What changed in this filing

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Item 1. Financial Statements

2021-11-12 compared with 2021-08-12 · 273 added, 272 removed, 413 unchanged (57% of the section changed)

1 unchanged sentence

VALLEY VINEYARDS, INC.

CONDENSED BALANCE SHEETS

BALANCE SHEETS

September 30,

CURRENT ASSETS

1 unchanged sentence

Accounts receivable, net

Inventories (Note 2)

Prepaid expenses and other current assets

2 unchanged sentences

Vineyard development costs, net

Property and equipment, net (Note 3)

Property and equipment, net

Operating lease right of use assets

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Total liabilities

COMMITMENTS AND CONTINGENCIES (Note 9)

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS EQUITY

Redeemable preferred stock, no par value, 10,000,000 shares authorized, 6,564,923 shares issued and outstanding, liquidation preference $ 27,966,572 , at June 30, 2021 and 6,309,508 shares issued and outstanding, liquidation preference $ 26,184,458 , at December 31, 2020.

Common stock, no par value, 10,000,000 shares authorized, 4,964,529 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively.

Redeemable preferred stock, no par value, 10,000,000 shares authorized, 6,564,923 shares issued and outstanding, liquidation preference $ 28,327,643 , at September 30, 2021 and 6,309,508 shares issued and outstanding, liquidation preference $ 26,184,458 , at December 31, 2020.

Common stock, no par value, 10,000,000 shares authorized, 4,964,529 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.

Retained earnings

5 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

COST OF SALES

7 unchanged sentences

Interest expense

Other income (expense), net

Other income, net

INCOME BEFORE INCOME TAXES

1 unchanged sentence

Accrued preferred stock dividends

( 1,083,213 )

INCOME APPLICABLE TO COMMON SHAREHOLDERS

Earnings per common share after preferred dividends, basic and diluted

Weighted-average number of common shares outstanding

common share after preferred dividends, basic and diluted

Weighted-average number of common

shares outstanding

accompanying notes are an integral part of this financial statement

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CONDENSED STATEMENTS OF SHAREHOLDERS EQUITY

Six-Month Period Ended June 30, 2021

Nine-Month Period Ended September 30, 2021

Preferred Stock

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Balance at June 30, 2021

Six-Month Period Ended June 30, 2020

Stock compensation expense

Preferred stock dividends accrued

Balance at September 30, 2021

Nine-Month Period Ended September 30, 2020

Preferred Stock

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Balance at June 30, 2020

Preferred stock dividends accrued

Balance at September 30, 2020

accompanying notes are an integral part of this financial statement

VALLEY VINEYARDS, INC.

OF CASH FLOWS

Six months ended June 30,

STATEMENTS OF CASH FLOWS

Nine months ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

4 unchanged sentences

Loan fee amortization

Stock compensation expense

Change in operating assets and liabilities:

Accounts receivable

( 1,613,116 )

Prepaid expenses and other current assets

2 unchanged sentences

Grapes payable

( 1,307,165 )

Accounts payable

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CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from Paycheck Protection Program

Payments on Paycheck Protection Program

( 1,655,200 )

Payment on installment note for property purchase

4 unchanged sentences

NET CHANGE IN CASH AND CASH EQUIVALENTS

( 1,146,589 )

CASH AND CASH EQUIVALENTS, beginning of period

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NON-CASH INVESTING AND FINANCING ACTIVITIES

Purchases of property and equipment

and vineyard development costs included in accounts payable

Purchases of property and equipment and vineyard development costs included in

accounts payable

Reduction in investor deposits for preferred stock

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BASIS OF PRESENTATION

accompanying unaudited interim financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020

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, 2020 is derived from the audited financial statements presented in

the Willamette Valley Vineyards, Inc.

accompanying unaudited interim financial statements as of September 30, 2021 and for the three and nine months ended September 30, 2021

and 2020 have been prepared in conformity with accounting principles generally accepted in the United States (U.S.

for interim financial statements.

The financial information as of December 31, 2020 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

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 Companys audited

financial statements for the year ended December 31, 2020, as presented in the Companys Annual Report on Form 10-K.

results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the entire

year ending December 31, 2021, or any portion thereof.

The COVID-19 pandemic and restrictions imposed by

federal, state, and local governments in response to the outbreak have disrupted and will continue to disrupt our business.

of Oregon, where we operate the Winery and most of our vineyards, in response to the COVID-19 pandemic individuals are being encouraged

to practice social distancing, which when combined with any future orders could adversely affect our sales revenues and consequently

impact our liquidity, financial condition and results of operations.

Even after orders are loosened or lifted, the impact of lost wages

due to COVID-19 related unemployment may dampen consumer spending for some time in the future.

31, 2020 (the 2020 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 financial statements should be read

in conjunction with the Companys audited financial statements for the year ended December 31, 2020, as presented in the Companys

Annual Report on Form 10-K.

results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for

the entire year ending December 31, 2021, or any portion thereof.

The COVID-19 pandemic and restrictions

imposed by federal, state, and local governments in response to the outbreak have disrupted and will continue to disrupt our business.

In the State of Oregon, where we operate the Companys winery in Turner, Oregon, and most of our vineyards, in response to the

COVID-19 pandemic individuals are being encouraged to practice social distancing, which when combined with any future orders could adversely

affect our sales revenues and consequently impact our liquidity, financial condition and results of operations.

Even after orders are

loosened or lifted, the impact of lost wages due to COVID-19 related unemployment may dampen consumer spending for some time in the future.

Companys operations could be further disrupted if a significant number of employees are unable or unwilling to work, whether because

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of Earnings Per Share

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Accrued preferred stock dividends

( 1,083,213 )

Net income applicable to common shares

Weighted-average common shares outstanding

Earnings per common share after preferred dividends

Earnings per common share after preferred dividends - basic and diluted

to the filing of the 2020 Report there were no accounting pronouncements issued by the Financial Accounting Standards Board (FASB)

that would have a material effect on the Companys unaudited interim condensed financial statements.

The following provides an update

of new accounting pronouncements applicable to the Company as of June 30, 2021.

The following provides an

update of new accounting pronouncements applicable to the Company as of September 30, 2021.

Standard Update (ASU) 2019-12, Income Taxes (Topic 740), Update (ASU) 2019-12, Income Taxes (Topic 740).

standard simplifies the accounting for income taxes by removing certain Codification exceptions and others to be discussed.

adopted on January 1, 2021, and Management does not believe there will be a significant impact.

This standard simplifies the accounting for income taxes by removing certain Codification exceptions and others to be discussed.

This was adopted on January 1, 2021, and Management does not believe there will be a significant impact.

Companys inventories, by major classification, are summarized as follows, as of the dates shown:

Schedule of Inventory

June 30, 2021

Schedule of Inventories

September 30, 2021

December 31, 2020

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Schedule of Property and Equipment, Net

June 30, 2021

September 30, 2021

December 31, 2020

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Property and equipment, net

expense for the six months ended June 30, 2021 and 2020 was $ 818,116 and $ 795,428 , respectively.

Depreciation expense for the 3 months

ended June 30, 2021 and 2020 was $ 406,759 and $ 402,118 , respectively.

expense for the nine months ended September 30, 2021 and 2020 was $ 1,230,459 and $ 1,176,207 , respectively.

Depreciation expense for the

3 months ended September 30, 2021 and 2020 was $ 446,033 and $ 394,859 , respectively.

of Credit Facility – In December of 2005, the Company entered into a revolving line of credit agreement with Umpqua Bank that

would have allowed borrowing up to $2,000,000 against eligible accounts receivable and inventories, as defined in the agreement at June

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 2019, the Company renewed the credit agreement until July 31, 2021.

At June 30, 2021 and December 31, 2020, there was no outstanding

balance on this revolving line of credit.

The line of credit has subsequently been renewed for an additional two years.

In July 2021,

the Company renewed the credit agreement until July 31, 2023.

At September 30, 2021 and December 31, 2020, there was no outstanding balance

on this revolving line of credit.

line of credit agreement includes various covenants, which among other things;

require the Company to maintain minimum amounts of tangible

net worth, debt/worth ratio, and debt service coverage, as defined.

As of June 30, 2021, the Company was in compliance with these financial

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%.

be called by the owner, up to the outstanding balance, with 180 days written notice.

As of June 30, 2021, the Company had a balance of

$ 1,340,724 due on this note.

require the Company to maintain a minimum current ratio,

debt to tangible net worth, and debt service coverage, as defined.

As of September 30, 2021, the Company was in compliance with these

financial covenants.

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

The note may be called by the owner, up to the outstanding balance, with 180 days written notice.

As of September 30, 2021, the

Company had a balance of $1,318,301 due on this note.

As of December 31, 2020, the Company had a balance of $1,384,581 due on this note.

Debt – The Company has two long-term debt agreements with Farm Credit Services (FCS) with an aggregate outstanding balance

of $ 5,762,086 and $ 5,984,272 as of June 30, 2021 and December 31, 2020, respectively.

of $ 5,649,703 and $ 5,984,272 as of September 30, 2021 and December 31, 2020, respectively.

The outstanding loans require monthly

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loan agreements contain covenants, which require the Company to maintain certain financial ratios and balances.

At June 30, 2021, the

Company was in compliance with these covenants.

In the event of future noncompliance with the Companys 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.

of June 30, 2021, the Company had unamortized debt issuance costs of $ 139,107 .

As of December 31, 2020, the Company had unamortized debt

issuance costs of $ 145,731 .

Company obtained a $5,000,000 commercial loan commitment from Farm Credit Services, which is intended to provide the Company with additional

liquidity in the event the Company was to experience operating losses from sales disruptions due to the COVID-19 pandemic.

Commitment came into effect in July 2020 and was closed in May 2021.

At September 30, 2021,

the Company was in compliance with these covenants.

In the event of future noncompliance with the Companys 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.

of September 30, 2021, the Company had unamortized debt issuance costs of $ 135,796 .

As of December 31, 2020, the Company had unamortized

debt issuance costs of $ 145,731 .

Company believes that cash flow from operations and funds available under the Companys existing credit facilities will be sufficient

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INTEREST AND TAXES PAID

taxes – The Company paid $ 40,000 and zero tax in income taxes for the three months ended June 30, 2021 and 2020, respectively.

The Company paid $ 40,000 and zero in income taxes for the six months ended June 30, 2021 and 2020, respectively.

– The Company paid $ 95,052 and $ 101,288 for the three months ended June 30, 2021 and 2020, respectively, in interest on long-term

The Company paid $ 190,783 and $ 204,455 for the six months ended June 30, 2021 and 2020, respectively, in interest on long-term

taxes – The Company paid $ 245,000 and $ 578,000 tax in income taxes for the three months ended September 30, 2021 and 2020,

respectively.

The Company paid $ 285,000 and $ 578,000 in income taxes for the nine months ended September 30, 2021 and 2020, respectively.

– The Company paid $ 93,234 and $ 90,165 for the three months ended September 30, 2021 and 2020, respectively, in interest on long-term

The Company paid $ 284,017 and $ 294,620 for the nine months ended September 30, 2021 and 2020, respectively, in interest on long-term

SEGMENT REPORTING

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following table outlines the sales, cost of sales, gross margin, directly attributable selling expenses, and contribution margin of the

segments for the three and six month periods ending June 30, 2021 and 2020.

segments for the three and nine month periods ending September 30, 2021 and 2020.

Sales figures are net of related excise taxes.

of Revenue by Reporting Segments

Three Months Ended June 30,

Distributor Sales

Months Ended September 30,

Cost of sales

Selling expenses

Contribution margin

Percent of sales

General and administration

Income from operations

Six Months Ended June 30,

Distributor Sales

and administration

from operations

Months Ended September 30,

Cost of sales

Selling expenses

Contribution margin

Percent of sales

General and administration

Income from operations

sales include no bulk wine sales in the three months ended June 30, 2021 and 2020.

Direct sales include zero and $ 28,734 of bulk wine

sales in the six months ended June 30, 2021 and 2020, respectively.

and administration

from operations

sales include no bulk wine sales in the three months ended September 30, 2021 and 2020.

Direct sales include zero and $ 28,734 of bulk

wine sales in the nine months ended September 30, 2021 and 2020, respectively.

SALE OF PREFERRED STOCK

January 24, 2020, the Company filed a shelf Registration Statement on 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 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 additional shares of Series A Redeemable Preferred Stock

having proceeds not to exceed $9,300,000.

This stock was established to be sold in four offering periods beginning with an offering price

of $ 4.85 per share and concluding at $ 5.15 per share.

As of June 30, 2021, the Company concluded $8,510,172 in stock sales, net

of acquisition costs, under this agreement.

June 11, 2021, 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 2,118,811 additional shares of Series A Redeemable Preferred Stock having

proceeds not to exceed $10,700,000.

Net proceeds of $110,477 have been received under this offering and no shares have been issued.

January 24, 2020, the Company filed a shelf Registration Statement on 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 September 30, 2021, 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.

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.

Net proceeds of $2,899,346 have been received under this offering as of September, 30

2021 for the issuance of Preferred Stock.

accrued but not paid will be added to the liquidation preference of the stock until the dividend is declared and paid.

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The lease contains an escalation provision with a cap at 3% per year.

The Company has exercised the first one year renewal option.

January 2019, the Company assumed a lease, with four remaining years, for its Maison Bleue tasting room in Walla Walla, Washington.

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Three Months Ended

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Operating lease cost - Vineyards

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Weighted-average discount rate - Operating leases

of June 30, 2021, maturities of lease liabilities were as follows:

of September 30, 2021, maturities of lease liabilities were as follows:

of Maturities of Lease Liabilities

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but, due to the nature of litigation, the ultimate outcome of any potential actions cannot presently be determined.

Purchases – The Company has entered into long-term grape purchase agreements with a number of Willamette Valley wine grape

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.

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.

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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the year ended December 31, 2020.

Such policies were unchanged during the six months ended June 30, 2021.

Such policies were unchanged during the nine months ended September 30, 2021.

Company, one of the largest wine producers in Oregon by volume, believes its success is dependent upon its ability to:

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Companys wines are made from grapes grown in vineyards owned, leased or contracted by the Company, and from grapes purchased

from other nearby vineyards.

The grapes are harvested, fermented and made into wine primarily at the Companys winery in

Turner Oregon (the Winery) and the wines are sold principally under the Companys Willamette Valley Vineyards

label, but also under the Griffin Creek, Pambrun, Elton, Maison Bleue, Metis, Natoma, Elton and Tualatin Estates labels.

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.

from other vineyards.

The grapes are harvested, fermented and made into wine primarily at the Companys winery in Turner

Oregon (the Winery) and the wines are sold principally under the Companys Willamette Valley Vineyards label,

but also under the Griffin Creek, Pambrun, Elton, Maison Bleue, Metis, Natoma, Elton, Domaine Willamette and Tualatin Estates

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.

to consumer sales primarily include sales through the Companys tasting rooms, telephone, internet and wine club.

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When considering joint ownership, we believe these new stockholders represent

approximately 12,000 potential customers of the Company.

approximately 12,000 current and potential customers of the Company.

Periodically,

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however this is not a significant part of the Companys activities.

The Company had no bulk wine sales for the six months

ended June 30, 2021 and $28,734 in bulk wine sales for the same period of 2020.

Company sold 98,420 and 83,435 cases of produced wine during the six months ended June 30, 2021 and 2020, respectively, an increase

of 14,985 cases, or 18.0% in the current year period over the prior year period.

The increase in wine case sales was primarily

the result of increased direct case sales as well as increased case sales through distributors.

The Company had no bulk wine sales for the nine months

ended September 30, 2021 and $28,734 in bulk wine sales for the same period of 2020.

Company sold 145,153 and 130,705 cases of produced wine during the nine months ended September 30, 2021 and 2020, respectively,

an increase of 14,448 cases, or 11.1% in the current year period over the prior year period.

The increase in wine case sales

was primarily the result of increased direct case sales as well as increased case sales through distributors.

of sales includes grape costs, whether purchased or grown at Company vineyards, winemaking and processing costs, bottling, packaging,

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of vineyard development costs.

At June 30, 2021, wine inventory included 118,885 cases

of bottled wine and 198,585 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 110,674 cases during the six months ended

June 30, 2021.

At September 30, 2021, wine inventory included

135,129 cases of bottled wine and 326,685 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 173,319 cases during

the nine months ended September 30, 2021.

Valley Vineyards continues to receive positive recognition through national magazines, regional publications, local newspapers

and online bloggers.

Enthusiast awarded the Companys 2020 Whole Cluster Pinot Noir with 91 points and Editors Choice, the 2020

Whole Cluster Rosé of Pinot Noir with 90 points and the 2019 Founders Reserve Pinot Noir with 90 points.

James Suckling awarded the Companys 2018 Elton Pinot Noir with 93 points,

the 2018 Fuller Pinot Noir with 93 points, the 2018 Estate Pinot Noir with 91 points, the 2018 Tualatin Estate Pinot Noir with

91 points, the 2018 OBrien Pinot Noir with 91 points and the 2018 Bernau Block Pinot Noir with 90 points.

Wine & Spirits awarded the Companys 2019 Estate Chardonnay with 90 points and the 2018 Dijon Clone Chardonnay

with 90 points.

The Companys 2018 Estate Pinot Noir was awarded a gold medal and 91 points from the

2021 Sunset International Wine Competition.

The Companys Estate Pinot Noir, Whole Cluster Pinot Noir, Whole Cluster Rosé

of Pinot Noir, Pinot Gris and Méthode Champenoise Brut were featured in various episodes of Season 18 of Bravos Top

Chef , and the season finale was hosted at the Companys Estate in the Salem Hills.

and online bloggers including the accolades below.

International Wine Report awarded the Companys 2018 Bernau Block Pinot Noir with 90 points, 2019 Estate Pinot Noir with

a 90 points, 2019 Estate Chardonnay with 91 points and Estate Rose of Pinot Noir with 91 points,

Wine Panel awarded the Companys 2019 Estate Pinot Noir with 91 points, 2020 Pinot Gris with 93 points and 2019

White Pinot Noir with 90 points,

Press Northwest described the 2020 Whole Cluster Rose of Pinot Noir with a Unanimously Outstanding!

Companys 2020 Whole Cluster Pinot Noir was featured in an article by Wine Enthusiast called, In Oregons

Willamette Valley, Elegant Pinot Noir for Less than $40, with the wines 90 point score included.

of COVID-19 on Operations

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the exception of key operations personnel, we have shifted our office staff to remote workstations, and we expect we will continue

to operate remotely until state and local government restrictions have been lifted and management determines it is safe for employees

to return to offices.

Far exceeding the required Oregon Healthy Authority protocols, a new state-of-the-art UV light filtration

has been installed in the Companys HVAC system to reduce harmful viruses in the air at its tasting room locations and staff

to operate remotely until management determines it is safe for employees to return to offices.

Far exceeding the required Oregon

Healthy Authority protocols, a new state-of-the-art UV light filtration has been installed in the Companys HVAC system

to reduce harmful viruses in the air at its tasting room locations and staff offices.

have not yet experienced significant disruptions to our supply chain network;

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In response to the previous closure

and capacity restrictions on our tasting rooms, the Company launched curbside pick-ups, and complimentary shipping specials with

minimum purchase, which have been able to more than mitigate the expected declines in direct to consumer sales.

of, and capacity restrictions in, our tasting rooms, the Company launched curbside pick-ups, and complimentary shipping specials

with minimum purchase, which were able to more than offset the expected declines in direct to consumer sales.

Additionally,

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RESULTS OF OPERATIONS

revenue for the three months ended June 30, 2021 and 2020 were $8,949,951 and $5,568,654, respectively, an increase of $3,381,297,

revenue for the three months ended September 30, 2021 and 2020 were $7,641,228 and $6,918,131, respectively, an increase of $723,097,

or 10.5%, in the current year period over the prior year period.

This increase was caused by an

increase in sales through distributors of $2,434,315 and an increase in direct sales of $946,982 in the current year three-month

increase in direct sales of $699,172 and an increase in direct sales through distributors of $23,925 in the current year three-month

period over the prior year period.

The increase in direct sales to consumers was primarily the result of retail sales increases

in tasting room revenue, phone sales and wine club sales.

The increase in revenue from sales through distributors was primarily

attributed to higher chain sales and the timing of orders between the first and second quarters.

Sales revenue for the six months

ended June 30, 2021 and 2020 were $14,715,289 and $12,090,549, respectively, an increase of $2,624,740, or 21.7%, in the current

year period over the prior year period.

This increase was mainly caused by an

increase in revenues from direct sales of $1,300,854 and an increase in revenues from sales through distributors of $1,323,886

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 phone sales, wine club and internet sales.

The increase in sales through distributors was primarily the

result of an increase in off-premise sales.

of Sales for the three months ended June 30, 2021 and 2020 were $3,810,228 and $2,067,122, respectively, an increase of $1,743,106,

The increase in direct sales to consumers was primarily the result of increased revenue

from tasting room sales, phone sales and wine club sales.

Sales revenue for the nine months ended September 30, 2021 and 2020

were $22,356,517 and $19,008,680, respectively, an increase of $3,347,837, or 17.6%, in the current year period over the prior

This increase was mainly caused by an increase in revenues

from direct sales of $2,000,026 and an increase in revenues from sales through distributors of $1,347,811 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 phone sales, wine club and internet sales.

The increase in sales through distributors was primarily the result of an

increase in off-premise sales.

of Sales for the three months ended September 30, 2021 and 2020 were $3,179,590 and $2,696,934, respectively, an increase of $482,656,

or 17.9%, in the current period over the prior year period.

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mix of vintages sold in 2021.

Cost of Sales for the six months ended June 30, 2021 and 2020 were $6,081,999 and $4,676,975, respectively,

an increase of $1,405,024 or 30.0%, in the current period over the prior year period.

This change was primarily the result of

an increase in sales in 2021 and the mix of sales channels and vintages sold between the two periods.

profit as a percentage of net sales for the three months ended June 30, 2021 and 2020 was 57.4% and 62.9%, respectively, a decrease

of 5.5 percentage points in the current year period over the prior year period mostly as a result of the mix of sales and an increased

percentage of total sales coming from sales to distributors in the second quarter of 2021 compared to the same quarter of 2020.

Gross profit as a percentage of net sales for the six months ended June 30, 2021 and 2020 was 58.7% and 61.3%, respectively, a

decrease of 2.6 percentage points in the current year period over the prior year period.

This decrease was primarily the result

of the mix of sales between direct sales channels in the periods

Cost of Sales for the nine months ended September 30, 2021 and 2020 were $9,261,589 and $7,373,909,

respectively, an increase of $1,887,680 or 25.6%, in the current period over the prior year period.

This change was primarily

the result of an increase in sales in 2021 and the mix of sales channels and vintages sold between the two periods.

Gross profit as a percentage of net sales for the three

months ended September 30, 2021 and 2020 was 58.4% and 61.0%, respectively, a decrease of 2.6 percentage points in the current year period

over the prior year period mostly as a result of higher cost vintages produced in 2020 that were sold in 2021.

Gross profit as a percentage

of net sales for the nine months ended September 30, 2021 and 2020 was 58.6% and 61.2%, respectively, a decrease of 2.6 percentage points

in the current year period over the prior year period.

This decrease was primarily the result of higher cost vintages produced in 2020

and sold in 2021 combined with the mix of products sold in the period.

General and Administrative Expenses

general and administrative expense for the three months ended June 30, 2021 and 2020 was $3,602,129 and $2,555,958 respectively,

general and administrative expense for the three months ended September 30, 2021 and 2020 was $3,768,765 and $2,917,363 respectively,

an increase of $851,402, or 29.2%, in the current quarter over the same quarter in the prior year.

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Selling, general and administrative expense

for the six months ended June 30, 2021 and 2020 was $6,919,687 and $5,385,462, respectively, an increase of $1,534,225, or 28.5%,

in the current year period over the prior year period.

This increase was primarily the result of an increase in selling expenses

of $989,751, or 29.4% and an increase in general and administrative expenses of $544,474, or 26.9% in the current year period

compared to the same period in 2020.

Selling expenses increased in both the first half and second quarter of 2021 compared to

the same periods in 2020 primarily as a result of more sales coming from tasting rooms which were open for more days in 2021,

combined with higher labor costs.

General and administrative expenses increased in the second quarter of 2021 compared to the

same quarter of 2020 primarily a result of more maintenance costs and professional fees and increased for the six months ended

June 30, 2021 compared to the same period in 2020, primarily as a result of increased maintenance and compensation related costs

for the nine months ended September 30, 2021 and 2020 was $10,688,452 and $8,302,825, respectively, an increase of $2,385,627,

or 28.7%, in the current year period over the prior year period.

This increase was primarily the result of an increase in selling

expenses of $1,448,919, or 27.7% and an increase in general and administrative expenses of $936,708, or 30.6% in the current year

period compared to the same period in 2020.

Selling expenses increased in both the third quarter and nine months of 2021 compared

to the same periods in 2020 primarily as a result of our tasting rooms being open for more days in 2021 compared to 2020 resulting

in higher labor and related costs associated with operating the tasting rooms.

General and administrative expenses increased in

the third quarter of 2021 compared to the same quarter of 2020 primarily a result of more maintenance costs and professional fees

and increased for the nine months ended September 30, 2021 compared to the same period in 2020, primarily as a result of increased

maintenance and compensation related costs compared to the same period in 2020.

expense for the three months ended September 30, 2021 and 2020 was $96,473 and $103,283, respectively, a decrease of $6,810 or

6.6%, in the third quarter of 2021 over the same quarter in the prior year.

Interest expense for the nine months ended September

30, 2021 and 2020 was $293,548 and $314,158, respectively, a decrease of $20,610 or 6.6%, in the current year period over the

prior year period.

The decrease in interest expense for the third quarter and nine months of 2021 compared to the same periods

in 2020 was primarily the result of decreased debt in the current period compared to the third quarter and nine months of 2020.

income tax expense for the three months ended September 30, 2021 and 2020 was $172,256 and $343,464, respectively, a decrease

of $171,208 or 49.8%, in the third quarter of 2021 compared to the same quarter in the prior year as a result of lower pre-tax

income in the third quarter of 2021, compared to the same quarter in 2020.

The Companys estimated federal and state combined

income tax rate was 27.4% and 27.7% for the three months ended September 30, 2021 and 2020, respectively.

The income tax expense

for the nine months ended September 30, 2021 and 2020 was $624,839 and $869,230, respectively, a decrease of $244,391 or 28.1%,

in the current year period over the prior year period mostly a result of lower pre-tax income in the first nine months of 2021,

compared to the same period in 2020.

expense for the three months ended June 30, 2021 and 2020 was $97,499 and $105,133, respectively, a decrease of $7,634 or 7.3%,

in the second quarter of 2021 over the same quarter in the prior year.

Interest expense for the six months ended June 30, 2021

and 2020 was $197,075 and $210,875, respectively, a decrease of $13,800 or 6.5%, in the current year period over the prior year

The decrease in interest expense for the second quarter and first six months of 2021 was primarily the result of decreased

debt in the current period compared to the second quarter and first six months of 2020.

income tax expense for the three months ended June 30, 2021 and 2020 was $406,304 and $231,533, respectively, an increase of $174,771

or 75.5%, in the second quarter of 2021 over the same quarter in the prior year mostly as a result of higher pre-tax income in

the second quarter of 2021, compared to the same quarter in 2020.

The Companys estimated federal and state combined income

tax rate was 27.4% and 27.2% for the three months ended June 30, 2021 and 2020, respectively.

The income tax expense for the six

months ended June 30, 2021 and 2020 was $452,583 and $525,766, respectively, a decrease of $73,183 or 13.9%, in the current year

period over the prior year period mostly a result of lower pre-tax income in the first six months of 2021, compared to the same

period in 2020.

The Companys estimated federal and state combined income tax rate was 27.4% and 27.2% for the six months

ended June 30, 2021 and 2020, respectively.

income for the three months ended June 30, 2021 and 2020 was $1,077,551 and $620,421, respectively, an increase of $457,130, or

73.7%, in the second quarter of 2021 over the same quarter in the prior year.

Net income for the six months ended June 30, 2021

and 2020 was $1,200,236 and $1,407,503, respectively, a decrease of $207,267, or 14.7%, in the current year period over the prior

The increase in net income for the second quarter and decrease in net income for the first half of 2021, compared

to the comparable periods in 2020, was primarily the result of changes in the gross profits and operating expenses.

The Companys estimated federal and state combined income tax rate was 27.4% for both

the nine months ended September 30, 2021 and 2020, respectively.

income for the three months ended September 30, 2021 and 2020 was $456,191 and $896,799, respectively, a decrease of $440,608,

or 49.1%, in the third quarter of 2021 over the same quarter in the prior year.

Net income for the nine months ended September

30, 2021 and 2020 was $1,656,427 and $2,304,302, respectively, a decrease of $647,875, or 28.1%, in the current year period over

the prior year period.

The decrease in net income for the third quarter and nine months of 2021, compared to the comparable periods

in 2020, was primarily the result higher gross profits in 2021 being more than offset by increased operating expenses mostly as

a result of increased costs associated with our tasting rooms being open for more days in 2021 compared to 2020.

Applicable to Common Shareholders

applicable to common shareholders for the three months ended June 30, 2021 and 2020 was $715,045 and $363,969, respectively, an

increase of $351,076, or 96.5%, in the second quarter of 2021 over the same quarter in the prior year.

applicable to common shareholders for the three months ended September 30, 2021 and 2020 was $95,120 and $640,347, respectively,

a decrease of $545,227, or 85.1%, in the third quarter of 2021 over the same quarter in the prior year.

Income applicable to common

shareholders for the six months ended June 30, 2021 and 2020 was $478,094 and $894,599, respectively, a decrease of $416,505,

shareholders for the nine months ended September 30, 2021 and 2020 was $573,214 and $1,534,946, respectively, a decrease of $961,732,

or 62.7%, in the current year period over the prior year period.

The increase in income applicable to common shareholders in the

second quarter was the result of higher net income and the decrease in the first six months of 2021, compared to the same periods

of 2020, was the result of lower net income and higher dividend costs in the current period.

The decrease in income applicable to common shareholders in the

third quarter and nine months of 2021, compared to the same periods of 2020, was the result of lower net income and higher dividend

costs associated with the increased number of shares of Preferred Stock in the current periods compared to the same periods in 2020.

and Capital Resources

June 30, 2021, the Company had a working capital balance of $26.9 million and a current working capital ratio of 5.87:1.

June 30, 2021, the Company had a cash balance of $13,117,492.

September 30, 2021, the Company had a working capital balance of $23.9 million and a current working capital ratio of 3.25:1.

September 30, 2021, the Company had a cash balance of $13,891,696.

At December 31, 2020, the Company had a cash balance of $13,999,755.

This decrease is primarily the result of investing activities in construction activity and the payment of grapes payable.

construction of a new tasting room and winery in Dundee, Oregon is expected to cost approximately $14.9 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, 2021, we had incurred approximately $7.3 million on the project.

cash generated from operating activities in the six months ended June 30, 2021 was $2,192,760.

This decrease is primarily the result of cash used in construction activities being partially offset with the proceeds from Preferred

Stock subscriptions.

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 September 30, 2021, we had incurred approximately $8.7 million on the project.

cash generated from operating activities in the nine months ended September 30, 2021 was $3,770,784.

Cash from operating activities

for the six months ended June 30, 2021 was primarily associated with net income, reduced inventory, and income tax

receivable, being partially offset by

reduced grapes payable and a reduction in accrued expenses.

cash used in investing activities in the six months ended June 30, 2021 was $3,412,836.

Cash used in investing activities for

the six months ended June 30, 2021 primarily consisted of cash used on construction activity and vineyard development costs.

cash generated from financing activities in the six months ended June 30, 2021 was $337,813.

Cash generated from financing activities

for the six months ended June 30, 2021 primarily consisted of proceeds from the issuance of Preferred Stock, being partially offset

by the repayment of debt.

The Company has an asset-based loan agreement (the line

of credit) with Umpqua Bank that allows it to borrow up to $2,000,000.

The Company renewed this agreement, in July 2019, until

The interest rate is prime less 0.5%, with a floor of 3.25%.

The loan agreement contains certain restrictive financial covenants

with respect to total equity, debt-to-equity and debt coverage that must be maintained by the Company on a quarterly basis.

30, 2021, the Company was in compliance with all of the financial covenants.

The line of credit has subsequently been renewed for an additional

of June 30, 2021, and December 31, 2020, the Company had no balance outstanding on the line of credit.

of June 30, 2021, the Company had a 15-year installment note payable of $1,340,724, due in quarterly payments of $42,534, associated

with the purchase of property in the Dundee Hills AVA.

of June 30, 2021, the Company had a total long-term debt balance of $5,762,086, including the portion due in the next year, owed

to Farm Credit Services, exclusive of debt issuance costs of $139,107.

for the nine months ended September 30, 2021 was primarily associated with net income, reduced receivables, increased grapes payable

and income tax receivable, being partially offset by increased inventory and a reduction in accrued expenses.

cash used in investing activities in the nine months ended September 30, 2021 was $6,867,420.

Cash used in investing activities

for the nine months ended September 30, 2021 primarily consisted of cash used on construction activity and vineyard development

cash generated from financing activities in the nine months ended September 30, 2021 was $2,988,577.

Cash generated from financing

activities for the nine months ended September 30, 2021 primarily consisted of proceeds from investor deposits related to the

Preferred Stock offering as well as the issuance of Preferred Stock, being partially offset by the repayment of debt.

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 September 30, 2021 and December 31, 2020, there was no outstanding balance on this revolving

line of credit.

of September 30, 2021, the Company had a 15-year installment note payable of $1,318,301, due in quarterly payments of $42,534,

associated with the purchase of property in the Dundee Hills AVA.

of September 30, 2021, the Company had a total long-term debt balance of $5,649,703, including the portion due in the next year,

owed to Farm Credit Services, exclusive of debt issuance costs of $135,796.

As of December 31, 2020, the Company had a total long-term

debt balance of $5,984,272, exclusive of debt issuance costs of $145,731.

Company obtained a $5,000,000 commercial loan commitment from Farm Credit Services, which is intended to provide the Company with

additional liquidity in the event the Company was to experience operating losses from sales disruptions due to the COVID-19 pandemic.

Commitment came into effect in July 2020 and was closed in May 2021.

Company believes that cash flow from operations and funds available under the Companys existing credit facilities will

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Balance Sheet Arrangements

of June 30, 2021, and December 31, 2020, the Company had no off-balance sheet arrangements.

of September 30, 2021, and December 31, 2020, the Company had no off-balance sheet arrangements.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

13 unchanged sentences

in Internal Control over Financial Reporting – There have been no changes in our internal control over financial

reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect,

reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect,

our internal control over financial reporting.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements