Item 5. Market for Registrant’s Common Equity
ITEM
5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
The
Companys common stock is traded on the NASDAQ Capital Market under the symbol WVVI.
Holders
As
of December 31, 2021, the Company had approximately 2,146 common stock shareholders of record. As some of our shares of common stock
are held in street name by brokers on behalf of shareholders, we are unable to estimate the total number of beneficial
holders of our common stock represented by these record holders.
Dividends
The
Company has paid dividends on the Preferred Stock. The Company has not paid any dividends on its Common Stock, and the Company does not
anticipate paying any dividends in the foreseeable future. The Company intends to use its earnings to expand its vineyards, winemaking
and customer service facilities.
Equity
Compensation Plans
The
Company had no equity compensation plan pursuant to which equity awards could be granted and no outstanding options or other equity awards
as of December 31, 2021.
Recent
Sales of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
None.
ITEM
6. SELECTED FINANCIAL DATA
Not
required.
ITEM
7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with
the Companys financial statements and related notes. Some statements and information contained in this Managements Discussion
and Analysis of Financial Condition and Results of Operations are not historical facts but are forward-looking statements. For a discussion
of these forward-looking statements, and of important factors that could cause results to differ materially from the forward-looking
statements contained in this report, see Item 1 of Part I, Business – Forward-Looking Statements.
While
our significant accounting policies are described in more detail in Note 1 to our audited financial statements, we believe the following
accounting policies are those most critical to the judgements and estimates used in the preparation of our financial statements.
Critical
Accounting Policies and Estimates
Managements
Discussion and Analysis of Financial Condition and Results of Operations discusses Willamette Valley Vineyards financial statements,
which have been prepared in accordance with generally accepted accounting principles. As such, management is required to make certain
estimates, judgments and assumptions that are believed to be reasonable based upon the information available. On an on-going basis, management
evaluates its estimates and judgments, including those related to product returns, bad debts, inventories, leases, investments, income
taxes, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience
and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
Revenue
- The Companys principal sources of revenue are derived from direct sales and sales through distributors of wine. Distributor
sales are recognized from wine sales at the time of shipment and passage of title. The Companys payment arrangements with wholesalers
provide primarily 30-day terms and, to a limited extent, 45-day, 60-day or longer terms for some international wholesalers. Direct sales
from items sold through the Companys retail locations are recognized at the time of sale.
22
The
Company pays depletion allowances to the Companys distributors based on their sales to their customers. The Company sets these
allowances on a monthly basis and the Companys distributors bill them back on a monthly basis. All depletion expenses associated
with a given month are recognized in that month as a reduction of revenues. The Company also reimburses for samples used by distributors
up to 1.5% of product sold to the distributors. Sample expenses are recognized at the time the Company is billed by the distributor as
a selling, general and administrative expense.
Amounts
paid by customers to the Company for shipping and handling expenses are included in the net revenue. Expenses incurred for outbound shipping
and handling charges are included in selling, general and administrative expense.
Inventory
- The Company values inventories at the lower of actual cost to produce the inventory or net realizable value. The Company regularly
reviews inventory quantities on hand and adjusts its production requirements for the next twelve months based on estimated forecasts
of product demand. A significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand.
In the future, if the Companys inventory cost is determined to be greater than the net realizable value of the inventory upon
sale, the Company would be required to recognize such excess costs in its cost of goods sold at the time of such determination. Therefore,
although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated
changes in demand could have a significant impact on the ultimate selling price and cases sold and, therefore, the carrying value of
the Companys inventory and its reported operating results.
Additionally,
the Company regularly evaluates inventory for obsolescence and marketability and if it determines that the inventory is obsolete, or
no longer suitable for use or marketable, the cost of that inventory is recognized in cost of sales at the time of such determination.
Vineyard
Development - The Company capitalizes internal vineyard development costs prior to the vineyard land becoming fully productive. These
costs consist primarily of the costs of the vines and expenditures related to labor and materials to prepare the land and construct vine
trellises. Amortization of such costs as annual crop costs is done on a straight-line basis for the estimated economic useful life of
the vineyard, which is estimated to be 30 years. The Company regularly evaluates the recoverability of capitalized costs. Amortization
of vineyard development costs are included in capitalized crop costs that in turn are included in inventory costs and ultimately become
a component of cost of goods sold.
Income
Taxes – The Company accounts for income taxes using the asset and liability approach. This requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the
financial statement and the tax basis of assets and liabilities at the applicable tax rates. The Company evaluates deferred tax assets,
and records a valuation allowance against those assets, if available evidence suggests that some of those assets will not be realized.
The
effect of uncertain tax positions would be recorded in the financial statements only after determining a more likely than not probability
that the uncertain tax positions would withstand an examination by tax authorities based on the technical merits of the position. The
tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized
upon ultimate settlement. As facts and circumstances change, management reassesses these probabilities and would record any changes in
the financial statements as appropriate.
Overview
The
Company generates revenue from the sales of wine to wholesalers and direct to consumers. The Company is experiencing increased levels
of competition in traditional wholesale to retail grocery distribution from large California based wineries that are acquiring, producing
and marketing Oregon branded wines. Direct to consumer sales primarily include sales through the Companys tasting rooms and wine
club. Direct to consumer sales provide a higher gross profit to the Company 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 use of the Hospitality Center,
opening new tasting rooms and growth in wine club membership. The Company had 8,625 wine club memberships for the year ended December
31, 2021, a net increase of 752 when compared to 2020. Additionally, the Companys preferred stock sales since August 2015 have
resulted in approximately 9,400 preferred stockholders many of which the Company believes are wine enthusiasts. When considering joint
ownership, we believe these new shareholders represent approximately 14,000 potential customers of the Company. The Company also has
approximately 2,200 common shareholders which we believe represent an estimated 3,300 potential customers when considering joint ownership.
Additionally, the Company has made a significant investment in developing alternative wine brands, products, direct sales methods and
venues.
23
Periodically,
the Company will sell grapes or bulk wine, which primarily consists of inventory that does not meet Company standards or is in excess
to production targets. However, this activity is not a significant part of the Companys activities.
The
Company sold approximately 203,817 and 180,850 cases of produced wine during the years ended December 31, 2021 and 2020, respectively,
an increase of 22,967 cases, or 12.7% in the current year over the prior year. The increase in case sales was primarily the result
of increased shipments to distributors and higher direct sales in 2021 when compared to 2020.
Cost
of Sales includes grape costs, whether purchased or grown at Company vineyards, crush costs, winemaking and processing costs, bottling,
packaging, warehousing and shipping and handling costs associated with purchased production materials. For grapes grown at Company vineyards,
costs include farming expenditures and amortization of vineyard development costs.
At
December 31, 2021, wine inventory included approximately 101,627 cases of bottled wine and 502,755 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 approximately 206,954 cases during the year ended December 31, 2021.
Impact
of COVID-19 on Operations
The
COVID-19 pandemic has been declared a National Public Health Emergency in the United States, and on March 8, 2020, Oregon Governor Kate
Brown declared a state of emergency to address the spread of COVID-19 in Oregon. The outbreak in Oregon and other parts of the United
States, as well as the response to COVID-19 by federal, state and local governments could have a continued material adverse impact on
economic and market conditions in the United States, which may negatively affect our business and operations. Although the administration
of vaccines in Oregon and throughout the United States contributed to the lifting of most restrictive measures, there remains ongoing
uncertainty about the impact of COVID-19 variations on infection levels. The re-emergence of significant increases in infection rates
could result in governments re-imposing restrictive measures that could reduce or impair economic activity. Consequently, the COVID-19
pandemic and the government responses to the outbreak presents continued uncertainty and risk with respect to the Company and its performance
and financial results.
We
have not yet experienced significant disruptions to our supply chain network; however, any future restrictions imposed by our local or
state governments may have a negative impact on our future direct to consumer sales. In response to the previous closure 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,
the demand for the Companys wine sold directly or through distributors to restaurants, bars, and other hospitality locations could
be reduced in the near-term due to the re-imposition of orders from state and local governments restricting consumers from visiting,
as well as in some cases the temporary closure of such establishments.
The
extent of the impact of the COVID-19 pandemic on the Companys business is highly uncertain and difficult to predict, as the response
to the pandemic, and in particular the response to the COVID-19 variants that have emerged, is continuing to evolve. The severity of
the impact of the COVID-19 pandemic on the Companys business will depend on a number of factors, including, but not limited to,
the duration and severity of the pandemic and the extent and severity of the impact on the Companys customers, all of which are
uncertain and cannot be predicted.
24
Results
of Operations
2021
compared to 2020
Net
income was $2,445,463 and $3,394,996, for the years ended December 31, 2021 and 2020, respectively, a decrease of $949,533, or 28.0%,
for the year ended December 31, 2021 over the prior year period. The primary reason for this decrease was higher operating expenses for
the year ended December 31, 2021, compared to the previous year.
Net
income applicable to common shareholders was $1,001,180 and $2,278,618, for the years ended December 31, 2021 and 2020, respectively,
a decrease of $1,277,438, or 56.1%, for the year ended December 31, 2021 over the prior year period. This decrease was primarily driven
by lower net income and higher preferred stock dividends.
The
Company had net sales revenues of $31,786,864 and $27,314,852 for the years December 31, 2021 and 2020, respectively, an increase of
$4,472,012 or 16.4%, for the year ended December 31, 2021 over the prior year period primarily as a result of an increase in revenue
from direct sales of $2,739,589 or 26.0% in 2021 compared to 2020, combined with an increase in revenue from sales to distributors of
$1,732,423 or 10.3% in 2021 compared to 2020.
The
Company has three primary sales channels: direct-to-consumer retail sales, in-state sales to distributors, and out-of-state sales to
distributors. During 2021, revenues from retail sales increased 26.0%, revenues from in-state sales decreased 12.7%, and revenues from
out-of-state sales increased 25.0%, compared to 2020.
Direct
sales included $103,471 and $103,958 of bulk wine and grape sales in the years ended December 31, 2021 and 2020, respectively, and represented
approximately 41.7% and 38.6% of the Companys total net revenue for 2021 and 2020, respectively, while the Companys remaining
revenues came from sales through distributors.
The
following table sets forth certain information regarding the Companys revenue, excluding excise taxes, from the Winerys operations
for the twelve months ended December 31, 2021 and 2020:
Twelve months ended
December 31,
2021
2020
Retail
sales
$ 13,306,156
$ 10,560,913
In-state sales
5,824,130
6,671,743
Out-of-state sales
12,937,605
10,350,708
Bulk wine/miscellaneous sales
103,471
103,958
Total revenue
32,171,362
27,687,322
Less excise taxes
(384,498 )
(372,470 )
Sales, net
$ 31,786,864
$ 27,314,852
Retail
sales revenues for the years ended December 31, 2021 and 2020 were $13,306,156 and $10,560,913, respectively, an increase of $2,745,243,
or 26.0%, for the year ended December 31, 2021 over the prior year period. The increase in retail sales revenues in 2021 compared to
2020 was mostly a result of increased revenues from our brand ambassador program and increased wine club sales and sales made over the
internet as well as higher tasting room sales.
Bulk
Wine/miscellaneous sales revenues for the years ended December 31, 2021 and 2020 were $103,471 and $103,958, respectively, a decrease
of $487 or, 0.5%, for the year ended December 31, 2021, over the prior year period.
In-state
sales revenues for the years ended December 31, 2021 and 2020 were $5,824,130 and $6,671,743, respectively, a decrease of $847,163, or
12.7%, for the year ended December 31, 2021 over the prior year period. Management believes this decrease is primarily due to less product
being available to sell at the end of 2021.
25
Out-of-state
sales revenues for the years ended December 31, 2021 and 2020 were $12,937,605 and $10,350,708, respectively, an increase of $2,586,897,
or 25.0%. Management believes this increase is related to increased sales and promotion efforts in 2021.
The
Company pays alcohol excise taxes to both the OLCC and to the TTB. These taxes are based on product sales volumes. The Company is liable
for the taxes upon the removal of product from the Companys warehouse on a per gallon basis. The Company also pays taxes on the
grape harvest on a per ton basis to the OLCC for the Oregon Wine Board. The Companys excise related taxes for the years ended
December 31, 2021 and 2020 were $384,498 and $372,470, an increase of $12,028, for the year ended December 31, 2021 over the prior year
period. This increase was due primarily to increased wine sales revenues in 2021 and the timing of removals.
Cost
of Sales was $13,121,191 and $10,585,076 for the years ended December 31, 2021 and 2020, respectively, an increase of $2,536,115, or
24.0%, for the year ended December 31, 2021, over the prior year period. This change was primarily the result of an increase in sales
in 2021.
Gross
profit was $18,665,673 and $16,729,776 for the years ended December 31, 2021 and 2020, respectively, an increase of $1,935,897, or 11.6%,
for the year ended December 31, 2021 over the prior year period. This increase was generally driven by an increase in sales revenues
partially offset by a higher cost of sales.
The
gross margin percentage was 58.7% and 61.2% for the years ended December 31, 2021 and 2020, respectively, a decrease of 2.5 percentage
points, for the year ended December 31, 2021 over the prior year period. This decrease in the gross profit percentage was primarily the
result of an overall decrease in per case margins mostly due to the release of wines in 2021 from vintages produced from higher product
costs such as the 2020 vintage.
Selling,
general and administrative expenses were $14,975,654 and $11,728,003 for the years ended December 31, 2021 and 2020, respectively, an
increase of $3,247,651, or 27.7%, for the year ended December 31, 2021 over the prior year period. This increase was mainly the result
of increased selling expenses with tasting rooms being open for more days in 2021 and shipping, packaging and administrative cost increases
associated with efforts to increase sales and accommodate and develop retail growth and new operations.
Income
from operations was $3,690,019 and $5,001,773 for the years ended December 31, 2021 and 2020, respectively, a decrease of $1,311,754,
or 26.2%, for the year ended December 31, 2021 compared to the prior year period. The primary reason for this increase was higher cost
of sales and higher selling and administrative expenses as a percentage of sales.
Interest
income was $12,412 and $21,022 for the years ended December 31, 2021 and 2020, respectively, a decrease of $8,610. Interest expense was
$391,272 and $414,061 for the years ended December 31, 2021 and 2020, respectively, a decrease of $22,789, or 5.5%, for the year ended
December 31, 2021 over the prior year period. The decrease in interest expense was mainly due to the decrease in loan balances in 2021
compared to the previous year.
Other
income, net, was $155,183 and $165,916 for the years ended December 31, 2021 and 2020, respectively, a decrease of $10,733, or 6.5%,
for the year ended December 31, 2021 over the prior year period.
Provision
for income taxes was $1,020,879 and $1,379,654 for the years ended December 31, 2021 and 2020, respectively, a decrease of $358,775,
or 26.0%, for the year ended December 31, 2021 over the prior year period. This decrease in income taxes in 2021 compared to 2020 was
primarily the result of lower income from operations in 2021.
Income
per common share after preferred dividends was $0.20 and $0.46 for the years ended December 31, 2021 and 2020, respectively, a decrease
of $0.26, or 56.6%, for the year ended December 31, 2021 over the prior year period. The primary reason for this decrease is a decrease
in net income in 2021 compared to 2020.
26
The
Company had cash balances of $13,747,285 at December 31, 2021, and $13,999,755 at December 31, 2020. The Company had no outstanding line
of credit balances at December 31, 2021 or 2020.
EBITDA
In
2021, the Companys earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 16.9% to $5,797,295
from $6,980,083 in 2020, primarily as a result of a decrease in net income.
EBITDA
does not reflect the impact of a number of items that affect our net income, including financing costs. EBITDA is not a measure of financial
performance under the accounting principles generally accepted in the United States of America, referred to as GAAP, and
should not be considered as an alternative to net income or income from operations as a measure of performance, nor as an alternative
to net cash from operating activities as a measure of liquidity. We use EBITDA as a benchmark measurement of our own operating results
and as a benchmark relative to our competitors. We consider it to be a meaningful supplement to operating income as a performance measure
primarily because depreciation and amortization expense are not actual cash costs, and depreciation expense varies widely from company
to company in a manner that we consider largely independent of the underlying cost efficiency of our operating facilities.
EBITDA
has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our
GAAP results as reported. Because of these limitations, EBITDA should only be considered as a supplemental performance measure and should
not be considered as a measure of liquidity or cash available to us to invest in the growth of our business. See the Statement of Cash
Flows set out in our consolidated financial statements included herein.
The
following table provides a reconciliation of net income (the most comparable GAAP measure) to EBITDA for the periods indicated:
Year Ended December 31,
2021
2020
Net Income
$ 2,445,463
$ 3,394,996
Depreciation and amortization expense
1,952,093
1,812,394
Interest Expense
391,272
414,061
Interest Income
(12,412 )
(21,022 )
Income tax expense
1,020,879
1,379,654
EBITDA
$ 5,797,295
$ 6,980,083
27
Sales
Wine
case sales for the years ended December 31, 2021 and 2020 and ending inventory amounts for the year ended December 31, 2021, are shown
on the following table:
Cases Sold
Cases Sold
Cases On-Hand
Varietal/Product
2021
2020
December 31, 2021
Pinot Noir/Estate
17,414
15,801
13,048
Pinot Noir/Barrel Select
13,928
17,522
2,645
Pinot Noir/Founders Reserve
3,895
2,613
2,661
Pinot Noir/Special Designates
10,384
6,603
14,854
Pinot Noir/Whole Cluster
59,683
51,387
7,375
Pinot Gris
32,991
33,448
5,746
Riesling
22,843
22,763
11,561
Chardonnay
5,831
3,912
5,549
Other
36,848
26,801
38,187
Total
203,817
180,850
101,627
Approximately
52% of the Companys case sales during 2021 were of the Companys flagship varietal, Pinot Noir. Case sales of Pinot Gris
and Riesling follow with approximately 16% and 11% of case sales each, respectively. The Company sold approximately 203,817 and 180,850
cases of Company-produced wine during the years ended December 31, 2021 and 2020, respectively. This represents an increase of approximately
22,967 cases, or 12.7% in 2021 compared to 2020. This increase in case sales in 2021 compared to 2020 was primarily the result of increased
shipments through the wine club, internet and telephone sales as well as distributors.
The
Company has three primary sales channels: direct-to-consumer sales, in-state sales to distributors, and out-of-state sales to distributors.
These three sales channels represent 41.7%, 18.1% and 40.2%, of net sales for the year ended December 31, 2021, respectively. This compares
to 38.6%, 24.0% and 37.4% of net sales for the year ended December 31, 2020, respectively. Miscellaneous and grape sales are included
in direct-to-consumer sales.
The
Companys direct-to-consumer sales and national sales to distributors offer comparable products to customers and utilize similar
processes and share resources for production, selling and distribution. Direct-to-consumer sales generate a higher gross profit margin
than national sales to distributors due to differentiated pricing between these segments.
Wine
Inventory
The
Company had approximately 101,627 cases of bottled wine on-hand at the end of 2021. Management believes sufficient bulk wine inventory
is on-hand to bottle approximately 211,419 cases of wine in 2022 and that sufficient stock is on hand to meet current demand levels until
the 2021 vintage becomes available.
Production
Capacity
Current
production volumes are within the current production capacity constraints of the Winery when including storage capacity at the Tualatin
Winery and utilization of temporary storage when appropriate. In 2021, approximately 206,954 cases were produced. The Winery has capacity
to store and process about 258,620 cases of wine per year at the Estate Winery but can expand that capacity by utilizing storage at the
Tualatin Winery as well as temporary storage. Management continues to invest in new production technologies intended to increase the
efficiency and quality of wine production. During 2021, the Company did not choose to utilize the wine production facilities at the Tualatin
Winery but did utilize it for wine storage. The Tualatin Winery has capacity to produce approximately 28,000 cases of wine. The facility
is maintained in good condition. Management intends to fully utilize the production capacity at the Estate Winery before expanding into
the Tualatin Winery.
28
Grape
Supply
For
the 2021 and 2020 vintages, the Company grew approximately 50% and 41% of all grapes harvested, respectively. The remaining grapes harvested
were purchased from other growers. In 2021 and 2020, 30% and 50% of grapes harvested were purchased under short-term contracts, and 19%
and 9% of grapes harvested were purchased under long-term contracts, respectively. The Company considers short-term contracts to be for
single vintage years and long-term contracts to cover multiple vintage years.
Grapes
are typically harvested and received in September and October of the vintage year. Upon receipt, the grapes are weighed, and a quality
analysis is performed to ensure the grapes meet the standards set forth in the purchase contract. Based on the quantity of qualifying
grapes received, the full amount payable to the grower is recorded to the grapes payable liability account. Approximately 50% of the
grapes payable amount is due in November of the vintage year. The remaining amount is due in March of the following year. The grapes
are processed into wine, which is typically bottled and available for sale between five months and two years from date of harvest.
The
Company received $1,166,116 and $220,650 worth of grapes from long-term contracts during the years ended December 31, 2021 and 2020,
respectively. The Company received $1,762,283 and $3,339,460 worth of grapes from short-term contracts during the years ended December
31, 2021 and 2020, respectively. Total grapes payable was $1,388,601 and $1,307,165 as of December 31, 2021 and 2020, respectively. Grapes
payable includes $538,677 and $126,024 of grapes payable from long-term contracts as of December 31, 2021 and 2020, respectively.
The
Company plans to address long-term grape supply needs by developing new vineyards on properties currently owned or secured by lease.
The Company has approximately 46 acres of vineyards that have been planted but are in the pre-productive stage. We anticipate that these
vineyards will begin producing grapes within the next one to three years. The Company has approximately 251 acres of land that is suitable
for future vineyard development. Management currently has plans to plant approximately 42 acres in 2022, which we anticipate will begin
producing grapes in 2026. Additionally, the Company intends to seek out opportunities to acquire land for future grape plantings in order
to continue to increase available quantities, maintain control over farming practices, more effectively manage grape costs and mitigate
uncertainty associated with long-term contracts.
Wine
Quality
Continued
awareness of the Willamette Valley Vineyards brand and the quality of its wines was enhanced by national and regional media coverage
throughout 2021 including the accolades below.
Wine Enthusiast awarded the Companys 2020 Whole Cluster Pinot Noir with 91 points and Editors Choice, 2020
Whole Cluster Rosé of Pinot Noir with 90 points, 2019 Founders Reserve Pinot Noir with 90 points, 2020 Riesling with 90
points and Best Buy, 2018 Pambrun Merlot with 91 points and Cellar Selection, 2018 Pambrun Cabernet Sauvignon with 90 points,
2018 Pambrun Chrysologue with 90 points, 2018 Metis with 91 points and Editors Choice, 2019 Maison Bleue Voyageur Syrah with 91
points, 2018 Maison Bleue Frontiere Syrah with 91 points and 2018 Maison Bleue Graviere Syrah with 90 points.
Wine
& Spirits awarded the Companys 2019 Estate Chardonnay with 90 points, 2018 Dijon Clone Chardonnay with 90 points
and 2017 Bernau Estate Brut with 92 points and Years Best for the United States Sparkling category.
James
Suckling awarded the Companys 2018 Elton Pinot Noir with 93 points, 2018 Fuller Pinot Noir with 93 points, 2018 Estate
Pinot Noir with 91 points, 2018 Tualatin Estate Pinot Noir with 91 points, 2018 OBrien Pinot Noir with 91 points and 2018 Bernau
Block Pinot Noir with 90 points.
The
International Wine Report awarded the Companys 2018 Bernau Block Pinot Noir with 90 points, 2019 Estate Pinot Noir with 90
points, 2019 Estate Chardonnay with 91 points and Estate Rose of Pinot Noir with 91 points.
29
The
Wine Panel awarded the Companys 2019 Estate Pinot Noir with 91 points, 2020 Pinot Gris with 93 points, 2019 White Pinot Noir
with 90 points and 2019 Dijon Clone Pinot Noir with 90 points.
The Companys 2018 Estate Pinot Noir and 2020 Pinot Gris were both awarded gold medals 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.
Seasonality
The
Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenue and net income. Typically,
first quarter sales are the lowest of any given year, and sales volumes increase progressively through the fourth quarter mostly because
of consumer buying habits.
Liquidity
and Capital Resources
At
December 31, 2021, the Company had a working capital balance of $24.5 million and a current ratio of 3.05:1. The Company had cash balances
of $13,747,285, at December 31, 2021.
Total
cash provided from operating activities for the year ended December 31, 2021 was $2,572,708, which resulted primarily from cash provided
by net income combined with increased non-cash operating expenses, such as depreciation and unearned revenue, being partially offset
by cash used in connection with increased inventory and accounts receivable.
Total
cash used in investing activities for the year ended December 31, 2021 was $10,301,395, which primarily consisted of cash used on construction
activity and vineyard development costs.
Total
cash provided from financing activities for the year ended December 31, 2021 was $7,476,217, which 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 and payment of a preferred stock dividend.
In
2019, the Companys Board of Directors approved the construction of a new tasting room at the Bernau Estate Vineyard, expected
to be completed during the 2022 fiscal year. The total construction costs for the Bernau Estate Tasting Room is expected to be 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 December 31, 2021, we had incurred approximately $9.5 million in costs related to the project.
In
December of 2005, the Company entered into a revolving line of credit agreement with Umpqua Bank that allows borrowing up to $2,000,000
against eligible accounts receivable and inventories, as defined in the agreement. 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 December 31, 2021 and December 31, 2020, there was no outstanding balance on this revolving line of credit and the Company
was in compliance with the line of credits financial covenants.
As
of December 31, 2021, the Company had a total long-term debt balance of $5,535,096, including the portion due in the next year, owed
to Farm Credit Services, exclusive of debt issuance costs of $132,483. As of December 31, 2020, the Company had a total long-term debt
balance of $5,985,228, exclusive of debt issuance costs of $145,731. The debt with NW Farm Credit Services was used to finance the Hospitality
Center and subsequent remodels, invest in winery equipment to increase the Companys winemaking capacity, complete the storage
facility, and acquire new vineyard land for future development.
As
of December 31, 2021, the Company had an installment note payable of $1,295,541, due in quarterly payments of $42,534 through February
2032, associated with the purchase of property in the Dundee Hills AVA.
30
The
Company believes that cash flow from operations and funds available under its existing credit facilities and preferred stock program
will be sufficient to meet the Companys foreseeable short and long-term operating needs.
The
Companys contractual obligations as of December 31, 2021 including long-term debt, note payable, grape payables and commitments
for future payments under non-cancelable lease arrangements are summarized below:
Payments Due by Period
Less than 1
2 – 3
4 – 5
After 5
Total
Year
Years
Years
Years
Long-term debt
$ 5,535,096
$ 472,420
$ 1,019,768
$ 1,128,530
$ 2,914,378
Notes payable
1,295,541
94,503
206,760
232,914
761,364
Grape payables
1,388,601
1,388,601
-
-
-
Operating leases
9,163,990
769,014
1,538,605
1,402,305
5,454,066
Total contractual obligations
$ 17,383,228
$ 2,724,538
$ 2,765,133
$ 2,763,749
$ 9,129,808
Inflation
The
Companys management does not believe inflation has had a material impact on the Companys revenues or income during 2021
or 2020.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required.
31
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.