SEC Form 10-Q filed by Willamette Valley Vineyards Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| FORM
|
EXCHANGE ACT OF 1934
For
the quarterly period ended
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission
File Number
(Exact name of registrant as specified in charter)
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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:
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Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
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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 |
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| 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
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Number of shares of common stock outstanding as of May 13, 2024:
1
WILLAMETTE VALLEY VINEYARDS, INC.
INDEX TO FORM 10-Q
2
PART I: FINANCIAL INFORMATION
Item 1 – Financial Statements
WILLAMETTE VALLEY VINEYARDS, INC.
CONDENSED
BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Income tax receivable | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Vineyard development costs, net | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right of use assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Investor deposits for preferred stock | ||||||||
| Bank overdraft | ||||||||
| Line of credit | ||||||||
| Note payable | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of lease liabilities | ||||||||
| Unearned revenue | ||||||||
| Grapes payable | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current portion and debt issuance costs | ||||||||
| Lease liabilities, net of current portion | ||||||||
| Deferred income taxes | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 9) | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Redeemable preferred stock, par value, shares authorized, shares issued and outstanding, liquidation preference $ | ||||||||
| Common stock, par value, shares authorized, shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively. | ||||||||
| Retained earnings | ||||||||
| Total shareholders’ equity | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of this condensed financial statement
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| WILLAMETTE VALLEY VINEYARDS, INC. |
| CONDENSED STATEMENTS OF OPERATIONS |
| (Unaudited) |
| Three months ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| SALES, NET | $ | $ | ||||||
| COST OF SALES | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES: | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income, net | ||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| INCOME TAX BENEFIT | ||||||||
| NET LOSS | ( | ) | ( | ) | ||||
| Accrued preferred stock dividends | ( | ) | ( | ) | ||||
| LOSS APPLICABLE TO COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | ||
| Loss per common share after preferred dividends, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted-average number of common shares outstanding, basic and diluted | ||||||||
The accompanying notes are an integral part of this condensed financial statement
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| WILLAMETTE VALLEY VINEYARDS, INC. |
| CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY |
| (Unaudited) |
| Three-Month Period Ended March 31, 2024 | ||||||||||||||||||||||||
| Redeemable | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Retained | ||||||||||||||||||||||
| Shares | Dollars | Shares | Dollars | Earnings | Total | |||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||
| Issuance of preferred stock, net | - | |||||||||||||||||||||||
| Preferred stock dividends accrued | - | - | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ||||||||||||||||||||
| Three-Month Period Ended March 31, 2023 | ||||||||||||||||||||||||
| Redeemable | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Retained | ||||||||||||||||||||||
| Shares | Dollars | Shares | Dollars | Earnings | Total | |||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||||||
| Issuance of preferred stock, net | - | |||||||||||||||||||||||
| Preferred stock dividends accrued | - | - | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||
The accompanying notes are an integral part of this condensed financial statement
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| WILLAMETTE VALLEY VINEYARDS, INC. |
| CONDENSED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash lease expense | ||||||||
| Loan fee amortization | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Income tax receivable | ( | ) | ( | ) | ||||
| Unearned revenue | ( | ) | ( | ) | ||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Grapes payable | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ||||||
| Net cash from operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Additions to vineyard development costs | ( | ) | ( | ) | ||||
| Additions to property and equipment | ( | ) | ( | ) | ||||
| Net cash from investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payment on installment note for property purchase | ( | ) | ( | ) | ||||
| Proceeds from bank overdraft | ||||||||
| Proceeds from line of credit | ||||||||
| Payment on long-term debt | ( | ) | ( | ) | ||||
| Proceeds from long-term debt | ||||||||
| Proceeds from issuance of preferred stock | ||||||||
| Net cash from financing activities | ||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS, beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Purchases of property and equipment and vineyard development costs included in accounts payable | $ | $ | ||||||
| Reduction in investor deposits for preferred stock | $ | $ | ||||||
| Accrued preferred stock dividends | $ | $ | ||||||
| Right of use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
The accompanying notes are an integral part of this condensed financial statement
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NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The accompanying unaudited interim condensed financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 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, 2023 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, 2023 (the “2023 Report”). 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 unaudited interim condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2023, as presented in the Company’s Annual Report on Form 10-K.
Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2024, or any portion thereof.
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 loss per share after preferred stock dividends are computed based on the weighted-average number of common shares outstanding each period.
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Numerator | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Accrued preferred stock dividends | ( | ) | ( | ) | ||||
| Net loss applicable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Denominator | ||||||||
| Weighted-average number of common shares outstanding basic and diluted | ||||||||
| Loss per common share after preferred dividends, basic and diluted | $ | ( | ) | $ | ( | ) | ||
Subsequent to the filing of the 2023 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.
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2) INVENTORIES
The Company’s inventories, by major classification, are summarized as follows, as of the dates shown:
| March 31, 2024 | December 31, 2023 | |||||||
| Winemaking and packaging materials | $ | $ | ||||||
| Work-in-process (costs relating to unprocessed and/or unbottled wine products) | ||||||||
| Finished goods (bottled wine and related products) | ||||||||
| Total inventories | $ | $ | ||||||
3) PROPERTY AND EQUIPMENT, NET
The Company’s property and equipment consists of the following, as of the dates shown:
| March 31, 2024 | December 31, 2023 | |||||||
| Construction in progress | $ | $ | ||||||
| Land, improvements, and other buildings | ||||||||
| Winery buildings and tasting rooms | ||||||||
| Equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended March 31, 2024 and 2023 was $
4) DEBT
Line
of Credit Facility – In December of 2005, the Company entered into a revolving line of credit agreement with Umpqua Bank (the
“Credit Agreement”) that allows borrowing up to $
The line of credit agreement includes various covenants, which among other things, requires the Company to maintain minimum amounts of tangible net worth, debt-to-equity, and debt service coverage, as defined, and limits the level of acquisitions of property and equipment. As of December 31, 2023, the Company was out of compliance with a debt covenant. The Company has received a waiver from Umpqua Bank waiving this violation until the next measurement date of December 31, 2024.
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 March 31, 2024, the Company
had a balance of $
8
Long-Term
Debt – The Company has three long term debt agreements with AgWest with an aggregate outstanding balance of $
Future minimum principal payments of long-term debt are as follows for the years ending December 31:
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ |
As
of March 31, 2024, the Company had unamortized debt issuance costs of $
5) INTEREST AND TAXES PAID
Income
taxes – The Company paid
Interest
– The Company paid $
6) SEGMENT REPORTING
The
Company has identified
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 margin, directly attributable selling expenses, and contribution margin of the segments for the three months ended March 31, 2024 and 2023. Sales figures are net of related excise taxes.
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| Direct Sales | Distributor Sales | Unallocated | Total | |||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||
| Sales, net | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of Sales | ||||||||||||||||||||||||||||||||
| Gross Profit | 2,991,011 | 2,781,716 | 2,281,711 | 1,696,747 | - | - | 5,272,722 | 4,478,463 | ||||||||||||||||||||||||
| Selling and Marketing Expenses | 3,263,381 | 3,214,501 | 504,424 | 531,741 | 259,977 | 237,338 | 4,027,782 | 3,983,580 | ||||||||||||||||||||||||
| Contribution Margin | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Percent of Sales | % | % | % | % | ||||||||||||||||||||||||||||
| General and Administration Expenses | ||||||||||||||||||||||||||||||||
| Loss from Operations | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
Direct
sales include
7) SALE OF PREFERRED STOCK
On June 11, 2021, the Company filed with the SEC an additional Prospectus Supplement to the 2020 Form S-3, pursuant to which the Company sold an aggregate of shares of its Series A Redeemable Preferred Stock for aggregate proceeds of $9,008,334 net of acquisition costs.
On July 1, 2022, the Company filed a new shelf Registration Statement on Form S-3 (the “July 2022 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 and September 1 2022, the Company filed with the SEC Prospectus Supplements to the July 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 and up to 284,995 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $1,467,729, respectively. Each of these Prospectus Supplements 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. On October 3, 2022, the Company filed with the SEC a Prospectus Supplement to the July 2022 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 233,564 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $1,226,211. This Prospectus Supplement established that our shares of preferred stock were to be sold in two offering periods with two separate offering prices beginning with an offering price of $5.25 per share and concluding with an offering of $5.35 per share. On November 1, 2022, the Company filed with the SEC a Prospectus Supplement to the July 2022 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 344,861 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $1,845,009. This Prospectus Supplement established that our shares of preferred stock were to be sold in one offering period with an offering price of $5.35 per share. Net proceeds of $3,558,807 have been received under these offerings as of March 31, 2024 for the issuance of Preferred Stock.
On June 30, 2023, the Company filed with the SEC a Prospectus Supplement to the July 2022 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 727,835 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $3,530,000. This Prospectus Supplement established that our shares of preferred stock were to be sold in two offering periods with two separate offering prices beginning with an offering price of $4.85 per share and concluding with an offering of $5.35 per share. On October 27, 2023, the Company filed with the SEC a Prospectus Supplement to the July 2022 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 288,659 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $1,400,000. This Prospectus Supplement established that our shares of preferred stock were to be sold in one offering period with an offering price of $5.35 per share. Net proceeds of $3,938,066 have been received under these offering as of March 31, 2024 for the issuance of Preferred Stock.
10
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 March 31, 2024 and December 31, 2023 was $
Dividends accrued but not paid will be added to the liquidation preference of the stock until the dividend is declared and paid. At any time after June 1, 2021, the Company 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) LEASES
We determine if an arrangement is a lease at inception. On our condensed balance sheets, 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 -
11
Operating
Leases – Non-Vineyard –
The following tables provide lease cost and other lease information:
| Three Months Ended | Three Months Ended | |||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Lease Cost | ||||||||
| Operating lease cost - Vineyards | $ | $ | ||||||
| Operating lease cost - Other | ||||||||
| Short-term lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
| Other Information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from operating leases - Vineyard | $ | $ | ||||||
| Operating cash flows from operating leases - Other | $ | $ | ||||||
| Weighted-average remaining lease term - Operating leases in years | 15.59 | 10.81 | ||||||
| Weighted-average discount rate - Operating leases | % | % | ||||||
12
Right-of-use
assets obtained in exchange for new operating lease obligations were zero and $
As of March 31, 2024, maturities of lease liabilities were as follows:
| Operating | ||||
| Years Ended December 31, | Leases | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total minimal lease payments | ||||
| Less present value adjustment | ( | ) | ||
| Operating lease liabilities | ||||
| Less current lease liabilities | ( | ) | ||
| Lease liabilities, net of current portion | $ | |||
9) COMMITMENTS AND CONTINGENCIES
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.
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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, and the reduction in consumer demand for premium wines. 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, 2023, 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.
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, 2023. Such policies were unchanged during the three months ended March 31, 2024.
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 and the Domaine Willamette Winery located near Dundee, Oregon. The Company generates revenues from the sales of wine to wholesalers and direct to consumers.
14
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 14,385 new preferred stockholders many of which the Company believes are wine enthusiasts. When considering joint ownership, we believe these new stockholders represent approximately 21,577 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 sold 43,208 and 42,387 cases of produced wine during the three months ended March 31, 2024 and 2023, respectively, an increase of 821 cases, or 2.0% in the current year period over the prior year period. The increase in wine case sales was primarily the result of having more locations and more availability of some vintages in the quarter when compared to the prior year period.
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 March 31, 2024, wine inventory included 147,351 cases of bottled wine and 658,454 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 57,908 cases during the three months ended March 31, 2024.
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 2021 Elton Pinot Noir 92 points and the 2021 Signature Cuvée Pinot Noir 91 points. He also rated the Company’s 2021 Estate Pinot Noir 91 points, Dijon Clone Chardonnay 91 points and the 2022 Pinot Gris 90 points.
Owen Bargreen rated the Company’s 2020 Domaine Willamette Méthode Traditionnelle Brut Rosé, 2022 Tualatin Estate Chardonnay, 2021 Mètis Red Blend and 2022 Dry Riesling all 92 points. Bargreen also scored the 2022 Dry Gewürztraminer at 91 points.
RESULTS OF OPERATIONS
Revenue
Sales revenue for the three months ended March 31, 2024 and 2023 was $8,803,080 and $8,308,940, respectively, an increase of $494,140, or 5.9%, in the current year period over the prior year period. This increase was caused by an increase in revenues from direct sales of $214,507 and an increase in revenues from shipments to distributors of $279,633 in the current year’s three-month period over the same period in the prior year. The increase in direct sales to consumers was primarily the result of higher wine club revenues and having an additional tasting room open in 2024 when compared to 2023. The increase in revenue from the distributors was primarily attributed to higher prices in the current year three-month period over the same period in the prior year.
Cost of Sales
Cost of sales for the three months ended March 31, 2024 and 2023 was $3,530,358 and $3,830,477, respectively, a decrease of $300,119, or 7.8%, in the current period over the prior year period. This change was primarily the result of the change in the mix of products sold in the first quarter of 2024 when compared to the same quarter in 2023.
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Gross Profit
Gross profit for the three months ended March 31, 2024 and 2023 was $5,272,722 and $4,478,463, respectively, an increase of $794,259, or 17.7%, in the first quarter of 2024 over the same quarter in the prior year. This increase was primarily the result of a combination of an increase in direct sales combined with higher margins from our sales through distributors in the first three months of the current year compared to the same period in 2023.
Gross profit as a percentage of net sales for the three months ended March 31, 2024 and 2023 was 59.9% and 53.9%, respectively, an increase of 6.0 percentage points in the current quarter over the same quarter in the prior year. The increase was primarily the result of the higher prices charged for our products sold through distributors in the current quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March 31, 2024 and 2023 was $5,875,299 and $5,453,413, respectively, an increase of $421,886, or 7.7%, 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 $44,202, or 1.1% and an increase in general and administrative expenses of $377,684, or 25.7% in the current quarter compared to the same quarter last year. Selling expenses increased in 2024 compared to 2023 primarily as a result of having an additional tasting room location in 2024. General and administrative expenses increased in the first quarter of 2024 compared to the same quarter of 2023 primarily as a result of higher legal costs.
Interest Expense
Interest expense for the three months ended March 31, 2024 and 2023 was $229,687 and $124,422, respectively, an increase of $105,265 or 84.6%, in the first quarter of 2024 over the same quarter in the prior year. The increase in interest expense for the first quarter was primarily the result of higher debt and higher interest rates compared to the first quarter of 2023.
Income Tax Benefit
The income tax benefit for the three months ended March 31, 2024 and 2023 was $212,407 and $280,963, respectively, a decrease of $68,556 or 24.4%, in the first quarter of 2024 over the same quarter in the prior year, primarily as a result of a lower pre-tax loss in the first quarter of 2024, compared to the same quarter in 2023. The Company’s estimated federal and state combined income tax rate for the three months ended March 31, 2024 and 2023 was 28.9% and 27.4% respectively.
Net Loss
Net loss for the three months ended March 31, 2024 and 2023 was $521,805 and $744,823, respectively, a decrease of $223,018, or 29.9%, in the first quarter of 2024 over the same quarter in the prior year. The decrease in net loss for the first quarter of 2024, compared to the comparable period in 2023, was primarily the result of higher prices of products sold in 2024.
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Net Loss Applicable to Common Shareholders
Net loss applicable to common shareholders for the three months ended March 31, 2024 and 2023 was $1,084,982 and $1,256,542, respectively, a decrease of $171,560, or 13.7%, in the first quarter of 2024 over the same quarter in the prior year. The decrease in loss applicable to common shareholders in the first quarter of 2024, compared to the same period of 2023, was the result of a lower net loss being partially offset by a higher accrued preferred stock dividend in the current period.
Liquidity and Capital Resources
At March 31, 2024, the Company had a working capital balance of $21.6 million and a current working capital ratio of 2.87:1.
At March 31, 2024, the Company had a cash balance of $256,472. At December 31, 2023, the Company had a cash balance of $238,482.
Total cash used for operating activities in the three months ended March 31, 2024 was $3,012,769. Cash used in operating activities for the three months ended March 31, 2024 was primarily associated with reduced grapes payable and increased inventories, being partially offset by depreciation and amortization.
Total cash used in investing activities in the three months ended March 31, 2024 was $330,298. Cash used in investing activities for the three months ended March 31, 2024 consisted of cash used on property and equipment and vineyard development costs.
Total cash generated from financing activities in the three months ended March 31, 2024 was $3,361,057. Cash generated from financing activities for the three months ended March 31, 2024 primarily consisted of proceeds from the issuance of Preferred Stock and proceeds from the line of credit and long-term debt, being partially offset by the repayment of long-term debt.
In December of 2005, the Company entered into a revolving line of credit agreement with Umpqua Bank (the “Credit Agreement”) that allows borrowing up to $2,000,000 against eligible accounts receivable and inventories, as defined in the agreement. 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. In November 2022, the Company increased the borrowing line up to $5,000,000. In July 2023 the line of credit was renewed for an additional two years. The Company had an outstanding line of credit balance of $3,320,928 at March 31, 2024, at an interest rate of 8.0%, and an outstanding line of credit balance of $2,684,982 at December 31, 2023, at an interest rate of 8.0%.
The line of credit agreement includes various covenants, which among other things, requires the Company to maintain minimum amounts of tangible net worth, debt-to-equity, and debt service coverage, as defined, and limits the level of acquisitions of property and equipment. As of December 31, 2023, the Company was out of compliance with a debt covenant. The Company has received a waiver from Umpqua Bank waiving this violation until the next measurement date of December 31, 2024.
As of March 31, 2024, the Company had a 15-year installment note payable of $1,074,712, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA.
As of March 31, 2024, the Company had a total long-term debt balance of $9,962,186, including the portion due in the next year, owed to AgWest, exclusive of debt issuance costs of $102,677. As of December 31, 2023, the Company had a total long-term debt balance of $7,590,659, exclusive of debt issuance costs of $105,989.
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.
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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 March 31, 2024 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, 2023, 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.
Item 4 - Mine Safety Disclosures
Not applicable.
Item 5 – Other Information
During the three months ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “Non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408(a) of Regulation S-K.
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Item 6 – Exhibits
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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: May 13, 2024 | By | /s/ James W. Bernau |
| James W. Bernau | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 13, 2024 | By | /s/ John Ferry |
| John Ferry | ||
| Chief Financial Officer | ||
| (Principal Accounting and Financial Officer) | ||
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