# Willamette Valley Vineyards Inc: Form 10-Q for the period ended Mar 31, 2022

- Company: [Willamette Valley Vineyards Inc](/companies/wvvi.md) (CIK 838875)
- Form: 10-Q
- Filed: 2022-05-12
- Accepted by EDGAR: May 12, 2022, 20:47 ET
- Period: 2022-03-31
- Accession: 0001199835-22-000280
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/838875/000119983522000280/wvvi-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/838875/000119983522000280/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-01-01 to 2022-03-31 | $6.2m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-01-01 to 2022-03-31 | $2.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-01-01 to 2022-03-31 | $3.7m | us-gaap:GrossProfit |
| Operating income | 3 months, 2022-01-01 to 2022-03-31 | −$136.2k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-01-01 to 2022-03-31 | $91.4k | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-01-01 to 2022-03-31 | −$37.3k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | −$98.9k | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.11 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$670.3k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $5.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-03-31 | $8.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-03-31 | $31.3m | us-gaap:AssetsCurrent |
| Total assets | at 2022-03-31 | $93.0m | us-gaap:Assets |
| Current liabilities | at 2022-03-31 | $7.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-03-31 | $23.2m | us-gaap:Liabilities |
| Long-term debt | at 2022-03-31 | $4.8m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-03-31 | $478.4k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-03-31 | $69.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,159 characters.

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, 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 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, 2021, 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, 2021. Such policies were unchanged during the three months ended March 31, 2022.

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

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 10,000 new preferred stockholders many of which the Company believes are wine enthusiasts. When considering joint ownership, we believe these new stockholders represent approximately 15,000 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 had $10,500 in bulk wine sales for the three months ended March 31, 2022 and no bulk wine sales for the same period of 2021.

The Company sold 33,639 and 38,060 cases of produced wine during the three months ended March 31, 2022 and 2021, respectively, a decrease of 4,421 cases, or 11.6% in the current year period over the prior year period. The decrease in wine case sales was primarily the result of the lack of availability of some vintages until later in the quarter when compared to the prior year period.

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, 2022, wine inventory included 113,586 cases of bottled wine and 385,333 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 46,142 cases during the three months ended March 31, 2022.

Willamette Valley Vineyards continues to receive positive recognition through national magazines, regional publications, local newspapers and online bloggers including the accolades below.

Wine Enthusiast rated the Company’s 2019 Tualatin Estate Chardonnay with 91 points, 2019 Tualatin Estate Pinot Noir with 90 points, 2017 Bernau Estate Brut with 92 points & Editors’ Choice and 2017 Bernau Estate Blanc de Blancs with 91 points.

James Suckling rated the Company’s 2019 Vintage 46 Chardonnay with 94 points, 2019 Vintage 46 Pinot Noir with 93 points, 2019 Elton Pinot Noir with 92 points and 2019 Bernau Block Pinot Noir with 90 points. He reviewed the Company’s Elton wines and awarded the 2019 Self-Rooted Pinot Noir with 95 points, 2019 Florine Pinot Noir with 92 points and 2019 Chardonnay with 93 points. He reviewed the Company’s Pambrun wines and scored the 2019 Merlot with 90 points and 2019 Chrsyologue with 90 points. The Company’s Maison Bleue wines received scores of 94 points for the 2019 Voyageur Syrah, 94 points from the 2019 Graveiere Syrah and 93 points for the 2019 Frontiere Syrah. The Company’s Bernau Estate methode traditionelle sparkling wines were reviewed and awarded 91 points for the 2017 Brut, 92 points for the 2017 Brut Rose and 90 points for the 2017 Blanc de Blancs.

Vinous rated the Company’s 2019 Estate Pinot Noir with 90 points, 2019 Tualatin Estate Pinot Noir with 90 points, 2018 Elton Pinot Noir with 91 points, 2018 Bernau Block Pinot Noir with 93 points, 2018 Tualatin Estate Pinot Noir with 92 points and 2018 Hannah Pinot Noir with 92 points. Vinous also reviewed the Company’s Pambrun wines and scored the 2018 Pambrun Cabernet Sauvignon with 92 points, 2018 Pambrun Merlot with 92 points and 2018 Pambrun Chrysologue with 92 points. The Company’s Maison Bleue wines recieved scores of 92 points for the 2019 Voyageur Syrah, 92 points from the 2019 Graveiere Syrah and 92 points for the 2019 Frontiere Syrah.

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

### Impact of COVID-19 on Operations

The COVID-19 pandemic has been declared a National Public Health Emergency in the United States, and on March 8, 2020, Oregon Governor Kate Brown declared a state of emergency to address the spread of COVID-19 in Oregon. The outbreak in Oregon and other parts of the United States, as well as the response to COVID-19 by federal, state and local governments have had a material adverse impact on economic and market conditions in the United States. Although the administration of vaccines in Oregon and throughout the United States contributed to the lifting of restrictive measures, there remains ongoing uncertainty about the impact of COVID-19 variations on infection levels. The re-emergence of significant increases in infection rates could result in governments re-imposing some restrictive measures that could reduce or impair economic activity. Consequently, the COVID-19 pandemic and the government responses to the outbreak presents continued uncertainty and risk with respect to the Company and its performance and financial results.

Exceeding the required Oregon Healthy Authority protocols, a state-of-the-art UV light filtration has been installed in the Company’s HVAC system to reduce harmful viruses in the air at its tasting room locations and staff offices.

We have not yet experienced significant disruptions to our supply chain network; however, any future restrictions imposed by our local or state governments may have a negative impact on our future direct to consumer sales.

Additionally, the demand for the Company’s wine sold directly or through distributors to restaurants, bars, and other hospitality locations could be reduced in the near-term due to the re-imposition of orders from state and local governments restricting consumers from visiting, as well as in some cases the temporary closure of such establishments.

The extent of the future impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the response to the pandemic is continuing to evolve. The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted.

### RESULTS OF OPERATIONS

### Revenue

Sales revenue for the three months ended March 31, 2022 and 2021 was $6,242,318 and $5,765,338, respectively, an increase of $476,980, or 8.3%, in the current year period over the prior year period. This increase was caused by an increase in revenues from direct sales of $651,124 being partially offset by a decrease in revenues from shipments to distributors of $174,144 in the current year three-month period over the same period in the prior year. The increase in direct sales to consumers was primarily the result of increased retail sales revenues from our tasting rooms, wine club and kitchen. The decrease in revenue from the distributors was primarily attributed to the lack of available inventory to ship.

### Cost of Sales

Cost of sales for the three months ended March 31, 2022 and 2021 was $2,522,289 and $2,271,771, respectively, an increase of $250,518, or 11.0%, in the current period over the prior year period. This change was primarily the result of an increase in sales in the first quarter of 2022 compared to the same quarter in 2021.

### Gross Profit

Gross profit for the three months ended March 31, 2022 and 2021 was $3,720,029 and $3,493,567, respectively, an increase of $226,462, or 6.5%, in the first quarter of 2022 over the same quarter in the prior year. This increase was primarily the result of an increase in direct sales in the first three months of the current year compared to the same period in 2021.

Gross profit as a percentage of net sales for the three months ended March 31, 2022 and 2021 was 59.6% and 60.6%, respectively, a decrease of 1.0 percentage point in the current quarter over the same quarter in the prior year. The decrease was primarily the result of the higher product costs of the more recent vintages sold in the current quarter.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2022 and 2021 was $3,856,261 and $3,317,558, respectively, an increase of $538,703, or 16.2%, in the current quarter over the same quarter in the prior year. This increase was primarily the result of an increase in selling expenses of $361,062, or 17.1% and an increase in general and administrative expenses of $177,641, or 14.8% in the current quarter compared to the same quarter last year. Selling expenses increased in 2022 compared to 2021 primarily as a result of the higher selling expenses related to the increase in direct sales and start up costs related to the opening of new tasting room locations. General and administrative expenses increased in the first quarter of 2022 compared to the same quarter of 2021 primarily as a result of higher maintenance, human resource and IT costs.

### Interest Expense

Interest expense for the three months ended March 31, 2022 and 2021 was $91,446 and $99,576, respectively, a decrease of $8,130 or 8.2%, in the first quarter of 2022 over the same quarter in the prior year. The decrease in interest expense for the first quarter was primarily the result of lower debt compared to the first quarter of 2021.

### Income Tax (Expense) Benefit

The income tax (expense) benefit for the three months ended March 31, 2022 and 2021 was $37,323 and $(46,279), respectively, an increase of $83,602 or 180.6%, in the first quarter of 2022 over the same quarter in the prior year, primarily as a result of lower pre-tax income in the first quarter of 2022, compared to the same quarter in 2021. The Company’s estimated federal and state combined income tax rate for the three months ended March 31, 2022 and 2021 was 27.4% and 27.4%, respectively.

### Net Income (Loss)

Net income (loss) for the three months ended March 31, 2022 and 2021 was $(98,942) and $122,685, respectively, a decrease of $221,627, or 180.6%, in the first quarter of 2022 over the same quarter in the prior year. The decrease in net income for the first quarter of 2022, compared to the comparable period in 2021, was primarily the result of higher selling and administrative expenses.

### Net Loss Applicable to Common Shareholders

Net loss applicable to common shareholders for the three months ended March 31, 2022 and 2021 was $565,554 and $236,951, respectively, an increase of $328,603, or 138.7%, in the first quarter of 2022 over the same quarter in the prior year. The increase in loss applicable to common shareholders in the first quarter of 2022, compared to the same period of 2021, was the result of a lower net income and a higher accrued preferred stock dividend in the current period.

Liquidity and Capital Resources

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

At March 31, 2022, the Company had a cash balance of $8,568,158. At December 31, 2021, the Company had a cash balance of $13,747,285. This decrease is primarily the result of investing in construction activity and the payment of grapes payable. The construction of a new tasting room and winery in Dundee, Oregon is expected to cost approximately $15.6 million, which is expected to be funded through a combination of cash on hand as well as equity financing through Preferred Stock offerings. Construction began in July 2019 and was paused in March 2020 as a result of the uncertainty surrounding the COVID-19 pandemic and has now been restarted. As of March 31, 2022, we had incurred approximately $12.1 million on the project.

Total cash used for operating activities in the three months ended March 31, 2022 was $670,304. Cash used in operating activities for the three months ended March 31, 2022 was primarily associated with reduced grapes payable, accounts payable and increased inventories, being partially offset by decreased accounts receivable and depreciation and amortization.

Total cash used in investing activities in the three months ended March 31, 2022 was $5,138,816. Cash used in investing activities for the three months ended March 31, 2022 primarily consisted of cash used on construction activity and vineyard development costs.

Total cash generated from financing activities in the three months ended March 31, 2022 was $629,993. Cash generated from financing activities for the three months ended March 31, 2022 primarily consisted of proceeds from the issuance of Preferred Stock, being partially offset by the repayment of debt.

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, the Company renewed the credit agreement until July 31, 2023. At March 31, 2022 and December 31, 2021, there was no outstanding balance on this revolving line of credit.

As of March 31, 2022, the Company had a 15-year installment note payable of $1,272,440, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA.

As of March 31, 2022, the Company had a total long-term debt balance of $5,418,283, including the portion due in the next year, owed to Farm Credit Services, exclusive of debt issuance costs of $129,172. 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.

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. 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.

## Controls and procedures

As filed, 1,549 characters.

**Disclosure Controls and Procedures –** The Company carried out an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to paragraph (b) of Rule 13a-15 and 15d-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that review, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective, as of the end of the period covered by this report, to ensure that information required to be disclosed by the Company in the reports the Company files or submit under the Exchange Act (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

**Changes in Internal Control over Financial Reporting –** There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 561 characters.

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which could materially affect our business, results of operations or financial condition.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, impact our results of operations or financial condition.

Filed May 12, 2022.
Source: SEC EDGAR, the filing index for accession 0001199835-22-000280. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.