What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2022-11-14 · 283 added, 368 removed, 322 unchanged (67% of the section changed)

2 unchanged sentences

BALANCE SHEETS

September 30,

CURRENT ASSETS

12 unchanged sentences

Investor deposits for preferred stock

Bank overdraft

Line of credit

Current portion of note payable

10 unchanged sentences

SHAREHOLDERS’ EQUITY

Redeemable preferred stock, no par value, 10,000,000 shares authorized, 8,483,862 shares issued and outstanding, liquidation preference of $ 36,607,864 , at September 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 September 30, 2022 and December 31, 2021, respectively.

Redeemable preferred stock, no par value, 10,000,000 shares authorized,

shares issued and outstanding, liquidation preference

$ 39,123,269 , at March 31, 2023 and 9,185,666 shares issued and

outstanding, liquidation preference $ 38,120,514 , at December 31, 2022.

Common stock, no par value, 10,000,000 shares authorized, 4,964,529

shares issued

and outstanding at March 31, 2023 and

December 31, 2022, respectively.

Retained earnings

1 unchanged sentence

LIABILITIES AND SHAREHOLDERS’ EQUITY

accompanying notes are an integral part of this condensed financial statement

accompanying notes are an integral part of this financial statement

VALLEY VINEYARDS, INC.

1 unchanged sentence

Three months ended

Nine months ended

September 30,

COST OF SALES

3 unchanged sentences

Total operating expenses

INCOME (LOSS) FROM OPERATIONS

( 1,226,035 )

LOSS FROM OPERATIONS

OTHER INCOME (EXPENSE)

1 unchanged sentence

Interest expense

Other income, net

INCOME (LOSS) BEFORE INCOME TAXES

( 1,308,235 )

LOSS BEFORE INCOME TAXES

( 1,025,786 )

INCOME TAX (EXPENSE) BENEFIT

NET INCOME (LOSS)

INCOME TAX BENEFIT

Accrued preferred stock dividends

( 1,399,837 )

( 1,083,213 )

NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS

NET LOSS APPLICABLE TO COMMON SHAREHOLDERS

$ ( 1,256,542 )

$ ( 565,554 )

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 this condensed financial statement

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 this financial statement

VALLEY VINEYARDS, INC.

STATEMENTS OF SHAREHOLDERS EQUITY

Nine-Month Period Ended September 30, 2022

Three-Month Period Ended March 31, 2023

Preferred Stock

3 unchanged sentences

Balance at March 31, 2023

Preferred stock dividends accrued

Balance at June 30, 2022

Preferred stock dividends accrued

Balance at September 30, 2022

Nine-Month Period Ended September 30, 2021

Three-Month Period Ended March 31, 2022

Preferred Stock

3 unchanged sentences

Balance at March 31, 2022

Issuance of preferred stock, net

Preferred stock dividends accrued

Balance at June 30, 2021

Stock compensation expense

Preferred stock dividends accrued

Balance at September 30, 2021

accompanying notes are an integral part of this condensed financial statement

accompanying notes are an integral part of this financial statement

VALLEY VINEYARDS, INC.

OF CASH FLOWS

Nine months ended September 30,

Three months ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

$ ( 744,823 )

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

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

Depreciation and amortization

Gain on disposition of property and equipment

Non-cash lease expense

Loan fee amortization

Stock compensation expense

Change in operating assets and liabilities:

7 unchanged sentences

( 1,208,673 )

( 1,388,601 )

Accounts payable

3 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposition of property and equipment

Additions to vineyard development costs

7 unchanged sentences

Payment on installment note for property purchase

Proceeds from bank overdraft

Proceeds from line of credit

Payments on long-term debt

Proceeds from investor deposits held as liability

Proceeds from long-term debt

Proceeds from issuance of preferred stock

5 unchanged sentences

NON-CASH INVESTING AND FINANCING ACTIVITIES

Purchases of property and equipment and vineyard development costs included in accounts payable

Purchases of property and equipment and vineyard development

costs included in accounts payable

Reduction in investor deposits for preferred stock

Accrued preferred stock dividends

accompanying notes are an integral part of this condensed financial statement

TO UNAUDITED INTERIM FINANCIAL STATEMENTS

Right of use assets obtained in exchange for operating lease liabilities

accompanying notes are an integral part of this financial statement

TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

accompanying unaudited interim financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022

and 2021 have been prepared in conformity with accounting principles generally accepted in the United States (U.S.

for interim financial statements.

accompanying unaudited interim condensed financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and

2022 have been prepared in conformity with accounting principles generally accepted in the United States (U.S.

interim financial statements.

The financial information as of December 31, 2022 is derived from the audited financial statements

1 unchanged sentence

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

Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S.

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 nine months ended September 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.

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.

31, 2022 (the 2022 Report).

Certain information or footnote disclosures normally included in financial statements

prepared in accordance with U.S.

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

Exchange Commission.

In the opinion of management, the accompanying financial statements include all adjustments necessary (which

are of a normal recurring nature) for the fair statement of the results of the interim periods presented.

The accompanying unaudited

interim condensed financial statements should be read in conjunction with the Companys audited financial statements for the

year ended December 31, 2022, as presented in the Companys Annual Report on Form 10-K.

results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the entire year

ending December 31, 2023, or any portion thereof.

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

1 unchanged sentence

for production, selling, and distribution.

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 (loss) per share after preferred stock dividends calculation for the periods shown:

of Earnings Per Share

Three months ended September 30,

Nine months ended September 30,

Net income (loss)

$ ( 949,821 )

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:

Schedule of Earnings Per Share

Three months ended March 31,

$ ( 744,823 )

Accrued preferred stock dividends

( 1,399,837 )

( 1,083,213 )

Net income (loss) applicable to common shares

Net loss applicable to common shareholders

$ ( 1,256,542 )

$ ( 565,554 )

Weighted-average common shares outstanding basic and diluted

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

Weighted-average number of common shares outstanding basic and diluted

Loss per common share after preferred dividends, basic and diluted

to the filing of the 2022 Report there were no accounting pronouncements issued by the Financial Accounting Standards Board (FASB)

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

Reclassifications

– Certain immaterial amounts from prior periods have been reclassified to conform to current years presentation.

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

Schedule of Inventories

September 30, 2022

March 31, 2023

December 31, 2022

6 unchanged sentences

Schedule of Property and Equipment, Net

September 30, 2022

March 31, 2023

December 31, 2022

1 unchanged sentence

Land, improvements, and other buildings

Winery, tasting room buildings, and hospitality center

Winery buildings and hospitality center

Property and equipment, gross

3 unchanged sentences

Property and equipment, net

expense for the nine months ended September 30, 2022 and 2021 was $ 1,384,200 and $ 1,230,459 , respectively.

Depreciation expense for the

three months ended September 30, 2022 and 2021 was $ 567,394 and $ 446,033 , respectively.

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

allows borrowing up to $2,000,000 against eligible accounts receivable and inventories, as defined in the agreement at July 29, 2021.

The revolving line bears interest at prime less 0.5%, with a floor of 3.25%, is payable monthly, and is subject to renewal.

In July 2021,

expense for the three months ended March 31, 2023 and 2022 was $ 726,564 and $ 378,634 , respectively.

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

that allows borrowing up to $ 2,000,000 against eligible accounts receivable and inventories, as defined in the agreement.

revolving line bears interest at prime less 0.5%, with a floor of 3.25% , is payable monthly, and is subject to renewal.

2021, the Company renewed the credit agreement until July 31, 2023.

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

on this revolving line of credit.

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

require the Company to maintain a minimum current ratio,

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

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

financial covenants.

In November 2022, the Company increased the borrowing line up to

The Company had an outstanding line of credit balance of $ 1,178,078 at March 31, 2023, at an interest rate of 7.25%, and

an outstanding balance of $166,617 at December 31, 2022.

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.

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.

Payable – In February 2017, the Company purchased property, including vineyard land, bare land, and structures in the Dundee

1 unchanged sentence

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

As of September 30, 2022, the

Company had a balance of $1,225,194 due on this note.

As of March 31, 2023, the Company

had a balance of $ 1,176,519 due on this note.

As of December 31, 2022, the Company had a balance of $ 1,201,038 due on this note.

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

of $ 5,183,190 and $ 5,535,097 as of September 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.

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 nine months ended September 30, 2022)

of September 30, 2022, the Company had unamortized debt issuance costs of $ 122,548 .

Debt – The Company has three long term debt agreements with AgWest with an aggregate outstanding balance of $ 7,952,402

and $ 7,062,654 as of March 31, 2023 and

December 31, 2022, respectively.

The first loan requires monthly principal and interest payments of $15,557 for the life of the

loan, at an annual fixed interest rate of 4.75% with a maturity date of 2028, and outstanding balance of $937,535 and $972,940 as of

March 31, 2023 and December, 31, 2022, respectively.

The second loan requires monthly principal and interest payments of $46,510 for

the life of the loan, at an annual fixed interest rate of 5.21% with a maturity date of 2032, and outstanding balance of $4,002,367

and $4,089,714 as of March 31, 2023 and December, 31, 2022, respectively.

The general purposes of these loans were to make capital

improvements to the winery and vineyard facilities.

The third loan bears interest at Northwest Variable base which was 7.00% at

March 31, 2023 and 6.50% at December 31,2022, with interest due annually and principal at maturity on November 1, 2025 with an

available line of $ 5,000,000 and outstanding balance of $ 3,012,500 and $ 2,000,000 as of March 31, 2023 and December, 31, 2022,

respectively.

of March 31, 2023, the Company had unamortized debt issuance costs of $ 115,925 .

As of December 31, 2022, the Company had unamortized

debt issuance costs of $ 119,237 .

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

preferred stock sales will be sufficient 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.

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

to meet the Companys short-term needs.

The Company will continue to evaluate funding mechanisms to support our long-term funding

requirements.

INTEREST AND TAXES PAID

taxes – The Company paid zero and $ 245,000 in income taxes for the three months ended September 30, 2022 and 2021, respectively.

The Company paid $ 502,000 and $ 285,000 in income taxes for the nine months ended September 30, 2022 and 2021, respectively.

– The Company paid $ 88,102 and $ 93,234 for the three months ended September 30, 2022 and 2021, respectively, in interest on

long-term debt.

The Company paid $ 263,326 and $ 284,017 for the nine months ended September 30, 2021 and 2020, respectively, in interest

on long-term debt.

Taxes – The Company received $ 19,456 in income taxes for the three months ended March 31, 2023 and paid no income taxes for

the 3 months ended March 31, 2022.

– The Company paid $ 93,805 and $ 87,977 for the three months ended March 31, 2023 and 2022, respectively, in interest on long-term

SEGMENT REPORTING

14 unchanged sentences

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

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

segments for the three and nine month periods ending September 30, 2022 and 2021.

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, 2023 and 2022.

Sales figures are net of related excise taxes.

of Revenue by Reporting Segments

Months Ended September 30,

margin (loss)

Schedule of Segment reporting

Three Months Ended March 31,

Distributor Sales

Cost of Sales

Selling and Marketing Expenses

Contribution Margin

$ ( 432,785 )

of total sales

and administration expenses

Percent of Sales

General and Administration Expenses

Loss from Operations

$ ( 974,950 )

Months Ended September 30,

of total sales

and administration expenses

(loss) from operations

$ ( 136,232 )

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

Direct sales include $10,500

for bulk wine sales for the nine months ended September 30, 2022 and zero bulk wine sales for the nine months ended September 30, 2021.

sales include $ 10,000 in bulk wine sales in the three months ended March 31, 2023 compared to $ 10,500 bulk wine sales in the three months

ended March 31, 2022.

SALE OF PREFERRED STOCK

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 September 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 September 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

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.

of September 30, 2022, the Company had received aggregate proceeds of $9,008,334 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 September 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

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 was 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.

1 unchanged sentence

amount of securities sold pursuant to the June 2022 Form S-3 is not to exceed $20,000,000.

$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.

On September 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 284,995 shares

of Series A Redeemable Preferred Stock having proceeds not to exceed $1,467,729.

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.

On October 3, 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 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.

Net proceeds of $2,053,468 have been received under these offerings

as of September, 30 2022 for the issuance of Preferred Stock.

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

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 $3,558,807 have been received under these offerings as of March, 31

2023 for the issuance of Preferred Stock.

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 September 30, 2022 and December 31, 2021 was $474,290 and $682,881, respectively, which are recorded as a component of unearned revenue

on the balance sheet.

The amount of unused dividend gift

cards at March 31, 2023 and December 31, 2022 was $ 967,074 and $ 1,106,970 , 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

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

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.

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.

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

On our balance sheet, our operating leases are included in Operating lease right-of-use

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

The Company does not currently have

any finance leases.

assets (ROU), Curren t portion of lease liabilities,

and Lease liabilities, net of current portion.

The Company 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

23 unchanged sentences

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

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

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

In June 2021, the company

1 unchanged sentence

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

In 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.

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%.

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%.

March 2017 , the Company entered into a 25-year lease for approximately 17 acres of agricultural land in Dundee, Oregon.

6 unchanged sentences

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.

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

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

2023, 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,

1 unchanged sentence

The lease contains an escalation provision tied to the CPI not to exceed 3% per annum

with increases not allowed in any year being carried forward to following years.

September 2021 , the Company entered into a lease for 10 years, with two five-year renewal options for a retail wine facility in Vancouver,

with increases not allowed in any year being carried forward to the following years.

March 2021 , the Company entered into a lease for 10 years , with two five-year renewal options for a retail wine facility in Vancouver,

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

4 unchanged sentences

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

January 2023 , the Company entered into a lease for 10 years , with three five-year renewal options for a retail wine facility in Bend,

The lease defines the payments over the term of the lease .

following tables provide lease cost and other lease information:

Schedule of Lease Cost and Other Lease Information

of Lease Cost and Information

Three Months Ended

Nine Months Ended

September 30, 2022

March 31, 2023

Operating lease cost - Vineyards

3 unchanged sentences

Other Information

Cash paid for amounts included in the measurement

of lease liabilities

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases - Vineyard

2 unchanged sentences

Weighted-average discount rate - Operating leases

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

assets obtained in exchange for new operating lease obligations were $ 695,565 and $ 1,600,552 for the three months ended March 31, 2023

and 2022, respectively.

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

balance sheet.

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

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

of March 31, 2023, maturities of lease liabilities were as follows:

of Maturities of Lease Liabilities

Years Ended December 31,

2022 (excluding the nine months ended September 30, 2022)

Total minimal lease payments

16 unchanged sentences

would be due.

SUBSEQUENT EVENTS

Agreement – In October 2022, the Company entered into a $5,000,000 loan agreement with FCS.

As of the filing date there

have been no withdrawals under this agreement.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

16 unchanged sentences

or distributor relations or performance, impact of possible adverse weather conditions, impact of reduction in grape quality or supply

due to disease or smoke from forest fires, changes in consumer spending, the reduction in consumer demand for premium wines, and the

impact of the COVID-19 pandemic and the policies of United States federal, state and local governments in response to such pandemic.

In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic economic

Many of these risks as well as other risks that may have a material adverse impact on our operations and business, are identified

in Item 1A Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2021, as well

as in the Companys other Securities and Exchange Commission filings and reports.

The forward-looking statements in this report

are made as of the date hereof, and, except as otherwise required by law, the Company disclaims any intention or obligation to update

or revise any forward-looking statements or to update the reasons why the actual results could differ materially from those projected

in the forward-looking statements, whether as a result of new information, future events or otherwise.

due to disease or smoke from forest fires, changes in consumer spending, and the reduction in consumer demand for premium wines.

such statements could be affected by general industry and market conditions and growth rates, and general domestic economic conditions.

Many of these risks as well as other risks that may have a material adverse impact on our operations and business, are identified in

Item 1A Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2022, as well as

in the Companys other Securities and Exchange Commission filings and reports.

The forward-looking statements in this report are

made as of the date hereof, and, except as otherwise required by law, the Company disclaims any intention or obligation to update or

revise any forward-looking statements or to update the reasons why the actual results could differ materially from those projected in

the forward-looking statements, whether as a result of new information, future events or otherwise.

Accounting Policies

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Such policies

were unchanged during the nine months ended September 30, 2022.

were unchanged during the three months ended March 31, 2023.

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

17 unchanged sentences

the Griffin Creek, Pambrun, Elton, Maison Bleue, Metis, Natoma, Pere Ami, Elton, Domaine Willamette and Tualatin Estates labels.

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

The Company generates revenues from the

sales of wine to wholesalers and direct to consumers.

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

near Dundee, Oregon .

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

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

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this is not a significant part of the Companys activities.

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

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

Company sold 127,007 and 145,143 cases of produced wine during the nine months ended September 30, 2022 and 2021, respectively, a decrease

of 18,136 cases, or 12.5% in the current year period over the prior year period.

The decrease in wine case sales was primarily the result

of decreased case sales through distributors due to a lack of available product.

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

warehousing, and shipping and handling costs.

For grapes grown at Company vineyards, costs include farming expenditures and amortization

of vineyard development costs.

September 30, 2022, wine inventory included 154,525 cases of bottled wine and 123,543 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 141,619 cases during the nine months ended September 30, 2022.

The Company sold 42,387 and 33,639 cases of produced

wine during the three months ended March 31, 2023 and 2022, respectively, an increase of 8,748 cases, or 26.0% in the current year period

over the prior year period.

The increase in wine case sales was primarily the result of having more locations and more availability

of some vintages in the quarter when compared to the prior year period.

Cost of sales includes grape costs, whether purchased

or grown at Company vineyards, winemaking and processing costs, bottling, packaging, warehousing, and shipping and handling costs.

grapes grown at Company vineyards, costs include farming expenditures and amortization of vineyard development costs.

At March 31, 2023, wine inventory included 106,487

cases of bottled wine and 523,910 gallons of bulk wine in various stages of the aging process.

Case wine is expected to be sold over

the next 12 to 24 months and generally before the release date of the next vintage.

The Winery bottled 56,974 cases during the three

months ended March 31, 2023.

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 2020 Riesling with 90 points & Best Buy, and in the Top 100 Best Buy Wines for 2022.

Young from International Wine Report rated the Companys 2019 Bernau Block Pinot Noir 90 points, 2019 Bernau Block Chardonnay 92

points, 2019 Elton Pinot Noir 92 points.

The Companys Elton wines the 2019 Florine Pinot Noir 90 points, 2019 Self-Rooted Pinot

Noir 91 points and 2019 Chardonnay 91 points.

The Companys Pambrun wines the 2019 Cabernet Sauvignon 92 points, 2019 Merlot 92

points and 2019 Chrysologue 91 points.

The Companys Maison Bleue wines the 2019 Gravière Syrah 92 points, 2019 Voyageur

Syrah 93 points, 2019 Frontière Syrah 92 points and 2021 Lisette Rosé 91 points.

of COVID-19 on Operations

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.

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.

Suckling rated the Companys 2021 Estate Pinot Noir 91 points, Dijon Clone Chardonnay 91 points and the 2022 Pinot Gris 90 points.

Francisco Chronicle Wine Competition 2023 awarded the Companys White Pinot Noir with a Gold Medal.

Great Northwest Wine Competition awarded the Companys 2017 Brut with a Double Gold Medal.

OF OPERATIONS

revenue for the three months ended September 30, 2022 and 2021 were $7,602,878 and $7,641,228, respectively, a decrease of $38,350, or

revenue for the three months ended March 31, 2023 and 2022 was $8,308,940 and $6,242,318, respectively, an increase of $2,066,622, or

33.1%, in the current year period over the prior year period.

This decrease was caused by a decrease

in sales through distributors of $133,386 being partially offset by an increase in direct sales of $95,036 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

from the opening of new tasting rooms in 2022.

Three new locations in Dundee, Oregon, Lake Oswego, Oregon and Vancouver, Washington have

opened in 2022.

Sales revenue for the nine months ended September 30, 2022 and 2021 were $22,546,057 and $22,356,517, respectively, an

increase of $189,540, or 0.8%, in the current year period over the prior year period.

This increase was caused by an

increase in revenues from direct sales of $1,426,731 being partially offset by a decrease in revenues from sales through distributors

of $1,237,191 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 from the opening of three new locations in 2022.

The decrease in sales through distributors

was primarily the result of a decrease in off-premise sales.

of Sales for the three months ended September 30, 2022 and 2021 were $3,708,695 and $3,179,590, respectively, an increase of $529,105,

or 16.6%, 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 nine months ended September 30, 2022 and 2021 were $10,104,588

and $9,261,589, respectively, an increase of $842,999 or 9.1%, 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 two periods.

profit as a percentage of net sales for the three months ended September 30, 2022 and 2021 was 51.2% and 58.4%, respectively, a decrease

of 7.2 percentage points in the current year period over the prior year period mostly as a result of higher fruit and packaging costs

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

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

September 30, 2022 and 2021 was 55.2% and 58.6%, respectively, a decrease of 3.4 percentage points in the current year period over the

prior year period.

This decrease was primarily the result of higher fruit, packaging and labor costs in the first nine months of 2022

compared to the same period in the prior year.

This increase was caused by an increase in revenues from direct sales

of $1,114,341 and an increase in revenues from shipments to distributors of $952,281 in the current year three-month period over the

same period in the prior year.

The increase in

direct sales to consumers was primarily the result of more tasting rooms in 2023 compared to 2022 and an increase in wine club sales.

The increase in revenue from the distributors was primarily attributed to more

inventory being available to ship in the current year three-month period over the same period in the prior year.

of sales for the three months ended March 31, 2023 and 2022 was $3,830,477 and $2,522,289, respectively, an increase of $1,308,188, or

51.9%, 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 2023 compared to the same quarter in 2022 and higher product costs.

profit for the three months ended March 31, 2023 and 2022 was $4,478,463 and $3,720,029, respectively, an increase of $758,434, or 20.4%,

in the first quarter of 2023 over the same quarter in the prior year.

This increase was primarily the result of an increase in sales

in the first three months of the current year compared to the same period in 2022 being partially offset by an increase in product costs.

profit as a percentage of net sales for the three months ended March 31, 2023 and 2022 was 53.9% and 59.6%, respectively, a decrease

of 5.7 percentage points 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.

General and Administrative Expenses

Selling, general and administrative expense for the

three months ended September 30, 2022 and 2021 was $5,120,218 and $3,768,765 respectively, an increase of $1,351,453, or 35.9%, 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

$1,438,872 or 61.6% in the third quarter of 2022 compared to the same quarter of 2022 being partially offset by a decrease in general

and administrative expenses of $87,419, or 6.1% in the current quarter compared to the same quarter last year.

Selling, general and administrative

expense for the nine months ended September 30, 2022 and 2021 was $13,359,293 and $10,688,452, respectively, an increase of $2,670,841,

or 25.0%, in the current year period over the prior year period.

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

of $2,584,423, or 38.6% combined with an increase in general and administrative expenses of $86,418, or 2.2% in the current year period

compared to the same period in 2021.

Selling expenses increased in both the third quarter and nine months 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 four new tasting room and restaurant locations.

The contribution loss related to the opening of the four new locations

were $654,518 in the current quarter and $1,089,380 in the first nine months of 2022.

The contribution loss included lease, labor and

selling costs related to the new locations in 2022.

expense for the three months ended September 30, 2022 and 2021 was $87,220 and $96,473, respectively, a decrease of $9,253 or 9.6%, in

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

Interest expense for the nine months ended September 30, 2022 and

2021 was $269,037 and $293,548, respectively, a decrease of $24,511 or 8.3%, in the current year period over the prior year period.

decrease in interest expense for the third quarter and first nine months of 2022 was primarily the result of decreased debt in the current

periods compared to the third quarter and first nine months of 2021.

income tax (expense) benefit for the three months ended September 30, 2022 and 2021 was $358,414 and $(172,256), respectively, a decrease

of $530,670 or 308.1%, in the third quarter of 2022 over the same quarter in the prior year mostly as a result of the lower pre-tax income

in the third 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 September 30, 2022 and 2021, respectively.

The income tax (expense) benefit for the

nine months ended September 30, 2022 was $298,517 and a $(624,839) for September 30, 2021, respectively, a decrease of $923,356 or 147.8%,

in the current year period over the prior year period mostly a result of lower pre-tax income in the first nine months of 2022, compared

to the same period in 2021.

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

September 30, 2022 and 2021.

Income (Loss)

income (loss) for the three months ended September 30, 2022 and 2021 was $(949,821) and $456,191, respectively, a decrease of $1,406,012,

or 308.2%, in the third quarter of 2022 over the same quarter in the prior year.

Net income (loss) for the nine months ended September

30, 2022 and 2021 was $(791,362) and $1,656,427, respectively, a decrease of $2,447,789, or 147.8%, in the current year period over the

prior year period.

The decrease in net income for the third quarter and for the first nine months of 2022, compared to the comparable

periods in 2021, was primarily the result of higher product costs and additional costs related to the opening of three new locations

Income (Loss) Applicable to Common Shareholders

income (loss) applicable to common shareholders for the three months ended September 30, 2022 and 2021 was $(1,416,433,) and $95,120,

respectively, a decrease of $1,511,553, in the third quarter of 2022 over the same quarter in the prior year.

Net income (loss) applicable

to common shareholders for the nine months ended September 30, 2022 and 2021 was $(2,191,199) and $573,214, respectively, a decrease

of $2,764,413, in the current year period over the prior year period.

The decrease in net income applicable to common shareholders in

the third quarter and the first nine 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.

general and administrative expenses for the three months ended March 31, 2023 and 2022 was $5,453,413 and $3,856,261, respectively, an

increase of $1,597,152, or 41.4%, in the current quarter over the same quarter in the prior year.

This increase was primarily the result

of an increase in selling expenses of $1,505,853, or 60.8% and an increase in general and administrative expenses of $91,299, or 6.6%

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

Selling expenses increased in 2023 compared to 2022 primarily as a result

of the higher selling expenses related to the increase in direct sales and having more tasting room locations.

General and administrative

expenses increased in the first quarter of 2023 compared to the same quarter of 2022 primarily as a result of higher property taxes and

labor cost increases.

expense for the three months ended March 31, 2023 and 2022 was $124,422 and $91,446, respectively, an increase of $32,976 or 36.1%, in

the first quarter of 2023 over the same quarter in the prior year.

The increase in interest expense for the first quarter was primarily

the result of higher debt and higher interest rates compared to the first quarter of 2022.

income tax benefit for the three months ended March 31, 2023 and 2022 was $280,963 and $37,323, respectively, an increase of $243,640

or 652.8%, in the first quarter of 2023 over the same quarter in the prior year, primarily as a result of a higher pre-tax loss in the

first quarter of 2023, compared to the same quarter in 2022.

The Companys estimated federal and state combined income tax rate

for the three months ended March 31, 2023 and 2022 was 27.4%.

loss for the three months ended March 31, 2023 and 2022 was $744,823 and $98,942, respectively, an increase of $645,881, or 652.8%, in

the first quarter of 2023 over the same quarter in the prior year.

The increase in net loss for the first quarter of 2023, compared to

the comparable period in 2022, was primarily the result of higher selling expenses and higher product costs.

Loss Applicable to Common Shareholders

loss applicable to common shareholders for the three months ended March 31, 2023 and 2022 was $1,256,542 and $565,554, respectively,

an increase of $690,988, or 122.2%, in the first quarter of 2023 over the same quarter in the prior year.

The increase in loss applicable

to common shareholders in the first quarter of 2023, compared to the same period of 2022, was the result of a higher net loss and a higher

accrued preferred stock dividend in the current period.

and Capital Resources

September 30, 2022, the Company had a working capital balance of $16.5 million and a current working capital ratio of 2.84:1.

September 30, 2022, the Company had a cash balance of $363,363, 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 property and equipment of $13,117,674, the payment of grapes payable

and an increase in inventories.

cash used in operating activities in the nine months ended September 30, 2022 was $2,139,961.

March 31, 2023, the Company had a working capital balance of $19.1 million and a current working capital ratio of 3.32:1.

March 31, 2023, the Company had a cash balance of $154,340.

At December 31, 2022, the Company had a cash balance of $338,676.

This decrease

is primarily the result of the payment of grapes payable and accounts payable being partially offset by a reduction in accounts receivable.

cash used for operating activities in the three months ended March 31, 2023 was $1,279,932.

Cash used in operating activities for the

nine months ended September 30, 2022 was primarily associated with increased inventory, and payment of grapes payable, being partially

offset by non-cash lease expense, and depreciation and amortization.

cash used in investing activities in the nine months ended September 30, 2022 was $13,645,084.

Cash used in investing activities for

the nine months ended September 30, 2022 consisted of cash used on property and equipment and vineyard development costs.

cash generated from financing activities in the nine months ended September 30, 2022 was $2,401,123.

three months ended March 31, 2023 was primarily associated with reduced grapes payable, accounts payable and increased inventories, being

partially offset by decreased accounts receivable.

cash used in investing activities in the three months ended March 31, 2023 was $1,500,176.

Cash used in investing activities for the

three months ended March 31, 2023 primarily consisted of cash used on construction activity and vineyard development costs.

cash generated from financing activities in the three months ended March 31, 2023 was $2,595,772.

Cash generated from financing activities

for the nine months ended September 30, 2022 consisted of proceeds from the deposits for and issuance of preferred stock, being partially

offset by the repayment of debt.

for the three months ended March 31, 2023 primarily consisted of proceeds from the issuance of Preferred Stock, long and short term debt

being partially offset by the repayment of debt.

December of 2005, the Company entered into a revolving line of credit agreement with Umpqua Bank that allows borrowing up to $2,000,000

against eligible accounts receivable and inventories, as defined in the agreement at July 29, 2021.

The revolving line bears interest

at prime less 0.5%, with a floor of 3.25%, is payable monthly, and is subject to renewal.

In July 2021, the Company renewed the credit

agreement until July 31, 2023.

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

of September 30, 2022, the Company had a 15-year installment note payable of $1,225,194, due in quarterly payments of $42,534, associated

against eligible accounts receivable and inventories, as defined in the agreement.

The revolving line bears interest at prime less 0.5%,

with a floor of 3.25%, is payable monthly, and is subject to renewal.

In July 2021, the Company renewed the credit agreement until July

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

The Company had an outstanding line of credit

balance of $1,178,078 at March 31, 2023, at an interest rate of 7.25%, and an outstanding balance of $166,617 at December 31, 2022.

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.

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.

of March 31, 2023, the Company had a 15-year installment note payable of $1,176,519, due in quarterly payments of $42,534, associated

with the purchase of property in the Dundee Hills AVA.

of September 30, 2022, the Company had a total long-term debt balance of $5,183,190, including the portion due in the next year, owed

to Farm Credit Services, exclusive of debt issuance costs of $122,548.

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

balance of $5,535,097, exclusive of debt issuance costs of $132,484.

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

preferred stock sales will be sufficient to meet the Companys short-term needs.

We will continue to evaluate funding mechanisms

to support our long-term funding requirements.

of March 31, 2023, the Company had a total long-term debt balance of $7,952,402, including the portion due in the next year, owed to

AgWest, exclusive of debt issuance costs of $115,925.

As of December 31, 2022, the Company had a total long-term debt balance of $7,062,654,

exclusive of debt issuance costs of $119,237.

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

to meet the Companys short-term needs.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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