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 seven 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, as filed with the SEC on Form 10-K/A (the “2019 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, 2019 was extracted from the audited annual consolidated financial statements and does not include all disclosures required by GAAP for annual financial statements.
Significant Accounting Policies
Except as described below under Recent Accounting Pronouncements and in Note 14 “Commitments and Contingencies,” there were no changes to the Company’s significant accounting policies during the nine months ended September 30, 2020. See Note 2 of the 2019 Report for a description of the Company’s significant accounting policies.
Reclassifications
Certain reclassifications have been made to prior period unaudited interim condensed consolidated balance sheets and 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 2019 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:
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Standard
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Description
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Date of adoption
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Effect on the financial statements or other significant matters
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Standards that are not yet adopted
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Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740)
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Simplifies the accounting for income taxes by removing certain Codification exceptions and others to be discussed.
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January 1, 2021, early adoption is permitted for the Company.
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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.
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Standards that were adopted
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ASU 2017-04, Goodwill and Other (Topic 350)
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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.
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January 1, 2020
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The adoption of this standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.
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ASU 2018-13, Fair Value Measurement (Topic 820)
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Improves the disclosures related to fair value by removing, modifying or adding disclosure requirements related to recurring and non-recurring fair value measurements.
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January 1, 2020
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The adoption of this standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.
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ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)
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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).
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January 1, 2020
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The adoption of this standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.
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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 vintages resulted 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)
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September 30, 2020
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As previously reported
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Restatement impacts
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As restated
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Assets
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Current assets:
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Cash and cash equivalents
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$
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25,474
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$
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—
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$
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25,474
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Investments available for sale
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8,774
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—
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8,774
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Accounts receivable, net
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6,274
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—
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6,274
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Inventory
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71,402
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(5,424)
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65,978
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Other current assets
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3,505
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376
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3,881
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Assets held for sale
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588
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—
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588
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Total current assets
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116,017
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(5,048)
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110,969
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Property and equipment, net
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116,075
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—
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116,075
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Goodwill
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1,262
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—
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1,262
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Intangible assets and other non-current assets, net
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9,849
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—
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9,849
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Total non-current assets
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127,186
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—
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127,186
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Total assets
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$
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243,203
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$
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(5,048)
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$
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238,155
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Liabilities
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Current liabilities:
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Accounts payable and accrued liabilities
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$
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11,296
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$
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—
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$
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11,296
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Customer deposits
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1,290
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—
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1,290
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Current portion of long-term debt, net of unamortized loan fees
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2,433
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—
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2,433
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Total current liabilities
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15,019
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—
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15,019
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Long-term debt, net of current portion and unamortized loan fees
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22,437
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—
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22,437
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Deferred tax liability, net
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4,095
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(1,088)
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3,007
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Other non-current liabilities
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140
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—
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140
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Total non-current liabilities
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26,672
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(1,088)
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25,584
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Total liabilities
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41,691
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(1,088)
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40,603
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Commitments and Contingencies (Note 14)
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Equity
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Common shares, par value $0.01 per share, authorized 150,000,000 shares; 23,243,476 shares issued and outstanding at September 30, 2020
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232
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—
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232
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Additional paid-in capital
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277,543
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—
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277,543
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Accumulated other comprehensive income
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25
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—
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25
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Accumulated deficit
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(76,288)
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(3,960)
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(80,248)
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Total equity
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201,512
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(3,960)
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197,552
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Total liabilities and equity
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$
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243,203
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$
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(5,048)
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$
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238,155
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CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts and par value)
(Unaudited)
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December 31, 2019
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As previously reported
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Restatement impacts
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As restated
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Assets
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Current assets:
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Cash and cash equivalents
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$
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12,986
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$
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—
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$
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12,986
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Investments available for sale
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10,006
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—
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10,006
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Accounts receivable, net
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10,131
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—
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10,131
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Inventory
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73,498
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(4,034)
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|
69,464
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Other current assets
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1,904
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—
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1,904
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Assets held for sale
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2,383
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—
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2,383
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Total current assets
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110,908
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(4,034)
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|
106,874
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Property and equipment, net
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119,112
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—
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119,112
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Goodwill
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1,262
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—
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1,262
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Intangible assets and other non-current assets, net
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10,950
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—
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10,950
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Total non-current assets
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131,324
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—
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131,324
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Total assets
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$
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242,232
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$
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(4,034)
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$
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238,198
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Liabilities
|
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Current liabilities:
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Accounts payable and accrued liabilities
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$
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10,368
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$
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—
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$
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10,368
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Customer deposits
|
405
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—
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|
405
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Current portion of long-term debt, net of unamortized loan fees
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1,127
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—
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|
1,127
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Total current liabilities
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11,900
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—
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|
|
11,900
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Long-term debt, net of current portion and unamortized loan fees
|
21,054
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—
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|
21,054
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Deferred tax liability, net
|
4,178
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|
|
(1,088)
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|
3,090
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Other non-current liabilities
|
255
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—
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|
255
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Total non-current liabilities
|
25,487
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(1,088)
|
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|
24,399
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Total liabilities
|
37,387
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|
(1,088)
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|
36,299
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|
Commitments and Contingencies (Note 14)
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|
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|
|
Equity
|
|
|
|
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|
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
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|
|
—
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|
232
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|
Additional paid-in capital
|
277,522
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—
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|
277,522
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Accumulated other comprehensive income
|
12
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—
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|
12
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|
Accumulated deficit
|
(72,921)
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(2,946)
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(75,867)
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Total equity
|
204,845
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(2,946)
|
|
|
201,899
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|
Total liabilities and equity
|
$
|
242,232
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|
$
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(4,034)
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$
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238,198
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CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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|
Three Months Ended September 30, 2020
|
|
As previously reported
|
|
Restatement impacts
|
|
As restated
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Net sales
|
$
|
15,867
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|
|
$
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—
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$
|
15,867
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Cost of sales
|
10,847
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|
|
564
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|
|
11,411
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|
Gross profit
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5,020
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(564)
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|
|
4,456
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|
Operating expenses:
|
|
|
|
|
|
Sales and marketing
|
3,316
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|
|
—
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|
3,316
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General and administrative
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2,602
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|
|
—
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|
2,602
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Total operating expenses
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5,918
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|
—
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|
5,918
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|
Net gain on disposal of property and equipment
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(40)
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—
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(40)
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Restructuring costs
|
114
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|
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—
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|
114
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Loss from operations
|
(972)
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|
(564)
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|
(1,536)
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|
Other (expense) income:
|
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|
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Interest expense, net
|
(328)
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—
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|
(328)
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Other income, net
|
109
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|
—
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|
109
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Total other expense, net
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(219)
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—
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|
(219)
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Loss before income taxes
|
(1,191)
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|
|
(564)
|
|
|
(1,755)
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Income tax benefit
|
(306)
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|
|
(153)
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|
(459)
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Net loss
|
$
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(885)
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|
$
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(411)
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|
$
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(1,296)
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Basic and fully diluted weighted-average shares outstanding
|
23,243
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—
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|
23,243
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Basic and fully diluted loss per share
|
$
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(0.04)
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|
|
$
|
(0.02)
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|
|
$
|
(0.06)
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CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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|
|
|
|
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|
|
|
Three Months Ended September 30, 2019
|
|
As previously reported
|
|
Restatement impacts
|
|
As restated
|
Net sales
|
$
|
14,672
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|
|
$
|
—
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|
|
$
|
14,672
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Cost of sales
|
10,344
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|
|
177
|
|
|
10,521
|
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Gross profit
|
4,328
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(177)
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|
|
4,151
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|
Operating expenses:
|
|
|
|
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|
Sales and marketing
|
4,716
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|
|
—
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|
|
4,716
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General and administrative
|
2,833
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|
|
—
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|
|
2,833
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|
Total operating expenses
|
7,549
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|
|
—
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|
|
7,549
|
|
Net loss on disposal of property and equipment
|
204
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|
|
—
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|
|
204
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|
|
|
|
|
|
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Impairment charges
|
625
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|
|
—
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|
|
625
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|
Loss from operations
|
(4,050)
|
|
|
(177)
|
|
|
(4,227)
|
|
Other (expense) income:
|
|
|
|
|
|
Interest expense, net
|
(367)
|
|
|
—
|
|
|
(367)
|
|
Other income, net
|
335
|
|
|
—
|
|
|
335
|
|
Total other expense, net
|
(32)
|
|
|
—
|
|
|
(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
|
|
|
—
|
|
|
23,521
|
|
Basic and fully diluted loss per share
|
$
|
(0.13)
|
|
|
$
|
(0.01)
|
|
|
$
|
(0.14)
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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
|
|
|
$
|
—
|
|
|
$
|
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
|
|
|
—
|
|
|
10,729
|
|
General and administrative
|
8,315
|
|
|
—
|
|
|
8,315
|
|
Total operating expenses
|
19,044
|
|
|
—
|
|
|
19,044
|
|
Net loss on disposal of property and equipment
|
137
|
|
|
—
|
|
|
137
|
|
Restructuring costs
|
1,424
|
|
|
—
|
|
|
1,424
|
|
|
|
|
|
|
|
Loss from operations
|
(4,452)
|
|
|
(1,390)
|
|
|
(5,842)
|
|
Other (expense) income:
|
|
|
|
|
|
Interest expense, net
|
(765)
|
|
|
—
|
|
|
(765)
|
|
Other income, net
|
395
|
|
|
—
|
|
|
395
|
|
Total other expense, net
|
(370)
|
|
|
—
|
|
|
(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
|
|
|
—
|
|
|
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
|
|
|
$
|
—
|
|
|
$
|
46,192
|
|
Cost of sales
|
27,497
|
|
|
800
|
|
|
28,297
|
|
Gross profit
|
18,695
|
|
|
(800)
|
|
|
17,895
|
|
Operating expenses:
|
|
|
|
|
|
Sales and marketing
|
13,785
|
|
|
—
|
|
|
13,785
|
|
General and administrative
|
8,909
|
|
|
—
|
|
|
8,909
|
|
Total operating expenses
|
22,694
|
|
|
—
|
|
|
22,694
|
|
Net loss on disposal of property and equipment
|
173
|
|
|
—
|
|
|
173
|
|
Restructuring costs
|
76
|
|
|
—
|
|
|
76
|
|
Impairment charges
|
1,860
|
|
|
—
|
|
|
1,860
|
|
Loss from operations
|
(6,108)
|
|
|
(800)
|
|
|
(6,908)
|
|
Other (expense) income:
|
|
|
|
|
|
Interest expense, net
|
(730)
|
|
|
—
|
|
|
(730)
|
|
Other income, net
|
442
|
|
|
—
|
|
|
442
|
|
Total other expense, net
|
(288)
|
|
|
—
|
|
|
(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
|
|
|
—
|
|
|
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)
|
|
|
—
|
|
|
(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
|
|
|
—
|
|
|
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
|
|
|
—
|
|
|
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
|
|
|
—
|
|
|
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
|
|
|
—
|
|
|
5,376
|
|
Amortization of intangible assets
|
965
|
|
|
—
|
|
|
965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on write-down of inventory
|
2,711
|
|
|
6
|
|
|
2,717
|
|
Provision for doubtful accounts
|
98
|
|
|
—
|
|
|
98
|
|
Net loss on disposal of property and equipment
|
137
|
|
|
—
|
|
|
137
|
|
|
|
|
|
|
|
Restructuring charges
|
1,424
|
|
|
—
|
|
|
1,424
|
|
|
|
|
|
|
|
Benefit for deferred income tax
|
(88)
|
|
|
—
|
|
|
(88)
|
|
Stock-based compensation
|
21
|
|
|
—
|
|
|
21
|
|
Net change in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
3,759
|
|
|
—
|
|
|
3,759
|
|
Inventory
|
(615)
|
|
|
1,384
|
|
|
769
|
|
Other current assets
|
(1,601)
|
|
|
(376)
|
|
|
(1,977)
|
|
Other non-current assets
|
136
|
|
|
—
|
|
|
136
|
|
Accounts payable and accrued liabilities
|
(535)
|
|
|
—
|
|
|
(535)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits and other payables
|
894
|
|
|
—
|
|
|
894
|
|
Other non-current liabilities
|
(115)
|
|
|
—
|
|
|
(115)
|
|
Net cash provided by operating activities
|
9,200
|
|
|
—
|
|
|
9,200
|
|
Net cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments available for sale
|
(7,250)
|
|
|
—
|
|
|
(7,250)
|
|
Redemptions of investments available for sale
|
8,500
|
|
|
—
|
|
|
8,500
|
|
Acquisition of property and equipment
|
(2,582)
|
|
|
—
|
|
|
(2,582)
|
|
|
|
|
|
|
|
Proceeds from disposals of property and equipment
|
1,940
|
|
|
—
|
|
|
1,940
|
|
Net cash provided by investing activities
|
608
|
|
|
—
|
|
|
608
|
|
Net cash flows from financing activities:
|
|
|
|
|
|
Proceeds from PPP term loan
|
3,820
|
|
|
—
|
|
|
3,820
|
|
Principal payments on long-term debt
|
(1,140)
|
|
|
—
|
|
|
(1,140)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
2,680
|
|
|
—
|
|
|
2,680
|
|
Net increase in cash and cash equivalents
|
12,488
|
|
|
—
|
|
|
12,488
|
|
Cash and cash equivalents - beginning of period
|
12,986
|
|
|
—
|
|
|
12,986
|
|
Cash and cash equivalents - end of period
|
$
|
25,474
|
|
|
$
|
—
|
|
|
$
|
25,474
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
Interest, net of capitalized interest
|
$
|
1,242
|
|
|
$
|
—
|
|
|
$
|
1,242
|
|
Income tax payments, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash investing activity:
|
|
|
|
|
|
Unrealized holding gains on investments, net of tax
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
13
|
|
Acquisition of property and equipment accrued but not yet paid
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
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
|
|
|
—
|
|
|
5,820
|
|
Amortization of intangible assets
|
965
|
|
|
—
|
|
|
965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on write-down of inventory
|
1,581
|
|
|
—
|
|
|
1,581
|
|
|
|
|
|
|
|
Net loss on disposal of property and equipment
|
173
|
|
|
—
|
|
|
173
|
|
|
|
|
|
|
|
Restructuring charges
|
76
|
|
|
—
|
|
|
76
|
|
Impairment charges
|
1,916
|
|
|
—
|
|
|
1,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
484
|
|
|
—
|
|
|
484
|
|
Inventory
|
(196)
|
|
|
800
|
|
|
604
|
|
Other current assets
|
(2,122)
|
|
|
(216)
|
|
|
(2,338)
|
|
Other non-current assets
|
(99)
|
|
|
—
|
|
|
(99)
|
|
Accounts payable and accrued liabilities
|
(1,952)
|
|
|
—
|
|
|
(1,952)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits and other payables
|
1,021
|
|
|
—
|
|
|
1,021
|
|
Other non-current liabilities
|
14
|
|
|
—
|
|
|
14
|
|
Net cash provided by operating activities
|
2,979
|
|
|
—
|
|
|
2,979
|
|
Net cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments available for sale
|
(7,250)
|
|
|
—
|
|
|
(7,250)
|
|
Redemptions of investments available for sale
|
16,750
|
|
|
—
|
|
|
16,750
|
|
Acquisition of property and equipment
|
(4,085)
|
|
|
—
|
|
|
(4,085)
|
|
Proceeds from disposals of property and equipment
|
142
|
|
|
—
|
|
|
142
|
|
Net cash provided by investing activities
|
5,557
|
|
|
—
|
|
|
5,557
|
|
Net cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
(855)
|
|
|
—
|
|
|
(855)
|
|
|
|
|
|
|
|
Repurchase of common stock
|
(1,725)
|
|
|
—
|
|
|
(1,725)
|
|
Payment of contingent consideration
|
(112)
|
|
|
—
|
|
|
(112)
|
|
Net cash used in financing activities
|
(2,692)
|
|
|
—
|
|
|
(2,692)
|
|
Net increase in cash and cash equivalents
|
5,844
|
|
|
—
|
|
|
5,844
|
|
Cash and cash equivalents - beginning of period
|
9,376
|
|
|
—
|
|
|
9,376
|
|
Cash and cash equivalents - end of period
|
$
|
15,220
|
|
|
$
|
—
|
|
|
$
|
15,220
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
Interest, net of capitalized interest
|
$
|
921
|
|
|
$
|
—
|
|
|
$
|
921
|
|
Income tax payments, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash investing activity:
|
|
|
|
|
|
Unrealized holding gains on investments, net of tax
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
39
|
|
Acquisition of property and equipment accrued but not yet paid
|
$
|
431
|
|
|
$
|
—
|
|
|
$
|
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.
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 internet 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).
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-art winemaking facility. 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, 2020 and 2019.
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 in the contract liability balance during the nine months ended September 30, 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, consisted primarily of wine club revenue, grape and bulk sales and event fees.
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 uncollectable 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 September 30, 2020 and December 31, 2019, respectively.
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. As of September 30, 2020, the Company incurred $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 $1.0 million in previously accrued employee related restructuring activities during the nine months ended September 30, 2020. The liability related to restructuring activities was $0.6 million and $0.3 million at September 30, 2020 and December 31, 2019, respectively.
A roll forward of the liability recognized related to restructuring activities as of September 30, 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2019
|
|
Additions
|
|
Payments
|
|
Balance at
September 30,
2020
|
Employee related restructuring activity
|
$
|
308
|
|
|
$
|
1,242
|
|
|
$
|
(972)
|
|
|
$
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.Inventory
A summary of inventory at September 30, 2020 and December 31, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated
|
|
September 30, 2020
|
|
December 31, 2019
|
Finished goods
|
$
|
39,223
|
|
|
$
|
38,694
|
|
In-process goods
|
25,396
|
|
|
30,102
|
|
Packaging and bottling supplies
|
1,359
|
|
|
668
|
|
Total inventory
|
$
|
65,978
|
|
|
$
|
69,464
|
|
6.Property and Equipment
A summary of property and equipment at September 30, 2020 and December 31, 2019, and depreciation and amortization for the three and nine months ended September 30, 2020 and 2019, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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. This impairment charge was 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 within the next twelve months.
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, 2020 and December 31, 2019 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
$
|
8,750
|
|
|
$
|
8,750
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,774
|
|
|
$
|
8,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Par Value
|
|
Amortized Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Level 1
|
|
Level 2
|
|
Total Fair Value
Measurements
|
Certificates of Deposit
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
$
|
8
|
|
|
$
|
(2)
|
|
|
$
|
—
|
|
|
$
|
10,006
|
|
|
$
|
10,006
|
|
Gross unrealized gains on available for sale securities were less than $0.1 million as of September 30, 2020. The Company believes the gross unrealized gains 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, 2020 and December 31, 2019, other than the assets which were impaired in the current period, 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, the Company has estimated the fair value of its outstanding debt to be approximately $29.6 million compared to its carrying value of $25.0 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, 2020 of 3.73%, 3.58%, and 1.00% for the 2015 Term Loan, 2017 Term Loan, and 2020 PPP 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, 2020 and December 31, 2019, and amortization expense for the three and nine months ended September 30, 2020 and 2019, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Amortizable lives
(in years)
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net book value
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net book value
|
Brand
|
15-17
|
|
$
|
18,000
|
|
|
$
|
9,764
|
|
|
$
|
8,236
|
|
|
$
|
18,000
|
|
|
$
|
8,967
|
|
|
$
|
9,033
|
|
Distributor relationships
|
10-14
|
|
2,700
|
|
|
1,780
|
|
|
920
|
|
|
2,700
|
|
|
1,634
|
|
|
1,066
|
|
Customer relationships
|
7
|
|
1,900
|
|
|
1,900
|
|
|
—
|
|
|
1,900
|
|
|
1,900
|
|
|
—
|
|
Legacy permits
|
14
|
|
250
|
|
|
167
|
|
|
83
|
|
|
250
|
|
|
153
|
|
|
97
|
|
Trademark
|
20
|
|
200
|
|
|
121
|
|
|
79
|
|
|
200
|
|
|
113
|
|
|
87
|
|
Total
|
|
|
$
|
23,050
|
|
|
$
|
13,732
|
|
|
$
|
9,318
|
|
|
$
|
23,050
|
|
|
$
|
12,767
|
|
|
$
|
10,283
|
|
Other non-current assets
|
|
|
|
|
|
|
531
|
|
|
|
|
|
|
667
|
|
Total intangible and other non-current assets, net
|
|
|
|
|
|
|
$
|
9,849
|
|
|
|
|
|
|
$
|
10,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Amortization expense
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Total amortization expense
|
|
|
|
|
|
$
|
322
|
|
|
$
|
322
|
|
|
$
|
965
|
|
|
$
|
965
|
|
The estimated aggregate future amortization of intangible assets as of September 30, 2020 is identified below (in thousands):
|
|
|
|
|
|
|
Amortization
|
Remainder of 2020
|
$
|
321
|
|
2021
|
1,286
|
|
2022
|
1,286
|
|
2023
|
1,286
|
|
2024
|
1,286
|
|
Thereafter
|
3,853
|
|
Total
|
$
|
9,318
|
|
9.Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Accounts payable and accrued grape liabilities
|
$
|
7,185
|
|
|
$
|
5,469
|
|
Accrued compensation related expenses
|
1,880
|
|
|
2,753
|
|
Sales and marketing
|
173
|
|
|
302
|
|
Acquisition of property and equipment
|
117
|
|
|
34
|
|
Accrued interest
|
17
|
|
|
297
|
|
Depletion allowance
|
1,205
|
|
|
813
|
|
Production and farming
|
116
|
|
|
75
|
|
|
|
|
|
Operating lease liability, current
|
149
|
|
|
171
|
|
Other accrued expenses
|
454
|
|
|
454
|
|
Total accounts payable and accrued liabilities
|
$
|
11,296
|
|
|
$
|
10,368
|
|
10.Debt
Revolving Credit Facility
In March 2013, Crimson and its subsidiaries entered into a $60.0 million revolving credit facility (the “2013 Revolving Credit Facility”) with American AgCredit, FLCA, as agent for the lenders identified in the 2013 Revolving Credit Facility, 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 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
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, 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.
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, 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.
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.
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 under 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 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 monthly 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.
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.
The Company was in compliance with all debt covenants as of September 30, 2020.
A summary of debt maturities as of September 30, 2020 is as follows (in thousands):
|
|
|
|
|
|
Principal due the remainder of 2020
|
$
|
—
|
|
Principal due in 2021
|
3,686
|
|
Principal due in 2022
|
2,414
|
|
Principal due in 2023
|
1,140
|
|
Principal due in 2024
|
1,140
|
|
Principal due thereafter
|
16,615
|
|
Total
|
$
|
24,995
|
|
11. Stockholders’ Equity and Equity Incentive Plan
Share Repurchase Program
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, and on April 30, 2019, the 2019 Winter Repurchase Program was completed. Under the total 2019 Winter Repurchase Program, the Company 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 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 repurchase price of $2.0 million.
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 board of directors.
In December 2019, 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, expire in seven years and have an exercise price of $6.87, the market value at the date of grant. The share-based compensation expense for these grants was $141,000, the grant date fair value, which will be recorded over the vesting period. 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: stock price volatility, 22%; employee exercise patterns and expected life, five years; dividend yield, 0%; and risk-free interest rate, 1.6%. 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 benefit for the three and nine months ended September 30, 2020 and 2019 were determined based upon the Company’s estimated consolidated effective income tax rates calculated without discrete items for the years ending December 31, 2020 and 2019, respectively.
The Company’s effective tax rates for the three months ended September 30, 2020 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, 2020 was primarily attributable to state income taxes and permanent items, which primarily consisted of meals and entertainment.
The Company does not have any amounts in its condensed consolidated balance sheets for unrecognized tax benefits related to uncertain tax positions as of September 30, 2020.
13.Business Segment Information
The Company has identified two 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, and other sales made directly to the consumer without the use of an intermediary.
The two 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, 2020 and 2019, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40)
|
|
|
204
|
|
|
(40)
|
|
|
204
|
|
Restructuring costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
114
|
|
|
—
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
625
|
|
|
—
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
137
|
|
|
173
|
|
|
137
|
|
|
173
|
|
Restructuring costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,424
|
|
|
76
|
|
|
1,424
|
|
|
76
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,860
|
|
|
—
|
|
|
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 be 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.
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
|
|
Base rent expense was less than $0.1 million and $0.1 million for the three and nine months ended September 30, 2020. Base rent expense was less than $0.1 million and $0.2 million for the three and nine months ended September 30, 2019. Of the base rent expense for the nine months ended September 30, 2020, $0.1 million relates to 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 $0.2 million for both the nine months ended September 30, 2020 and September 30, 2019.
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 two 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.
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. The Company has recognized $0.5 million in inventory losses for the 2020 vintage for the three and nine months ended September 30, 2020. 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. Although the Company anticipates additional inventory losses related to the 2020 vintage and settlements for insurance proceeds from the Company'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 Emergency which continues to spread throughout the world and has adversely impacted global activity and contributed to significant declines and volatility in financial markets. The outbreak could have a continued material adverse impact on economic and market conditions and trigger 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 outbreak presents uncertainty and risk with respect to the Company and its future performance and financial results.
As of March 16, 2020, with the exception of key operations personnel, the Company has shifted its 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 business 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's Oregon-based tasting room, Archery Summit, operated almost entirely outdoors. All of the Company’s tasting rooms have been impacted by government orders and restrictions to a varying degree and much of the aforementioned restrictions on indoor operations of winery tasting rooms remained 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.
The extent of COVID-19’s impact on the Company's financials and results of operations will depend on the length of time that the pandemic continues, the effect of governmental regulations imposed in response to the pandemic, its effect on the demand for the Company’s products and supply chain, and uncertainties surrounding the aforementioned. 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 within this Report.