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Item 8. Financial Statements and Supplementary Data

2023-03-28 compared with 2022-03-29 · 247 added, 237 removed, 512 unchanged (49% of the section changed)

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TO FINANCIAL STATEMENTS

of Independent Registered Public Accounting Firm ( Moss Adams LLP , Portland,

Oregon , PCAOB ID No.

Report of Independent Registered Public Accounting Firm ( Moss Adams LLP , Portland, Oregon , PCAOB ID No.

Balance Sheets

Statements of Income

Statements of Operations

Statements of Shareholders Equity

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(the Company) as of December 31, 2022

and 2020, the related statements of income, shareholders equity, and cash flows for the years then ended and the related notes

(collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all

material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its

cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of

and 2021, the related statements of operations, shareholders equity, and cash flows for the years then ended and the related

notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly,

in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations

and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of

financial statements are the responsibility of the Companys management.

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Moss Adams LLP

Portland, Oregon

March 28, 2023

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Investor deposits for preferred stock

Line of credit

Current portion of note payable

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Common stock, no par value, 10,000,000 shares authorized,

4,964,529 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively.

4,964,529 shares issued and outstanding at December 31, 2022 and December 31, 2021.

Retained earnings

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VALLEY VINEYARDS, INC.

Twelve months ended

OF OPERATIONS

COST OF SALES

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Total operating expenses

INCOME FROM OPERATIONS

INCOME (LOSS) FROM OPERATIONS

OTHER INCOME (EXPENSE)

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Other income, net

INCOME BEFORE INCOME TAXES

INCOME TAX PROVISION

( 1,020,879 )

INCOME (LOSS) BEFORE INCOME TAXES

INCOME TAX (EXPENSE) BENEFIT

( 1,020,879 )

NET INCOME (LOSS)

Preferred stock dividends

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( 1,444,283 )

INCOME APPLICABLE TO COMMON SHAREHOLDERS

Earnings per common share after preferred dividends, basic and diluted

Weighted-average number of common shares outstanding

INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS

$ ( 2,512,943 )

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

Weighted-average number of common shares outstanding, basic and diluted

accompanying notes are an integral part of the financial statements.

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Issuance of preferred stock, net

Stock based compensation

Preferred stock dividends declared

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CASH FLOWS FROM OPERATING ACTIVITIES

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

Net income (loss)

$ ( 646,492 )

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

Depreciation and amortization

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Change in operating assets and liabilities:

Accounts receivable, net

Accounts receivable

( 1,063,573 )

( 3,124,749 )

( 1,388,777 )

Prepaid expenses and other current assets

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Net cash from operating activities

( 2,666,228 )

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposition of property and equipment

Additions to vineyard development

Additions to vineyard development costs

Additions to property and equipment

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CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from Paycheck Protection Program

Payments on Paycheck Protection Program

( 1,655,200 )

Proceeds from investor deposits held as liability

Payment on installment note for property purchase

Payments on long-term debt

Proceeds from line of credit

Payment on long-term debt

Proceeds from long-term debt

Proceeds from issuance of preferred stock

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NET CHANGE IN CASH AND CASH EQUIVALENTS

( 13,408,609 )

CASH AND CASH EQUIVALENTS, beginning of year

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Gift cards given in lieu of cash dividends

Right of use assets obtained in exchange for operating lease liabilities

Supplemental disclosure of cash flow information:

Cash paid during the year for:

Interest paid (net of capitalized interest)

Interest paid

Income tax paid

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1 – SUMMARY OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and operations – Willamette Valley Vineyards, Inc.

(the Company) owns and operates vineyards and a winery located

in the state of Oregon, and produces and distributes premium, super premium, and ultra-premium wines, primarily Pinot Noir, Pinot Gris,

Chardonnay, and Riesling.

and operations – Willamette Valley Vineyards, Inc.

(the Company) owns and operates vineyards, wineries and tasting

rooms, and produces and distributes premium, super premium, and ultra-premium wines, primarily Pinot Noir, Pinot Gris, Chardonnay, Riesling

and Sparkling wine.

Company has direct-to-consumer sales and national sales to distributors.

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gross profit margin than national sales to distributors due to differentiated pricing between these segments.

Basis of presentation – The accompanying financial statements have been prepared in accordance with accounting principles generally

of presentation – The accompanying financial statements have been prepared in accordance with accounting principles generally

accepted in the United States of America, which require management to make certain estimates and assumptions.

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from those estimates under different assumptions or conditions.

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 certain 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.

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

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

Far exceeding the required Oregon

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

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

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

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.

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.

Financial instruments and concentrations of risk – The Company has the following financial instruments:

cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, grapes payable and long-term debt.

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.

instruments and concentrations of risk – The Company has the following financial instruments:

cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, grapes payable, short and long-term debt.

and cash equivalents are maintained at five financial institutions.

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approximately 18.1 % of total Company revenue.

Other comprehensive income – The nature of the Companys business and related transactions do not give rise to other comprehensive

Cash and cash equivalents – Cash and cash equivalents include money market funds.

Accounts receivable – The Company performs ongoing credit evaluations of its customers and does not require collateral.

December 31, 2022, two customers accounted for approximately 27% and 14% of accounts receivable.

At December 31, 2021, two customers

accounted for approximately 11% and 11% of accounts receivable.

comprehensive income – The nature of the Companys business and related transactions do not give rise to other comprehensive

and cash equivalents – Cash and cash equivalents include money market funds.

receivable – The Company performs ongoing credit evaluations of its customers and does not require collateral.

is maintained for potential credit losses.

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the accounts receivable balances, and current economic conditions that may affect a customers ability to pay.

The Company has

credit risk associated with uncollateralized trade accounts receivable from all operations totaling $ 3,163,375 and $ 2,671,576 as of December

The Company has credit

risk associated with uncollateralized trade accounts receivable from all operations totaling $ 4,226,948 and $ 3,163,375 as of December

31, 2022 and 2021, inclusive of the allowance for doubtful accounts.

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first-out (FIFO) cost or net realizable value by variety.

Net realizable value is the value of an asset that can be

realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal

of the asset in question.

accordance with general practices in the wine industry, wine inventories are generally included in current assets in the accompanying

balance sheets, although a portion of such inventories may be aged for more than one year (Note 3).

Vineyard development costs – Vineyard development costs consist primarily of the costs of the vines and expenditures related to labor

development costs – Vineyard development costs consist primarily of the costs of the vines and expenditures related to labor

and materials to prepare the land and construct vine trellises.

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a component of cost of goods sold.

For the years ending December 31, 2021 and 2020, $ 245,399 and $ 243,760 , respectively,

was amortized into inventory costs.

Property and equipment – Property and equipment are stated at cost and are depreciated on the straight-line basis over their estimated

For the years ending December 31, 2022 and 2021, $ 284,980 and $ 245,339 , respectively, was amortized

into inventory costs.

and equipment – Property and equipment are stated at cost and are depreciated on the straight-line basis over their estimated

useful lives.

Land improvements are depreciated over 15 years.

Land improvements are depreciated over 15 to 30 years.

Winery buildings are depreciated over 30 years.

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gain or loss is included in operations.

Review of long-lived assets for impairment – The Company evaluates long-lived assets for impairment whenever events or changes in circumstances

of long-lived assets for impairment – The Company evaluates long-lived assets for impairment whenever events or changes in circumstances

indicate that the carrying amount of an asset or asset group may not be recoverable.

Long-lived assets consist primarily of property

and equipment.

Circumstances that might cause the Company to evaluate its long-lived assets for impairment could include a significant

decline in the prices the Company or the industry can charge for its products, which could be caused by general economic or other factors,

changes in laws or regulations that make it difficult or more costly for the Company to distribute its products to its markets at prices

which generate adequate returns, natural disasters, significant decrease in demand for the Companys products or significant increase

in the costs to manufacture the Companys products.

and equipment, vineyard development costs, and operating lease right of use assets.

Circumstances that might cause the Company to evaluate

its long-lived assets for impairment could include a significant decline in the prices the Company or the industry can charge for its

products, which could be caused by general economic or other factors, changes in laws or regulations that make it difficult or more costly

for the Company to distribute its products to its markets at prices which generate adequate returns, natural disasters, significant decrease

in demand for the Companys products or significant increase in the costs to manufacture the Companys products.

Recoverability

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the carrying amount of the assets exceeds the fair value of the assets.

The Company groups its long-lived assets with other assets

and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities

The Company groups its long-lived assets with other assets and

liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities

(or asset group).

This would typically be at the winery level.

The Company did not recognize any impairment charges associated with

long-lived assets during the years ended December 31, 2021 and 2020.

Income taxes – Income taxes are recognized using enacted tax rates and are composed of taxes on financial accounting income

The Company did not recognize any impairment charges associated with long-lived

assets during the years ended December 31, 2022 and 2021.

taxes – Income taxes are recognized using enacted tax rates and are composed of taxes on financial accounting income

that is adjusted for requirements of current tax law, and deferred taxes.

Deferred taxes are estimated using the asset and liability

approach whereby deferred income taxes are calculated for the expected future tax consequences of temporary differences between the book

basis and tax basis of the Companys assets and liabilities.

approach whereby, deferred income taxes are calculated for the expected future tax consequences of temporary differences between the

book basis and tax basis of the Companys assets and liabilities.

Company had no unrecognized tax benefits as of December 31, 2022 or 2021.

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and penalties for the years ended December 31, 2022 and 2021 were not material.

valuation allowance is provided when it is more likely than not that some portion or all the deferred tax assets will not be realized.

The Company evaluates the potential realization of its deferred tax assets by assessing its valuation allowance and by adjusting the

amount of such allowance, if necessary.

The factors used to assess the likelihood of realization included the Companys forecast

of future taxable income or loss and available tax planning strategies that could be implemented to realize the net deferred tax assets.

Certain intangible assets and liabilities will be deductible for tax purposes and may result in deferred tax assets and liabilities as

the benefits are recognized in the Companys tax returns.

Company files U.S.

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and California.

The Company is subject to the Oregon Corporate Activity Tax (OR CAT) beginning in 2020.

The Company may be subject to

examination by the IRS for tax years 2018 through 2021.

Additionally, the Company may be subject to examinations by state taxing jurisdictions

for tax years 2017 through 2021.

The Company is not aware of any current examinations by the IRS or the state taxing authorities.

Revenue recognition – The Company recognizes revenue once its performance obligation to the customer is completed and control

The Company may be subject to examination by the IRS for tax years 2019 through 2022.

Additionally, the Company may be

subject to examinations by state taxing jurisdictions for tax years 2018 through 2022.

The Company is not aware of any current examinations

by the IRS or the state taxing authorities.

recognition – The Company recognizes revenue once its performance obligation to the customer is completed, and control

of the product or service is transferred to the customer.

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Excise taxes that are accrued and paid,

as a result of transaction, are accounted for as an offset to sales in the net sales calculation.

as a result of a transaction, are accounted for as an offset to sales in the net sales calculation.

The Companys contractual obligations

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For the year ended December 31, 2022 and 2021, the Company recorded incentive program expenses of $1,333,396 and $1,437,481, respectively,

as a reduction in sales on the Statements of Income.

as a reduction in sales on the Statements of Operations.

As of December 31, 2022, and 2021, the Company has recorded an incentive program

liability in the amount of $ 67,326 and $ 157,044 , respectively, which is included in accrued expenses on the balance sheet.

liability in the amount of $111,398 and $67,326, respectively, which is included in accrued expenses on the balance sheets.

are based on historical and projected experience for each type of program or customer and have historically been in line with actual

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the Company sells merchandise, food, and hospitality related services through its tasting rooms.

room and web site sales are paid for and recognized as revenue at the point of sale.

Hospitality sales, that are paid in advance of the

event, are accrued as unearned revenue and are subsequently recognized as revenue in the period of the event.

Wine club sales are made

under an agreement with the customer which specifies the quantity and timing of the wine club shipment.

Wine club charges are billed

to the customers credit card, at the time of shipment, and revenue is then recognized.

room sales are recognized as revenue at the point of sale and internet sales are recognized at time of shipment.

Hospitality sales, that

are paid in advance of the event, are accrued as unearned revenue, and are subsequently recognized as revenue in the period of the event.

Wine club sales are made under an agreement with the customer, which specifies the quantity and timing of the wine club shipment.

club charges are billed to the customers credit card, at the time of shipment, and revenue is then recognized.

Company periodically sells bulk wine or grapes that either do not meet the Companys quality standards or are in excess of production

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These sales are recognized when ownership transfers to the buyer which occurs at the point of shipment.

Cost of goods sold – Costs of goods sold include costs associated with grape growing, external grape costs, packaging materials,

of goods sold – Costs of goods sold include costs associated with grape growing, external grape costs, packaging materials,

winemaking and production costs, vineyard and production administrative support and overhead costs, purchasing and receiving costs and

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No further costs are allocated to inventory units after bottling.

Selling, general and administrative expenses – Selling, general and administrative expenses consist primarily of non-manufacturing administrative

general and administrative expenses – Selling, general and administrative expenses consist primarily of non-manufacturing administrative

and overhead costs, advertising, and other marketing promotions.

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For the years ended December 31,

2021 and 2020, these costs, which are included in selling, general and administrative expenses, totaled approximately $ 89,000 and $ 87,000 ,

respectively.

and handling costs – Amounts paid by customers to the Company for shipping and handling costs are included in the net revenue.

Costs incurred for shipping and handling charges are included in selling, general and administrative expense.

2022 and 2021, these costs, which are included in selling, general and administrative expenses, $87,996 and $71,227, respectively.

and handling costs – Amounts paid by customers to the Company for shipping and handling costs are included in net sales.

incurred for shipping and handling charges are included in selling, general and administrative expense.

For the years ended December

31, 2021 and 2020, shipping and handling costs included in selling, general and administration costs were $773,164 and $555,409 respectively.

The Companys gross margins may not be comparable to other companies in the same industry as other companies may include shipping

and handling costs as a cost of goods sold.

Excise taxes – The Company pays alcohol excise taxes based on product sales to both the Oregon Liquor Control Commission and

31, 2022 and 2021, shipping and handling costs incurred were $681,975 and $778,598 respectively.

taxes – The Company pays alcohol excise taxes based on product sales to both the Oregon Liquor Control Commission and

Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau.

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For the years ended December

31, 2021 and 2020, excise taxes incurred were approximately $ 384,000 and $ 372,000 respectively.

Income per common share after preferred dividends – Income per share is computed based on the weighted-average number of common

shares outstanding each year.

31, 2022 and 2021, excise taxes incurred were $ 312,103 and $ 384,498 respectively.

(loss) per common share after preferred dividends – Income (loss) per share is computed based on the weighted-average

number of common shares outstanding each year.

– We determine if an arrangement is a lease at inception.

On our balance sheet, our operating leases are included in Operating lease

right-of-use assets, Current portion of lease liabilities and Lease liabilities, net of current portion.

The Company does not currently

have any finance leases.

On our balance sheets, our operating leases are included in Operating lease

right-of-use (ROU) assets, Current portion of lease liabilities and Lease liabilities, net of current portion.

does not currently have any finance leases.

assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease

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these judgments.

adopted accounting pronouncements

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

This standard simplifies the accounting for income taxes by removing

certain Codification exceptions and others to be discussed.

This was adopted on January 1, 2021 and did not have a significant impact.

issued accounting pronouncements not yet adopted

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2 – ACCOUNTS RECEIVABLE, NET

Companys accounts receivable balance is net of an allowance for doubtful accounts of $ 10,000 and $ 10,000 at December 31, 2021

and 2020, respectively.

Companys accounts receivable balance is net of an allowance for doubtful accounts of $ 10,000 and $ 10,000 at December 31, 2022 and

2021, respectively.

Changes in the allowance for doubtful accounts are as follows:

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Land, improvements and other buildings

Winery buildings and hospitality center

Winery buildings and tasting rooms

Property and equipment, gross

Less accumulated depreciation

Accumulated depreciation

( 22,593,770 )

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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.

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

At December 31, 2021 and 2020, there was no outstanding balance on this revolving line of credit.

In November 2022, the Company increased the borrowing line up to $5,000,000.

The Company had an outstanding line of credit

balance of $ 166,617 at December 31, 2022, at an interest rate of 6.5%, and zero outstanding balance at December 31, 2021.

line of credit agreement includes various covenants, which among other things, requires the Company to maintain minimum amounts of tangible

net worth, debt-to-equity, and debt service coverage, as defined, and limits the level of acquisitions of property and equipment.

December 31, 2021, the Company was in compliance with these financial covenants.

of December 31, 2022, the Company was out of compliance with a debt covenant.

The Company has received a waiver from Umqua Bank waiving

this violation until the next measurement date of December 31, 2023.

6 – NOTES PAYABLE

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Northwest Farm Credit Services Loan #5

Toyota Credit Corporation

Northwest Farm Credit Services Loan

Long-Term Debt, Gross

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Long-Term Debt

Company has two long term debt agreements with Farm Credit Services (FCS) with an aggregate outstanding balance of $5,535,096

and $5,984,272 as of December 31, 2021 and 2020, 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.

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 December 31, 2021,

the Company was in compliance with these covenants.

In the event of future noncompliance with the Companys debt covenants, FCS

would have the right to declare the Company in default, and at FCS option without notice or demand, the unpaid principal balance

of the loan, plus all accrued unpaid interest thereon and all other amounts due shall immediately become due and payable.

Company had an outstanding loan with Toyota Credit Corporation which matured and was paid in full in February 2021, at zero interest,

with an outstanding balance of $0 and $956 as of December 31, 2021 and 2020, respectively.

Company has three long term debt agreements with Northwest Farm Credit Services (FCS) with an aggregate outstanding

balance of $ 7,062,654 and $ 5,535,096

as of December 31, 2022 and 2021, respectively.

The first two 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,

respectively.

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

loan bears interest at Northwest Variable base which was 6.50% at December 31, 2022, with interest due annually and principal at maturity on

November 1, 2025.

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

of Future Minimum Long-term Debt Payment

Future minimum principal payments of long-term debt total

weighted-average interest rates on the aforementioned borrowings for the fiscal years ended December 31, 2021 and 2020 was 5.12% and

5.11% respectively.

weighted-average interest rates on the aforementioned borrowings for the years ended December 31, 2022 and 2021 was 5.57% and 5.12% respectively.

8 – SHAREHOLDERS EQUITY

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The Board does not anticipate paying dividends on its common stock in the foreseeable future.

Company is authorized to issue 10,000,000

shares of redeemable preferred stock.

Each share of the Companys currently issued preferred stock is non-voting.

Companys Series A Redeemable Preferred Stock includes an annual dividend of $ 0.22

per share and is payable annually.

Additionally, the Series A Redeemable Preferred Stock contains a liquidation preference over the

Companys common stock and is subject to optional redemption after June 1, 2021 at the sole discretion of the Companys

Board of Directors.

The liquidation preference is calculated at the original issue price of $ 4.15

per share plus all accrued but unpaid dividends.

The optional redemption, if implemented, would be at the original issue price of

$4.15 per share plus all accrued but unpaid dividends plus a redemption premium of 3% of the original issue price.

In November 2021

and November 2020, the Company declared a dividend on its Series A Redeemable Preferred stock and paid the dividend on December 31,

2021 and December 31, 2020 respectively.

Company is authorized to issue 100,000,000 shares of redeemable preferred stock.

Each share of the Companys currently issued preferred

stock is non-voting.

The Companys Series A Redeemable Preferred Stock includes an annual dividend of $0.22 per share and is payable

Additionally, the Series A Redeemable Preferred Stock contains a liquidation preference over the Companys common stock

and is subject to optional redemption after June 1, 2021 at the sole discretion of the Companys Board of Directors.

The liquidation

preference is calculated at the original issue price of $ 4.15 per share plus all accrued but unpaid dividends.

The optional redemption,

if implemented, would be at the original issue price of $4.15 per share plus all accrued but unpaid dividends plus a redemption premium

of 3% of the original issue price.

In November 2022 and November 2021, the Company declared a dividend on its Series A Redeemable Preferred

stock and paid the dividend on December 31, 2022 and December 31, 2021 respectively.

The Company is current on its dividend obligations.

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was no unrecognized compensation expense related to stock options.

part of an incentive, the Company issued preferred stock during the years ended December 31, 2021 and 2020, resulting in stock compensation

expense of $39,059 and $69,721, respectively.

part of an incentive program, the Company issued no preferred stock during the year ended December 31, 2022 and minimal shares in 2021,

resulting in stock compensation expense of zero and $ 39,059 , respectively.

10 – INCOME TAXES

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Deferred tax expense (benefit)

$ ( 119,646 )

effective income tax rate differs from the federal statutory rate as follows:

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of Net Deferred Tax Assets and Liabilities

Year Ended December 31,

Net Operating Losses

Various Accruals and Deferred Timing Differences

( 3,289,735 )

( 2,744,921 )

Net noncurrent deferred tax liability

Prepaid expenses

( 4,418,327 )

( 3,289,735 )

Valuation allowance

Net deferred tax liability

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$ ( 3,596,507 )

Company recognizes the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be sustained

on examination by the tax authorities, based on the technical merits of the position.

The tax benefit is measured based on the largest

benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Interest and penalties related to income tax

matters are recognized in income tax expense.

The Company recognized no uncertain tax positions, or any accrued interest and penalties

associated with uncertain tax positions as of December 31, 2022 and 2021.

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset

to the extent that management assesses that realization is more likely than not. Realization of the future tax benefits is

dependent on the Companys ability to generate sufficient taxable income within the carryforward period.

Management believes that

the Company will generate sufficient taxable income in the timeframe required to utilize existing net operating losses and therefore

no valuation allowance has been recognized.

of December 31, 2022, the Company has federal net operating loss carryforward of approximately $5,828,673 that do not expire, state net

operating loss carryforwards of approximately $5,118,609 which will start expiring in 2033.

11 – RELATED PARTY TRANSACTIONS

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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 2018 , the Company assumed a lease, through December 2022, for its Maison Bleue tasting room in Walla Walla, Washington.

contains fixed payments that increase over the term of the agreement.

2022, the Company entered into a new lease to December 2027 with one five year renewal option, and defined payments over the term of

February 2020 , the Company entered into a lease for 5 years , with three five-year renewal options for a retail wine facility in Folsom,

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

February 2022 , the Company entered into a lease for 10 years , with three five-year renewal options for a retail wine facility in Lake

Oswego, Oregon.

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 for the year ended December 31, 2022:

of Lease Cost and Other Lease Information

December 31, 2022

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Operating cash flows from operating leases - Other

Weighted-average remaining lease term - operating leases

Weighted-average remaining lease term - Operating leases in years

Weighted-average discount rate - Operating leases

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2021, respectively.

Company has two additional operating leases that have not yet commenced as of December 31, 2021, and as such, have not been recognized

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

in the Companys balance sheet.

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

These operating leases are expected to commence in 2023 with lease terms of 5 and 10 years.

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

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Lease liabilities, net of current portion

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

With these agreements the Company purchases an annually agreed upon quantity of fruit, at pre-determined prices, within

strict quality standards and crop loads.

The Company cannot calculate the minimum or maximum payment as such a calculation is

dependent in large part on unknowns such as the quantity of fruit needed by the Company and the availability of grapes produced that

meet the strict quality standards in any given year.

If no grapes are produced that meet the contractual quality levels, the grapes

may be refused, and no payment would be due.

The Company purchased grapes amounting to $2,956,291 and $2,652,864 during the years

ended December 31, 2021 and 2020, respectively.

The Company had an outstanding balance due on grape purchase agreements of $ 1,388,601

and $ 1,307,165 as of December 31, 2021 and 2020,

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

December 31, 2021, we had spent approximately $9.5 million on the project from our cash reserves.

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

With these agreements the Company purchases an annually agreed upon quantity of fruit, at pre-determined prices, within strict quality

standards and crop loads.

The Company cannot calculate the minimum or maximum payment as such a calculation is dependent in large part

on unknowns such as the quantity of fruit needed by the Company and the availability of grapes produced that meet the strict quality

standards in any given year.

If no grapes are produced that meet the contractual quality levels, the grapes may be refused, and no payment

would be due.

The Company purchased grapes amounting to $2,508,419 and $2,928,398 during the years ended December 31, 2022 and 2021,

respectively.

The Company had an outstanding balance due on grape purchase agreements of $ 1,208,673 and $ 1,388,601 as of December 31,

2022 and 2021, respectively.

13 – EMPLOYEE BENEFIT PLAN

February 2006, the Company instituted a 401(k) profit sharing plan (the Plan) covering all eligible employees.

who participate may elect to make salary deferral contributions to the Plan up to 100% of the employees eligible payroll subject

to annual Internal Revenue Code maximum limitations.

The Company may make a discretionary contribution to the entire qualified employee

pool, in accordance with the Plan.

For the years ended December 31, 2021 and 2020 there were $ 164,188 and $ 138,588 contributions made

by the Company to the Plan, respectively.

who participate may elect to make salary deferral contributions to the Plan up to 100% of the employees eligible payroll

subject to annual Internal Revenue Code maximum limitations.

The Company may make a discretionary contribution to the entire

qualified employee pool, in accordance with the Plan.

For the years ended December 31, 2022, and 2021 there were $ 196,198

and $ 164,188

of contributions made by the Company to the Plan, respectively.

14 – 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 December 31, 2021, the Company had received aggregate proceeds

of $8,533,086 from sales of our Series A Redeemable Preferred Stock, net of acquisition costs, under this offering.

This Prospectus Supplement

has been closed and all related shares 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

Company proposed to offer and sell, on a delayed or continuous basis, up to 2,118,811 additional shares of Series A Redeemable Preferred

Stock having proceeds not to exceed $10,700,000.

Net proceeds of $9,234,250 have been received under this offering as of December, 30

2021 for the issuance of Preferred Stock and $ 4,134,422 is shown as an investor liability for shares to be issued in 2022.

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

The Company subsequently filed with the SEC prospectus supplement on June 10, 2020, pursuant to which

the Company sold an aggregate of 1,902,155 shares of its Series A Redeemable Preferred Stock for aggregate proceeds of $8,533,086, net

of acquisition costs.

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

sold an aggregate of 1,918,939 shares of its Series A Redeemable Preferred Stock for aggregate proceeds of $9,008,334 net of acquisition

July 1, 2022, the Company filed a new shelf Registration Statement on Form S-3 (the July 2022 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 and September 1 2022, the

Company filed with the SEC Prospectus Supplements to the July 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

and up to 284,995 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $1,467,729, respectively.

Each of these

Prospectus Supplements 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.

On October 3, 2022, the

Company filed with the SEC a Prospectus Supplement to the July 2022 Form S-3, pursuant to which the Company proposed to offer and sell,

on a delayed or continuous basis, up to 233,564 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $1,226,211.

This Prospectus Supplement established that our shares of preferred stock were to be sold in two offering periods with two separate offering

prices beginning with an offering price of $5.25 per share and concluding with an offering of $5.35 per share.

On November 1, 2022, the

Company filed with the SEC a Prospectus Supplement to the July 2022 Form S-3, pursuant to which the Company proposed to offer and sell,

on a delayed or continuous basis, up to 344,861 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $1,845,009.

This Prospectus Supplement established that our shares of preferred stock were to be sold in one offering period with an offering price

of $5.35 per share.

Net proceeds of $3,156,064 have been received under these offerings as of December, 31 2022 for the issuance of Preferred

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 December 31, 2021 and 2020 was $682,881 and $487,633, respectively and is recorded as unearned revenue on the balance sheet.

The amount of unused dividend gift

cards at December 31, 2022 and 2021 was $ 1,106,970

and $ 682,881 , respectively

and is recorded as unearned revenue on the balance sheets.

Revenue from gift cards is recognized when the gift card

is redeemed by a customer.

When the likelihood of a gift card being redeemed by a customer is determined to be remote and the Company

expects to be entitled to the breakage, then the value of the unredeemed gift card is recognized as revenue.

We determine the gift card

breakage rate based upon Company-specific historical redemption patterns.

To date we have determined that no breakage should be recognized

related to our gift cards.

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.

At any time 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.

15 – SEGMENT REPORTING

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Schedule of Segment reporting

Twelve Months Ended December 31,

Distributor Sales

Months Ended December 31,

Cost of sales

Selling expenses

Contribution margin

Percent of sales

General and administration

Income from operations

and administrative expenses

(loss) from operations

$ ( 546,418 )

sales include $ 97,652 and $ 103,471 of bulk wine and grape sales in the years ended December 31, 2022 and 2021, respectively.

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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-K

Item 8. Financial Statements and Supplementary Data