subject us to civil liability for non-compliance or environmental pollution. Such laws may include criminal sanctions (including substantial penalties) for violations. Some environmental laws also include provisions imposing strict liability for the release of hazardous substances into the environment, which could result in VWE becoming liable for clean-up efforts without any negligence or fault on our part. Other environmental

 

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laws impose liability jointly and severally, which could expose us to responsibility for cleaning up environmental pollution caused by others.

In addition, some environmental, health and safety laws are applied retroactively such that they could impose liability for acts done in the past even if such acts were carried out in accordance with the law in force at the time. Civil or criminal liability under such laws could have adverse effects on our business, results of operations and financial condition.

We may also become subject to claims for personal injury or property damage arising from exposure to hazardous substances if personal injury or environmental contamination was ostensibly caused by activity at one of its production sites. Such legal proceedings could be instituted by private individuals or non-governmental organizations.

In addition, any expansion of our existing facilities or development of new vineyards or wineries, or any expansion of our business into new product lines or new geographic markets, may be limited by present and future environmental restrictions, zoning ordinances and other legal requirements.

New and changing environmental requirements, and new market pressures related to climate change, could materially and adversely affect our business, results of operations and financial results.

There has been significant public discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. Federal regulations govern, among other things, air emissions, wastewater and stormwater discharges, and the treatment, handling and storage and disposal of materials and wastes. State environmental regulations and authorities intended to address and oversee environmental issues are largely state-level analogs to federal regulations and authorities intended to perform the similar purposes. We are subject to state and local environmental regulations that address a number of elements of our wine production process, including air quality, the handing of hazardous waste, recycling, water use and discharge, emissions and traffic impacts. Compliance with these and other environmental regulation requires significant resources. Continued regulatory and market trends towards sustainability may require or incentivize us to make changes to our current business operations. We may experience future increases in the costs associated with environmental regulatory compliance, including fees, licenses and the cost of capital improvements to meet environmental regulatory requirements. In addition, we may be party to various environmental remediation obligations arising in the normal course of our business or relating to historical activities of businesses we acquire. We cannot assure that our costs in relation to these matters will not have a material adverse effect on our business, results of operations and financial results.

Risks Related to Our Financial Condition

We have identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.

In the course of our financial close process for the fiscal years ended June 30, 2022 and 2021, we identified a material weakness in our internal control over financial reporting. The Company also identified a material weakness during our fiscal quarter ending December 31, 2022 related to timely processes and controls as they relate to performing and concluding impairment and other judgmental assessments related to certain contingencies. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to our process and controls over financial reporting related to our impairment analysis and balance sheet account reconciliations, which includes the prior year identification of certain inventory-related account balances and the current year identification of interest rate swap derivatives account balances. Management concluded that these material weaknesses arose because we did not have effective business processes and controls to perform reconciliations of balance sheet account balances as well as due to the lack of controls to timely perform and conclude on an impairment assessment.

If we are unable to further implement and maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price. If we are unable to assert that our internal control over financial reporting is effective, or, if and when required, our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected, our common stock could become subject to delisting and we could become subject to litigation or investigations by the stock exchange or exchanges on which our securities are listed, the SEC or other regulatory authorities, any of which could require additional financial and management resources.

 

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Furthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of financial statements for prior periods.

Matters relating to or arising from the restatements and the associated material weaknesses identified in our internal control over financial reporting, including adverse publicity, have caused us to incur significant legal, accounting and other professional fees and other costs, have exposed us to greater risks associated with other civil litigation, regulatory proceedings and government enforcement actions, have diverted resources and attention that would otherwise be directed toward our operations and implementation of our business strategy and may impact our ability to attract and retain customers, employees and vendors, any of which could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to obtain additional financing to fund the operations and growth of our business on terms favorable to us, or at all.

We may require additional financing to fund our operations or growth. The failure to secure additional financing could have a material adverse effect on our continued development or growth. Such financings may result in dilution to stockholders, issuance of securities with priority as to liquidation and dividend and other rights more favorable than our common stock, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe that we have sufficient funds for current or future operating plans. There can be no assurance that financing will be available to us on favorable terms, or at all. The inability to obtain financing when needed may make it more difficult for us to operate its business or implement its growth plans.

The terms of the VWE credit facility may restrict our flexibility, and failure to comply with such terms would have a variety of adverse effects.

The VWE credit facility contains various covenants and restrictions that may, in certain circumstances and subject to carve-outs and exceptions, limit VWE’s ability to, among other things:

Under the VWE credit facility, VWE also is required to maintain compliance with a minimum fixed charge coverage ratio covenant (not less than 1.10:1.00).

As a result of the covenants and other restrictions contained in its credit facility, VWE is limited in how it may choose to conduct its business. VWE cannot guarantee that it will be able to remain in compliance with these covenants and other restrictions or be able to obtain waivers for noncompliance in the future. Failure to comply with the covenants and other restrictions contained in its debt instruments would likely have adverse effects on its financial condition and business by impairing its ability to continue financing its business.

Of particular significance, VWE could be forced to repay immediately and in full any outstanding borrowings under its credit facility if it were to breach its covenants and not cure the breach, even if it could otherwise satisfy its debt service obligations.

 

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Also, if VWE were to experience a change of control, as defined in its credit facilities, it could be required to repay in full all loans outstanding thereunder, plus accrued interest and fees. For more information on the credit facilities of VWE, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Debt - Credit Facility.”

We may fail to maintain compliance with certain financial debt covenants of our Second A&R Loan and Security Agreement within the next twelve months, which would constitute an event of default, which if not waived, could result in the potential acceleration of outstanding debt thereunder. The failure to amend the agreement, or otherwise obtain a waiver, may lead to an event of default under our credit facilities and an acceleration of the outstanding debt thereunder, which would have a material adverse effect on our financial condition and which gives rise to substantial doubt about our ability to continue as a going concern.

On May 9, 2023, the Company entered into an amendment to its Second A&R Loan and Security Agreement (as defined in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Debt - Credit Facility”) that adjusted the definition of certain financial covenants for the quarter ended March 31, 2023. Due to the amendment, the Company was in compliance with its debt covenants as of March 31, 2023. The Company currently forecasts that it will not meet certain financial debt covenants as required per our Second A&R Loan and Security Agreement beginning with the quarter ended June 30, 2023, which would constitute an event of default, which if not waived, can result in the potential acceleration of the Company’s outstanding debt under the Second A&R Loan and Security Agreement. If an event of default occurs under the Second A&R Loan and Security Agreement and the lender accelerates the maturity of the debt thereunder, the Company may not have sufficient cash to repay the outstanding debt.

In response to these conditions, management has begun to actively engage in conversations with the lender of the Second A&R Loan and Security Agreement regarding amendments and waivers to the related financial covenants, however, whether an amendment or waiver is obtained is not within the Company's control, and therefore cannot be deemed probable. As a result, we classified all amounts owed under the Second A&R Loan and Security Agreement as Current Maturities of Long-Term Debt on the balance sheet at March 31, 2023.

During the third fiscal quarter of 2023 which ended March 31, 2023, the Company implemented several cost reduction and revenue enhancing initiatives to improve its financial results and cash flow from operations. This included reducing our workforce by approximately 4%. In addition, we have strategically raised prices across the Direct-to-Consumer segment, increased certain shipping fees and restructured customer contracts to reduce freight costs. These efforts are expected to have an annualized benefit of $10 million to operating income exclusive of the $2 million in costs we incurred during the three months ending March 31, 2023 to affect the changes.

Furthermore, we are contemplating developing a comprehensive business development and restructuring plan including the evaluation of several options for further cost reductions. We expect we can improve operating results through customer contract renegotiations, simplification of the business, focusing resources on key brands and an elimination of less profitable stock keeping units ("SKUs"). As part of the process, we are also evaluating further asset monetization opportunities to generate cash to reduce debt.

There can be no assurances that the Company will be able to successfully implement these strategies, or if successfully implemented, that we will see the expected benefits from such strategies. Additionally, there can be no assurances that any benefits from cost reduction strategies will enable the Company to remain in compliance with its financial covenants or provide the Company with sufficient cash to pay the outstanding debt on the Second A&R Loan and Security Agreement if accelerated by the lender. If the lender demands payment upon acceleration of the outstanding debt on the Second A&R Loan and Security Agreement, the Company may not be able to repay the outstanding debt and may need to seek bankruptcy protection.

If VWE’s intangible assets or goodwill become impaired, then VWE may be required to record charges to earnings, which could be significant.

VWE has substantial intangible assets and goodwill on its balance sheet resulting from acquisitions that VWE has completed. VWE reviews intangible assets and goodwill for impairment annually or more frequently if events or circumstances indicate that these assets might be impaired. Application of impairment tests requires judgment. A significant deterioration in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of a part of a reporting unit could result in an impairment charge in the future, which could have an impact, possibly significant, on VWE’s reported earnings.

During the three months ended December 31, 2022, the Company identified a number of goodwill and intangible asset impairment indicators that led us to conclude that an impairment test was required. After performing fair value determinations, we recorded a goodwill impairment of $125.3 million and intangible assets impairments of $13.8 million for the three months ended

 

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December 31, 2022. See Note 6 to our unaudited condensed consolidated financial statements for the nine months ended March 31, 2023 included elsewhere in this prospectus.

We may not realize the benefits anticipated from our business combination with BCAC, which could adversely affect our common stock price.

The anticipated benefits from our completed business combination are, necessarily, based on projections and assumptions that may not materialize as expected or which may prove to be inaccurate. Our ability to achieve the anticipated benefits will depend on our ability to successfully implement our growth strategies, as well as the availability of cash. We may encounter significant challenges with recognizing the anticipated benefits of the business combination, including the following:

If we do not successfully manage these issues and the other challenges inherent in operating a business of our scale, then we may not achieve the anticipated benefits of the business combination, could incur unanticipated expenses and charges and the results of operations and the market price of our common stock could be adversely affected.

A significant aspect of VWE’s expansion plan may include growth through strategic acquisitions. If the liabilities VWE assumes as part of making any such strategic acquisitions are greater than anticipated, VWE’s financial results could be adversely affected.

When VWE acquires the equity, i.e., the stock of a corporation or the membership interests in a limited liability company, rather than the assets, of a target company, it also generally assumes the liabilities of the target company, which often include known, unknown, and contingent liabilities. VWE’s ability to accurately identify and assess the magnitude of these assumed liabilities may be limited by, among other things, the information available to VWE and the limited operating experience VWE has with these acquired businesses. If VWE is unable to accurately assess the scope of these liabilities or if these liabilities are neither probable nor estimable at the time of the acquisition, VWE’s projected financial results for the acquired company could be adversely affected. To the extent that VWE’s overall results of operations are affected by any of these events, the price of VWE common stock could decrease.

General Risk Factors

Mergers and acquisitions in which VWE might engage involve risks that could adversely affect its business.

As part of its growth strategy, VWE will continue considering and entering into discussions, negotiations and agreements regarding possible transactions such as mergers, acquisitions and other business combinations. The purchase price for possible acquisitions of brands, other assets and businesses might be paid in cash, through the issuance of common stock or other securities, borrowings or a combination of these methods. Business combinations entail numerous risks, including:

 

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There can be no assurance that VWE will continue to be able to identify, consummate and successfully integrate business combinations.

A failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations may have a material adverse effect on our business and financial results.

Some of the countries where we do business have a higher risk of corruption than others. While we are committed to doing business in accordance with all applicable laws, including anti-corruption laws and global trade restrictions, we remain subject to the risk that an employee, or one of our many direct or indirect business partners, may take action determined to be in violation of international trade, money laundering, anti-corruption, or other laws, sanctions, or regulations, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010, or equivalent local laws. Because COVID-19 has negatively impacted numerous local economies, government intervention in local economies and businesses has increased, which has elevated the risk of and opportunity for corruption. Any determination that our operations or activities are not in compliance with applicable laws or regulations, particularly those related to anti-corruption and international economic or trade sanctions, could result in investigations, interruption of business, loss of business partner relationships, suspension or termination of licenses and permits (our own or those of our partners), imposition of fines, legal or equitable sanctions, negative publicity, and management distraction or departure. Further, our continued compliance with applicable anti-corruption, economic and trade sanctions, or other laws or regulations, and our other policies could result in higher operating costs, delays, or even competitive disadvantages.

We compete for skilled management and labor and our future success depends in large part on key personnel.

Our future success depends in large part on our ability to retain and motivate to a high degree our senior management team. Our ability to deliver high-quality products also depends on retaining and motivating proficient winemakers, grape growers and other skilled management and operations personnel. The loss of such personnel or a labor shortage could adversely affect our business and our ability to implement our strategy.

VWE is an emerging growth company and can offer no assurance that the reduced reporting requirements applicable to emerging growth companies will not make its shares less attractive to investors.

VWE is an emerging growth company as defined in the JOBS Act. For as long as VWE continues to be an emerging growth company, it may take advantage of exemptions from various reporting requirements that apply to public companies other than emerging growth companies, including exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. VWE will remain an emerging growth company until the earlier of (1) the date (a) December 31, 2026, (b) on which VWE has total annual gross revenue of at least $1.07 billion, or (c) on which VWE is deemed to be a large accelerated filer, which means the market value of shares of VWE’s common stock that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which VWE has issued more than $1.0 billion in non-convertible debt during the prior three-year period.

VWE can offer no assurance that investors will not find its common stock less attractive because VWE may rely on these exemptions. If some investors find such less attractive as a result, then there may be a less active trading market for such stock and its market price may be more volatile.

VWE will continue to incur significant expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations.

VWE, as a public company, faces significant legal, accounting, administrative and other costs and expense. VWE also is a reporting issuer in all of the provinces and territories of Canada, other than Quebec. The Sarbanes-Oxley Act, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board (United States), and Nasdaq impose additional reporting and other obligations on public companies. Compliance with public company requirements will increase costs and make certain activities more time-consuming. In addition, expenses

 

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associated with public company reporting requirements will be incurred. Furthermore, if any issues in complying with those requirements are identified (for example, if the auditors identify a material weakness or a significant deficiency in the internal control over financial reporting), then VWE could incur additional costs rectifying those issues, and the existence of those issues could adversely affect VWE’s reputation or investor perceptions of it. It may also be more expensive to obtain director and officer liability insurance in such a situation. Risks associated with VWE’s status as a public company may make it more difficult to attract and retain qualified persons to serve on the board of directors or as executive officers. The additional reporting and other obligations imposed by these rules and regulations will increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs will require VWE to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs.

VWE is subject to financial reporting and other requirements that places increased demands on its accounting and other management systems and resources and for which VWE may not be adequately prepared.

VWE is subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404(a) of the Sarbanes-Oxley Act and similar legislation imposed on reporting issuers under Canadian law, as applicable. Section 404 requires annual management assessments of the effectiveness of VWE’s internal controls over financial reporting and, after VWE is no longer an “emerging growth company,” its independent registered public accounting firm may be required to express an opinion on the effectiveness of VWE’s internal controls over financial reporting. To the extent applicable, these reporting and other obligations will place significant demands on VWE’s management, administrative, operational, and accounting resources and will cause VWE to incur significant expenses. VWE is in the process of creating systems, implementing financial and management controls, reporting systems and procedures, and hiring additional accounting and finance staff. If VWE is unable to accomplish these objectives in a timely and effective manner, then its ability to comply with the financial reporting requirements and other rules that apply to public reporting companies could be impaired. Any failure to maintain effective internal controls could have adverse effects on our business, results of operations and stock price.

VWE’s management has limited experience operating a public company. This could lead to diversion of time otherwise spent on business operations and could necessitate the incurrence of additional costs to staff for regulatory expertise.

Although several of the directors of the Company have substantial public market experience, including our Chief Financial Officer whose appointment was effective in March 2022, VWE’s other executive officers have limited experience in the management of a publicly traded company subject to significant regulatory oversight and reporting obligations under federal securities laws. VWE’s management team may struggle to manage VWE successfully or effectively as a public company. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of VWE. It is possible that VWE will be required to expand its employee base and hire additional qualified personnel, or engage additional outside consultants and professionals, to support its operations as a public company, increasing its operating costs in future periods.

The terms of the investor rights agreement, VWE’s organizational documents and Nevada law could inhibit a takeover that VWE shareholders might consider favorable.

Features of the investor rights agreement, the VWE articles of incorporation and bylaws and Nevada law will make it difficult for any party to acquire control of VWE in a transaction not approved by the VWE board of directors. These features include:

 

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These features may have an anti-takeover effect and could delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a VWE shareholder might consider in its best interest, including those attempts that might result in a premium over the market price of their common stock.

The VWE articles of incorporation provide that the Second Judicial District Court in the State of Nevada, located in Washoe County, Nevada will be the sole and exclusive forum for substantially all disputes between VWE and its shareholders, which could limit VWE shareholders’ ability to obtain a favorable judicial forum for disputes with VWE or its directors, officers or employees.

The VWE articles of incorporation provide that, unless VWE consents in writing to the selection of an alternative forum, the Second Judicial District Court, in and for the State of Nevada, located in Washoe County, Nevada, will, to the fullest extent permitted by law, be the exclusive forum for (i) any derivative action, suit or proceeding brought on behalf of VWE, (ii) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder of VWE to VWE or to its stockholders, or (iii) any action, suit or proceeding arising pursuant to any provision of the NRS or the VWE articles of incorporation or bylaws (as either may be amended and/or restated from time to time). Subject to the foregoing, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Such exclusive forum provision will not relieve VWE of its duties to comply with the federal securities laws and the rules and regulations thereunder, and its shareholders will not be deemed to have waived VWE’s compliance with such laws, rules and regulations.

The VWE articles of incorporation further provide that any person or entity purchasing or otherwise acquiring any interest in any VWE securities will be deemed to have notice of and consented to these provisions. Such articles provide that if any action whose subject matter is within the scope of clause (i), (ii) or (iii) above is filed in a court other than the courts in the State of Nevada (a “foreign action”) in the name of any stockholder, such stockholder will be deemed to have consented to (1) the personal jurisdiction of the state and federal courts in Nevada in connection with any action brought in any such court to enforce the provisions of such clause and (2) having service of process made upon any such stockholder’s counsel in the foreign action as agent for such stockholder. These exclusive forum provisions may limit a shareholder’s ability to bring an action, suit or proceeding in a judicial forum of its choosing for disputes with VWE or its directors, officers, employees or stockholders, which may discourage such actions, suits and proceedings. None of the aforementioned provisions of the VWE articles of incorporation will apply to suits to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts of the United States have exclusive jurisdiction.

If a court were to find the exclusive forum provision contained in the VWE articles of incorporation to be inapplicable or unenforceable in an action, suit or proceeding, then VWE may incur additional costs associated with resolving such action, suit or proceeding in other jurisdictions, which could harm its business, results of operations, and financial condition. Even if VWE is successful in defending against such actions, suits and proceedings, litigation could result in substantial costs and be a distraction to management and other employee.

We cannot guarantee that our common stock and warrants repurchase program will enhance long-term stockholder value.

On March 8, 2022, our Board authorized a share repurchase program (the “Repurchase Program”), pursuant to which we could repurchase up to $30.0 million in aggregate value of shares of our common stock and/or warrants through September 8, 2022.

The Company was not obligated to repurchase any specific number or amount of shares of common stock or warrants pursuant to the Repurchase Program. There can be no assurance that any repurchases made under the Repurchase Program will enhance long-term stockholder value and the market price of our common stock or warrants may decline below the levels at which we repurchased any such securities.

 

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All of the shares of our common stock offered by the Selling Stockholders pursuant to this prospectus will be sold by the Selling Stockholders for their respective accounts. We will not receive any of the proceeds from these sales.

 

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You should read the following discussion and analysis of financial condition and results of operations together with our audited consolidated financial statements and our unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this prospectus. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we”, “us”, “our” and “the Company” are intended to mean the business and operations of Vintage Wine Estates, Inc. (“VWE”) and its consolidated subsidiaries.

Discussion in this prospectus includes results of operations and financial condition for fiscal year 2022 and fiscal year 2021 and year-over-year comparisons between fiscal year 2022 and fiscal year 2021. For discussion on results of operations and financial condition pertaining to fiscal year 2020 and year-over-year comparisons between fiscal year 2021 and fiscal year 2020, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, as amended.

Business Overview

VWE is a leading vintner in the U.S., offering a collection of wines produced by award-winning, heritage wineries, popular lifestyle wines, innovative new wine brands, packaging concepts, as well as craft spirits. Our name brands include Layer Cake, Cameron Hughes, Clos Pegase, B.R. Cohn, Firesteed, Bar Dog, Kunde, Cherry Pie and many others. Since our founding over 20 years ago, we have grown organically through wine brand creation and through acquisitions to become the 14th largest wine producer based on cases of wine shipped in California.

Growth Strategy

Our strategy is to continue to grow organically by leveraging our omnichannel sales capabilities and through select acquisitions that enhance our wine portfolio and expand our offerings through all three business segments for our customers. Acquisitions have enabled us to diversify our wine sourcing into regions outside of California, expand our portfolio of brands, increase our vineyard assets and provide our direct-to-consumer and retail customers with a range of wines to choose from. We are also focused on improving profitability and driving cash generation by eliminating less profitable brands, exiting lower margin businesses, addressing wine making, warehousing and production efficiencies, simplifying our go-to-market strategy and monetizing select assets.

Trends and Other Factors Affecting Our Business

Various trends and other factors affect or have affected our operating results, including:

Economic Uncertainties

Inflation and supply chain constraints, as well as the ongoing COVID-19 pandemic, continue to disrupt the U.S. and global economies and there remains uncertainty about their impact on the economy. We cannot estimate with any certainty the length or severity of the economic uncertainties or the related financial consequences on our business and operations, including whether and when historic economic and operating conditions will resume or the extent to which the disruption may impact our business, financial position, results of operations or cash flows.

Management expects economic uncertainties including inflation and supply chain constraints to continue to impact financial metrics for several areas of the business including sales, cost of goods, operating expenses and cash flow.

Invasion of Ukraine

Russia's invasion of Ukraine has not had a direct impact on the Company. The Company does not have assets, operations or human capital resources located in Russia or Ukraine, does not invest or hold securities that trade in those areas and does not rely on goods or services sourced in Russia or Ukraine. However, the Company receives its capsules for wine bottles from a supplier in Italy, who has plants located in Ukraine (which plant has now closed), Italy and Poland. While the Company has not been impacted directly by supply chain disruptions as a result of the invasion, risks remain to the Company’s business including potential cybersecurity risks and other indirect operational or supply chain challenges, and the competition to secure wine bottle capsules has increased from suppliers due to the closing of the plant of the Company’s Italian supplier in Ukraine.

 

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Weather Conditions

Our ability to fulfill the demand for wine is restricted by the availability of grapes. Climate change, agricultural and other factors, such as wildfires, disease, pests, extreme weather conditions, water scarcity, biodiversity loss and competing land use, impact the quality and quantity of grapes available to us for the production of wine from year to year. Our vineyards and properties, as well as other sources from which we purchase grapes, are affected by these factors. For example, the effects of abnormally high rainfall or drought in a given year may impact production of grapes, which can impact both our revenue and costs from year to year.

In addition, extreme weather events, such as wildfires can result in potentially significant expenses to repair or replace a vineyard or facility as well as impact the ability of grape suppliers to fulfill their obligations to us.

Seasonality

There is a degree of seasonality in the growing cycles, procurement and transportation of grapes. The wine industry in general tends to experience seasonal fluctuations in revenue and net income. Typically, we have lower sales and net income during our third fiscal quarter (January through March) and higher sales and net income during our second fiscal quarter (October through December) due to usual timing of seasonal holiday buying, as well as wine club shipments. We expect these trends to continue.

Key Measures to Assess the Performance of our Business

We consider a variety of financial and operating measures in assessing the performance of our business, formulating goals and objectives and making strategic decisions. The key GAAP measures we consider are net revenue, gross profit; selling, general and administrative expenses, and income from operations. The key non-GAAP measures we consider are Adjusted EBITDA and Adjusted EBITDA Margin. We also monitor our case volume sold from our distributors to retailers to help us forecast and identify trends affecting our growth.

Net Revenue

We generate revenue from our segments: Wholesale, Business-to-Business ("B2B"), Direct-to-Consumer ("DTC") and Corporate and Other. We recognize revenue from sales when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs when the product is shipped, at which point title passes to the customer and 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. We recognize revenue 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 us.

Gross Profit

Gross profit is equal to net revenue less cost of sales. Cost of sales includes the direct cost of manufacturing, including direct materials, labor and related overhead, and physical inventory adjustments, as well as inbound and outbound freight and import duties.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include expenses arising from activities in selling, marketing, warehousing, and administrative expenses. Other than variable compensation, selling, general and administrative expenses are generally not directly proportional to net revenue, but are expected to increase over time to support the needs of the Company.

Income from Operations

Income from operations is gross profit less selling, general and administrative expenses; impairment losses on goodwill and intangible assets; acquisition and restructuring related expense or income and amortization of intangible assets. Income from operations excludes interest expense, income tax expense, and other expenses, net. We use income from operations as well as other indicators as a measure of the profitability of our business.

 

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Case Volumes

In addition to acquisitions, the primary drivers of net revenue growth in any period are attributable to changes in case volumes and changes in product mix and sales price. Case volumes represents the number of 9-liter equivalent cases of wine that we sell during a particular period. Case volumes for our DTC and Wholesale segments are an important indicator for us to determine what is driving gross margin, although our B2B segment sales are not related to case volumes. This metric also allows us to develop our supply and production targets for future periods for our DTC and Wholesale segments.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we use Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies. These metrics are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

Adjusted EBITDA is defined as earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation expense, casualty losses or gains, impairment losses, changes in the fair value of derivatives, restructuring related income or expenses, and certain non-cash, non-recurring, or other items. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net revenue. See "Non-GAAP Financial Measures" below.

Results of Operations for the Three and Nine Months Ended March 31, 2023 and the Three and Nine Months Ended March 31, 2022

Our financial performance is classified into the following segments: Wholesale, B2B, DTC and Corporate and Other. Our corporate operations, including centralized selling, general and administrative expenses are not allocated to the segments, as management does not believe such items directly reflect our core operations. However, we allocate re-measurements of contingent consideration and impairment of goodwill and intangible assets to our segments. Other than our long-term property, plant and equipment for wine tasting facilities, and customer lists, trademarks and trade names specific to acquired companies, our revenue generating assets are utilized across segments. Accordingly, the foregoing items are not allocated to the segments and are not discussed separately as the results of any such measures that had a significant impact on operating results are already included in the consolidated results discussion above.

We evaluate the performance of our segments on income from operations, which management believes is indicative of operational performance and ongoing profitability. Management monitors income from operations to evaluate past performance and identify actions required to improve profitability. Income from operations assists management in comparing the segment performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the core operations and, therefore, are not included in measuring segment performance. We define income from operations as gross margin less operating expenses that are directly attributable to the segment. Selling expenses that can be directly attributable to the segment are allocated accordingly.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Wholesale Segment Results

The following table presents summary financial data for our Wholesale segment:

 

		Three Months Ended March 31,								Dollar				Percent
(in thousands, except %)		2023				2022				Change				Change
Net revenue		$	20,811			$	24,549			$	(3,738	)		-15.2%
Income from operations		$	(1,637	)		$	3,270			$	(4,907	)		-150.1%

 

Wholesale net revenue for the three months ended March 31, 2023 decreased $3.7 million, or 15.2%, from the three months ended March 31, 2022. The decrease was attributable to a decrease in sales related to timing of retail programming, discontinued brand, and slowing consumer discretionary spending trends at retail.

Wholesale income from operations for the three months ended March 31, 2023 decreased $4.9 million, or 150.1%, from the three months ended March 31, 2022. The decrease was attributable primarily to the reduced sales mentioned above that was partially offset by a decrease in cost of sales for Wholesale totaling $1.8 million as well as inventory writedowns of $2.7 million.

 

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B2B Segment Results

The following table presents summary financial data for our B2B segment:

 

		Three Months Ended March 31,								Dollar				Percent
(in thousands, except %)		2023				2022				Change				Change
Net revenue		$	31,490			$	33,657			$	(2,167	)		-6.4%
Income from operations		$	5,562			$	10,457			$	(4,895	)		-46.8%

 

B2B net revenue for the three months ended March 31, 2023 decreased $2.2 million, or 6.4%, from the three months ended March 31, 2022. The decrease was primarily attributable to a decrease in private label customer sales of $3.7 million.

B2B income from operations for the three months ended March 31, 2023 decreased $4.9 million, or 46.8%, from the three months ended March 31, 2022. The decrease is primarily related to inventory writedowns of $4.1 million as well as an increase in cost of revenue year over year.

DTC Segment Results

The following table presents summary financial data for our DTC segment:

 

		Three Months Ended March 31,								Dollar				Percent
(in thousands, except %)		2023				2022				Change				Change
Net revenue		$	17,174			$	19,595			$	(2,421	)		-12.4%
Income from operations		$	(2,929	)		$	916			$	(3,845	)		-419.8%

 

DTC net revenue for the three months ended March 31, 2023 decreased $2.4 million, or 12.4%, from the three months ended March 31, 2022. The decrease was primarily attributable to $1.2 million decline related to a major customers reduction in televised programming and reduced activity in tasting rooms, mostly as a result of bad weather. This was partially offset by growth in wine clubs, telemarketing and e-commerce.

DTC income from operations for the three months ended March 31, 2023 decreased $3.9 million, or 419.8%, from the three months ended March 31, 2022. The decreased is primarily attributable to inventory writedowns of $3.4 million.

Corporate and Other Segment Results

The following table presents summary financial data for our Corporate and Other segment:

 

		Three Months Ended March 31,								Dollar				Percent
(in thousands, except %)		2023				2022				Change				Change
Net revenue		$	3			$	1,132			$	(1,129	)		-99.7%
Income (loss) from operations		$	(4,795	)		$	(13,759	)		$	8,964			65.2%

 

Corporate and Other net revenue for the three months ended March 31, 2023 decreased $1.1 million, or 99.7%, from the three months ended March 31, 2022. The decrease was primarily due to reduced bulk wine sales.

Corporate and Other loss from operations for the three months ended March 31, 2023 decreased $9.0 million, or 65.2%, from the three months March 31, 2022. The decrease was primarily attributable to a $4.0 million reduction in stock compensation expense and $6.3 million gain from sale of assets. The decrease was offset by $1.9 million in business realignment costs and $1.2 million in additional compensation and benefits expenses.

 

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Nine Months Ended March 31, 2023 Compared to Nine Months Ended March 31, 2022

Wholesale Segment Results

The following table presents summary financial data for our Wholesale segment:

 

		Nine Months Ended March 31,								Dollar				Percent
(in thousands, except %)		2023				2022				Change				Change
Net revenue		$	67,260			$	62,923			$	4,337			6.9%
Income from operations		$	(129,331	)		$	12,654			$	(141,985	)		-1122.1%

 

Wholesale net revenue for the nine months ended March 31, 2023 increased $4.3 million, or 6.9%, from the nine months ended March 31, 2022. The increase was driven by contributions of $8.0 million from the ACE Cider acquisition which was partially offset by slowing consumer discretionary spending trends at retail.

Wholesale income from operations for the nine months ended March 31, 2023 decreased $142.0 million, or 1,122.1%, from the nine months ended March 31, 2022. The decrease was attributable primarily to goodwill and intangible assets impairments of $116.3 million and $11.5 million, respectively, inventory writedowns of $2.7 million, as well as higher costs due to inflation and supply chain challenges, $3.7 million in incremental overhead burden, $0.8 million increase in contingent liability, and incremental operating loss of $1.0 million related to acquisitions.

B2B Segment Results

The following table presents summary financial data for our B2B segment:

 

		Nine Months Ended March 31,								Dollar				Percent
(in thousands, except %)		2023				2022				Change				Change
Net revenue		$	94,385			$	83,349			$	11,036			13.2%
Income from operations		$	16,445			$	26,274			$	(9,829	)		-37.4%

 

B2B net revenue for the nine months ended March 31, 2023 increased $11.0 million, or 13.2%, from the nine months ended March 31, 2022. The increase was primarily attributable to an increase of $9.5 million in custom production activities and $2.6 million from sales of bulk distilled spirits.

B2B income from operations for the nine months ended March 31, 2023 decreased $9.8 million, or 37.4%, from the nine months ended March 31, 2022. The decrease was attributable to goodwill and intangible assets impairments of $9.0 million and $0.1 million, respectively, as well as to inventory writedowns of $4.1 million, partially offset by a gain on remeasurement of contingent consideration of $4.9 million and increased margin on bulk distilled alcohol sales and $0.1 million related to acquisitions.

DTC Segment Results

The following table presents summary financial data for our DTC segment:

 

		Nine Months Ended March 31,								Dollar				Percent
(in thousands, except %)		2023				2022				Change				Change
Net revenue		$	63,101			$	69,316			$	(6,215	)		-9.0%
Income from operations		$	43			$	14,834			$	(14,791	)		-99.7%

 

DTC net revenue for the nine months ended March 31, 2023 decreased $6.2 million, or 9.0%, from the nine months ended March 31, 2022. The decrease was primarily attributable to less televised programming by $2.2 million, reduced e-commerce sales of $2.4 million, reduced tasting room sales of $1.1 million and reduced event sales of $0.7 million.

DTC income from operations for the nine months ended March 31, 2023 decreased $14.8 million, or 99.7%, from the nine months ended March 31, 2022. The decrease was primarily attributable to increases in costs of revenue, as well as inventory writedowns of $3.4 million, intangible assets impairments of $2.2 million, and amortization of $2.4 million.

 

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Corporate and Other Segment Results

The following table presents summary financial data for our Corporate and Other segment:

 

		Nine Months Ended March 31,								Dollar				Percent
(in thousands, except %)		2023				2022				Change				Change
Net revenue		$	(46	)		$	2,643			$	(2,689	)		-101.7%
Income (loss) from operations		$	(44,238	)		$	(34,014	)		$	(10,224	)		-30.1%

 

Corporate and Other net revenue for the nine months ended March 31, 2023 decreased $2.7 million, or 101.7%, from the nine months ended March 31, 2022. The decrease was primarily attributable to reduced bulk wine sales.

Corporate and Other loss from operations for the nine months ended March 31, 2023 decreased $10.2 million, or 30.1%, from the nine months March 31, 2022. The decrease was due to $6.3 million of acquisition related expenses and $5 million of share-based compensation expense.

Case Volumes

The following tables summarize 9-liter equivalent cases by segment:

 

		Three Months Ended March 31,
(in thousands)		2023				2022				Unit Change				% Change
Wholesale			433				357				76			21.3%
B2B		*				*				*				*
DTC			67				87			-20				-23.0%
Total case volume			500				444				56			12.6%

 

The decrease in DTC volumes was primarily driven by reduced volumes for televised programming.

 

		Nine Months Ended March 31,
(in thousands)		2023				2022				Unit Change				% Change
Wholesale			1,425				1,072				353			32.9%
B2B		*				*				*				*
DTC			291				307			-16				-5.2%
Total case volume			1,716				1,379				337			24.4%

 

The increase in case volumes was primarily due to our wholesale segment, driven by the ACE Cider acquisition that ships higher case volumes of lower priced product.

*B2B segment sales are primarily not related to case volumes, therefore the Company has elected to not report case volumes for this segment as it would not be indicative of the underlying performance of the business.

 

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Non-GAAP Financial Measures

The following is a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:

 

		Three Months Ended March 31								Nine Months Ended March 31
		2023				2022				2023				2022
Net (loss) income (GAAP Measure)		$	(10,174	)		$	2,707			$	(141,433	)		$	14,038
Interest expense			4,291				3,729				13,322				10,825
Income tax provision			(1,673	)			958				(24,231	)			5,412
Depreciation			4,101				6,040				11,409				14,095
Amortization			1,813				2,083				5,429				3,938
Stock-based compensation expense			(2,008	)			-				6,971				-
Net loss (gain) on interest rate swap agreements			3,596				(4,553	)			(4,892	)			(8,582	)
Goodwill and intangible asset impairment losses			-				-				139,108				-
Loss (gain) on disposition of assets			(5,977	)			1,099				(5,625	)			508
Deferred rent adjustment			-				47				-				285
Gain on litigation proceeds			(884	)			-				(1,414	)			-
Adjusted EBITDA (Non-GAAP Measure)		$	(6,915	)		$	12,110			$	(1,356	)		$	40,519
Revenue		$	69,478			$	78,933			$	224,700			$	218,231
Adjusted EBITDA margin (Non-GAAP Measure)			-10.0	%			15.3	%			-0.6	%			18.6	%

 

Adjusted EBITDA and Adjusted EBITDA Margin are not recognized measures of financial performance under GAAP. We believe these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of our business and assists these parties in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, which allows for a better comparison against historical results and expectations for future performance. See Note 6 to our unaudited condensed consolidated financial statements for the nine months ended March 31, 2023 included elsewhere in this prospectus for details related to our impairment testing reported in the quarter ended December 31, 2022.

Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short and long-term operating planning, employee incentive compensation, and debt compliance. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms Adjusted EBITDA and Adjusted EBITDA Margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA and Adjusted EBITDA Margin, which are not prepared in accordance with GAAP, should not be construed as an indicator of our operating performance in isolation from, or as a substitute for, respectively, net income (loss) or net income (loss) divided by revenue, which are indicators prepared in accordance with GAAP. We have presented Adjusted EBITDA and Adjusted EBITDA Margin solely as supplemental disclosure because we believe it allows for a more complete analysis of our results of operations. In the future, we may incur expenses such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.

 

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Results of Operations for the Year Ended June 30, 2022 and the Year Ended June 30, 2021

Comparison of the years ended June 30, 2022 and 2021

The following table summarizes our operating results for the periods presented:

 

		Year Ended June 30,								Dollar				Percent
		2022				2021				Change				Change
Net revenues
Wine, spirits and cider		$	208,954			$	177,331			$	31,623				17.8	%
Nonwine			84,816				43,411				41,405				95.4	%
			293,770				220,742				73,028				33.1	%
Cost of revenues
Wine, spirits and cider			151,117				119,350				31,767				26.6	%
Nonwine			52,698				26,041				26,657				102.4	%
			203,815				145,391				58,424				40.2	%
Gross profit			89,955				75,351				14,604				19.4	%
Selling, general, and administrative expenses			105,296				72,505				32,791				45.2	%
Impairment of intangible assets			-				1,081				(1,081	)		*
Loss (gain) on sale of property, plant, and equipment			485				(1,001	)			1,486				-148.5	%
Deferred gain on sale leaseback			(1,334	)			(1,335	)			1				-0.1	%
Gain on litigation proceeds			(3,000	)			(4,750	)			1,750				-36.8	%
Gain on remeasurement of contingent consideration liabilities			(3,570	)			(329	)			(3,241	)		*
(Loss) income from operations			(7,922	)			9,180				(17,102	)		*
Other income (expense)
Interest expense			(13,910	)			(11,581	)			(2,329	)			20.1	%
Net unrealized gain on interest rate swap agreements			22,950				6,136				16,814			*
Gain on Paycheck Protection Program loan forgiveness			-				6,604				(6,604	)		*
Other, net			(736	)			515				(1,251	)		*
Total other income, net			8,304				1,674				6,630			*
Income before provision for income taxes			382				10,854				(10,472	)			-96.5	%
Income tax provision			1,061				766				295				38.5	%
Net (loss) income			(679	)			10,088				(10,767	)			-106.7	%
Net (loss) income attributable to the noncontrolling interests			(108	)			218				(326	)			-149.5	%
Net (loss) income attributable to Vintage Wine Estates, Inc.			(571	)			9,870				(10,441	)			-105.8	%
Accretion on redeemable Series B stock			-				5,785				(5,785	)		*
Net (loss) income allocable to common stockholders		$	(571	)		$	4,085			$	(4,656	)			-114.0	%

 

* Not meaningful

Net Revenues

Net revenues for the year ended June 30, 2022 increased $73.0 million, or 33.1%, to $293.8 million, from $220.7 million for the year ended June 30, 2021. The increase was driven by an increase in B2B net revenues of approximately $36.5 million, of which $7.3 million related to acquisitions, DTC net revenues of approximately $25.8 million, of which $11.0 million related to acquisitions, and Wholesale net revenues of $11.6 million, of which $13.4 million related to acquisitions, partially offset by a decrease in Other net revenues of approximately $0.9 million.

Gross Profit

Gross profit for the year ended June 30, 2022 increased $14.6 million, or 19.4%, to $90.0 million, from $75.4 million for the year ended June 30, 2021. The increase in gross profit was primarily driven by the strong DTC post-COVID-19 growth of $10.6 million. Acquisitions contributed an additional $13.1 million of gross profit. These increases were partially offset by $19.1 million of non-cash inventory write-downs identified through material weakness remediation efforts.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses for the year ended June 30, 2022 increased $32.8 million, or 45.2%, to $105.3 million, from $72.5 million for the year ended June 30, 2021. The increase in selling, general and administrative expenses was driven primarily by our acquisitions, increased compensation and benefits due to staffing increases and inflation.

 

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(Loss) Income from Operations

Loss from operations for the year ended June 30, 2022 was $7.9 million, a decrease of $17.1 million from income of $9.2 million for the year ended June 30, 2021. The decrease was driven by $19.1 million non-cash inventory write-downs identified through material weakness remediation efforts, offset by increased growth in our B2B and DTC segments.

Other Income

Total other income was $8.3 million for the year ended June 30, 2022 compared to income of $1.7 million for the year ended June 30, 2021, a net increase of $6.6 million. The change was due primarily to an unrealized gain on our interest rate swap agreements of $23.0 million, partially offset by increased interest expense on increased outstanding debt balances and $6.6 million related to the forgiveness of the Paycheck Protection Program loan (the “PPP Loan”) in the prior year period.

Income Tax Provision

Income tax expense was $1.1 million for the year ended June 30, 2022 compared to income tax expense of $0.8 million for the year ended June 30, 2021. The income tax expense in fiscal year 2022 was primarily due to changes in pre-tax income and non-deductible stock based compensation. The income tax expense for the year ended June 30, 2021 was primarily due to an increase in annual net income and costs related to the transaction, partially offset by the PPP Loan forgiveness, stock based compensation and research and development tax credits.

Segment Results for the Years Ended June 30, 2022 and 2021

Our financial performance is classified into the following segments: Wholesale, B2B, DTC and Corporate and Other. Our corporate operations, including centralized selling, general and administrative expenses and other factors, such as the re-measurements of contingent consideration and impairment of intangible assets and goodwill are not allocated to the segments, as management does not believe such items directly reflect our core operations. Other than our long-term property, plant and equipment for wine tasting facilities, and customer lists, trademarks and trade names specific to acquired companies, our revenue generating assets are utilized across segments. Accordingly, the foregoing items are not allocated to the segments and are not discussed separately as any results that had a significant impact on operating results are included in the consolidated results discussion above.

We evaluate the performance of our segments on income from operations, which management believes is indicative of operational performance and ongoing profitability. Management monitors income from operations to evaluate past performance and identify actions required to improve profitability. Income from operations assists management in comparing the segment performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the core operations and, therefore, are not included in measuring segment performance. We define income from operations as gross margin less operating expenses that are directly attributable to the segment. Selling expenses that can be directly attributable to the segment are allocated accordingly.

Wholesale Segment Results

 

		Year Ended June 30,								Dollar				Percent
(in thousands, except %)		2022				2021				Change				Change
Net revenues		$	84,534			$	72,908			$	11,626			15.9%
Income from operations		$	5,507			$	15,044			$	(9,537	)		-63.4%

 

Wholesale net revenues for the year ended June 30, 2022 increased by approximately $11.6 million, or 15.9%, from the year ended June 30, 2021. The increase was attributable to $13.4 million in net revenues related to acquisitions, partially offset by discontinued brands.

Wholesale income from operations for the year ended June 30, 2022 decreased by approximately $9.5 million from the year ended June 30, 2021. The decrease was attributable to increased cost of sales of $5.8 million primarily related to non-cash inventory write-downs identified through material weakness remediation efforts, increased cost of sales of $1.6 million related to inflation and supply chain challenges as well as an operating loss of $0.2 million related to acquisitions driven by $1.6 million of amortization of intangible assets acquired.

 

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B2B Segment Results

 

		Year Ended June 30,								Dollar				Percent
(in thousands, except %)		2022				2021				Change				Change
Net revenues		$	113,934			$	77,440			$	36,494			47.1%
Income from operations		$	16,920			$	17,944			$	(1,024	)		-5.7%

 

B2B net revenues for the year ended June 30, 2022 increased by approximately $36.5 million, or 47.1% from the year ended June 30, 2021. The increase was primarily attributable to bulk distilled alcohol sales and $7.3 million in net revenues related to acquisitions.

B2B income from operations for the year ended June 30, 2022 decreased by $1.0 million, or 5.7%, from the year ended June 30, 2021. The decrease was attributable to increased cost of sales of $34.3 million primarily related to cost of sales attributed from bulk distilled alcohol sales and non-cash inventory write-downs identified through material weakness remediation efforts, $1.0 million in net losses related to acquisitions, driven by $0.6 million of amortization of intangible assets acquired.

DTC Segment Results

 

		Year Ended June 30,								Dollar				Percent
(in thousands, except %)		2022				2021				Change				Change
Net revenues		$	92,416			$	66,605			$	25,811			38.8%
Income from operations		$	15,047			$	11,437			$	3,610			31.6%

 

DTC net revenues for the year ended June 30, 2022 increased by approximately $25.8 million, or 38.8%, from the year ended June 30, 2021. The increase was primarily attributable to increased case volumes from tasting rooms, wine clubs, revenues earned from events as restrictions related to COVID-19 have been lifted and $11.0 million in net revenues related to acquisitions.

DTC income from operations for the year ended June 30, 2022 increased by approximately $3.6 million, or 31.6%, from the year ended June 30, 2021. The increase was due to increased margin contribution from improved traffic in tasting rooms, wine club shipments, events and $0.9 million of income related to acquisition, net of $1.1 million of amortization of acquired customer lists.

Corporate and Other Segment Results

 

		Year Ended June 30,								Dollar				Percent
(in thousands, except %)		2022				2021				Change				Change
Net revenues		$	2,886			$	3,789			$	(903	)		23.8%
Loss from operations		$	(45,396	)		$	(35,245	)		$	(10,151	)		-28.8%

 

Other net revenues for the year ended June 30, 2022 decreased by approximately $0.9 million, or 23.8%, from the year ended June 30, 2021. The decrease was primarily attributable to fewer bulk wine sales in the year compared to the year prior.

Other losses from operations for the year ended June 30, 2022 increased by $10.2 million, or 28.8%, from the year ended June 30, 2021. The increase was due to costs related to increased infrastructure required to be a public company and the continued increased costs of labor, warehousing, freight and insurance.

 

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Non-GAAP Financial Measures

The following is a reconciliation of net income (loss) to Adjusted EBITDA for the years ended June 30, 2022 and 2021:

 

		June 30, 2022				June 30, 2021
Net (loss) income			(679	)		$	10,088
Interest expense			13,910				11,581
Income tax provision			1,061				766
Depreciation and amortization			25,297				11,900
Gain on litigation proceeds			(3,000	)			(3,845	)
Stock-based compensation expense			6,914				3,334
Inventory adjustment for wildfire impact - vineyard			-				3,302
Inventory adjustment for wildfire impact - winery overhead			-				9,000
Inventory write down			19,100				-
PPP loan forgiveness			-				(6,604	)
Net unrealized (gain)/loss on interest rate swap agreements			(22,950	)			(6,136	)
Loss/(gain) on disposition of assets			485				(1,001	)
Deferred rent adjustment			375				352
Transaction expenses			-				4,339
Impairment of intangible assets			-				1,081
Remeasurement of contingent consideration liabilities			(3,570	)			(329	)
Post-acquisition accounts receivable write-down			-				109
Incremental public company costs			5,000				-
Acquisition integration costs			934				-
Deferred gain on sale leaseback			(1,334	)			(1,335	)
COVID related adjustments			-				1,563
Inventory acquisition basis adjustment			5,275				401
Adjusted EBITDA		$	46,818			$	38,566
Revenue		$	293,770			$	220,742
Adjusted EBITDA margin			15.9	%			17.5	%

 

Adjusted EBITDA and Adjusted EBITDA Margin are not recognized measures of financial performance under GAAP. We believe these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of our business and assists these parties in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, which allows for a better comparison against historical results and expectations for future performance.

Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short and long-term operating planning, employee incentive compensation, and debt compliance. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms Adjusted EBITDA and Adjusted EBITDA Margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as indicators of our operating performance in isolation from, or as a substitute for, net income (loss), which is prepared in accordance with GAAP. We have presented Adjusted EBITDA and Adjusted EBITDA Margin solely as supplemental disclosure because we believe it allows for a more complete analysis of our results of operations. In the future, we may incur expenses such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.

Liquidity and Capital Resources

Our ongoing operations have, to date, been funded by a combination of cash flow from operations, the Business Combination with BCAC, borrowings under our credit facility and other debt financing. As of March 31, 2023, we had cash and cash equivalents on hand of $32.0 million and $46.0 million in borrowing capacity available under our credit facility. We had $306.0 million in total debt as of March 31, 2023.

Our principal uses of cash have been to provide working capital, meet debt service requirements, fund capital expenditures and finance strategic plans, including acquisitions. We continuously reinvest in our properties and production assets.

 

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On May 9, 2023, the Company entered into an amendment to its Second A&R Loan and Security Agreement that adjusted the definition of certain financial covenants for the quarter ended March 31, 2023. Due to the amendment, the Company was in compliance with its debt covenants as of March 31, 2023. The Company currently forecasts that it will not meet certain financial debt covenants as required per our Second A&R Loan and Security Agreement beginning with the quarter ended June 30, 2023, which would constitute an event of default, which if not waived, can result in the potential acceleration of the Company’s outstanding debt under the Second A&R Loan and Security Agreement. If an event of default occurs under the Second A&R Loan and Security Agreement and the lender accelerates the maturity of the debt thereunder, the Company may not have sufficient cash to repay the outstanding debt.

In response to these conditions, management has begun to actively engage in conversations with the lender under the Second A&R Loan and Security Agreement regarding amendments and waivers to the related financial covenants, however, whether an amendment or waiver is obtained is not within the Company's control, and therefore cannot be deemed probable.

During the third fiscal quarter of 2023, which ended March 31, 2023, the Company implemented several cost reduction and revenue enhancing initiatives to improve its financial results and cash flow from operations. This included reducing our workforce by approximately 4%. In addition, we have strategically raised prices across the Direct-to-Consumer segment, increased certain shipping fees and restructured customer contracts to reduce freight costs. These efforts are expected to have an annualized benefit of $10 million to operating income exclusive of the $2 million in costs we incurred during the three months ending March 31, 2023 to affect the changes.

Furthermore, we are contemplating developing a comprehensive business development and restructuring plan including the evaluation of several options for further cost reductions. We expect we can improve operating results through customer contract renegotiations, simplification of the business, focusing resources on key brands and an elimination of less profitable SKUs. As part of the process, we are also evaluating further asset monetization opportunities to generate cash to reduce debt.

There can be no assurances that the Company will be able to successfully implement these strategies, or if successfully implemented, that we will see the expected benefits from such strategies. Additionally, there can be no assurances that any benefits from cost reduction strategies will enable the Company to remain in compliance with its financial covenants or provide the Company with sufficient cash to pay the outstanding debt on the Second A&R Loan and Security Agreement if accelerated by the lender.

As a result of these uncertainties, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Company’s unaudited condensed consolidated financial statements for the nine month period ended March 31, 2023 were issued. For further discussion, see Notes 1 and 10 to the unaudited condensed consolidated financial statements for the nine months ended March 31, 2023 included in this prospectus.

Debt

Credit Facility

On December 13, 2022, we entered into a Second Amended and Restated Loan and Security Agreement (the “Second A&R Loan and Security Agreement”), which provides credit facilities totaling up to $458.4 million. These credit facilities consist of: (i) a term loan facility of $156.5 million maturing on December 13, 2027,(the “Term Loan Facility”), (ii) an accounts receivable and inventory revolving facility of $229.7 million (with a letter of credit sub-facility in the aggregate availability amount of $20.0 million maturing on December 13, 2027,(the “Revolving Facility”), (iii) an equipment loan facility of $4.2 million maturing on December 31, 2026, (the “Equipment Loan”), (iv) a capital expenditure facility of $15.2 million maturing on June 30, 2027 (the “Capex Facility”) and (v) a delayed draw term loan facility of $52.9 million maturing on December 13, 2027, (the “DDTL Facility”, and, together with the Term Loan Facility, the Revolving Facility, the Equipment Loan and the Capex Facility, the “Credit Facilities”). Outstanding balances under the Credit Facilities will bear interest at the rates specified in the Second A&R Loan and Security Agreement, which vary based on the type of Credit Facility and certain other conditions. Interest payments on the outstanding balances under any of the Credit Facilities will be due monthly, quarterly or bi-annually depending on the interest period selected by the Company. Principal payments, as specified in the Second A&R Loan and Security Agreement, will be due quarterly on all the Credit Facilities except for the Revolving Facility which is due at maturity.

The Second A&R Loan and Security Agreement contains customary representations and warranties, affirmative and negative covenants, including, amongst others, (i) a financial covenant with respect to a maximum debt to capitalization ratio of 0.60:1.00 through December 31, 2023, and stepping down to 0.575:1.00 for each quarter until March 31, 2024 and 0.55:1.00 for each quarter until December 31, 2024 and thereafter and (ii) a minimum fixed charge coverage ratio (based on trailing twelve-month EBITDA adjusted for capital expenditures, taxes and certain other items) of 1.10:1.00 measured on a rolling four quarter basis, provided that the minimum capital expenditure amount for purposes of calculating the fixed charge coverage ratio will increase by $175,000 per quarter until it reaches $1.5 million.

 

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On May 9, 2023, we entered into an amendment to its Second A&R Loan and Security Agreement (described further in Note 10 to the unaudited condensed consolidated financial statements for the nine months ended March 31, 2023 included in this prospectus) that adjusted the definition of certain financial covenants for the quarter ended March 31, 2023. As a result, the definition of Adjusted EBITDA (as defined in the Second A&R Loan and Security Agreement) as utilized in the fixed charge coverage ratio was modified to allow certain addbacks to Adjusted EBITDA. As a result, at March 31, 2023, we believe we will be in compliance with the covenants contained in the Second A&R Loan and Security Agreement. Refer to Note 10 to the unaudited condensed consolidated financial statements for the nine months ended March 31, 2023 included in this prospectus for further discussion.

We currently forecast that we will not meet certain financial debt covenants as required per our Second A&R Loan and Security Agreement beginning with the quarter ended June 30, 2023, which would constitute an event of default, which if not waived, can result in the potential acceleration of our outstanding debt under the Second A&R Loan and Security Agreement. If an event of default occurs under the Second A&R Loan and Security Agreement and the lender accelerates the maturity of the debt thereunder, we may not have sufficient cash to repay the outstanding debt. In response to these conditions, management has begun to actively engage in conversations with the lender of the Second A&R Loan and Security Agreement regarding amendments and waivers to the related financial covenants, however, whether an amendment or waiver is obtained is not within our control, and therefore cannot be deemed probable. As a result, we classified all amounts owed under the Second A&R Loan and Security Agreement as Current Maturities of Long-Term Debt on the balance sheet at March 31, 2023.

The Company anticipates using any of the proceeds of the credit facilities for working capital and general corporate purposes, purchases of real estate (including vineyards) and equipment and paying down outstanding balances on the credit facilities.

Paycheck Protection Program

Our PPP Loan, under Division A, Title I of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act on April 14, 2020, of approximately $6.5 million required monthly amortized principal and interest payments to begin six months after the date of disbursement. In October 2020, the deferral period associated with the monthly payments was extended from six to ten months. While the PPP Loan had a two-year maturity, the amended law permitted the borrower to request a five-year maturity from its lender.

Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020, we were eligible to apply for and receive forgiveness for all or a portion of the PPP Loan. Such forgiveness was determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during the twenty-four week period following the funding of the PPP Loan.

On June 25, 2021, the Company received notification from the Small Business Association that the Company’s Forgiveness Application of the PPP Loan and accrued interest, totaling approximately $6.6 million, was approved in full, and the Company had no further obligations related to the PPP Loan. Accordingly in fiscal year 2021, the Company recorded a gain on the forgiveness of the PPP Loan.

Cash and Cash Equivalents

Our cash and cash equivalents balance was $32.0 million at March 31, 2023 compared to $50.3 million at June 30, 2022 and $123.7 million at June 30, 2021. At March 31, 2023, our cash and cash equivalents were held in cash depository accounts with major banks.

Cash Flows

Information about our cash flows, by category, is presented in our consolidated statements of cash flows and is summarized below:

 

		Nine Months Ended March 31,												Year Ended June 30,
(in thousands)		2023				2022				Change				2022				2021				Change
Operating activities		$	(3,846	)		$	(4,128	)		$	282			$	15,982			$	9,117			$	6,865
Investing activities		$	8,389			$	(89,886	)		$	98,275			$	(98,505	)		$	(60,288	)		$	(38,217	)
Financing activities		$	(22,869	)		$	46,044			$	(68,913	)		$	9,136			$	173,099			$	(163,963	)

 

 

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