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Crimson Wine Group, Ltd - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
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. 
YesX  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).       
YesX  No  

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   NoX 

On August 4, 2023 there were 21,308,900 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.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


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)
June 30, 2023December 31, 2022
Assets  
Current assets:  
Cash and cash equivalents$15,504 $25,705 
Investments available for sale19,162 11,673 
Accounts receivable, net4,970 6,849 
Inventory51,478 51,716 
Other current assets1,555 1,653 
Total current assets92,669 97,596 
Property and equipment, net114,570 113,421 
Goodwill1,262 1,262 
Intangible and other non-current assets, net5,975 6,481 
Total non-current assets121,807 121,164 
Total assets$214,476 $218,760 
Liabilities  
Current liabilities:  
Accounts payable and accrued liabilities$7,877 $11,460 
Customer deposits579 392 
Current portion of long-term debt, net of unamortized loan fees1,129 1,128 
Total current liabilities9,585 12,980 
Long-term debt, net of current portion and unamortized loan fees17,106 17,671 
Deferred tax liability, net1,103 1,100 
Other non-current liabilities
Total non-current liabilities18,218 18,780 
Total liabilities27,803 31,760 
Contingencies (Note 12)
Stockholders’ Equity  
Common shares, par value $0.01 per share, authorized 150,000,000 shares; 21,357,656 and 21,448,212 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively
213 214 
Additional paid-in capital278,347 278,083 
Accumulated other comprehensive income (loss)24 (49)
Accumulated deficit(91,911)(91,248)
Total stockholders’ equity186,673 187,000 
Total liabilities and stockholders’ equity$214,476 $218,760 

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)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net sales$17,718 $18,082 $32,939 $36,705 
Cost of sales9,121 9,729 17,408 21,257 
Gross profit8,597 8,353 15,531 15,448 
Operating expenses:    
Sales and marketing4,520 4,543 8,830 8,282 
General and administrative3,560 3,263 7,028 6,561 
Total operating expenses8,080 7,806 15,858 14,843 
Net (gain) loss on disposal of property and equipment(15)107 34 127 
Income (loss) from operations532 440 (361)478 
Other (expense) income:    
Interest expense, net(68)(94)(327)(377)
Other income, net297 99 597 126 
Total other income (expense), net229 270 (251)
Income (loss) before income taxes761 445 (91)227 
Income tax expense (benefit)215 127 (25)66 
Net income (loss)$546 $318 $(66)$161 
Basic weighted-average shares outstanding21,412 22,450 21,430 22,486 
Fully diluted weighted-average shares outstanding21,412 22,450 21,430 22,487 
Basic and fully diluted earnings per share$0.03 $0.01 $0.00 $0.01 

See accompanying notes to unaudited interim condensed consolidated financial statements.

2

CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net income (loss)$546 $318 $(66)$161 
Net unrealized holding gains (losses) on investments arising during the period, net of tax65 (19)73 (25)
Comprehensive income$611 $299 $$136 


See accompanying notes to unaudited interim condensed consolidated financial statements.

3

CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
20232022
Net cash flows from operating activities:  
Net (loss) income$(66)$161 
Adjustments to reconcile net (loss) income to net cash from operations: 
Depreciation and amortization of property and equipment3,028 2,976 
Amortization of intangible assets643 643 
Loss on write-down of inventory531 926 
Provision for doubtful accounts— 
Net loss on disposal of property and equipment34 127 
(Benefit) provision for deferred income taxes(25)66 
   Stock-based compensation264 158 
Net change in operating assets and liabilities:  
Accounts receivable1,872 978 
Inventory(293)4,886 
Other current assets98 (170)
Other non-current assets(137)19 
Accounts payable and accrued liabilities(4,374)(4,825)
Customer deposits193 265 
Net cash provided by operating activities1,775 6,210 
Net cash flows from investing activities:  
Purchase of investments available for sale(14,637)(5,750)
Redemptions of investments available for sale7,250 9,250 
Acquisition of property and equipment(3,442)(1,678)
Proceeds from disposals of property and equipment21 18 
Net cash (used in) provided by investing activities(10,808)1,840 
Net cash flows from financing activities:  
Principal payments on long-term debt(570)(570)
Repurchase of common stock(598)(1,016)
Net cash used in financing activities(1,168)(1,586)
Net (decrease) increase in cash and cash equivalents(10,201)6,464 
Cash and cash equivalents - beginning of period25,705 32,732 
Cash and cash equivalents - end of period$15,504 $39,196 
Supplemental disclosure of cash flow information:  
Cash paid during the period for:  
Interest, net of capitalized interest$505 $568 
Non-cash investing and financing activity:  
Unrealized holding gains (losses) on investments, net of tax$73 $(25)
Acquisition of property and equipment accrued but not yet paid$790 $401 

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

CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands, except share amounts)
(Unaudited)
Accumulated
AdditionalOther
Common StockPaid-InComprehensiveAccumulated
SharesAmountCapital(Loss) IncomeDeficitTotal
Three Months Ended June 30, 2023
Balance, March 31, 202321,447,712 $214 $278,199 $(41)$(91,863)$186,509 
Net income— — — — 546 546 
Other comprehensive income— — — 65 — 65 
Stock-based compensation— — 148 — — 148 
Repurchase of common stock(90,056)(1)— — (594)(595)
Balance, June 30, 202321,357,656 $213 $278,347 $24 $(91,911)$186,673 
Three Months Ended June 30, 2022
Balance, March 31, 202222,516,882 $225 $277,776 $(4)$(85,559)$192,438 
Net income— — — — 318 318 
Other comprehensive loss— — — (19)— (19)
Stock-based compensation— — 101 — — 101 
Repurchase of common stock(127,419)(1)— — (956)(957)
Balance, June 30, 202222,389,463 $224 $277,877 $(23)$(86,197)$191,881 
Six Months Ended June 30, 2023
Balance, December 31, 202221,448,212 $214 $278,083 $(49)$(91,248)$187,000 
Net loss— — — — (66)(66)
Other comprehensive income— — — 73 — 73 
Stock-based compensation— — 264 — — 264 
Repurchase of common stock(90,556)(1)— — (597)(598)
Balance, June 30, 202321,357,656 $213 $278,347 $24 $(91,911)$186,673 
Six Months Ended June 30, 2022
Balance, December 31, 202122,524,185 $225 $277,719 $$(85,343)$192,603 
Net income— — — — 161 161 
Other comprehensive loss— — — (25)— (25)
Stock-based compensation— — 158 — — 158 
Repurchase of common stock(134,722)(1)— — (1,015)(1,016)
Balance, June 30, 202222,389,463 $224 $277,877 $(23)$(86,197)$191,881 

See accompanying notes to unaudited interim condensed consolidated financial statements.

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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 luxury wines (i.e., wines that retail for over $15 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 under such Note) included in the Company’s audited consolidated financial statements for the year ended December 31, 2022, as filed with the SEC on Form 10-K (the “2022 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, 2022 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

There were no changes to the Company’s significant accounting policies during the six months ended June 30, 2023. See Note 2, “Significant Accounting Policies,” of the 2022 Report for a description of the Company’s significant accounting policies.

Recent Accounting Pronouncements

Subsequent to the filing of the 2022 Report, the Company evaluated Accounting Standards Update (“ASU”) 2023-01 through 2023-03 issued by the Financial Accounting Standards Board (“FASB”) and concluded none of the accounting pronouncements would have a material effect or are applicable to Crimson’s unaudited interim condensed consolidated financial statements.


2.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 cost 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.

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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 from 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 depletion allowances, 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 significant 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 its website, third-party websites, direct phone calls, and other online sales (“Ecommerce”).

Wine club membership sales are made under contracts with customers, which specify the quantity and timing of future wine shipments. Customer credit cards are charged in advance of quarterly wine shipments in accordance with each contract. The Company transfers control and recognizes revenue for these contracts upon shipment of the wine to the customer.

Tasting room and Ecommerce wine sales are paid for at the time of sale. The Company transfers control and recognizes revenue for wine sales when the product is either received by the customer (on-site tasting room sales) or upon shipment to the customer (“Ecommerce sales”).

Other

From time to time, the Company sells grapes or bulk wine because the grapes or wine do not meet the quality standards for the Company’s products, market conditions have changed resulting in reduced demand for certain products, or because the Company may have purchased or 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, Chamisal Vineyards, and Pine Ridge Vineyard’s winemaking facilities. Custom winemaking services are made under contracts with customers, which include specific protocols, pricing, and payment terms and generally have a duration of less than one year. The customer retains title and control of the wine during the winemaking process. The Company recognizes revenue for winemaking services when contract specific performance obligations are met.

Estates hold various public and private events for customers and their wine club members. Upfront consideration received from the sale of tickets or under private event contracts for future events is recorded as deferred revenue. The balance of payments are due on the date of the event. The Company recognizes event revenue on the date the event is held.

Other revenue also includes tasting fees and retail merchandise sales, which are paid for and received or consumed at the time of sale. The Company transfers control and recognizes revenue for tasting fees and retail merchandise sales at the time of sale.

Refer to Note 11, “Business Segment Information,” for revenue by sales channel amounts for the three and six months ended June 30, 2023 and 2022.


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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 unaudited condensed consolidated balance sheets and represents a contract liability. Customer deposits are liquidated when revenue is recognized. Revenue that was included in the contract liability balance at the beginning of each of the 2023 and 2022 years consisted primarily of wine club revenue, grape and bulk sales, and event fees. Changes in the contract liability balance during the six-month periods ended June 30, 2023 and 2022 were not materially impacted by any other factors.

The outstanding contract liability balance was $0.6 million at June 30, 2023 and $0.4 million at December 31, 2022. Of the amounts included in the opening contract liability balances at the beginning of each period, approximately $0.3 million were recognized as revenue during each of the six-month periods ended June 30, 2023 and 2022.

Accounts Receivable, Net

Accounts receivable are reported net of an allowance for doubtful accounts. 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 uncollectible 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 at both June 30, 2023 and December 31, 2022.


3.Inventory

A summary of inventory at June 30, 2023 and December 31, 2022 is as follows (in thousands):
June 30, 2023December 31, 2022
Finished goods$23,160 $17,896 
In-process goods27,056 32,849 
Packaging and bottling supplies1,262 971 
Total inventory$51,478 $51,716 

The Company reduces the carrying value of inventories that are obsolete or in excess of estimated usage to estimated net realizable value. The Company’s estimates of net realizable value are based on analyses and assumptions including, but not limited to, historical usage, projected future demand, and market requirements. Reductions to the carrying value of inventories are recorded in cost of sales. If future demand and/or profitability for the Company’s products are less than previously estimated, then the carrying value of the inventories may be required to be reduced, resulting in additional expense and reduced profitability. The Company’s inventory write-downs may consist of reductions to bottled or bulk wine inventory. Crop insurance proceeds from farming losses may be recorded as offsets against previously recognized write-downs.

Inventory write-downs of $0.2 million were recorded during each of the three-month periods ended June 30, 2023 and 2022. Inventory write-downs of $0.5 million and $0.9 million were recorded during the six-month periods ended June 30, 2023 and 2022, respectively. The Company’s inventory balances are presented at the lower of cost or net realizable value.


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4.Property and Equipment

A summary of property and equipment at June 30, 2023 and December 31, 2022, and depreciation and amortization for the three and six months ended June 30, 2023 and 2022, is as follows (in thousands):

Depreciable Lives
(in years)June 30, 2023December 31, 2022
Land and improvementsN/A$44,912 $44,912 
Buildings and improvements
20-40
61,874 61,260 
Winery and vineyard equipment
3-25
36,692 35,998 
Vineyards and improvements
7-25
34,591 34,221 
Caves
20-40
5,639 5,639 
Vineyards under developmentN/A3,072 2,489 
Construction in progressN/A5,095 3,479 
Total191,875 187,998 
Accumulated depreciation and amortization(77,305)(74,577)
Total property and equipment, net$114,570 $113,421 

Three Months Ended June 30,Six Months Ended June 30,
Depreciation and amortization:2023202220232022
Capitalized into inventory$1,134 $1,110 $2,270 $2,234 
Expensed to general and administrative387 377 758 742 
Total depreciation and amortization$1,521 $1,487 $3,028 $2,976 
























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5.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 one year 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 June 30, 2023 and December 31, 2022 are as follows (in thousands):
June 30, 2023Par ValueAmortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Level 1Level 2Total Fair Value
Measurements
U.S. Treasury Bill$5,000 $4,887 $61 $— $4,948 $— $4,948 
Certificates of Deposit14,250 14,250 — (36)— 14,214 14,214 
Total$19,250 $19,137 $61 $(36)$4,948 $14,214 $19,162 
December 31, 2022Par ValueAmortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Level 1Level 2Total Fair Value
Measurements
Certificates of Deposit$11,750 $11,750 $— $(77)$— $11,673 $11,673 

The Company believes the gross unrealized losses 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 June 30, 2023 and December 31, 2022, the Company did not have any other assets or liabilities measured at fair value on a nonrecurring basis. For cash and cash equivalents and short-term debt, the carrying amounts of such financial instruments approximate their fair values. As of June 30, 2023, the Company has estimated the fair value of its outstanding debt to be approximately $13.9 million compared to its carrying value of $18.3 million, based upon discounted cash flows with Level 3 inputs, such as the terms that management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other factors. Level 3 inputs include market rates obtained from American AgCredit, FLCA as of June 30, 2023 of 8.06% and 8.02% for the 2015 Term Loan (as defined below) and 2017 Term Loan (as defined below), respectively, as further discussed in Note 8, “Debt.”

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


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6.Intangible and Other Non-Current Assets

A summary of intangible and other non-current assets at June 30, 2023 and December 31, 2022, and amortization expense for the three and six months ended June 30, 2023 and 2022, is as follows (in thousands):
June 30, 2023December 31, 2022
Amortizable lives
(in years)
Gross carrying amountAccumulated amortizationNet book valueGross carrying amountAccumulated amortizationNet book value
Brand
15-17
$18,000 $(12,686)$5,314 $18,000 $(12,155)$5,845 
Distributor relationships
10-14
2,700 (2,318)382 2,700 (2,220)480 
Legacy permits14250 (216)34 250 (207)43 
Trademark20200 (148)52 200 (143)57 
Total$21,150 $(15,368)$5,782 $21,150 $(14,725)$6,425 
Other non-current assets193 56 
Total intangible and other non-current assets, net$5,975 $6,481 
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Total amortization expense$322 $322 $643 $643 

The estimated aggregate future amortization of intangible assets as of June 30, 2023 is identified below (in thousands):
Amortization
Remainder of 2023$643 
20241,286 
20251,168 
20261,073 
20271,073 
Thereafter539 
Total$5,782 



7.Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):
June 30, 2023December 31, 2022
Accounts payable and accrued grape liabilities$2,862 $5,120 
Accrued compensation related expenses2,252 3,287 
Sales and marketing588 227 
Acquisition of property and equipment790 709 
Accrued interest243 250 
Depletion allowance490 1,176 
Production and farming374 202 
Other accrued expenses278 489 
Total accounts payable and accrued liabilities $7,877 $11,460 


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8.Debt

A summary of debt at June 30, 2023 and December 31, 2022 is as follows (in thousands):

June 30, 2023December 31, 2022
Revolving Credit Facility (1)
$— $— 
Senior Secured Term Loan Agreement due 2040,
   with an interest rate of 5.24% (2)
11,200 11,520 
Senior Secured Term Loan Agreement due 2037,
   with an interest rate of 5.39% (3)
7,125 7,375 
Unamortized loan fees(90)(96)
Total debt18,235 18,799 
Less current portion of long-term debt1,129 1,128 
Long-term debt due after one year, net$17,106 $17,671 
______________________________________
(1)    The Revolving Credit Facility, a $60.0 million revolving credit facility between the Company and American AgCredit, FLCA, as agent for the lenders thereunder, is comprised of a revolving loan facility (the “Revolving Loan”) and a term revolving loan facility (the “Term Revolving Loan”), which together are secured by substantially all of Crimson’s assets. The Revolving Loan provides up to $10.0 million of availability in the aggregate for a five year term, and the Term Revolving Loan provides up to $50.0 million in the aggregate for a fifteen year term. In addition to unused line fees ranging from 0.125% to 0.225%, rates for the borrowings are priced based on a performance grid tied to certain financial ratios and the Secured Overnight Financing Rate. On June 15, 2023, the Company executed a renewal agreement with American AgCredit, which includes an extension of the termination date of the Revolving Loan and the Term Revolving Loan to May 31, 2028 along with updates to other terms of the credit agreement governing such loans.
(2)    Pine Ridge Winery, LLC, a wholly-owned subsidiary of Crimson, is party to a senior secured term loan agreement due on October 1, 2040 (the “2015 Term Loan”). Principal and interest are payable in quarterly installments.
(3)    Double Canyon Vineyards, LLC, a wholly-owned subsidiary of Crimson, is party to a senior secured term loan agreement due on July 1, 2037 (the “2017 Term Loan”). Principal and interest are payable in quarterly installments.

Debt covenants include the maintenance of specified debt and equity ratios, a specified debt service coverage ratio, and certain customary affirmative and negative covenants, including limitations on the incurrence of additional indebtedness, limitations on dividends and other distributions to shareholders and restrictions on certain investments, certain mergers, consolidations and sales of assets. The Company was in compliance with all existing debt covenants as of June 30, 2023.

A summary of debt maturities as of June 30, 2023 is as follows (in thousands):
Principal due the remainder of 2023$570 
Principal due in 20241,140 
Principal due in 20251,140 
Principal due in 20261,140 
Principal due in 20271,140 
Principal due thereafter13,195 
Total$18,325 


9. Stockholders Equity and Stock-Based Compensation
Share Repurchase

In 2022, the Company repurchased a total of 1,075,973 shares of its common stock at an average purchase price of $6.48 per share for an aggregate purchase price of $7.0 million. The Company’s repurchase was funded through cash on hand, and the shares were retired.

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In March 2023, the Company commenced a share repurchase program (the “2023 Repurchase Program”) that provided for the repurchase of up to 2,000,000 shares of outstanding common stock. Under the 2023 Repurchase Program, any repurchased shares are constructively retired. During the six months ended June 30, 2023, the Company repurchased 90,556 shares of its common stock at an average purchase price of $6.58 per share for an aggregate purchase price of $0.6 million. The Company’s repurchase was funded through cash on hand, and the shares were retired.

Stock-Based Compensation

In February 2013, the Company adopted the 2013 Omnibus Incentive Plan (the “2013 Plan”), which provides for the granting of up to 1,000,000 stock options or other common stock-based awards. In July 2022, upon the approval of the Board of Directors and the Company’s stockholders, the Company adopted the 2022 Omnibus Incentive Plan (the “2022 Plan”) to supersede and replace the 2013 Plan. The 2022 Plan provides for the granting of up to 678,000 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 Board of Directors.

In December 2019, under the Company’s 2013 Omnibus Incentive Plan, option grants for 89,000 shares were issued. The options vest annually over five years and expire seven years from the date of grant. In July 2021, stock option awards for an additional 233,000 shares were issued to certain members of management. Subject to the terms of the respective option award agreements, the options vest in four equal increments in January 2022, January 2023, January 2024 and January 2025, and the options will expire seven years from the date of grant. In March 2022, stock option awards for an additional 500,000 shares were granted to the Company’s Chief Executive Officer. Such options are divided into four tranches, are subject to both performance-based vesting requirements and time-based vesting requirements, and expire ten years from the date of grant. In March 2023, stock option awards for an additional 500,000 shares were granted to certain officers and employees of the Company. Such options are divided into five tranches, are subject to both performance-based vesting requirements and time-based vesting requirements, and expire ten years from the date of grant. The performance-based vesting requirements for the grants made in March 2022 and March 2023 are tied to annual or cumulative Adjusted EBITDA targets, as defined within the respective underlying option award agreements. The Company believes it will achieve the listed targets for each agreement and has recorded the related stock-based compensation expense for the three and six months ended June 30, 2023. The exercise price for all respective options was either the closing price or average trading price on the date of grant.

Estimates of stock-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.
During the six months ended June 30, 2023, the Company granted stock options in respect of 500,000 shares. The fair value of these grants was computed based on the following assumptions:
March 2023 Grants
Shares issued500,000 
Expected term
7.42 - 9.42 years
Expected dividend yield— %
Risk-free interest rate4.08 %
Expected stock price volatility
27 - 29%
Stock price$5.95 
Weighted-average grant date fair value$2.64 
Grant date fair value (in thousands)$1,319 
As of June 30, 2023, stock options in respect of 1,322,000 shares remained outstanding with no stock option exercises or expirations during the quarter. The stock-based compensation expense for these grants is based on the grant date fair value, which will be recorded over the respective vesting periods. $148 thousand and $264 thousand were recorded as stock-based compensation expense for the three and six months ended June 30, 2023, respectively. $102 thousand and $159 thousand were recorded as stock-based compensation expense for the three and six months ended June 30, 2022, respectively. Stock-based compensation expense was recorded to general and administrative expense in the unaudited interim condensed consolidated statements of operations.



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10.Income Taxes
The consolidated income tax expense or benefit for the three and six months ended June 30, 2023 and 2022, was determined based upon the Company’s estimated consolidated effective income tax rates calculated without discrete items for the years ending December 31, 2023 and 2022, respectively, and then adjusting for any discrete items.
The Company’s effective tax rates for the three months ended June 30, 2023 and 2022 were 28.2% and 28.9%, respectively. The Company’s effective tax rates for the six months ended June 30, 2023 and 2022 were 27.4% and 29.1%, respectively.
The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the three and six months ended June 30, 2023 was primarily attributable to state income taxes and other permanent items.


11.Business Segment Information

The Company has identified two operating segments, Wholesale net sales and Direct to Consumer net sales, which are reportable segments for financial statement reporting purposes, based upon their different distribution channels, margins, and selling strategies. Wholesale net sales include all sales through a third party where prices are given at a wholesale rate, whereas Direct to Consumer net sales include retail sales in tasting rooms, remote sites and on-site events, wine club sales, direct phone sales, Ecommerce 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 tables outline the net sales, cost of sales, gross profit, directly attributable selling expenses and operating income (loss) for the Company’s reportable segments for the three and six months ended June 30, 2023 and 2022, 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, tasting fees, and non-wine retail sales. Other/Non-Allocable expenses include centralized corporate expenses not specific to an identified reporting segment. Sales figures are net of related excise taxes.

Three Months Ended June 30,
WholesaleDirect to ConsumerOther/Non-AllocableTotal
(in thousands)20232022202320222023202220232022
Net sales$9,882 $9,423 $6,937 $7,494 $899 $1,165 $17,718 $18,082 
Cost of sales6,165 6,194 2,248 2,630 708 905 9,121 9,729 
Gross profit3,717 3,229 4,689 4,864 191 260 8,597 8,353 
Operating expenses:
Sales and marketing1,609 1,465 1,796 1,965 1,115 1,113 4,520 4,543 
General and administrative— — — — 3,560 3,263 3,560 3,263 
Total operating expenses1,609 1,465 1,796 1,965 4,675 4,376 8,080 7,806 
Net (gain) loss on disposal of property and equipment— — — — (15)107 (15)107 
Income (loss) from operations$2,108 $1,764 $2,893 $2,899 $(4,469)$(4,223)$532 $440 

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Six Months Ended June 30,
WholesaleDirect to ConsumerOther/Non-AllocableTotal
(in thousands)20232022202320222023202220232022
Net sales$18,202 $20,973 $12,884 $13,721 $1,853 $2,011 $32,939 $36,705 
Cost of sales11,440 14,107 4,267 4,735 1,701 2,415 17,408 21,257 
Gross profit (loss)6,762 6,866 8,617 8,986 152 (404)15,531 15,448 
Operating expenses:
Sales and marketing3,203 2,806 3,521 3,648 2,106 1,828 8,830 8,282 
General and administrative— — — — 7,028 6,561 7,028 6,561 
Total operating expenses3,203 2,806 3,521 3,648 9,134 8,389 15,858 14,843 
Net loss on disposal of property and equipment— — — — 34 127 34 127 
Income (loss) from operations$3,559 $4,060 $5,096 $5,338 $(9,016)$(8,920)$(361)$478 




12.Contingencies

Litigation

The Company and its subsidiaries may become parties to legal proceedings that are considered to be either ordinary, routine litigation incidental to their business or not significant to the Company’s consolidated financial position or liquidity. The Company does not believe that there is any pending litigation that could have a significant adverse impact on its consolidated financial position, liquidity or results of operations.

2017 Wildfires

In October 2017, significant wildfires impacted the Company’s operations and damaged its inventory. The Company has settled on several insurance claims since the time of the wildfires but anticipates additional settlements for insurance proceeds for amounts that cannot be reasonably estimated at this time.


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13.Earnings (Loss) Per Share

The following table reconciles the weighted-average common shares outstanding used in the calculations of the Company’s basic and diluted earnings (loss) per share:
Three Months Ended June 30,Six Months Ended June 30,
($ and shares in thousands, except per share amounts)2023202220232022
Net income (loss)$546 $318 $(66)$161 
Common shares:
Weighted-average number of common shares outstanding - basic21,412 22,450 21,430 22,486 
Dilutive effect of stock options outstanding— — — 
Weighted-average number of common shares outstanding - diluted21,412 22,450 21,430 22,487 
Earnings per share:
Basic$0.03 $0.01 $0.00 $0.01 
Diluted$0.03 $0.01 $0.00 $0.01 
Antidilutive stock options (1)
1,322 822 1,322 733 
__________________________________________
(1) Amounts represent stock options that are excluded from the diluted earnings per share calculations because the options are antidilutive.



14.Subsequent Events

None.



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

Statements included in this Quarterly Report on Form 10-Q (the “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 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC (the “2022 Report”).

Quantities or results referred to as “current quarter” and “current three and six-month period” refer to the three and six months ended June 30, 2023.

Cautionary Statement for Forward-Looking Information

This MD&A and other parts of this Report 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, which 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 and Article 8 of Regulation S-X. All statements, other than statements of historical fact, regarding the Company’s strategy, future operations, financial position, prospects, plans, opportunities, and objectives constitute “forward-looking statements.” The words “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “potential,” or “continue” and similar types of expressions identify such statements, although not all forward-looking statements contain these identifying words. Forward-looking statements include those relating to the Company’s financial condition, results of operations, plans, objectives, future performance, and business. These statements are based upon information that is currently available to the Company and its management’s current expectations speak only as of the date hereof and are subject to risks and uncertainties. The Company expressly disclaims 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. The Company’s 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 the Company’s actual results include, but are not limited to, those discussed in Part I, “Item 1A. Risk Factors” in the 2022 Report. Readers should carefully review the risk factors described in the 2022 Report and in other documents that the Company files from time to time with the SEC.

Overview of Business

The Company generates revenues from sales of wine to wholesalers and direct to consumers, sales of bulk wine and grapes, custom winemaking services, special event fees, tasting fees and non-wine retail sales. 

The Company’s wines are primarily sold to wholesale distributors, who then sell to retailers and restaurants. The Company sells wine (through distributors and directly) to restaurants, bars, and other hospitality locations (“On-Premise”). The Company also sells wine (through distributors and directly) to supermarkets, grocery stores, liquor stores, and other chains, third-party Ecommerce and independent stores (“Off-Premise”). As permitted under federal and local regulations, the Company has increased its emphasis on direct sales to consumers, which occur through wine clubs, at the wineries’ tasting rooms, and through the Ecommerce channel. Direct sales to consumers are more profitable for the Company as it is able to sell its products at a price closer to retail prices rather than the wholesale price received from distributors. From time to time, the Company may sell grapes or bulk wine because the grapes or wine do not meet the quality standards for its products, market conditions have changed resulting in reduced demand for certain products, or because it may have produced more of a particular varietal than can be used. When these sales occur, they may result in a loss.

Cost of sales includes grape and bulk wine costs, whether purchased or produced from the Company’s controlled vineyards, crush costs, winemaking and processing costs, bottling, packaging, warehousing, and shipping and handling costs. For the Company-controlled vineyard-produced grapes, grape costs include annual farming 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 three to 36 months. Reductions to the carrying value of inventories are also included in cost of sales.

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As of June 30, 2023, wine inventory included approximately 0.5 million cases of bottled wine and bulk wine, both 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.

Seasonality

As discussed in the 2022 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. The Company anticipates similar trends in the future.

Climate Conditions and Extreme Weather Events

Winemaking and grape growing are subject to a variety of agricultural risks. Various diseases, pests, natural disasters, and certain climate conditions can materially and adversely affect the quality and quantity of grapes available to Crimson thereby materially and adversely affecting the supply of Crimson’s products and its profitability. Given the risks presented by climate conditions and extreme weather, Crimson regularly evaluates impacts of climate conditions and weather on its business and plans to disclose any material impacts on the business. Along with various insurance policies currently in place, Crimson has made investments to improve its climate resilience and strives to effectively manage grape sourcing to help mitigate the impact of climate change and unforeseen natural disasters. Crimson continues to complete upgrades to its facilities to improve water resilience and fire mitigation measures with plans to advance these initiatives through improvements of irrigation and water systems over the next several years.

Following a historic wildfire season across California, Oregon, and Washington in 2020, the 2021 and 2022 harvests were impacted by drought and heat resulting in lower yields than historical averages. Compounded with the losses on the 2020 vintage, the lower yields of the 2021 and 2022 vintages may cause upward pricing pressure on the bulk wine market in addition to increased costs for grapes produced by the Company. Depending on the wine, the production cycle from harvest to bottled sales is anywhere from one to three years. Lower harvest yields have also resulted in reduced bottled inventory and limited availability of select wines and vintages available for sale.

Inflation and Market Conditions

The Company expects profit margins to remain steady or increase if it is able to effectively manage cost of sales and operating expenses, subject to any volatility in the bulk wine markets, increased labor costs, increased commodity costs, including dry goods and packaging materials, and increased transportation costs. The Company continues to monitor the impact of inflation in an attempt to minimize its effects through pricing strategies and cost reductions. If, however, the Company's operations are impacted by significant inflationary pressures, it may not be able to completely offset increased costs through price increases on its products, negotiations with suppliers, cost reductions, or production improvements.
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Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Net Sales
Three Months Ended June 30,
(in thousands, except percentages)20232022Increase (Decrease)% change
Wholesale$9,882 $9,423 $459 5%
Direct to Consumer6,937 7,494 (557)(7)%
Other899 1,165 (266)(23)%
Total net sales$17,718 $18,082 $(364)(2)%

Wholesale net sales increased $0.5 million, or 5%, in the current quarter as compared to the same quarter in 2022, reflecting an increase in domestic wine sales of $1.2 million partially offset by a decrease in export wine sales of $0.7 million. The increase in domestic wine sales is primarily driven by timing of inventory fulfillment for the Company’s distributors and price increases in the current quarter compared to the prior year quarter. The decrease in export wine sales is primarily driven by reduced shipments to key markets.

Direct to Consumer net sales decreased $0.6 million, or 7%, in the current quarter as compared to the same quarter in 2022. The decrease was primarily driven by lower sales through the Ecommerce and tasting room channels, partially offset by higher sales through the wine clubs as compared to the same quarter in 2022. Ecommerce sales decreased in the current quarter due to softening demand in this channel when compared to the prior year quarter. Sales through the tasting rooms decreased in the current quarter due to lower visitations across the tasting rooms. Wine club sales increased in the current quarter due to price increases when compared to the prior year quarter.

Other net sales, which include bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales, decreased $0.3 million, or 23%, in the current quarter as compared to the same quarter in 2022. The decrease was primarily driven by lower sales of excess bulk wine and tasting and event fee revenues.
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Gross Profit
Three Months Ended June 30,
(in thousands, except percentages)20232022Increase (Decrease)% change
Wholesale$3,717 $3,229 $488 15%
Wholesale gross margin percentage38 %34 %  
Direct to Consumer4,689 4,864 (175)(4)%
Direct to Consumer gross margin percentage68 %65 %  
Other191 260 (69)(27)%
Total gross profit$8,597 $8,353 $244 3%
Total gross margin percentage49 %46 %

Wholesale gross profit increased $0.5 million, or 15%, in the current quarter as compared to the same quarter in 2022 primarily driven by the timing of inventory fulfillment for the Company’s distributors and price increases. Wholesale gross margin percentage, which is defined as wholesale gross profit as a percentage of wholesale net sales, increased 335 basis points primarily driven by price increases in the current quarter when compared to the same quarter in 2022.

Direct to Consumer gross profit decreased $0.2 million, or 4%, in the current quarter as compared to the same quarter in 2022 primarily driven by a reduction in Ecommerce and tasting room sales. Direct to Consumer gross margin percentage increased 269 basis points primarily driven by price increases as compared to the same quarter of 2022.

“Other” includes a gross profit on bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales. Other gross profit decreased $0.1 million, or 27%, in the current quarter as compared to the same quarter in 2022 and is primarily driven by lower tasting and event fee revenues in the current quarter.


Operating Expenses
Three Months Ended June 30,
(in thousands, except percentages)20232022Increase (Decrease)% change
Sales and marketing$4,520 $4,543 $(23)(1)%
General and administrative3,560 3,263 297 9%
Total operating expenses$8,080 $7,806 $274 4%

Sales and marketing expenses decreased slightly in the current quarter as compared to the same quarter in 2022 with various offsets across expense categories.

General and administrative expenses increased $0.3 million, or 9%, in the current quarter as compared to the same quarter in 2022 primarily attributable to higher compensation combined with inflationary price increases for professional services when compared to the same quarter in 2022.


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Other Income (Expense)
Three Months Ended June 30,
(in thousands, except percentages)20232022Change% change
Interest expense, net$(68)$(94)$26 28%
Other income, net297 99 198 200%
Total other income, net$229 $$224 4,480%

Interest expense, net, decreased by less than $0.1 million, or 28%, in the current quarter compared to the same quarter in 2022. The decrease was primarily driven by lower interest expense on declining principal balances on the 2015 Term Loan and 2017 Term Loan.

Other income, net, increased $0.2 million, or 200%, in the current quarter compared to the same quarter in 2022 primarily driven by increased investment income correlated with a higher interest rate environment in the current quarter compared to the prior year quarter.

Income Tax Expense

The Company’s effective tax rates for the three months ended June 30, 2023 and 2022 were 28.2% and 28.9%, respectively. The difference in the effective tax rate for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was primarily due to the difference between permanent adjustments across the two periods.

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Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Net Sales
Six Months Ended June 30,
(in thousands, except percentages)20232022Increase (Decrease)% change
Wholesale$18,202 $20,973 $(2,771)(13)%
Direct to Consumer12,884 13,721 (837)(6)%
Other1,853 2,011 (158)(8)%
Total net sales$32,939 $36,705 $(3,766)(10)%

Wholesale net sales decreased $2.8 million, or 13%, in the current six month period as compared to the same period in 2022, reflecting a decrease in domestic wine sales of $1.8 million and export wine sales of $1.0 million. The decrease in domestic wine sales is primarily driven by timing of inventory fulfillment for the Company’s distributors and a significant reduction in close out sales, partially offset by price increases in the current period compared to the prior year period. The decrease in export wine sales is primarily driven by reduced shipments to key markets.

Direct to Consumer net sales decreased $0.8 million, or 6%, in the current six month period as compared to the same period in 2022. The decrease was primarily driven by lower sales through the Ecommerce and tasting room channels, partially offset by higher sales through the wine clubs as compared to the same period in 2022. Ecommerce sales decreased in the current period due to softening demand in this channel when compared to the prior year period. Sales through the tasting rooms decreased in the current period due to lower visitations across the tasting rooms with traffic in the first several months of the year hampered by severe weather conditions. Wine club sales increased in the current period due to price increases when compared to the prior year period.

Other net sales, which include bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales, decreased $0.2 million, or 8%, in the current six month period as compared to the same period in 2022. The decrease was primarily driven by lower sales of excess bulk wine partially offset by higher custom winemaking service revenues.
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Gross Profit
Six Months Ended June 30,
(in thousands, except percentages)20232022Increase (Decrease)% change
Wholesale$6,762 $6,866 $(104)(2)%
Wholesale gross margin percentage37 %33 %  
Direct to Consumer8,617 8,986 (369)(4)%
Direct to Consumer gross margin percentage67 %65 %  
Other152 (404)556 138%
Total gross profit$15,531 $15,448 $83 1%
Total gross margin percentage47 %42 %

Wholesale gross profit decreased $0.1 million, or 2%, in the current six month period as compared to the same period in 2022 primarily driven by the timing of inventory fulfillment for the Company’s distributors, mostly offset by price increases. Wholesale gross margin percentage, which is defined as wholesale gross profit as a percentage of wholesale net sales, increased 441 basis points primarily driven by price increases and a significant reduction of close out sales in the current period when compared to the same period in 2022.

Direct to Consumer gross profit decreased $0.4 million, or 4%, in the current six month period as compared to the same period in 2022 primarily driven by a reduction in Ecommerce and tasting room sales. Direct to Consumer gross margin percentage increased 139 basis points primarily driven by price increases as compared to the same period of 2022.

“Other” includes a gross profit (loss) on bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales. Other gross profit increased $0.6 million, or 138%, in the current six month period as compared to the same period in 2022 and is primarily driven by lower inventory write-downs and increased profitability in custom winemaking services in the current period.


Operating Expenses
Six Months Ended June 30,
(in thousands, except percentages)20232022Increase (Decrease)% change
Sales and marketing$8,830 $8,282 $548 7%
General and administrative7,028 6,561 467 7%
Total operating expenses$15,858 $14,843 $1,015 7%

Sales and marketing expenses increased $0.5 million, or 7%, in the current six month period as compared to the same period in 2022. The increase was primarily driven by higher compensation and travel expenses compared to the same period in 2022. Increased compensation is driven by filling positions that were previously vacant in the prior year period.

General and administrative expenses increased $0.5 million, or 7%, in the current six month period as compared to the same period in 2022 primarily attributable to higher compensation combined with inflationary price increases for professional services when compared to the same period in 2022.


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Other Income (Expense)
Six Months Ended June 30,
(in thousands, except percentages)20232022Change% change
Interest expense, net$(327)$(377)$50 13%
Other income, net597 126 471 374%
Total other income, net$270 $(251)$521 208%

Interest expense, net, decreased by less than $0.1 million, or 13%, in the current six month period compared to the same period in 2022. The decrease was primarily driven by lower interest expense on declining principal balances on the 2015 Term Loan and 2017 Term Loan (each term as defined below).

Other income, net, increased $0.5 million, or 374%, in the current six month period compared to the same period in 2022 primarily driven by increased investment income correlated with a higher interest rate environment in the current period compared to the prior year period.

Income Tax (Benefit) Expense

The Company’s effective tax rates for the six months ended June 30, 2023 and 2022 were 27.4% and 29.1%, respectively. The difference in the effective tax rate for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily due to the difference between permanent adjustments across the two periods.


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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.

The Company believes that cash flows generated from operations and its cash, cash equivalents, and marketable securities balances, as well as its borrowing arrangements, will be sufficient to meet its presently anticipated cash requirements for capital expenditures, working capital, debt obligations and other commitments during the next twelve months.

Revolving Credit Facility

In March 2013, Crimson and its subsidiaries entered into a $60.0 million revolving credit facility (the “Revolving Credit Facility”) with American AgCredit, FLCA (“American AgCredit”), as agent for the lenders. The Revolving Credit Facility is comprised of a revolving loan facility (the “Revolving Loan”) and a term revolving loan facility (the “Term Revolving Loan”), which together are secured by substantially all of Crimson’s assets. 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. In addition to unused line fees ranging from 0.125% to 0.225%, rates for the borrowings are priced based on a performance grid tied to certain financial ratios and the Secured Overnight Financing Rate. The 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 stockholders and restrictions on certain mergers, consolidations, and sales of assets. No amounts have been borrowed under the Revolving Credit Facility to date.

On June 15, 2023, the Company executed a renewal agreement with American AgCredit, which includes an extension of the termination date of the Revolving Loan and the Term Revolving Loan to May 31, 2028 along with updates to other terms of the credit agreement governing such loans. Refer to the Companys Current Report on Form 8-K as filed with the SEC on June 16, 2023 for additional information.

Term Loans

The Company’s 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 Term Loan can be used to fund acquisitions, capital projects, and other general corporate purposes. As of June 30, 2023, $11.2 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 Term Loan can be used to fund acquisitions, capital projects, and other general corporate purposes. As of June 30, 2023, $7.1 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 stockholders, and restrictions on certain investments, the sale of assets, and merging or consolidating with other entities. The Company was in compliance with all debt covenants as of June 30, 2023.


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Consolidated Statements of Cash Flows

The following table summarizes the Company’s cash flow activities for the six months ended June 30, 2023 and 2022 (in thousands):
Net cash provided by (used in):20232022
Operating activities$1,775 $6,210 
Investing activities(10,808)1,840 
Financing activities(1,168)(1,586)

Cash provided by operating activities

Net cash provided by operating activities was $1.8 million for the six months ended June 30, 2023, consisting primarily of $0.1 million of net loss adjusted for $4.5 million of non-cash items and $2.6 million net cash outflow related to changes in operating assets and liabilities. Adjustments for non-cash items primarily consist of depreciation, amortization, and loss on the write-down of inventory. The change in operating assets and liabilities was primarily due to a decrease in accounts payable and accrued liabilities and increase in inventory and other non-current assets, partially offset by a decrease in accounts receivable and other current assets and an increase in customer deposits. The decrease in cash provided by operating activities in the current period as compared to the same period in 2022 was primarily due to lower net sales and and timing of increased bottling activities and related spend in the current period.

Net cash provided by operating activities was $6.2 million for the six months ended June 30, 2022, consisting primarily of $0.2 million of net income adjusted for $4.9 million of non-cash items and $1.1 million net cash inflow related to changes in operating assets and liabilities. Adjustments for non-cash items primarily consist of depreciation, loss on the write-down of inventory, and amortization. The change in operating assets and liabilities was primarily due to a decrease in inventory and accounts receivable and increase in customer deposits and other payables, partially offset by a decrease in accounts payable and accrued liabilities and increase in other current assets.

Cash (used in) provided by investing activities

Net cash used in investing activities was $10.8 million for the six months ended June 30, 2023, consisting primarily of the net purchases of available for sale investments of $7.4 million and capital expenditures of $3.4 million. The Company increased its purchases of available for sale investments in order to further diversify its available cash investments and capitalize on market rates.

Net cash provided by investing activities was $1.8 million for the six months ended June 30, 2022, consisting primarily of the net redemptions of available for sale investments of $3.5 million, partially offset by capital expenditures of $1.7 million.

Cash used in financing activities

Net cash used in financing activities was $1.2 million for the six months ended June 30, 2023, consisting of the repurchase of shares of the Company’s common stock at an aggregate purchase price of $0.6 million and the principal payments on the 2015 and 2017 Term Loans of $0.6 million.

Net cash used in financing activities was $1.6 million for the six months ended June 30, 2022, consisting of the repurchase of shares of the Company’s common stock at an aggregate purchase price of $1.0 million and the principal payments on the 2015 and 2017 Term Loans of $0.6 million.

Share Repurchases

In 2022, the Company repurchased a total of 1,075,973 shares of its common stock at an average purchase price of $6.48 per share for an aggregate purchase price of $7.0 million. The Company’s repurchase was funded through cash on hand, and the shares were retired.

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In March 2023, the Company commenced a share repurchase program (the “2023 Repurchase Program”) that provided for the repurchase of up to 2,000,000 shares of outstanding common stock. Under the 2023 Repurchase Program, any repurchased shares are constructively retired. During the six months ended June 30, 2023, the Company repurchased 90,556 shares of its common stock at an average purchase price of $6.58 per share for an aggregate purchase price of $0.6 million. The Company’s repurchase was funded through cash on hand, and the shares were retired.

Off-Balance Sheet Financing Arrangements

None.

Critical Accounting Policies and Estimates

There have been no material changes to the critical accounting policies and estimates previously disclosed in the 2022 Report.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.

Item 4. Controls and Procedures.
The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2023. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2023.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended June 30, 2023 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.

The information set forth under Note 12, “Contingencies,” to the Company’s condensed consolidated interim financial statements included in Part I, “Item 1. Financial Statements (Unaudited)” of this Report is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the 2022 Report, which could materially affect its business, results of operations or financial condition. The risks described in the 2022 Report are not the only risks it faces. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may eventually prove to materially adversely affect its business, results of operations or financial condition.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

Share repurchase activity under the Company’s share repurchase program on a trade date basis, for the three months ended June 30, 2023 was as follows:

Fiscal PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans1
Maximum Number of Shares that May Yet Be Purchased Under Publicly Announced Plans1
April 1-30, 202317,331 $6.28 17,831 1,982,169 
May 1-31, 202326,578 $6.60 44,409 1,955,591 
June 1-30, 202346,147 $6.69 90,556 1,909,444 
     Total
90,056 
1On March 16, 2023, the Company announced that the Board of Directors authorized a share repurchase program pursuant to which the Company may repurchase up to an aggregate of 2,000,000 shares of the Company’s outstanding common stock.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.
2.1
3.1
3.2
3.3
10.1
10.2
10.3*
31.1*
31.2*
32.1**
32.2**
101*Unaudited financial statements from the Quarterly Report on Form 10-Q of Crimson Wine Group, Ltd. for the quarter ended June 30, 2023, formatted in Inline Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Income (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Interim Condensed Consolidated Financial Statements.
104*
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL (included as Exhibit 101).
* Filed herewith.
** Furnished herewith.
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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:August 9, 2023By:/s/ Kimberly A. Benson
Kimberly A. Benson
Interim Chief Financial Officer
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