WILLAMETTE VALLEY VINEYARDS INC

Previous wording

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.

Current wording

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 which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). . 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.

Previous wording

The Company sold 91,102 and 96,269 cases of produced wine during the six months ended June 30, 2024 and 2023, respectively, a decrease of 5,167 cases, or 5.4% 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.

Current wording

The Company sold 135,424 and 143,286 cases of produced wine during the nine months ended September 30, 2024 and 2023, respectively, a decrease of 7,862 cases, or 5.5% 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.

Previous wording

At June 30, 2024, wine inventory included 183,974 cases of bottled wine and 456,315 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 138,253 cases during the six months ended June 30, 2024.

Current wording

At September 30, 2024, wine inventory included 247,003 cases of bottled wine and 304,354 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 245,193 cases during the nine months ended September 30, 2024.

Previous wording

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

Current wording

We continue to receive positive recognition through national magazines, regional publications, local newspapers and online bloggers including the accolades below.

Previous wording

The Estate in the Salem Hills clinched the award for the Best Wine Tasting Room in the country in USA Today’s 10 Best Readers’ Choice Awards. The company also received the award for #2 Best Wine Club in the nation.

Current wording

The tasting room at the Company’s Estate Winery in the Salem Hills, Oregon clinched the award for the Best Wine Tasting Room in the country in USA Today’s 10 Best Readers’ Choice Awards. The Company also received the award for #2 Best Wine Club in the nation.

Previous wording

Sales revenue for the three months ended June 30, 2024 and 2023 were $10,332,358 and $10,726,243, respectively, a decrease of $393,885, or 3.7%, in the current year period over the prior year period. This decrease was caused bya decrease in sales through distributors of $597,059 partly offset by an increase in direct sales of $203,174 in the current year three-month period over the prior year period. The decrease in revenue from sales through distributors was primarily related to lower case sales in this market. The increase in direct sales to consumers was primarily the result of opening a new tasting room in late 2023. Sales revenue for the six months ended June 30, 2024 and 2023 were $19,135,438 and $19,035,183, respectively, an increase of $100,255, or 0.5%, in the current year period over the prior year period. This increase was caused byan increase in revenues from direct sales of $417,682 partly offset by a decrease in revenues from sales through distributors of $317,427 in the current year period over the prior year period. The increase in revenues from direct sales to consumers was primarily the result of an extra tasting room in the current year. The decrease in sales through distributors was primarily the result of a decrease in off-premise sales.

Current wording

Sales revenue for the three months ended September 30, 2024 and 2023 were $9,370,713 and $9,348,066, respectively, an increase of $22,647, or 0.2%, in the current year period over the prior year period. This increase was caused byan increase in direct sales of $245,797 partly offset by a decrease in sales through distributors of $223,150 in the current year three-month period over the prior year period. The increase in direct sales to consumers in the third quarter of 2024 compared to the same quarter of 2023 was primarily the result of revenues from opening a new tasting room in late 2023. The decrease in revenue from sales through distributors was primarily related to lower case sales in this market. Sales revenue for the nine months ended September 30, 2024 and 2023 were $28,506,151 and $28,383,249, respectively, an increase of $122,902, or 0.4%, in the current year period over the prior year period. This increase was caused byan increase in revenues from direct sales of $663,479 partly offset by a decrease in revenues from sales through distributors of $540,577 in the current year period over the prior year period. The increase in revenues from direct sales to consumers in the first nine months of 2024 compared to the same period in 2023 was primarily the result of revenues from a new tasting room opened in late 2023. The decrease in sales through distributors was primarily the result of a decrease in off-premise sales.

Previous wording

Cost of Sales for the three months ended June 30, 2024 and 2023 were $3,860,668 and $4,475,665, respectively, a decrease of $614,997, or 13.7%, in the current period over the prior year period. This change was primarily the result of fewer products sold in the current quarter compared to the same quarter last year. Cost of Sales for the six months ended June 30, 2024 and 2023 were $7,391,026 and $8,306,142, respectively, a decrease of $915,116 or 11.0%, in the current period over the prior year period. This change was primarily the result of a reduction in product sales in the first six months of 2024 when compared to the same period in 2023.

Current wording

Cost of Sales for the three months ended September 30, 2024 and 2023 were $3,562,599 and $3,663,488, respectively, a decrease of $100,889, or 2.8%, in the current period over the prior year period. This change was primarily the result of fewer products sold in the current quarter compared to the same quarter last year. Cost of Sales for the nine months ended September 30, 2024 and 2023 were $10,953,625 and $11,969,630, respectively, a decrease of $1,016,005 or 8.5%, in the current period over the prior year period. This change was primarily the result of a reduction in product sales in the first nine months of 2024 when compared to the same period in 2023.

Previous wording

Gross profit as a percentage of net sales for the three months ended June 30, 2024 and 2023 was 62.6% and 58.3%, respectively, an increase of 4.3 percentage points in the current year period over the prior year period, mostly as a result of higher prices charged for products compared to the same quarter of 2023. Gross profit as a percentage of net sales for the six months ended June 30, 2024 and 2023 was 61.4% and 56.4%, respectively, an increase of 5.0 percentage points in the current year period over the prior year period. The increase was primarily the result of higher prices being charged for products and a higher percentage of sales coming from direct sales in the first six months of 2024 compared to the same period in the prior year.

Current wording

Gross profit as a percentage of net sales for the three months ended September 30, 2024 and 2023 was 62.0% and 60.8%, respectively, an increase of 1.2 percentage points in the current year period over the prior year period, mostly as a result of a higher percentage of total sales coming from direct sales, which have higher margins than sales through distributors combined with a change in product mix in the third quarter of 2024 compared to the same quarter of 2023. Gross profit as a percentage of net sales for the nine months ended September 30, 2024 and 2023 was 61.6% and 57.8%, respectively, an increase of 3.8 percentage points in the current year period over the prior year period. This increase was primarily the result of higher prices being charged for products and a higher percentage of total sales coming from direct sales in the first nine months of 2024 compared to the same period in the prior year.

Previous wording

Selling, general and administrative expenses for the three months ended June 30, 2024 and 2023 was $5,934,784 and $5,941,739 respectively, a decrease of $6,955, or 0.1%, in the current quarter over the same quarter in the prior year. This decrease was primarily the result of a decrease in selling and marketing expenses of $11,872, or 0.3% being partially offset by an increase in general and administrative expenses of $4,917, 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, 2024 and 2023 was $11,810,083 and $11,395,152, respectively, an increase of $414,931, or 3.6%, in the current year period over the prior year period. This increase was primarily the result of an increase in selling and marketing expenses of $32,330, or 0.4% combined with an increase in general and administrative expenses of $382,601, or 12.5% in the current year period compared to the same period in 2023. General and administrative expenses increased in the first six months of 2024 compared to the same period in the prior year primarily as a result of higher legal costs.

Current wording

Selling, general and administrative expenses for the three months ended September 30, 2024 and 2023 were $5,944,620 and $5,967,346 respectively, a decrease of $22,726, or 0.4%, in the current quarter over the same quarter in the prior year. This decrease was primarily the result of a decrease in selling and marketing expenses of $25,028, or 0.6% being partially offset by an increase in general and administrative expenses of $2,302, or 0.1% in the current quarter compared to the same quarter last year. Selling, general and administrative expense for the nine months ended September 30, 2024 and 2023 were $17,754,703 and $17,362,498, respectively, an increase of $392,205, or 2.3%, in the current year period over the prior year period. This increase was primarily the result of an increase in selling and marketing expenses of $7,302, or 0.1% combined with an increase in general and administrative expenses of $384,903, or 8.2% in the current year period compared to the same period in 2023. General and administrative expenses increased in the first nine months of 2024 compared to the same period in the prior year primarily as a result of higher legal costs.

Previous wording

Interest expense for the three months ended June 30, 2024 and 2023 was $263,694 and $164,610, respectively, an increase of $99,084 or 60.2%, in the second quarter of 2024 over the same quarter in the prior year. Interest expense for the six months ended June 30, 2024 and 2023 was $493,381 and $289,032, respectively, an increase of $204,349 or 70.7%, in the current year period over the prior year period. The increase in interest expense for the second quarter and first six months of 2024 was primarily the result of increased debt compared to the second quarter and first six months of 2023.

Current wording

Interest expense, net for the three months ended September 30, 2024 and 2023 were $257,192 and $171,272, respectively, an increase of $85,920 or 50.2%, in the third quarter of 2024 over the same quarter in the prior year. Interest expense, net for the nine months ended September 30, 2024 and 2023 were $750,573 and $460,309, respectively, an increase of $290,264 or 63.1%, in the current year period over the prior year period. The increase in interest expense for the third quarter and first nine months of 2024 was primarily the result of increased debt compared to the third quarter and first nine months of 2023.

Previous wording

The income tax expense for the three months ended June 30, 2024 and 2023 was $79,775 and $40,911, respectively, an increase of $38,864 or 95.0%, in the second quarter of 2024 over the same quarter in the prior year mostly as a result of the higher pre-tax income in the second quarter of 2024, compared to the same quarter in 2023. The Company’s estimated federal and state combined income tax rate was 28.9% and 27.4% for the three months ended June 30, 2024 and 2023, respectively. The income tax benefit for the six months ended June 30, 2024 and 2023 was $132,632 and $240,052, respectively, a decrease of $107,420 or 44.7% in the current year period over the prior year period, mostly a result of lower pre-tax loss in the first six months of 2024, compared to the same period in 2023. The Company’s estimated federal and state combined income tax rate was 28.9% and 27.4% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

The income tax benefit for the three months ended September 30, 2024 and 2023 was $115,177 and $123,344, respectively, a decrease of $8,167 or 6.6%, in the third quarter of 2024 over the same quarter in the prior year mostly as a result of the lower pre-tax loss in the third quarter of 2024, compared to the same quarter in 2023. The Company’s estimated federal and state combined income tax rate was 28.9% and 27.4% for the three months ended September 30, 2024 and 2023, respectively. The income tax benefit for the nine months ended September 30, 2024 and 2023 was $247,809 and $363,396, respectively, a decrease of $115,587 or 31.8% in the current year period over the prior year period, mostly a result of the lower pre-tax loss in the first nine months of 2024, compared to the same period in 2023. The Company’s estimated federal and state combined income tax rate was 28.9% and 27.4% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Net income for the three months ended June 30, 2024 and 2023 was $195,978 and $108,453, respectively, an increase of $87,525, or 80.7%, in the second quarter of 2024 over the same quarter in the prior year. Net loss for the six months ended June 30, 2024 and 2023 was $325,827 and $636,370, respectively, a decrease of $310,543, or 48.8%, in the current year period over the prior year period. The increase in net income for the second quarter and decrease in net loss for the first half of 2024, compared to the comparable periods in 2023, was primarily the result of higher prices for products sold in 2024.

Current wording

Net loss for the three months ended September 30, 2024 and 2023 was $282,945 and $326,982, respectively, a decrease of $44,037, or 13.5%, in the third quarter of 2024 over the same quarter in the prior year. Net loss for the nine months ended September 30, 2024 and 2023 was $608,772 and $963,352, respectively, a decrease of $354,580, or 36.8%, in the current year period over the prior year period. The decrease in the net loss for the third quarter and the first nine months of 2024, compared to the comparable periods in 2023, was primarily the result of higher prices for products sold in 2024.

Previous wording

Net loss applicable to common shareholders for the three months ended June 30, 2024 and 2023 was $367,271 and $403,267, respectively, a decrease of $35,996, or 8.9%, in the second quarter of 2024 over the same quarter in the prior year. Net loss applicable to common shareholders for the six months ended June 30, 2024 and 2023 was $1,452,253 and $1,659,809, respectively, a decrease of $207,556, or 12.5%, in the current year period over the prior year period. The decrease in loss applicable to common shareholders in the second quarter and the first six months 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.

Current wording

Net loss applicable to common shareholders for the three months ended September 30, 2024 and 2023 was $846,195 and $838,701, respectively, an increase of $7,494, or 0.9%, in the third quarter of 2024 over the same quarter in the prior year, mostly as a result of a lower net loss being more than offset by a higher accrued preferred stock dividend in the third quarter of 2024 compared to the same period of 2023. Net loss applicable to common shareholders for the nine months ended September 30, 2024 and 2023 was $2,298,448 and $2,498,510, respectively, a decrease of $200,062, or 8.0%, in the current year period over the prior year period. The decrease in loss applicable to common shareholders in the first nine months 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.

Previous wording

At June 30, 2024, the Company had a working capital balance of $22.8 million and a current working capital ratio of 3.08:1.

Current wording

At September 30, 2024, the Company had a working capital balance of $22.6 million and a current working capital ratio of 2.85:1.

Previous wording

At June 30, 2024, the Company had a cash balance of $279,807. At December 31, 2023, the Company had a cash balance of $238,482.

Current wording

At September 30, 2024, the Company had a cash balance of $303,195. At December 31, 2023, the Company had a cash balance of $238,482.

Previous wording

Total cash used for operating activities in the six months ended June 30, 2024 was $2,212,072. Cash used in operating activities for the six months ended June 30, 2024 was primarily associated with reduced grapes payable and increased inventories, being partially offset by depreciation and amortization.

Current wording

Total cash used for operating activities in the nine months ended September 30, 2024 was $2,159,828. Cash used in operating activities for the nine months ended September 30, 2024 was primarily associated with reduced grapes payable and increased inventories, being partially offset by depreciation and amortization.

Previous wording

Total cash used in investing activities in the three months ended June 30, 2024 was $1,188,276. Cash used in investing activities for the six months ended June 30, 2024 consisted of cash used on property and equipment and vineyard development costs.

Current wording

Total cash used in investing activities in the three months ended September 30, 2024 was $1,655,152. Cash used in investing activities for the nine months ended September 30, 2024 consisted of cash used on property and equipment and vineyard development costs.

Previous wording

Total cash generated from financing activities in the six months ended June 30, 2024 was $3,441,673. Cash generated from financing activities for the six months ended June 30, 2024 primarily consisted of proceeds from the issuance of Preferred Stock and proceeds from long-term debt, being partially offset by the repayment of long-term debt.

Current wording

Total cash generated from financing activities in the nine months ended September 30, 2024 was $3,879,693. Cash generated from financing activities for the nine months ended September 30, 2024 primarily consisted of proceeds from the issuance of Preferred Stock and proceeds from long and short debt, being partially offset by the repayment of long-term debt.

Previous wording

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 $2,334,415 at June 30, 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%.

Current wording

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 collateral, 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 $3,460,004 at September 30, 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%.

Previous wording

As of June 30, 2024, the Company had a 15-year installment note payable of $1,049,587, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA.

Current wording

As of September 30, 2024, the Company had a 15-year installment note payable of $1,022,778, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA.

Previous wording

As of June, 2024, the Company had a total long-term debt balance of $10,832,629, including the portion due in the next year, owed to AgWest, exclusive of debt issuance costs of $99,365. 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.

Current wording

As of September, 2024, the Company had a total long-term debt balance of $10,701,405, including the portion due in the next year, owed to AgWest, exclusive of debt issuance costs of $96,054. 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.