WILLAMETTE VALLEY VINEYARDS INC 10-Q

Item 1 – Financial Statements WILLAMETTE VALLEY VINEYARDS, INC. CONDENSED BALANCE SHEETS (Unaudited) March 31, December 31, 2024 2023 ASSETS CURRENT ASSETS Cash and cash equivalents $ 256,472 $ 238,482 Accounts receivable, net 3,211,644 2,994,829 Inventories 28,881,664 28,314,779 Prepaid expenses and other current assets 507,758 522,854 Income tax receivable 333,359 121,959 Total current assets 33,190,897 32,192,903 Other assets 13,824 13,824 Vineyard development costs, net 8,686,472 8,704,352 Property and equipment, net 53,009,801 53,369,637 Operating lease right of use assets 11,287,131 11,427,433 TOTAL ASSETS $ 106,188,125 $ 105,708,149 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 1,953,128 $ 2,026,352 Accrued expenses 1,779,337 1,482,254 Investor deposits for preferred stock - 718,857 Bank overdraft 522,521 393,416 Line of credit 3,320,928 2,684,982 Note payable 1,074,712 1,100,735 Current portion of long-term debt 529,463 522,798 Current portion of lease liabilities 459,290 450,452 Unearned revenue 1,939,956 1,970,661 Grapes payable - 2,446,233 Total current liabilities 11,579,335 13,796,740 Long-term debt, net of current portion and debt issuance costs 9,330,046 6,961,872 Lease liabilities, net of current portion 11,284,367 11,402,714 Deferred income taxes 2,911,618 2,911,618 Total liabilities 35,105,366 35,072,944 COMMITMENTS AND CONTINGENCIES (NOTE 9) SHAREHOLDERS’ EQUITY Redeemable preferred stock, no par value, 100,000,000 shares authorized, 10,239,573 shares issued and outstanding, liquidation preference $ 43,057,405 , at March 31, 2024 and 10,046,833 shares issued and outstanding, liquidation preference $ 41,694,357 , at December 31, 2023. 43,920,572 42,388,036 Common stock, no par value, 10,000,000 shares authorized, 4,964,529 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively. 8,512,489 8,512,489 Retained earnings 18,649,698 19,734,680 Total shareholders’ equity 71,082,759 70,635,205 LIABILITIES AND SHAREHOLDERS’ EQUITY $ 106,188,125 $ 105,708,149 The accompanying notes are an integral part of this condensed financial statement 3 WILLAMETTE VALLEY VINEYARDS, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three months ended March 31, 2024 2023 SALES, NET $ 8,803,080 $ 8,308,940 COST OF SALES 3,530,358 3,830,477 GROSS PROFIT 5,272,722 4,478,463 OPERATING EXPENSES: Sales and marketing 4,027,782 3,983,580 General and administrative 1,847,517 1,469,833 Total operating expenses 5,875,299 5,453,413 LOSS FROM OPERATIONS ( 602,577 ) ( 974,950 ) OTHER INCOME (EXPENSE) Interest expense ( 229,687 ) ( 124,422 ) Other income, net 98,052 73,586 LOSS BEFORE INCOME TAXES ( 734,212 ) ( 1,025,786 ) INCOME TAX BENEFIT 212,407 280,963 NET LOSS ( 521,805 ) ( 744,823 ) Accrued preferred stock dividends ( 563,177 ) ( 511,719 ) LOSS APPLICABLE TO COMMON SHAREHOLDERS $ ( 1,084,982 ) $ ( 1,256,542 ) Loss per common share after preferred dividends, basic and diluted $ ( 0.22 ) $ ( 0.25 ) Weighted-average number of common shares outstanding, basic and diluted 4,964,529 4,964,529 The accompanying notes are an integral part of this condensed financial statement 4 WILLAMETTE VALLEY VINEYARDS, INC. CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) Three-Month Period Ended March 31, 2024 Redeemable Preferred Stock Common Stock Retained Shares Dollars Shares Dollars Earnings Total Balance at December 31, 2023 10,046,833 $ 42,388,036 4,964,529 $ 8,512,489 $ 19,734,680 $ 70,635,205 Issuance of preferred stock, net 192,740 969,359 - - - 969,359 Preferred stock dividends accrued - 563,177 - - ( 563,177 ) - Net loss - - - - ( 521,805 ) ( 521,805 ) Balance at March 31, 2024 10,239,573 $ 43,920,572 4,964,529 $ 8,512,489 $ 18,649,698 $ 71,082,759 Three-Month Period Ended March 31, 2023 Redeemable Preferred Stock Common Stock Retained Shares Dollars Shares Dollars Earnings Total Balance at December 31, 2022 9,185,666 $ 38,869,075 4,964,529 $ 8,512,489 $ 22,980,370 $ 70,361,934 Issuance of preferred stock, net 118,322 550,254 - - - 550,254 Preferred stock dividends accrued - 511,719 - - ( 511,719 ) - Net loss - - - - ( 744,823 ) ( 744,823 ) Balance at March 31, 2023 9,303,988 $ 39,931,048 4,964,529 $ 8,512,489 $ 21,723,828 $ 70,167,365 The accompanying notes are an integral part of this condensed financial statement 5 WILLAMETTE VALLEY VINEYARDS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended March 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 521,805 ) $ ( 744,823 ) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 833,510 767,393 Non-cash lease expense 140,302 205,775 Loan fee amortization 3,312 3,312 Change in operating assets and liabilities: Accounts receivable ( 216,815 ) 1,096,856 Inventories ( 566,885 ) ( 368,046 ) Prepaid expenses and other current assets 15,096 ( 141,355 ) Income tax receivable ( 211,400 ) ( 261,508 ) Unearned revenue ( 30,705 ) ( 60,415 ) Lease liabilities ( 109,509 ) ( 179,888 ) Grapes payable ( 2,446,233 ) ( 1,208,673 ) Accounts payable ( 198,720 ) ( 287,113 ) Accrued expenses 297,083 ( 101,447 ) Net cash from operating activities ( 3,012,769 ) ( 1,279,932 ) CASH FLOWS FROM INVESTING ACTIVITIES Additions to vineyard development costs ( 23,644 ) ( 19,232 ) Additions to property and equipment ( 306,654 ) ( 1,480,944 ) Net cash from investing activities ( 330,298 ) ( 1,500,176 ) CASH FLOWS FROM FINANCING ACTIVITIES Payment on installment note for property purchase ( 26,023 ) ( 24,519 ) Proceeds from bank overdraft 129,105 316,339 Proceeds from line of credit 635,946 1,011,461 Payment on long-term debt ( 128,473 ) ( 110,252 ) Proceeds from long-term debt 2,500,000 1,000,000 Proceeds from issuance of preferred stock 250,502 402,743 Net cash from financing activities 3,361,057 2,595,772 NET CHANGE IN CASH AND CASH EQUIVALENTS 17,990 ( 184,336 ) CASH AND CASH EQUIVALENTS, beginning of period 238,482 338,676 CASH AND CASH EQUIVALENTS, end of period $ 256,472 $ 154,340 NON-CASH INVESTING AND FINANCING ACTIVITIES Purchases of property and equipment and vineyard development costs included in accounts payable $ 194,351 $ 4,015 Reduction in investor deposits for preferred stock $ 718,857 $ 147,511 Accrued preferred stock dividends $ 563,177 $ 511,719 Right of use assets obtained in exchange for operating lease liabilities $ - $ 695,565 The accompanying notes are an integral part of this condensed financial statement 6 NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS 1) BASIS OF PRESENTATION The accompanying unaudited interim condensed financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statements. The financial information as of December 31, 2023 is derived from the audited financial statements presented in the Willamette Valley Vineyards, Inc. (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 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 Company’s audited financial statements for the year ended December 31, 2023, as presented in the Company’s Annual Report on Form 10-K. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2024, or any portion thereof. The Company’s revenues include direct to consumer sales and national sales to distributors. These sales channels utilize shared resources for production, selling, and distribution. Basic loss per share after preferred stock dividends are computed based on the weighted-average number of common shares outstanding each period. The following table presents the earnings per share after preferred stock dividends calculation for the periods shown: Schedule of Earnings Per Share Three months ended March 31, 2024 2023 Numerator Net loss $ ( 521,805 ) $ ( 744,823 ) Accrued preferred stock dividends ( 563,177 ) ( 511,719 ) Net loss applicable to common shareholders $ ( 1,084,982 ) $ ( 1,256,542 ) Denominator Weighted-average number of common shares outstanding basic and diluted 4,964,529 4,964,529 Loss per common share after preferred dividends, basic and diluted $ ( 0.22 ) $ ( 0.25 ) Subsequent to the filing of the 2023 Report there were no accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) that would have a material effect on the Company’s unaudited interim condensed financial statements. 7 2) INVENTORIES The Company’s inventories, by major classification, are summarized as follows, as of the dates shown: Schedule of Inventories March 31, 2024 December 31, 2023 Winemaking and packaging materials $ 1,757,981 $ 1,113,170 Work-in-process (costs relating to unprocessed and/or unbottled wine products) 15,417,269 15,952,118 Finished goods (bottled wine and related products) 11,706,414 11,249,491 Total inventories $ 28,881,664 $ 28,314,779 3) PROPERTY AND EQUIPMENT, NET The Company’s property and equipment consists of the following, as of the dates shown: Schedule of Property and Equipment, Net March 31, 2024 December 31, 2023 Construction in progress $ 912,895 $ 639,840 Land, improvements, and other buildings 14,491,827 14,491,827 Winery buildings and tasting rooms 44,112,526 43,991,586 Equipment 20,141,690 20,103,535 Property and equipment, gross 79,658,938 79,226,788 Accumulated depreciation ( 26,649,137 ) ( 25,857,151 ) Property and equipment, net $ 53,009,801 $ 53,369,637 Depreciation expense for the three months ended March 31, 2024 and 2023 was $ 791,986 and $ 726,564 , respectively. 4) DEBT Line of Credit Facility – In December of 2005, the Company entered into a revolving line of credit agreement with Umpqua Bank (the “Credit Agreement”) that allows borrowing up to $ 2,000,000 against eligible accounts receivable and inventories, as defined in the agreement. The revolving line bears interest at prime less 0.5%, with a floor of 3.25%, is payable monthly, and is subject to renewal. In July 2021, the Company renewed the Credit Agreement until July 31, 2023. In November 2022, the Company increased the borrowing line up to $ 5,000,000 . In July 2023 the line of credit was renewed for an additional two years. The Company had an outstanding line of credit balance of $ 3,320,928 at March 31, 2024, at an interest rate of 8.0%, and an outstanding line of credit balance of $ 2,684,982 at December 31, 2023, at an interest rate of 8.0%. The 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. As of December 31, 2023, the Company was out of compliance with a debt covenant. The Company has received a waiver from Umpqua Bank waiving this violation until the next measurement date of December 31, 2024. Notes Payable – In February 2017, the Company purchased property, including vineyard land, bare land, and structures in the Dundee Hills American Viticultural Area (AVA) under terms that included a 15 year note payable with quarterly payments of $42,534, bearing interest at 6%. The note may be called by the owner, up to the outstanding balance, with 180 days written notice. As of March 31, 2024, the Company had a balance of $ 1,074,712 due on this note. As of December 31, 2023, the Company had a balance of $ 1,100,735 due on this note. 8 Long-Term Debt – The Company has three long term debt agreements with AgWest with an aggregate outstanding balance of $ 9,962,186 and $ 7,590,659 as of March 31, 2024 and December 31, 2023, 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. The third loan bears interest at Northwest Variable base, which was 7.80% at March 31, 2024, and December 31, 2023, respectively, with interest due annually and principal at maturity on November 1, 2025. Future minimum principal payments of long-term debt are as follows for the years ending December 31: Schedule of Future Minimum Principal Payment for Long-Term Debt Maturities 2024 394,325 2025 6,074,920 2026 578,559 2027 608,636 2028 640,299 Thereafter 1,665,447 Total $ 9,962,186 As of March 31, 2024, the Company had unamortized debt issuance costs of $ 102,677 . As of December 31, 2023, the Company had unamortized debt issuance costs of $ 105,989 . 5) INTEREST AND TAXES PAID Income taxes – The Company paid zero in income taxes for the three months ended March 31, 2024, and received $ 19,456 in income tax refunds for the three months ended March 31, 2023. Interest – The Company paid $ 134,979 and $ 93,805 for the three months ended March 31, 2024 and 2023, respectively, in interest on long-term debt, line of credit and the bank overdraft. 6) SEGMENT REPORTING The Company has identified two operating segments, Direct Sales and Distributor Sales, based upon their different distribution channels, margins and selling strategies. Direct Sales include retail sales in the tasting rooms, wine club sales, internet sales, on-site events, kitchen and catering sales and other sales made directly to the consumer without the use of an intermediary, including sales of bulk wine or grapes. Distributor Sales include all sales through a third party where prices are given at a wholesale rate. The two segments reflect how the Company’s operations are evaluated by senior management and the structure of its internal financial reporting. The Company evaluates performance based on the gross profit of the respective business segments. Selling expenses that can be directly attributable to the segment, including depreciation of segment specific assets, are included, however, centralized selling expenses and general and administrative expenses are not allocated between operating segments. Therefore, net income (loss) information for the respective segments is not available. Discrete financial information related to segment assets, other than segment specific depreciation associated with selling, is not available and that information continues to be aggregated. 9 The following table outlines the sales, cost of sales, gross margin, directly attributable selling expenses, and contribution margin of the segments for the three months ended March 31, 2024 and 2023. Sales figures are net of related excise taxes. Schedule of Segment reporting Three Months Ended March 31, Direct Sales Distributor Sales Unallocated Total 2024 2023 2024 2023 2024 2023 2024 2023 Sales, net $ 4,286,156 $ 4,071,649 $ 4,516,924 $ 4,237,291 $ - $ - $ 8,803,080 $ 8,308,940 Cost of Sales 1,295,145 1,289,933 2,235,213 2,540,544 - - 3,530,358 3,830,477 Gross Profit 2,991,011 2,781,716 2,281,711 1,696,747 - - 5,272,722 4,478,463 Selling and Marketing Expenses 3,263,381 3,214,501 504,424 531,741 259,977 237,338 4,027,782 3,983,580 Contribution Margin $ ( 272,370 ) $ ( 432,785 ) $ 1,777,287 $ 1,165,006 Percent of Sales 48.7 % 49.0 % 51.3 % 51.0 % General and Administration Expenses 1,847,517 1,469,833 1,847,517 1,469,833 Loss from Operations $ ( 602,577 ) $ ( 974,950 ) Direct sales include zero bulk wine sales in the three months ended March 31, 2024 compared to $ 10,000 bulk wine sales in the three months ended March 31, 2023. 7) SALE OF PREFERRED STOCK On 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 costs. On 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 $3,558,807 have been received under these offerings as of March 31, 2024 for the issuance of Preferred Stock. On June 30, 2023, 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 727,835 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $3,530,000. 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 $4.85 per share and concluding with an offering of $5.35 per share. On October 27, 2023, 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 288,659 shares of Series A Redeemable Preferred Stock having proceeds not to exceed $1,400,000. 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 $3,938,066 have been received under these offering as of March 31, 2024 for the issuance of Preferred Stock. 10 Shareholders have the option to receive dividends as cash or as a gift card for purchasing Company products. The amount of unused dividend gift cards at March 31, 2024 and December 31, 2023 was $ 1,099,872 and $ 1,480,138 , 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. Dividends accrued but not paid will be added to the liquidation preference of the stock until the dividend is declared and paid. 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. 8) LEASES We determine if an arrangement is a lease at inception. On our condensed balance sheets, 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. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For leases that do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Significant judgment may be required when determining whether a contract contains a lease, the length of the lease term, the allocation of the consideration in a contract between lease and non-lease components, and the determination of the discount rate included in our leases. We review the underlying objective of each contract, the terms of the contract, and consider our current and future business conditions when making these judgments. Operating leases – Vineyard - In December 1999 , under a sale-leaseback agreement, the Company sold approximately 79 acres of the Tualatin Vineyards property with a net book value of approximately $1,000,000 for approximately $ 1,500,000 cash and entered into a 20-year operating lease agreement, with three five-year extension options, and contains an escalation provision of 2.5% per year. The Company extended the lease in January 2019 until January 2025. This property is referred to as the Peter Michael Vineyard and includes approximately 69 acres of producing vineyards. In December 2004 , under a sale-leaseback agreement, the Company sold approximately 75 acres of the Tualatin Vineyards property with a net book value of approximately $551,000 for approximately $ 727,000 cash and entered into a 15-year operating lease agreement, with three five-year extension options, for the vineyard portion of the property. The first two five year extensions have been exercised. The lease contains a formula-based escalation provision with a maximum increase of 4% every three years. This property is referred to as the Meadowview Vineyard and includes approximately 49 acres of producing vineyards. In February 2007 , the Company entered into a lease agreement for 59 acres of vineyard land at Elton Vineyard. In June 2021, the company entered into a new 11 year lease for this property. The lease contains an escalation provision tied to the CPI not to exceed 2% per annum. This property includes 54 acres of producing vineyards and 2 additional plantable acres. 11 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. 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%. This property is referred to as part of Ingram Vineyard and includes 93 acres of producing vineyards and 17 additional plantable acres. In March 2017 , the Company entered into a 25-year lease for approximately 17 acres of agricultural land in Dundee, Oregon. This lease contains an annual payment that remains constant throughout the term of the lease. This property is referred to as part of Bernau Estate Vineyard and includes 9 acres of producing vineyards. Operating Leases – Non-Vineyard – In September 2018 , the Company renewed an existing lease for three years , with two one-year renewal options, for its McMinnville tasting room. 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. In January 2018 , the Company assumed a lease, through December 2022, for its Maison Bleue tasting room in Walla Walla, Washington. In January 2023, the Company entered into a new lease to December 2027 with one five year renewal option, and defined payments over the term of the lease. For right of use asset and liability calculations the Company has not included the renewal option. In February 2020 , the Company entered into a lease for 5 years , with three five-year renewal options for a retail wine facility in Folsom, California, referred to as Willamette Wineworks. 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 the following years. For right of use asset and liability calculations the Company has concluded it is reasonably certain to extend available options through February 2040. In March 2021 , the Company entered into a lease for 10 years , with two five-year renewal options for a retail wine facility in Vancouver, Washington. The lease defines the payments over the term of the lease and option periods. For right of use asset and liability calculations the Company has concluded it is reasonably certain to extend available options through August 2041. In 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. For right of use asset and liability calculations the Company has concluded it is reasonably certain to extend available options through January 2042. In 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, Oregon. The lease defines the payments over the term of the lease and option periods. For right of use asset and liability calculations the Company has concluded it is reasonably certain to extend available options through May 2042. In January 2023 , the Company entered into a lease for 10 years , with three five-year renewal options for a retail wine facility in Bend, Oregon. The lease defines the payments over the term of the lease. For right of use asset and liability calculations the Company has assumed it will operate in this location for 10 years. The following tables provide lease cost and other lease information: Schedule of Lease Cost and Information Three Months Ended Three Months Ended March 31, 2024 March 31, 2023 Lease Cost Operating lease cost - Vineyards $ 114,782 $ 114,782 Operating lease cost - Other 250,640 219,982 Short-term lease cost 8,427 3,575 Total lease cost $ 373,849 $ 338,339 Other Information Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases - Vineyard $ 115,266 $ 113,921 Operating cash flows from operating leases - Other $ 219,363 $ 194,955 Weighted-average remaining lease term - Operating leases in years 15.59 10.81 Weighted-average discount rate - Operating leases 7.88 % 5.36 % 12 Right-of-use assets obtained in exchange for new operating lease obligations were zero and $ 695,565 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, maturities of lease liabilities were as follows: Schedule of Maturities of Lease Liabilities Operating Years Ended December 31, Leases 2024 $ 1,005,731 2025 1,326,705 2026 1,299,824 2027 1,354,008 2028 1,339,747 Thereafter 14,912,964 Total minimal lease payments 21,238,979 Less present value adjustment ( 9,495,322 ) Operating lease liabilities 11,743,657 Less current lease liabilities ( 459,290 ) Lease liabilities, net of current portion $ 11,284,367 9) COMMITMENTS AND CONTINGENCIES Litigation – From time to time, in the normal course of business, the Company is a party to legal proceedings. Management believes that these matters will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows, but, due to the nature of litigation, the ultimate outcome of any potential actions cannot presently be determined. Grape 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. 13 ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our” and “the Company” refer to Willamette Valley Vineyards, Inc. Forward Looking Statements This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form 10-Q contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that are based on current expectations, estimates and projections about the Company’s business, and beliefs and assumptions made by management. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates”, “predicts,” “potential,” “should,” or “will” or the negative thereof and variations of such words and similar expressions are intended to identify such forward-looking statements. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to: availability of financing for growth, availability of adequate supply of high quality grapes, successful performance of internal operations, impact of competition, changes in wine broker 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, and the reduction in consumer demand for premium wines. In addition, 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as well as in the Company’s 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. Critical Accounting Policies The foregoing discussion and analysis of the Company’s financial condition and results of operations are based upon our unaudited condensed financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed financial statements requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenue recognition, collection of accounts receivable, valuation of inventories, and amortization of vineyard development costs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A description of the Company’s critical accounting policies and related judgments and estimates that affect the preparation of the Company’s financial statements is set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Such policies were unchanged during the three months ended March 31, 2024. Overview The Company, one of the largest wine producers in Oregon by volume, believes its success is dependent upon its ability to: (1) grow and purchase high quality vinifera wine grapes; (2) vinify the grapes into premium, super premium and ultra-premium wine; (3) achieve significant brand recognition for its wines, first in Oregon, and then nationally and internationally; (4) effectively distribute and sell its products nationally; and (5) continue to build on its base of direct to consumer sales. The Company’s goal is to continue to build on a reputation for producing some of Oregon’s finest, most sought-after wines. The Company has focused on positioning itself for strategic growth through property purchases, property development and issuance of the Company’s Series A Redeemable Preferred Stock (the “Preferred Stock”). Management expects near term financial results to be negatively impacted by these activities as a result of incurring costs of accrued preferred stock dividends, strategic planning and development costs and other growth associated costs. The Company’s wines are made from grapes grown in vineyards owned, leased or contracted by the Company, and from grapes purchased from other vineyards. The grapes are harvested, fermented and made into wine primarily at the Company’s winery in Turner Oregon (the “Winery”) and the wines are sold principally under the Company’s Willamette Valley Vineyards label, but also under the Griffin Creek, Pambrun, Elton, Maison Bleue, Metis, Natoma, Pere Ami, Elton, Domaine Willamette and Tualatin Estates labels. The 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. 14 Direct to consumer sales primarily include sales through the Company’s tasting rooms, telephone, internet and wine club. Direct to consumer sales are at a higher unit price than sales through distributors due to prices received being closer to retail than those prices paid by wholesalers. The Company continues to emphasize growth in direct to consumer sales through the Company’s existing tasting rooms and the opening of new locations, and growth in wine club membership. Additionally, the Company’s Preferred Stock sales since August 2015 have resulted in approximately 14,385 new preferred stockholders many of which the Company believes are wine enthusiasts. When considering joint ownership, we believe these new stockholders represent approximately 21,577 current and potential customers of the Company. Periodically, the Company will sell grapes or bulk wine, due to them not meeting Company standards or being in excess of production targets, however this is not a significant part of the Company’s activities. The Company sold 43,208 and 42,387 cases of produced wine during the three months ended March 31, 2024 and 2023, respectively, an increase of 821 cases, or 2.0% 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. For grapes grown at Company vineyards, costs include farming expenditures and amortization of vineyard development costs. At March 31, 2024, wine inventory included 147,351 cases of bottled wine and 658,454 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 57,908 cases during the three months ended March 31, 2024. Willamette Valley Vineyards continues to receive positive recognition through national magazines, regional publications, local newspapers and online bloggers including the accolades below. James Suckling rated the Company’s 2021 Elton Pinot Noir 92 points and the 2021 Signature Cuvée Pinot Noir 91 points. He also rated the Company’s 2021 Estate Pinot Noir 91 points, Dijon Clone Chardonnay 91 points and the 2022 Pinot Gris 90 points. Owen Bargreen rated the Company’s 2020 Domaine Willamette Méthode Traditionnelle Brut Rosé, 2022 Tualatin Estate Chardonnay, 2021 Mètis Red Blend and 2022 Dry Riesling all 92 points. Bargreen also scored the 2022 Dry Gewürztraminer at 91 points. RESULTS OF OPERATIONS Revenue Sales revenue for the three months ended March 31, 2024 and 2023 was $8,803,080 and $8,308,940, respectively, an increase of $494,140, or 5.9%, in the current year period over the prior year period. This increase was caused by an increase in revenues from direct sales of $214,507 and an increase in revenues from shipments to distributors of $279,633 in the current year’s three-month period over the same period in the prior year. The increase in direct sales to consumers was primarily the result of higher wine club revenues and having an additional tasting room open in 2024 when compared to 2023. The increase in revenue from the distributors was primarily attributed to higher prices in the current year three-month period over the same period in the prior year. Cost of Sales Cost of sales for the three months ended March 31, 2024 and 2023 was $3,530,358 and $3,830,477, respectively, a decrease of $300,119, or 7.8%, in the current period over the prior year period. This change was primarily the result of the change in the mix of products sold in the first quarter of 2024 when compared to the same quarter in 2023. 15 Gross Profit Gross profit for the three months ended March 31, 2024 and 2023 was $5,272,722 and $4,478,463, respectively, an increase of $794,259, or 17.7%, in the first quarter of 2024 over the same quarter in the prior year. This increase was primarily the result of a combination of an increase in direct sales combined with higher margins from our sales through distributors in the first three months of the current year compared to the same period in 2023. Gross profit as a percentage of net sales for the three months ended March 31, 2024 and 2023 was 59.9% and 53.9%, respectively, an increase of 6.0 percentage points in the current quarter over the same quarter in the prior year. The increase was primarily the result of the higher prices charged for our products sold through distributors in the current quarter. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended March 31, 2024 and 2023 was $5,875,299 and $5,453,413, respectively, an increase of $421,886, or 7.7%, in the current quarter over the same quarter in the prior year. This increase was primarily the result of an increase in selling expenses of $44,202, or 1.1% and an increase in general and administrative expenses of $377,684, or 25.7% in the current quarter compared to the same quarter last year. Selling expenses increased in 2024 compared to 2023 primarily as a result of having an additional tasting room location in 2024. General and administrative expenses increased in the first quarter of 2024 compared to the same quarter of 2023 primarily as a result of higher legal costs. Interest Expense Interest expense for the three months ended March 31, 2024 and 2023 was $229,687 and $124,422, respectively, an increase of $105,265 or 84.6%, in the first quarter of 2024 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 2023. Income Tax Benefit The income tax benefit for the three months ended March 31, 2024 and 2023 was $212,407 and $280,963, respectively, a decrease of $68,556 or 24.4%, in the first quarter of 2024 over the same quarter in the prior year, primarily as a result of a lower pre-tax loss in the first quarter of 2024, compared to the same quarter in 2023. The Company’s estimated federal and state combined income tax rate for the three months ended March 31, 2024 and 2023 was 28.9% and 27.4% respectively. Net Loss Net loss for the three months ended March 31, 2024 and 2023 was $521,805 and $744,823, respectively, a decrease of $223,018, or 29.9%, in the first quarter of 2024 over the same quarter in the prior year. The decrease in net loss for the first quarter of 2024, compared to the comparable period in 2023, was primarily the result of higher prices of products sold in 2024. 16 Net Loss Applicable to Common Shareholders Net loss applicable to common shareholders for the three months ended March 31, 2024 and 2023 was $1,084,982 and $1,256,542, respectively, a decrease of $171,560, or 13.7%, in the first quarter of 2024 over the same quarter in the prior year. The decrease in loss applicable to common shareholders in the first quarter of 2024, compared to the same period of 2023, was the result of a lower net loss being partially offset by a higher accrued preferred stock dividend in the current period. Liquidity and Capital Resources At March 31, 2024, the Company had a working capital balance of $21.6 million and a current working capital ratio of 2.87:1. At March 31, 2024, the Company had a cash balance of $256,472. At December 31, 2023, the Company had a cash balance of $238,482. Total cash used for operating activities in the three months ended March 31, 2024 was $3,012,769. Cash used in operating activities for the three months ended March 31, 2024 was primarily associated with reduced grapes payable and increased inventories, being partially offset by depreciation and amortization. Total cash used in investing activities in the three months ended March 31, 2024 was $330,298. Cash used in investing activities for the three months ended March 31, 2024 consisted of cash used on property and equipment and vineyard development costs. Total cash generated from financing activities in the three months ended March 31, 2024 was $3,361,057. Cash generated from financing activities for the three months ended March 31, 2024 primarily consisted of proceeds from the issuance of Preferred Stock and proceeds from the line of credit and long-term debt, being partially offset by the repayment of long-term debt. In December of 2005, the Company entered into a revolving line of credit agreement with Umpqua Bank (the “Credit Agreement”) that allows borrowing up to $2,000,000 against eligible accounts receivable and inventories, as defined in the agreement. The revolving line bears interest at prime less 0.5%, with a floor of 3.25%, is payable monthly, and is subject to renewal. In July 2021, the Company renewed the Credit Agreement until July 31, 2023. In November 2022, the Company increased the borrowing line up to $5,000,000. In July 2023 the line of credit was renewed for an additional two years. The Company had an outstanding line of credit balance of $3,320,928 at March 31, 2024, at an interest rate of 8.0%, and an outstanding line of credit balance of $2,684,982 at December 31, 2023, at an interest rate of 8.0%. The 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. As of December 31, 2023, the Company was out of compliance with a debt covenant. The Company has received a waiver from Umpqua Bank waiving this violation until the next measurement date of December 31, 2024. As of March 31, 2024, the Company had a 15-year installment note payable of $1,074,712, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA. As of March 31, 2024, the Company had a total long-term debt balance of $9,962,186, including the portion due in the next year, owed to AgWest, exclusive of debt issuance costs of $102,677. As of December 31, 2023, the Company had a total long-term debt balance of $7,590,659, exclusive of debt issuance costs of $105,989. The Company believes that cash flow from operations and funds available under the Company’s existing credit facilities will be sufficient to meet the Company’s short-term needs. 17 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, the Company is not required to provide the information required by this item.