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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q/A
Amendment No. 1
[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to  
Commission File Number 000-54866

CRIMSON WINE GROUP, LTD.
(Exact name of registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of 		13-3607383
(I.R.S. Employer
Incorporation or Organization) Identification Number)
5901 Silverado Trail, Napa, California
(Address of Principal Executive Offices) 		94558
(Zip Code)
(800)  486-0503
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
______________________
Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
YES X     NO    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       
YES X     NO    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ¨
 
Accelerated filer   x
Non-accelerated filer    ¨
Smaller reporting company  x
Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES       NO X  

On April 9, 2021 there were 23,243,476 outstanding shares of the Registrant’s Common Stock, par value $0.01 per share.


CRIMSON WINE GROUP, LTD.
TABLE OF CONTENTS

Page Number
PART I. FINANCIAL INFORMATION
Item 1.
1
1
2
3
4
5
6
Item 2.
29
Item 3.
36
Item 4.
36
PART II. OTHER INFORMATION
Item 1.
38
Item 1A.
38
Item 2.
38
Item 3.
38
Item 4.
38
Item 5.
38
Item 6.
39
40

















EXPLANATORY NOTE

General

On December 22, 2020, the Board of Directors of Crimson Wine Group, Ltd. (the “Company”), based on the recommendation of the Audit Committee of the Board of Directors (the “Audit Committee”) and in consultation with management, concluded that its unaudited interim condensed consolidated financial statements for the three months ended March 31, 2020 and 2019, the three and six months ended June 30, 2020 and 2019 and the three and nine months ended September 30, 2020 and 2019 (collectively, the “Interim Quarterly Financial Statements”), and its audited consolidated financial statements for the years ended December 31, 2017, 2018 and 2019, can no longer be relied upon as the result of material accounting errors identified by management.

Restatement

We are filing this Quarterly Report on Form 10-Q/A to amend our Quarterly Report on Form 10-Q for the quarterly period March 31, 2020, which was originally filed with the Securities and Exchange Commission (“SEC”) on May 8, 2020 (the “Original Form 10-Q”). The purpose of this Quarterly Report on Form 10-Q/A is to restate our previously issued unaudited interim condensed consolidated financial statements for the three months ended March 31, 2020 and 2019 contained in the Original Form 10-Q.

For the convenience of the reader, this Quarterly Report on Form 10-Q/A amends and restates the Original Form 10-Q in its entirety. As a result, it includes both items that have been changed as a result of the restatement and items that are unchanged from the Original Form 10-Q. This Quarterly Report on Form 10-Q/A speaks as of the date of the Original Form 10-Q and has not been updated to reflect events occurring subsequent to the filing of the Original Form 10-Q other than those associated with the restatement of our consolidated financial statements.

Restatement Background

In 2020, management began constructing a bulk wine inventory sub-ledger by individual lot. During this process improvement initiative, it was discovered that the Company's cost allocation process applied to historical 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 fiscal year has been recorded as an increase to the opening accumulated deficit as of January 1, 2017 as shown in the restated audited consolidated financial statements presented in the Form 10-K/A for the year ended December 31, 2019.

Restatement of Previously Issued Consolidated Financial Statements

As described above, this Quarterly Report on Form 10-Q/A includes unaudited restated consolidated financial statements as of March 31, 2020 and 2019. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, for additional information.

The restatement impact increased previously reported net loss and basic and fully diluted loss per share (in thousands, except per share data) as follows:

Restatement impact (net change) Three Months Ended
March 31,
2020 2019
Net loss $ (378) $ (153)
Basic and fully diluted loss per share $ (0.01) $ (0.01)



In addition, as mentioned above, the cumulative impact of correcting misstatements of cost of sales in periods prior to 2017 has been recorded as an increase to our opening accumulated deficit of approximately $0.5 million, as of January 1, 2017, the beginning of the earliest period presented in the Form 10-K/A for the year ended December 31, 2019.

Other Amended Filings

In addition to this Form 10-Q/A, we are concurrently filing an amendment to our Annual Report on Form 10-K for the year ended December 31, 2019 to restate our previously issued consolidated financial statements and related financial information and revise our previous conclusion with respect to the effectiveness of our internal control over financial reporting. We are also concurrently filing amendments to our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2020 and September 30, 2020 to restate our previously issued consolidated financial statements and related financial information presented therein and to revise our previous conclusion with respect to the effectiveness of our disclosure controls and procedures.

Control Considerations

In connection with the restatement, management has reassessed its conclusions regarding the effectiveness of our internal control over financial reporting as of March 31, 2020 and has determined that a material weakness in our internal control over financial reporting existed as of that date. As a result of the material weakness, our disclosure controls and procedures were not effective as of March 31, 2020. Management will be implementing changes to strengthen our internal controls and remediate the material weakness.

In accordance with applicable SEC rules, this Quarterly Report on Form 10-Q/A includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 from our Chief Executive Officer (as Principal Executive Officer) and our Chief Financial Officer (as Principal Financial Officer) dated as of the filing date of this Quarterly Report on Form 10-Q/A.


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)

CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts and par value)
(Unaudited)

As Restated
March 31, 2020 December 31, 2019
Assets
Current assets:    
Cash and cash equivalents $ 15,576  $ 12,986 
Investments available for sale 10,275  10,006 
Accounts receivable, net 7,714  10,131 
Inventory 66,544  69,464 
Other current assets 2,817  1,904 
Assets held for sale 588  2,383 
Total current assets 103,514  106,874 
Property and equipment, net 117,692  119,112 
Goodwill 1,262  1,262 
Intangible and other non-current assets, net 10,582  10,950 
Total non-current assets 129,536  131,324 
Total assets $ 233,050  $ 238,198 
Liabilities    
Current liabilities:    
Accounts payable and accrued liabilities $ 6,617  $ 10,368 
Customer deposits 743  405 
Current portion of long-term debt, net of unamortized loan fees 1,126  1,127 
Total current liabilities 8,486  11,900 
Long-term debt, net of current portion and unamortized loan fees 20,772  21,054 
Deferred tax liability, net 3,095  3,090 
Other non-current liabilities 221  255 
Total non-current liabilities 24,088  24,399 
Total liabilities 32,574  36,299 
Commitments and contingencies (Note 14)
Equity    
Common shares, par value $0.01 per share, authorized 150,000,000 shares; 23,243,476 shares issued and outstanding at March 31, 2020 and December 31, 2019
232  232 
Additional paid-in capital 277,529  277,522 
Accumulated other comprehensive income 26  12 
Accumulated deficit (77,311) (75,867)
Total equity 200,476  201,899 
Total liabilities and equity $ 233,050  $ 238,198 

See accompanying notes to unaudited interim condensed consolidated financial statements.
1

CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
As Restated
Three Months Ended
March 31,
2020 2019
Net sales $ 14,470  $ 15,165 
Cost of sales 9,022  8,918 
Gross profit 5,448  6,247 
Operating expenses:    
Sales and marketing 3,951  4,324 
General and administrative 3,082  2,787 
Total operating expenses 7,033  7,111 
Net gain on disposal of property and equipment (14) (77)
Restructuring costs 507  76 
Loss from operations (2,078) (863)
Other (expense) income:    
Interest expense, net (323) (321)
Other income (expense), net 167  (23)
Total other expense, net (156) (344)
Loss before income taxes (2,234) (1,207)
Income tax benefit (790) (349)
Net loss $ (1,444) $ (858)
Basic and fully diluted weighted-average shares outstanding 23,243  23,633 
Basic and fully diluted loss per share $ (0.06) $ (0.04)

See accompanying notes to unaudited interim condensed consolidated financial statements.

2

CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES
(In thousands)
(Unaudited)
As Restated
Three Months Ended March 31,
2020 2019
Net loss $ (1,444) $ (858)
Other comprehensive income:
Net unrealized holding gains on investments arising during the period, net of tax 14  19 
Comprehensive loss $ (1,430) $ (839)


See accompanying notes to unaudited interim condensed consolidated financial statements.

3

CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

As Restated
Three Months Ended March 31,
2020 2019
Net cash flows from operating activities:    
Net loss $ (1,444) $ (858)
Adjustments to reconcile net loss to net cash provided by (used in) operations:  
Depreciation and amortization of property and equipment 1,822  1,981 
Amortization of intangible assets 321  323 
Loss on write-down of inventory 219  106 
Provision for doubtful accounts 68  — 
Net gain on disposal of property and equipment (14) (77)
Restructuring charges 507  76 
Impairment charges —  50 
   Stock-based compensation 7  — 
Net change in operating assets and liabilities:    
Accounts receivable 2,349  1,891 
Inventory 2,701  2,861 
Other current assets (913) (710)
Other non-current assets 47  (303)
Accounts payable and accrued liabilities (4,240) (7,138)
Other payables and accruals 338  232 
Other non-current liabilities (34) 39 
Net cash provided by (used in) operating activities 1,734  (1,527)
Net cash flows from investing activities:    
Purchase of investments available for sale (5,250) (5,000)
Redemptions of investments available for sale 5,000  7,500 
Acquisition of property and equipment (453) (1,197)
Proceeds from disposals of property and equipment 1,844  78 
Net cash provided by investing activities 1,141  1,381 
Net cash flows from financing activities:    
Principal payments on long-term debt (285) (285)
Repurchase of common stock —  (1,059)
Payment of contingent consideration —  (112)
Net cash used in financing activities (285) (1,456)
Net increase (decrease) in cash and cash equivalents 2,590  (1,602)
Cash and cash equivalents - beginning of period 12,986  9,376 
Cash and cash equivalents - end of period $ 15,576  $ 7,774 
Supplemental disclosure of cash flow information:    
Cash paid during the period for:    
Interest, net of capitalized interest $ 327  $ 344 
Income tax payments, net $ —  $ — 
Non-cash investing activity:    
Unrealized holding gains on investments, net of tax $ 14  $ 19 
Acquisition of property and equipment accrued but not yet paid $ 122  $ 50 


See accompanying notes to unaudited interim condensed consolidated financial statements.
4

CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share amounts)

As Restated
Accumulated
Additional Other
Common Stock Paid-In Comprehensive Accumulated
Shares Amount Capital (Loss) Income Deficit Total
Balance, December 31, 2018 23,714,208  $ 237  $ 277,520  $ (19) $ (66,713) $ 211,025 
Net loss —  —  —  —  (858) (858)
Other comprehensive income —  —  —  19  —  19 
Repurchase of common stock (130,686) (1) —  —  (1,058) (1,059)
Balance, March 31, 2019 23,583,522  $ 236  $ 277,520  $ —  $ (68,629) $ 209,127 
Balance, December 31, 2019 23,243,476  $ 232  $ 277,522  $ 12  $ (75,867) $ 201,899 
Net loss —  —  —  —  (1,444) (1,444)
Other comprehensive income —  —  —  14  —  14 
     Stock-based compensation —  —  7  —  —  7 
Balance, March 31, 2020 23,243,476  $ 232  $ 277,529  $ 26  $ (77,311) $ 200,476 

See accompanying notes to unaudited interim condensed consolidated financial statements.

5
CRIMSON WINE GROUP, LTD.
Notes to Unaudited Interim Condensed Consolidated Financial Statements

1. Background and Basis of Presentation

Background

Crimson Wine Group, Ltd. and its subsidiaries (collectively, “Crimson” or the “Company”) is a Delaware corporation that has been conducting business since 1991. Crimson is in the business of producing and selling ultra-premium plus wines (i.e., wines that retail for over $16 per 750ml bottle). Crimson is headquartered in Napa, California and through its subsidiaries owns 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 three months ended March 31, 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) income, equity or cash flows.

6
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 March 31, 2020 and a description of accounting pronouncements that were adopted during the three months ended March 31, 2020:
Standard Description Date of adoption Effect on the financial statements or other significant matters
Standards that are not yet adopted
Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740) Simplifies the accounting for income taxes by removing certain Codification exceptions and others to be discussed. January 1, 2021, early adoption is permitted for the Company. Management is currently evaluating the potential impact of this guidance on the Company’s unaudited interim condensed consolidated financial statements and does not predict there to be a material impact.
Standards that were adopted
ASU 2017-04, Goodwill and Other (Topic 350) Eliminates Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
January 1, 2020 The adoption of this standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.
ASU 2018-13, Fair Value Measurement (Topic 820) Improves the disclosures related to fair value by removing, modifying or adding disclosure requirements related to recurring and non-recurring fair value measurements. January 1, 2020 The adoption of this standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) Aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirement of capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license). January 1, 2020 The adoption of this standard did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.


7
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 and six months ended June 30, 2020 and 2019 and the three and nine months ended September 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 March 31, 2020 and December 31, 2019 and the consolidated statements of operations, comprehensive loss, cash flows, and changes in equity for the three months ended March 31, 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 months ended March 31, 2020 filed on May 8, 2020.

8
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts and par value)
(Unaudited)
March 31, 2020
As previously reported Restatement impacts As restated
Assets    
Current assets:
Cash and cash equivalents $ 15,576  $ —  $ 15,576 
Investments available for sale 10,275  —  10,275 
Accounts receivable, net 7,714  —  7,714 
Inventory 71,095  (4,551) 66,544 
Other current assets 2,678  139  2,817 
Assets held for sale 588  —  588 
Total current assets 107,926  (4,412) 103,514 
Property and equipment, net 117,692  —  117,692 
Goodwill 1,262  —  1,262 
Intangible assets and other non-current assets, net 10,582  —  10,582 
Total non-current assets 129,536  —  129,536 
Total assets $ 237,462  $ (4,412) $ 233,050 
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 6,617  $ —  $ 6,617 
Customer deposits 743  —  743 
Current portion of long-term debt, net of unamortized loan fees 1,126  —  1,126 
Total current liabilities 8,486  —  8,486 
Long-term debt, net of current portion and unamortized loan fees 20,772  —  20,772 
Deferred tax liability, net 4,183  (1,088) 3,095 
Other non-current liabilities 221  —  221 
Total non-current liabilities 25,176  (1,088) 24,088 
Total liabilities 33,662  (1,088) 32,574 
Commitments and Contingencies (Note 14)
Equity    
Common shares, par value $0.01 per share, authorized 150,000,000 shares; 23,243,476 shares issued and outstanding at March 31, 2020
232  —  232 
Additional paid-in capital 277,529  —  277,529 
Accumulated other comprehensive income 26  —  26 
Accumulated deficit (73,987) (3,324) (77,311)
Total equity 203,800  (3,324) 200,476 
Total liabilities and equity $ 237,462  $ (4,412) $ 233,050 


9
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts and par value)
(Unaudited)
December 31, 2019
As previously reported Restatement impacts As restated
Assets    
Current assets:    
Cash and cash equivalents $ 12,986  $ —  $ 12,986 
Investments available for sale 10,006  —  10,006 
Accounts receivable, net 10,131  —  10,131 
Inventory 73,498  (4,034) 69,464 
Other current assets 1,904  —  1,904 
Assets held for sale 2,383  —  2,383 
Total current assets 110,908  (4,034) 106,874 
Property and equipment, net 119,112  —  119,112 
Goodwill 1,262  —  1,262 
Intangible assets and other non-current assets, net 10,950  —  10,950 
Total non-current assets 131,324  —  131,324 
Total assets $ 242,232  $ (4,034) $ 238,198 
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 10,368  $ —  $ 10,368 
Customer deposits 405  —  405 
Current portion of long-term debt, net of unamortized loan fees 1,127  —  1,127 
Total current liabilities 11,900  —  11,900 
Long-term debt, net of current portion and unamortized loan fees 21,054  —  21,054 
Deferred tax liability, net 4,178  (1,088) 3,090 
Other non-current liabilities 255  —  255 
Total non-current liabilities 25,487  (1,088) 24,399 
Total liabilities 37,387  (1,088) 36,299 
Commitments and Contingencies (Note 14)
Equity  
Common shares, par value $0.01 per share, authorized 150,000,000 shares; 23,243,476 shares issued and outstanding at December 31, 2019
232  —  232 
Additional paid-in capital 277,522  —  277,522 
Accumulated other comprehensive income 12  —  12 
Accumulated deficit (72,921) (2,946) (75,867)
Total equity 204,845  (2,946) 201,899 
Total liabilities and equity $ 242,232  $ (4,034) $ 238,198 

10
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31, 2020
As previously reported Restatement impacts As restated
Net sales $ 14,470  $ —  $ 14,470 
Cost of sales 8,505  517  9,022 
Gross profit 5,965  (517) 5,448 
Operating expenses:
Sales and marketing 3,951  —  3,951 
General and administrative 3,082  —  3,082 
Total operating expenses 7,033  —  7,033 
Net gain on disposal of property and equipment (14) —  (14)
Restructuring costs 507  —  507 
Loss from operations (1,561) (517) (2,078)
Other (expense) income:
Interest expense, net (323) —  (323)
Other income, net 167  —  167 
Total other expense, net (156) —  (156)
Loss before income taxes (1,717) (517) (2,234)
Income tax benefit (651) (139) (790)
Net loss $ (1,066) $ (378) $ (1,444)
Basic and fully diluted weighted-average shares outstanding 23,243  —  23,243 
Basic and fully diluted loss per share $ (0.05) $ (0.01) $ (0.06)


11
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31, 2019
As previously reported Restatement impacts As restated
Net sales $ 15,165  $ —  $ 15,165 
Cost of sales 8,708  210  8,918 
Gross profit 6,457  (210) 6,247 
Operating expenses:
Sales and marketing 4,324  —  4,324 
General and administrative 2,787  —  2,787 
Total operating expenses 7,111  —  7,111 
Net gain on disposal of property and equipment (77) —  (77)
Restructuring costs 76  —  76 
Loss from operations (653) (210) (863)
Other expense:
Interest expense, net (321) —  (321)
Other expense, net (23) —  (23)
Total other expense, net (344) —  (344)
Loss before income taxes (997) (210) (1,207)
Income tax benefit (292) (57) (349)
Net loss $ (705) $ (153) $ (858)
Basic and fully diluted weighted-average shares outstanding 23,633  —  23,633 
Basic and fully diluted loss per share $ (0.03) $ (0.01) $ (0.04)


12
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES
(In thousands)
(Unaudited)

Three Months Ended March 31, 2020
As previously reported Restatement impacts As restated
Net loss $ (1,066) $ (378) $ (1,444)
Other comprehensive income:
Net unrealized holding gains on investments arising during the period, net of tax 14  —  14 
Comprehensive loss $ (1,052) $ (378) $ (1,430)


Three Months Ended March 31, 2019
As previously reported Restatement impacts As restated
Net loss $ (705) $ (153) $ (858)
Other comprehensive income:
Net unrealized holding gains on investments arising during the period, net of tax 19  —  19 
Comprehensive loss $ (686) $ (153) $ (839)




13
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, 2020
As previously reported Restatement impacts As restated
Net cash flows from operating activities:      
Net loss $ (1,066) $ (378) $ (1,444)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization of property and equipment 1,822  —  1,822 
Amortization of intangible assets 321  —  321 
Loss on write-down of inventory 219  —  219 
Provision for doubtful accounts 68  —  68 
Net gain on disposal of property and equipment (14) —  (14)
Restructuring charges 507  —  507 
Stock-based compensation
7  —  7 
Net change in operating assets and liabilities:
Accounts receivable 2,349  —  2,349 
Inventory 2,184  517  2,701 
Other current assets (774) (139) (913)
Other non-current assets 47  —  47 
Accounts payable and accrued liabilities (4,240) —  (4,240)
Other payables and accruals 338  —  338 
Other non-current liabilities (34) —  (34)
Net cash provided by operating activities 1,734  —  1,734 
Net cash flows from investing activities
Purchase of investments available for sale (5,250) —  (5,250)
Redemption of investments available for sale 5,000  —  5,000 
Acquisition of property and equipment (453) —  (453)
Proceeds from disposals of property and equipment 1,844  —  1,844 
Net cash provided by investing activities 1,141  —  1,141 
Net cash flows from financing activities:
Principal payments on long-term debt (285) —  (285)
Net cash used in financing activities (285) —  (285)
Net increase in cash and cash equivalents 2,590  —  2,590 
Cash and cash equivalents - beginning of period 12,986  —  12,986 
Cash and cash equivalents - end of period $ 15,576  $ —  $ 15,576 
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest, net of capitalized interest $ 327  $ —  $ 327 
Income tax payments, net $ —  $ —  $ — 
Non-cash investing activity:
Unrealized holding gains on investments, net of tax $ 14  $ —  $ 14 
Acquisition of property and equipment accrued but not yet paid $ 122  $ —  $ 122 



14
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, 2019
As previously reported Restatement impacts As restated
Net cash flows from operating activities:      
Net loss $ (705) $ (153) $ (858)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization of property and equipment 1,981  —  1,981 
Amortization of intangible assets 323  —  323 
Loss on write-down of inventory 106  —  106 
Net gain on disposal of property and equipment (77) —  (77)
Restructuring charges 76  —  76 
Impairment charges 50  —  50 
Net change in operating assets and liabilities:
Accounts receivable 1,891  —  1,891 
Inventory 2,651  210  2,861 
Other current assets (653) (57) (710)
Other non-current assets (303) —  (303)
Accounts payable and accrued liabilities (7,138) —  (7,138)
Other payables and accruals 232  —  232 
Other non-current liabilities 39  —  39 
Net cash used in operating activities (1,527) —  (1,527)
Net cash flows from investing activities
Purchase of investments available for sale (5,000) —  (5,000)
Redemption of investments available for sale 7,500  —  7,500 
Acquisition of property and equipment (1,197) —  (1,197)
Proceeds from disposals of property and equipment 78  —  78 
Net cash provided by investing activities 1,381  —  1,381 
Net cash flows from financing activities:
Principal payments on long-term debt (285) —  (285)
Repurchase of common stock (1,059) —  (1,059)
Payment of contingent consideration (112) —  (112)
Net cash used in financing activities (1,456) —  (1,456)
Net decrease in cash and cash equivalents (1,602) —  (1,602)
Cash and cash equivalents - beginning of period 9,376  —  9,376 
Cash and cash equivalents - end of period $ 7,774  $ —  $ 7,774 
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest, net of capitalized interest $ 344  $ —  $ 344 
Income tax payments, net $ —  $ —  $ — 
Non-cash investing activity:
Unrealized holding gains on investments, net of tax $ 19  $ —  $ 19 
Acquisition of property and equipment accrued but not yet paid $ 50  $ —  $ 50 

15
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 —  —  —  —  (1,066) (1,066)
Other comprehensive income —  —  —  14  —  14 
Stock-based compensation —  —  7  —  —  7 
Balance, March 31, 2020 23,243,476  $ 232  $ 277,529  $ 26  $ (73,987) $ 203,800 
Restatement impacts
Balance, December 31, 2019 —  $ —  $ —  $ —  $ (2,946) $ (2,946)
Net loss —  —  —  —  (378) (378)
Other comprehensive income —  —  —  —  —  — 
Stock-based compensation —  —  —  —  —  — 
Balance, March 31, 2020 —  $ —  $ —  $ —  $ (3,324) $ (3,324)
As restated
Balance, December 31, 2019 23,243,476  $ 232  $ 277,522  $ 12  $ (75,867) $ 201,899 
Net loss —  —  —  —  (1,444) (1,444)
Other comprehensive income —  —  —  14  —  14 
Stock-based compensation —  —  7  —  —  7 
Balance, March 31, 2020 23,243,476  $ 232  $ 277,529  $ 26  $ (77,311) $ 200,476 

16
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 —  —  —  —  (705) (705)
Other comprehensive income —  —  —  19  —  19 
Repurchase of common stock (130,686) (1) —  —  (1,058) (1,059)
Balance, March 31, 2019 23,583,522  $ 236  $ 277,520  $ —  $ (66,322) $ 211,434 
Restatement impacts
Balance, December 31, 2018 —  $ —  $ —  $ —  $ (2,154) $ (2,154)
Net loss —  —  —  —  (153) (153)
Other comprehensive income —  —  —  —  —  — 
Repurchase of common stock —  —  —  —  —  — 
Balance, March 31, 2019 —  $ —  $ —  $ —  $ (2,307) $ (2,307)
As restated
Balance, December 31, 2018 23,714,208  $ 237  $ 277,520  $ (19) $ (66,713) $ 211,025 
Net loss —  —  —  —  (858) (858)
Other comprehensive income —  —  —  19  —  19 
Repurchase of common stock (130,686) (1) —  —  (1,058) (1,059)
Balance, March 31, 2019 23,583,522  $ 236  $ 277,520  $ —  $ (68,629) $ 209,127 














17
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 (“Washington 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.
18
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 months ended March 31, 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 three months ended March 31, 2020 and 2019 (in thousands):

March 31, 2020 March 31, 2019
Outstanding at beginning of period (December 31) $ 405  $ 375 
Increase (decrease) attributed to:
Upfront payments 7,347  11,884 
Revenue recognized (7,009) (11,661)
Outstanding at end of period $ 743  $ 598 

Revenue recognized during the three months ended March 31, 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 March 31, 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 three months ended March 31, 2019. As of March 31, 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 and restructuring of management. As of March 31, 2020, the Company incurred $0.5 million of restructuring charges inception-to-date and in the quarter consisting of $0.3 million employee related costs, $0.1 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 expects to incur an additional $0.3 million in severance and other restructuring charges in the second quarter of 2020. The Company will continue to assess the need for additional restructuring activities during 2020.

The Company recorded an additional liability of $0.4 million for restructuring charges and paid $0.2 million in previously accrued employee related restructuring activities during the three months ended March 31, 2020. The liability related to restructuring activities was $0.5 million and $0.3 million at March 31, 2020 and December 31, 2019, respectively.

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A roll forward of the liability recognized related to restructuring activities as of March 31, 2020 is as follows (in thousands): 
Balance at December 31, 2019 Additions Payments Balance at March 31, 2020
Employee related restructuring activity $ 308  $ 367  $ (225) $ 450 

5.Inventory

A summary of inventory at March 31, 2020 and December 31, 2019 is as follows (in thousands):
As Restated
March 31, 2020 December 31, 2019
Finished goods $ 35,382  $ 38,694 
In-process goods 30,450  30,102 
Packaging and bottling supplies 712  668 
Total inventory $ 66,544  $ 69,464 


6.Property and Equipment

A summary of property and equipment at March 31, 2020 and December 31, 2019, and depreciation and amortization for the three months ended March 31, 2020 and 2019, is as follows (in thousands):
Depreciable Lives
(in years) March 31, 2020 December 31, 2019
Land and improvements N/A $ 44,928  $ 44,928 
Buildings and improvements 20-40 59,900  59,948 
Winery and vineyard equipment 3-25 40,846  42,210 
Vineyards, orchards and improvements 7-25 33,888  32,293 
Caves 20-40 5,639  5,639 
Vineyards under development N/A 2,025  3,476 
Construction in progress N/A 2,540  2,537 
Total 189,766  191,031 
Accumulated depreciation and amortization (72,074) (71,919)
Total property and equipment, net $ 117,692  $ 119,112 
Three Months Ended March 31,
2020 2019
Capitalized into inventory $ 1,395  $ 1,500 
Expensed to general and administrative 427  481 
Total depreciation and amortization $ 1,822  $ 1,981 

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 three months ended March 31, 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.

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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 March 31, 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 March 31, 2020 and December 31, 2019 are as follows (in thousands):
March 31, 2020 Par Value Amortized Cost Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Level 1 Level 2 Total Fair Value
Measurements
Certificates of Deposit $ 10,250  $ 10,250  $ 25  $ —  $ —  $ 10,275  $ 10,275 
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 March 31, 2020, and 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 March 31, 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 March 31, 2020, the Company has estimated the fair value of its outstanding debt to be approximately $23.7 million compared to its carrying value of $22.0 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 March 31, 2020 of 4.73% and 4.60% for the 2015 Term Loan and 2017 Term Loan, respectively, as further discussed in Note 10, “Debt.”

The Company does not invest in any derivatives or engage in any hedging activities.

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8.Intangible and Other Non-Current Assets

A summary of intangible and other non-current assets at March 31, 2020 and December 31, 2019, and amortization expense for the three months ended March 31, 2020 and 2019, is as follows (in thousands):
March 31, 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  $ 9,232  $ 8,768  $ 18,000  $ 8,967  $ 9,033 
Distributor relationships 10 - 14 2,700  1,682  1,018  2,700  1,634  1,066 
Customer relationships 7 1,900  1,900  —  1,900  1,900  — 
Legacy permits 14 250  158  92  250  153  97 
Trademark 20 200  116  84  200  113  87 
Total $ 23,050  $ 13,088  $ 9,962  $ 23,050  $ 12,767  $ 10,283 
Other non-current assets 620  667 
Total intangible and other non-current assets, net $ 10,582  $ 10,950 
Three Months Ended March 31,
Amortization expense 2020 2019
Total amortization expense $ 321  $ 323 

The estimated aggregate future amortization of intangible assets as of March 31, 2020 is identified below (in thousands):
Amortization
Remainder of 2020 $ 964 
2021 1,286 
2022 1,286 
2023 1,286 
2024 1,286 
Thereafter 3,854 
Total $ 9,962 


9.Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following as of March 31, 2020 and December 31, 2019 (in thousands):
March 31, 2020 December 31, 2019
Accounts payable and accrued grape liabilities $ 3,013  $ 5,469 
Accrued compensation related expenses 1,708  2,753 
Sales and marketing 115  302 
Acquisition of property and equipment 1  34 
Accrued interest 291  297 
Depletion allowance 949  813 
Production and farming 40  75 
Operating lease liability, current 154  171 
Other accrued expenses 346  454 
Total accounts payable and accrued liabilities $ 6,617  $ 10,368 

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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 March 31, 2020 and December 31, 2019 were as follows (dollars in thousands):
March 31, 2020 December 31, 2019
Current Long-term Total Current Long-term Total Interest Rate Maturity Date
2015 Term Loan $ 640  $ 12,640  $ 13,280  $ 640  $ 12,800  $ 13,440  5.24% October 1, 2040
2017 Term Loan 500  8,250  8,750  500  8,375  8,875  5.39% July 1, 2037
Total debt 1,140  20,890  22,030  1,140  21,175  22,315 
Unamortized loan fees (14) (118) (132) (13) (121) (134)
Total debt, net of unamortized loan fees $ 1,126  $ 20,772  $ 21,898  $ 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.

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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 March 31, 2020, $13.3 million in principal was outstanding on the 2015 Term Loan, and unamortized loan fees were less than $0.1 million.

(ii) On June 29, 2017, Double Canyon Vineyards, LLC (the “DCV Borrower” and, individually and collectively with the PRW Borrower, “Borrower”), a wholly-owned subsidiary of Crimson, entered into a senior secured term loan agreement (the “2017 Term Loan”) with the Lender for an aggregate principal amount of $10.0 million. Amounts outstanding under the 2017 Term Loan bear a fixed interest rate of 5.39% per annum.

The 2017 Term Loan will mature on July 1, 2037 (the “2017 Loan Maturity Date”). On the first day of each January, April, July and October, commencing October 1, 2017, DCV Borrower is required to make a principal payment in the amount of $125,000 and an interest payment equal to the amount of all interest accrued through the previous day. A final payment of all unpaid principal, interest and any other charges with respect to the 2017 Term Loan shall be due and payable on the 2017 Loan Maturity Date.

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 March 31, 2020, $8.8 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, sale of assets and merging or consolidating with other parties.

The Company was in compliance with all debt covenants as of March 31, 2020.

A summary of debt maturities as of March 31, 2020 is as follows (in thousands):
Principal due the remainder of 2020 $ 855 
Principal due in 2021 1,140 
Principal due in 2022 1,140 
Principal due in 2023 1,140 
Principal due in 2024 1,140 
Principal due thereafter 16,615 
Total $ 22,030 

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 purchase price of $2.0 million.

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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 March 31, 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 5 years, expire in 7 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, 5 years; dividend yield, 0%; and risk-free interest rate, 1.6%. For the three months ended March 31, 2020, $7,000 was recorded as share-based compensation expense. Share-based compensation expense was recorded to general and administrative expense in the unaudited interim condensed consolidated statements of operations. The related income tax benefit 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 expenses for the three months ended March 31, 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 March 31, 2020 and 2019 were 35.4% and 28.9%, respectively. As a result of the Tax Cuts and Jobs Act (Public Law 115-97), the Company revised its estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 34% to 21%. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the three months ended March 31, 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 March 31, 2020.

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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 the tasting room, 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 months ended March 31, 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 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 March 31,
Wholesale Direct to Consumer Other/Non-Allocable Total
(in thousands) 2020 2019 2020 2019 2020 2019 2020 2019
Net sales $ 7,929  $ 8,494  $ 5,562  $ 5,300  $ 979  $ 1,371  $ 14,470  $ 15,165 
Cost of sales 5,653  5,443  2,015  1,735  1,354  1,740  9,022  8,918 
Gross profit (loss) 2,276  3,051  3,547  3,565  (375) (369) 5,448  6,247 
Operating expenses:
Sales and marketing 1,503  1,549  1,608  1,707  840  1,068  3,951  4,324 
General and administrative —  —  —  —  3,082  2,787  3,082  2,787 
Total operating expenses 1,503  1,549  1,608  1,707  3,922  3,855  7,033  7,111 
Net gain on disposal of property and equipment —  —  —  —  (14) (77) (14) (77)
Restructuring costs —  —  —  —  507  76  507  76 
Income (loss) from operations $ 773  $ 1,502  $ 1,939  $ 1,858  $ (4,790) $ (4,223) $ (2,078) $ (863)


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
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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 were as follows (in thousands):
March 31, 2020
Assets:
Other non-current assets $ 365 
Liabilities:
Accounts payable and accrued liabilities $ 154 
Other non-current liabilities 221 
Total operating lease liabilities $ 375 
Weighted Average Remaining Lease Term
Operating leases 2.25 years
Weighted Average Discount Rate
Operating leases 6.34  %

Maturities of lease liabilities are as follows (in thousands):
Amortization
Remainder of 2020 $ 120 
2021 161 
2022 94 
Total $ 375 

Base rent expense was less than $0.1 million for the three months ended March 31, 2020 and 2019. Of this amount, less than $0.1 million relates to the lease liability referred to in this footnote for the three months ended March 31, 2020. Cash paid for amounts included in the measurement of operating lease liabilities as part of operating cash flows was less than $0.1 million for the three months ended March 31, 2020.

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.

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Other

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, the Company received an additional $0.2 million from insurance proceeds related to the October 2017 wildfires.

During the first quarter of 2020, government offices throughout the United States and around the world issued shelter in place orders due to the global outbreak of the COVID-19 virus. On March 27, 2020, the President of the United States signed into law the Families First Coronavirus Response Act and two phases of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act which are intended to provide emergency assistance to individuals and business affected by COVID-19. The CARES Act includes a small business stimulus program, Paycheck Protection Program (“PPP”), which is intended to provide loans to qualified businesses to guarantee eight weeks of payroll and other identified costs which may be eligible for partial or full forgiveness.

In April 2020, the Company successfully secured a $3.8 million Small Business Association (“SBA”) loan under the Payroll Protection Program to secure payroll expenses for otherwise furloughed employees impacted by government imposed shelter in place orders. Per the terms of the loan, the full amount will be forgiven as long as loan proceeds are used to cover payroll costs and other specified non-payroll costs (provided any non-payroll costs do not exceed 25% of the forgiven amount) over an 8-week period after the loan is made; and employee and compensation levels are maintained. The Company fully intends to comply with the above terms in order to qualify for loan forgiveness. In the event the Company is required to repay the loan, all payments are deferred for 6 months with accrued interest over this period. Amounts outstanding under the loan will bear a fixed interest rate of 1.00% per annum with a maturity date of 2 years from commencement date.































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

Statements included in this Report may contain forward-looking statements. See “Cautionary Statement for Forward-Looking Information” below. The following should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and the Company’s audited consolidated financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K/A as filed with the SEC (the “2019 Report”).

Quantities or results referred to as “current quarter” and “current three-month period” refer to the three months ended March 31, 2020.

Cautionary Statement for Forward-Looking Information

This MD&A and other parts of this Quarterly Report on Form 10-Q/A contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The unaudited interim condensed consolidated financial statements, that include results of Crimson Wine Group, Ltd. and all of its subsidiaries further collectively known as “we”, “Crimson”, “our”, “us”, or “the Company”, have been prepared in accordance with GAAP for interim financial information and with the general instruction for quarterly reports filed on Form 10-Q/A and Article 8 of Regulation S-X. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, prospects, plans, opportunities, and objectives constitute “forward-looking statements.” The words “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “potential,” or “continue” and similar types of expressions identify such statements, although not all forward-looking statements contain these identifying words. These statements are based upon information that is currently available to us and our management’s current expectations speak only as of the date hereof and are subject to risks and uncertainties. We expressly disclaim any obligation, except as required by federal securities laws, or undertaking to update or revise any forward-looking statements contained herein to reflect any change or expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statements are based, in whole or in part. Our actual results may differ materially from the results discussed in or implied by such forward-looking statements.

Risks that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or that may materially and adversely affect our actual results include, but are not limited to, those discussed in Part I, Item 1A. Risk Factors in the 2019 Report and the additional risk factor regarding COVID-19 discussed in Part II, Item 1A of this Report. Readers should carefully review the risk factors described in the 2019 Report, this Report and in other documents that the Company files from time to time with the SEC.

Restatement of Previously Issued Consolidated Financial Statements

We have restated our previously issued consolidated financial statements contained in this Quarterly Report on Form 10-Q/A. Refer to the “Explanatory Note” preceding Part I - Financial Information, for background on the restatement, the periods impacted, control considerations, and other information. In addition, we have restated certain previously reported financial information for the three months ended March 31, 2020 in this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Interim Operations, including but not limited to information within the Results of Operations and Liquidity and Capital Resources sections. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 1, Financial Statement Schedules and Footnotes, for additional information related to the restatement, including descriptions of the misstatements and the impacts on our consolidated financial statements.

Overview of Business

The Company generates revenues from sales of wine to wholesalers and direct to consumers, sales of bulk wine and grapes, custom winemaking services, special event fees, tasting fees and retail sales. 
Our wines are primarily sold to wholesale distributors, who then sell to retailers and restaurants. As permitted under federal and local regulations, we have also been placing increased emphasis on generating revenue from direct sales to consumers which occur through wine clubs, at the wineries’ tasting rooms and through the internet and direct outreach to customers. Direct sales to consumers are more profitable for the Company as we are able to sell our products at a price closer to retail prices rather than the wholesale price sold to distributors. From time to time, we may sell grapes or bulk wine because the grapes or wine do not meet the quality standards for the Company’s products, market conditions have changed resulting in reduced demand for certain products, or because the Company may have produced more of a particular varietal than it can use. When these sales occur, they may result in a loss.
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Cost of sales includes grape and bulk wine costs, whether purchased or produced from the Company’s controlled vineyards, crush costs, winemaking and processing costs, bottling, packaging, warehousing and shipping and handling costs. For the Company controlled vineyard produced grapes, grape costs include annual farming labor costs, harvest costs and depreciation of vineyard assets. For wines that age longer than one year, winemaking and processing costs continue to be incurred and capitalized to the cost of wine, which can range from 3 to 36 months. Reductions to the carrying value of inventories are also included in cost of sales.
In a strategic effort to maximize asset utilization in 2019, the Company increased focus on supply chain management. During 2019, the Company performed regular costing updates to apply actual cost for the 2017 and 2018 vintage bulk wine compared to the standard cost estimates used. The analysis showed higher cellar overhead costs incurred for these vintages than previously estimated in the standard rate applied to bulk wine gallons produced. The increase in the revised standard rate over the production period was a result of a strategic reduction of wine bottled driven by less than forecasted demand for certain products. Additionally, cost capitalized to inventory increased due to growth in general and administrative overhead costs as well as onboarding cellar costs related to the Double Canyon winemaking facility and acquired Seven Hills Winery.
As of March 31, 2020, wine inventory includes approximately 0.7 million cases of bottled and bulk wine in various stages of the aging process. Cased wine is expected to be sold over the next 12 to 36 months and generally before the release date of the next vintage.

Impact of COVID-19 on Operations

In March 2020, the 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. Although financial impacts to the current quarter have been limited due to the timing of onset, the outbreak presents uncertainty and risk with respect to the Company and its performance and financial results.
As of March 16, 2020, with the exception of key operations personnel, we have shifted our office staff to remote workstations, which has been an effective transition to date. We will continue to operate remotely until local government offices have lifted shelter-in-place orders and management determines it is safe for employees to return to offices.
We have not experienced nor do we anticipate significant impact or disruptions to our supply chain network.
The Company has experienced both reductions and increases in consumer demand in various channels due to the coronavirus disease 2019 (“COVID-19”) in the three months ended March 31, 2020. On March 16, 2020 (“the closure date”), 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. From the closure date through March 31, 2020, net sales from the Company’s tasting rooms decreased 80% compared to the same period in 2019 due to the offerings of limited direct shipments to customers during this temporary closure period. As of March 31, 2020, the Company’s tasting rooms remained closed.
In addition to selling wine directly to consumers in its tasting rooms, the Company sells wine directly to consumers through our website (http://www.crimsonwinegroup.com), third-party websites, through direct phone calls, and other online sales (“Ecommerce”). The Company’s Ecommerce operations have been favorably impacted and continued to sell and distribute wine directly to consumers. From the closure date through March 31, 2020, net sales from Ecommerce operations increased 85% compared to the same period in 2019.
The Company sells wine (through distributors and directly) to restaurants, bars, and other hospitality locations (“On-Premise”). Demand for wines at On-Premise locations has been reduced due to the shelter-in-place orders restricting consumers from visiting, as well as in some cases their temporary closure. During March 2020, shipments from the distributors to retail accounts (depletion) to On-Premise locations as a percentage of the Company’s total depletions decreased by 1% compared to the same period in 2019.
The Company also sells wine (through distributors and directly) to supermarkets, grocery stores, liquor stores, and other chains and independent stores (“Off-Premise”). Demand for wines at Off-Premise locations has increased due to their classification as essential businesses that remain open during shelter-in-place orders. During March 2020, depletions to Off-Premise locations as a percentage of the Company’s total depletions increased by 1% compared to the same period in 2019.

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Seasonality

As discussed in the 2019 Report, the wine industry in general historically experiences seasonal fluctuations in revenues and net income. The Company typically has lower sales and net income during the first quarter and higher sales and net income during the fourth quarter due to seasonal holiday buying as well as wine club shipment timing. We anticipate similar trends in the future.

Restructuring

During 2018, the Company committed to various restructuring activities (the “2018 Restructuring Program”) including the termination of a vineyard operating lease agreement in Oregon and certain departmental reorganizations. Restructuring charges of $0.1 million were incurred in the three months ended March 31, 2019. As of March 31, 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 and restructure of management. As of March 31, 2020, the Company incurred $0.5 million of restructuring charges inception-to-date and in the quarter consisting of $0.3 million employee related costs, $0.1 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 expects to incur an additional $0.3 million in severance and other restructuring charges in the second quarter of 2020. The Company will continue to assess the need for additional restructuring activities during 2020.

Results of Operations

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Net Sales
Three Months Ended March 31,
(in thousands, except percentages) 2020 2019 Increase (Decrease) % change
Wholesale $ 7,929  $ 8,494  $ (565) (7)%
Direct to Consumer 5,562  5,300  262  5%
Other 979  1,371  (392) (29)%
Total net sales $ 14,470  $ 15,165  $ (695) (5)%

Wholesale net sales decreased $0.6 million, or 7%, in the current quarter as compared to the same quarter in 2019. The decrease was primarily driven by a decrease in wine sales to the cruise and transportation segments, as well as increased price support compared to the same quarter in 2019.

Direct to Consumer net sales increased $0.3 million, or 5%, in the current quarter as compared to the same quarter in 2019. The increase was primarily driven by successful strategic Ecommerce offers and timing of wine club shipments compared to the same quarter in 2019. The increase was partially offset by the temporary closure of tasting rooms in compliance with shelter-in-place orders issued by local government officers in March.

Other net sales include bulk wine, grape sales, custom winemaking services, event fees and retail sales, and decreased $0.4 million, or 29% primarily due to a decrease in gallons of bulk wine sold, and reduced event fees and retail sales due to the temporary closure of tasting rooms and event cancellations related to shelter-in-place orders. The decrease was partially offset by an increase in revenue from custom winemaking services as compared to the same quarter in 2019.
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Gross Profit
As Restated
Three Months Ended March 31,
(in thousands, except percentages) 2020 2019 Increase (Decrease) % change
Wholesale $ 2,276  $ 3,051  $ (775) (25)%
Wholesale gross margin percentage 29  % 36  %    
Direct to Consumer 3,547  3,565  (18) (1)%
Direct to Consumer gross margin percentage 64  % 67  %    
Other (375) (369) (6) (2)%
Total gross profit $ 5,448  $ 6,247  $ (799) (13)%
Total gross margin percentage 38  % 41  %

Wholesale gross profit decreased $0.8 million, or 25%, in the current quarter as compared to the same quarter in 2019 primarily driven by the release of higher cost vintages, increased price support, and close out sales. Increased costs were primarily driven by higher fixed production costs, planned decreased production volumes in an effort to re-align supply with demand, and a lower crop yield on vintages sold. Gross margin percentage, which is defined as gross profit as a percentage of net sales, decreased 721 basis points primarily driven by increased cost of goods sold and increased price support compared to the same quarter in 2019.

Direct to Consumer gross profit was relatively flat in the current quarter as compared to the same quarter in 2019. Gross margin percentage decreased 349 basis points in the current quarter primarily driven by release of higher cost vintages compared to the same quarter in 2019.

Other includes a gross loss on bulk wine, grape sales, event fees and non-wine retail sales and was flat in the current quarter as compared to the same quarter in 2019.

Operating Expenses
Three Months Ended March 31,
(in thousands, except percentages) 2020 2019 Increase (Decrease) % change
Sales and marketing $ 3,951  $ 4,324  $ (373) (9)%
General and administrative 3,082  2,787  295  11%
Total operating expenses $ 7,033  $ 7,111  $ (78) (1)%

Sales and marketing expenses decreased $0.4 million, or 9%, in the current quarter as compared to the same quarter in 2019. The decrease was primarily driven by timing of promotional programs and a decrease in travel costs compared to the same quarter in 2019.

General and administrative expenses increased $0.3 million, or 11%, in the current quarter as compared to the same quarter in 2019 primarily due to an increase in compensation and employee related expenses compared to the same quarter in 2019.
Other (Expense) Income
Three Months Ended March 31,
(in thousands, except percentages) 2020 2019 Change % change
Interest expense, net $ (323) $ (321) $ (2) (1)%
Other income (expense), net 167  (23) 190  826%
Total other (expense) income, net $ (156) $ (344) $ 188  55%

Interest expense, net was flat in the current quarter compared to the same quarter in 2019. 

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Other income, net, increased by $0.2 million, or 826% in the current quarter as compared to the same quarter in 2019. The increase was primarily driven by the discontinuation of apple consignment sales, which yielded a loss, in the same quarter in 2019.

Income Tax Provision (As Restated)

The Company’s effective tax rates for the three months ended March 31, 2020 and 2019 were 35.4% and 28.9%, respectively. As a result of the Tax Cuts and Jobs Act (Public Law 115-97), the Company revised its estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 34% to 21%. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the three months ended March 31, 2020 was primarily attributable to state income taxes and the effect of certain permanent differences, which primarily consisted of meals and entertainment.

Liquidity and Capital Resources

General

The Company’s principal sources of liquidity are its available cash and cash equivalents, investments in available for sale securities, funds generated from operations and bank borrowings. The Company’s primary cash needs are to fund working capital requirements and capital expenditures.

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 revolving credit facility to date.

Term Loans

Term loans consist of the following:

(i) On November 10, 2015, Pine Ridge Winery, LLC (“PRW Borrower”), a wholly-owned subsidiary of Crimson, entered into a senior secured term loan agreement (the “2015 Term Loan”) with American AgCredit, FLCA (“Lender”) for an aggregate principal amount of $16.0 million. Amounts outstanding under the 2015 Term Loan bear a fixed interest rate of 5.24% per annum.

The 2015 Term Loan will mature on October 1, 2040 (the “2015 Loan Maturity Date”). On the first day of each January, April, July and October, commencing January 1, 2016, PRW Borrower is required to make a principal payment in the amount of $160,000 and an interest payment equal to the amount of all interest accrued through the previous day. A final payment of all unpaid principal, interest and any other charges with respect to the 2015 Term Loan shall be due and payable on the 2015 Loan Maturity Date.

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 March 31, 2020, $13.3 million in principal was outstanding on the 2015 Term Loan, and unamortized loan fees were less than $0.1 million.
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(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 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 March 31, 2020, $8.8 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, sale of assets and merging or consolidating with other entities.

In April 2020, the Company successfully secured a $3.8 million Small Business Association (“SBA”) loan under the Payroll Protection Program (“PPP”) to secure payroll expenses for otherwise furloughed employees impacted by government imposed shelter in place orders. Per the terms of the loan, the full amount will be forgiven as long as loan proceeds are used to cover payroll costs and other specified non-payroll costs (provided any non-payroll costs do not exceed 25% of the forgiven amount) over an 8-week period after the loan is made; and employee and compensation levels are maintained. The Company fully intends to comply with the above terms in order to qualify for loan forgiveness. In the event the Company is required to repay the loan, all payments are deferred for 6 months with accrued interest over this period. Amounts outstanding under the loan will bear a fixed interest rate of 1.00% per annum with a maturity date of 2 years from commencement date.





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Consolidated Statements of Cash Flows

The following table summarizes our cash flow activities for the three months ended March 31, 2020 and 2019 (in thousands):
Cash provided by (used in): 2020 2019
Operating activities $ 1,734  $ (1,527)
Investing activities 1,141  1,381 
Financing activities (285) (1,456)

Cash provided by operating activities (As restated)

Net cash provided by operating activities was $1.7 million for the three months ended March 31, 2020, consisting primarily of $1.4 million of net loss adjusted for non-cash items totaling $2.4 million primarily consisting of depreciation, amortization, and loss on the write-down of inventory and $0.5 million of restructuring charges. The net cash inflow related to changes in operating assets and liabilities totaled $0.2 million.

Net cash used in operating activities was $1.5 million for the three months ended March 31, 2019, consisting primarily of $0.9 million of net loss adjusted for non-cash items totaling $2.4 million primarily consisting of depreciation, amortization, and loss on the write-down of inventory and $0.1 million of restructuring charges, partially offset by $3.1 million of net cash outflow related to changes in operating assets and liabilities. The change in operating assets and liabilities was primarily due to a decrease in accounts payable and expense accruals, partially offset by a decrease in inventory and accounts receivable. The decrease in accounts payable and expense accruals was primarily due to grower payments made in the current quarter for the 2018 harvest.

Cash provided by investing activities

Net cash provided by investing activities was $1.1 million for the three months ended March 31, 2020, consisting primarily of proceeds from sale of land in Klickitat County, Washington totaling $1.8 million, partially offset by net purchases of available for sale investments of $0.3 million and capital expenditures of $0.5 million. 

Net cash provided by investing activities was $1.4 million for the three months ended March 31, 2019, consisting primarily of net redemptions of available for sale investments of $2.5 million, partially offset by capital expenditures of $1.2 million.

Cash used in financing activities

Net cash used in financing activities for the three months ended March 31, 2020 was $0.3 million, which reflects the principal payments on our term loans of $0.3 million.

Net cash used in financing activities for the three months ended March 31, 2019 was $1.5 million, which reflects the repurchase of shares of our common stock at a repurchase price of $1.1 million, principal payments on our term loans of $0.3 million and contingent consideration payments of $0.1 million associated with the Seven Hills Winery acquisition.

Share Repurchases

In December 2018, the Company commenced a share repurchase program (the “2019 Winter Repurchase Program”) that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2019 Winter Repurchase Program, any repurchased shares were constructively retired. On April 30, 2019, the 2019 Winter Repurchase Program was completed. Under the total 2019 Winter Repurchase Program, the Company had repurchased 253,324 shares at a repurchase price of $2.0 million.

In September 2019, the Company commenced a share repurchase program (the “2019 Summer Repurchase Program”) that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2019 Summer Repurchase Program, any repurchased shares were constructively retired. On December 12, 2019, the 2019 Summer Repurchase Program was completed. Under the total 2019 Summer Repurchase Program, the Company repurchased 283,208 shares at a repurchase price of $2.0 million.

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Commitments & Contingencies

There have been no significant changes to our contractual obligations table as disclosed in the 2019 Report.

Off-Balance Sheet Financing Arrangements

None.

Critical Accounting Policies and Estimates

Except as disclosed in Note 1 of this Form 10-Q/A, there have been no material changes to the critical accounting policies and estimates previously disclosed in the 2019 Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Crimson does not currently have any exposure to financial market risk. Sales to international customers are denominated in U.S. dollars; therefore, Crimson is not exposed to market risk related to changes in foreign currency exchange rates.  As discussed above under Liquidity and Capital Resources, Crimson has a revolving credit facility and two term loans. The revolving credit facility had no outstanding balance as of March 31, 2020, and bears interest at floating rates on borrowings. The term loans had $22.0 million outstanding at March 31, 2020, and are fixed-rate debt and therefore are not subject to fluctuations in market interest rates.

Item 4. Controls and Procedures.
The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of March 31, 2020. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2020 due to the material weakness in our internal control over financial reporting described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

The Company did not have adequate controls in place to monitor and associate the cost of bulk wine inventory with quantity or gallons on hand. As a result, the cost related to certain bulk wine inventory was not properly transferred to bulk and bottled inventory accounts that would subsequently be relieved through sales transactions. This material weakness resulted in the restatement of our unaudited interim consolidated financial statements as of and for the three months ended March 31, 2020. It should be noted that the custody and recordkeeping of physical inventory have always been properly maintained through physical inventory counts and the restatement error is strictly related to the cost component.

Remediation of the Material Weakness.

Management has been implementing changes to strengthen our internal controls over the accounting for bulk wine inventory valuation and the related impacts. The remediation plan includes both management’s assessment and recommendations from independent accounting advisors used in the review process. This remediation is intended to address the identified material weakness and enhance our overall control environment.

Management has implemented a bulk wine sub-ledger to general ledger reconciliation. This added control is intended to ensure accurate costing is assigned and maintained for the Company’s bulk wine inventory. It should be noted that the custody and recordkeeping of physical inventory have always been properly maintained through physical inventory counts and the restatement error is strictly related to the cost component.

While we believe that the above action will ultimately remediate the material weakness, we intend to continue to refine this control and monitor its effectiveness for a sufficient period of time prior to reaching any determination as to whether the material weakness has been remediated.

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Notwithstanding the identified material weakness, management believes that the consolidated financial statements included in this Quarterly Report on Form 10-Q/A present fairly, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented in accordance with U.S. GAAP.

Other than as described in the Remediation of the Material Weakness section above, there has been no change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, Crimson may be involved in legal proceedings in the ordinary course of its business. Crimson is not currently involved in any legal or administrative proceedings individually or together that it believes are likely to have a significant adverse effect on its business, results of operations or financial condition.

Item 1A. Risk Factors.

In addition to the factors discussed in Part I, “Item 1A. Risk Factors” in our 2019 Report, which could materially affect our business, results of operations or financial condition, please carefully consider the additional risk factor below.

We face risks related to health pandemics, particularly the recent outbreak of COVID-19, which could adversely affect our business and results of operations.      

Our business could be adversely affected by a widespread outbreak of contagious disease, including the recent outbreak of the novel coronavirus, known as COVID-19, which has spread to many countries throughout the world. The effects of this outbreak on our business have included and could continue to include disruptions or restrictions on our employees’ ability to travel in affected regions, as well as temporary closures of our tasting rooms and temporary closures of the facilities of our suppliers, customers, or other vendors in our supply chain, which could impact our business, interactions and relationships with our customers, third-party suppliers and contractors, and results of operations. In addition, a significant outbreak of contagious disease in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could reduce the demand for our products and likely impact our results of operations. The extent to which the COVID-19 outbreak will impact business and the economy is highly uncertain and cannot be predicted. Accordingly, we cannot predict the extent to which our financial condition and results of operations will be affected.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, results of operations or financial condition.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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Item 6. Exhibits.

2.1*
3.1*
3.2*
10.1*

10.2*

31.1**
31.2**
32.1**
32.2**
101** Unaudited restated financial statements from the Quarterly Report on Form 10-Q/A of Crimson Wine Group, Ltd. for the quarter ended March 31, 2020, formatted in Extensible Business Reporting Language (XBRL): (i) the Restated Condensed Consolidated Balance Sheets; (ii) the Restated Condensed Consolidated Statements of Loss; (iii) the Restated Condensed Consolidated Statements of Comprehensive Income (iv) the Restated Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Restated Interim Condensed Consolidated Financial Statements.
104**
The cover page from the Company’s Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2020, formatted in Inline XBRL.
* Incorporated by reference
** Filed herewith

39
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CRIMSON WINE GROUP, LTD.
(Registrant)
Date: April 13, 2021 By: /s/ Karen L. Diepholz
Karen L. Diepholz
Chief Financial Officer

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