Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented. The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (our "Annual Report") and the unaudited condensed consolidated financial statements and the accompanying notes thereto included herein. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we”, “us”, “our” and “the Company” are intended to mean the business and operations of Vintage Wine Estates, Inc., a Nevada corporation and its consolidated subsidiaries.
Business Overview
Vintage Wine Estates, Inc., is a leading vintner in the United States ("U.S."), offering a collection of wines produced by award-winning, heritage wineries, popular lifestyle wines, innovative new wine brands, packaging concepts, as well as craft spirits. Our name brands include Layer Cake, Cameron Hughes, Clos Pegase, B.R. Cohn, Firesteed, Bar Dog, Kunde, Cherry Pie and many others. Since our founding over 20 years ago, we have grown organically through wine brand creation and through acquisitions to become the 14th largest wine producer based on cases of wine shipped in California.
Growth Strategy
Our strategy is to continue to grow organically and through acquisitions with a view towards making two to three acquisitions per year over the next five years. These acquisitions have allowed us to diversify our wine sourcing into regions outside of California, expand our portfolio of brands, increase our vineyard assets and provide our direct-to-consumer and retail customers with a range of wines to choose from.
Trends and Other Factors Affecting Our Business
Various trends and other factors affect or have affected our operating results, including:
Economic Uncertainties
The ongoing COVID-19 pandemic ("COVID-19"), inflation and supply chain constraints continue to disrupt the U.S. and global economies and there remains uncertainty about the impact on the economy. We cannot estimate with any certainty the length or severity of the economic uncertainties or the related financial consequences on our business and operations, including whether and when historic economic and operating conditions will resume or the extent to which the disruption may impact our business, financial position, results of operations or cash flows.
We expect economic uncertainties including inflation and supply chain constraints to continue to impact several areas of the business including sales, cost of goods, operating expenses and cash flows.
Invasion of Ukraine
Russia's invasion of Ukraine has not had a direct impact on the Company. The Company does not have assets, operations or human capital resources located in Russia or Ukraine, does not invest or hold securities that trade in those areas and does not rely on goods or services sourced in Russia or Ukraine. However, the Company receives its capsules for wine bottles from a supplier in Italy, who has plants located in Ukraine, Italy and Poland. While the Company has not been impacted directly by supply chain disruptions as a result of the invasion, including potential cybersecurity risks and other indirect operational or supply chain challenges, the competition to secure wine bottle capsules has increased from suppliers due to the closing of the plant in Ukraine.
Weather Conditions
Our ability to fulfill the demand for wine is restricted by the availability of grapes. Climate change, agricultural and other factors, such as wildfires, disease, pests, extreme weather conditions, water scarcity, biodiversity loss and competing land use, impact the quality and quantity of grapes available to us for the production of wine from year to year. Our vineyards and properties, as well as other sources from which we purchase grapes, are affected by these factors. For example, the effects of abnormally high rainfall or drought in a given year may impact production of grapes, which can impact both our revenue and costs from year to year.
In addition, extreme weather events, such as wildfires can result in potentially significant expenses to repair or replace a vineyard or facility as well as impact the ability of grape suppliers to fulfill their obligations to us.
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Seasonality
There is a degree of seasonality in the growing cycles, procurement and transportation of grapes. The wine industry in general tends to experience seasonal fluctuations in revenue and net income. Typically, we have lower sales and net income during our third fiscal quarter (January through March) and higher sales and net income during our second fiscal quarter (October through December) due to usual timing of seasonal holiday buying, as well as wine club shipments. We expect these trends to continue.
Key Measures to Assess the Performance of our Business
We consider a variety of financial and operating measures in assessing the performance of our business, formulating goals and objectives and making strategic decisions. The key GAAP measures we consider are net revenue; gross profit; selling, general and administrative expenses; and income from operations. The key non-GAAP measure we consider is Adjusted EBITDA. We also monitor our case volume sold and depletions from our distributors to retailers to help us forecast and identify trends affecting our growth.
Net Revenue
We generate revenue from our segments: Wholesale, B2B, Direct-to-Consumer ("DTC") and Corporate and Other. We recognize revenue from sales when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs when the product is shipped, and title passes to the customer, and when control of the promised product or service is transferred to the customer. Our standard terms are free on board, or FOB, shipping point, with no customer acceptance provisions. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. We recognize revenue net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We account for shipping and handling as activities to fulfill our promise to transfer the associated products. Accordingly, we record amounts billed for shipping and handling costs as a component of net sales and classify such costs as a component of costs of sales. Our products are generally not sold with a right of return unless the product is spoiled or damaged. Historically, returns have not been significant to us.
Gross Profit
Gross profit is equal to net revenue less cost of sales. Cost of sales includes the direct cost of manufacturing, including direct materials, labor and related overhead, and physical inventory adjustments, as well as inbound and outbound freight and import duties.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include expenses arising from activities in selling, marketing, warehousing, and administrative expenses. Other than variable compensation, selling, general and administrative expenses are generally not directly proportional to net revenue, but are expected to increase over time to support the needs of the Company.
Income from Operations
Income from operations is gross profit less selling, general and administrative expenses; acquisition and restructuring related expense or income and amortization of intangible assets. Income from operations excludes interest expense, income tax expense, and other expenses, net. We use income from operations as well as other indicators as a measure of the profitability of our business.
Case Volumes
In addition to acquisitions, the primary drivers of net revenue growth in any period are attributable to changes in case volumes and changes in product mix and sales price. Case volumes represents the number of 9-liter equivalent cases of wine that we sell during a particular period. Case volumes are an important indicator of what is driving gross margin. This metric also allows us to develop our supply and production targets for future periods.
Depletions
Within our three tier distribution structure, depletion measures the sale of our inventory from the distributor to the retailer. Depletions are an important indicator of customer satisfaction, which management uses for evaluating performance of our brands and for forecasting.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we use EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies. These metrics are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.
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Adjusted EBITDA is defined as earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation expense, casualty losses or gains, impairment losses, changes in the fair value of derivatives, restructuring related income or expenses, and certain non-cash, non-recurring, or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net revenue.
Results of Operations (as restated)
Our financial performance is classified into the following segments: Wholesale, B2B, DTC and Corporate and Other. Our corporate operations, including centralized selling, general and administrative expenses and other factors, such as the re-measurements of contingent consideration and impairment of intangible assets and goodwill are not allocated to the segments, as management does not believe such items directly reflect our core operations. Other than our long-term property, plant and equipment for wine tasting facilities, and customer lists, trademarks and trade names specific to acquired companies, our revenue generating assets are utilized across segments. Accordingly, the foregoing items are not allocated to the segments and are not discussed separately as any results that had a significant impact on operating results are included in the consolidated results discussion above.
We evaluate the performance of our segments on income from operations, which management believes is indicative of operational performance and ongoing profitability. Management monitors income from operations to evaluate past performance and identify actions required to improve profitability. Income from operations assists management in comparing the segment performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the core operations and, therefore, are not included in measuring segment performance. We define income from operations as gross margin less operating expenses that are directly attributable to the segment. Selling expenses that can be directly attributable to the segment are allocated accordingly.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Wholesale Segment Results
The following table presents summary financial data for our Wholesale segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Dollar |
|
|
Percent |
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
Net revenue |
|
$ |
23,366 |
|
|
$ |
16,203 |
|
|
$ |
7,163 |
|
|
44.2% |
Income from operations |
|
$ |
(100 |
) |
|
$ |
4,188 |
|
|
$ |
(4,288 |
) |
|
-102.4% |
Wholesale net revenue for the three months ended September 30, 2022 increased $7.2 million, or 44.2%, from the three months ended September 30, 2021. The increase was attributable to an increase in sales of $6.9 million related to acquisition case volumes.
Wholesale income from operations for the three months ended September 30, 2022 decreased $4.3 million, or 102.4%, from the three months ended September 30, 2021. The decrease was attributable to higher costs due to inflation and supply chain challenges as well as $2.7 million in overhead burden and a loss on remeasurement of contingent liability of $0.8 million, partially offset by $0.8 million related to acquisitions.
B2B Segment Results
The following table presents summary financial data for our B2B segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Dollar |
|
|
Percent |
(in thousands, except %) |
|
As Restated |
|
|
|
|
|
Change |
|
|
Change |
Net revenue |
|
$ |
34,081 |
|
|
$ |
24,467 |
|
|
$ |
9,614 |
|
|
39.3% |
Income from operations |
|
$ |
12,180 |
|
|
$ |
7,514 |
|
|
$ |
4,666 |
|
|
62.1% |
B2B net revenue for the three months ended September 30, 2022 increased $9.6 million, or 39.3%, from the three months ended September 30, 2021. The increase was primarily attributable to increased custom production as well as an increase of $4.9 million related to acquisitions.
B2B income from operations for the three months ended September 30, 2022 increased $4.7 million, or 62.1%, from the three months ended September 30, 2021. The increase was attributable to increased margin on bulk distilled alcohol sales partially offset by a loss from operations of $0.7 million related to acquisitions.
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DTC Segment Results
The following table presents summary financial data for our DTC segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Dollar |
|
|
Percent |
(in thousands, except %) |
|
As Restated |
|
|
|
|
|
Change |
|
|
Change |
Net revenue |
|
$ |
19,863 |
|
|
$ |
14,915 |
|
|
$ |
4,948 |
|
|
33.2% |
Income from operations |
|
$ |
1,977 |
|
|
$ |
2,539 |
|
|
$ |
(562 |
) |
|
-22.1% |
DTC net revenue for the three months ended September 30, 2022 increased $4.9 million, or 33.2%, from the three months ended September 30, 2021. The increase was primarily attributable to increased e-commerce and wine club revenue as well as an increase of $3.1 million related to acquisitions.
DTC income from operations for the three months ended September 30, 2022 decreased $0.6 million, or 22.1% from the three months ended September 30, 2021. The decrease was primarily due to $0.6 million in overhead burden.
Corporate and Other Segment Results
The following table presents summary financial data for our Corporate and Other segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Dollar |
|
|
Percent |
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
Net revenue |
|
$ |
(81 |
) |
|
$ |
102 |
|
|
$ |
(183 |
) |
|
179.4% |
Income (loss) from operations |
|
$ |
(21,759 |
) |
|
$ |
(8,098 |
) |
|
$ |
(13,661 |
) |
|
-168.7% |
Corporate and Other net revenue for the three months ended September 30, 2022 was down $0.2 million from the three months ended September 30, 2021.
Corporate and Other loss from operations for the three months ended September 30, 2022 increased $13.7 million, or 168.7%, from the three months September 30, 2021. The increase in losses was due to $4.7 million of share-based compensation expense, continued increased costs of labor of $1.2 million, increased costs of freight of $1.0 million, depreciation expense of $0.5 million as well as increased infrastructure costs required to be a public company and the continued increased costs of warehousing and insurance.
Case Volumes
The following tables summarize 9-liter equivalent cases by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Unit Change |
|
|
% Change |
|
Wholesale |
|
|
539 |
|
|
|
209 |
|
|
|
330 |
|
|
|
157.9 |
% |
B2B |
|
* |
|
|
* |
|
|
* |
|
|
* |
|
DTC |
|
|
99 |
|
|
|
60 |
|
|
39 |
|
|
|
65.0 |
% |
Total case volume |
|
|
638 |
|
|
|
269 |
|
|
|
369 |
|
|
|
137.2 |
% |
*B2B segment sales are primarily not related to case volumes, therefore the Company has elected to not report case volumes for this segment as it would not be indicative of the underlying performance of the business.
The increase in case volumes was primarily due to wholesale which was driven by the ACE Cider acquisition that ships higher case volumes of lower priced product. Increased DTC volumes were driven by televised sales and Wine Clubs.
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Non-GAAP Financial Measures (as restated)
The following is a reconciliation of net (loss) income to Adjusted EBITDA for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30 |
|
|
2022 |
|
|
|
2021 |
|
|
As Restated |
|
|
|
|
|
Net (loss) income |
$ |
(636 |
) |
|
|
$ |
2,779 |
|
Interest expense |
|
3,381 |
|
|
- |
|
|
3,603 |
|
Income tax provision |
|
(849 |
) |
|
|
|
1,193 |
|
Depreciation |
|
3,215 |
|
|
|
|
3,623 |
|
Amortization |
|
1,811 |
|
|
|
|
531 |
|
Stock-based compensation expense |
|
4,651 |
|
|
|
|
- |
|
Net unrealized gain on interest rate swap agreements |
|
(9,327 |
) |
|
|
|
(1,393 |
) |
Gain on disposition of assets |
|
(118 |
) |
|
|
|
(340 |
) |
Deferred rent adjustment |
|
- |
|
|
|
|
128 |
|
Gain on litigation proceeds |
|
(530 |
) |
|
|
|
- |
|
Adjusted EBITDA |
$ |
1,598 |
|
|
|
$ |
10,124 |
|
Revenue |
$ |
77,229 |
|
|
|
$ |
55,687 |
|
Adjusted EBITDA margin |
|
2.1 |
% |
|
|
|
18.2 |
% |
Adjusted EBITDA and Adjusted EBITDA Margin are not recognized measures of financial performance under GAAP. We believe these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of our business and assists these parties in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, which allows for a better comparison against historical results and expectations for future performance.
Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short and long-term operating planning, employee incentive compensation, and debt compliance. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms Adjusted EBITDA and Adjusted EBITDA Margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of our operating performance in isolation from, or as a substitute for, net income (loss), which is prepared in accordance with GAAP. We have presented Adjusted EBITDA and Adjusted EBITDA Margin solely as supplemental disclosure because we believe it allows for a more complete analysis of our results of operations. In the future, we may incur expenses such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.
Liquidity and Capital Resources
We currently believe that, based on available capital resources and projected operating cash flows, we have adequate capital resources to fund our currently anticipated working capital needs; capital expenditures, business acquisitions, debt obligations, and tax payments over the next 12 months and beyond.
Cash and Cash Equivalents
Our cash and cash equivalents balance was $44.6 million at September 30, 2022 compared to $50.3 million at June 30, 2022, exclusive of restricted cash. At September 30, 2022, our cash and cash equivalents were held in cash depository accounts with major banks.
Cash Flows (as restated)
The table below presents a summary of our sources and uses of cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
Operating activities |
|
$ |
1,988 |
|
|
$ |
(2,020 |
) |
|
$ |
4,008 |
|
Investing activities |
|
$ |
(3,454 |
) |
|
$ |
(7,786 |
) |
|
$ |
4,332 |
|
Financing activities |
|
$ |
(4,204 |
) |
|
$ |
9,202 |
|
|
$ |
(13,406 |
) |
The cash flows related to held for sale assets have not been segregated, and remain included in the major classes of assets.
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Cash Flows provided by (used in) Operating Activities
Net cash provided by operating activities was $2.0 million for the three months ended September 30, 2022 compared to net cash used in operating activities of $2.0 million for the three months ended September 30, 2021, representing an increase in net cash provided of $4.0 million. The increase in net cash provided was primarily attributable to the decrease in net income of $3.4 million, net changes in certain non-cash adjustments of $4.1 million to reconcile net income to operating cash flow and net changes in other operating assets and liabilities of $11.5 million as detailed on the condensed consolidated statement of cash flows.
Cash Flows provided by (used in) Investing Activities
Net cash used in investing activities was $3.5 million for the three months ended September 30, 2022, compared to net cash used in investing activities of $7.8 million for the three months ended September 30, 2021, representing an decrease in net cash used of $4.3 million. Cash flows from investing activities are utilized primarily to fund acquisitions, capital expenditures for improvements to existing assets and other corporate assets. The decrease in net cash used was primarily attributable to reduced purchases of property, plant and equipment of $4.3 million.
Cash Flows provided by (used in) Financing Activities
Net cash used in financing activities was $4.2 million for the three months ended September 30, 2022 compared to net cash provided by of $9.2 million for the three months ended September 30, 2021, representing an increase in net cash used of $13.4 million. The increase in net cash used consisted primarily of $16.8 million of payments from our line of credit and long-term debt, net of proceeds on our line of credit.
Contractual Obligations
There have been no material changes to our contractual obligations from what was previously disclosed in our Annual Report on Form 10-K filed with the SEC.
Off-Balance Sheet Arrangements
As of September 30, 2022, the Company had no off-balance sheet arrangements.
Significant Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. For a description of our critical accounting policies, refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K. As a result of adopting ASC 842 as of July 1, 2022, there have been material changes to our lease accounting policies during the three months ended September 30, 2022, that are described in Note 1 to our condensed consolidated financial statements included in Part I, Item I of this Form 10-Q/A.
Recent Accounting Pronouncements
For information regarding new accounting pronouncements, see Note 1, Basis of Presentation and Significant Accounting Policies in the notes to our unaudited condensed consolidated financial statements.
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Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q/A contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Investors are cautioned that statements that are not strictly historical statements of fact constitute forward-looking statements, including, without limitation, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and are often identified by words like “believe,” “expect,” “may,” “will,” “should,” “seek,” “anticipate,” or “could” and similar expressions.
Forward-looking statements are not assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those expressed or implied by forward-looking statements include those discussed under the “Risk Factors” section of our Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q or other reports filed with the SEC.
Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date of this report. We undertake no obligation to publicly revise or update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as a result of a material weakness in our internal control over financial reporting and discussed below, our disclosure controls and procedures were not effective as of September 30, 2022. Management's conclusion was based on discoveries and observations made during the fiscal 2022 audit as well as during the process of closing the first quarter of fiscal 2023.
Material Weakness in Internal Control Over Financial Reporting
The Company's material weakness first identified during the audit of our fiscal 2021 consolidated financial statements, as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, related to business processes and controls to perform reconciliations of certain account balances on a regular basis. This existing material weakness resulted in additional reclassifications of certain assets and the classification and timing of recording certain costs first identified during the process of closing the second quarter of fiscal 2023. This material weakness has not been remediated, and, as a result, our internal control over financial reporting was not effective as of September 30, 2022.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis.
Management's Plan to Remediate the Material Weakness
Control Activity—The Company did not have effective business processes and controls to perform reconciliations of balance sheet accounts timely for the Company and acquired companies.
In the course of our financial close process for the fiscal years ended June 30, 2022 and 2021, we identified a material weakness in our internal control over financial reporting. The material weakness identified relates to our process and controls over financial reporting related to balance sheet account reconciliations. In addition to the necessary reclassifications of certain assets and the classification and timing of recording certain costs for second quarter of fiscal year 2023, we noted for interim periods that due to ineffective business process and controls for balance sheet reconciliations that lacked adequate precision, we had not properly accounted for and misclassified certain charges related to revenue and expenses. Management concluded that this material weakness arose because we did not have effective business processes and controls to perform timely reconciliations of balance sheet account balances.
The Company has developed a comprehensive strategy in an effort to remediate this material weakness. We engaged a consulting firm to assist the Company in the continued development of improved business processes and control activities and we have engaged a separate consultant to focus specifically on inventory system processes improvements.
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During fiscal 2022, we also conducted an assessment of staffing needs. Since this assessment, we have hired a Director of Inventory and Costing, a Controller and additional permanent and engaged temporary finance team members, each with relevant wine industry and accounting process experience. Additionally, on March 7, 2022, the Company appointed Kristina L. Johnston as Chief Financial Officer of the Company. The Company believes Ms. Johnston's experience with public company internal controls and accounting processes, as well as her significant leadership experience will further enhance our internal control environment.
Additionally, the Company has started to design and implement additional controls and procedures designed to mitigate the risk of material misstatement including the standardization of our monthly close checklists and account reconciliation templates. The Company will need to assess its staffing needs on an ongoing basis in order to implement processes to ensure the completeness and the timely preparation and review of all balance sheet accounts and the establishment of defined segregation of duties between preparation and review.
The Company acknowledges it will take time and resources to fully integrate these new controls and processes described above and confirm them to be effective and sustainable. As the Company continues to refine and improve our financial reporting process, additional controls and procedures may also be required over time.
Changes in Internal Control over Financial Reporting
Other than changes intended to remediate the material weaknesses noted above, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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