WILLAMETTE VALLEY VINEYARDS INC

Previous wording

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, 2024. Such policies were unchanged during the nine months ended September 30, 2025.

Current wording

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, 2025. Such policies were unchanged during the three months ended March 31, 2026.

Previous wording

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.

Current wording

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 growth in wine club membership. Additionally, the Company’s Preferred Stock sales since August 2015 have resulted in approximately 16,287 current preferred stockholders many of which the Company believes are wine enthusiasts are current and potential customers of the Company.

Previous wording

The Company sold 124,254 and 135,424 cases of produced wine during the nine months ended September 30, 2025 and 2024, respectively, a decrease of 11,170 cases, or 8.2% in the current year period over the prior year period. The decrease in wine case sales was the result of decreased case sales through distributors.

Current wording

The Company sold 38,892 and 31,835 cases of produced wine during the three months ended March 31, 2026 and 2025, respectively, an increase of 7,057 cases, or 22.2% in the current year period over the prior year period. The increase in wine case sales was primarily the result of having higher wholesale case sales in the current quarter when compared to the same quarter last year.

Previous wording

At September 30, 2025, wine inventory included 231,368 cases of bottled wine and 612,224 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 146,176 cases during the nine months ended September 30, 2025.

Current wording

At March 31, 2026, wine inventory included 152,337 cases of bottled wine and 681,857 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 2,587 cases during the three months ended March 31, 2026.

Previous wording

Sales revenue for the three months ended September 30, 2025 and 2024 were $8,353,200 and $9,370,713, respectively, a decrease of $1,017,513, or 10.9%, in the current year period over the prior year period. This decrease was caused bya decrease in direct sales of $384,420, and a decrease in sales through distributors of $633,093 in the current year three-month period over the prior year period. The decrease in revenue from direct sales was primarily related to lower internet and telephone sales. Sales revenue for the nine months ended September 30, 2025 and 2024 were $26,090,546 and $28,506,151, respectively, a decrease of $2,415,605, or 8.5%, in the current year period over the prior year period. This decrease was caused bya decrease in revenues from direct sales of $583,300 and a decrease in revenues from sales through distributors of $1,832,305 in the current year period over the prior year period. The decrease in revenues from sales through distributors was primarily the result of lower case sales in the current year.

Current wording

Sales revenue for the three months ended March 31, 2026 and 2025 was $8,256,153 and $7,541,583, respectively, an increase of $714,570, or 9.5%, in the current year period over the prior year period. This increase was caused by an increase in revenues from distributor sales of $797,678, being partly offset by a decrease in direct sales to consumers of $83,108 in the current year’s three-month period over the same period in the prior year. The increase in revenue from distributors was primarily attributed to higher case sales in the current year three-month period over the same period in the prior year. The decrease in direct sales to consumers was primarily the result of lower wine club and internet revenues.

Previous wording

Gross profit as a percentage of net sales for the three months ended September 30, 2025 and 2024 was 59.9% and 62.0%, respectively, a decrease of 2.1 percentage points in the current year period over the prior year period, mostly as a result of higher percentage rebates paid to distributors compared to the same quarter of 2024. Gross profit as a percentage of net sales for the nine months ended September 30, 2025 and 2024 was 61.2% and 61.6%, respectively, a decrease of 0.4 percentage points in the current year period over the prior year period. The decrease was primarily the result of higher percentage rebates paid to distributors in the first nine months of 2025 compared to the same period in the prior year.

Current wording

Gross profit as a percentage of net sales for the three months ended March 31, 2026 and 2025 was 60.9% and 63.1%, respectively, a decrease of 2.2 percentage points in the current quarter over the same quarter in the prior year. The decrease was primarily the result of a higher percentage of sales coming from distribution which has a lower gross margin combined with the mix of vintages sold in the first quarter of 2026 when compared to the same quarter in 2025.

Previous wording

Selling, general and administrative expenses for the three months ended September 30, 2025 and 2024 was $6,217,499 and $5,944,620 respectively, an increase of $272,879, or 4.6%, in the current quarter over the same quarter in the prior year. The increase was primarily the result of an increase in selling and marketing expenses of $117,582, or 2.7% and an increase in general and administrative expenses of $155,297, or 9.6% in the current quarter compared to the same quarter last year. Selling, general and administrative expense for the nine months ended September 30, 2025 and 2024 was $17,665,039 and $17,754,703, respectively, a decrease of $89,664, or 0.5%, in the current year period over the prior year period. This decrease was primarily the result of a decrease in selling and marketing expenses of $87,026, or 0.7% combined with a decrease in general and administrative expenses of $2,638, or 0.1% in the current year period compared to the same period in 2024. General and administrative expenses decreased in the first nine months of 2025 compared to the same period in the prior year primarily as a result of lower legal costs being partly offset by higher administration costs.

Current wording

Selling, general and administrative expenses for the three months ended March 31, 2026 and 2025 was $5,706,858 and $5,629,086, respectively, an increase of $77,772, or 1.4%, 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 $116,135, or 2.9% being partly offset by a decrease in general and administrative expenses of $38,363, or 2.3% in the current quarter compared to the same quarter last year.

Previous wording

The income tax benefit for the three months ended September 30, 2025 and 2024 was $444,696 and $115,177, respectively, an increase of $329,519 or 286.1%, in the third quarter of 2025 over the same quarter in the prior year mostly as a result of the higher pre-tax loss in the third quarter of 2025, compared to the same quarter in 2024. The Company’s estimated federal and state combined income tax rate was 28.9% and the three months ended September 30, 2025 and 2024. The income tax benefit for the nine months ended September 30, 2025 and 2024 was $703,664 and $247,809, respectively, an increase of $455,855 or 184.0% in the current year period over the prior year period, mostly a result of a higher pre-tax loss in the first nine months of 2025, compared to the same period in 2024. The Company’s estimated federal and state combined income tax rate was 28.9% for the nine months ended September 30, 2025 and 2024.

Current wording

The income tax benefit for the three months ended March 31, 2026 and 2025 was $193,414 and $296,742, respectively, a decrease of $103,328 or 34.8%, in the first quarter of 2026 over the same quarter in the prior year, primarily as a result of a lower pre-tax loss in the first quarter of 2026, compared to the same quarter in 2025. The Company’s estimated federal and state combined income tax rate for the three months ended March 31, 2026 and 2025 was 25.5% and 28.9% respectively.

Previous wording

Net loss for the three months ended September 30, 2025 and 2024 was $1,092,450 and $282,945, respectively, an increase of $809,505, or 286.1%, in the third quarter of 2025 over the same quarter in the prior year. Net loss for the nine months ended September 30, 2025 and 2024 was $1,728,636 and $608,772, respectively, an increase of $1,119,864, or 184.0%, in the current year period over the prior year period. The increase in net loss for the third quarter and increase in net loss for the nine months of 2025, compared to the comparable periods in 2024, was primarily the result of lower revenue in 2025.

Current wording

Net loss for the three months ended March 31, 2026 and 2025 was $565,073 and $728,981, respectively, a decrease of $163,908 or 22.5%, in the first quarter of 2026 over the same quarter in the prior year. The decrease in net loss for the first quarter of 2026, compared to the comparable period in 2025, was primarily the result of higher case sales to distributors in 2026.

Previous wording

Net loss applicable to common shareholders for the three months ended September 30, 2025 and 2024 was $1,655,627 and $846,195 respectively, an increase of $809,432, or 95.7%, in the third quarter of 2025 over the same quarter in the prior year. Net loss applicable to common shareholders for the nine months ended September 30, 2025 and 2024 was $3,418,166 and $2,298,448, respectively, an increase of $1,119,718, or 48.7%, in the current year period over the prior year period. The increase in loss applicable to common shareholders in the third quarter and the first nine months of 2025, compared to the same period of 2024, was the result of a higher net loss in the current periods.

Current wording

Net loss applicable to common shareholders for the three months ended March 31, 2026 and 2025 was $1,171,144 and $1,292,158, respectively, a decrease of $121,014, or 9.4%, in the first quarter of 2026 over the same quarter in the prior year. The decrease in loss applicable to common shareholders in the first quarter of 2026, compared to the same period of 2025, was the result of a lower net loss in the current period.

Previous wording

At September 30, 2025, the Company had a working capital balance of $25.8 million and a current working capital ratio of 3.12:1.

Current wording

At March 31, 2026, the Company had a working capital balance of $26.6 million and a current working capital ratio of 3.45:1.

Previous wording

At September 30, 2025, the Company had a cash balance of $372,566. At December 31, 2024, the Company had a cash balance of $320,883.

Current wording

At March 31, 2026, the Company had a cash balance of $404,712. At December 31, 2025, the Company had a cash balance of $410,886.

Previous wording

Total cash used for operating activities in the nine months ended September 30, 2025 was $1,445,702. Cash used in operating activities for the nine months ended September 30, 2025 was primarily associated with a net loss, as well as reduced grapes payable and increased inventory, being partially offset by depreciation and amortization and a reduction in accounts receivable.

Current wording

Total cash generated from operating activities in the three months ended March 31, 2026 was $794,947. Cash generated from operating activities for the three months ended March 31, 2026 was primarily associated with lower accounts receivables and lower inventories, being partially offset by reduced grapes payable.

Previous wording

Total cash used in investing activities in the three months ended September 30, 2025 was $312,548. Cash used in investing activities for the nine months ended September 30, 2025 consisted of cash used on equipment and vineyard development costs.

Current wording

Total cash used in investing activities in the three months ended March 31, 2026 was $70,750. Cash used in investing activities for the three months ended March 31, 2026 consisted of cash used for computer equipment and vineyard development costs.

Previous wording

Total cash generated from financing activities in the nine months ended September 30, 2025 was $1,809,933. Cash generated from financing activities for the nine months ended September 30, 2025 primarily consisted of proceeds from long-term debt and investor deposits for preferred stock partially offset by the repayment of long-term debt and the line of credit.

Current wording

Total cash used in financing activities in the three months ended March 31, 2026 was $730,371. Cash used in financing activities for the three months ended March 31, 2026 primarily consisted of payments on the line of credit and payments on long term debt, being partially offset by an increase in bank overdraft proceeds.

Previous wording

In December of 2005, the Company entered into a revolving line of credit agreement with Columbia 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 November 2022, the Company increased the borrowing line up to $5,000,000. In July 2025, the Company renewed the credit agreement until July 31, 2026. The Company had an outstanding line of credit balance of $1,164,558 at September 30, 2025, at an interest rate of 7.0%, and an outstanding line of credit balance of $2,405,815 at December 31, 2024, at an interest rate of 7.0%.

Current wording

In December of 2005, the Company entered into a revolving line of credit agreement with Columbia Bank (the “Credit Agreement”) that allows borrowing up to $2,000,000 against eligible accounts receivable and inventories, as defined in the Credit 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 November 2022, the Company increased the borrowing line up to $5,000,000. In July 2025, the Company renewed the Credit Agreement until July 31, 2026. The Company had an outstanding line of credit balance of $2,359,437 at March 31, 2026, at an interest rate of 7.0%, and an outstanding line of credit balance of $3,140,140 at December 31, 2025, at an interest rate of 7.0%.

Previous wording

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, 2024, the Company was in compliance with these financial covenants.

Current wording

The 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, 2025, the Company was out of compliance with a debt covenant. The Company has received a waiver from Columbia Bank waiving this violation until the next measurement date of December 31, 2026.

Previous wording

As of September 30, 2025, the Company had a 15-year installment note payable of $913,103, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA.

Current wording

As of March 31, 2026, the Company had a 15-year installment note payable of $854,907, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA.

Previous wording

As of September 30, 2025, the Company had a total long-term debt balance of $15,428,093, including the portion due in the next year, owed to AgWest, exclusive of debt issuance costs of $163,586. As of December 31, 2024, the Company had a total long-term debt balance of $14,042,910, exclusive of debt issuance costs of $178,908.

Current wording

As of March 31, 2026, the Company had a total long-term debt balance of $14,935,020, including the portion due in the next year, owed to AgWest, exclusive of debt issuance costs of $154,090. As of December 31, 2025, the Company had a total long-term debt balance of $15,184,395, exclusive of debt issuance costs of $158,837.