UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
Amendment No. 1
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from | | to | |
Commission File Number 000-54866
CRIMSON WINE GROUP, LTD.
(Exact name of registrant as specified in its Charter)
| | | | | |
Delaware (State or Other Jurisdiction of | 13-3607383 (I.R.S. Employer |
Incorporation or Organization) | Identification Number) |
5901 Silverado Trail, Napa, California (Address of Principal Executive Offices) | 94558 (Zip Code) |
(800) 486-0503
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
______________________
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ | | Accelerated filer ☒☐ |
Non-accelerated filer ☐☒ | | Smaller reporting company ☒ |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
On April 9,November 1, 2021 there were 23,243,47622,524,185 outstanding shares of the Registrant’s Common Stock, par value $0.01 per share.
CRIMSON WINE GROUP, LTD.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II. OTHER INFORMATION |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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EXPLANATORY NOTE
General
On December 22, 2020, the Board of Directors of Crimson Wine Group, Ltd. (the “Company”), based on the recommendation of the Audit Committee of the Board of Directors (the “Audit Committee”) and in consultation with management, concluded that its unaudited interim condensed consolidated financial statements for the three months ended March 31, 2020 and 2019, the three and six months ended June 30, 2020 and 2019 and the three and nine months ended September 30, 2020 and 2019 (collectively, the “Interim Quarterly Financial Statements”), and its audited consolidated financial statements for the years ended December 31, 2017, 2018 and 2019, can no longer be relied upon as the result of material accounting errors identified by management.
Restatement
We are filing this Quarterly Report on Form 10-Q/A to amend our Quarterly Report on Form 10-Q for the quarterly period September 30, 2020, which was originally filed with the Securities and Exchange Commission (“SEC”) on November 6, 2020 (the “Original Form 10-Q”). The purpose of this Quarterly Report on Form 10-Q/A is to restate our previously issued unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 contained in the Original Form 10-Q.
For the convenience of the reader, this Quarterly Report on Form 10-Q/A amends and restates the Original Form 10-Q in its entirety. As a result, it includes both items that have been changed as a result of the restatement and items that are unchanged from the Original Form 10-Q. This Quarterly Report on Form 10-Q/A speaks as of the date of the Original Form 10-Q and has not been updated to reflect events occurring subsequent to the filing of the Original Form 10-Q other than those associated with the restatement of our consolidated financial statements.
Restatement Background
In 2020, management began constructing a bulk wine inventory sub-ledger by individual lot. During this process improvement initiative, it was discovered that the Company's cost allocation process applied to historical vintagesresulted in an overstatement of the inventory balance and understatement of cost of sales. It should be noted that the custody and recordkeeping of physical inventory have always been properly maintained through physical inventory counts and the restatement error is strictly related to the cost component.
As a result of the process above, management performed an additional bulk wine cost allocation analysis at the vintage and brand levels to identify costs related to historical vintages. Through the analysis, costs for each vintage were matched with the sales activity of bulk wine and cased goods, as well as inventory on hand to calculate the restatement impact for the years ended December 31, 2017, 2018, and 2019 and for the quarterly periods in 2020 and 2019. The cumulative impact of correcting misstatements in cost of sales for the periods prior to 2017 fiscal year has been recorded as an increase to the opening accumulated deficit as of January 1, 2017 as shown in the restated audited consolidated financial statements presented in the Form 10-K/A for the year ended December 31, 2019.
Restatement of Previously Issued Consolidated Financial Statements
As described above, this Quarterly Report on Form 10-Q/A includes unaudited restated consolidated financial statements as of September 30, 2020 and 2019. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, for additional information.
The restatement impact increased previously reported net loss and basic and fully diluted loss per share (in thousands, except per share data) as follows:
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Restatement impact (net change) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net loss | $ | (411) | | | $ | (130) | | | $ | (1,014) | | | $ | (584) | |
Basic and fully diluted loss per share | $ | (0.02) | | | $ | (0.01) | | | $ | (0.05) | | | $ | (0.02) | |
In addition, as mentioned above, the cumulative impact of correcting misstatements of cost of sales in periods prior to 2017 has been recorded as an increase to our opening accumulated deficit of approximately $0.5 million, as of January 1, 2017, the beginning of the earliest period presented in the Form 10-K/A for the year ended December 31, 2019.
Other Amended Filings
In addition to this Form 10-Q/A, we are concurrently filing an amendment to our Annual Report on Form 10-K for the year ended December 31, 2019 to restate our previously issued consolidated financial statements and related financial information and revise our previous conclusion with respect to the effectiveness of our internal control over financial reporting. We are also concurrently filing amendments to our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 to restate our previously issued consolidated financial statements and related financial information presented therein and to revise our previous conclusion with respect to the effectiveness of our disclosure controls and procedures.
Control Considerations
In connection with the restatement, management has reassessed its conclusions regarding the effectiveness of our internal control over financial reporting as of September 30, 2020 and has determined that a material weakness in our internal control over financial reporting existed as of that date. As a result of the material weakness, our disclosure controls and procedures were not effective as of September 30, 2020. Management will be implementing changes to strengthen our internal controls and remediate the material weakness.
In accordance with applicable SEC rules, this Quarterly Report on Form 10-Q/A includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 from our Chief Executive Officer (as Principal Executive Officer) and our Chief Financial Officer (as Principal Financial Officer) dated as of the filing date of this Quarterly Report on Form 10-Q/A.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts and par value)
(Unaudited)
| | | As Restated | |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Assets | Assets | | | | Assets | | | |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 25,474 | | | $ | 12,986 | | Cash and cash equivalents | $ | 31,381 | | | $ | 29,314 | |
Investments available for sale | Investments available for sale | 8,774 | | | 10,006 | | Investments available for sale | 10,748 | | | 8,507 | |
Accounts receivable, net | Accounts receivable, net | 6,274 | | | 10,131 | | Accounts receivable, net | 8,547 | | | 7,906 | |
Inventory | Inventory | 65,978 | | | 69,464 | | Inventory | 55,539 | | | 57,554 | |
Other current assets | Other current assets | 3,881 | | | 1,904 | | Other current assets | 1,859 | | | 2,349 | |
Assets held for sale | Assets held for sale | 588 | | | 2,383 | | Assets held for sale | — | | | 555 | |
Total current assets | Total current assets | 110,969 | | | 106,874 | | Total current assets | 108,074 | | | 106,185 | |
Property and equipment, net | Property and equipment, net | 116,075 | | | 119,112 | | Property and equipment, net | 111,406 | | | 113,683 | |
Goodwill | Goodwill | 1,262 | | | 1,262 | | Goodwill | 1,262 | | | 1,262 | |
Intangible and other non-current assets, net | Intangible and other non-current assets, net | 9,849 | | | 10,950 | | Intangible and other non-current assets, net | 8,654 | | | 9,238 | |
Total non-current assets | Total non-current assets | 127,186 | | | 131,324 | | Total non-current assets | 121,322 | | | 124,183 | |
Total assets | Total assets | $ | 238,155 | | | $ | 238,198 | | Total assets | $ | 229,396 | | | $ | 230,368 | |
Liabilities | Liabilities | | | | Liabilities | | | |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | $ | 11,296 | | | $ | 10,368 | | Accounts payable and accrued liabilities | $ | 13,487 | | | $ | 9,419 | |
| Customer deposits | Customer deposits | 1,290 | | | 405 | | Customer deposits | 1,305 | | | 270 | |
Current portion of long-term debt, net of unamortized loan fees | Current portion of long-term debt, net of unamortized loan fees | 2,433 | | | 1,127 | | Current portion of long-term debt, net of unamortized loan fees | 1,127 | | | 3,388 | |
Total current liabilities | Total current liabilities | 15,019 | | | 11,900 | | Total current liabilities | 15,919 | | | 13,077 | |
Long-term debt, net of current portion and unamortized loan fees | Long-term debt, net of current portion and unamortized loan fees | 22,437 | | | 21,054 | | Long-term debt, net of current portion and unamortized loan fees | 19,081 | | | 21,201 | |
Deferred tax liability, net | Deferred tax liability, net | 3,007 | | | 3,090 | | Deferred tax liability, net | 870 | | | 477 | |
Other non-current liabilities | Other non-current liabilities | 140 | | | 255 | | Other non-current liabilities | 9 | | | 93 | |
Total non-current liabilities | Total non-current liabilities | 25,584 | | | 24,399 | | Total non-current liabilities | 19,960 | | | 21,771 | |
Total liabilities | Total liabilities | 40,603 | | | 36,299 | | Total liabilities | 35,879 | | | 34,848 | |
Commitments and contingencies (Note 14) | Commitments and contingencies (Note 14) | 0 | | 0 | Commitments and contingencies (Note 14) | 0 | | 0 |
Equity | | | | |
Common shares, par value $0.01 per share, authorized 150,000,000 shares; 23,243,476 shares issued and outstanding at September 30, 2020 and December 31, 2019 | 232 | | | 232 | | |
Stockholders’ Equity | | Stockholders’ Equity | | | |
Common shares, par value $0.01 per share, authorized 150,000,000 shares; 22,524,185 and 23,243,476 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | | Common shares, par value $0.01 per share, authorized 150,000,000 shares; 22,524,185 and 23,243,476 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 225 | | | 232 | |
Additional paid-in capital | Additional paid-in capital | 277,543 | | | 277,522 | | Additional paid-in capital | 277,639 | | | 277,550 | |
Accumulated other comprehensive income | Accumulated other comprehensive income | 25 | | | 12 | | Accumulated other comprehensive income | 6 | | | 13 | |
Accumulated deficit | Accumulated deficit | (80,248) | | | (75,867) | | Accumulated deficit | (84,353) | | | (82,275) | |
Total equity | 197,552 | | | 201,899 | | |
Total liabilities and equity | $ | 238,155 | | | $ | 238,198 | | |
Total stockholders’ equity | | Total stockholders’ equity | 193,517 | | | 195,520 | |
Total liabilities and stockholders’ equity | | Total liabilities and stockholders’ equity | $ | 229,396 | | | $ | 230,368 | |
See accompanying notes to unaudited interim condensed consolidated financial statements.
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| | | As Restated | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Net sales | Net sales | $ | 15,867 | | | $ | 14,672 | | | $ | 43,922 | | | $ | 46,192 | | Net sales | $ | 17,137 | | | $ | 15,867 | | | $ | 49,109 | | | $ | 43,922 | |
Cost of sales | Cost of sales | 11,411 | | | 10,521 | | | 29,159 | | | 28,297 | | Cost of sales | 9,557 | | | 11,411 | | | 27,548 | | | 29,159 | |
Gross profit | Gross profit | 4,456 | | | 4,151 | | | 14,763 | | | 17,895 | | Gross profit | 7,580 | | | 4,456 | | | 21,561 | | | 14,763 | |
Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | | | | |
Sales and marketing | Sales and marketing | 3,316 | | | 4,716 | | | 10,729 | | | 13,785 | | Sales and marketing | 3,875 | | | 3,316 | | | 10,670 | | | 10,729 | |
General and administrative | General and administrative | 2,602 | | | 2,833 | | | 8,315 | | | 8,909 | | General and administrative | 3,081 | | | 2,602 | | | 9,795 | | | 8,315 | |
Total operating expenses | Total operating expenses | 5,918 | | | 7,549 | | | 19,044 | | | 22,694 | | Total operating expenses | 6,956 | | | 5,918 | | | 20,465 | | | 19,044 | |
Net (gain) loss on disposal of property and equipment | (40) | | | 204 | | | 137 | | | 173 | | |
Net loss (gain) on disposal of property and equipment | | Net loss (gain) on disposal of property and equipment | 11 | | | (40) | | | (16) | | | 137 | |
Restructuring costs | Restructuring costs | 114 | | | 0 | | | 1,424 | | | 76 | | Restructuring costs | — | | | 114 | | | — | | | 1,424 | |
Impairment charges | 0 | | | 625 | | | 0 | | | 1,860 | | |
Loss from operations | (1,536) | | | (4,227) | | | (5,842) | | | (6,908) | | |
| Income (loss) from operations | | Income (loss) from operations | 613 | | | (1,536) | | | 1,112 | | | (5,842) | |
Other (expense) income: | Other (expense) income: | | | | | | | | Other (expense) income: | | | | | | | |
Interest expense, net | Interest expense, net | (328) | | | (367) | | | (765) | | | (730) | | Interest expense, net | (292) | | | (328) | | | (723) | | | (765) | |
Gain on extinguishment of debt | | Gain on extinguishment of debt | — | | | — | | | 3,863 | | | — | |
Other income, net | Other income, net | 109 | | | 335 | | | 395 | | | 442 | | Other income, net | 47 | | | 109 | | | 305 | | | 395 | |
Total other expense, net | (219) | | | (32) | | | (370) | | | (288) | | |
Loss before income taxes | (1,755) | | | (4,259) | | | (6,212) | | | (7,196) | | |
Income tax benefit | (459) | | | (1,010) | | | (1,831) | | | (1,910) | | |
Net loss | $ | (1,296) | | | $ | (3,249) | | | $ | (4,381) | | | $ | (5,286) | | |
Basic and fully diluted weighted-average shares outstanding | 23,243 | | | 23,521 | | | 23,243 | | | 23,564 | | |
Basic and fully diluted loss per share | $ | (0.06) | | | $ | (0.14) | | | $ | (0.19) | | | $ | (0.22) | | |
Total other (expense) income, net | | Total other (expense) income, net | (245) | | | (219) | | | 3,445 | | | (370) | |
Income (loss) before income taxes | | Income (loss) before income taxes | 368 | | | (1,755) | | | 4,557 | | | (6,212) | |
Income tax provision (benefit) | | Income tax provision (benefit) | 84 | | | (459) | | | 402 | | | (1,831) | |
Net income (loss) | | Net income (loss) | $ | 284 | | | $ | (1,296) | | | $ | 4,155 | | | $ | (4,381) | |
Basic weighted-average shares outstanding | | Basic weighted-average shares outstanding | 22,524 | | | 23,243 | | | 22,901 | | | 23,243 | |
Fully diluted weighted-average shares outstanding | | Fully diluted weighted-average shares outstanding | 22,834 | | | 23,243 | | | 23,064 | | | 23,243 | |
Basic and fully diluted earnings (loss) per share | | Basic and fully diluted earnings (loss) per share | $ | 0.01 | | | $ | (0.06) | | | $ | 0.18 | | | $ | (0.19) | |
See accompanying notes to unaudited interim condensed consolidated financial statements.
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSESINCOME
(In thousands)
(Unaudited)
| | | As Restated | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Net loss | $ | (1,296) | | | $ | (3,249) | | | $ | (4,381) | | | $ | (5,286) | | |
Net income (loss) | | Net income (loss) | $ | 284 | | | $ | (1,296) | | | $ | 4,155 | | | $ | (4,381) | |
Other comprehensive (loss) income: | Other comprehensive (loss) income: | | Other comprehensive (loss) income: | |
Net unrealized holding (losses) gains on investments arising during the period, net of tax | Net unrealized holding (losses) gains on investments arising during the period, net of tax | (16) | | | 2 | | | 13 | | | 39 | | Net unrealized holding (losses) gains on investments arising during the period, net of tax | (1) | | | (16) | | | (7) | | | 13 | |
Comprehensive loss | $ | (1,312) | | | $ | (3,247) | | | $ | (4,368) | | | $ | (5,247) | | |
Comprehensive income (loss) | | Comprehensive income (loss) | $ | 283 | | | $ | (1,312) | | | $ | 4,148 | | | $ | (4,368) | |
See accompanying notes to unaudited interim condensed consolidated financial statements.
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | As Restated | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Net cash flows from operating activities: | Net cash flows from operating activities: | | | | Net cash flows from operating activities: | | | |
Net loss | $ | (4,381) | | | $ | (5,286) | | |
Adjustments to reconcile net loss to net cash provided by operations: | | | |
Net income (loss) | | Net income (loss) | $ | 4,155 | | | $ | (4,381) | |
Adjustments to reconcile net income (loss) to net cash provided by operations: | | Adjustments to reconcile net income (loss) to net cash provided by operations: | | |
Depreciation and amortization of property and equipment | Depreciation and amortization of property and equipment | 5,376 | | | 5,820 | | Depreciation and amortization of property and equipment | 4,810 | | | 5,376 | |
Amortization of intangible assets | Amortization of intangible assets | 965 | | | 965 | | Amortization of intangible assets | 965 | | | 965 | |
| Loss on write-down of inventory | Loss on write-down of inventory | 2,717 | | | 1,581 | | Loss on write-down of inventory | 901 | | | 2,717 | |
Provision for doubtful accounts | Provision for doubtful accounts | 98 | | | 0 | | Provision for doubtful accounts | — | | | 98 | |
Net loss on disposal of property and equipment | 137 | | | 173 | | |
Net (gain) loss on disposal of property and equipment | | Net (gain) loss on disposal of property and equipment | (16) | | | 137 | |
| Restructuring charges | Restructuring charges | 1,424 | | | 76 | | Restructuring charges | — | | | 1,424 | |
Impairment charges | 0 | | | 1,916 | | |
Benefit for deferred income tax | (88) | | | 0 | | |
| Provision (benefit) for deferred income taxes | | Provision (benefit) for deferred income taxes | 395 | | | (88) | |
Stock-based compensation | Stock-based compensation | 21 | | | 0 | | Stock-based compensation | 89 | | | 21 | |
Gain on extinguishment of debt | | Gain on extinguishment of debt | (3,863) | | | — | |
Net change in operating assets and liabilities: | Net change in operating assets and liabilities: | | | | Net change in operating assets and liabilities: | | | |
Accounts receivable | Accounts receivable | 3,759 | | | 484 | | Accounts receivable | (641) | | | 3,759 | |
Inventory | Inventory | 769 | | | 604 | | Inventory | 1,114 | | | 769 | |
Other current assets | Other current assets | (1,977) | | | (2,338) | | Other current assets | 611 | | | (1,977) | |
Other non-current assets | Other non-current assets | 136 | | | (99) | | Other non-current assets | (30) | | | 136 | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | (535) | | | (1,952) | | Accounts payable and accrued liabilities | 3,792 | | | (535) | |
| Customer deposits and other payables | 894 | | | 1,021 | | |
Customer deposits | | Customer deposits | 1,044 | | | 894 | |
Other non-current liabilities | Other non-current liabilities | (115) | | | 14 | | Other non-current liabilities | (84) | | | (115) | |
Net cash provided by operating activities | Net cash provided by operating activities | 9,200 | | | 2,979 | | Net cash provided by operating activities | 13,242 | | | 9,200 | |
Net cash flows from investing activities: | Net cash flows from investing activities: | | | | Net cash flows from investing activities: | | | |
| Purchase of investments available for sale | Purchase of investments available for sale | (7,250) | | | (7,250) | | Purchase of investments available for sale | (9,250) | | | (7,250) | |
Redemptions of investments available for sale | Redemptions of investments available for sale | 8,500 | | | 16,750 | | Redemptions of investments available for sale | 7,000 | | | 8,500 | |
Acquisition of property and equipment | Acquisition of property and equipment | (2,582) | | | (4,085) | | Acquisition of property and equipment | (2,310) | | | (2,582) | |
| Proceeds from disposals of property and equipment | Proceeds from disposals of property and equipment | 1,940 | | | 142 | | Proceeds from disposals of property and equipment | 195 | | | 1,940 | |
Net cash provided by investing activities | 608 | | | 5,557 | | |
Net cash (used in) provided by investing activities | | Net cash (used in) provided by investing activities | (4,365) | | | 608 | |
Net cash flows from financing activities: | Net cash flows from financing activities: | | | | Net cash flows from financing activities: | | | |
Proceeds from PPP term loan | Proceeds from PPP term loan | 3,820 | | | 0 | | Proceeds from PPP term loan | — | | | 3,820 | |
Principal payments on long-term debt | Principal payments on long-term debt | (1,140) | | | (855) | | Principal payments on long-term debt | (570) | | | (1,140) | |
Repurchase of common stock | Repurchase of common stock | 0 | | | (1,725) | | Repurchase of common stock | (6,240) | | | — | |
Payment of contingent consideration | 0 | | | (112) | | |
| Net cash provided by (used in) financing activities | 2,680 | | | (2,692) | | |
| Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (6,810) | | | 2,680 | |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 12,488 | | | 5,844 | | Net increase in cash and cash equivalents | 2,067 | | | 12,488 | |
Cash and cash equivalents - beginning of period | Cash and cash equivalents - beginning of period | 12,986 | | | 9,376 | | Cash and cash equivalents - beginning of period | 29,314 | | | 12,986 | |
Cash and cash equivalents - end of period | Cash and cash equivalents - end of period | $ | 25,474 | | | $ | 15,220 | | Cash and cash equivalents - end of period | $ | 31,381 | | | $ | 25,474 | |
Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | | Supplemental disclosure of cash flow information: | | | |
Cash paid during the period for: | Cash paid during the period for: | | | | Cash paid during the period for: | | | |
Interest, net of capitalized interest | Interest, net of capitalized interest | $ | 1,242 | | | $ | 921 | | Interest, net of capitalized interest | $ | 624 | | | $ | 1,242 | |
Income tax payments, net | Income tax payments, net | $ | 0 | | | $ | 0 | | Income tax payments, net | $ | — | | | $ | — | |
Non-cash investing activity: | | | | |
Unrealized holding gains on investments, net of tax | $ | 13 | | | $ | 39 | | |
Non-cash investing and financing activity: | | Non-cash investing and financing activity: | | | |
Unrealized holding (losses) gains on investments, net of tax | | Unrealized holding (losses) gains on investments, net of tax | $ | (7) | | | $ | 13 | |
Acquisition of property and equipment accrued but not yet paid | Acquisition of property and equipment accrued but not yet paid | $ | 200 | | | $ | 431 | | Acquisition of property and equipment accrued but not yet paid | $ | 302 | | | $ | 200 | |
| PPP loan and accrued interest forgiven by the SBA | | PPP loan and accrued interest forgiven by the SBA | $ | 3,863 | | | $ | — | |
See accompanying notes to unaudited interim condensed consolidated financial statements.
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’EQUITY
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Restated |
| | | | | | | Accumulated | | | | |
| | | Additional | | Other | | | | |
| Common Stock | | Paid-In | | Comprehensive | | Accumulated | | |
| Shares | | Amount | | Capital | | Income (Loss) | | Deficit | | Total |
Three Months Ended September 30, 2020 |
Balance, June 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,536 | | | $ | 41 | | | $ | (78,952) | | | $ | 198,857 | |
Net loss | — | | | — | | | — | | | — | | | (1,296) | | | (1,296) | |
Other comprehensive loss | — | | | — | | | — | | | (16) | | | — | | | (16) | |
Stock-based compensation | — | | | — | | | 7 | | | — | | | — | | | 7 | |
| | | | | | | | | | | |
Balance, September 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,543 | | | $ | 25 | | | $ | (80,248) | | | $ | 197,552 | |
Three Months Ended September 30, 2019 |
Balance, June 30, 2019 | 23,526,684 | | | $ | 235 | | | $ | 277,520 | | | $ | 18 | | | $ | (70,236) | | | $ | 207,537 | |
Net loss | — | | | — | | | — | | | — | | | (3,249) | | | (3,249) | |
Other comprehensive income | — | | | — | | | — | | | 2 | | | — | | | 2 | |
| | | | | | | | | | | |
Repurchase of common stock | (31,182) | | | — | | | — | | | — | | | (237) | | | (237) | |
Balance, September 30, 2019 | 23,495,502 | | | $ | 235 | | | $ | 277,520 | | | $ | 20 | | | $ | (73,722) | | | $ | 204,053 | |
Nine Months Ended September 30, 2020 |
Balance, December 31, 2019 | 23,243,476 | | | $ | 232 | | | $ | 277,522 | | | $ | 12 | | | $ | (75,867) | | | $ | 201,899 | |
Net loss | — | | | — | | | — | | | — | | | (4,381) | | | (4,381) | |
Other comprehensive income | — | | | — | | | — | | | 13 | | | — | | | 13 | |
Stock-based compensation | — | | | — | | | 21 | | | — | | | — | | | 21 | |
| | | | | | | | | | | |
Balance, September 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,543 | | | $ | 25 | | | $ | (80,248) | | | $ | 197,552 | |
Nine Months Ended September 30, 2019 |
Balance, December 31, 2018 | 23,714,208 | | | $ | 237 | | | $ | 277,520 | | | $ | (19) | | | $ | (66,713) | | | $ | 211,025 | |
Net loss | — | | | — | | | — | | | — | | | (5,286) | | | (5,286) | |
Other comprehensive income | — | | | — | | | — | | | 39 | | | — | | | 39 | |
| | | | | | | | | | | |
Repurchase of common stock | (218,706) | | | (2) | | | — | | | — | | | (1,723) | | | (1,725) | |
Balance, September 30, 2019 | 23,495,502 | | | $ | 235 | | | $ | 277,520 | | | $ | 20 | | | $ | (73,722) | | | $ | 204,053 | |
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | Accumulated | | | | |
| | | Additional | | Other | | | | |
| Common Stock | | Paid-In | | Comprehensive | | Accumulated | | |
| Shares | | Amount | | Capital | | Income (Loss) | | Deficit | | Total |
Three Months Ended September 30, 2021 |
Balance, June 30, 2021 | 22,524,185 | | | $ | 225 | | | $ | 277,564 | | | $ | 7 | | | $ | (84,637) | | | $ | 193,159 | |
Net income | — | | | — | | | — | | | — | | | 284 | | | 284 | |
Other comprehensive loss | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Stock-based compensation | — | | | — | | | 75 | | | — | | | — | | | 75 | |
| | | | | | | | | | | |
Balance, September 30, 2021 | 22,524,185 | | | $ | 225 | | | $ | 277,639 | | | $ | 6 | | | $ | (84,353) | | | $ | 193,517 | |
Three Months Ended September 30, 2020 |
Balance, June 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,536 | | | $ | 41 | | | $ | (78,952) | | | $ | 198,857 | |
Net loss | — | | | — | | | — | | | — | | | (1,296) | | | (1,296) | |
Other comprehensive loss | — | | | — | | | — | | | (16) | | | — | | | (16) | |
Stock-based compensation | — | | | — | | | 7 | | | — | | | — | | | 7 | |
| | | | | | | | | | | |
Balance, September 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,543 | | | $ | 25 | | | $ | (80,248) | | | $ | 197,552 | |
Nine Months Ended September 30, 2021 |
Balance, December 31, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,550 | | | $ | 13 | | | $ | (82,275) | | | $ | 195,520 | |
Net income | — | | | — | | | — | | | — | | | 4,155 | | | 4,155 | |
Other comprehensive loss | — | | | — | | | — | | | (7) | | | — | | | (7) | |
Stock-based compensation | — | | | — | | | 89 | | | — | | | — | | | 89 | |
Repurchase of common stock | (719,291) | | | (7) | | | — | | | — | | | (6,233) | | | (6,240) | |
Balance, September 30, 2021 | 22,524,185 | | | $ | 225 | | | $ | 277,639 | | | $ | 6 | | | $ | (84,353) | | | $ | 193,517 | |
Nine Months Ended September 30, 2020 |
Balance, December 31, 2019 | 23,243,476 | | | $ | 232 | | | $ | 277,522 | | | $ | 12 | | | $ | (75,867) | | | $ | 201,899 | |
Net loss | — | | | — | | | — | | | — | | | (4,381) | | | (4,381) | |
Other comprehensive income | — | | | — | | | — | | | 13 | | | — | | | 13 | |
Stock-based compensation | — | | | — | | | 21 | | | — | | | — | | | 21 | |
| | | | | | | | | | | |
Balance, September 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,543 | | | $ | 25 | | | $ | (80,248) | | | $ | 197,552 | |
See accompanying notes to unaudited interim condensed consolidated financial statements.
CRIMSON WINE GROUP, LTD.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
1. Background and Basis of Presentation
Background
Crimson Wine Group, Ltd. and its subsidiaries (collectively, “Crimson” or the “Company”) is a Delaware corporation that has been conducting business since 1991. Crimson is in the business of producing and selling ultra-premium plus wines (i.e., wines that retail for over $16 per 750ml bottle). Crimson is headquartered in Napa, California and through its subsidiaries owns 7 primary wine estates and brands: Pine Ridge Vineyards, Archery Summit, Chamisal Vineyards, Seghesio Family Vineyards, Double Canyon, Seven Hills Winery and Malene Wines.
Financial Statement Preparation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The unaudited interim condensed consolidated financial statements, which reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes necessary to fairly state results of interim operations, should be read in conjunction with the Notes to Consolidated Financial Statements (including the Significant Accounting Policies and Recent Accounting Pronouncements) included in the Company’s audited consolidated financial statements for the year ended December 31, 2019,2020, as filed with the SEC on Form 10-K/A10-K (the “2019“2020 Report”). Results of operations for interim periods are not necessarily indicative of annual results of operations. The unaudited condensed consolidated balance sheet at December 31, 20192020 was extracted from the audited annual consolidated financial statements and does not include all disclosures required by GAAP for annual financial statements.
Revision of Prior Period Financial Statements
In connection with the preparation of the Company’s unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2021, the Company became aware of a miscalculation of the income tax provision for the three months ended June 30, 2021. The miscalculation was an isolated incident related to the determination of the tax impact of the PPP loan forgiveness. In accordance with SAB No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company determined that the related impact of the error was not material to the prior period financial statements for the three and six months ended June 30, 2021, but that correcting for the error as an out-of-period adjustment in the three months ended September 30, 2021 would be significant to the results of operations for the current quarter. Therefore, the prior period unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2021 have been revised to correct for the impact of this item. A summary of revisions to previously reported financial statements is presented in Note 16, “Revision of Prior Period Financial Statements.”
Significant Accounting Policies
Except as described below under Recent Accounting Pronouncements and in Note 14 “Commitments and Contingencies,” thereThere were no changes to the Company’s significant accounting policies during the nine months ended September 30, 2020.2021. See Note 2 of the 20192020 Report for a description of the Company’s significant accounting policies.
Reclassifications
Certain reclassifications have been made to balance sheet footnotes of prior period unaudited interim condensed consolidated balance sheets andfinancial statements of cash flows to conform to current period presentation. The reclassifications had no impact on previously reported net loss, equity or cash flows.
Recent Accounting Pronouncements
Subsequent to the filing of the 20192020 Report, there were no accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) that would have a material effect on Crimson’s unaudited interim condensed consolidated financial statements. The following table provides an update of accounting pronouncements applicable to Crimson that are not yet adopted as of September 30, 2020 and a description of accounting pronouncements that were adopted during the nine months ended September 30, 2020:2021:
| | | | | | | | | | | | | | | | | | | | |
Standard | | Description | | Date of adoption | | Effect on the financial statements or other significant matters |
|
| | | | | | |
Standards that are not yetwere adopted |
Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740) | | Simplifies the accounting for income taxes by removing certain Codification exceptions and others to be discussed.
| | January 1, 2021 early adoption is permitted for the Company. | | Management is currently evaluating the potential impact of this guidance on the Company’s unaudited interim condensed consolidated financial statements and does not predict there to be a material impact. |
Standards that were adopted |
ASU 2017-04, Goodwill and Other (Topic 350) | | Eliminates Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
| | January 1, 2020 | | The adoption of this standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements. |
ASU 2018-13, Fair Value Measurement (Topic 820) | | Improves the disclosures related to fair value by removing, modifying or adding disclosure requirements related to recurring and non-recurring fair value measurements. | | January 1, 2020 | | The adoption of this standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements. |
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) | | Aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirement of capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license). | | January 1, 2020 | | The adoption of this standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements. |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
2.Restatement of Previously Issued Consolidated Financial Statements
Restatement Background
In 2020, management began constructing a bulk wine inventory sub-ledger by individual lot. During this process improvement initiative, it was discovered that the Company's cost allocation process applied to historical vintagesresulted in an overstatement of the inventory balance and understatement of cost of sales. It should be noted that the custody and recordkeeping of physical inventory have always been properly maintained through physical inventory counts and the restatement error is strictly related to the cost component.
As a result of the process above, management performed an additional bulk wine cost allocation analysis at the vintage and brand levels to identify costs related to historical vintages. Through the analysis, costs for each vintage were matched with the sales activity of bulk wine and cased goods, as well as inventory on hand to calculate the restatement impact for the years ended December 31, 2017, 2018, and 2019 and for the quarterly periods in 2020 and 2019. The cumulative impact of correcting misstatements in cost of sales for the periods prior to 2017 has been recorded as an increase to our opening accumulated deficit of approximately $0.5 million, as of January 1, 2017, the beginning of the earliest period presented in the Form 10-K/A for the year ended December 31, 2019. In addition, the impact of correcting the misstatements on the consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 are reflected within the Form 10-K/A for the year ended December 31, 2019. The impact of correcting the misstatements on the unaudited restated consolidated financial statements for the three months ended March 31, 2020 and 2019 and the three and six months ended June 30, 2020 and 2019 are reflected within the Form 10-Q/A for each of the respective periods.
Description of Restatement Tables
The following tables present the impact of the adjustments described above to our previously reported consolidated balance sheets as of September 30, 2020 and December 31, 2019 and the consolidated statements of operations, comprehensive loss, cash flows, and changes in equity for the three and nine months ended September 30, 2020 and 2019.
Following the restated consolidated financial statement tables, the Company presented reconciliations from the prior periods as previously reported to the restated amounts. The amounts as previously reported were derived from the Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2020 filed on November 6, 2020.
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts and par value)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| As previously reported | | Restatement impacts | | As restated |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 25,474 | | | $ | 0 | | | $ | 25,474 | |
Investments available for sale | 8,774 | | | 0 | | | 8,774 | |
Accounts receivable, net | 6,274 | | | 0 | | | 6,274 | |
Inventory | 71,402 | | | (5,424) | | | 65,978 | |
Other current assets | 3,505 | | | 376 | | | 3,881 | |
Assets held for sale | 588 | | | 0 | | | 588 | |
Total current assets | 116,017 | | | (5,048) | | | 110,969 | |
Property and equipment, net | 116,075 | | | 0 | | | 116,075 | |
Goodwill | 1,262 | | | 0 | | | 1,262 | |
Intangible assets and other non-current assets, net | 9,849 | | | 0 | | | 9,849 | |
Total non-current assets | 127,186 | | | 0 | | | 127,186 | |
Total assets | $ | 243,203 | | | $ | (5,048) | | | $ | 238,155 | |
Liabilities | | | | | |
Current liabilities: | | | | | |
Accounts payable and accrued liabilities | $ | 11,296 | | | $ | 0 | | | $ | 11,296 | |
| | | | | |
| | | | | |
Customer deposits | 1,290 | | | 0 | | | 1,290 | |
Current portion of long-term debt, net of unamortized loan fees | 2,433 | | | 0 | | | 2,433 | |
Total current liabilities | 15,019 | | | 0 | | | 15,019 | |
Long-term debt, net of current portion and unamortized loan fees | 22,437 | | | 0 | | | 22,437 | |
Deferred tax liability, net | 4,095 | | | (1,088) | | | 3,007 | |
Other non-current liabilities | 140 | | | 0 | | | 140 | |
Total non-current liabilities | 26,672 | | | (1,088) | | | 25,584 | |
Total liabilities | 41,691 | | | (1,088) | | | 40,603 | |
Commitments and Contingencies (Note 14) | 0 | | 0 | | 0 |
Equity | | | | | |
Common shares, par value $0.01 per share, authorized 150,000,000 shares; 23,243,476 shares issued and outstanding at September 30, 2020 | 232 | | | 0 | | | 232 | |
Additional paid-in capital | 277,543 | | | 0 | | | 277,543 | |
Accumulated other comprehensive income | 25 | | | 0 | | | 25 | |
Accumulated deficit | (76,288) | | | (3,960) | | | (80,248) | |
Total equity | 201,512 | | | (3,960) | | | 197,552 | |
Total liabilities and equity | $ | 243,203 | | | $ | (5,048) | | | $ | 238,155 | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts and par value)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| As previously reported | | Restatement impacts | | As restated |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 12,986 | | | $ | 0 | | | $ | 12,986 | |
Investments available for sale | 10,006 | | | 0 | | | 10,006 | |
Accounts receivable, net | 10,131 | | | 0 | | | 10,131 | |
Inventory | 73,498 | | | (4,034) | | | 69,464 | |
Other current assets | 1,904 | | | 0 | | | 1,904 | |
Assets held for sale | 2,383 | | | 0 | | | 2,383 | |
Total current assets | 110,908 | | | (4,034) | | | 106,874 | |
Property and equipment, net | 119,112 | | | 0 | | | 119,112 | |
Goodwill | 1,262 | | | 0 | | | 1,262 | |
Intangible assets and other non-current assets, net | 10,950 | | | 0 | | | 10,950 | |
Total non-current assets | 131,324 | | | 0 | | | 131,324 | |
Total assets | $ | 242,232 | | | $ | (4,034) | | | $ | 238,198 | |
Liabilities | | | | | |
Current liabilities: | | | | | |
Accounts payable and accrued liabilities | $ | 10,368 | | | $ | 0 | | | $ | 10,368 | |
Customer deposits | 405 | | | 0 | | | 405 | |
Current portion of long-term debt, net of unamortized loan fees | 1,127 | | | 0 | | | 1,127 | |
Total current liabilities | 11,900 | | | 0 | | | 11,900 | |
Long-term debt, net of current portion and unamortized loan fees | 21,054 | | | 0 | | | 21,054 | |
Deferred tax liability, net | 4,178 | | | (1,088) | | | 3,090 | |
Other non-current liabilities | 255 | | | 0 | | | 255 | |
Total non-current liabilities | 25,487 | | | (1,088) | | | 24,399 | |
Total liabilities | 37,387 | | | (1,088) | | | 36,299 | |
Commitments and Contingencies (Note 14) | 0 | | 0 | | 0 |
Equity | | | | | |
Common shares, par value $0.01 per share, authorized 150,000,000 shares; 23,243,476 shares issued and outstanding at December 31, 2019 | 232 | | | 0 | | | 232 | |
Additional paid-in capital | 277,522 | | | 0 | | | 277,522 | |
Accumulated other comprehensive income | 12 | | | 0 | | | 12 | |
Accumulated deficit | (72,921) | | | (2,946) | | | (75,867) | |
Total equity | 204,845 | | | (2,946) | | | 201,899 | |
Total liabilities and equity | $ | 242,232 | | | $ | (4,034) | | | $ | 238,198 | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| As previously reported | | Restatement impacts | | As restated |
Net sales | $ | 15,867 | | | $ | 0 | | | $ | 15,867 | |
Cost of sales | 10,847 | | | 564 | | | 11,411 | |
Gross profit | 5,020 | | | (564) | | | 4,456 | |
Operating expenses: | | | | | |
Sales and marketing | 3,316 | | | 0 | | | 3,316 | |
General and administrative | 2,602 | | | 0 | | | 2,602 | |
Total operating expenses | 5,918 | | | 0 | | | 5,918 | |
Net gain on disposal of property and equipment | (40) | | | 0 | | | (40) | |
Restructuring costs | 114 | | | 0 | | | 114 | |
| | | | | |
Loss from operations | (972) | | | (564) | | | (1,536) | |
Other (expense) income: | | | | | |
Interest expense, net | (328) | | | 0 | | | (328) | |
Other income, net | 109 | | | 0 | | | 109 | |
Total other expense, net | (219) | | | 0 | | | (219) | |
Loss before income taxes | (1,191) | | | (564) | | | (1,755) | |
Income tax benefit | (306) | | | (153) | | | (459) | |
Net loss | $ | (885) | | | $ | (411) | | | $ | (1,296) | |
Basic and fully diluted weighted-average shares outstanding | 23,243 | | | 0 | | | 23,243 | |
Basic and fully diluted loss per share | $ | (0.04) | | | $ | (0.02) | | | $ | (0.06) | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| As previously reported | | Restatement impacts | | As restated |
Net sales | $ | 14,672 | | | $ | 0 | | | $ | 14,672 | |
Cost of sales | 10,344 | | | 177 | | | 10,521 | |
Gross profit | 4,328 | | | (177) | | | 4,151 | |
Operating expenses: | | | | | |
Sales and marketing | 4,716 | | | 0 | | | 4,716 | |
General and administrative | 2,833 | | | 0 | | | 2,833 | |
Total operating expenses | 7,549 | | | 0 | | | 7,549 | |
Net loss on disposal of property and equipment | 204 | | | 0 | | | 204 | |
| | | | | |
Impairment charges | 625 | | | 0 | | | 625 | |
Loss from operations | (4,050) | | | (177) | | | (4,227) | |
Other (expense) income: | | | | | |
Interest expense, net | (367) | | | 0 | | | (367) | |
Other income, net | 335 | | | 0 | | | 335 | |
Total other expense, net | (32) | | | 0 | | | (32) | |
Loss before income taxes | (4,082) | | | (177) | | | (4,259) | |
Income tax benefit | (963) | | | (47) | | | (1,010) | |
Net loss | $ | (3,119) | | | $ | (130) | | | $ | (3,249) | |
Basic and fully diluted weighted-average shares outstanding | 23,521 | | | 0 | | | 23,521 | |
Basic and fully diluted loss per share | $ | (0.13) | | | $ | (0.01) | | | $ | (0.14) | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| As previously reported | | Restatement impacts | | As restated |
Net sales | $ | 43,922 | | | $ | 0 | | | $ | 43,922 | |
Cost of sales | 27,769 | | | 1,390 | | | 29,159 | |
Gross profit | 16,153 | | | (1,390) | | | 14,763 | |
Operating expenses: | | | | | |
Sales and marketing | 10,729 | | | 0 | | | 10,729 | |
General and administrative | 8,315 | | | 0 | | | 8,315 | |
Total operating expenses | 19,044 | | | 0 | | | 19,044 | |
Net loss on disposal of property and equipment | 137 | | | 0 | | | 137 | |
Restructuring costs | 1,424 | | | 0 | | | 1,424 | |
| | | | | |
Loss from operations | (4,452) | | | (1,390) | | | (5,842) | |
Other (expense) income: | | | | | |
Interest expense, net | (765) | | | 0 | | | (765) | |
Other income, net | 395 | | | 0 | | | 395 | |
Total other expense, net | (370) | | | 0 | | | (370) | |
Loss before income taxes | (4,822) | | | (1,390) | | | (6,212) | |
Income tax benefit | (1,455) | | | (376) | | | (1,831) | |
Net loss | $ | (3,367) | | | $ | (1,014) | | | $ | (4,381) | |
Basic and fully diluted weighted-average shares outstanding | 23,243 | | | 0 | | | 23,243 | |
Basic and fully diluted loss per share | $ | (0.14) | | | $ | (0.05) | | | $ | (0.19) | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| As previously reported | | Restatement impacts | | As restated |
Net sales | $ | 46,192 | | | $ | 0 | | | $ | 46,192 | |
Cost of sales | 27,497 | | | 800 | | | 28,297 | |
Gross profit | 18,695 | | | (800) | | | 17,895 | |
Operating expenses: | | | | | |
Sales and marketing | 13,785 | | | 0 | | | 13,785 | |
General and administrative | 8,909 | | | 0 | | | 8,909 | |
Total operating expenses | 22,694 | | | 0 | | | 22,694 | |
Net loss on disposal of property and equipment | 173 | | | 0 | | | 173 | |
Restructuring costs | 76 | | | 0 | | | 76 | |
Impairment charges | 1,860 | | | 0 | | | 1,860 | |
Loss from operations | (6,108) | | | (800) | | | (6,908) | |
Other (expense) income: | | | | | |
Interest expense, net | (730) | | | 0 | | | (730) | |
Other income, net | 442 | | | 0 | | | 442 | |
Total other expense, net | (288) | | | 0 | | | (288) | |
Loss before income taxes | (6,396) | | | (800) | | | (7,196) | |
Income tax benefit | (1,694) | | | (216) | | | (1,910) | |
Net loss | $ | (4,702) | | | $ | (584) | | | $ | (5,286) | |
Basic and fully diluted weighted-average shares outstanding | 23,564 | | | 0 | | | 23,564 | |
Basic and fully diluted loss per share | $ | (0.20) | | | $ | (0.02) | | | $ | (0.22) | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| As previously reported | | Restatement impacts | | As restated |
Net loss | $ | (885) | | | $ | (411) | | | $ | (1,296) | |
Other comprehensive loss: | | | | | |
Net unrealized holding losses on investments arising during the period, net of tax | (16) | | | 0 | | | (16) | |
Comprehensive loss | $ | (901) | | | $ | (411) | | | $ | (1,312) | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| As previously reported | | Restatement impacts | | As restated |
Net loss | $ | (3,119) | | | $ | (130) | | | $ | (3,249) | |
Other comprehensive income: | | | | | |
Net unrealized holding gains on investments arising during the period, net of tax | 2 | | | 0 | | | 2 | |
Comprehensive loss | $ | (3,117) | | | $ | (130) | | | $ | (3,247) | |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| As previously reported | | Restatement impacts | | As restated |
Net loss | $ | (3,367) | | | $ | (1,014) | | | $ | (4,381) | |
Other comprehensive income: | | | | | |
Net unrealized holding gains on investments arising during the period, net of tax | 13 | | | 0 | | | 13 | |
Comprehensive loss | $ | (3,354) | | | $ | (1,014) | | | $ | (4,368) | |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| As previously reported | | Restatement impacts | | As restated |
Net loss | $ | (4,702) | | | $ | (584) | | | $ | (5,286) | |
Other comprehensive income: | | | | | |
Net unrealized holding gains on investments arising during the period, net of tax | 39 | | | 0 | | | 39 | |
Comprehensive loss | $ | (4,663) | | | $ | (584) | | | $ | (5,247) | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| As previously reported | | Restatement impacts | | As restated |
Net cash flows from operating activities: | | | | | |
Net loss | $ | (3,367) | | | $ | (1,014) | | | $ | (4,381) | |
Adjustments to reconcile net loss to net cash provided by operations: | | | | | |
Depreciation and amortization of property and equipment | 5,376 | | | 0 | | | 5,376 | |
Amortization of intangible assets | 965 | | | 0 | | | 965 | |
| | | | | |
| | | | | |
Loss on write-down of inventory | 2,711 | | | 6 | | | 2,717 | |
Provision for doubtful accounts | 98 | | | 0 | | | 98 | |
Net loss on disposal of property and equipment | 137 | | | 0 | | | 137 | |
| | | | | |
Restructuring charges | 1,424 | | | 0 | | | 1,424 | |
| | | | | |
Benefit for deferred income tax | (88) | | | 0 | | | (88) | |
Stock-based compensation | 21 | | | 0 | | | 21 | |
Net change in operating assets and liabilities: | | | | | |
Accounts receivable | 3,759 | | | 0 | | | 3,759 | |
Inventory | (615) | | | 1,384 | | | 769 | |
Other current assets | (1,601) | | | (376) | | | (1,977) | |
Other non-current assets | 136 | | | 0 | | | 136 | |
Accounts payable and accrued liabilities | (535) | | | 0 | | | (535) | |
| | | | | |
| | | | | |
Customer deposits and other payables | 894 | | | 0 | | | 894 | |
Other non-current liabilities | (115) | | | 0 | | | (115) | |
Net cash provided by operating activities | 9,200 | | | 0 | | | 9,200 | |
Net cash flows from investing activities: | | | | | |
| | | | | |
Purchase of investments available for sale | (7,250) | | | 0 | | | (7,250) | |
Redemptions of investments available for sale | 8,500 | | | 0 | | | 8,500 | |
Acquisition of property and equipment | (2,582) | | | 0 | | | (2,582) | |
| | | | | |
Proceeds from disposals of property and equipment | 1,940 | | | 0 | | | 1,940 | |
Net cash provided by investing activities | 608 | | | 0 | | | 608 | |
Net cash flows from financing activities: | | | | | |
Proceeds from PPP term loan | 3,820 | | | 0 | | | 3,820 | |
Principal payments on long-term debt | (1,140) | | | 0 | | | (1,140) | |
| | | | | |
| | | | | |
| | | | | |
Net cash provided by financing activities | 2,680 | | | 0 | | | 2,680 | |
Net increase in cash and cash equivalents | 12,488 | | | 0 | | | 12,488 | |
Cash and cash equivalents - beginning of period | 12,986 | | | 0 | | | 12,986 | |
Cash and cash equivalents - end of period | $ | 25,474 | | | $ | 0 | | | $ | 25,474 | |
Supplemental disclosure of cash flow information: | | | | | |
Cash paid during the period for: | | | | | |
Interest, net of capitalized interest | $ | 1,242 | | | $ | 0 | | | $ | 1,242 | |
Income tax payments, net | $ | 0 | | | $ | 0 | | | $ | 0 | |
Non-cash investing activity: | | | | | |
Unrealized holding gains on investments, net of tax | $ | 13 | | | $ | 0 | | | $ | 13 | |
Acquisition of property and equipment accrued but not yet paid | $ | 200 | | | $ | 0 | | | $ | 200 | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| As previously reported | | Restatement impacts | | As restated |
Net cash flows from operating activities: | | | | | |
Net loss | $ | (4,702) | | | $ | (584) | | | $ | (5,286) | |
Adjustments to reconcile net loss to net cash provided by operations: | | | | | |
Depreciation and amortization of property and equipment | 5,820 | | | 0 | | | 5,820 | |
Amortization of intangible assets | 965 | | | 0 | | | 965 | |
| | | | | |
| | | | | |
Loss on write-down of inventory | 1,581 | | | 0 | | | 1,581 | |
| | | | | |
Net loss on disposal of property and equipment | 173 | | | 0 | | | 173 | |
| | | | | |
Restructuring charges | 76 | | | 0 | | | 76 | |
Impairment charges | 1,916 | | | 0 | | | 1,916 | |
| | | | | |
| | | | | |
Net change in operating assets and liabilities: | | | | | |
Accounts receivable | 484 | | | 0 | | | 484 | |
Inventory | (196) | | | 800 | | | 604 | |
Other current assets | (2,122) | | | (216) | | | (2,338) | |
Other non-current assets | (99) | | | 0 | | | (99) | |
Accounts payable and accrued liabilities | (1,952) | | | 0 | | | (1,952) | |
| | | | | |
| | | | | |
Customer deposits and other payables | 1,021 | | | 0 | | | 1,021 | |
Other non-current liabilities | 14 | | | 0 | | | 14 | |
Net cash provided by operating activities | 2,979 | | | 0 | | | 2,979 | |
Net cash flows from investing activities | | | | | |
| | | | | |
Purchase of investments available for sale | (7,250) | | | 0 | | | (7,250) | |
Redemptions of investments available for sale | 16,750 | | | 0 | | | 16,750 | |
Acquisition of property and equipment | (4,085) | | | 0 | | | (4,085) | |
Proceeds from disposals of property and equipment | 142 | | | 0 | | | 142 | |
Net cash provided by investing activities | 5,557 | | | 0 | | | 5,557 | |
Net cash flows from financing activities: | | | | | |
| | | | | |
Principal payments on long-term debt | (855) | | | 0 | | | (855) | |
| | | | | |
Repurchase of common stock | (1,725) | | | 0 | | | (1,725) | |
Payment of contingent consideration | (112) | | | 0 | | | (112) | |
Net cash used in financing activities | (2,692) | | | 0 | | | (2,692) | |
Net increase in cash and cash equivalents | 5,844 | | | 0 | | | 5,844 | |
Cash and cash equivalents - beginning of period | 9,376 | | | 0 | | | 9,376 | |
Cash and cash equivalents - end of period | $ | 15,220 | | | $ | 0 | | | $ | 15,220 | |
Supplemental disclosure of cash flow information | | | | | |
Cash paid during the period for: | | | | | |
Interest, net of capitalized interest | $ | 921 | | | $ | 0 | | | $ | 921 | |
Income tax payments, net | $ | 0 | | | $ | 0 | | | $ | 0 | |
Non-cash investing activity: | | | | | |
Unrealized holding gains on investments, net of tax | $ | 39 | | | $ | 0 | | | $ | 39 | |
Acquisition of property and equipment accrued but not yet paid | $ | 431 | | | $ | 0 | | | $ | 431 | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | | | |
| | | Additional | | Other | | | | |
| Common Stock | | Paid-In | | Comprehensive | | Accumulated | | |
| Shares | | Amount | | Capital | | Income (Loss) | | Deficit | | Total |
As previously reported | | | | | | | | | | | |
Balance, June 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,536 | | | $ | 41 | | | $ | (75,403) | | | $ | 202,406 | |
Net loss | — | | | — | | | — | | | — | | | (885) | | | (885) | |
Other comprehensive loss | — | | | — | | | — | | | (16) | | | — | | | (16) | |
Stock-based compensation | — | | | — | | | 7 | | | — | | | — | | | 7 | |
| | | | | | | | | | | |
Balance, September 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,543 | | | $ | 25 | | | $ | (76,288) | | | $ | 201,512 | |
Restatement impacts | | | | | | | | | | | |
Balance, June 30, 2020 | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (3,549) | | | $ | (3,549) | |
Net loss | — | | | — | | | — | | | — | | | (411) | | | (411) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Balance, September 30, 2020 | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (3,960) | | | $ | (3,960) | |
As restated | | | | | | | | | | | |
Balance, June 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,536 | | | $ | 41 | | | $ | (78,952) | | | $ | 198,857 | |
Net loss | — | | | — | | | — | | | — | | | (1,296) | | | (1,296) | |
Other comprehensive loss | — | | | — | | | — | | | (16) | | | — | | | (16) | |
Stock-based compensation | — | | | — | | | 7 | | | — | | | — | | | 7 | |
| | | | | | | | | | | |
Balance, September 30, 2020 | 23,243,476 | | | 232 | | | $ | 277,543 | | | $ | 25 | | | $ | (80,248) | | | $ | 197,552 | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | | | |
| | | Additional | | Other | | | | |
| Common Stock | | Paid-In | | Comprehensive | | Accumulated | | |
| Shares | | Amount | | Capital | | Income | | Deficit | | Total |
As previously reported | | | | | | | | | | | |
Balance, June 30, 2019 | 23,526,684 | | | $ | 235 | | | $ | 277,520 | | | $ | 18 | | | $ | (67,628) | | | $ | 210,145 | |
Net loss | — | | | — | | | — | | | — | | | (3,119) | | | (3,119) | |
Other comprehensive income | — | | | — | | | — | | | 2 | | | — | | | 2 | |
| | | | | | | | | | | |
Repurchase of common stock | (31,182) | | | — | | | — | | | — | | | (237) | | | (237) | |
Balance, September 30, 2019 | 23,495,502 | | | $ | 235 | | | $ | 277,520 | | | $ | 20 | | | $ | (70,984) | | | $ | 206,791 | |
Restatement impacts | | | | | | | | | | | |
Balance, June 30, 2019 | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (2,608) | | | $ | (2,608) | |
Net loss | — | | | — | | | — | | | — | | | (130) | | | (130) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | — | |
Balance, September 30, 2019 | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (2,738) | | | $ | (2,738) | |
As restated | | | | | | | | | | | |
Balance, June 30, 2019 | 23,526,684 | | | $ | 235 | | | $ | 277,520 | | | $ | 18 | | | $ | (70,236) | | | $ | 207,537 | |
Net loss | — | | | — | | | — | | | — | | | (3,249) | | | (3,249) | |
Other comprehensive income | — | | | — | | | — | | | 2 | | | — | | | 2 | |
| | | | | | | | | | | |
Repurchase of common stock | (31,182) | | | — | | | — | | | — | | | (237) | | | (237) | |
Balance, September 30, 2019 | 23,495,502 | | | $ | 235 | | | $ | 277,520 | | | $ | 20 | | | $ | (73,722) | | | $ | 204,053 | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | | | |
| | | Additional | | Other | | | | |
| Common Stock | | Paid-In | | Comprehensive | | Accumulated | | |
| Shares | | Amount | | Capital | | Income | | Deficit | | Total |
As previously reported | | | | | | | | | | | |
Balance, December 31, 2019 | 23,243,476 | | | $ | 232 | | | $ | 277,522 | | | $ | 12 | | | $ | (72,921) | | | $ | 204,845 | |
Net loss | — | | | — | | | — | | | — | | | (3,367) | | | (3,367) | |
Other comprehensive income | — | | | — | | | — | | | 13 | | | — | | | 13 | |
Stock-based compensation | — | | | — | | | 21 | | | — | | | — | | | 21 | |
| | | | | | | | | | | |
Balance, September 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,543 | | | $ | 25 | | | $ | (76,288) | | | $ | 201,512 | |
Restatement impacts | | | | | | | | | | | |
Balance, December 31, 2019 | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (2,946) | | | $ | (2,946) | |
Net loss | — | | | — | | | — | | | — | | | (1,014) | | | (1,014) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Balance, September 30, 2020 | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (3,960) | | | $ | (3,960) | |
As restated | | | | | | | | | | | |
Balance, December 31, 2019 | 23,243,476 | | | $ | 232 | | | $ | 277,522 | | | $ | 12 | | | $ | (75,867) | | | $ | 201,899 | |
Net loss | — | | | — | | | — | | | — | | | (4,381) | | | (4,381) | |
Other comprehensive income | — | | | — | | | — | | | 13 | | | — | | | 13 | |
Stock-based compensation | — | | | — | | | 21 | | | — | | | — | | | 21 | |
| | | | | | | | | | | |
Balance, September 30, 2020 | 23,243,476 | | | $ | 232 | | | $ | 277,543 | | | $ | 25 | | | $ | (80,248) | | | $ | 197,552 | |
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | | | |
| | | Additional | | Other | | | | |
| Common Stock | | Paid-In | | Comprehensive | | Accumulated | | |
| Shares | | Amount | | Capital | | (Loss) Income | | Deficit | | Total |
As previously reported | | | | | | | | | | | |
Balance, December 31, 2018 | 23,714,208 | | | $ | 237 | | | $ | 277,520 | | | $ | (19) | | | $ | (64,559) | | | $ | 213,179 | |
Net loss | — | | | — | | | — | | | — | | | (4,702) | | | (4,702) | |
Other comprehensive income | — | | | — | | | — | | | 39 | | | — | | | 39 | |
| | | | | | | | | | | |
Repurchase of common stock | (218,706) | | | (2) | | | — | | | — | | | (1,723) | | | (1,725) | |
Balance, September 30, 2019 | 23,495,502 | | | $ | 235 | | | $ | 277,520 | | | $ | 20 | | | $ | (70,984) | | | $ | 206,791 | |
Restatement impacts | | | | | | | | | | | |
Balance, December 31, 2018 | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (2,154) | | | $ | (2,154) | |
Net loss | — | | | — | | | — | | | — | | | (584) | | | (584) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | — | |
Balance, September 30, 2019 | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (2,738) | | | $ | (2,738) | |
As restated | | | | | | | | | | | |
Balance, December 31, 2018 | 23,714,208 | | | $ | 237 | | | $ | 277,520 | | | $ | (19) | | | $ | (66,713) | | | $ | 211,025 | |
Net loss | — | | | — | | | — | | | — | | | (5,286) | | | (5,286) | |
Other comprehensive income | — | | | — | | | — | | | 39 | | | — | | | 39 | |
| | | | | | | | | | | |
Repurchase of common stock | (218,706) | | | (2) | | | — | | | — | | | (1,723) | | | (1,725) | |
Balance, September 30, 2019 | 23,495,502 | | | $ | 235 | | | $ | 277,520 | | | $ | 20 | | | $ | (73,722) | | | $ | 204,053 | |
3.Revenue
Revenue Recognition
Revenue is recognized once performance obligations under the terms of the Company’s contracts with its customers have been satisfied; this occurs at a point in time when control of the promised product or service is transferred to customers. Generally, the majority of the Company’s contracts with its customers have a single performance obligation and are short term in nature. Revenue is measured in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company accounts for shipping and handling activities as costs to fulfill its promise to transfer the associated products. Accordingly, the Company records amounts billed for shipping and handling costs as a component of net sales, and classifies such costs as a component of costs of sales. The Company’s products are generally not sold with a right of return unless the product is spoiled or damaged. Historically, returns have not been material to the Company.
Wholesale Segment
The Company sells its wine to wholesale distributors under purchase orders. The Company transfers control and recognizes revenue for these orders upon shipment of the wine out of the Company’s third-party warehouse facilities. Payment terms to wholesale distributors typically range from 30 to 120 days. The Company pays depletion allowances to its wholesale distributors based on their sales to their customers. The Company estimates these depletion allowances and records such estimates in the same period the related revenue is recognized, resulting in a reduction of wholesale product revenue and the establishment of a current liability. Subsequently, wholesale distributors will bill the Company for actual depletions, which may be different from the Company’s estimate. Any such differences are recognized in sales when the bill is received. The Company has historically been able to estimate depletion allowances without material differences between actual and estimated expense.
Direct to Consumer Segment
The Company sells its wine and other merchandise directly to consumers through wine club memberships, at the wineries’ tasting rooms and through the internet.our website (http://www.crimsonwinegroup.com), third-party websites, direct phone calls, and other online sales (“Ecommerce”).
Wine club membership sales are made under contracts with customers, which specify the quantity and timing of future wine shipments. Customer credit cards are charged in advance of quarterly wine shipments in accordance with each contract. The Company transfers control and recognizes revenue for these contracts upon shipment of the wine to the customer.
Tasting room and internetEcommerce wine sales are paid for at the time of sale. The Company transfers control and recognizes revenue for this wine when the product is either received by the customer (on-site tasting room sales) or upon shipment to the customer (internet sales)(“Ecommerce sales”).
Other
From time to time, the Company sells grapes or bulk wine because the grapes or wine do not meet the quality standards for the Company’s products, market conditions have changed resulting in reduced demand for certain products, or because the Company may have produced more of a particular varietal than it can use. Grape and bulk sales are made under contracts with customers which include product specification requirements, pricing and payment terms. Payment terms under grape contracts are generally structured around the timing of the harvest of the grapes and are generally due 30 days from the time the grapes are delivered. Payment terms under bulk wine contracts are generally 30 days from the date of shipment and may include an upfront payment upon signing of the sales agreement. The Company transfers control and recognizes revenue for grape sales when product specification has been met and title to the grapes has transferred, which is generally on the date the grapes are harvested, weighed and shipped. The Company transfers control and recognizes revenue for bulk wine contracts upon shipment.
The Company provides custom winemaking services at Double Canyon’s state-of-the-artCanyon and Chamisal’s winemaking facility.facilities. Custom winemaking services are made under contracts with customers which include specific protocols, pricing, and payment terms and generally have a duration of less than one year. The customer retains title and control of the wine during the winemaking process. The Company recognizes revenue when contract specific performance obligations are met.
Estates hold various public and private events for customers and their wine club members. Upfront consideration received from the sale of tickets or under private event contracts for future events is recorded as deferred revenue. The balance of payments are due on the date of the event. The Company recognizes event revenue on the date the event is held.
Other revenue also includes tasting fees and retail merchandise sales, which are paid for and received or consumed at the time of sale. The Company transfers control and recognizes revenue at the time of sale.
Refer to Note 13, “Business Segment Information,” for revenue by sales channel amounts for the three and nine months ended September 30, 20202021 and 2019.2020.
Contract Balances
When the Company receives payments from customers prior to transferring goods or services under the terms of a contract, the Company records deferred revenue, which it classifies as customer deposits on its condensed consolidated balance sheets, and represents a contract liability.
The following table reflects changes Customer deposits are liquidated when revenue is recognized. Revenue that was included in the contract liability balance duringat the nine months ended September 30,beginning of each of the 2021 and 2020 and 2019 (in thousands):
| | | | | | | | | | | |
| September 30, 2020 | | September 30, 2019 |
Outstanding at beginning of period (December 31) | $ | 405 | | | $ | 375 | |
Increase (decrease) attributed to: | | | |
Upfront payments | 22,078 | | | 38,983 | |
Revenue recognized | (21,193) | | | (37,977) | |
Outstanding at end of period | $ | 1,290 | | | $ | 1,381 | |
Revenue recognized during the nine months ended September 30, 2020 and 2019, which was included in the opening contract liability balances for those periods,years consisted primarily of wine club revenue, grape and bulk sales and event fees. Changes in the contract liability balance during the nine-month periods ended September 30, 2021 and 2020, were not materially impacted by any other factors.
The outstanding contract liability balances were $0.3 million at December 31, 2020 and $1.3 million at September 30, 2021. Of the amounts included in the opening contract liability balances at the beginning of each year, approximately $0.2 million was recognized as revenue during both the nine months ended September 30, 2021 and 2020.
Accounts Receivable
Accounts receivable are reported at net realizable value. Credit is extended based on an evaluation of the customer’s financial condition. Accounts are charged against the allowance for bad debt as they are deemed uncollectableuncollectible based on a periodic review of the accounts. In evaluating the collectability of individual receivable balances, the Company considers several factors, including the age of the balance, the customer’s historical payment history, its current credit worthiness and current economic trends. The Company’s accounts receivable balance is net of an allowance for doubtful accounts of $0.2 million and $0.1 million at both September 30, 20202021 and December 31, 2019, respectively.2020.
3.Notes Receivable
Notes receivable consisted of the following as of September 30, 2021 and December 31, 2020:
| | | | | | | | | | | |
| |
| September 30, 2021 | | December 31, 2020 |
Notes receivable, current (1) | $ | 134 | | | $ | — | |
Notes receivable, non-current (2) | 411 | | | — | |
Total | $ | 545 | | | $ | — | |
__________________________________________(1) Reported within other current assets in the unaudited interim condensed consolidated balance sheets
(2) Reported within other non-current assets of the unaudited interim condensed consolidated balance sheets
In June 2021, the Company closed on the sale of 36 acres of fallow apple orchards located in Umatilla County, Oregon for an aggregate sale price of $0.6 million. Per the sales agreement, approximately $0.1 million was paid in cash at the closing of the asset sale with the Company financing the remainder of the purchase price in the form of a promissory note in the aggregate principal amount of $0.5 million. The note earns interest at a rate per annum of 5.00% with monthly principal and interest payments commencing July 2021. The note contains an arrangement for 2 balloon payments with the first balloon payment due to the Company on the six month anniversary of the closing date and the final balloon payment due to the Company on or before June 1, 2024.
In June 2021, per the Company’s leasing agreement of its restaurant space in Walla Walla, Washington, the Company agreed to finance the incoming tenant’s purchase of restaurant equipment from the prior tenant. Therefore, a promissory note in the aggregate principal amount of approximately $0.1 million was issued to the Company. The note is due in June 2026 and earns interest at a rate per annum of 5.00% with annual principal and interest payments commencing on September 1, 2021.
4.Restructuring
During 2018, the Company committed to various restructuring activities (the “2018 Restructuring Program”) including the termination of a vineyard operating lease agreement in Oregon and certain departmental reorganizations. Restructuring charges of $0.1 million were incurred in the nine months ended September 30, 2019. As of September 30, 2019, the Company incurred $1.4 million of restructuring charges inception-to-date consisting of $0.9 million employee related costs, $0.4 million of asset impairment charges associated with leasehold improvements under the terminated vineyard operating lease agreement, and $0.1 million of other restructuring costs associated with departmental reorganization activities. The fair value of impaired leasehold improvements was determined using the undiscounted cash flows expected to result from the use and eventual disposition of the assets. The activities under the 2018 Restructuring Program were substantially complete as of March 31, 2019.
During 2020, the Company committed to various restructuring activities (the “2020 Restructuring Program”) including the closure of the Double Canyon Vineyards tasting room, restructuring of management, changes in sales, marketing, and Direct to Consumer organizational structure, and transitioning of information technology services and export fulfillment to outsourced support models. Restructuring charges of $1.4 million were incurred in the nine months ended September 30, 2020. As of September 30, 2020, the Company incurred2020 Restructuring Program was completed with restructuring charges totaling $1.4 million, of restructuring charges inception-to-date, consisting of $1.1 million employee related costs, $0.2 million of asset impairment charges associated with the tasting room assets upon closure, and $0.1 million of other restructuring costs associated with departmental reorganization activities. The Company’s current restructuring plans were substantially complete as of September 30, 2020 but the Company will continue to assess the need for additional restructuring activities during the remainder of the year.
The Company recorded an additional liability of $1.2 million for restructuring charges and paid $1.0less than $0.2 million in previously accrued employee related restructuring activities during the nine months ended September 30, 2020.2021. The liability related to restructuring activities was $0.6less than $0.2 million and $0.3 million at September 30, 20202021 and December 31, 2019,2020, respectively.
A roll forward of the liability recognized related to restructuring activities as of September 30, 20202021 is as follows (in thousands):
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| Balance at December 31, 2019 | | Additions | | Payments | | Balance at September 30, 2020 |
Employee related restructuring activity | $ | 308 | | | $ | 1,242 | | | $ | (972) | | | $ | 578 | |
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| Balance at December 31, 2020 | | Additions | | Payments | | Balance at September 30, 2021 |
Employee related restructuring activity | $ | 309 | | | $ | — | | | $ | (155) | | | $ | 154 | |
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5.Inventory
A summary of inventory at September 30, 20202021 and December 31, 20192020 is as follows (in thousands):
| | | As Restated | |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Finished goods | Finished goods | $ | 39,223 | | | $ | 38,694 | | Finished goods | $ | 30,425 | | | $ | 34,970 | |
In-process goods | In-process goods | 25,396 | | | 30,102 | | In-process goods | 23,852 | | | 21,498 | |
Packaging and bottling supplies | Packaging and bottling supplies | 1,359 | | | 668 | | Packaging and bottling supplies | 1,262 | | | 1,086 | |
Total inventory | Total inventory | $ | 65,978 | | | $ | 69,464 | | Total inventory | $ | 55,539 | | | $ | 57,554 | |
Inventory consists of mainly bulk and bottled wine and is stated at the lower of cost or net realizable value. As required, the Company reduces the carrying value of inventories that are obsolete or in excess of estimated usage to estimated net realizable value. The Company’s estimates of net realizable value are based on analyses and assumptions including, but not limited to, historical usage, future demand and market requirements. Reductions to the carrying value of inventories are recorded in cost of sales. If future demand and/or pricing for the Company’s products are less than previously estimated, then the carrying value of the inventories may be required to be reduced, resulting in additional expense and reduced profitability. Inventory write-downs of $0.9 million and $2.7 million were recorded during the nine months ended September 30, 2021 and 2020, respectively. The Company’s inventory balances are presented net of inventory reserves of $2.7 million and $4.4 million at September 30, 2021 and December 31, 2020, respectively.
6.Property and Equipment
A summary of property and equipment at September 30, 20202021 and December 31, 2019,2020, and depreciation and amortization for the three and nine months ended September 30, 20202021 and 2019,2020, is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Depreciable Lives | | | | |
| (in years) | | September 30, 2020 | | December 31, 2019 |
Land and improvements | N/A | | $ | 44,913 | | | $ | 44,928 | |
Buildings and improvements | 20-40 | | 59,592 | | | 59,948 | |
Winery and vineyard equipment | 3-25 | | 36,101 | | | 42,210 | |
Vineyards, orchards and improvements | 7-25 | | 33,626 | | | 32,293 | |
Caves | 20-40 | | 5,639 | | | 5,639 | |
Vineyards under development | N/A | | 2,434 | | | 3,476 | |
Construction in progress | N/A | | 3,513 | | | 2,537 | |
Total | | | 185,818 | | | 191,031 | |
Accumulated depreciation and amortization | | | (69,743) | | | (71,919) | |
Total property and equipment, net | | | $ | 116,075 | | | $ | 119,112 | |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Capitalized into inventory | | $ | 1,349 | | | $ | 1,436 | | | $ | 4,125 | | | $ | 4,414 | |
Expensed to general and administrative | | 397 | | | 452 | | | 1,251 | | | 1,406 | |
Total depreciation and amortization | | $ | 1,746 | | | $ | 1,888 | | | $ | 5,376 | | | $ | 5,820 | |
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| Depreciable Lives | | | | |
| (in years) | | September 30, 2021 | | December 31, 2020 |
Land and improvements | N/A | | $ | 44,912 | | | $ | 44,912 | |
Buildings and improvements | 20-40 | | 59,441 | | | 59,265 | |
Winery and vineyard equipment | 3-25 | | 34,052 | | | 35,350 | |
Vineyards and improvements | 7-25 | | 35,375 | | | 33,651 | |
Caves | 20-40 | | 5,639 | | | 5,639 | |
Vineyards under development | N/A | | 991 | | | 2,565 | |
Construction in progress | N/A | | 3,519 | | | 2,169 | |
Total | | | 183,929 | | | 183,551 | |
Accumulated depreciation and amortization | | | (72,523) | | | (69,868) | |
Total property and equipment, net | | | $ | 111,406 | | | $ | 113,683 | |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Depreciation and amortization: | | 2021 | | 2020 | | 2021 | | 2020 |
Capitalized into inventory | | $ | 1,169 | | | $ | 1,349 | | | $ | 3,604 | | | $ | 4,125 | |
Expensed to general and administrative | | 401 | | | 397 | | | 1,206 | | | 1,251 | |
Total depreciation and amortization | | $ | 1,570 | | | $ | 1,746 | | | $ | 4,810 | | | $ | 5,376 | |
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During 2018, the Company began actively marketing 36 acres of fallow apple orchards for sale as it does not intend to replant these orchards with vineyards and subsequently reclassified $0.6 million from property and equipment to assets held for sale. In the nine months ended September 30,first quarter of 2019, the Company recorded an impairment charge of less than $0.1 million to write-down the carrying value of the fallow apple orchards to fair value less cost to sell. ThisIn March 2021, the Company finalized a sales agreement to sell the land for $0.6 million. In accordance with ASC 360-10, this subsequent event revealed evidence of fair value and conditions
existing as of the balance sheet date, December 31, 2020. In the fourth quarter of 2020, the Company recorded an additional impairment charge wasof less than $0.1 million to write-down the carrying value of the fallow apple orchards to fair value less cost to sell. The impairment charges were recorded to other income (expense), net in the unaudited interim condensed consolidated statements of operations.
During the second quarter of 2019, the Company placed 124 acres of land, composed of 15 acres of vineyards and 109 acres of fallow land, for sale and reclassified an additional $1.2 million from property and equipment to assets as held for sale. In October 2019, the Company finalized the sale of the land for $0.7 million and recorded an impairment charge of $0.5 million to write-down the carrying value to the price in the sales agreement less cost to sell. In the third quarter of 2019, the impairment charge was recorded to loss from operations, net in the unaudited interim condensed consolidated statements of operations.
In the third quarter of 2019, the Company placed 181 acres of land in Klickitat County, Washington, of which 93 acres were planted with wine grapes, for sale. As part of the process to determine the sale price of the property, the Company obtained an appraisal of the property in the second quarter of 2019. As a result, the Company recorded an impairment charge of $1.2 million to write-down the carrying value of the vineyard to the appraised fair value less cost to sell in the second quarter of 2019. The Company recorded an additional impairment charge of $0.1 million in the third quarter of 2019 due to the write-down of in progress vineyard development. The Company reclassified $2.1 million from property and equipment to assets held for sale related to the vineyard as of September 30, 2019. In November 2019, the Company finalized a sales agreement to sell the land for $1.9 million and recorded a final impairment charge of $0.3 million to write-down the carrying value to the price in the sales agreement less cost to sell. These impairment charges were recorded to loss from operations, net in the unaudited interim condensed consolidated statements of operations. The sale of the land closed in January 2020.
As of September 30, 2020, the Company had $0.6 million of assets held for sale classified as current assets on its unaudited interim condensed consolidated balance sheet. The Company expects to complete the sale of the fallow apple orchards closed in June 2021.
In the fourth quarter of 2020, the Company recorded impairment charges totaling $1.1 million to write-down assets within the next twelve months.construction in progress related to tasting room renovation projects.
7.Financial Instruments
The Company’s material financial instruments include cash and cash equivalents, investments classified as available for sale, and short-term and long-term debt. Investments classified as available for sale are the only assets or liabilities that are measured at fair value on a recurring basis.
All of the Company’s investments mature within two years or less. The par value, amortized cost, gross unrealized gains and losses, and estimated fair value of investments classified as available for sale as of September 30, 20202021 and December 31, 20192020 are as follows (in thousands):
| September 30, 2020 | Par Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Level 1 | | Level 2 | | Total Fair Value Measurements | |
September 30, 2021 | | September 30, 2021 | Par Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Level 1 | | Level 2 | | Total Fair Value Measurements |
| Certificates of Deposit | Certificates of Deposit | $ | 8,750 | | | $ | 8,750 | | | $ | 24 | | | $ | 0 | | | $ | 0 | | | $ | 8,774 | | | $ | 8,774 | | Certificates of Deposit | $ | 10,750 | | | $ | 10,750 | | | $ | — | | | $ | (2) | | | $ | — | | | $ | 10,748 | | | $ | 10,748 | |
| December 31, 2019 | Par Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Level 1 | | Level 2 | | Total Fair Value Measurements | |
December 31, 2020 | | December 31, 2020 | Par Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Level 1 | | Level 2 | | Total Fair Value Measurements |
Certificates of Deposit | Certificates of Deposit | $ | 10,000 | | | $ | 10,000 | | | $ | 8 | | | $ | (2) | | | $ | 0 | | | $ | 10,006 | | | $ | 10,006 | | Certificates of Deposit | $ | 8,500 | | | $ | 8,500 | | | $ | 7 | | | $ | — | | | $ | — | | | $ | 8,507 | | | $ | 8,507 | |
Gross unrealized gainslosses on available for sale securities were less than $0.1 million as of September 30, 2020.2021. The Company believes the gross unrealized gainslosses are temporary as it does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities before the recovery of their amortized cost basis.
As of September 30, 20202021 and December 31, 2019,2020, other than the assets, which wereincluding assets held for sale, impaired in the current period,respective periods, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis. For cash and cash equivalents, the carrying amounts of such financial instruments approximate their fair values. For short-term debt, the carrying amounts of such financial instruments approximate their fair values. As of September 30, 2020,2021, the Company has estimated the fair value of its outstanding debt to be approximately $29.6$22.8 million compared to its carrying value of $25.0$20.3 million, based upon discounted cash flows with Level 3 inputs, such as the terms that management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other factors. Level 3 inputs include market rates obtained from American AgCredit, FLCA (“Lender”) as of September 30, 20202021 of 3.73%, 3.58%,4.35% and 1.00%4.21% for the 2015 Term Loan 2017 Term Loan, and 2020 PPP2017 Term Loan, respectively, as further discussed in Note 10, “Debt.”
The Company does not invest in any derivatives or engage in any hedging activities.
8.Intangible and Other Non-Current Assets
A summary of intangible and other non-current assets at September 30, 20202021 and December 31, 2019,2020, and amortization expense for the three and nine months ended September 30, 20202021 and 2019,2020, is as follows (in thousands):
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
| | Amortizable lives (in years) | | Gross carrying amount | | Accumulated amortization | | Net book value | | Gross carrying amount | | Accumulated amortization | | Net book value | | Amortizable lives (in years) | | Gross carrying amount | | Accumulated amortization | | Net book value | | Gross carrying amount | | Accumulated amortization | | Net book value |
Brand | Brand | 15-17 | | $ | 18,000 | | | $ | 9,764 | | | $ | 8,236 | | | $ | 18,000 | | | $ | 8,967 | | | $ | 9,033 | | Brand | 15-17 | | $ | 18,000 | | | $ | 10,827 | | | $ | 7,173 | | | $ | 18,000 | | | $ | 10,030 | | | $ | 7,970 | |
Distributor relationships | Distributor relationships | 10-14 | | 2,700 | | | 1,780 | | | 920 | | | 2,700 | | | 1,634 | | | 1,066 | | Distributor relationships | 10-14 | | 2,700 | | | 1,976 | | | 724 | | | 2,700 | | | 1,829 | | | 871 | |
Customer relationships | 7 | | 1,900 | | | 1,900 | | | 0 | | | 1,900 | | | 1,900 | | | 0 | | |
Legacy permits | Legacy permits | 14 | | 250 | | | 167 | | | 83 | | | 250 | | | 153 | | | 97 | | Legacy permits | 14 | | 250 | | | 184 | | | 66 | | | 250 | | | 171 | | | 79 | |
Trademark | Trademark | 20 | | 200 | | | 121 | | | 79 | | | 200 | | | 113 | | | 87 | | Trademark | 20 | | 200 | | | 131 | | | 69 | | | 200 | | | 123 | | | 77 | |
Total | Total | | $ | 23,050 | | | $ | 13,732 | | | $ | 9,318 | | | $ | 23,050 | | | $ | 12,767 | | | $ | 10,283 | | Total | | $ | 21,150 | | | $ | 13,118 | | | $ | 8,032 | | | $ | 21,150 | | | $ | 12,153 | | | $ | 8,997 | |
Other non-current assets | Other non-current assets | | | | | | 531 | | | | | | | 667 | | Other non-current assets | | | | | | 622 | | | | | | | 241 | |
Total intangible and other non-current assets, net | Total intangible and other non-current assets, net | | $ | 9,849 | | | $ | 10,950 | | Total intangible and other non-current assets, net | | $ | 8,654 | | | $ | 9,238 | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Amortization expense | Amortization expense | | 2020 | | 2019 | | 2020 | | 2019 | Amortization expense | | 2021 | | 2020 | | 2021 | | 2020 |
Total amortization expense | Total amortization expense | | $ | 322 | | | $ | 322 | | | $ | 965 | | | $ | 965 | | Total amortization expense | | $ | 322 | | | $ | 322 | | | $ | 965 | | | $ | 965 | |
The estimated aggregate future amortization of intangible assets as of September 30, 20202021 is identified below (in thousands):
| | | Amortization | | Amortization |
Remainder of 2020 | $ | 321 | | |
2021 | 1,286 | | |
Remainder of 2021 | | Remainder of 2021 | $ | 321 | |
2022 | 2022 | 1,286 | | 2022 | 1,286 | |
2023 | 2023 | 1,286 | | 2023 | 1,286 | |
2024 | 2024 | 1,286 | | 2024 | 1,286 | |
2025 | | 2025 | 1,168 | |
Thereafter | Thereafter | 3,853 | | Thereafter | 2,685 | |
Total | Total | $ | 9,318 | | Total | $ | 8,032 | |
9.Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following as of September 30, 20202021 and December 31, 20192020 (in thousands):
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Accounts payable and accrued grape liabilities | Accounts payable and accrued grape liabilities | $ | 7,185 | | | $ | 5,469 | | Accounts payable and accrued grape liabilities | $ | 7,506 | | | $ | 3,956 | |
Accrued compensation related expenses | Accrued compensation related expenses | 1,880 | | | 2,753 | | Accrued compensation related expenses | 2,917 | | | 1,422 | |
Sales and marketing | Sales and marketing | 173 | | | 302 | | Sales and marketing | 593 | | | 575 | |
Acquisition of property and equipment | Acquisition of property and equipment | 117 | | | 34 | | Acquisition of property and equipment | 342 | | | 35 | |
Accrued interest | Accrued interest | 17 | | | 297 | | Accrued interest | 269 | | | 26 | |
Depletion allowance | Depletion allowance | 1,205 | | | 813 | | Depletion allowance | 1,078 | | | 1,514 | |
Production and farming | Production and farming | 116 | | | 75 | | Production and farming | 162 | | | 1,188 | |
| Operating lease liability, current | Operating lease liability, current | 149 | | | 171 | | Operating lease liability, current | — | | | 161 | |
Other accrued expenses | Other accrued expenses | 454 | | | 454 | | Other accrued expenses | 620 | | | 542 | |
Total accounts payable and accrued liabilities | Total accounts payable and accrued liabilities | $ | 11,296 | | | $ | 10,368 | | Total accounts payable and accrued liabilities | $ | 13,487 | | | $ | 9,419 | |
10.Debt
Revolving Credit FacilityA summary of debt at September 30, 2021 and December 31, 2020 is as follows (in thousands):
In March 2013, Crimson and its subsidiaries entered into a $60.0 million revolving credit facility (the “2013 | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
Revolving Credit Facility (1) | | $ | — | | | $ | — | |
Senior Secured Term Loan Agreement due 2040, with an interest rate of 5.24% (2) | | 12,320 | | | 12,640 | |
Senior Secured Term Loan Agreement due 2037, with an interest rate of 5.39% (3) | | 8,000 | | | 8,250 | |
Unsecured Term Loan Agreement due 2022, with an interest rate of 1.00% (4) | | — | | | 3,820 | |
Unamortized loan fees | | (112) | | | (121) | |
Total debt | | 20,208 | | | 24,589 | |
Less current portion of long-term debt | | 1,127 | | | 3,388 | |
Long-term debt due after one year, net | | $ | 19,081 | | | $ | 21,201 | |
(1) The Revolving Credit Facility”) with American AgCredit, FLCA, as agent for the lenders identified in the 2013 Revolving Credit Facility is comprised of a revolving loan facility (the “Revolving Loan”) and a term revolving loan facility (the “Term Revolving Loan”), which together are secured by substantially all of Crimson’s assets. In March 2018, Crimson and its subsidiaries entered into the second amendment to the 2013 Revolving Credit Facility with American AgCredit, FCLA (the “Second Amendment”). The Second Amendment modified certain provisions of the 2013 Revolving Credit Facility, including, among other things, extending the Revolving Loan and Term Revolving Loan termination dates to March 31, 2023, extending the Term Revolving Loan conversion date to March 31, 2023 and extending the Term Revolving Loan maturity date to March 31, 2033.
The Revolving Loan is for up to $10.0 million of availability in the aggregate for a five year term, and the Term Revolving Loan is for up to $50.0 million in the aggregate for a fifteen year term. All obligations of Crimson under the 2013 Revolving Credit Facility are collateralized by certain real property, including vineyards and certain winery facilities of Crimson, accounts receivable, inventory and intangible assets. In addition to unused line fees ranging from 0.15% to 0.25%, rates for the borrowings are priced based on a performance grid tied to certain financial ratios and the London Interbank Offered Rate. The 2013 Revolving Credit Facility can be used to fund acquisitions, capital projects and other general corporate purposes. Covenants include the maintenance of specified debt and equity ratios, limitations on the incurrence of additional indebtedness, limitations on dividends and other distributions to shareholders and restrictions on certain mergers, consolidations and sales of assets. NaN amounts have been borrowed under the 2013 Revolving Credit Facility to date.
Details of the Company’s debt as of September 30, 2020 and December 31, 2019 are as follows (dollars in thousands):
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| | September 30, 2020 | | December 31, 2019 | | | | |
| | Current | | Long-term | | Total | | Current | | Long-term | | Total | | Interest Rate | | Maturity Date |
2015 Term Loan | | $ | 480 | | | $ | 12,320 | | | $ | 12,800 | | | $ | 640 | | | $ | 12,800 | | | $ | 13,440 | | | 5.24% | | October 1, 2040 |
2017 Term Loan | | 375 | | | 8,000 | | | 8,375 | | | 500 | | | 8,375 | | | 8,875 | | | 5.39% | | July 1, 2037 |
2020 PPP Term Loan | | 1,591 | | | 2,229 | | | 3,820 | | | 0 | | | 0 | | | 0 | | | 1.00% | | April 1, 2022 |
Total debt | | 2,446 | | | 22,549 | | | 24,995 | | | 1,140 | | | 21,175 | | | 22,315 | | | | | |
Unamortized loan fees | | (13) | | | (112) | | | (125) | | | (13) | | | (121) | | | (134) | | | | | |
Total debt, net of unamortized loan fees | | $ | 2,433 | | | $ | 22,437 | | | $ | 24,870 | | | $ | 1,127 | | | $ | 21,054 | | | $ | 22,181 | | | | | |
Term Loans
Term loans consist of the following:
(i) On November 10, 2015,(2) Pine Ridge Winery, LLC, (“PRW Borrower”), a wholly-owned subsidiary of Crimson, entered intois party to a senior secured term loan agreement (the “2015 Term Loan”) with American AgCredit, FLCA (“Lender”) for an aggregate principal amount of $16.0 million. Amounts outstanding under the 2015 Term Loan bear a fixed interest rate of 5.24% per annum.
The 2015 Term Loan will maturedue on October 1, 2040 (the “2015 Loan Maturity Date”Term Loan”). On the first day of each January, April, JulyPrincipal and October, commencing January 1, 2016, PRW Borrower is required to make a principal paymentinterest are payable in the amount of $160,000 and an interest payment equal to the amount of all interest accrued through the previous day. A final payment of all unpaid principal, interest and any other charges with respect to the 2015 Term Loan shall be due and payable on the 2015 Loan Maturity Date.quarterly installments.
The Company incurred debt issuance costs of less than $0.1 million related to the 2015 Term Loan. These costs are recorded as a reduction from current portion of long-term debt or long-term debt based on the time frame in which the fees will be expensed, and as such, amounts to be expensed within twelve months shall be classified against current portion of long-term debt. The costs are being amortized to interest expense using the effective interest method over the contractual term of the loan.
The full $16.0 million was drawn at closing and the 2015 Term Loan can be used to fund acquisitions, capital projects and other general corporate purposes. As of September 30, 2020, $12.8 million in principal was outstanding on the 2015 Term Loan, and unamortized loan fees were less than $0.1 million.
(ii) On June 29, 2017,(3) Double Canyon Vineyards, LLC, (the “DCV Borrower” and, individually and collectively with the PRW Borrower, “Borrower”), a wholly-owned subsidiary of Crimson, entered intois party to a senior secured term loan agreement (the “2017 Term Loan”) with the Lender for an aggregate principal amount of $10.0 million. Amounts outstanding under the 2017 Term Loan bear a fixed interest rate of 5.39% per annum.
The 2017 Term Loan will maturedue on July 1, 2037 (the “2017 Loan Maturity Date”Term Loan”). On the first day of each January, April, JulyPrincipal and October, commencing October 1, 2017, DCV Borrower is required to make a principal paymentinterest are payable in the amount of $125,000 and an interest payment equal to the amount of all interest accrued through the previous day. A final payment of all unpaid principal, interest and any other charges with respect to the 2017 Term Loan shall be due and payable on the 2017 Loan Maturity Date.quarterly installments.
The Company incurred debt issuance costs of approximately $0.1 million related to the 2017 Term Loan. These costs were recorded using the same treatment as described for the 2015 Term Loan debt issuance costs.
The full $10.0 million was drawn at closing and the 2017 Term Loan can be used to fund acquisitions, capital projects and other general corporate purposes. As of September 30, 2020, $8.4 million in principal was outstanding on the 2017 Term Loan, and unamortized loan fees were less than $0.1 million.
Borrower’s obligations under the 2015 Term Loan and 2017 Term Loan are guaranteed by the Company. All obligations of Borrower under the 2015 Term Loan and 2017 Term Loan are collateralized by certain real property of the Company. Borrower’s covenants include the maintenance of a specified debt service coverage ratio and certain customary affirmative and negative covenants, including limitations on the incurrence of additional indebtedness, limitations on distributions to shareholders, and restrictions on certain investments, the sale of assets, and merging or consolidating with other parties.
(iii) In March 2020, in light of the global outbreak of the COVID-19 virus, Congress passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act included a small business stimulus program called the Paycheck Protection Program (“PPP”), which is intended to provide loans to qualified businesses to, as originally implemented, support eight weeks of payroll and other identified costs. PPP loans are eligible for partial or full forgiveness. On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020 which, among other things, extended the loan forgiveness period for PPP loans from eight weeks to 24 weeks and increased the cap on usage of the loan on non-payroll costs from 25% to 40%.
In April 2020, the Company successfully secured a $3.8 million PPP loan. Under the CARES Act, the loan is eligible for forgiveness for the portion used to cover payroll costs and other specified non-payroll costs, including interest on mortgage obligations, rent and utilities (provided any non-payroll costs do not exceed 40% of the forgiven amount) over an eight-week or 24-week period after the loan is made if employee and compensation levels are maintained. The Company intends to apply for forgiveness of amounts received under the PPP in accordance with the requirements of the CARES Act, as amended. Any loan amounts forgiven will be removed from liabilities recorded. While the Company used the proceeds of the PPP Loan only for permissible purposes, there can be no assurance that it will be eligible for forgiveness of the PPP Loan, in full or in part.
(4) On April 22, 2020, Crimson entered into an unsecured term loan agreement (the “2020 PPP Term Loan”) with American AgCredit, FLCA (“Lender”) for an aggregate principal amount of $3.8 million. Amounts outstanding undermillion pursuant to a new loan program through the 2020 PPP Term Loan bear a fixed interest rate of 1.00% per annum. If all or a portion of the 2020 PPP Term Loan is not forgiven, any accrued and unpaid interest shall be added to the outstanding balance (“Adjusted Loan Balance”).
The 2020 PPP Term Loan will mature on April 1, 2022 (the “2020 Loan Maturity Date”). Based on the current terms of the loan, there are two scenarios of payment. The first scenario calls for the payments on the loan to commence on the first day of the month following the date on which the Lender receives the applicable forgiveness amount, if any, from theU.S. Small Business Administration (“SBA”), if a balance as the result of the Paycheck Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and amended by the Paycheck Protection Program Flexibility Act of 2020. The Company requested loan forgiveness in April 2021 and on June 14, 2021, the forgiveness application to the SBA was approved for the full principal amount including interest. The SBA has remitted payment to the lender and the Company has been legally released from the loan remains afteragreement. In June 2021, the forgiveness amount has been applied. If all obligations underCompany recorded a gain on extinguishment of debt for approximately $3.9 million, which includes both the loan are forgiven by the SBA, no payments will be required. The second scenario applies if Crimson fails to timely apply for forgiveness of the 2020 PPP Term Loan. In this second scenario, the payments on the loan will commence on the first day of the month that is 10 months after the end of the eight-week period following the date of loan origination, April 22, 2020. Crimson is required to make payments of equal monthlyfull principal and interest based on the Adjusted Loan Balance. A final payment of all unpaid principal, interest and any other charges with respect to the 2020 PPP Term Loan shall be due and
payable on the 2020 Loan Maturity Date. The amortization period of equal monthly principal and interest will be adjusted based on which payment scenario is triggered. While the loan currently has a two-year maturity, the amended law permits the borrower to request a five-year maturity from its lender.amounts.
The full $3.8 million was drawn at closingDebt covenants include the maintenance of specified debt and the 2020 PPP Term Loan can be used for the purposes authorizedequity ratios, a specified debt service coverage ratio, and approved in the CARES Act. As of September 30, 2020, $3.8 million in principal was outstandingcertain customary affirmative and negative covenants, including limitations on the 2020 PPP Term Loan.
incurrence of additional indebtedness, limitations on dividends and other distributions to shareholders and restrictions on certain investments, certain mergers, consolidations and sales of assets. The Company was in compliance with all existing debt covenants as of September 30, 2020.2021.
A summary of debt maturities as of September 30, 20202021 is as follows (in thousands):
| | | | | |
Principal due the remainder of 20202021 | $ | 0 | |
Principal due in 2021 | 3,686285 | |
Principal due in 2022 | 2,4141,140 | |
Principal due in 2023 | 1,140 | |
Principal due in 2024 | 1,140 | |
Principal due in 2025 | 1,140 | |
Principal due thereafter | 16,61515,475 | |
Total | $ | 24,99520,320 | |
11. Stockholders’Stockholders' Equity and Equity Incentive PlanStock-Based Compensation
Share Repurchase Program
In December 2018,On May 24, 2021, with the Company commenced a share repurchase program (the “2019 Winter Repurchase Program”) that provided forunanimous written consent of the repurchaseBoard of up to $2.0 million of outstanding common stock. Under the 2019 Winter Repurchase Program, any repurchased shares were constructively retired, and on April 30, 2019, the 2019 Winter Repurchase Program was completed. Under the total 2019 Winter Repurchase Program,Directors, the Company repurchased 253,324an aggregate of 719,291 shares of its common stock at a repurchase purchase price of $2.0 million.
In September 2019, the Company commenced a$8.65 per share repurchase program (the “2019 Summer Repurchase Program”) that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2019 Summer Repurchase Program, any repurchased shares are constructively retired, and on December 12, 2019, the 2019 Summer Repurchase Program was completed. Under the total 2019 Summer Repurchase Program, the Company repurchased 283,208 shares at a repurchasean aggregate purchase price of $2.0 million.approximately $6.2 million. The Company’s repurchase was funded through cash on hand, and the shares were retired.
Stock-Based Compensation
In February 2013, the Company adopted the 2013 Omnibus Incentive Plan, which provides for the granting of up to 1,000,000 stock options or other common stock-based awards. The terms of awards that may be granted, including vesting and performance criteria, if any, will be determined by the Company’s boardBoard of directors.Directors.
In December 2019, under the Company’s 2013 Omnibus Incentive Plan, option grants for 89,000 shares were issued. As of September 30, 2020, all 89,000 shares remained outstanding with no additional grants or stock activities related to vesting, exercises or expirations during the quarter. The options vest annually over five years and expire in seven years from the date of grant. In July 2021, stock option awards for an additional 233,000 shares were issued to certain members of management. Subject to the terms of the respective option award agreements, the options will vest in 4 equal increments on each of January 4, 2022, January 4, 2023, January 4, 2024 and have an exercise price of $6.87,January 4, 2025, and the market value atoptions will expire seven years from the date of grant. The share-based compensation expenseexercise price for these grantsthe options was $141,000, the grantclosing price on the date fair value, which will be recorded over the vesting period. of grant.
Estimates of share-based compensation expense require a number of complex and subjective assumptions, including the selection of an option pricing model. The Company determined the grant date fair value of the awards using the Black-Scholes-Merton option-pricing valuation model, with the following assumptions and values:
| | | | | | | | | | | | | | |
| | December 2019 Grants | | July 2021 Grants |
Expected term | | 5.00 years | | 4.75 years |
Expected dividend yield | | — | % | | — | % |
Risk-free interest rate | | 1.6 | % | | 0.76 | % |
Expected stock price volatility | | 22 | % | | 31 | % |
Stock price | | $ | 6.90 | | | $ | 8.88 | |
Grant date fair value | | $ | 141,000 | | | $ | 575,000 | |
As of September 30, 2021, options in respect of all 322,000 shares remained outstanding with no additional grants or stock price volatility, 22%; employee exercise patternsactivities related to vesting, exercises or expirations during the quarter. The share-based compensation expense for these grants is based on the grant date fair value, which will be recorded over the vesting period. For the three and expected life, five years; dividend yield, 0%;nine months ended September 30, 2021, $75,000 and risk-free interest rate, 1.6%.$89,000 was recorded as share-based compensation expense, respectively. For the three and nine months ended September 30, 2020, $7,000 and $21,000 were recorded as share-based compensation expense, respectively. Share-based compensation expense was recorded to general and administrative expense in the unaudited interim condensed consolidated statements of operations. The related income tax benefits for these expenses were immaterial.
12.Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. In accordance with the CARES Act, the Company plans to carry back its 2019 NOL such that it would provide the Company $0.9 million in cash tax refunds and a permanent rate benefit of $0.3 million. Farming loss NOLs were permitted to be carried back based on prior law and were reflected as such in an earlier period. The incremental permanent rate benefit of $0.2 million from carrying back the remaining NOL in excess of the farming loss NOL is recognized in the first quarter of 2020.
Consolidated income tax benefitbenefits for the three and nine months ended September 30, 20202021 and 20192020 were determined based upon the Company’s estimated consolidated effective income tax rates calculated without discrete items for the years ending December 31, 20202021 and 2019,2020, respectively.
The Company’s effective tax rates for the three months ended September 30, 2021 and 2020 were 23.0% and 2019 were 26.2% and 23.7%, respectively. The Company’s effective tax rates for the nine months ended September 30, 2020 and 2019 were 29.5% and 26.5%, respectively. As a result of the Tax Cuts and Jobs Act (Public Law 115-97), the Company revised its estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 34% to 21%. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the three and nine months ended September 30, 20202021 was primarily attributable to state income taxes and other permanent items, whichitems. The Company’s effective tax rates for the nine months ended September 30, 2021 and 2020 were 8.8% and 29.5%, respectively. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the nine months ended September 30, 2021 was primarily consistedattributable to income exclusion of mealsPPP loan forgiveness for federal income taxes, state income taxes and entertainment.other permanent items.
The Company does 0tnot have any amounts in its condensed consolidated balance sheets for unrecognized tax benefits related to uncertain tax positions as of September 30, 2020.2021.
13.Business Segment Information
The Company has identified 2 operating segments, Wholesale net sales and Direct to Consumer net sales, which are reportable segments for financial statement reporting purposes, based upon their different distribution channels, margins and selling strategies. Wholesale net sales include all sales through a third party where prices are given at a wholesale rate, whereas Direct to Consumer net sales include retail sales in tasting rooms, remote sites and on-site events, wine club net sales, direct phone sales, Ecommerce sales, and other sales made directly to the consumer without the use of an intermediary.
The 2 segments reflect how the Company’s operations are evaluated by senior management and the structure of its internal financial reporting. The Company evaluates performance based on the gross profit of the respective business segments. Selling expenses that can be directly attributable to the segment are allocated accordingly. However, centralized selling expenses and general and administrative expenses are not allocated between operating segments. Therefore, net income information for the respective segments is not available. Based on the nature of the Company’s business, revenue generating assets are utilized across segments. Therefore, discrete financial information related to segment assets and other balance sheet data is not available and that information continues to be aggregated.
The following table outlines the net sales, cost of sales, gross profit (loss), directly attributable selling expenses and operating income (loss) for the Company’s reportable segments for the three and nine months ended September 30, 20202021 and 2019,2020, and also includes a reconciliation of consolidated income (loss) from operations. Other/Non-allocable net sales and gross profit include bulk wine and grape sales, event fees and non-wine retail sales. Other/Non-allocable expenses include centralized corporate expenses not specific to an identified reporting segment. Sales figures are net of related excise taxes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three Months Ended September 30, |
| Wholesale | | Direct to Consumer | | Other/Non-Allocable | | Total |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Net sales | $ | 9,149 | | | $ | 8,772 | | | $ | 6,689 | | | $ | 6,243 | | | $ | 1,299 | | | $ | 852 | | | $ | 17,137 | | | $ | 15,867 | |
Cost of sales | 5,901 | | | 5,727 | | | 2,342 | | | 2,339 | | | 1,314 | | | 3,345 | | | 9,557 | | | 11,411 | |
Gross profit (loss) | 3,248 | | | 3,045 | | | 4,347 | | | 3,904 | | | (15) | | | (2,493) | | | 7,580 | | | 4,456 | |
Operating expenses: | | | | | | | | | | | | | | | |
Sales and marketing | 1,447 | | | 1,252 | | | 1,688 | | | 1,425 | | | 740 | | | 639 | | | 3,875 | | | 3,316 | |
General and administrative | — | | | — | | | — | | | — | | | 3,081 | | | 2,602 | | | 3,081 | | | 2,602 | |
Total operating expenses | 1,447 | | | 1,252 | | | 1,688 | | | 1,425 | | | 3,821 | | | 3,241 | | | 6,956 | | | 5,918 | |
Net loss (gain) on disposal of property and equipment | — | | | — | | | 6 | | | — | | | 5 | | | (40) | | | 11 | | | (40) | |
Restructuring costs | — | | | — | | | — | | | — | | | — | | | 114 | | | — | | | 114 | |
| | | | | | | | | | | | | | | |
Income (loss) from operations | $ | 1,801 | | | $ | 1,793 | | | $ | 2,653 | | | $ | 2,479 | | | $ | (3,841) | | | $ | (5,808) | | | $ | 613 | | | $ | (1,536) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Nine Months Ended September 30, |
| Wholesale | | Direct to Consumer | | Other/Non-Allocable | | Total |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Net sales | $ | 27,066 | | | $ | 24,339 | | | $ | 19,291 | | | $ | 17,517 | | | $ | 2,752 | | | $ | 2,066 | | | $ | 49,109 | | | $ | 43,922 | |
Cost of sales | 17,054 | | | 16,660 | | | 7,133 | | | 6,810 | | | 3,361 | | | 5,689 | | | 27,548 | | | 29,159 | |
Gross profit (loss) | 10,012 | | | 7,679 | | | 12,158 | | | 10,707 | | | (609) | | | (3,623) | | | 21,561 | | | 14,763 | |
Operating expenses: | | | | | | | | | | | | | | | |
Sales and marketing | 3,711 | | | 3,930 | | | 4,542 | | | 4,494 | | | 2,417 | | | 2,305 | | | 10,670 | | | 10,729 | |
General and administrative | — | | | — | | | — | | | — | | | 9,795 | | | 8,315 | | | 9,795 | | | 8,315 | |
Total operating expenses | 3,711 | | | 3,930 | | | 4,542 | | | 4,494 | | | 12,212 | | | 10,620 | | | 20,465 | | | 19,044 | |
Net loss (gain) on disposal of property and equipment | — | | | — | | | 6 | | | — | | | (22) | | | 137 | | | (16) | | | 137 | |
Restructuring costs | — | | | — | | | — | | | — | | | — | | | 1,424 | | | — | | | 1,424 | |
| | | | | | | | | | | | | | | |
Income (loss) from operations | $ | 6,301 | | | $ | 3,749 | | | $ | 7,610 | | | $ | 6,213 | | | $ | (12,799) | | | $ | (15,804) | | | $ | 1,112 | | | $ | (5,842) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Restated |
| Three Months Ended September 30, |
| Wholesale | | Direct to Consumer | | Other/Non-Allocable | | Total |
(in thousands) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Net sales | $ | 8,772 | | | $ | 6,890 | | | $ | 6,243 | | | $ | 5,879 | | | $ | 852 | | | $ | 1,903 | | | $ | 15,867 | | | $ | 14,672 | |
Cost of sales | 5,727 | | | 5,063 | | | 2,339 | | | 1,950 | | | 3,345 | | | 3,508 | | | 11,411 | | | 10,521 | |
Gross profit (loss) | 3,045 | | | 1,827 | | | 3,904 | | | 3,929 | | | (2,493) | | | (1,605) | | | 4,456 | | | 4,151 | |
Operating expenses: | | | | | | | | | | | | | | | |
Sales and marketing | 1,252 | | | 1,702 | | | 1,425 | | | 1,934 | | | 639 | | | 1,080 | | | 3,316 | | | 4,716 | |
General and administrative | 0 | | | 0 | | | 0 | | | 0 | | | 2,602 | | | 2,833 | | | 2,602 | | | 2,833 | |
Total operating expenses | 1,252 | | | 1,702 | | | 1,425 | | | 1,934 | | | 3,241 | | | 3,913 | | | 5,918 | | | 7,549 | |
Net (gain) loss on disposal of property and equipment | 0 | | | 0 | | | 0 | | | 0 | | | (40) | | | 204 | | | (40) | | | 204 | |
Restructuring costs | 0 | | | 0 | | | 0 | | | 0 | | | 114 | | | 0 | | | 114 | | | 0 | |
Impairment charges | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 625 | | | 0 | | | 625 | |
Income (loss) from operations | $ | 1,793 | | | $ | 125 | | | $ | 2,479 | | | $ | 1,995 | | | $ | (5,808) | | | $ | (6,347) | | | $ | (1,536) | | | $ | (4,227) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Restated |
| Nine Months Ended September 30, |
| Wholesale | | Direct to Consumer | | Other/Non-Allocable | | Total |
(in thousands) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Net sales | $ | 24,339 | | | $ | 23,464 | | | $ | 17,517 | | | $ | 18,190 | | | $ | 2,066 | | | $ | 4,538 | | | $ | 43,922 | | | $ | 46,192 | |
Cost of sales | 16,660 | | | 15,559 | | | 6,810 | | | 5,878 | | | 5,689 | | | 6,860 | | | 29,159 | | | 28,297 | |
Gross profit (loss) | 7,679 | | | 7,905 | | | 10,707 | | | 12,312 | | | (3,623) | | | (2,322) | | | 14,763 | | | 17,895 | |
Operating expenses: | | | | | | | | | | | | | | | |
Sales and marketing | 3,930 | | | 5,013 | | | 4,494 | | | 5,601 | | | 2,305 | | | 3,171 | | | 10,729 | | | 13,785 | |
General and administrative | 0 | | | 0 | | | 0 | | | 0 | | | 8,315 | | | 8,909 | | | 8,315 | | | 8,909 | |
Total operating expenses | 3,930 | | | 5,013 | | | 4,494 | | | 5,601 | | | 10,620 | | | 12,080 | | | 19,044 | | | 22,694 | |
Net loss on disposal of property and equipment | 0 | | | 0 | | | 0 | | | 0 | | | 137 | | | 173 | | | 137 | | | 173 | |
Restructuring costs | 0 | | | 0 | | | 0 | | | 0 | | | 1,424 | | | 76 | | | 1,424 | | | 76 | |
Impairment charges | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,860 | | | 0 | | | 1,860 | |
Income (loss) from operations | $ | 3,749 | | | $ | 2,892 | | | $ | 6,213 | | | $ | 6,711 | | | $ | (15,804) | | | $ | (16,511) | | | $ | (5,842) | | | $ | (6,908) | |
14.Commitments and Contingencies
Leases
The Company has leased retail and office space and has entered into various other agreements in conducting its business. At inception, the Company determines whether an agreement represents a lease, and at commencement the Company evaluates each lease agreement to determine whether the lease is an operating or financing lease. Some of the Company’s lease agreements have contained renewal options, tenant improvement allowances and rent escalation clauses.
Pursuant to ASU 2016-02, all of the Company’s leases outstanding on January 1, 2019 continued to beare classified as operating leases. With the adoption of ASU 2016-02, the Company recorded an operating lease right-of-use asset and an operating lease liability on its condensed consolidated balance sheet beginning January 1, 2019. Right-of-use lease assets represent the Company’s right to use the underlying asset for the lease term and the lease obligation represents the Company’s commitment to make the lease payments arising from the lease. Right-of-use lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company has used an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use lease asset includes any lease
payments made prior to commencement and excludes any lease incentives. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. For all lease agreements, the Company combines lease and non-lease components, and leases with an initial term of 12 months or less are not recorded on the balance sheet.
During the fourth quarter of 2020, the Company completed the relocation of its administrative offices from the leased location at 2700 Napa Valley Corporate Drive, Suite B, Napa, California 94558 to its wholly-owned winery, Pine Ridge Vineyards, located at 5901 Silverado Trail, Napa, California 94558. As a result, the Company recorded a full impairment of the carrying value of the associated right-of-use lease asset component as of December 31, 2020. On May 6, 2021, the Company reached an agreement with the lessor for an early lease termination. The terms of the agreement required the Company to continue to make lease payments through July 31, 2021. As this agreement represented a lease modification, the Company remeasured the lease liabilities based on the revised terms and recorded a gain on lease modification. The gain on lease modification was recorded to other income (expense), net in the unaudited interim condensed consolidated statements of operations. The Company exercised its option to terminate the lease agreement as of July 31, 2021 with a written notice to the lessor. With July's lease payment representing the final payment, as of September 30, 2021, the Company has settled all obligations related to its office lease.
Supplemental balance sheet information related to leases is as follows (in thousands):
| | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Assets: | | | | |
Other non-current assets | | $ | 285 | | | $ | 407 | |
| | | | |
Liabilities: | | | | |
Accounts payable and accrued liabilities | | $ | 149 | | | $ | 171 | |
Other non-current liabilities | | 140 | | | 255 | |
Total operating lease liabilities | | $ | 289 | | | $ | 426 | |
| | | | |
Weighted Average Remaining Lease Term | | | | |
Operating leases | | 1.75 years | | 2.50 years |
Weighted Average Discount Rate | | | | |
Operating leases | | 6.34 | % | | 5.46 | % |
Maturities of lease liabilities are as follows (in thousands):
| | | | | |
| Amortization |
Remainder of 2020 | $ | 34 | |
2021 | 161 | |
2022 | 94 | |
Total | $ | 289 | |
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| | | | |
| | | | |
| | | | |
Liabilities: | | | | |
Accounts payable and accrued liabilities | | $ | — | | | $ | 161 | |
Other non-current liabilities | | — | | | 94 | |
Total operating lease liabilities | | $ | — | | | $ | 255 | |
| | | | |
Weighted Average Remaining Lease Term | | | | |
Operating leases | | — | | | 1.50 years |
Weighted Average Discount Rate | | | | |
Operating leases | | — | | | 5.22 | % |
Base rent expense was less than $0.1 million and $0.1 million for both the three and nine months ended September 30, 2020.2021. Base rent expense was less than $0.1 million and $0.2 million for the three and nine months ended September 30, 2019.2020, respectively. Of the base rent expense for each of the nine months ended September 30, 2021 and 2020, approximately $0.1 million relatesand $0.2 million, respectively, relate to each of the lease liability referred to in this footnote. Cash paid for amounts included in the measurement of operating lease liabilities as part of operating cash flows was approximately $0.1 million and $0.2 million for both the nine months ended September 30, 20202021 and September 30, 2019.2020, respectively.
Litigation
The Company and its subsidiaries may become parties to legal proceedings that are considered to be either ordinary, routine litigation incidental to their business or not significant to the Company’s consolidated financial position or liquidity. The Company does not believe that there is any pending litigation that could have a significant adverse impact on its consolidated financial position, liquidity or results of operations.
2017 and 2020 Wildfires
In October 2017, significant wildfires broke out in Napa, Sonoma, and surrounding counties in Northern California. Operations at 2 of the Company’s properties, Pine Ridge Vineyards and Seghesio Family Vineyards, were temporarily impacted due to these wildfires and then resumed shortly thereafter. At the time of the wildfires, both properties had already harvested substantially all of their 2017 estate grapes. Certain inventory on hand was impacted by power losses and smoke damage which was covered under existing insurance policies. During 2018, the Company recognized $1.1 million in insurance proceeds of which $0.6 million was offset against inventory losses and $0.5 million was included in other income, net.
In October 2019 and August 2020, the Company received an additional $0.2 million and $0.1 million, respectively, from insurance proceeds related to the October 2017 wildfires. The Company recorded both of the proceeds amounts in other income, net. Although the Company anticipates additional settlements for insurance proceeds from the Company’s insurance policies, these amounts cannot be reasonably estimated at this time.
In August and September 2020, a series of major wildfires broke out in regions across the Western United States, including Napa and Sonoma counties in California, as well as Umatilla and Yamhill Counties in Oregon, where the Company has Direct to Consumer tasting rooms, farming operations, and wine-making facilities. Operations at some of the Company’s properties were impacted by smoke which caused damage to the unharvested grapes in the vineyard properties event cancellations, and traffic reduction at the Company’s tasting rooms. In order to assess grape inventory losses, the Company has sent grape samples to independent testing labs for evaluations. TheDuring 2020, the Company has recognized $0.5$3.5 million in inventory losses for the 2020 vintagevintage. The Company was selective in its evaluations of grape inventory for the three and nine months ended September 30, 2020.smoke taint damages in order to maintain its high standards for quality of wine. Some of the inventory losses and smoke damage to grapes are partially covered under existing crop insurance policies for which the Company currently has open claims pending. In June and September 2021, the Company settled and recognized $0.2 million and $0.1 million, respectively, from crop insurance proceeds related to loss claims for the 2020 wildfires and recorded the proceeds as an offset against inventory losses, which are reductions to cost of sales. Although the Company anticipates additional inventory losses related to the 2020 vintage and settlements for insurance proceeds from the Company'sCompany’s insurance policies, these amounts cannot be reasonably estimated at this time.
COVID-19
In March 2020, the coronavirus disease (“COVID-19”) outbreak was declared a National Public Health Emergencynational public health emergency which continues to spread throughoutaffect the world and has adversely impacted global activity and contributed to significant economic declines and volatility in financial markets. The outbreak could have a continued material adverse impact on economic and market conditions and triggerbe followed by a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate material adverse impact of the coronavirus outbreak. The outbreak has adversely impacted the Company’s tasting room visitations, On-Premise business, and special events. The Company sells wine (through distributors and directly) to restaurants, bars, and other hospitality locations (“On-Premise”). The outbreak presents uncertainty and risk with respect to the Company, and its future performance and financial results.
As ofOn March 16, 2020, with the exception of key operations personnel, the Company has shifted its corporate office staff to remote workstations, which has been an effective transition to date. The Company will continue to operate remotely until management determines it is safe for employees to return to offices.
The Company has not experienced nor does it anticipate significant impact or disruptions to its supply chain network.
On March 16, 2020, the Company temporarily closed all of its tasting rooms, which are located in California, Oregon, and Washington, in compliance with shelter-in-place orders issued by local government offices. Following months of closures, each of the aforementioned states issued reopening guidelines and metrics that counties must achieve prior to businessbusinesses reopening. After remaining closed for nearly all of the second quarter and complying with reopening guidelines, the Company’s tasting rooms reopened during June 2020 in limited capacity and operating hours, and with additional safety measures in place. In addition to limiting the number of guests and by reservations only, the Company has implemented various measures to prevent the spread of the virus including assigning tasting room staff to discrete guest parties to limit contact exposure, screening workers before they enter facilities, practicing social distancing, implementing COVID-19 protocols and travel guidelines, and advising employees to adhere to prevention measures recommended by the Center for Disease Control (“CDC”).
In the first several weeks of July 2020, businesses located in several Northern California counties were required to shut down indoor dining and winery tasting rooms. In late July 2020, the State of Washington required the shutdown of wineries, regardless of whether food is served. During this period, while the State of Oregon allowed indoor wine tastings with noted restrictions, the Company'sCompany’s Oregon-based tasting room, Archery Summit, operated almost entirely outdoors. Although outdoor operations were allowed to resume in August, COVID-19 containment measures and the 2020 wildfires limited the amount of traffic at the Company’s tasting rooms. In mid-November 2020, further government restrictions and shutdown orders were issued for the State of Oregon with California and Washington following suit in December 2020, resulting in either shutdowns or outdoor-only tastings for all of the Company’s tasting rooms. All of the Company’s tasting rooms were allowed to reopen in late January 2021 with varying impacts created by guidelines, restrictions, and tiered structures of each respective state the Company's tasting rooms operate in. The intermittent updates for each state and county caused operating capacity at each tasting room to fluctuate throughout the first nine months of 2021. Although capacity restrictions within the Company's tasting rooms were lifted in the second half of June, the Company continues to maintain a set of operating guidelines to protect the safety of all employees and guests, which may affect capacity and will vary based on estate experience and parameters.
All of the Company’s tasting rooms have been impacted by government orders and restrictions to asignificant and varying degree and much of the aforementioned restrictions on indoor operations of winery tasting rooms remained in place throughout the third quarter of 2020.degrees at times. Management and staff at all vineyardestate locations have taken the appropriate steps to continue accommodations for outdoor tastings, andwhen permitted, to ensure the safety of ourall guests and staff. In addition to limiting the number of guests and requiring reservations, the Company has implemented various measures to prevent the spread of the virus including using available forms of personal protective equipment (PPE), screening workers before they enter facilities, practicing social distancing, implementing COVID-19 protocols and travel guidelines, and advising employees to adhere to prevention measures recommended by the Center for Disease Control (“CDC”).
More recently, many news agencies have reported the spread of new variants of COVID-19, such as the Delta variant, that are significantly more contagious than previous strains. The spread of these new variants are beginning to cause some government authorities to reimplement restrictions and measures to try to reduce the spread that had become less prevalent. Accordingly, the emergence of these new variants, particularly the Delta variant, and the prevalence of breakthrough cases of infection among fully vaccinated people adds additional uncertainty to the Company’s business and operations and could result in further impacts, such as those discussed above and in the section entitled “Risk Factors” in the 2020 Report.
The extent of COVID-19’s impact on the Company'sCompany’s financials and results of operations is currently unknown and will depend on future developments, including, but not limited to, the length of time that the pandemic continues, the emergence and severity of its variants, the effect of governmental regulations imposed in response to the pandemic, itsthe availability of vaccines and potential hesitancy to utilize them, the effect on the demand for the Company’s products and supply chain, and uncertainties surrounding the aforementioned.how quickly and to what extent normal economic and operation conditions can resume. The Company cannot at this time predict the full impact of COVID-19, but it could have a larger impact on the Company’s financial and operational results beyond what is discussed withinin this Report.
15.Subsequent Events
None.
16.Revision of Prior Period Financial Statements
The Company revised prior period financial statements for an error related to the calculation of the income tax provision for the three months ended June 30, 2021 (see Note 1, “Background and Basis of Presentation,” for additional information). A summary of revisions to the Company's previously reported financial statements is presented below (in thousands, except per share data).
Revised Consolidated Balance Sheet
| | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| As previously reported | | Adjustment | | As revised |
Intangible and other non-current assets, net | $ | 9,236 | | | $ | (241) | | | $ | 8,995 | |
Total assets | 222,452 | | | (241) | | | 222,211 | |
Deferred tax liability, net | — | | | 789 | | | 789 | |
Total liabilities | 28,263 | | | 789 | | | 29,052 | |
Accumulated deficit | (83,607) | | | (1,030) | | | (84,637) | |
Total stockholders’ equity | 194,189 | | | (1,030) | | | 193,159 | |
Total liabilities and stockholders’ equity | $ | 222,452 | | | $ | (241) | | | $ | 222,211 | |
Revised Consolidated Statements of Operations and Comprehensive Income
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| As previously reported | | Adjustment | | As revised |
Income (loss) before income taxes | $ | 5,255 | | | $ | — | | | $ | 5,255 | |
Income tax (benefit) provision | (493) | | | 1,030 | | | 537 | |
Net income (loss) | 5,748 | | | (1,030) | | | 4,718 | |
Basic earnings (loss) per share | 0.25 | | | (0.04) | | | 0.21 | |
Fully diluted earnings (loss) per share | 0.25 | | | (0.05) | | | 0.20 | |
Comprehensive income (loss) | $ | 5,747 | | | $ | (1,030) | | | $ | 4,717 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| As previously reported | | Adjustment | | As revised |
Income (loss) before income taxes | $ | 4,189 | | | $ | — | | | $ | 4,189 | |
Income tax (benefit) provision | (712) | | | 1,030 | | | 318 | |
Net income (loss) | 4,901 | | | (1,030) | | | 3,871 | |
Basic earnings (loss) per share | 0.21 | | | (0.04) | | | 0.17 | |
Fully diluted earnings (loss) per share | 0.21 | | | (0.04) | | | 0.17 | |
Comprehensive income (loss) | $ | 4,895 | | | $ | (1,030) | | | $ | 3,865 | |
Revised Consolidated Statement of Cash Flow
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| As previously reported | | Adjustment | | As revised |
Operating Activities: | | | | | |
Net income (loss) | $ | 4,901 | | | $ | (1,030) | | | $ | 3,871 | |
(Benefit) provision for deferred income tax | (716) | | | 1,030 | | | 314 | |
Net cash provided by operating activities | $ | 9,433 | | | $ | — | | | $ | 9,433 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Interim Operations.
Statements included in this Report may contain forward-looking statements. See “Cautionary Statement for Forward-Looking Information” below. The following should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and the Company’s audited consolidated financial statements for the year ended December 31, 20192020 included in the Company’s Annual Report on Form 10-K/A10-K as filed with the SEC (the “2019“2020 Report”).
Quantities or results referred to as “current quarter” and “current three and nine-month period” refer to the three and nine months ended September 30, 2020.2021.
Cautionary Statement for Forward-Looking Information
This MD&A and other parts of this Quarterly Report on Form 10-Q/A10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The unaudited interim condensed consolidated financial statements, that include results of Crimson Wine Group, Ltd. and all of its subsidiaries further collectively known as “we”, “Crimson”, “our”, “us”, or “the Company”, have been prepared in accordance with GAAP for interim financial information and with the general instruction for quarterly reports filed on Form 10-Q/A10-Q and Article 8 of Regulation S-X. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, prospects, plans, opportunities, and objectives constitute “forward-looking statements.” The words “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “potential,” or “continue” and similar types of expressions identify such statements, although not all forward-looking statements contain these identifying words. Forward-looking statements include those relating to our financial condition, results of operations, plans, objectives, future performance and business. These statements are based upon information that is currently available to us and our management’s current expectations speak only as of the date hereof and are subject to risks and uncertainties. We expressly disclaim any obligation, except as required by federal securities laws, or undertaking to update or revise any forward-looking statements contained herein to reflect any change or expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statements are based, in whole or in part. Our actual results may differ materially from the results discussed in or implied by such forward-looking statements.
Risks that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or that may materially and adversely affect our actual results include, but are not limited to, those discussed in Part I, Item 1A. Risk Factors in the 2019 Report and the additional risk factor regarding COVID-19 discussed in Part II, Item 1A of this2020 Report. Readers should carefully review the risk factors described in the 2019 Report, this2020 Report and in other documents that the Company files from time to time with the SEC.
Restatement of Previously Issued Consolidated Financial Statements
We have restated our previously issued consolidated financial statements contained in this Quarterly Report on Form 10-Q/A. Refer to the “Explanatory Note” preceding Part I - Financial Information, for background on the restatement, the periods impacted, control considerations, and other information. In addition, we have restated certain previously reported financial information for the three and nine months ended September 30, 2020 in this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Interim Operations, including but not limited to information within the Results of Operations and Liquidity and Capital Resourcessections. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 1, Financial Statement Schedules and Footnotes, for additional information related to the restatement, including descriptions of the misstatements and the impacts on our consolidated financial statements.
Overview of Business
The Company generates revenues from sales of wine to wholesalers and direct to consumers, sales of bulk wine and grapes, custom winemaking services, special event fees, tasting fees and non-wine retail sales.
Our wines are primarily sold to wholesale distributors, who then sell to retailers and restaurants. As permitted under federal and local regulations, we have also been placing increased emphasis on generating revenue from direct sales to consumers which occur through wine clubs, at the wineries’ tasting rooms and through the internet and direct outreach to customers.Ecommerce channel. Direct sales to consumers are more profitable for the Company as we are able to sell our products at a price closer to retail prices rather than the wholesale price sold to distributors. From time to time, we may sell grapes or bulk wine because the grapes or wine do not meet the quality standards for the Company’s products, market conditions have changed resulting in reduced demand for certain products, or because the Company may have produced more of a particular varietal than it can use. When these sales occur, they may result in a loss.
Cost of sales includes grape and bulk wine costs, whether purchased or produced from the Company’s controlled vineyards, crush costs, winemaking and processing costs, bottling, packaging, warehousing and shipping and handling costs. For the Company controlled vineyard producedCompany-controlled vineyard-produced grapes, grape costs include annual farming labor costs, harvest costs and depreciation of vineyard assets. For wines that age longer than one year, winemaking and processing costs continue to be incurred and capitalized to the cost of wine, which can range from 3 to 36 months. Reductions to the carrying value of inventories are also included in cost of sales.
In a strategic effort to maximize asset utilization in 2019, the Company increased focus on supply chain management. During 2019, the Company performed regular costing updates to apply actual cost for the 2017 and 2018 vintage bulk wine compared to the standard cost estimates used. The analysis showed higher cellar overhead costs incurred for these vintages than previously estimated in the standard rate applied to bulk wine gallons produced. The increase in the revised standard rate over the production period was a result of a strategic reduction of wine bottled driven by less than forecasted demand for certain products. Additionally, cost capitalized to inventory increased due to growth in general and administrative overhead costs as well as onboarding cellar costs related to the Double Canyon winemaking facility and acquired Seven Hills Winery.
As of September 30, 2020,2021, wine inventory includes approximately 0.80.7 million cases of bottled and bulk wine in various stages of the aging process. Cased wine is expected to be sold over the next 12 to 36 months and generally before the release date of the next vintage.
Impact of COVID-19 on Operations
In March 2020, the coronavirus disease (“COVID-19”) outbreak was declared a National Public Health Emergencynational public health emergency which continues to spread throughoutaffect the world and has adversely impacted global activity and contributed to significant economic declines and volatility in financial markets. The outbreak could have a continued material adverse impact on economic and market conditions and triggerbe followed by a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate material adverse impact of the coronavirus outbreak. The outbreak has adversely impacted ourthe Company’s tasting room visitations, On-Premise business, and special events. The outbreak presents uncertainty and risk with respect to the Company, and its future performance and financial results.
As of
On March 16, 2020, with the exception of key operations personnel, we havethe Company shifted ourits corporate office staff to remote workstations, which has been an effective transition to date. WeThe Company will continue to operate remotely until management determines it is safe for employees to return to offices.
We have
The Company has not experienced nor do wedoes it anticipate significant impact or disruptions to ourits supply chain network.
On March 16, 2020, the Company temporarily closed all of its tasting rooms, which are located in California, Oregon, and Washington, in compliance with shelter-in-place orders issued by local government offices. Following months of closures, each of the aforementioned states issued reopening guidelines and metrics that counties must achieve prior to businessbusinesses reopening. After remaining closed for nearly all of the second quarter and complying with reopening guidelines, the Company’s tasting rooms reopened during June 2020 in limited capacity and operating hours, and with additional safety measures in place. In the first several weeks of July 2020, businesses located in several Northern California counties were required to shut down indoor dining and winery tasting rooms. In late July 2020, the State of Washington required the shutdown of wineries, regardless of whether food is served. During this period, while the State of Oregon allowed indoor wine tastings with noted restrictions, the Company’s Oregon-based tasting room, Archery Summit, operated almost entirely outdoors. Although outdoor operations were allowed to resume in August, COVID-19 containment measures and the 2020 wildfires limited the amount of traffic at the Company’s tasting rooms. In mid-November 2020, further government restrictions and shutdown orders were issued for the State of Oregon with California and Washington following suit in December 2020, resulting in either shutdowns or outdoor-only tastings for all of the Company’s tasting rooms. All of the Company’s tasting rooms were allowed to reopen in late January 2021 with varying impacts created by the guidelines, restrictions, and tiered structures of each respective state we operate in. The intermittent updates for each state and county caused operating capacity at each tasting room to fluctuate throughout the first nine months of 2021. Although capacity restrictions within the Company's tasting rooms were lifted in the second half of June, the Company continues to maintain a set of operating guidelines to protect the safety of all employees and guests, which may affect capacity and will vary based on estate experience and parameters.
All of the Company’s tasting rooms have been impacted by government orders and restrictions to significant and varying degrees at times. Management and staff at all estate locations have taken the appropriate steps to continue accommodations for outdoor tastings to ensure the safety of all guests and staff. In addition to limiting the number of guests and byrequiring reservations, only, the Company has implemented various measures to prevent the spread of the virus including assigning tasting room staff to discrete guest parties to limit contact exposure,using available forms of PPE, screening workers before they enter facilities, practicing social distancing, implementing COVID-19 protocols and travel guidelines, and advising employees to adhere to prevention measures recommended by the Center for Disease Control (“CDC”).CDC.
The Company has experienced both reductions and increases in consumer demand in various channels due to the ongoing COVID-19 outbreakpandemic in the three and nine months ended September 30, 2021 and 2020.
Our Direct to Consumer segment includes retail sales in the tasting rooms, remote sites and on-site events, wine club net sales, direct phone sales, and other sales made directly to the consumer without the use of an intermediary. Tasting room sales have been negatively impacted due toduring periods of closures and operating limitations. As restrictions were gradually lifted throughout the first nine months of 2021, the Company has seen a rebound in visitor counts to its tasting rooms. The Company also sells wine directly to consumers through our website (http://www.crimsonwinegroup.com), third-party websites, direct phone calls, and other online sales (“Ecommerce”).Ecommerce sales. The Company’s Ecommerce operations have been favorably impacted through changes in consumer behavior and our opportunistic email campaigns and web offers to our customers.
Our Wholesale segment includes all sales through a third party where prices are given at a wholesale rate. The Company sells wine (through distributors and directly) to restaurants, bars, and other hospitality locations (“On-Premise”). Demand for wines at On-Premise locations has been reduced due to COVID-19 containment measures restricting consumers from visiting, as well as in many cases both the temporary and permanent closures of On-Premise venues. However, as restrictions continued to be lifted throughout the first nine months of 2021, demand for wines at On-Premise locations has started to rebound. The Company also sells wine (through distributors and directly) to supermarkets, grocery stores, liquor stores, and other chains, third-party Ecommerce and independent stores (“Off-Premise”). Demand for wines at Off-Premise locations has increased due to their classification as essential businesses that remain open during government imposedgovernment-imposed closings and/or restrictions due to COVID-19. As On-Premise demand recovers, other than sales made through third-party Ecommerce, we have not observed a reversing trend in Off-Premise demand.
TableAdditionally, we received loan proceeds of Contentsapproximately $3.8 million under the Paycheck Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and amended by the Paycheck Protection Program Flexibility Act of 2020. We requested loan forgiveness in April 2021 and on June 14, 2021, the forgiveness application to the U.S. Small Business Administration (“SBA”) was approved for the full principal amount including interest.For additional information about the loan, see “—Liquidity and Capital Resources—Term Loans”.
InMore recently, many news agencies have reported the first several weeksspread of July 2020, businesses located in several Northern California counties were requirednew variants of COVID-19, such as the Delta variant, that are significantly more contagious than previous strains. The spread of these new variants are beginning to shut down indoor diningcause some government authorities to reimplement restrictions and winery tasting rooms. In late July 2020,measures to try to reduce the Statespread that had become less prevalent. Accordingly, the emergence of Washington requiredthese new variants, particularly the shutdownDelta variant, and the prevalence of wineries, regardlessbreakthrough cases of whether food is served. During this period, while the State of Oregon allowed indoor wine tastings with noted restrictions, the Company's Oregon-based tasting room, Archery Summit, operated almost entirely outdoors. All ofinfection among fully vaccinated people adds additional uncertainty to the Company’s tasting rooms have been impacted by government ordersbusiness and restrictions to a varying degreeoperations and much ofcould result in further impacts, such as those discussed above and in the aforementioned restrictions on indoor operations of winery tasting rooms remainedsection entitled “Risk Factors” in place throughout the third quarter of 2020. Management and staff at all vineyard locations have taken the appropriate steps to continue accommodations for outdoor tastings and to ensure the safety of our guests and staff.2020 Report.
The extent of COVID-19’s impact on our financials and results of operations is currently unknown and will depend on future developments, including, but not limited to, the length of time that the pandemic continues, the emergence and severity of its variants, the effect of governmental regulations imposed in response to the pandemic, itsthe availability of vaccines and potential hesitancy to utilize them, the effect on the demand for our products and our supply chain, and uncertainties surrounding the aforementioned.how quickly and to what extent normal economic and operation conditions can resume. We cannot at this time predict the full impact of COVID-19 on our financial and operational results. Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. Refer to the section entitled “Risk Factors” in the 2020 Report for additional risks we face due to the COVID-19 pandemic.
Seasonality
As discussed in the 20192020 Report, the wine industry in general historically experiences seasonal fluctuations in revenues and net income. The Company typically has lower sales and net income during the first quarter and higher sales and net income during the fourth quarter due to seasonal holiday buying as well as wine club shipment timing. We anticipate similar trends in the future.
Restructuring
During 2018, the Company committed to various restructuring activities (the “2018 Restructuring Program”) including the termination of a vineyard operating lease agreement in Oregon and certain departmental reorganizations. Restructuring charges of $0.1 million were incurred in the nine months ended September 30, 2019. As of September 30, 2019, the Company incurred $1.4 million of restructuring charges inception-to-date consisting of $0.9 million employee related costs, $0.4 million of asset impairment charges associated with leasehold improvements under the terminated vineyard operating lease agreement, and $0.1 million of other restructuring costs associated with departmental reorganization activities. The fair value of impaired leasehold improvements was determined using the undiscounted cash flows expected to result from the use and eventual disposition of the assets. The activities under the 2018 Restructuring Program were substantially complete as of March 31, 2019.
During 2020, the Company committed to various restructuring activities (the “2020 Restructuring Program”) including the closure of the Double Canyon Vineyards tasting room, restructuring of management, changes in sales, marketing, and Direct to Consumer organizational structure, and transitioning of information technology services and export fulfillment to outsourced support models. Restructuring charges of $1.4 million were incurred in the nine months ended September 30, 2020. As of September 30, 2020, the Company incurred2020 Restructuring Program was completed with restructuring charges totaling $1.4 million, of restructuring charges inception-to-date, consisting of $1.1 million employee related costs, $0.2 million of asset impairment charges associated with the tasting room assets upon closure, and $0.1 million of other restructuring costs associated with departmental reorganization activities. The Company’s current restructuring plans were substantially complete as of September 30, 2020 but the Company will continue to assess the need for additional restructuring activities during the remainder of the year.
Results of Operations
Three Months Ended September 30, 20202021 Compared to Three Months Ended September 30, 20192020
Net Sales
| | | | Three Months Ended September 30, | | Three Months Ended September 30, |
(in thousands, except percentages) | (in thousands, except percentages) | 2020 | | 2019 | | Increase (Decrease) | | % change | (in thousands, except percentages) | 2021 | | 2020 | | Increase (Decrease) | | % change |
Wholesale | Wholesale | $ | 8,772 | | | $ | 6,890 | | | $ | 1,882 | | | 27% | Wholesale | $ | 9,149 | | | $ | 8,772 | | | $ | 377 | | | 4% |
Direct to Consumer | Direct to Consumer | 6,243 | | | 5,879 | | | 364 | | | 6% | Direct to Consumer | 6,689 | | | 6,243 | | | 446 | | | 7% |
Other | Other | 852 | | | 1,903 | | | (1,051) | | | (55)% | Other | 1,299 | | | 852 | | | 447 | | | 52% |
Total net sales | Total net sales | $ | 15,867 | | | $ | 14,672 | | | $ | 1,195 | | | 8% | Total net sales | $ | 17,137 | | | $ | 15,867 | | | $ | 1,270 | | | 8% |
Wholesale net sales increased $1.9$0.4 million, or 27%4%, in the current quarter as compared to the same quarter in 2019.2020. The increase was primarily driven by an increase in domesticincreased export wine sales decreased price support, and an increase in exportdomestic wine sales compared to the same quarter in 2019.2020. The increase in export wine sales was driven by a rebound in shipments to Europe, which were negatively impacted by COVID-19 in 2020. The increase in domestic wine sales was driven by increased consumer demand in Off-Premise locations and therate of sales of our core wines, timing of inventory fulfillment with new wholesale distributors.to distributors, and continued recovery in our On-Premise sales as a result of the reopening of restaurants, bars, and other hospitality locations in the current quarter.
Direct to Consumer net sales increased $0.4 million, or 6%7%, in the current quarter as compared to the same quarter in 2019.2020. The increase was primarily driven by successful strategic Ecommerce offershigher sales in the tasting rooms and higher wine club salesclubs as compared to the same quarter in 2019.2020. The increase was partially offset by decreasedlower Ecommerce sales in the current quarter. There was a significant increase in visitors to our tasting rooms in the current quarter compared to the same quarter in 2020, where our tasting rooms were negatively impacted by temporary closures and reductionoperating limitations. Sales for wine clubs increased in special events. The negative impact on hospitality services was due to operating limitationsthe current quarter driven by sales mix of higher average prices for wines sold. Ecommerce sales decreased in the current quarter as a resultconsumers shifted purchasing behaviors with the reopening of COVID-19 containment measurestasting rooms, retail and intermittent closures due to extreme heat and poor air quality caused by the 2020 wildfires in California and Oregon.restaurants.
Other net sales, which include bulk wine and grape sales, custom winemaking services, event fees and non-wine retail sales, decreased $1.1increased $0.4 million, or 55%52%, in the current quarter as compared to the same quarter in 2019.2020. The decreaseincrease was primarily driven by reduced event fees and non-wine retail sales due to capacity limitations ofhigher tasting rooms and event cancellationsfee revenues as a result of COVID-19 containment measures, as well as a decrease in tons of grapes sold, partially offset bywe experienced higher traffic through our tasting rooms. The increase in gallons of bulk wine soldtraffic was primarily related to eased COVID-19 government restrictions and increased tourism in the current quarter as compared to the same quarter in 2019.
2020. Higher tasting fees were also driven by our strategy for premiumization of the tasting experience made possible through the appropriate investments in our tasting room redesigns and elevated wine tasting experiences.
Gross Profit
| | | As Restated | |
| | Three Months Ended September 30, | | Three Months Ended September 30, |
(in thousands, except percentages) | (in thousands, except percentages) | 2020 | | 2019 | | Increase (Decrease) | | % change | (in thousands, except percentages) | 2021 | | 2020 | | Increase (Decrease) | | % change |
Wholesale | Wholesale | $ | 3,045 | | | $ | 1,827 | | | $ | 1,218 | | | 67% | Wholesale | $ | 3,248 | | | $ | 3,045 | | | $ | 203 | | | 7% |
Wholesale gross margin percentage | Wholesale gross margin percentage | 35 | % | | 27 | % | | | | | Wholesale gross margin percentage | 36 | % | | 35 | % | | | | |
Direct to Consumer | Direct to Consumer | 3,904 | | | 3,929 | | | (25) | | | (1)% | Direct to Consumer | 4,347 | | | 3,904 | | | 443 | | | 11% |
Direct to Consumer gross margin percentage | Direct to Consumer gross margin percentage | 63 | % | | 67 | % | | | | | Direct to Consumer gross margin percentage | 65 | % | | 63 | % | | | | |
Other | Other | (2,493) | | | (1,605) | | | (888) | | | (55)% | Other | (15) | | | (2,493) | | | 2,478 | | | 99% |
Total gross profit | Total gross profit | $ | 4,456 | | | $ | 4,151 | | | $ | 305 | | | 7% | Total gross profit | $ | 7,580 | | | $ | 4,456 | | | $ | 3,124 | | | 70% |
Total gross margin percentage | Total gross margin percentage | 28 | % | | 28 | % | | | | Total gross margin percentage | 44 | % | | 28 | % | | | |
Wholesale gross profit increased $1.2$0.2 million, or 67%7%, in the current quarter as compared to the same quarter in 20192020 primarily driven by an increase in domestic wine sales, decreased price support,a shift in sales mix towards higher profit wines with a more favorable vintage cost and lower cost of goods sold.an overall increase in wine sales. Wholesale gross margin percentage, which is defined as wholesale gross profit as a percentage of wholesale net sales, increased 82079 basis points primarily driven by decreased price support,a shift in sales mix towards higher profit wines and lower cost of goods soldwith a more profitable vintage compared to the same quarter in 2019.2020.
Direct to Consumer gross profit increased $0.4 million, or 11%, in the current quarter was flat as compared to the same quarter in 2019 as2020. The increase was a result of lowerhigher sales fromin the tasting rooms and special events whichwine clubs when compared to the same quarter in 2020. Direct to Consumer gross margin percentage increased 245 basis points in the current quarter compared to the same quarter in 2020. The increase was largely offsetprimarily driven by successful strategic Ecommerce offersa shift in sales channel mix from increased tasting rooms sales, a shift in sales mix towards wines with a more favorable vintage cost, and timinghigher average prices within the sales mix of wine club shipments compared to the same quarter in 2019. The negative impact on hospitality services was due to operating limitations as a result of COVID-19 containment measures and intermittent closures due to extreme heat and poor air quality caused by the 2020 wildfires in California and Oregon. Direct to Consumer gross margin percentage decreased 430 basis points in the current quarter primarily driven by Ecommerce offers driving higher discounts as a percentage of sales and a less favorable sales mix compared to the same quarter in 2019.2020.
Other“Other” includes a gross loss on bulk wine and grape sales, custom winemaking services, event fees and non-wine retail sales and increased $0.9sales. Other gross loss decreased $2.5 million, or 55%99% in the current quarter as compared to the same quarter in 2019. The increase in other gross loss2020 and is primarily driven by lower write-downs of excess bulk wine inventory, non-recurring inventory write-downs related to the 2020 vintage grapes affected by smoke taint exposurewildfires recognized in the same quarter in 2020, and reduced event fees and non-wine retail saleshigher tasting fee revenue due to theincreased traffic at tasting rooms’ operating limitations and intermittent closures as discussed above.rooms.
Operating Expenses
| | | | Three Months Ended September 30, | | Three Months Ended September 30, |
(in thousands, except percentages) | (in thousands, except percentages) | 2020 | | 2019 | | Increase (Decrease) | | % change | (in thousands, except percentages) | 2021 | | 2020 | | Increase (Decrease) | | % change |
Sales and marketing | Sales and marketing | $ | 3,316 | | | $ | 4,716 | | | $ | (1,400) | | | (30)% | Sales and marketing | $ | 3,875 | | | $ | 3,316 | | | $ | 559 | | | 17% |
General and administrative | General and administrative | 2,602 | | | 2,833 | | | (231) | | | (8)% | General and administrative | 3,081 | | | 2,602 | | | 479 | | | 18% |
Total operating expenses | Total operating expenses | $ | 5,918 | | | $ | 7,549 | | | $ | (1,631) | | | (22)% | Total operating expenses | $ | 6,956 | | | $ | 5,918 | | | $ | 1,038 | | | 18% |
Sales and marketing expenses decreased $1.4increased $0.6 million, or 30%17%, in the current quarter as compared to the same quarter in 2019.2020. The decreaseincrease was primarily driven by reduced compensation as a result of the 2020 Restructuring Program, decreasedincreased bonus accruals, tasting room staff correlated with increased tasting room traffic and operating hours, and travel costs related toin line with higher sales activities and lifting of COVID-19 and reduced advertising and promotional expensescontainment measures when compared to the same quarter in 2019.2020.
General and administrative expenses decreased $0.2increased $0.5 million, or 8%18%, in the current quarter as compared to the same quarter in 20192020 primarily due to decreased employeeincreased accrued bonuses related expensesto current year performance and temporarily reduced Board of Directors fees,increased professional services, partially offset by higher compensation related expensessavings from the corporate office relocation when compared to the same quarter in 2019.2020.
Other (Expense) Income
| | | Three Months Ended September 30, | | Three Months Ended September 30, |
(in thousands, except percentages) | (in thousands, except percentages) | 2020 | | 2019 | | Change | | % change | (in thousands, except percentages) | 2021 | | 2020 | | Change | | % change |
Interest expense, net | Interest expense, net | $ | (328) | | | $ | (367) | | | $ | 39 | | | 11% | Interest expense, net | $ | (292) | | | $ | (328) | | | $ | 36 | | | 11% |
| Other income, net | Other income, net | 109 | | | 335 | | | (226) | | | (67)% | Other income, net | 47 | | | 109 | | | (62) | | | (57)% |
Total other expense, net | Total other expense, net | $ | (219) | | | $ | (32) | | | $ | (187) | | | (584)% | Total other expense, net | $ | (245) | | | $ | (219) | | | $ | (26) | | | (12)% |
Interest expense, net, decreased less than $0.1 million, or 11%, in the current quarter compared to the same quarter in 2019.2020. The decrease was primarily driven by decreasedlower interest expense on declining principal balances on the 2015 and 2017 Term Loans and capitalized interest on vineyard development projects, partially offset by the accrued interest on the 2020 PPP Term Loan compared to the same quarter in 2019.Loans.
Other income, net, decreased $0.2$0.1 million, or 67%57%, in the current quarter compared to the same quarter in 2019.2020. The decrease was primarily driven by lowernon-recurring insurance proceeds and investments interest income received compared toin the same quarter in 2019.2020.
Income Tax Benefit (As Restated)Provision (Benefit)
The Company’s effective tax rates for the three months ended September 30, 2021 and 2020 were 23.0% and 2019 were 26.2% and 23.7%, respectively. As a result of the Tax Cuts and Jobs Act (Public Law 115-97), the Company revised its estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 34% to 21%. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the three months ended September 30, 20202021 was primarily attributable to state income taxes and the effect of certainother permanent differences, which primarily consisted of meals and entertainment.items.
Nine Months Ended September 30, 20202021 Compared to Nine Months Ended September 30, 20192020
Net Sales
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except percentages) | (in thousands, except percentages) | 2020 | | 2019 | | Increase (Decrease) | | % change | (in thousands, except percentages) | 2021 | | 2020 | | Increase (Decrease) | | % change |
Wholesale | Wholesale | $ | 24,339 | | | $ | 23,464 | | | $ | 875 | | | 4% | Wholesale | $ | 27,066 | | | $ | 24,339 | | | $ | 2,727 | | | 11% |
Direct to Consumer | Direct to Consumer | 17,517 | | | 18,190 | | | (673) | | | (4)% | Direct to Consumer | 19,291 | | | 17,517 | | | 1,774 | | | 10% |
Other | Other | 2,066 | | | 4,538 | | | (2,472) | | | (54)% | Other | 2,752 | | | 2,066 | | | 686 | | | 33% |
Total net sales | Total net sales | $ | 43,922 | | | $ | 46,192 | | | $ | (2,270) | | | (5)% | Total net sales | $ | 49,109 | | | $ | 43,922 | | | $ | 5,187 | | | 12% |
Wholesale net sales increased $0.9$2.7 million, or 4%11%, in the current nine month period as compared to the same period in 2019.2020. The increase was primarily driven by increasedan increase in domestic wine sales as well as decreased price support compared to the same period in 2019, partially offset by decreased export wine sales to cruise and transportation segments and Asia.2020. The increase in domestic wine sales was driven by an increased consumer demandrate of sales of our core wines, new distribution in Off-Premise locations, and continued recovery from lower On-Premise sales in the timingprior year period as a result of inventory fulfillment with new wholesale distributors.the reopening of restaurants, bars, and other hospitality locations in the current period. The increase in export wine sales was driven by a rebound in shipments to Europe, Asia and the Caribbean markets, which were the most impacted by COVID-19 in 2020.
Direct to Consumer net sales decreased $0.7increased $1.8 million, or 4%10%, in the current nine month period as compared to the same period in 2019.2020. The decreaseincrease was primarily driven by reduced wine soldhigher sales across all channels, most notably in the tasting rooms and during special events, partially offset by successful strategic Ecommerce offersroom sales, compared to the same period in 2019. The decrease2020. With lifting COVID-19 containment measures beginning in wine soldlate January of this year, all of the Company's tasting rooms were opened for visitations for the majority of the current nine month period. There was a significant increase in visitors to our tasting rooms in the current nine month period compared to the same period in 2020, where the tasting rooms and during special events is drivenwere negatively impacted by the temporary closures of tasting rooms and cancelled special events from March 16, 2020 through various points in June 2020 related to COVID-19 containment measures, reduced operating capacity due to COVID-19 containment measures, and temporary closures of tasting rooms related to poor air quality and extreme heat during the August and September 2020 wildfires in California and Oregon.limitations.
Other net sales, which include bulk wine and grape sales, custom winemaking services, event fees and non-wine retail sales, decreased $2.5increased $0.7 million, or 54%33%, in the current nine month period as compared to the same period in 2019.2020. The decreaseincrease was primarily driven by reduced eventhigher tasting fees and non-wine retail sales duea higher volume of bulk grapes sold. Higher tasting fees were driven by increased visitations to capacity limitations ofthe tasting rooms and eventas the Company continues to recover from the height of COVID-19 containment measures in the 2020 period.
cancellations as a result of COVID-19 containment measures, as well as a decrease in both gallons of bulk wine and tons of grapes sold compared to the same period in 2019.
Gross Profit
| | | As Restated | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except percentages) | (in thousands, except percentages) | 2020 | | 2019 | | Increase (Decrease) | | % change | (in thousands, except percentages) | 2021 | | 2020 | | Increase (Decrease) | | % change |
Wholesale | Wholesale | $ | 7,679 | | | $ | 7,905 | | | $ | (226) | | | (3)% | Wholesale | $ | 10,012 | | | $ | 7,679 | | | $ | 2,333 | | | 30% |
Wholesale gross margin percentage | Wholesale gross margin percentage | 32 | % | | 34 | % | | | | | Wholesale gross margin percentage | 37 | % | | 32 | % | | | | |
Direct to Consumer | Direct to Consumer | 10,707 | | | 12,312 | | | (1,605) | | | (13)% | Direct to Consumer | 12,158 | | | 10,707 | | | 1,451 | | | 14% |
Direct to Consumer gross margin percentage | Direct to Consumer gross margin percentage | 61 | % | | 68 | % | | | | | Direct to Consumer gross margin percentage | 63 | % | | 61 | % | | | | |
Other | Other | (3,623) | | | (2,322) | | | (1,301) | | | (56)% | Other | (609) | | | (3,623) | | | 3,014 | | | 83% |
Total gross profit | Total gross profit | $ | 14,763 | | | $ | 17,895 | | | $ | (3,132) | | | (18)% | Total gross profit | $ | 21,561 | | | $ | 14,763 | | | $ | 6,798 | | | 46% |
Total gross margin percentage | Total gross margin percentage | 34 | % | | 39 | % | | | | Total gross margin percentage | 44 | % | | 34 | % | | | |
Wholesale gross profit decreased $0.2increased $2.3 million, or 3%30%, in the current nine month period as compared to the same period in 20192020 primarily driven by an overall increase in wine sales, a significant reduction of close out sales in the liquidation of obsoletecurrent period as inventory realignment initiatives were completed, and partially offset by increased domestic wine sales.a shift in sales mix towards wines with a more favorable vintage cost. Wholesale gross margin percentage, which is defined as wholesale gross profit as a percentage of wholesale net sales, decreased 214increased 544 basis points primarily driven byin the liquidation of obsolete inventorycurrent period compared to the same period in 2019.2020 primarily driven by a significant reduction of close out sales in the current period and a shift in sales mix towards wines with a more profitable vintage.
Direct to Consumer gross profit decreased $1.6increased $1.5 million, or 13%14%, in the current nine month period as compared to the same period in 2019.2020. The decreaseincrease was primarily driven by reduced wine sold in the tasting rooms and during special events, partially offset by successful strategic Ecommerce offersas a result of higher Direct to Consumer sales compared to the same period in 2019. The negative impact on hospitality services was due to operating limitations2020 as a result of COVID-19 containment measures and intermittent closures due to the poor air quality and extreme heat related to the 2020 wildfires in California and Oregon.discussed above under Net Sales. Direct to Consumer gross margin percentage decreased 656increased 190 basis points in the current nine month period primarily driven by release of higher cost vintages and Ecommerce offers driving higher discounts with a less favorable sales mix compared to the same period in 2019.2020 primarily driven by a shift in sales channel mix from increased tasting rooms sales and a shift in sales mix towards wines with a more favorable vintage cost.
Other“Other” includes a gross loss on bulk wine and grape sales, custom winemaking services, event fees and non-wine retail sales and increased $1.3sales. Other gross loss decreased $3.0 million, or 56%,83% in the current nine month period as compared to the same period in 2019. The increase2020 and the decrease in other gross loss is primarily driven by lower write-downs of excess bulk wine inventory, non-recurring inventory write-downs related to the 2020 vintage grapes affected bywildfires recognized in the same period in 2020, improved margins on bulk wine sales, higher tasting fee revenue due to increased traffic at tasting rooms, and insurance proceeds for smoke taint exposure, reduced event fees and non-wine retail sales due toaffected inventory from the tasting rooms’ operating limitations and intermittent closures as discussed above, as well as increased cost of goods sold due to inventory write-downs related to the 20192020 vintage.
Operating Expenses
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except percentages) | (in thousands, except percentages) | 2020 | | 2019 | | Increase (Decrease) | | % change | (in thousands, except percentages) | 2021 | | 2020 | | Increase (Decrease) | | % change |
Sales and marketing | Sales and marketing | $ | 10,729 | | | $ | 13,785 | | | $ | (3,056) | | | (22)% | Sales and marketing | $ | 10,670 | | | $ | 10,729 | | | $ | (59) | | | (1)% |
General and administrative | General and administrative | 8,315 | | | 8,909 | | | (594) | | | (7)% | General and administrative | 9,795 | | | 8,315 | | | 1,480 | | | 18% |
Total operating expenses | Total operating expenses | $ | 19,044 | | | $ | 22,694 | | | $ | (3,650) | | | (16)% | Total operating expenses | $ | 20,465 | | | $ | 19,044 | | | $ | 1,421 | | | 7% |
Sales and marketing expenses decreased $3.1 million, or 22%,slightly in the current nine month period as compared to the same period in 2019.2020. The decrease was primarily driven by reduced compensation as a result of the 2020 Restructuring Program decreased travel costsand lower professional services, offset by increased accrued bonuses related to COVID-19,current year performance and reducedincreased advertising and promotional expenses compared to the same period in 2019.2020.
General and administrative expenses decreased $0.6increased $1.5 million, or 7%18%, in the current nine month period as compared to the same period in 20192020 primarily due to decreased employeecosts related expenses, consultingto the amended 2019 Annual Report on Form 10-K and amended 2020 Quarterly Reports on Form 10-Q, increased accrued bonuses related to current year performance, and increased professional services, partially offset by savings from the corporate office relocation and travel costs.temporarily and voluntarily reduced Board of Directors fees compared to the same period in 2020.
Other Income (Expense)
Other (Expense) Income
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except percentages) | (in thousands, except percentages) | 2020 | | 2019 | | Change | | % change | (in thousands, except percentages) | 2021 | | 2020 | | Change | | % change |
Interest expense, net | Interest expense, net | $ | (765) | | | $ | (730) | | | $ | (35) | | | (5)% | Interest expense, net | $ | (723) | | | $ | (765) | | | $ | 42 | | | 5% |
Gain on extinguishment of debt | | Gain on extinguishment of debt | 3,863 | | | — | | | 3,863 | | | 100% |
Other income, net | Other income, net | 395 | | | 442 | | | (47) | | | (11)% | Other income, net | 305 | | | 395 | | | (90) | | | (23)% |
Total other expense, net | $ | (370) | | | $ | (288) | | | $ | (82) | | | (28)% | |
Total other income (expense), net | | Total other income (expense), net | $ | 3,445 | | | $ | (370) | | | $ | 3,815 | | | 1,031% |
Interest expense, net, increased less than $0.1 million, or 5%, in the current nine month period compared to the same period in 2019. The increase was primarily driven by a lower patronage dividend received and lower capitalized interest on vineyard development projects during the current period.
Other income, net, decreased less than $0.1 million, or 11%5%, in the current nine month period as compared to the same period in 2019.2020. The decrease was primarily driven by lower insurance proceedsinterest expense on declining principal balances on the 2015 and 2017 Term Loans.
Gain on extinguishment of debt was recognized for $3.9 million in the current nine month period. The gain on extinguishment of debt was related to the PPP loan forgiveness approved by the SBA on June 14, 2021.
Other income, net, decreased $0.1 million, or 23%, in the current nine month period as compared to the same period in 2020. The decrease was primarily driven by lower investments interest income received and non-recurring insurance proceeds received in the prior period. The decrease was partially offset by the discontinuation of apple consignment sales, which yielded a loss,gain on lease modification recognized in the same period in 2019.current period.
Income Tax Benefit (As Restated)Provision (Benefit)
The Company’s effective tax rates for the nine months ended September 30, 2021 and 2020 were 8.8% and 2019 were 29.5% and 26.5%, respectively. As a result of the Tax Cuts and Jobs Act (Public Law 115-97), the Company revised its estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 34% to 21%. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the nine months ended September 30, 20202021 was primarily attributable to income exclusion of PPP loan forgiveness for federal income taxes, state income taxes and the effect of certainother permanent differences, which primarily consisted of meals and entertainment.items.
Liquidity and Capital Resources
General
The Company’s principal sources of liquidity are its available cash and cash equivalents, investments in available for sale securities, funds generated from operations and bank borrowings. The Company’s primary cash needs are to fund working capital requirements and capital expenditures. Despite the negative effects of COVID-19 on our business, the Company has maintained adequate liquidity to meet working capital requirements, fund capital expenditures, meet payroll, and repay scheduled principal and interest payments on debt.
In response to the current macro-economic environment, we protected our financial position and liquidity as evidenced by the following items: we managed our operating expenses closely and limited discretionary spending; reduced and/or deferred capital projects where prudent; and actively managed our working capital, including supporting our business partners most impacted by the pandemic through extended terms and closely monitoring our customers’ solvency and our ability to collect from them;them.As a result, we believe that cash flows generated from operations and held back plansour cash, cash equivalents, and marketable securities balances, as well as our borrowing arrangements, will be sufficient to meet our presently anticipated cash requirements for a share repurchase program to preserve liquidity.capital expenditures, working capital, debt obligations and other commitments during the next twelve months.
Revolving Credit Facility
In March 2013, Crimson and its subsidiaries entered into a $60.0 million revolving credit facility (the “2013 Revolving“Revolving Credit Facility”) with American AgCredit, FLCA, as agent for the lenders identified in the 2013lenders. The Revolving Credit Facility is comprised of a revolving loan facility (the “Revolving Loan”) and a term revolving loan facility (the “Term Revolving Loan”), which together are secured by substantially all of Crimson’s assets. In March 2018, Crimson and its subsidiaries entered into the second amendment to the 2013 Revolving Credit Facility with American AgCredit, FCLA (the “Second Amendment”). The Second Amendment modified certain provisions of the 2013 Revolving Credit Facility, including, among other things, extending the Revolving Loan and Term Revolving Loan termination dates to March 31, 2023, extending the Term Revolving Loan conversion date to March 31, 2023 and extending the Term Revolving Loan maturity date to March 31, 2033.
The Revolving Loan is for up to $10.0 million of availability in the aggregate for a five year term, and the Term Revolving Loan is for up to $50.0 million in the aggregate for a fifteen year term. All obligations of Crimson under the 2013 Revolving Credit Facility are collateralized by certain real property, including vineyards and certain winery facilities of Crimson, accounts receivable, inventory and intangible assets. In addition to unused line fees ranging from 0.15% to 0.25%, rates for the
borrowings are priced based on a performance grid tied to certain financial ratios and the London Interbank Offered Rate. The 2013 Revolving Credit Facility can be used to fund acquisitions, capital projects and other general corporate purposes. Covenants include the maintenance of specified debt and equity ratios, limitations on the incurrence of additional indebtedness, limitations on dividends and other distributions to shareholders and restrictions on certain mergers, consolidations and sales of assets. No amounts have been borrowed under the revolving credit facility to date.
Term Loans
Term loans consist of the following:
(i) On November 10, 2015, Pine Ridge Winery, LLC (“PRW Borrower”), a wholly-owned subsidiary of Crimson, entered into a senior secured term loan agreement (the “2015 Term Loan”) with American AgCredit, FLCA (“Lender”) for an aggregate principal amount of $16.0 million. Amounts outstanding under the 2015 Term Loan bear a fixed interest rate of 5.24% per annum.
The 2015 Term Loan will mature on October 1, 2040 (the “2015 Loan Maturity Date”). On the first day of each January, April, July and October, commencing January 1, 2016, PRW Borrower is required to make a principal payment in the amount of $160,000 and an interest payment equal to the amount of all interest accrued through the previous day. A final payment of all unpaid principal, interest and any other charges with respect to the 2015 Term Loan shall be due and payable on the 2015 Loan Maturity Date.
2040. The full $16.0 million was drawn at closing and the 2015 Term Loanterm loan can be used to fund acquisitions, capital projects and other general corporate purposes. As of September 30, 2020, $12.82021, $12.3 million in principal was outstanding on the 2015 Term Loan, and unamortized loan fees were less than $0.1 million.
(ii) On June 29, 2017, Double Canyon Vineyards, LLC (the “DCV Borrower” and, individually and collectively with the PRW Borrower, “Borrower”), a wholly-owned subsidiary of Crimson, entered into a senior secured term loan agreement (the “2017 Term Loan”) with the Lender for an aggregate principal amount of $10.0 million. Amounts outstanding under the 2017 Term Loan bear a fixed interest rate of 5.39% per annum.
The 2017 Term Loan will mature on July 1, 2037 (the “2017 Loan Maturity Date”). On the first day of each January, April, July and October, commencing October 1, 2017, DCV Borrower is required to make a principal payment in the amount of $125,000 and an interest payment equal to the amount of all interest accrued through the previous day. A final payment of all unpaid principal, interest and any other charges with respect to the 2017 Term Loan shall be due and payable on the 2017 Loan Maturity Date.
2037. The full $10.0 million was drawn at closing and the 2017 Term Loanterm loan can be used to fund acquisitions, capital projects and other general corporate purposes. As of September 30, 2020, $8.42021, $8.0 million in principal was outstanding on the 2017 Term Loan, and unamortized loan fees were less than $0.1 million.
Borrower’s obligations under the 2015 Term Loan and 2017 Term Loan are guaranteed by the Company. All obligations of Borrower under the 2015 Term Loan and 2017 Term Loan are collateralized by certain real property of the Company. Borrower’s covenants include the maintenance of a specified debt service coverage ratio and certain customary affirmative and negative covenants, including limitations on the incurrence of additional indebtedness, limitations on distributions to shareholders, and restrictions on certain investments, the sale of assets, and merging or consolidating with other entities. Borrower was in compliance with all debt covenants as of September 30, 2021.
(iii) In March 2020, in light of the global outbreak of the COVID-19 virus, Congress passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act included a small business stimulus program called the Paycheck Protection Program (“PPP”), which is intended to provide loans to qualified businesses to, as originally implemented, support eight weeks of payroll and other identified costs. PPP loans are eligible for partial or full forgiveness. On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020 which, among other things, extended the loan forgiveness period for PPP loans from eight weeks to 24 weeks and increased the cap on usage of the loan on non-payroll costs from 25% to 40%.
In April 2020, the Company successfully secured a $3.8 million PPP loan. Under the CARES Act, the loan is eligible for forgiveness for the portion used to cover payroll costs and other specified non-payroll costs, including interest on mortgage obligations, rent and utilities (provided any non-payroll costs do not exceed 40% of the forgiven amount) over an eight-week or 24-week period after the loan is made if employee and compensation levels are maintained. The Company intends to apply for
forgiveness of amounts received under the PPP in accordance with the requirements of the CARES Act, as amended. Any loan amounts forgiven will be removed from liabilities recorded. While the Company used the proceeds of the PPP Loan only for permissible purposes, there can be no assurance that it will be eligible for forgiveness of the PPP Loan, in full or in part.
(iii) On April 22, 2020, Crimson entered into an unsecured term loan agreement (the “2020 PPP Term Loan”) with American AgCredit, FLCA (“Lender”)Lender for an aggregate principal amount of $3.8 million. Amounts outstanding undermillion pursuant to a new loan program through the 2020 PPP Term Loan bear a fixed interest rate of 1.00% per annum. If all or a portionSBA as the result of the 2020 PPP Term Loan is not forgiven, any accruedestablished by the CARES Act and unpaid interest shall be addedamended by the Paycheck Protection Program Flexibility Act of 2020. The Company requested loan forgiveness in April 2021 and on June 14, 2021, the forgiveness application to the outstanding balance (“Adjusted Loan Balance”).
SBA was approved for the full principal amount including interest. The 2020 PPP Term Loan will mature on April 1, 2022 (the “2020 Loan Maturity Date”). Based onSBA has remitted payment to the current terms oflender and the Company has been legally released from the loan there are two scenariosagreement. In June 2021, the Company recorded a gain on extinguishment of payment. The first scenario callsdebt for approximately $3.9 million, which includes both the payments on the loan to commence on the first day of the month following the date on which the Lender receives the applicable forgiveness amount, if any, from the Small Business Administration (“SBA”), if a balance on the loan remains after the forgiveness amount has been applied. If all obligations under the loan are forgiven by the SBA, no payments will be required. The second scenario applies if Crimson fails to timely apply for forgiveness of the 2020 PPP Term Loan. In this second scenario, the payments on the loan will commence on the first day of the month that is 10 months after the end of the eight-week period following the date of loan origination, April 22, 2020. Crimson is required to make payments of equal monthlyfull principal and interest based on the Adjusted Loan Balance. A final payment of all unpaid principal, interest and any other charges with respect to the 2020 PPP Term Loan shall be due and payable on the 2020 Loan Maturity Date. The amortization period of equal monthly principal and interest will be adjusted based on which payment scenario is triggered. While the loan currently has a two-year maturity, the amended law permits the borrower to request a five-year maturity from its lender.amounts.
The full $3.8 million was drawn at closing and the 2020 PPP Term Loan can be used for the purposes authorized and approved in the CARES Act. As of September 30, 2020, $3.8 million in principal was outstanding on the 2020 PPP Term Loan.
Consolidated Statements of Cash Flows
The following table summarizes our cash flow activities for the nine months ended September 30, 20202021 and 20192020 (in thousands):
| | Cash provided by (used in): | Cash provided by (used in): | 2020 | | 2019 | Cash provided by (used in): | 2021 | | 2020 |
Operating activities | Operating activities | $ | 9,200 | | | $ | 2,979 | | Operating activities | $ | 13,242 | | | $ | 9,200 | |
Investing activities | Investing activities | 608 | | | 5,557 | | Investing activities | (4,365) | | | 608 | |
Financing activities | Financing activities | 2,680 | | | (2,692) | | Financing activities | (6,810) | | | 2,680 | |
Cash provided by operating activities (As restated)
Net cash provided by operating activities was $13.2 million for the nine months ended September 30, 2021, consisting primarily of $4.2 million of net income adjusted for $3.3 million of non-cash items and $5.8 million net cash inflow related to changes in operating assets and liabilities. Adjustments for non-cash items primarily consist of depreciation, amortization, and loss on the write-down of inventory, partially offset by the gain on extinguishment of debt. The change in operating assets and liabilities was primarily due to an increase in accounts payable and accrued liabilities and customer deposits and decrease in inventory and other current assets, partially offset by an increase in accounts receivable. The increase in accounts payable and accrued liabilities were driven by higher grape purchases and grower activities correlated with a higher vintage yield for the 2021 harvest.
Net cash provided by operating activities was $9.2 million for the nine months ended September 30, 2020, consisting primarily of $4.4 million of net loss adjusted for non-cash items such as $9.2 million primarily consisting of depreciation, amortization, and loss on the write-down of inventory, $1.4 million of restructuring charges, and $2.9 million net cash inflow related to changes in operating assets and liabilities. The change in operating assets and liabilities was primarily due to a decrease in accounts receivable and inventory and increase in customer deposits and other payables, partially offset by an increase in other current assets and a decrease in accounts payable and accrued liabilities.
Cash (used in) provided by investingactivities
Net cash provided by operatingused in investing activities was $3.0$4.4 million for the nine months ended September 30, 2019,2021, consisting primarily of $5.3the net purchases of available for sale investments of $2.3 million and capital expenditures of net loss adjusted for non-cash items such as $10.5$2.3 million, primarily consisting of depreciation, amortization, impairment charges, and loss on the write-down of inventory, $0.1 million of restructuring charges, partially offset by $2.3 millionproceeds from the sale of net cash outflow related to changes in operating assetsproperty and liabilities. The change in operating assets and liabilities was primarily due to a decrease in accounts payable and accrued liabilities, and increase in other current assets, partially offset by an increase in customer deposits and a decrease in inventory. The decrease in accounts payable and accrued liabilities was primarily due to grower payments made in the 2019 period for the 2018 harvest. The increase in other current assets was primarily due to an increase in prepaid income taxes.
Cash provided by investingactivitiesequipment totaling $0.2 million.
Net cash provided by investing activities was $0.6 million for the nine months ended September 30, 2020, consisting primarily of proceeds from the sale of land in Klickitat County, Washington totaling $1.9 million and the net redemptions of available for sale investments of $1.3 million, partially offset by capital expenditures of $2.6 million.
Cash (used in) provided by financingactivities
Net cash provided by investingused in financing activities was $5.6 million for the nine months ended September 30, 2019,2021 was $6.8 million, consisting primarily of net redemptionsthe repurchase of available for sale investmentsshares of $9.5our common stock at an aggregate purchase price of $6.2 million partially offset by capital expendituresand the principal payments on our 2015 and 2017 Term Loans of $4.1$0.6 million.
Cashused in financingactivities
Net cash provided by financing activities for the nine months ended September 30, 2020 was $2.7 million, consisting primarily of proceeds of the 2020 PPP Term Loan totaling $3.8 million, partially offset by principal payments on our 2015 and 2017 Term Loans of $1.1 million.
Net cash used in financing activities for the nine months ended September 30, 2019 was $2.7 million, which reflects the repurchase of shares of our common stock at a repurchase price of $1.7 million, principal payments on our 2015 and 2017 Term Loans of $0.9 million and contingent consideration payments of $0.1 million associated with the Seven Hills Winery acquisition.
ShareRepurchases
In December 2018, the Company commenced a share repurchase program (the “2019 Winter Repurchase Program”) that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2019 Winter Repurchase Program, any repurchased shares were constructively retired. On April 30, 2019, the 2019 Winter Repurchase Program was completed. Under the total 2019 Winter Repurchase Program, the Company had repurchased 253,324 shares at a repurchase price of $2.0 million.
In September 2019, the Company commenced a share repurchase program (the “2019 Summer Repurchase Program”) that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2019 Summer Repurchase Program,
any repurchased shares were constructively retired. On December 12, 2019, the 2019 Summer Repurchase Program was completed. Under the total 2019 Summer Repurchase Program, the Company had repurchased 283,208 shares at a repurchase price of $2.0 million.Share Repurchases
Commitments & Contingencies
There have been no significant changes to our contractual obligations table as disclosed inOn May 24, 2021, with the 2019 Report.unanimous written consent of the Board of Directors, the Company repurchased an aggregate of 719,291 shares of its common stock at a purchase price of $8.65 per share for an aggregate purchase price of approximately $6.2 million. The Company’s repurchase was funded through cash on hand, and the shares were retired.
Off-Balance Sheet Financing Arrangements
None.
Critical Accounting Policies and Estimates
Except as disclosed in Note 1 of this Form 10-Q/A, thereThere have been no material changes to the critical accounting policies and estimates previously disclosed in the 20192020 Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Crimson does not currently have any exposure to financial market risk. Sales to international customers are denominated in U.S. dollars; therefore, Crimson is not exposed to market risk related to changes in foreign currency exchange rates. As discussed above under Liquidity and Capital Resources, Crimson has a revolving credit facility, two term loans, and a PPP Term Loan. The revolving credit facility had no outstanding balance as of September 30, 2020, and bears interest at floating rates on borrowings. The three term loans had a total of $25.0 million outstanding at September 30, 2020, and are fixed-rate debt and therefore are not subject to fluctuations in market interest rates.Not required.
Item 4. Controls and Procedures.
The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)),Act) as of September 30, 2020.2021. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 20202021 due to the material weakness in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.
The Company previously determined that it did not have adequate controls in place to monitor and associate the cost of bulk wine inventory with quantity or gallons on hand. As a result, the cost related to certain bulk wine inventory was not properly transferred to bulk and bottled inventory accounts that would subsequently be relieved through sales transactions. This material weakness resulted in the restatement of our unaudited interim consolidated financial statements as of2019 Annual Report on Form 10-K and for the three and nine months ended September 30, 2020.2020 Quarterly Reports on Form 10-Q. It should be noted that the custody and recordkeeping of physical inventory have always been properly maintained through physical inventory counts and the restatement error is strictly related to the cost component.
Remediation of the Material Weakness.Weakness
Management has been implementingimplemented changes to strengthen our internal controls over the accounting for bulk wine inventory valuation and the related impacts. The remediation plan includes both management’s assessment and recommendations from independent accounting advisors used in the review process. This remediation is intended to address the identified material weakness and enhance our overall control environment.
Management has implemented a bulk wine sub-ledger to general ledger reconciliation. This added control is intended to ensure accurate costing is assigned and maintained for the Company’s bulk wine inventory. It should be noted that the custody and recordkeeping of physical inventory have always been properly maintained through physical inventory counts and the restatement error is strictly related to the cost component.
While we believe that the above action will ultimately remediate the material weakness, we intend to continue to refine this control and monitor its effectiveness for a sufficient period of time prior to reaching any determination as to whether the material weakness has been remediated.
Notwithstanding the identified material weakness, management believes that the consolidated financial statements included in this Quarterly Report on Form 10-Q/A10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented in accordance with U.S. GAAP.
Changes in Internal Control over Financial Reporting
Other than as described in the Remediation of the Material Weakness section above, there has been no change in the Company'sCompany’s internal control over financial reporting that occurred during the Company'sCompany’s fiscal quarter ended September 30, 20202021 that has materially affected, or is reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, Crimson may be involved in legal proceedings in the ordinary course of its business. Crimson is not currently involved in any legal or administrative proceedings individually or together that it believes are likely to have a significant adverse effect on its business, results of operations or financial condition.
Item 1A. Risk Factors.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 20192020 Report, which could materially affect our business, results of operations or financial condition, please carefully consider the additional risk factor below.
We facecondition. The risks related to health pandemics, particularly the recent outbreak of COVID-19, which could adversely affect our business and results of operations.
Our business could be adversely affected by a widespread outbreak of contagious disease, including the recent outbreak of the novel coronavirus, known as COVID-19, which has spread to many countries throughout the world. The effects of this outbreak on our business have included and could continue to include disruptions or restrictions on our employees’ ability to travel in affected regions, as well as temporary closures of our tasting rooms and temporary closures of the facilities of our suppliers, customers, or other vendorsdescribed in our supply chain, which could impact our business, interactions and relationships with our customers, third-party suppliers and contractors, and results of operations. In addition, a significant outbreak of contagious disease in2020 Report are not the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could reduce the demand for our products and likely impact our results of operations. The extent to which the COVID-19 outbreak will impact business and the economy is highly uncertain and cannot be predicted. Accordingly, we cannot predict the extent to which our financial condition and results of operations will be affected.
only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, results of operations or financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
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2.1* | |
3.1* | |
3.2* | |
31.1** | |
31.2** | |
32.1** | |
32.2** | |
101** | Unaudited restated financial statements from the Quarterly Report on Form 10-Q/A10-Q of Crimson Wine Group, Ltd. for the quarter ended September 30, 2020,2021, formatted in Inline Extensible Business Reporting Language (XBRL): (i) the Restated Condensed Consolidated Balance Sheets; (ii) the Restated Condensed Consolidated Statements of Loss;Operations; (iii) the Restated Condensed Consolidated Statements of Comprehensive Income (iv) the Restated Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Interim Restated Condensed Consolidated Financial Statements. |
104** | The cover page from the Company’s Quarterly Report on Form 10-Q/A10-Q for the quarter ended September 30, 2020,2021, formatted in Inline XBRL.XBRL (included as Exhibit 101). |
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* Incorporated by reference |
** FiledFiled/furnished herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | CRIMSON WINE GROUP, LTD. | |
| | | (Registrant) | |
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Date: | April 13,November 4, 2021 | By: | /s/ Karen L. Diepholz |
| | | Karen L. Diepholz |
| | | Chief Financial Officer |
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