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Item 1. Financial Statements

2022-08-11 compared with 2022-05-12 · 305 added, 280 removed, 353 unchanged (62% of the section changed)

28 unchanged sentences

SHAREHOLDERS’ EQUITY

Redeemable preferred stock, no par value, 10,000,000 shares authorized, 8,483,862 shares issued and outstanding, liquidation preference $ 35,674,639 , at March 31, 2022 and 7,523,539 shares issued and outstanding, liquidation preference $ 31,222,687 , at December 31, 2021.

Common stock, no par value, 10,000,000 shares authorized, 4,964,529 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.

Redeemable preferred stock, no

par value, 10,000,000

shares authorized, 8,483,862

shares issued and outstanding, liquidation preference of $ 36,141,252 ,

at June 30, 2022 and 7,523,539

shares issued and outstanding, liquidation preference of $ 31,222,687 ,

at December 31, 2021.

Common stock, no par value, 10,000,000 shares authorized, 4,964,529 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.

Retained earnings

1 unchanged sentence

LIABILITIES AND SHAREHOLDERS’ EQUITY

accompanying notes are an integral part of this financial statement

The accompanying notes are an integral part of this condensed financial statement

VALLEY VINEYARDS, INC.

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Three months ended

Six months ended

COST OF SALES

3 unchanged sentences

Total operating expenses

INCOME (LOSS) FROM OPERATIONS

INCOME FROM OPERATIONS

OTHER INCOME (EXPENSE)

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Interest expense

INCOME (LOSS) BEFORE INCOME TAXES

INCOME TAX (EXPENSE)

NET INCOME (LOSS)

Other income (expense), net

INCOME BEFORE INCOME TAXES

INCOME TAX PROVISION

Accrued preferred stock dividends

APPLICABLE TO COMMON SHAREHOLDERS

Loss per common share after preferred dividends, basic and diluted

NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS

$ ( 209,212 )

$ ( 774,766 )

Earnings (loss) per 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

The accompanying notes are an integral part of this condensed financial statement

VALLEY VINEYARDS, INC.

STATEMENTS OF SHAREHOLDERS EQUITY

Three-Month Period Ended March 31, 2022

Six-Month Period Ended June 30, 2022

Preferred Stock

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Balance at March 31, 2022

Three-Month Period Ended March 31, 2021

Preferred stock dividends accrued

Balance at June 30, 2022

Six-Month Period Ended June 30, 2021

Preferred Stock

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Balance at March 31, 2021

accompanying notes are an integral part of this financial statement

Issuance of preferred stock, net

Preferred stock dividends accrued

Balance at June 30, 2021

The accompanying notes are an integral part of this condensed financial statement

VALLEY VINEYARDS, INC.

OF CASH FLOWS

Three months ended March 31,

Six months ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

Adjustments to reconcile net income (loss) to net cash from operating activities:

Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization

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Prepaid expenses and other current assets

Income tax receivable

Income taxes receivable

Unearned revenue

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CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposition of property and equipment

Additions to vineyard development costs

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( 9,760,175 )

Net cash used in investing activities

( 3,061,925 )

Net cash from investing activities

( 10,129,564 )

( 3,412,836 )

CASH FLOWS FROM FINANCING ACTIVITIES

1 unchanged sentence

Payments on long-term debt

Proceeds from investor deposits held as liability

Proceeds from issuance of preferred stock

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Accrued preferred stock dividends

accompanying notes are an integral part of this financial statement

The accompanying notes are an integral part of this condensed financial statement

TO UNAUDITED INTERIM FINANCIAL STATEMENTS

BASIS OF PRESENTATION

accompanying unaudited interim financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 have

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

accompanying unaudited interim financial statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021

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

GAAP) for interim

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the Willamette Valley Vineyards, Inc.

(the Company) Annual Report on Form 10-K for the year ended December 31, 2021 (the

2021 Report).

Certain information or footnote disclosures normally included in financial statements prepared in accordance

GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

opinion of management, the accompanying financial statements include all adjustments necessary (which are of a normal recurring nature)

for the fair statement of the results of the interim periods presented.

The accompanying unaudited interim financial statements

should be read in conjunction with the Companys audited financial statements for the year ended December 31, 2021, as presented

in the Companys Annual Report on Form 10-K.

results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the entire year

ending December 31, 2022, or any portion thereof.

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 have had a material adverse impact on economic and

market conditions in the United States.

Although the administration of vaccines in Oregon and throughout the United States contributed

to the lifting of 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 some 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.

(the Company) Annual Report on Form 10-K for the year ended December 31, 2021.

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, 2021, as presented in the Companys Annual Report on Form 10-K.

results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the entire

year ending December 31, 2022, or any portion thereof.

COVID-19 outbreak in Oregon and other parts of the United States, as well as the response to COVID-19 by federal, state and local governments

have had a material adverse impact on economic and market conditions in the United States.

Although most restrictive measures have been

lifted, 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.

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

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state governments may have a negative impact on our future 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.

extent of the future impact of the COVID-19 pandemic on the Companys business is highly uncertain and difficult to predict, as

the response to the pandemic 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.

Companys revenues include direct to consumer sales and national sales to distributors.

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for production, selling, and distribution.

loss per share after preferred stock dividends are computed based on the weighted-average number of common shares outstanding each period.

following table presents the loss per share after preferred stock dividends calculation for the periods shown:

earnings (loss) per share after preferred stock dividends are computed based on the weighted-average number of common shares outstanding

following table presents the earnings per share after preferred stock dividends calculation for the periods shown:

of Earnings Per Share

Three months ended March 31,

Net income (loss)

Accrued preferred stock dividends

Net loss applicable to common shareholders

months ended June 30,

preferred stock dividends

(loss) applicable to common shares

$ ( 209,212 )

$ ( 774,766 )

Weighted-average number of common shares outstanding

Weighted-average

common shares outstanding

(loss) per common share after preferred dividends, basic and diluted

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Schedule of Inventories

March 31, 2022

June 30, 2022

December 31, 2021

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Schedule of Property and Equipment, Net

March 31, 2022

June 30, 2022

December 31, 2021

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Land, improvements, and other buildings

Winery buildings and hospitality center

Winery, tasting room buildings, and hospitality center

Property and equipment, gross

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Property and equipment, net

expense for the three months ended March 31, 2022 and 2021 was $ 378,634 and $ 411,357 , respectively.

expense for the six months ended June 30, 2022 and 2021 was $ 816,806 and $ 818,116 , respectively.

Depreciation expense for the three months

ended June 30, 2022 and 2021 was $ 432,826 and $ 406,759 , respectively.

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

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

At March 31, 2022 and December 31, 2021, there was no outstanding balance

At June 30, 2022 and December 31, 2021, there was no outstanding balance

on this revolving line of credit.

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

As of March 31, 2022, the Company was in compliance with these financial

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

As of June 30, 2022, the Company was in compliance with these financial

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 March 31, 2022, the Company

As of June 30, 2022, the Company

had a balance of $1,248,993 due on this note.

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

of $ 5,418,283 and $ 5,535,097 as of March 31, 2022 and December 31, 2021, respectively.

The outstanding loans require monthly

principal and interest payments of $62,067 for the life of the loans, at annual fixed interest rates of 4.75% and 5.21%, and with

maturity dates of 2028 and 2032.

The general purposes of these loans were to make capital improvements to the winery and vineyard

of $ 5,301,492 and $ 5,535,097 as of June 30, 2022 and December 31, 2021, respectively.

The outstanding loans require monthly principal

and interest payments of $62,067 for the life of the loans, at annual fixed interest rates of 4.75% and 5.21%, and with maturity dates

of 2028 and 2032.

The general purposes of these loans were to make capital improvements to the winery and vineyard facilities.

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

At March 31, 2022, 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 March 31, 2022, the Company had unamortized debt issuance costs of $ 129,172 .

As of December 31, 2021, the Company had unamortized

debt issuance costs of $ 132,484 .

As of June 30, 2022,

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.

minimum principal payments of long-term debt mature as follows for the years ending December 31:

Schedule of Long term debt maturity

2022 (excluding the six months ended June 30, 2022)

of June 30, 2022, the Company had unamortized debt issuance costs of $ 125,860 .

As of December 31, 2021, the Company had unamortized debt

issuance costs of $ 132,484 .

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 no income taxes for the three months ended March 31, 2022 and 2021, respectively.

– The Company paid $ 87,977 and $ 95,512 for the three months ended March 31, 2022 and 2021, respectively, in interest on long-term

taxes – The Company paid $ 502,000 and $ 40,000 in income taxes for the three months ended June 30, 2022 and 2021, respectively.

The Company paid $ 502,000 and $ 40,000 in income taxes for the six months ended June 30, 2022 and 2021, respectively.

– The Company paid $ 83,776 and $ 95,052 for the three months ended June 30, 2022 and 2021, respectively, in interest on long-term

The Company paid $ 175,222 and $ 190,783 for the six months ended June 30, 2021 and 2020, respectively, in interest on long-term

SEGMENT REPORTING

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associated with selling, is not available and that information continues to be aggregated.

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

segments for the three month periods ending March 31, 2022 and 2021.

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

segments for the three and six month periods ending June 30, 2022 and 2021.

Sales figures are net of related excise taxes.

of Revenue by Reporting Segments

Months Ended March 31,

Cost of Sales

Selling Expenses

Contribution Margin

Percent of Sales

General and Administration

Income (loss) from Operations

$ ( 136,232 )

sales include $10,500 in bulk wine sales in the three months ended March 31, 2022 compared to no bulk wine sales in the three months

ended March 31, 2021.

Months Ended June 30,

of total sales

and administration expenses

from operations

Months Ended June 30,

of total sales

and administration expenses

from operations

sales include zero bulk wine sales for the three months ended June 30, 2022 and June 30, 2021.

Direct sales include $10,500 for bulk wine

sales for the six months ended June 30, 2022 and zero bulk wine sales for the six months ended June 30, 2021.

SALE OF PREFERRED STOCK

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 March 31, 2022, 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.

This Prospectus Supplement

has been closed and all related shares issued as of December 31, 2021.

January 24, 2020, the Company filed a shelf Registration Statement on Form S-3 (the January 2020 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

As of June 30, 2022, 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.

No further shares of Series A Redeemable Preferred Stock may be offered

or sold under this Prospectus Supplement and all shares sold under this Prospectus Supplement were issued as of December 31, 2021.

June 11, 2021, the Company filed with the SEC an additional Prospectus Supplement to the January 2020 Form S-3, pursuant to which the

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of acquisition costs, under this offering.

This Prospectus Supplement has been closed and all related shares issued as of March 31, 2022.

No further shares of Series A Redeemable Preferred Stock may be offered or sold under this

Prospectus Supplement and all shares sold under this Prospectus Supplement were issued as of June 30, 2022.

June 30, 2022, the Company filed a shelf Registration Statement on Form S-3 (the June 2020 Form S-3) with the SEC pertaining

to the potential future issuance of one or more classes or series of debt, equity or derivative securities.

The maximum aggregate offering

amount of securities sold pursuant to the June 2022 Form S-3 is not to exceed

$20,000,000 .

On August 1, 2022, the Company filed with the SEC a Prospectus Supplement to the June

2022 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 213,158 shares of Series

A Redeemable Preferred Stock having proceeds not to exceed $1,097,765.

This Prospectus Supplement established that our shares of preferred

stock were to be sold in three offering periods with three separate offering prices beginning with an offering price of $5.15 per share

and concluding with an offering of $5.35 per share.

have the option to receive dividends as cash or as a gift card for purchasing Company products.

The amount of unused dividend gift cards

at March 31, 2022 and 2021 was $594,611 and $682,881, respectively and is recorded as unearned revenue on the balance sheet.

at June 30, 2022 and December 31, 2021 was $527,868 and $682,881, respectively, which are recorded as a component of unearned revenue on the balance

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

after June 1, 2021, the Company has the option, but not the obligation, to redeem all of the outstanding preferred stock in an amount

equal to the original issue price plus accrued but unpaid dividends and a redemption premium equal to 3% of the original issue price.

currently has the option, but not the obligation, to redeem all of the outstanding preferred stock in an amount equal to the original

issue price plus accrued but unpaid dividends and a redemption premium equal to 3% of the original issue price.

COMMITMENTS AND CONTINGENCIES

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a formula-based escalation provision with a maximum increase of 4% every three years.

2007, the Company entered into a lease agreement for 59 acres of vineyard land at Elton Vineyards.

In June 2021 , the Company entered

into a new 11 year

lease for this property.

February 2007 , the Company entered into a lease agreement for 59 acres of vineyard land at Elton Vineyards.

In June 2021, the Company

entered into a new 11 year lease for this property.

The lease contains an escalation provision tied to the CPI not to exceed 2% per annum.

July 2008 , the Company entered into a 34 -year lease agreement with a property owner in the Eola Hills for approximately 110 acres adjacent

to the existing Elton Vineyards site.

These 110 acres are being developed into vineyards.

Terms of this agreement contain rent increases,

that rises as the vineyard is developed, and contains an escalation provision of CPI plus 0.5% per year capped at 4%.

2008 , the Company entered into a 34 -year

lease agreement with a property owner in the Eola Hills for approximately 110 acres adjacent to the existing Elton Vineyards site.

Terms of this agreement contain rent increases, that rises as the vineyard is developed, and contains an escalation provision of CPI

plus 0.5% per year capped at 4%.

March 2017 , the Company entered into a 25 -year lease for approximately 18 acres of agricultural land in Dundee, Oregon.

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options, for its McMinnville tasting room.

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

The Company has exercised the first one year renewal option.

In May 2022 the Company amended the lease to extend the lease to August 2025 with one three

year renewal option and defined payments over the term of the lease.

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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The lease defines the payments over the term of the lease and option periods.

May 2022 , the Company entered into a lease for 10 years, with two five-year renewal options for a retail wine facility in Happy Valley,

The lease defines the payments over the term of the lease and option periods.

following tables provide lease cost and other lease information:

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Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

Operating lease cost - Vineyards

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Weighted-average discount rate - Operating leases

assets obtained in exchange for new operating lease obligations were $1,600,552 and zero for the three months ended March 31 2022 and

assets obtained in exchange for new operating lease obligations were $3,360,917 and zero for the six-months ended June 30, 2022 and 2021,

respectively.

Company has two additional operating leases that have not yet commenced as of March 31, 2022, and as such, have not been recognized in

the Companys balance sheet.

These operating leases are expected to commence in 2022 with lease terms of 10 years.

of March 31, 2022, maturities of lease liabilities were as follows:

Company has one lease that has not yet commenced as of June 30, 2022, and as such, has not been recognized in the Companys balance

The operating lease is expected to be in 2023 with lease a term of 10 years.

of June 30, 2022, maturities of lease liabilities were as follows:

of Maturities of Lease Liabilities

Years Ended December 31,

2022 (excluding the six months ended June 30, 2022)

Total minimal lease payments

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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 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

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.

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would be due.

Willamette – In 2019, the 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 Domaine Willamette Tasting Room is expected to be approximately

$15.6 million, of which we expect will be funded through cash on hand.

Construction on the Tasting Room began in July, 2019 and as of

March 31, 2022, we had spent approximately $12.1 million on the project from our cash reserves.

Willamette – In 2019, the 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 Domaine Willamette Tasting Room is expected

to be approximately $15.6 million, of which we expect will be funded through cash on hand.

Construction on the Tasting Room began in

July, 2019 and as of June 31, 2022, we had spent approximately $13.6 million on the project from our cash reserves.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Accounting Policies

foregoing discussion and analysis of the Companys financial condition and results of operations are based upon our unaudited

condensed financial statements, which have been prepared in accordance with U.S.

The preparation of these unaudited condensed

financial statements requires the Companys 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 Companys critical accounting policies and related judgments and estimates that affect the

preparation of the Companys financial statements is set forth in the Companys Annual Report on Form 10-K for the year ended

December 31, 2021.

Such policies were unchanged during the three months ended March 31, 2022.

foregoing discussion and analysis of the Companys financial condition and results of operations are based upon our unaudited condensed

financial statements, which have been prepared in accordance with U.S.

The preparation of these unaudited condensed financial statements

requires the Companys 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 Companys critical accounting policies and related judgments and estimates that affect the preparation of the Companys

financial statements is set forth in the Companys Annual Report on Form 10-K for the year ended December 31, 2021.

Such policies

were unchanged during the six months ended June 30, 2022.

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

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Company also owns the Tualatin Estate Vineyards and Winery, located near Forest Grove, Oregon.

Company generates revenues from the sales of wine to wholesalers and direct to consumers.

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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this is not a significant part of the Companys activities.

The Company had $10,500 in bulk wine sales for the three months ended

March 31, 2022 and no bulk wine sales for the same period of 2021.

Company sold 33,639 and 38,060 cases of produced wine during the three months ended March 31, 2022 and 2021, respectively, a decrease

of 4,421 cases, or 11.6% in the current year period over the prior year period.

The Company had $10,500 in bulk wine sales for the six months ended

June 30, 2022 and zero bulk wine sales for the same period of 2021.

Company sold 85,133 and 98,420 cases of produced wine during the six months ended June 30, 2022 and 2021, respectively, a decrease of

13,287 cases, or 13.5% in the current year period over the prior year period.

The decrease in wine case sales was primarily the

result of the lack of availability of some vintages until later in the quarter when compared to the prior year period.

result of decreased 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.

March 31, 2022, wine inventory included 113,586 cases of bottled wine and 385,333 gallons of bulk wine in various stages of the aging

June 30, 2022, wine inventory included 131,585 cases of bottled wine and 220,459 gallons of bulk wine in various stages of the aging

Case wine is expected to be sold over the next 12 to 24 months and generally before the release date of the next vintage.

Winery bottled 46,142 cases during the three months ended March 31, 2022.

Winery bottled 75,078 cases during the six months ended June 30, 2022.

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

bloggers including the accolades below.

Enthusiast rated the Companys 2019 Tualatin Estate Chardonnay with 91 points, 2019 Tualatin Estate Pinot Noir with 90 points, 2017 Bernau

Estate Brut with 92 points & Editors Choice and 2017 Bernau Estate Blanc de Blancs with 91 points.

Suckling rated the Companys 2019 Vintage 46 Chardonnay with 94 points, 2019 Vintage 46 Pinot Noir with 93 points, 2019 Elton Pinot Noir

with 92 points and 2019 Bernau Block Pinot Noir with 90 points.

He reviewed the Companys Elton wines and awarded the 2019 Self-Rooted

Pinot Noir with 95 points, 2019 Florine Pinot Noir with 92 points and 2019 Chardonnay with 93 points.

He reviewed the Companys Pambrun

wines and scored the 2019 Merlot with 90 points and 2019 Chrsyologue with 90 points.

The Companys Maison Bleue wines received

scores of 94 points for the 2019 Voyageur Syrah, 94 points from the 2019 Graveiere Syrah and 93 points for the 2019 Frontiere Syrah.

The Companys Bernau Estate methode traditionelle sparkling wines were reviewed and awarded 91 points for the 2017 Brut, 92 points for

the 2017 Brut Rose and 90 points for the 2017 Blanc de Blancs.

rated the Companys 2019 Estate Pinot Noir with 90 points, 2019 Tualatin Estate Pinot Noir with 90 points, 2018 Elton Pinot Noir with

91 points, 2018 Bernau Block Pinot Noir with 93 points, 2018 Tualatin Estate Pinot Noir with 92 points and 2018 Hannah Pinot Noir with

Vinous also reviewed the Companys Pambrun wines and scored the 2018 Pambrun Cabernet Sauvignon with 92 points, 2018 Pambrun

Merlot with 92 points and 2018 Pambrun Chrysologue with 92 points.

The Companys Maison Bleue wines recieved scores of 92 points

for the 2019 Voyageur Syrah, 92 points from the 2019 Graveiere Syrah and 92 points for the 2019 Frontiere Syrah.

Companys 2021 Estate Rose of Pinot Noir received a 92 points and Judges Selection from The Global Fine Wine Challenge.

Suckling rated the Companys 2019 Vintage 46 Chardonnay with 94 points, 2019 Vintage 46 Pinot Noir with 93 points and the 2019

Tualatin Estate Chardonnay with 91 points.

The 2019 Bernau Block Pinot Noir received 90 points and the 2019 Elton Pinot Noir received

The inaugural vintage of the 2017 Bernau Estate Méthode Traditionnelle Brut received 91 points

and the 2017 Bernau Estate Blanc de Blancs received 90 points.

Enthusiast Magazine rated the 2019 Founders Reserve Pinot Noir with 90 points.

Sunset International Wine Competition rated our 2021 Whole Cluster Rosé of Pinot Noir with 91 points & Gold and our 2021

Pinot Gris with 90 points and Gold.

Sommeliers Choice Awards rated our 2021 Whole Cluster Rosé of Pinot Noir with Gold and 91 points and our 2021 Pinot Gris

with 90 points and Gold.

& Spirits rated the 2021 Whole Cluster Rosé of Pinot Noir with 91 points and Best Buy.

of COVID-19 on Operations

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 have had a material adverse impact on economic and

market conditions in the United States.

Although the administration of vaccines in Oregon and throughout the United States contributed

to the lifting of 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 some 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.

COVID-19 outbreak in Oregon and other parts of the United States, as well as the response to COVID-19 by federal, state and local governments

have had a material adverse impact on economic and market conditions in the United States.

Although most restrictive measures have been

lifted, 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.

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

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state governments may have a negative impact on our future 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.

extent of the future impact of the COVID-19 pandemic on the Companys business is highly uncertain and difficult to predict, as

the response to the pandemic 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.

RESULTS OF OPERATIONS

revenue for the three months ended March 31, 2022 and 2021 was $6,242,318 and $5,765,338, respectively, an increase of $476,980,

or 8.3%, in the current year period over the prior year period.

This increase was caused by an increase in revenues from direct

sales of $651,124 being partially offset by a decrease in revenues from shipments to distributors of $174,144 in the current year three-month

period over the same period in the prior year.

increase in direct sales to consumers was primarily the result of increased retail sales revenues from our tasting rooms, wine club and

The decrease in revenue from the distributors was primarily attributed

to the lack of available inventory to ship.

of sales for the three months ended March 31, 2022 and 2021 was $2,522,289 and $2,271,771, respectively, an increase of $250,518,

or 11.0%, in the current period over the prior year period.

This change was primarily the result of an increase in sales in the first

quarter of 2022 compared to the same quarter in 2021.

profit for the three months ended March 31, 2022 and 2021 was $3,720,029 and $3,493,567, respectively, an increase of $226,462, or 6.5%,

in the first quarter of 2022 over the same quarter in the prior year.

This increase was primarily the result of an increase in direct

sales in the first three months of the current year compared to the same period in 2021.

profit as a percentage of net sales for the three months ended March 31, 2022 and 2021 was 59.6% and 60.6%, respectively, a decrease

of 1.0 percentage point in the current quarter over the same quarter in the prior year.

The decrease was primarily the result of the

higher product costs of the more recent vintages sold in the current quarter.

OF OPERATIONS

revenue for the three months ended June 30, 2022 and 2021 were $8,700,861 and $8,949,951, respectively, a decrease of $249,090, or 2.8%,

in the current year period over the prior year period.

This decrease was caused by a decrease in

sales through distributors of $929,661 being partially offset by an increase in direct sales of $680,571 in the current year three-month

period over the prior year period.

The decrease in revenue from sales through distributors was primarily attributed to later availability

of new vintage wines compared to the prior year.

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

in tasting room revenue.

Sales revenue for the six months ended June 30, 2022 and 2021 were $14,943,179 and $14,715,289, respectively,

an increase of $227,890, or 1.5%, in the current year period over the prior year period.

This increase was caused by an

increase in revenues from direct sales of $1,331,695 and a decrease in revenues from sales through distributors of $1,103,805 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 tasting room sales.

The decrease in sales through distributors was primarily the result of an decrease in off-premise sales.

of Sales for the three months ended June 30, 2022 and 2021 were $3,873,604 and $3,810,228, respectively, an increase of $63,376, or

1.7%, in the current period over the prior year period.

This change was primarily the result of an increase in product costs in 2022

mostly due to higher fruit and packaging costs.

Cost of Sales for the six months ended June 30, 2022 and 2021 were $6,395,893 and

$6,081,999, respectively, an increase of $313,894 or 5.2%, in the current period over the prior year period.

This change was

primarily the result of an increase in fruit and packaging costs in 2022 and the mix of sales channels and vintages sold between the

profit as a percentage of net sales for the three months ended June 30, 2022 and 2021 was 55.5% and 57.4%, respectively, a decrease of

1.9 percentage points in the current year period over the prior year period mostly as a result of higher fruit and packaging costs in

the second quarter of 2022 compared to the same quarter of 2021.

Gross profit as a percentage of net sales for the six months ended June

30, 2022 and 2021 was 57.2% and 58.7%, respectively, a decrease of 1.5 percentage points in the current year period over the prior year

This decrease was primarily the result of higher fruit and labor costs in the first six months of 2022 compared to the same period

in the prior year.

General and Administrative Expenses

general and administrative expenses for the three months ended March 31, 2022 and 2021 was $3,856,261 and $3,317,558, respectively, an

increase of $538,703, or 16.2%, 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 $361,062, or 17.1% and an increase in general and administrative expenses of $177,641, or 14.8%

general and administrative expense for the three months ended June 30, 2022 and 2021 was $4,382,814 and $3,602,129 respectively, an increase

of $780,685, or 21.7%, in the current quarter over the same quarter in the prior year.

This increase was primarily the result of an increase

in selling expenses of $784,489, or 35.1% being partially offset by a decrease in general and administrative expenses of $3,804, or 0.3%

in the current quarter compared to the same quarter last year.

Selling expenses increased in 2022 compared to 2021 primarily as

a result of the higher selling expenses related to the increase in direct sales and start up costs related to the opening of new tasting

room locations.

General and administrative expenses increased in the first quarter of 2022 compared to the same quarter of 2021 primarily

as a result of higher maintenance, human resource and IT costs.

expense for the three months ended March 31, 2022 and 2021 was $91,446 and $99,576, respectively, a decrease of $8,130 or 8.2%, in the

first quarter of 2022 over the same quarter in the prior year.

The decrease in interest expense for the first quarter was primarily the

result of lower debt compared to the first quarter of 2021.

Tax (Expense) Benefit

income tax (expense) benefit for the three months ended March 31, 2022 and 2021 was $37,323 and $(46,279),

respectively, an increase of $83,602 or 180.6%, in the first quarter of 2022 over the same quarter in the prior year, primarily

as a result of lower pre-tax income in the first quarter of 2022, compared to the same quarter in 2021.

Selling, general and administrative expense for the six months ended June

30, 2022 and 2021 was $8,239,075 and $6,919,687, respectively, an increase of $1,319,388, or 19.1%, in the current year period over the

prior year period.

This increase was primarily the result of an increase in selling expenses of $1,145,551, or 26.3% combined with an

increase in general and administrative expenses of $173,837, or 6.8% in the current year period compared to the same period in 2021.

Selling expenses increased in both the first half and second quarter of 2022 compared to the same periods in 2021 primarily as a result

of more sales coming from tasting rooms which have higher selling costs and from costs related to the development of new locations.

selling, general and administrative expenses related to the opening of new locations were $254,744 in the current quarter and $438,873

in the first six months of 2022 compared to the same period in the prior year.

expense for the three months ended June 30, 2022 and 2021 was $90,371 and $97,499, respectively, a decrease of $7,128 or 7.3%, in the

second quarter of 2022 over the same quarter in the prior year.

Interest expense for the six months ended June 30, 2022 and 2021 was

$181,817 and $197,075, respectively, a decrease of $15,258 or 7.7%, in the current year period over the prior year period.

in interest expense for the second quarter and first six months of 2022 was primarily the result of decreased debt in the current periods

compared to the second quarter and first six months of 2021.

income tax expense for the three months ended June 30, 2022 and 2021 was $97,220 and $406,304, respectively, a decrease of $309,084 or

76.1%, in the second quarter of 2022 over the same quarter in the prior year mostly as a result of the lower pre-tax income in the second

quarter of 2022, compared to the same quarter in 2021.

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

and 27.4% for the three months ended June 30, 2022 and 2021, respectively.

The income tax expense for the six months ended June 30, 2022

and 2021 was $59,897 and $452,583, respectively, a decrease of $392,686 or 86.8%, in the current year period over the prior year period

mostly a result of lower pre-tax income in the first six months of 2022, compared to the same period in 2021.

The Companys estimated

federal and state combined income tax rate for the three months ended March 31, 2022 and 2021 was 27.4% and 27.4%, respectively.

Income (Loss)

income (loss) for the three months ended March 31, 2022 and 2021 was $(98,942) and $122,685, respectively, a decrease of $221,627, or

180.6%, in the first quarter of 2022 over the same quarter in the prior year.

The decrease in net income for the first quarter of 2022,

compared to the comparable period in 2021, was primarily the result of higher selling and administrative expenses.

Loss Applicable to Common Shareholders

l oss applicable to common shareholders for the three

months ended March 31, 2022 and 2021 was $565,554 and $236,951, respectively, an increase of $328,603, or 138.7%, in the first quarter

of 2022 over the same quarter in the prior year.

The increase in loss applicable to common shareholders in the first quarter of 2022,

compared to the same period of 2021, was the result of a lower net income and a higher accrued preferred stock dividend in the current

federal and state combined income tax rate was 27.4% for the six months ended June 30, 2022 and 2021.

income for the three months ended June 30, 2022 and 2021 was $257,401 and $1,077,551, respectively, a decrease of $820,150, or 76.1%,

in the second quarter of 2022 over the same quarter in the prior year.

Net income for the six months ended June 30, 2022 and 2021 was

$158,459 and $1,200,236, respectively, a decrease of $1,041,777, or 86.8%, in the current year period over the prior year period.

decrease in net income for the second quarter and decrease in net income for the first half of 2022, compared to the comparable periods

in 2021, was primarily the result of changes in the gross profits and operating expenses.

Income (Loss) Applicable to Common Shareholders

Net income (loss) applicable to common shareholders

for the three months ended June 30, 2022 and 2021 was $(209,212) and $715,045, respectively, a decrease of $924,257, or 129.3%, in the

second quarter of 2022 over the same quarter in the prior year.

Net income (loss) applicable to common shareholders for the six months

ended June 30, 2022 and 2021 was $(774,766) and $478,094, respectively, a decrease of $1,252,860, or 262.1%, in the current year period

over the prior year period.

The decrease in income applicable to common shareholders in the second quarter and the first six months of

2022, compared to the same periods of 2021, was the result of lower net income and higher dividend costs in the current period.

and Capital Resources

March 31, 2022, the Company had a working capital balance of $23.9 million and a current working capital ratio of 4.23:1.

March 31, 2022, the Company had a cash balance of $8,568,158.

At December 31, 2021, the Company had a cash balance of $13,747,285.

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

The construction

of a new tasting room and winery in Dundee, Oregon is expected to cost approximately $15.6 million, which is expected to 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 March 31, 2022,

we had incurred approximately $12.1 million on the project.

cash used for operating activities in the three months ended March 31, 2022 was $670,304.

Cash used in operating activities for the three

months ended March 31, 2022 was primarily associated with reduced grapes payable, accounts payable and increased inventories, being partially

offset by decreased accounts receivable and depreciation and amortization.

cash used in investing activities in the three months ended March 31, 2022 was $5,138,816.

Cash used in investing activities for the

three months ended March 31, 2022 primarily consisted of cash used on construction activity and vineyard development costs.

cash generated from financing activities in the three months ended March 31, 2022 was $629,993.

June 30, 2022, the Company had a working capital balance of $20.0 million and a current working capital ratio of 3.99:1.

June 30, 2022, the Company had a cash balance of $3,128,407, while at December 31, 2021, the Company had a cash balance of $13,747,285.

This decrease in cash was primarily the result of investments in construction activity, the payment of grapes payable and an increase

in inventories.

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.

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, 2022, we had incurred approximately $13.6 million on the project.

cash used in operating activities in the six months ended June 30, 2022 was $979,069.

Cash used in operating activities for the six months

ended June 30, 2022 was primarily associated with increased inventory, and payment of grapes payable, partially offset by non-cash lease

expense, and depreciation and amortization.

cash used in investing activities in the six months ended June 30, 2022 was $10,129,564.

Cash used in investing activities for the six

months ended June 30, 2022 consisted of cash used on construction activity and vineyard development costs.

cash generated from financing activities in the six months ended June 30, 2022 was $489,755.

Cash generated from financing activities

for the three months ended March 31, 2022 primarily consisted of proceeds from the issuance of Preferred Stock, being partially offset

by the repayment of debt.

for the six months ended June 30, 2022 consisted of proceeds from the issuance of Preferred Stock, 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

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agreement until July 31, 2023.

At March 31, 2022 and December 31, 2021, there was no outstanding balance on this revolving line of credit.

of March 31, 2022, the Company had a 15-year installment note payable of $1,272,440, due in quarterly payments of $42,534, associated

At June 30, 2022 and December 31, 2021, there was no outstanding balance on this revolving line of credit.

of June 30, 2022, the Company had a 15-year installment note payable of $1,248,993, due in quarterly payments of $42,534, associated

with the purchase of property in the Dundee Hills AVA.

of March 31, 2022, the Company had a total long-term debt balance of $5,418,283, including the portion due in the next year, owed to

Farm Credit Services, exclusive of debt issuance costs of $129,172.

of June 30, 2022, the Company had a total long-term debt balance of $5,301,492, including the portion due in the next year, owed to Farm

Credit Services, exclusive of debt issuance costs of $125,860.

As of December 31, 2021, the Company had a total long-term debt balance

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to meet the Companys short-term needs.

Due to the uncertainty surrounding the future impact of the COVID-19 pandemic on the Company

We will continue to evaluate funding mechanisms to support our long-term funding requirements.

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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