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 endedDecember 31, 2021 as filed with theSEC (the "2021 Report").
Quantities or results referred to as "current quarter" and "current three and
nine-month period" refer to the three and nine months ended
Cautionary Statement for Forward-Looking Information
This MD&A and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The unaudited interim condensed consolidated financial statements, that include results ofCrimson 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 2021 Report. Readers should carefully review the risk factors described in the 2021 Report and in other documents that the Company files from time to time with theSEC .
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 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 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 sold to 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 3 to 36 months. Reductions to the carrying value of inventories are also included in cost of sales. 16 -------------------------------------------------------------------------------- Table of Contents As ofSeptember 30, 2022 , wine inventory includes approximately 0.8 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
InMarch 2020 , in response to the coronavirus disease ("COVID-19") outbreak, the Company temporarily closed all of its tasting rooms, which are located inCalifornia ,Oregon , andWashington , in compliance with shelter-in-place orders issued by local government offices. During 2020, the Company was challenged with several months of temporary closures and intermittent government restrictions impacting both operational capacities and steadiness throughout the year. All of the Company's tasting rooms were allowed to reopen in lateJanuary 2021 with varying impacts created by the guidelines, restrictions, and tiered structures of each respective state in which the Company operates. The intermittent updates for each state and county caused operating capacity at each tasting room to fluctuate for most of 2021. Although capacity restrictions within the Company's tasting rooms were lifted in the second half ofJune 2021 , the Company continues to maintain a set of operating guidelines to protect the safety of all employees and guests, which may affect capacity and will vary based on estate experience and parameters. All of the Company's tasting rooms were impacted by government orders and restrictions to significant and varying degrees fromMarch 2020 to early 2022. During this time, management and staff at all estate locations took appropriate actions to ensure a safe and enjoyable experience for all guests and staff. The Company implemented various measures to prevent the spread of the virus including using available forms of personal protective equipment ("PPE"), screening employees and vendors before they enter facilities, practicing social distancing, implementing COVID-19 protocols and travel guidelines, and advising employees ofCenter for Disease Control ("CDC") guidelines and recommendations. The Company has experienced port shipping delays within its export shipments but does not anticipate significant impact or disruptions to its supply chain network. In order to mitigate against potential logistical challenges, the Company has effectively managed distributor inventory levels for its domestic wholesale business, which accounts for the majority of the Company's total wholesale shipments. The Company has experienced both reductions and increases in consumer demand in various channels due to the ongoing COVID-19 pandemic in the three and nine months endedSeptember 30, 2022 and 2021 with operational guidelines having a lesser impact on the current period as the world advances on efforts against the pandemic. However, other than for certain specific periods impacted by operational restrictions, it is becoming increasingly difficult to discern impacts from various global events and changing market conditions. In addition to disruptions in theU.S. and global economy, uncertainty regarding general economic conditions and outlook may lead to decreased consumer spending on discretionary items such as wine. The Company has identified two operating segments, Direct to Consumer and Wholesale. The Direct to Consumer segment includes retail sales in the 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. Tasting room sales have been negatively impacted during periods of closures and operating limitations. As restrictions were gradually lifted throughout 2021 and the early part of 2022, the Company experienced a rebound in visitor counts to its tasting rooms. Ecommerce sales were initially favorably impacted as consumers sought to purchase wines through an online platform to minimize human contact. As restrictions eased throughout 2021 and the early part of 2022, Ecommerce sales remained elevated over pre-pandemic levels but declined from the highs of 2020 with consumers returning to traditional channels, including tasting rooms, bars, restaurants, and other hospitality locations. The Wholesale segment includes all sales through a third party where prices are given at a wholesale rate. In 2020, demand for wines at On-Premise locations was reduced due to COVID-19 containment measures restricting consumers from visiting, as well as in many cases both the temporary and permanent closures of On-Premise venues. However, as restrictions continued to be lifted throughout 2021 and the early part of 2022, demand for wines at On-Premise locations started to rebound. Demand for premium wines at Off-Premise locations has increased due to their classification as essential businesses that remained open during government imposed closings and/or restrictions due to COVID-19, as well as premiumization of at-home wine consumption. As On-Premise demand continues to recover, other than sales made through third-party Ecommerce, the Company has not observed a reversing trend in Off-Premise demand. 17 -------------------------------------------------------------------------------- Table of Contents Additionally, the Company received loan proceeds of approximately$3.8 million under the Paycheck Protection Program ("PPP") established by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act and amended by the Paycheck Protection Program Flexibility Act of 2020. The Company requested loan forgiveness inApril 2021 and onJune 14, 2021 , the forgiveness application to theU.S. Small Business Administration ("SBA") was approved for the full principal amount including interest. For additional information about the loan, see "Liquidity and Capital Resources-Term Loans". The extent of COVID-19's impact on the Company's financials and results of operations is currently unknown and will depend on future developments, including, but not limited to, the length of time that the pandemic continues, the emergence and severity of new variants, the effect of governmental regulations imposed in response to the pandemic, the availability of vaccines and potential hesitancy to utilize them, the effect on the demand for its products and its supply chain, and how quickly and to what extent normal economic and operation conditions can resume. The Company cannot at this time predict the full impact of COVID-19 on its financial and operational results. Accordingly, the Company's current results and financial condition discussed herein may not be indicative of future operating results and trends. Refer to the section entitled "Risk Factors" in the 2021 Report for additional risks the Company faces due to the COVID-19 pandemic.
Seasonality
As discussed in the 2021 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. 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. During 2021, Crimson completed 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 acrossCalifornia ,Oregon , andWashington in 2020, the 2021 harvest was impacted by drought resulting in lower yields than historical averages. Compounded with the losses on the 2020 vintage, the lower yields of the 2021 vintage 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.
Inflation and Market Conditions
As the Company continues to grow sales, it expects gross profit 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. 18 -------------------------------------------------------------------------------- Table of Contents Results of Operations Three Months EndedSeptember 30, 2022 Compared to Three Months EndedSeptember 30, 2021 Net Sales Three Months Ended September 30, Increase (in thousands, except percentages) 2022 2021 (Decrease) % change Wholesale$ 8,933 $ 9,149 $ (216) (2)% Direct to Consumer 6,361 6,689 (328) (5)% Other 1,392 1,299 93 7% Total net sales$ 16,686 $ 17,137 $ (451) (3)% Wholesale net sales decreased$0.2 million , or 2%, in the current quarter as compared to the same quarter in 2021, with a decrease in export wine sales of$0.3 million , partially offset by an increase in domestic wine sales of$0.1 million . The quarter-over-quarter decrease in export wine sales was driven by timing of shipments within the quarter, but the nine months endedSeptember 30, 2022 yielded year-over-year growth as discussed in the next section. The quarter-over-quarter increase in domestic wine sales is driven by price increases.
Direct to Consumer net sales decreased
Other net sales, which include bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales, increased$0.1 million , or 7%, in the current quarter as compared to the same quarter in 2021. The increase was primarily driven by higher tasting and event fee revenues and custom winemaking services, partially offset by lower sales of excess bulk wine and grapes. Higher tasting and event fee revenues were driven by the Company's premiumization of the wine tasting experiences and increased tasting room traffic and private events. 19 --------------------------------------------------------------------------------
Table of Contents Gross Profit Three Months Ended September 30, Increase (in thousands, except percentages) 2022 2021 (Decrease) % change Wholesale$ 3,405 $ 3,248 $ 157 5% Wholesale gross margin percentage 38 % 36 % Direct to Consumer 4,218 4,347 (129) (3)% Direct to Consumer gross margin percentage 66 % 65 % Other (71) (15) (56) (373)% Total gross profit$ 7,552 $ 7,580 $ (28) -% Total gross margin percentage 45 % 44 % Wholesale gross profit increased$0.2 million , or 5%, in the current quarter as compared to the same quarter in 2021 primarily driven by price increases, partially offset by lower export sales and a shift in sales mix towards wines with a higher cost vintage. Wholesale gross margin percentage, which is defined as wholesale gross profit as a percentage of wholesale net sales, increased 262 basis points primarily driven by price increases, partially offset by a shift in sales mix towards wines with a higher cost vintage when compared to the same quarter in 2021. Direct to Consumer gross profit decreased$0.1 million , or 3%, in the current quarter as compared to the same quarter in 2021 primarily driven by a reduction in Ecommerce sales volume. Gross margin percentage increased 132 basis points in the current quarter compared to the same quarter in 2021 primarily driven by price increases and sales mix consisting of more profitable wines sold through the tasting rooms and Ecommerce channels as compared to the same quarter of 2021. "Other" includes a gross loss on bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales. Other gross loss increased$0.1 million , or 373%, in the current quarter as compared to the same quarter in 2021 and is primarily driven by higher inventory write-downs in the current quarter and nonrecurring insurance proceeds for smoke taint affected inventory received in the prior year quarter, partially offset by increased profitability in tasting and event fee revenues and custom winemaking services. Operating Expenses
Three Months Ended
Increase (in thousands, except percentages) 2022 2021 (Decrease) % change Sales and marketing$ 4,552 $ 3,875 $ 677 17% General and administrative 3,313 3,081 232 8% Total operating expenses$ 7,865 $ 6,956 $ 909 13% Sales and marketing expenses increased$0.7 million , or 17%, in the current quarter as compared to the same quarter in 2021. The increase was primarily driven by higher compensation, advertising and promotional, and travel expenses compared to the same quarter in 2021. Increased compensation is driven by hospitality staffing related to increased traffic and volume in the current quarter, merit increases, and filling positions that were previously vacant in the prior year quarter.
General and administrative expenses increased
20 --------------------------------------------------------------------------------
Table of Contents Other (Expense) Income Three Months Ended September 30, (in thousands, except percentages) 2022 2021 Change % change Interest expense, net$ (279) $ (292) $ 13 4% Other income, net 24 47 (23) (49)% Total other income, net$ (255) $ (245) $ (10) (4)% Interest expense, net, decreased less than$0.1 million , or 4%, in the current quarter compared to the same quarter in 2021. The decrease was primarily driven by lower interest expense on declining principal balances on the 2015 and 2017 Term Loans. Other income, net, decreased less than$0.1 million , or 49%, in the current quarter compared to the same quarter in 2021 primarily driven by adjustments to capitalized charges related to the Revolving Credit Facility, partially offset by increased investment income in the current quarter.
Income Tax (Benefit) Expense
The Company's effective tax rates for the three months endedSeptember 30, 2022 and 2021 were 28.9% and 23.0%, respectively. The increase in the effective tax rate for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 was primarily due to the forecast of pre-tax book income for the year endedDecember 31, 2022 versus the forecast of a pre-tax book loss for the year endedDecember 31, 2021 and the related impact of the permanent adjustments. 21
-------------------------------------------------------------------------------- Table of Contents Nine Months EndedSeptember 30, 2022 Compared to Nine Months EndedSeptember 30, 2021 Net Sales Nine Months Ended September 30, Increase (in thousands, except percentages) 2022 2021 (Decrease) % change Wholesale$ 29,906 $ 27,066 $ 2,840 10% Direct to Consumer 20,082 19,291 791 4% Other 3,403 2,752 651 24% Total net sales$ 53,391 $ 49,109 $ 4,282 9% Wholesale net sales increased$2.8 million , or 10%, in the current nine month period as compared to the same period in 2021, with increases in both domestic and export wine sales. The increase in domestic wine sales was driven by a combination of the Company's execution of its growth strategies, year-over-year recovery of On-Premise sales, and price increases. These factors drove an increased rate of sales of the Company's core wines and continued growth in new points of distributions. The increase in export wine sales was driven by shipments toEurope andCanada as the Company continues to grow this channel. Direct to Consumer net sales increased$0.8 million , or 4%, in the current nine month period as compared to the same period in 2021. The increase was primarily driven by higher sales through the wine clubs and in the tasting rooms as compared to the same period in 2021. The increase in wine club and tasting room sales was partially offset by lower Ecommerce sales in the current period. Sales for wine clubs increased in the current period driven by price increases and sales mix. An increase in visitors and higher spend per guest driven by the Company's elevated tasting experiences combined to drive higher tasting room sales. Ecommerce sales decreased in the current period as compared to the same period in 2021 as consumers continued to shift purchasing behaviors with the reopening of tasting rooms, retail and restaurants. Other net sales, which include bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales, increased$0.7 million , or 24%, in the current nine month period as compared to the same period in 2021. The increase was primarily driven by higher tasting and event fee revenues and custom winemaking services, partially offset by lower sales of excess bulk wine. Higher tasting and event fee revenues were driven by the Company's premiumization of the wine tasting experiences and increased tasting room traffic and private events. 22 -------------------------------------------------------------------------------- Table of Contents Gross Profit
Nine Months Ended
Increase (in thousands, except percentages) 2022 2021 (Decrease) % change Wholesale$ 10,271 $ 10,012 $ 259 3% Wholesale gross margin percentage 34 % 37 % Direct to Consumer 13,204 12,158 1,046 9% Direct to Consumer gross margin percentage 66 % 63 % Other (475) (609) 134 22% Total gross profit$ 23,000 $ 21,561 $ 1,439 7% Total gross margin percentage 43 % 44 % Wholesale gross profit increased$0.3 million , or 3%, in the current nine month period as compared to the same period in 2021 primarily driven by price increases and overall volume increase in wine sales, partially offset by a shift in sales mix towards wines with a higher cost vintage. Wholesale gross margin percentage, which is defined as wholesale gross profit as a percentage of wholesale net sales, decreased 265 basis points primarily driven by a shift in sales mix towards wines with a higher cost vintage, partially offset by price increases, compared to the same period in 2021. Direct to Consumer gross profit increased$1.0 million , or 9%, in the current nine month period as compared to the same period in 2021. The increase was a result of higher wine clubs and tasting room sales, partially offset by lower Ecommerce sales, when compared to the same period in 2021. Direct to Consumer gross margin percentage increased 273 basis points in the current period compared to the same period in 2021. The increase was primarily driven by price increases and a shift in sales channel mix driven by higher wine clubs and tasting room sales as compared to the same period of 2021. "Other" includes a gross loss on bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales. Other gross loss decreased$0.1 million , or 22%, in the current nine month period as compared to the same period in 2021 and is primarily driven by increased profitability in tasting and event fee revenues and custom winemaking services, partially offset by higher inventory write-downs in the current period and nonrecurring insurance proceeds for smoke taint affected inventory received in the prior year period. Operating Expenses Nine Months Ended September 30, Increase (in thousands, except percentages) 2022 2021 (Decrease) % change Sales and marketing$ 12,834 $ 10,670 $ 2,164 20% General and administrative 9,874 9,795 79 1% Total operating expenses$ 22,708 $ 20,465 $ 2,243 11% Sales and marketing expenses increased$2.2 million , or 20%, in the current nine month period as compared to the same period in 2021. The increase was primarily driven by higher compensation, advertising and promotional, and travel expenses compared to the same period in 2021. Increased compensation is driven by hospitality staffing related to increased traffic and volume, merit increases, and filling positions that were previously vacant in the prior year period. General and administrative expenses increased$0.1 million , or 1%, in the current nine month period as compared to the same period in 2021 due to various offsetting drivers. Increases include higher compensation for merit increases, added positions, turnover costs from increased competition within the labor market, and stock grants, transition to software expense under software as a service (SaaS) model, and reinstatement of previously voluntarily waivedBoard of Director fees when compared to the same period in 2021. These increases were mostly offset by nonrecurring costs of the prior year period related to the Company's amended Annual Report on Form 10-K for the year endedDecember 31, 2019 and amended 2020 Quarterly Reports on Form 10-Q. 23 --------------------------------------------------------------------------------
Table of Contents Other (Expense) Income Nine Months Ended September 30, (in thousands, except percentages) 2022 2021 Change % change Interest expense, net$ (656) $ (723) $ 67 9% Gain on extinguishment of debt - 3,863 (3,863) 100% Other income, net 150 305 (155) (51)% Total other expense (income), net$ (506) $ 3,445 $ (3,951) 115% Interest expense, net, decreased less than$0.1 million , or 9%, in the current nine month period compared to the same period in 2021. The decrease was primarily driven by lower interest expense on declining principal balances on the 2015 and 2017 Term Loans. Gain on extinguishment of debt was recognized for$3.9 million in the previous year during the nine month period endedSeptember 30, 2021 . The gain on extinguishment of debt was related to the PPP loan forgiveness approved by the SBA onJune 14, 2021 . Other income, net, decreased$0.2 million , or 51%, in the current nine month period compared to the same period in 2021. The decrease was primarily driven by a nonrecurring gain on lease modification recognized in the prior year nine month period upon the Company's early termination agreement of the leased space previously used as the Company's corporate headquarters.
Income Tax (Benefit) Expense
The Company's effective tax rates for the nine months endedSeptember 30, 2022 and 2021 were 28.8% and 8.8%, respectively. The increase in the effective tax rate for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 was primarily due to the income exclusion of PPP loan forgiveness for federal income taxes during the nine months endedSeptember 30, 2021 . 24 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources
General
The Company's principal sources of liquidity are its available cash and cash equivalents, investments in available for sale securities, funds generated from operations and bank borrowings. The Company's primary cash needs are to fund working capital requirements and capital expenditures. Despite the negative effects of COVID-19 on its business, the Company has maintained adequate liquidity to meet working capital requirements, fund capital expenditures, meet payroll, and repay scheduled principal and interest payments on debt. In response to the current macro-economic environment, the Company protected its financial position and liquidity as evidenced by the following items: the Company managed both operating expense and capital expenditure increases closely, limited discretionary spending, and actively managed its working capital, including supporting its business partners most impacted by the pandemic through extended terms and closely monitoring its customers' solvency and its ability to collect from them. As a result, 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 InMarch 2013 , Crimson and its subsidiaries entered into a$60.0 million revolving credit facility (the "Revolving Credit Facility") withAmerican AgCredit, FLCA , 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 0.15% to 0.25%, rates for the borrowings are priced based on a performance grid tied to certain financial ratios and a base rate or the London Interbank Offered Rate, as applicable. 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 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
The Company's term loans consist of the following:
(i) OnNovember 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") withAmerican 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 onOctober 1, 2040 . The term loan can be used to fund acquisitions, capital projects and other general corporate purposes. As ofSeptember 30, 2022 ,$11.7 million in principal was outstanding on the 2015 Term Loan, and unamortized loan fees were less than$0.1 million . (ii) OnJune 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 onJuly 1, 2037 . The term loan can be used to fund acquisitions, capital projects and other general corporate purposes. As ofSeptember 30, 2022 ,$7.5 million in principal was outstanding on the 2017 Term Loan, and unamortized loan fees were less than$0.1 million . Borrower's obligations under the 2015 Term Loan and 2017 Term Loan are guaranteed by the Company. All obligations of Borrower under the 2015 Term Loan and 2017 Term Loan are collateralized by certain real property of the Company. Borrower's covenants include the maintenance of a specified debt service coverage ratio and certain customary affirmative and negative covenants, including limitations on the incurrence of additional indebtedness, limitations on distributions to shareholders, and restrictions on certain investments, the sale of assets, and merging or consolidating with other entities. Borrower was in compliance with all debt covenants as ofSeptember 30, 2022 . 25
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