Willamette Valley Vineyards Inc: Form 10-Q for the period ended Jun 30, 2025

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, 2024, 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, 2024. Such policies were unchanged during the six months ended June 30, 2025.

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.

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 83,968 and 91,102 cases of produced wine during the six months ended June 30, 2025 and 2024, respectively, a decrease of 7,134 cases, or 7.8% in the current year period over the prior year period. The decrease in wine case sales was the result of decreased case sales through distributors.

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 June 30, 2025, wine inventory included 244,252 cases of bottled wine and 497,066 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 93,462 cases during the six months ended June 30, 2025.

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

The tasting room at the Company’s Estate Winery in the Salem Hills, Oregon was awarded the Best Wine Tasting Room in the country by USA Today in their 10 Best Readers’ Choice Awards for the second consecutive year. The Company was also awarded the #2 Best Wine Club in the nation by USA Today for the second consecutive year.

James Suckling rated the 2023 Whole Cluster Pinot Noir 92 points, and the 2023 White Pinot Noir 91 points.

James Suckling rated the 2023 Whole Cluster Pinot Noir 92 points.

International Wine Report awarded the 2022 Tualatin Estate Pinot Noir 93 points and the 2021 Elton Self-Rooted Pinot Noir 92 points.

Wine Enthusiast Magazine rated the 2023 Whole Cluster Pinot Noir, 2023 White Pinot Noir, 2023 Bernau Block Chardonnay and 2021 Domaine Willamette Brut 91 points.

RESULTS OF OPERATIONS

Revenue

Sales revenue for the three months ended June 30, 2025 and 2024 were $10,195,763 and $10,332,358, respectively, a decrease of $136,595, or 1.3%, in the current year period over the prior year period. This decrease was caused by a decrease in direct sales of $223,199, partly offset by an increase in sales through distributors of $86,604 in the current year three-month period over the prior year period. The decrease in revenue from direct sales was primarily related to lower internet and telephone sales. Sales revenue for the six months ended June 30, 2025 and 2024 were $17,737,346 and $19,135,438, respectively, a decrease of $1,398,092, or 7.3%, in the current year period over the prior year period. This decrease was caused by a decrease in revenues from direct sales of $198,880 and a decrease in revenues from sales through distributors of $1,199,212 in the current year period over the prior year period. The decrease in revenues from sales through distributors was primarily the result of lower case sales in the current year.

Cost of Sales

Cost of Sales for the three months ended June 30, 2025 and 2024 were $3,979,145 and $3,860,668, respectively, an increase of $118,477, or 3.1%, in the current period over the prior year period. This change was primarily the result of higher cost products sold in the current quarter compared to the same quarter last year. Cost of Sales for the six months ended June 30, 2025 and 2024 were $6,761,620 and $7,391,026, respectively, a decrease of $629,406 or 8.5%, in the current period over the prior year period. This change was primarily the result of lower case sales in the first six months of 2025 when compared to the same period in 2024.

Gross Profit

Gross profit as a percentage of net sales for the three months ended June 30, 2025 and 2024 was 61.0% and 62.6%, respectively, a decrease of 1.6 percentage points in the current year period over the prior year period, mostly as a result of more discounts on products compared to the same quarter of 2024. Gross profit as a percentage of net sales for the six months ended June 30, 2025 and 2024 was 61.9% and 61.4%, respectively, an increase of 0.5 percentage points in the current year period over the prior year period. The increase was primarily the result of higher prices being charged for products in direct sales in the first six months of 2025 compared to the same period in the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2025 and 2024 was $5,818,454 and $5,934,784 respectively, a decrease of $116,330, or 2.0%, in the current quarter over the same quarter in the prior year. This decrease was primarily the result of a decrease in selling and marketing expenses of $144,536, or 3.3% being partially offset by an increase in general and administrative expenses of $28,206, or 1.8% in the current quarter compared to the same quarter last year. Selling, general and administrative expense for the six months ended June 30, 2025 and 2024 was $11,447,540 and $11,810,083, respectively, a decrease of $362,543, or 3.1%, in the current year period over the prior year period. This decrease was primarily the result of a decrease in selling and marketing expenses of $204,608, or 2.4% combined with a decrease in general and administrative expenses of $157,935, or 4.6% in the current year period compared to the same period in 2024. General and administrative expenses decreased in the first six months of 2025 compared to the same period in the prior year primarily as a result of lower legal costs.

Interest Expense

Interest expense for the three months ended June 30, 2025 and 2024 was $270,145 and $263,694, respectively, an increase of $6,451 or 2.4%, in the second quarter of 2025 over the same quarter in the prior year. Interest expense for the six months ended June 30, 2025 and 2024 was $568,366 and $493,381, respectively, an increase of $74,985 or 15.2%, in the current year period over the prior year period. The increase in interest expense for the second quarter and first six months of 2025 was primarily the result of increased long term debt compared to the second quarter and first six months of 2024.

Income Taxes

The income tax expense for the three months ended June 30, 2025 and 2024 was $37,774 and $79,775, respectively, a decrease of $42,001 or 52.6%, in the second quarter of 2025 over the same quarter in the prior year mostly as a result of the lower pre-tax income in the second quarter of 2025, compared to the same quarter in 2024. The Company’s estimated federal and state combined income tax rate was 28.9% and the three months ended June 30, 2025 and 2024. The income tax benefit for the six months ended June 30, 2025 and 2024 was $258,968 and $132,632, respectively, an increase of $126,336 or 95.3% in the current year period over the prior year period, mostly a result of a higher pre-tax loss in the first six months of 2025, compared to the same period in 2024. The Company’s estimated federal and state combined income tax rate was 28.9% for the six months ended June 30, 2025 and 2024.

Net Income (Loss)

Net income for the three months ended June 30, 2025 and 2024 was $92,795 and $195,978, respectively, a decrease of $103,183, or 52.7%, in the second quarter of 2025 over the same quarter in the prior year. Net loss for the six months ended June 30, 2025 and 2024 was $636,186 and $325,827, respectively, an increase of $310,359, or 95.3%, in the current year period over the prior year period. The decrease in net income for the second quarter and increase in net loss for the first half of 2025, compared to the comparable periods in 2024, was primarily the result of lower revenue in 2025.

Net Loss Applicable to Common Shareholders

Net loss applicable to common shareholders for the three months ended June 30, 2025 and 2024 was $470,381 and $367,271, respectively, an increase of $103,110, or 28.1%, in the second quarter of 2025 over the same quarter in the prior year. Net loss applicable to common shareholders for the six months ended June 30, 2025 and 2024 was $1,762,539 and $1,452,253, respectively, an increase of $310,286, or 21.4%, in the current year period over the prior year period. The increase in loss applicable to common shareholders in the second quarter and the first six months of 2025, compared to the same period of 2024, was the result of a higher net loss in the current period.

Liquidity and Capital Resources

At June 30, 2025, the Company had a working capital balance of $27.3 million and a current working capital ratio of 4.07:1.

At June 30, 2025, the Company had a cash balance of $350,643. At December 31, 2024, the Company had a cash balance of $320,883.

Total cash used for operating activities in the six months ended June 30, 2025 was $27,768. Cash used in operating activities for the six months ended June 30, 2025 was primarily associated with a net loss, as well as reduced grapes payable and accrued expenses, being partially offset by depreciation and amortization.

Total cash used in investing activities in the three months ended June 30, 2025 was $209,533. Cash used in investing activities for the six months ended June 30, 2025 consisted of cash used on equipment and vineyard development costs.

Total cash generated from financing activities in the six months ended June 30, 2025 was $267,061. Cash generated from financing activities for the six months ended June 30, 2025 primarily consisted of proceeds from long-term debt being partially offset by the repayment of long-term debt and the line of credit.

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 $446,882 at June 30, 2025, at an interest rate of 7.0%, and an outstanding line of credit balance of $2,405,815 at December 31, 2024, at an interest rate of 7.0%.

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, 2024, the Company was in compliance with these financial covenants. In July 2025, the Company renewed the credit agreement until July 31, 2026.

As of June 30, 2025, the Company had a 15-year installment note payable of $940,314, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA.

As of June 30, 2025, the Company had a total long-term debt balance of $16,584,054, including the portion due in the next year, owed to AgWest, exclusive of debt issuance costs of $168,333. As of December 31, 2024, the Company had a total long-term debt balance of $14,042,910, exclusive of debt issuance costs of $178,908.

The Company believes that cash flow from operations and funds available under the Company’s existing credit facilities and through preferred stock sales will be sufficient to meet the Company’s long-term needs.

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 President 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 President 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 June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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, 2024, 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.