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UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 
FORM 10-Q
 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

 

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

Commission File Number 001-37610

 

WILLAMETTE VALLEY VINEYARDS, INC.

(Exact name of registrant as specified in charter)

 

Oregon   93-0981021
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

8800 Enchanted Way, S.E., Turner, Oregon 97392
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (503) 588-9463
 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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:
x Yes o NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files):
x Yes o NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

  o Large accelerated filer o Accelerated filer
     
  x Non-accelerated Filer x Smaller reporting company
     
    o 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. o

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

o YES x No

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock,   WVVI   NASDAQ Capital Market
Series A Redeemable Preferred Stock   WVVIP   NASDAQ Capital Market

 

Number of shares of common stock outstanding as of August 11, 2022: 4,964,529

1

 

WILLAMETTE VALLEY VINEYARDS, INC.

INDEX TO FORM 10-Q

 

Part I - Financial Information 3
   
Item 1 - Financial Statements (unaudited) 3
   
Condensed Balance Sheets 3
   
Condensed Statements of Operations 4
   
Condensed Statements of Shareholders’ Equity 5
   
Statements of Cash Flows 6
   
Notes to Unaudited Interim Financial Statements 7
   
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
   
Item 3 – Quantitative and Qualitative Disclosures about Market Risk 18
   
Item 4 - Controls and Procedures 18
   
Part II - Other Information 18
   
Item 1 - Legal Proceedings 18
   
Item 1A – Risk Factors 18
   
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 18
   
Item 3 - Defaults Upon Senior Securities 18
   
Item 4 – Mine Safety Disclosures 19
   
Item 5 – Other Information 19
   
Item 6 – Exhibits 19
   
Signatures 20

2

 

PART I: FINANCIAL INFORMATION

 

Item 1 – Financial Statements

 

WILLAMETTE VALLEY VINEYARDS, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

 

    June 30,     December 31,  
    2022     2021  
ASSETS                
CURRENT ASSETS                
Cash and cash equivalents   $ 3,128,407     $ 13,747,285  
Accounts receivable, net     2,273,138       3,163,375  
Inventories     20,432,556       19,076,750  
Prepaid expenses and other current assets     305,139       299,461  
Income tax receivable     593,401       138,986  
Total current assets     26,732,641       36,425,857  
                 
Other assets     13,824       13,824  
Vineyard development costs, net     8,290,864       8,088,968  
Property and equipment, net     49,584,002       40,596,135  
Operating lease right of use assets     9,283,357       6,250,326  
                 
TOTAL ASSETS   $ 93,904,688     $ 91,375,110  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES                
Accounts payable   $ 2,230,254     $ 2,102,435  
Accrued expenses     1,247,179       1,156,823  
Investor deposits for preferred stock     -       4,134,422  
Current portion of note payable     1,248,993       1,295,541  
Current portion of long-term debt     484,539       472,420  
Current portion of lease liabilities     684,220       443,484  
Unearned revenue     800,090       938,257  
Grapes payable     -       1,388,601  
Total current liabilities     6,695,275       11,931,983  
                 
Long-term debt, net of current portion and debt issuance costs     4,691,093       4,930,193  
Lease liabilities, net of current portion     8,897,030       5,954,433  
Deferred income taxes     3,596,507       3,596,507  
Total liabilities     23,879,905       26,413,116  
                 
COMMITMENTS AND CONTINGENCIES (Note 9)                
                 
SHAREHOLDERS’ EQUITY                
Redeemable preferred stock, no par value, 10,000,000 shares authorized, 8,483,862 shares issued and outstanding, liquidation preference of $36,141,252, at June 30, 2022 and 7,523,539 shares issued and outstanding, liquidation preference of $31,222,687, at December 31, 2021.     36,793,747       30,956,192  
Common stock, no par value, 10,000,000 shares authorized, 4,964,529 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.     8,512,489       8,512,489  
Retained earnings     24,718,547       25,493,313  
Total shareholders’ equity     70,024,783       64,961,994  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 93,904,688     $ 91,375,110  

 

The accompanying notes are an integral part of this condensed financial statement

3

 

WILLAMETTE VALLEY VINEYARDS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three months ended     Six months ended  
    June 30,     June 30,  
    2022     2021     2022     2021  
                         
SALES, NET   $ 8,700,861     $ 8,949,951     $ 14,943,179     $ 14,715,289  
COST OF SALES     3,873,604       3,810,228       6,395,893       6,081,999  
                                 
GROSS PROFIT     4,827,257       5,139,723       8,547,286       8,633,290  
                                 
OPERATING EXPENSES                                
Sales and marketing     3,019,613       2,235,124       5,497,340       4,351,789  
General and administrative     1,363,201       1,367,005       2,741,735       2,567,898  
Total operating expenses     4,382,814       3,602,129       8,239,075       6,919,687  
                                 
INCOME FROM OPERATIONS     444,443       1,537,594       308,211       1,713,603  
                                 
OTHER INCOME (EXPENSE)                                
Interest income     904       3,081       3,293       6,478  
Interest expense     (90,371 )     (97,499 )     (181,817 )     (197,075 )
Other income (expense), net     (355 )     40,679       88,669       129,813  
                                 
INCOME BEFORE INCOME TAXES     354,621       1,483,855       218,356       1,652,819  
                                 
INCOME TAX PROVISION     (97,220 )     (406,304 )     (59,897 )     (452,583 )
                                 
NET INCOME     257,401       1,077,551       158,459       1,200,236  
                                 
Accrued preferred stock dividends     (466,613 )     (362,506 )     (933,225 )     (722,142 )
                                 
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS   $ (209,212 )   $ 715,045     $ (774,766 )   $ 478,094  
                                 
Earnings (loss) per common share after preferred dividends, basic and diluted   $ (0.04 )   $ 0.14     $ (0.16 )   $ 0.10  
                                 
Weighted-average number of common shares outstanding     4,964,529       4,964,529       4,964,529       4,964,529  

 

The accompanying notes are an integral part of this condensed financial statement

4

 

WILLAMETTE VALLEY VINEYARDS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

    Six-Month Period Ended June 30, 2022  
    Redeemable                          
    Preferred Stock     Common Stock     Retained        
    Shares     Dollars     Shares     Dollars     Earnings     Total  
                                     
Balance at December 31, 2021     7,523,539     $ 30,956,192       4,964,529     $ 8,512,489     $ 25,493,313     $ 64,961,994  
                                                 
Issuance of preferred stock, net     960,323       4,904,330       -       -       -       4,904,330  
                                                 
Preferred stock dividends accrued     -       466,612       -       -       (466,612 )     -  
                                                 
Net loss     -       -       -       -       (98,942 )     (98,942 )
                                                 
Balance at March 31, 2022     8,483,862       36,327,134       4,964,529       8,512,489       24,927,759       69,767,382  
                                                 
Preferred stock dividends accrued     -       466,613       -       -       (466,613 )     -  
                                                 
Net income     -       -       -       -       257,401       257,401  
                                                 
Balance at June 30, 2022     8,483,862     $ 36,793,747       4,964,529     $ 8,512,489     $ 24,718,547     $ 70,024,783  
                                                 
    Six-Month Period Ended June 30, 2021  
    Redeemable                          
    Preferred Stock     Common Stock     Retained        
    Shares     Dollars     Shares     Dollars     Earnings     Total  
                                     
Balance at December 31, 2020     6,309,508     $ 25,817,305       4,964,529     $ 8,512,489     $ 24,492,133     $ 58,821,927  
                                                 
Issuance of preferred stock, net     229,333       1,089,191       -       -       -       1,089,191  
                                                 
Preferred stock dividends accrued     -       359,636       -       -       (359,636 )     -  
                                                 
Net income     -       -       -       -       122,685       122,685  
                                                 
Balance at March 31, 2021     6,538,841       27,266,132       4,964,529       8,512,489       24,255,182       60,033,803  
                                                 
Issuance of preferred stock, net     26,082       (77,222 )     -       -       -       (77,222 )
                                                 
Preferred stock dividends accrued     -       362,506       -       -       (362,506 )     -  
                                                 
Net income     -       -       -       -       1,077,551       1,077,551  
                                                 
Balance at June 30, 2021     6,564,923     $ 27,551,416       4,964,529     $ 8,512,489     $ 24,970,227     $ 61,034,132  

 

The accompanying notes are an integral part of this condensed financial statement

5

 

WILLAMETTE VALLEY VINEYARDS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six months ended June 30,  
    2022     2021  
             
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income   $ 158,459     $ 1,200,236  
Adjustments to reconcile net income to net cash from operating activities:                
Depreciation and amortization     992,417       943,721  
Gain on disposition of property and equipment     -       (10,000 )
Non-cash lease expense     327,886       308,869  
Loan fee amortization     6,624       6,624  
Change in operating assets and liabilities:                
Accounts receivable     890,237       148,502  
Inventories     (1,355,806 )     1,191,676  
Prepaid expenses and other current assets     (5,678 )     (67,645 )
Income taxes receivable     (454,415 )     412,583  
Unearned revenue     (138,167 )     (75,901 )
Lease liabilities     (177,584 )     (301,871 )
Grapes payable     (1,388,601 )     (1,307,165 )
Accounts payable     75,203       (22,500 )
Accrued expenses     90,356       (234,369 )
Net cash from operating activities     (979,069 )     2,192,760  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Proceeds from disposition of property and equipment     -       10,000  
Additions to vineyard development costs     (369,389 )     (360,911 )
Additions to property and equipment     (9,760,175 )     (3,061,925 )
Net cash from investing activities     (10,129,564 )     (3,412,836 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Payment on installment note for property purchase     (46,548 )     (43,857 )
Payments on long-term debt     (233,605 )     (230,140 )
Proceeds from investor deposits held as liability     -       110,477  
Proceeds from issuance of preferred stock     769,908       501,333  
Net cash from financing activities     489,755       337,813  
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS     (10,618,878 )     (882,263 )
                 
CASH AND CASH EQUIVALENTS, beginning of period     13,747,285       13,999,755  
                 
CASH AND CASH EQUIVALENTS, end of period   $ 3,128,407     $ 13,117,492  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES                
Purchases of property and equipment and vineyard development costs included in accounts payable   $ 1,196,351     $ 266,545  
Reduction in investor deposits for preferred stock   $ 4,134,422     $ 510,636  
Accrued preferred stock dividends   $ 933,225     $ 722,142  

 

The accompanying notes are an integral part of this condensed financial statement

6

 

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

 

1) BASIS OF PRESENTATION

 

The accompanying unaudited interim financial statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statements. The financial information as of December 31, 2021 is derived from the audited financial statements presented in the Willamette Valley Vineyards, Inc. (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2021. Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments necessary (which are of a normal recurring nature) for the fair statement of the results of the interim periods presented. The accompanying financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021, as presented in the Company’s Annual Report on Form 10-K.

 

Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2022, or any portion thereof.

 

The COVID-19 outbreak in Oregon and other parts of the United States, as well as the response to COVID-19 by federal, state and local governments have had a material adverse impact on economic and market conditions in the United States. Although most restrictive measures have been lifted, the COVID-19 pandemic and the government responses to the outbreak presents continued uncertainty and risk with respect to the Company and its performance and financial results.

 

Exceeding the required Oregon Healthy Authority protocols, a state-of-the-art UV light filtration has been installed in the Company’s HVAC system to reduce harmful viruses in the air at its tasting room locations and staff offices.

 

We have not yet experienced significant disruptions to our supply chain network; however, any future restrictions imposed by our local or state governments may have a negative impact on our future direct to consumer sales.

 

The Company’s revenues include direct to consumer sales and national sales to distributors. These sales channels utilize shared resources for production, selling, and distribution.

 

Basic earnings (loss) per share after preferred stock dividends are computed based on the weighted-average number of common shares outstanding each period.

 

The following table presents the earnings per share after preferred stock dividends calculation for the periods shown:

 

 

    Three months ended June 30,     Six months ended June 30,  
    2022     2021     2022     2021  
Numerator                        
Net income   $ 257,401     $ 1,077,551     $ 158,459     $ 1,200,236  
Accrued preferred stock dividends     (466,613 )     (362,506 )     (933,225 )     (722,142 )
Net income (loss) applicable to common shares   $ (209,212 )   $ 715,045     $ (774,766 )   $ 478,094  
                                 
Denominator                                
Weighted-average common shares outstanding     4,964,529       4,964,529       4,964,529       4,964,529  
                                 
Earnings (loss) per common share after preferred dividends, basic and diluted   $ (0.04 )   $ 0.14     $ (0.16 )   $ 0.10  

 

Subsequent to the filing of the 2021 Report there were no accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) that would have a material effect on the Company’s unaudited interim condensed financial statements.

7

 

Reclassifications - Certain immaterial amounts from prior periods have been reclassified to conform to current years’ presentation.

 

2) INVENTORIES

 

The Company’s inventories, by major classification, are summarized as follows, as of the dates shown:

 

 

    June 30, 2022     December 31, 2021  
             
Winemaking and packaging materials   $ 1,246,043     $ 742,188  
Work-in-process (costs relating to unprocessed and/or unbottled wine products)     7,806,884       9,691,140  
Finished goods (bottled wine and related products)     11,379,629       8,643,422  
                 
Total inventories   $ 20,432,556     $ 19,076,750  

 

3) PROPERTY AND EQUIPMENT, NET

 

The Company’s property and equipment consists of the following, as of the dates shown:

 

 

    June 30, 2022     December 31, 2021  
             
Construction in progress   $ 21,234,020     $ 14,556,806  
Land, improvements, and other buildings     12,721,168       12,850,316  
Winery, tasting room buildings, and hospitality center     20,384,159       17,791,684  
Equipment     16,657,748       15,960,179  
                 
Property and equipment, gross     70,997,095       61,158,985  
                 
Accumulated depreciation     (21,413,093 )     (20,562,850 )
                 
Property and equipment, net   $ 49,584,002     $ 40,596,135  

 

Depreciation expense for the six months ended June 30, 2022 and 2021 was $816,806 and $818,116, respectively. Depreciation expense for the three months ended June 30, 2022 and 2021 was $432,826 and $406,759, respectively.

 

4) DEBT

 

Line of Credit Facility – In December of 2005, the Company entered into a revolving line of credit agreement with Umpqua Bank that allows borrowing up to $2,000,000 against eligible accounts receivable and inventories, as defined in the agreement at July 29, 2021. The revolving line bears interest at prime less 0.5%, with a floor of 3.25%, is payable monthly, and is subject to renewal. In July 2021, the Company renewed the credit agreement until July 31, 2023. At June 30, 2022 and December 31, 2021, there was no outstanding balance on this revolving line of credit.

 

The line of credit agreement includes various covenants, which among other things; require the Company to maintain a minimum current ratio, debt to tangible net worth, and debt service coverage, as defined. As of June 30, 2022, the Company was in compliance with these financial covenants.

 

Notes Payable – In February 2017, the Company purchased property, including vineyard land, bare land, and structures in the Dundee Hills American Viticultural Area (AVA) under terms that included a 15 year note payable with quarterly payments of $42,534, bearing interest at 6%. The note may be called by the owner, up to the outstanding balance, with 180 days written notice. As of June 30, 2022, the Company had a balance of $1,248,993 due on this note. As of December 31, 2021, the Company had a balance of $1,295,541 due on this note.

8

 

Long-Term Debt – The Company has two long-term debt agreements with Farm Credit Services (FCS) with an aggregate outstanding balance of $5,301,492 and $5,535,097 as of June 30, 2022 and December 31, 2021, respectively. The outstanding loans require monthly principal and interest payments of $62,067 for the life of the loans, at annual fixed interest rates of 4.75% and 5.21%, and with maturity dates of 2028 and 2032. The general purposes of these loans were to make capital improvements to the winery and vineyard facilities.

 

The loan agreements contain covenants, which require the Company to maintain certain financial ratios and balances. As of June 30, 2022, the Company was in compliance with these covenants. In the event of future noncompliance with the Company’s debt covenants, FCS would have the right to declare the Company in default, and at FCS option without notice or demand, the unpaid principal balance of the loan, plus all accrued unpaid interest thereon and all other amounts due would immediately become due and payable.

 

Future minimum principal payments of long-term debt mature as follows for the years ending December 31:

 

 

2022 (excluding the six months ended June 30, 2022)   $ 238,816  
2023     496,970  
2024     522,798  
2025     549,971  
2026     578,559  
Thereafter     2,914,378  
         
Total   $ 5,301,492  

 

As of June 30, 2022, the Company had unamortized debt issuance costs of $125,860. As of December 31, 2021, the Company had unamortized debt issuance costs of $132,484.

 

The Company believes that cash flow from operations and funds available under the Company’s existing credit facilities will be sufficient to meet the Company’s short-term needs. Due to the uncertainty surrounding the future impact of the COVID-19 pandemic on the Company we will continue to evaluate funding mechanisms to support our long-term funding requirements.

 

5) INTEREST AND TAXES PAID

 

Income taxes – The Company paid $502,000 and $40,000 in income taxes for the three months ended June 30, 2022 and 2021, respectively. The Company paid $502,000 and $40,000 in income taxes for the six months ended June 30, 2022 and 2021, respectively.

 

Interest – The Company paid $83,776 and $95,052 for the three months ended June 30, 2022 and 2021, respectively, in interest on long-term debt. The Company paid $175,222 and $190,783 for the six months ended June 30, 2021 and 2020, respectively, in interest on long-term debt.

 

6) SEGMENT REPORTING

 

The Company has identified two operating segments, Direct Sales and Distributor Sales, based upon their different distribution channels, margins and selling strategies. Direct Sales include retail sales in the tasting rooms, wine club sales, internet sales, on-site events, kitchen and catering sales and other sales made directly to the consumer without the use of an intermediary, including sales of bulk wine or grapes. Distributor Sales include all sales through a third party where prices are given at a wholesale rate.

 

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, including depreciation of segment specific assets, are included, however, centralized selling expenses and general and administrative expenses are not allocated between operating segments. Therefore, net income (loss) information for the respective segments is not available. Discrete financial information related to segment assets, other than segment specific depreciation associated with selling, is not available and that information continues to be aggregated.

9

 

The following table outlines the sales, cost of sales, gross profit, directly attributable selling expenses, and contribution margin of the segments for the three and six month periods ending June 30, 2022 and 2021. Sales figures are net of related excise taxes.

 

                                                                 
    Three Months Ended June 30,  
    Direct Sales     Distributor Sales     Unallocated     Total  
    2022     2021     2022     2021     2022     2021     2022     2021  
                                                 
Sales, net   $ 3,830,195     $ 3,149,624     $ 4,870,666     $ 5,800,327     $ -     $ -     $ 8,700,861     $ 8,949,951  
Cost of sales     1,080,634       850,949       2,792,970       2,959,279       -       -       3,873,604       3,810,228  
Gross profit     2,749,561       2,298,675       2,077,696       2,841,048       -       -       4,827,257       5,139,723  
Selling expenses     2,308,270       1,591,640       484,445       454,244       226,898       189,240       3,019,613       2,235,124  
Contribution margin   $ 441,291     $ 707,035     $ 1,593,251     $ 2,386,804                                  
Percent of total sales     44.0 %     35.2 %     56.0 %     64.8 %                                
General and administration expenses                                     1,363,201       1,367,005       1,363,201       1,367,005  
Income from operations                                                   $ 444,443     $ 1,537,594  

 

                                                                 
    Six Months Ended June 30,  
    Direct Sales     Distributor Sales     Unallocated     Total  
    2022     2021     2022     2021     2022     2021     2022     2021  
                                                 
Sales, net   $ 6,787,502     $ 5,455,807     $ 8,155,677     $ 9,259,482     $ -     $ -     $ 14,943,179     $ 14,715,289  
Cost of sales     1,828,926       1,388,680       4,566,967       4,693,319       -       -       6,395,893       6,081,999  
Gross profit     4,958,576       4,067,127       3,588,710       4,566,163       -       -       8,547,286       8,633,290  
Selling expenses     4,100,561       3,082,383       962,950       924,725       433,829       344,681       5,497,340       4,351,789  
Contribution margin   $ 858,015     $ 984,744     $ 2,625,760     $ 3,641,438                                  
Percent of total sales     45.4 %     37.1 %     54.6 %     62.9 %                                
General and administration expenses                                     2,741,735       2,567,898       2,741,735       2,567,898  
Income from operations                                                   $ 308,211     $ 1,713,603  

 

Direct sales include zero bulk wine sales for the three months ended June 30, 2022 and June 30, 2021. Direct sales include $10,500 for bulk wine sales for the six months ended June 30, 2022 and zero bulk wine sales for the six months ended June 30, 2021.

 

7) SALE OF PREFERRED STOCK

 

On January 24, 2020, the Company filed a shelf Registration Statement on Form S-3 (the “January 2020 Form S-3”) with the United States Securities and Exchange Commission (the “SEC”) pertaining to the potential future issuance of one or more classes or series of debt, equity or derivative securities. The maximum aggregate offering amount of securities sold pursuant to the January 2020 Form S-3 is not to exceed $20,000,000. On June 10, 2020, the Company filed with the SEC a Prospectus Supplement to the January 2020 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 1,917,525 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $9,300,000. This Prospectus Supplement established that our shares of preferred stock were to be sold in four offering periods with four separate offering prices beginning with an offering price of $4.85 per share and concluding with an offering of $5.15 per share. As of June 30, 2022, the Company had received aggregate proceeds of $8,533,086 from sales of our Series A Redeemable Preferred Stock, net of acquisition costs, under this offering. No further shares of Series A Redeemable Preferred Stock may be offered or sold under this Prospectus Supplement and all shares sold under this Prospectus Supplement were issued as of December 31, 2021.

 

On June 11, 2021, the Company filed with the SEC an additional Prospectus Supplement to the January 2020 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 2,118,811 additional shares of Series A Redeemable Preferred Stock having proceeds not to exceed $10,700,000. As of March 31, 2022, the Company had received aggregate proceeds of $9,008,334 from sales of our Series A Redeemable Preferred Stock, net of acquisition costs, under this offering. No further shares of Series A Redeemable Preferred Stock may be offered or sold under this Prospectus Supplement and all shares sold under this Prospectus Supplement were issued as of June 30, 2022.

 

On June 30, 2022, the Company filed a shelf Registration Statement on Form S-3 (the “June 2020 Form S-3”) with the SEC pertaining to the potential future issuance of one or more classes or series of debt, equity or derivative securities. The maximum aggregate offering amount of securities sold pursuant to the June 2022 Form S-3 is not to exceed $20,000,000. On August 1, 2022, the Company filed with the SEC a Prospectus Supplement to the June 2022 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 213,158 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $1,097,765. This Prospectus Supplement established that our shares of preferred stock were to be sold in three offering periods with three separate offering prices beginning with an offering price of $5.15 per share and concluding with an offering of $5.35 per share.

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Shareholders have the option to receive dividends as cash or as a gift card for purchasing Company products. The amount of unused dividend gift cards at June 30, 2022 and December 31, 2021 was $527,868 and $682,881, respectively, which are recorded as a component of unearned revenue on the balance sheet.

 

Dividends accrued but not paid will be added to the liquidation preference of the stock until the dividend is declared and paid. The Company currently has the option, but not the obligation, to redeem all of the outstanding preferred stock in an amount equal to the original issue price plus accrued but unpaid dividends and a redemption premium equal to 3% of the original issue price.

 

8) COMMITMENTS AND CONTINGENCIES

 

We determine if an arrangement is a lease at inception. On our balance sheet, our operating leases are included in Operating lease right-of-use assets (ROU), Current portion of lease liabilities, and Lease liabilities, net of current portion. The Company does not currently have any finance leases.

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For leases that do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

 

Significant judgment may be required when determining whether a contract contains a lease, the length of the lease term, the allocation of the consideration in a contract between lease and non-lease components, and the determination of the discount rate included in our leases. We review the underlying objective of each contract, the terms of the contract, and consider our current and future business conditions when making these judgments.

 

Operating Leases – Vineyard - In December 1999, under a sale-leaseback agreement, the Company sold approximately 79 acres of the Tualatin Vineyards property with a net book value of approximately $1,000,000 for approximately $1,500,000 cash and entered into a 20-year operating lease agreement, with three five-year extension options, and contains an escalation provision of 2.5% per year. The Company extended the lease in January 2019 until January 2025.

 

In December 2004, under a sale-leaseback agreement, the Company sold approximately 75 acres of the Tualatin Vineyards property with a net book value of approximately $551,000 for approximately $727,000 cash and entered into a 15-year operating lease agreement, with three five-year extension options, for the vineyard portion of the property. The first five year extension has been exercised. The lease contains a formula-based escalation provision with a maximum increase of 4% every three years.

 

In February 2007, the Company entered into a lease agreement for 59 acres of vineyard land at Elton Vineyards. In June 2021, the Company entered into a new 11 year lease for this property. The lease contains an escalation provision tied to the CPI not to exceed 2% per annum.

 

In July 2008, the Company entered into a 34-year lease agreement with a property owner in the Eola Hills for approximately 110 acres adjacent to the existing Elton Vineyards site. Terms of this agreement contain rent increases, that rises as the vineyard is developed, and contains an escalation provision of CPI plus 0.5% per year capped at 4%.  

 

In March 2017, the Company entered into a 25-year lease for approximately 18 acres of agricultural land in Dundee, Oregon. These acres are being developed into vineyards. This lease contains an annual payment that remains constant throughout the term of the lease.

 

Operating Leases – Non-Vineyard - In September 2018, the Company renewed an existing lease for three years, with two one-year renewal options, for its McMinnville tasting room. In May 2022 the Company amended the lease to extend the lease to August 2025 with one three year renewal option and defined payments over the term of the lease.

 

In January 2019, the Company assumed a lease, with four remaining years, for its Maison Bleue tasting room in Walla Walla, Washington. The lease contains fixed payments that increase over the term of the agreement.

11

 

In February 2020, the Company entered into a lease for 5 years, with three five-year renewal options for a retail wine facility in Folsom, California, referred to as Willamette Wineworks. The lease contains an escalation provision tied to the CPI not to exceed 3% per annum with increases not allowed in any year being carried forward to following years.

 

In September 2021, the Company entered into a lease for 10 years, with two five-year renewal options for a retail wine facility in Vancouver, Washington. The lease defines the payments over the term of the lease and option periods.

 

In February 2022, the Company entered into a lease for 10 years, with three five-year renewal options for a retail wine facility in Lake Oswego, Oregon. The lease defines the payments over the term of the lease and option periods.

 

In May 2022, the Company entered into a lease for 10 years, with two five-year renewal options for a retail wine facility in Happy Valley, Oregon. The lease defines the payments over the term of the lease and option periods.

 

The following tables provide lease cost and other lease information:

 

    Three Months Ended     Six Months Ended  
    June 30, 2022     June 30, 2022  
Lease Cost                
Operating lease cost - Vineyards   $ 114,782     $ 229,564  
Operating lease cost - Other     163,646       293,162  
Short-term lease cost     3,046       8,610  
                 
Total lease cost   $ 281,474     $ 531,336  
                 
Other Information                
Cash paid for amounts included in the measurement of lease liabilities                
Operating cash flows from operating leases - Vineyard   $ 112,986     $ 224,053  
Operating cash flows from operating leases - Other   $ 81,204     $ 119,442  
Weighted-average remaining lease term - Operating leases in years     11.55       11.55  
Weighted-average discount rate - Operating leases     5.14 %     5.14 %

 

Right-of-use assets obtained in exchange for new operating lease obligations were $3,360,917 and zero for the six-months ended June 30, 2022 and 2021, respectively.

 

The Company has one lease that has not yet commenced as of June 30, 2022, and as such, has not been recognized in the Company’s balance sheet. The operating lease is expected to be in 2023 with lease a term of 10 years.

12

 

As of June 30, 2022, maturities of lease liabilities were as follows:

 

    Operating  
Years Ended December 31,   Leases  
2022 (excluding the six months ended June 30, 2022)   $ 542,241  
2023     1,215,935  
2024     1,224,702  
2025     1,139,179  
2026     1,095,471  
Thereafter     7,767,904  
Total minimal lease payments     12,985,432  
Less present value adjustment     (3,404,182 )
Operating lease liabilities     9,581,250  
Less current lease liabilities     (684,220 )
Lease liabilities, net of current portion   $ 8,897,030  

 

Litigation – From time to time, in the normal course of business, the Company is a party to legal proceedings. Management believes that these matters will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows, but, due to the nature of litigation, the ultimate outcome of any potential actions cannot presently be determined.

 

Grape Purchases – The Company has entered into long-term grape purchase agreements with a number of Willamette Valley wine grape growers. With these agreements the Company purchases an annually agreed upon quantity of fruit, at pre-determined prices, within strict quality standards and crop loads. The Company cannot calculate the minimum or maximum payment as such a calculation is dependent in large part on unknowns such as the quantity of fruit needed by the Company and the availability of grapes produced that meet the strict quality standards in any given year. If no grapes are produced that meet the contractual quality levels, the grapes may be refused, and no payment would be due.

 

Domaine Willamette – In 2019, the Board of Directors approved the construction of a new tasting room at the Bernau Estate Vineyard, expected to be completed during the 2022 fiscal year. The total construction costs for the Domaine Willamette Tasting Room is expected to be approximately $15.6 million, of which we expect will be funded through cash on hand. Construction on the Tasting Room began in July, 2019 and as of June 31, 2022, we had spent approximately $13.6 million on the project from our cash reserves.

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our” and “the Company” refer to Willamette Valley Vineyards, Inc.

 

Forward Looking Statements

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form 10-Q contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that are based on current expectations, estimates and projections about the Company’s business, and beliefs and assumptions made by management. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates”, “predicts,” “potential,” “should,” or “will” or the negative thereof and variations of such words and similar expressions are intended to identify such forward-looking statements. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to: availability of financing for growth, availability of adequate supply of high quality grapes, successful performance of internal operations, impact of competition, changes in wine broker or distributor relations or performance, impact of possible adverse weather conditions, impact of reduction in grape quality or supply due to disease or smoke from forest fires, changes in consumer spending, the reduction in consumer demand for premium wines, and the impact of the COVID-19 pandemic and the policies of United States federal, state and local governments in response to such pandemic. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic economic conditions. Many of these risks as well as other risks that may have a material adverse impact on our operations and business, are identified in Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as well as in the Company’s other Securities and Exchange Commission filings and reports. The forward-looking statements in this report are made as of the date hereof, and, except as otherwise required by law, the Company disclaims any intention or obligation to update or revise any forward-looking statements or to update the reasons why the actual results could differ materially from those projected in the forward-looking statements, whether as a result of new information, future events or otherwise.

13

 

Critical Accounting Policies

 

The foregoing discussion and analysis of the Company’s financial condition and results of operations are based upon our unaudited condensed financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed financial statements requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenue recognition, collection of accounts receivable, valuation of inventories, and amortization of vineyard development costs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A description of the Company’s critical accounting policies and related judgments and estimates that affect the preparation of the Company’s financial statements is set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Such policies were unchanged during the six months ended June 30, 2022.

 

Overview

 

The Company, one of the largest wine producers in Oregon by volume, believes its success is dependent upon its ability to: (1) grow and purchase high quality vinifera wine grapes; (2) vinify the grapes into premium, super premium and ultra-premium wine; (3) achieve significant brand recognition for its wines, first in Oregon, and then nationally and internationally; (4) effectively distribute and sell its products nationally; and (5) continue to build on its base of direct to consumer sales.

 

The Company’s goal is to continue to build on a reputation for producing some of Oregon’s finest, most sought-after wines. The Company has focused on positioning itself for strategic growth through property purchases, property development and issuance of the Company’s Series A Redeemable Preferred Stock (the “Preferred Stock”). Management expects near term financial results to be negatively impacted by these activities as a result of incurring costs of accrued preferred stock dividends, strategic planning and development costs and other growth associated costs.

 

The Company’s wines are made from grapes grown in vineyards owned, leased or contracted by the Company, and from grapes purchased from other vineyards. The grapes are harvested, fermented and made into wine primarily at the Company’s winery in Turner Oregon (the “Winery”) and the wines are sold principally under the Company’s Willamette Valley Vineyards label, but also under the Griffin Creek, Pambrun, Elton, Maison Bleue, Metis, Natoma, Pere Ami, Elton, Domaine Willamette and Tualatin Estates labels. The Company also owns the Tualatin Estate Vineyards and Winery, located near Forest Grove, Oregon. The Company generates revenues from the sales of wine to wholesalers and direct to consumers.

 

Direct to consumer sales primarily include sales through the Company’s tasting rooms, telephone, internet and wine club. Direct to consumer sales are at a higher unit price than sales through distributors due to prices received being closer to retail than those prices paid by wholesalers. The Company continues to emphasize growth in direct to consumer sales through the Company’s existing tasting rooms and the opening of new locations, and growth in wine club membership. Additionally, the Company’s Preferred Stock sales since August 2015 have resulted in approximately 10,000 new preferred stockholders many of which the Company believes are wine enthusiasts. When considering joint ownership, we believe these new stockholders represent approximately 15,000 current and potential customers of the Company.

 

Periodically, the Company will sell grapes or bulk wine, due to them not meeting Company standards or being in excess of production targets, however this is not a significant part of the Company’s activities. The Company had $10,500 in bulk wine sales for the six months ended June 30, 2022 and zero bulk wine sales for the same period of 2021.

 

The Company sold 85,133 and 98,420 cases of produced wine during the six months ended June 30, 2022 and 2021, respectively, a decrease of 13,287 cases, or 13.5% in the current year period over the prior year period.  The decrease in wine case sales was primarily the result of decreased case sales through distributors.

14

 

Cost of sales includes grape costs, whether purchased or grown at Company vineyards, winemaking and processing costs, bottling, packaging, warehousing, and shipping and handling costs. For grapes grown at Company vineyards, costs include farming expenditures and amortization of vineyard development costs.

 

At June 30, 2022, wine inventory included 131,585 cases of bottled wine and 220,459 gallons of bulk wine in various stages of the aging process. Case wine is expected to be sold over the next 12 to 24 months and generally before the release date of the next vintage. The Winery bottled 75,078 cases during the six months ended June 30, 2022.

 

Willamette Valley Vineyards continues to receive positive recognition through national magazines, regional publications, local newspapers and online bloggers including the accolades below. 

 

James Suckling rated the Company’s 2019 Vintage 46 Chardonnay with 94 points, 2019 Vintage 46 Pinot Noir with 93 points and the 2019 Tualatin Estate Chardonnay with 91 points. The 2019 Bernau Block Pinot Noir received 90 points and the 2019 Elton Pinot Noir received 92 points. The inaugural vintage of the 2017 Bernau Estate Méthode Traditionnelle Brut received 91 points and the 2017 Bernau Estate Blanc de Blancs received 90 points.

 

Wine Enthusiast Magazine rated the 2019 Founders’ Reserve Pinot Noir with 90 points.

 

The Sunset International Wine Competition rated our 2021 Whole Cluster Rosé of Pinot Noir with 91 points & Gold and our 2021 Pinot Gris with 90 points and Gold.

 

The Sommeliers Choice Awards rated our 2021 Whole Cluster Rosé of Pinot Noir with Gold and 91 points and our 2021 Pinot Gris with 90 points and Gold.

 

Wine & Spirits rated the 2021 Whole Cluster Rosé of Pinot Noir with 91 points and Best Buy.

 

Impact of COVID-19 on Operations 

 

The COVID-19 outbreak in Oregon and other parts of the United States, as well as the response to COVID-19 by federal, state and local governments have had a material adverse impact on economic and market conditions in the United States. Although most restrictive measures have been lifted, the COVID-19 pandemic and the government responses to the outbreak presents continued uncertainty and risk with respect to the Company and its performance and financial results.

 

Exceeding the required Oregon Healthy Authority protocols, a state-of-the-art UV light filtration has been installed in the Company’s HVAC system to reduce harmful viruses in the air at its tasting room locations and staff offices.

 

We have not yet experienced significant disruptions to our supply chain network; however, any future restrictions imposed by our local or state governments may have a negative impact on our future direct to consumer sales.

 

RESULTS OF OPERATIONS

 

Revenue

 

Sales revenue for the three months ended June 30, 2022 and 2021 were $8,700,861 and $8,949,951, respectively, a decrease of $249,090, or 2.8%, in the current year period over the prior year period. This decrease was caused by a decrease in sales through distributors of $929,661 being partially offset by an increase in direct sales of $680,571 in the current year three-month period over the prior year period. The decrease in revenue from sales through distributors was primarily attributed to later availability of new vintage wines compared to the prior year. The increase in direct sales to consumers was primarily the result of retail sales increases in tasting room revenue. Sales revenue for the six months ended June 30, 2022 and 2021 were $14,943,179 and $14,715,289, respectively, an increase of $227,890, or 1.5%, in the current year period over the prior year period. This increase was caused by an increase in revenues from direct sales of $1,331,695 and a decrease in revenues from sales through distributors of $1,103,805 in the current year period over the prior year period. The increase in revenues from direct sales to consumers was primarily the result of increased tasting room sales. The decrease in sales through distributors was primarily the result of an decrease in off-premise sales.

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Cost of Sales

 

Cost of Sales for the three months ended June 30, 2022 and 2021 were $3,873,604 and $3,810,228, respectively, an increase of $63,376, or 1.7%, in the current period over the prior year period. This change was primarily the result of an increase in product costs in 2022 mostly due to higher fruit and packaging costs. Cost of Sales for the six months ended June 30, 2022 and 2021 were $6,395,893 and $6,081,999, respectively, an increase of $313,894 or 5.2%, in the current period over the prior year period. This change was primarily the result of an increase in fruit and packaging costs in 2022 and the mix of sales channels and vintages sold between the two periods.

 

Gross Profit

 

Gross profit as a percentage of net sales for the three months ended June 30, 2022 and 2021 was 55.5% and 57.4%, respectively, a decrease of 1.9 percentage points in the current year period over the prior year period mostly as a result of higher fruit and packaging costs in the second quarter of 2022 compared to the same quarter of 2021. Gross profit as a percentage of net sales for the six months ended June 30, 2022 and 2021 was 57.2% and 58.7%, respectively, a decrease of 1.5 percentage points in the current year period over the prior year period. This decrease was primarily the result of higher fruit and labor costs in the first six months of 2022 compared to the same period in the prior year.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expense for the three months ended June 30, 2022 and 2021 was $4,382,814 and $3,602,129 respectively, an increase of $780,685, or 21.7%, in the current quarter over the same quarter in the prior year. This increase was primarily the result of an increase in selling expenses of $784,489, or 35.1% being partially offset by a decrease in general and administrative expenses of $3,804, or 0.3% in the current quarter compared to the same quarter last year. Selling, general and administrative expense for the six months ended June 30, 2022 and 2021 was $8,239,075 and $6,919,687, respectively, an increase of $1,319,388, or 19.1%, in the current year period over the prior year period. This increase was primarily the result of an increase in selling expenses of $1,145,551, or 26.3% combined with an increase in general and administrative expenses of $173,837, or 6.8% in the current year period compared to the same period in 2021. Selling expenses increased in both the first half and second quarter of 2022 compared to the same periods in 2021 primarily as a result of more sales coming from tasting rooms which have higher selling costs and from costs related to the development of new locations. Additional selling, general and administrative expenses related to the opening of new locations were $254,744 in the current quarter and $438,873 in the first six months of 2022 compared to the same period in the prior year.

 

Interest Expense

 

Interest expense for the three months ended June 30, 2022 and 2021 was $90,371 and $97,499, respectively, a decrease of $7,128 or 7.3%, in the second quarter of 2022 over the same quarter in the prior year. Interest expense for the six months ended June 30, 2022 and 2021 was $181,817 and $197,075, respectively, a decrease of $15,258 or 7.7%, in the current year period over the prior year period. The decrease in interest expense for the second quarter and first six months of 2022 was primarily the result of decreased debt in the current periods compared to the second quarter and first six months of 2021.

 

Income Taxes

 

The income tax expense for the three months ended June 30, 2022 and 2021 was $97,220 and $406,304, respectively, a decrease of $309,084 or 76.1%, in the second quarter of 2022 over the same quarter in the prior year mostly as a result of the lower pre-tax income in the second quarter of 2022, compared to the same quarter in 2021. The Company’s estimated federal and state combined income tax rate was 27.4% and 27.4% for the three months ended June 30, 2022 and 2021, respectively. The income tax expense for the six months ended June 30, 2022 and 2021 was $59,897 and $452,583, respectively, a decrease of $392,686 or 86.8%, in the current year period over the prior year period mostly a result of lower pre-tax income in the first six months of 2022, compared to the same period in 2021. The Company’s estimated federal and state combined income tax rate was 27.4% for the six months ended June 30, 2022 and 2021.

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Net Income

 

Net income for the three months ended June 30, 2022 and 2021 was $257,401 and $1,077,551, respectively, a decrease of $820,150, or 76.1%, in the second quarter of 2022 over the same quarter in the prior year. Net income for the six months ended June 30, 2022 and 2021 was $158,459 and $1,200,236, respectively, a decrease of $1,041,777, or 86.8%, in the current year period over the prior year period. The decrease in net income for the second quarter and decrease in net income for the first half of 2022, compared to the comparable periods in 2021, was primarily the result of changes in the gross profits and operating expenses.

 

Net Income (Loss) Applicable to Common Shareholders

 

Net income (loss) applicable to common shareholders for the three months ended June 30, 2022 and 2021 was $(209,212) and $715,045, respectively, a decrease of $924,257, or 129.3%, in the second quarter of 2022 over the same quarter in the prior year. Net income (loss) applicable to common shareholders for the six months ended June 30, 2022 and 2021 was $(774,766) and $478,094, respectively, a decrease of $1,252,860, or 262.1%, in the current year period over the prior year period. The decrease in income applicable to common shareholders in the second quarter and the first six months of 2022, compared to the same periods of 2021, was the result of lower net income and higher dividend costs in the current period. 

 

Liquidity and Capital Resources

 

At June 30, 2022, the Company had a working capital balance of $20.0 million and a current working capital ratio of 3.99:1.

 

At June 30, 2022, the Company had a cash balance of $3,128,407, while at December 31, 2021, the Company had a cash balance of $13,747,285. This decrease in cash was primarily the result of investments in construction activity, the payment of grapes payable and an increase in inventories. The construction of a new tasting room and winery in Dundee, Oregon is expected to cost approximately $15.6 million, which will be funded through a combination of cash on hand as well as equity financing through Preferred Stock offerings. Construction began in July 2019 and was paused in March 2020 as a result of the uncertainty surrounding the COVID-19 pandemic and has now been restarted. As of June 30, 2022, we had incurred approximately $13.6 million on the project.

 

Total cash used in operating activities in the six months ended June 30, 2022 was $979,069. Cash used in operating activities for the six months ended June 30, 2022 was primarily associated with increased inventory, and payment of grapes payable, partially offset by non-cash lease expense, and depreciation and amortization.

 

Total cash used in investing activities in the six months ended June 30, 2022 was $10,129,564. Cash used in investing activities for the six months ended June 30, 2022 consisted of cash used on construction activity and vineyard development costs.

 

Total cash generated from financing activities in the six months ended June 30, 2022 was $489,755. Cash generated from financing activities for the six months ended June 30, 2022 consisted of proceeds from the issuance of Preferred Stock, partially offset by the repayment of debt.

 

In December of 2005, the Company entered into a revolving line of credit agreement with Umpqua Bank that allows borrowing up to $2,000,000 against eligible accounts receivable and inventories, as defined in the agreement at July 29, 2021. The revolving line bears interest at prime less 0.5%, with a floor of 3.25%, is payable monthly, and is subject to renewal. In July 2021, the Company renewed the credit agreement until July 31, 2023. At June 30, 2022 and December 31, 2021, there was no outstanding balance on this revolving line of credit.

 

As of June 30, 2022, the Company had a 15-year installment note payable of $1,248,993, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA.

 

As of June 30, 2022, the Company had a total long-term debt balance of $5,301,492, including the portion due in the next year, owed to Farm Credit Services, exclusive of debt issuance costs of $125,860. As of December 31, 2021, the Company had a total long-term debt balance of $5,535,097, exclusive of debt issuance costs of $132,484.

 

The Company believes that cash flow from operations and funds available under the Company’s existing credit facilities will be sufficient to meet the Company’s short-term needs. We will continue to evaluate funding mechanisms to support our long-term funding requirements.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, the Company is not required to provide the information required by this item.

 

ITEM 4: CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures – The Company carried out an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to paragraph (b) of Rule 13a-15 and 15d-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that review, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective, as of the end of the period covered by this report, to ensure that information required to be disclosed by the Company in the reports the Company files or submit under the Exchange Act (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II: OTHER INFORMATION

 

Item 1 - Legal Proceedings

 

From time to time, the Company is a party to various judicial and administrative proceedings arising in the ordinary course of business. The Company’s management and legal counsel have reviewed the probable outcome of any proceedings that were pending during the period covered by this report, the costs and expenses reasonably expected to be incurred, the availability and limits of the Company’s insurance coverage, and the Company’s established liabilities. While the outcome of legal proceedings cannot be predicted with certainty, based on the Company’s review, the Company believes that any unrecorded liability that may result as a result of any legal proceedings is not likely to have a material effect on the Company’s liquidity, financial condition or results from operations.

 

Item 1A - Risk Factors

 

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which could materially affect our business, results of operations or financial condition.

 

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

 

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

 

None.

 

Item 3 - Defaults Upon Senior Securities

 

None.

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Item 4 - Mine Safety Disclosures

 

Not applicable.

 

Item 5 – Other Information

 

None.

 

Item 6 – Exhibits

 

3.1 Articles of Incorporation of Willamette Valley Vineyards, Inc. (incorporated by reference from the Company’s Regulation A Offering Statement on Form 1-A, File No. 24S-2996)
   
3.2 Articles of Amendment, dated August 22, 2000 (incorporated herein by reference to Exhibit 3.4 to the Company’s Form 10-Q for the quarterly period ended June 30, 2008, filed on August 14, 2008, File No. 000-21522)
   
3.3 Articles of Amendment to the Articles of Incorporation of Willamette Valley Vineyards, Inc., dated August 9, 2022.
   
3.4 Amended and Restated Bylaws of Willamette Valley Vineyards, Inc. (incorporated by reference from the Company’s Current Reports on Form 8-K filed on November 20, 2015, File No. 001-37610)
   
31.1 Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 (Filed herewith)
   
31.2 Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 (Filed herewith)
   
32.1 Certification of James W. Bernau pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
   
32.2 Certification of John Ferry pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
   
101 The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations; (iii) Condensed Statements of Shareholders’ Equity; (iv) Statements of Cash Flows; and (iv) Notes to Financial Statements, tagged as blocks of text. (Filed herewith)
   
104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 has been formatted in Inline XBRL

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SIGNATURES

 

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

 

WILLAMETTE VALLEY VINEYARDS, INC.

 

Date: August 11, 2022      By /s/ James W. Bernau  
    James W. Bernau
    Chief Executive Officer
    (Principal Executive Officer)

 

Date: August 11, 2022      By /s/ John Ferry  
    John Ferry
    Chief Financial Officer
    (Principal Accounting and Financial Officer)

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