Willamette Valley Vineyards(US:WVVI)2025-05-13 20:31markdown [PART I: FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1 - Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20-%20Financial%20Statements%20(unaudited)) Unaudited condensed financial statements for Q1 2025 and 2024, including balance sheets, statements of operations, shareholders' equity, cash flows, and related notes [Condensed Balance Sheets](index=3&type=section&id=Condensed%20Balance%20Sheets) | ASSETS (March 31, 2025) | Amount ($) | | :------------------------ | :----------- | | Cash and cash equivalents | 332,889 | | Accounts receivable, net | 2,323,815 | | Inventories | 33,598,355 | | Total current assets | 37,024,609 | | Total Assets | 108,244,573 | | LIABILITIES & EQUITY (March 31, 2025) | Amount ($) | | :------------------------------------ | :----------- | | Accounts payable | 2,125,472 | | Line of credit | 1,203,983 | | Total current liabilities | 10,285,959 | | Total Liabilities | 39,739,824 | | Total Shareholders' Equity | 68,504,749 | | Total Liabilities and Shareholders' Equity | 108,244,573 | - Total assets decreased from **$109,017,140** at December 31, 2024, to **$108,244,573** at March 31, 2025[8](index=8&type=chunk) - Total current liabilities decreased significantly from **$12,980,185** at December 31, 2024, to **$10,285,959** at March 31, 2025, primarily due to a reduction in grapes payable and line of credit[8](index=8&type=chunk) [Condensed Statements of Operations](index=4&type=section&id=Condensed%20Statements%20of%20Operations) | Metric (Three months ended March 31) | 2025 ($) | 2024 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | SALES, NET | 7,541,583 | 8,803,080 | (1,261,497) | -14.3% | | COST OF SALES | 2,782,475 | 3,530,358 | (747,883) | -21.2% | | GROSS PROFIT | 4,759,108 | 5,272,722 | (513,614) | -9.7% | | Total operating expenses | 5,629,086 | 5,875,299 | (246,213) | -4.2% | | LOSS FROM OPERATIONS | (869,978) | (602,577) | (267,401) | 44.4% | | NET LOSS | (728,981) | (521,805) | (207,176) | 39.7% | | LOSS APPLICABLE TO COMMON SHAREHOLDERS | (1,292,158) | (1,084,982) | (207,176) | 19.1% | | Loss per common share (basic and diluted) | (0.26) | (0.22) | (0.04) | 18.2% | - Net sales decreased by **14.3%** year-over-year, primarily due to a decline in distributor sales, partially offset by an increase in direct-to-consumer sales[10](index=10&type=chunk)[67](index=67&type=chunk) - Gross profit margin improved from **59.9%** in Q1 2024 to **63.1%** in Q1 2025, driven by higher prices for products sold through retail locations[10](index=10&type=chunk)[70](index=70&type=chunk) [Condensed Statements of Shareholders' Equity](index=5&type=section&id=Condensed%20Statements%20of%20Shareholders'%20Equity) | Shareholder Equity Component | Dec 31, 2024 ($) | March 31, 2025 ($) | Change ($) | | :--------------------------- | :--------------- | :----------------- | :--------- | | Redeemable Preferred Stock | 43,357,396 | 43,920,573 | 563,177 | | Common Stock | 8,512,489 | 8,512,489 | 0 | | Retained Earnings | 17,363,845 | 16,071,687 | (1,292,158) | | Total Shareholders' Equity | 69,233,730 | 68,504,749 | (728,981) | - Total shareholders' equity decreased by **$728,981** from December 31, 2024, to March 31, 2025, primarily due to the net loss of **$728,981** and accrued preferred stock dividends of **$563,177**[12](index=12&type=chunk) [Condensed Statements of Cash Flows](index=6&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (Three months ended March 31) | 2025 ($) | 2024 ($) | Change ($) | | :----------------------------------------------- | :------- | :------- | :--------- | | Net cash from operating activities | (1,337,263) | (3,012,769) | 1,675,506 | | Net cash from investing activities | (115,344) | (330,298) | 214,954 | | Net cash from financing activities | 1,464,613 | 3,361,057 | (1,896,444) | | NET CHANGE IN CASH AND CASH EQUIVALENTS | 12,006 | 17,990 | (5,984) | | CASH AND CASH EQUIVALENTS, end of period | 332,889 | 256,472 | 76,417 | - Net cash used in operating activities significantly decreased from **$3,012,769** in Q1 2024 to **$1,337,263** in Q1 2025, primarily due to reduced grapes payable and lower receivables, partially offset by increased inventories[14](index=14&type=chunk)[77](index=77&type=chunk) - Cash generated from financing activities decreased from **$3,361,057** in Q1 2024 to **$1,464,613** in Q1 2025, mainly due to lower proceeds from preferred stock issuance and payments on the line of credit[14](index=14&type=chunk)[79](index=79&type=chunk) [Notes to Unaudited Interim Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Interim%20Financial%20Statements) [1) BASIS OF PRESENTATION](index=8&type=section&id=1)%20BASIS%20OF%20PRESENTATION) - The interim financial statements are prepared in conformity with U.S. GAAP and should be read in conjunction with the 2024 Annual Report on Form 10-K[15](index=15&type=chunk) - Operating results for the three months ended March 31, 2025, are not necessarily indicative of the full year's results[16](index=16&type=chunk) - The Company's revenues include direct-to-consumer sales and national sales to distributors, utilizing shared resources[16](index=16&type=chunk) [2) INVENTORIES](index=9&type=section&id=2)%20INVENTORIES) | Inventory Classification | March 31, 2025 ($) | December 31, 2024 ($) | | :----------------------- | :----------------- | :-------------------- | | Winemaking and packaging materials | 1,587,348 | 1,303,152 | | Work-in-process | 14,147,911 | 14,990,375 | | Finished goods | 17,863,096 | 16,613,962 | | Total inventories | 33,598,355 | 32,907,489 | - Total inventories increased by **$690,866** from December 31, 2024, to March 31, 2025, primarily driven by an increase in finished goods[19](index=19&type=chunk) [3) PROPERTY AND EQUIPMENT, NET](index=9&type=section&id=3)%20PROPERTY%20AND%20EQUIPMENT,%20NET) | Property and Equipment Component | March 31, 2025 ($) | December 31, 2024 ($) | | :------------------------------- | :----------------- | :-------------------- | | Construction in progress | 652,726 | 633,179 | | Land, improvements, and other buildings | 15,342,674 | 15,342,674 | | Winery buildings and tasting rooms | 44,187,393 | 44,146,543 | | Equipment | 20,875,346 | 20,835,506 | | Accumulated depreciation | (29,716,121) | (28,945,751) | | Property and equipment, net | 51,342,018 | 52,012,151 | - Net property and equipment decreased from **$52,012,151** at December 31, 2024, to **$51,342,018** at March 31, 2025[20](index=20&type=chunk) - Depreciation expense for the three months ended March 31, 2025, was **$770,370**, down from **$791,986** in the prior year period[20](index=20&type=chunk) [4) DEBT](index=9&type=section&id=4)%20DEBT) - The Company's line of credit balance decreased from **$2,405,815** at December 31, 2024, to **$1,203,983** at March 31, 2025, with an interest rate of **7.0%**[21](index=21&type=chunk) - Notes payable for property purchase decreased from **$995,968** at December 31, 2024, to **$968,348** at March 31, 2025[23](index=23&type=chunk) - Long-term debt with AgWest increased from **$14,042,910** at December 31, 2024, to **$16,818,597** at March 31, 2025, with various fixed and variable interest rates and maturity dates up to 2039[24](index=24&type=chunk) [5) INTEREST AND TAXES PAID](index=10&type=section&id=5)%20INTEREST%20AND%20TAXES%20PAID) - The Company paid **$228,105** in interest on long-term debt and the line of credit for the three months ended March 31, 2025, an increase from **$134,979** in the prior year[26](index=26&type=chunk) - No income taxes were paid for the three months ended March 31, 2025, or 2024[26](index=26&type=chunk) [6) SEGMENT REPORTING](index=10&type=section&id=6)%20SEGMENT%20REPORTING) - The Company operates in two segments: Direct Sales (retail, wine club, internet, events) and Distributor Sales (wholesale)[27](index=27&type=chunk) - Performance is evaluated based on gross profit of respective segments; centralized selling and G&A expenses are not allocated[28](index=28&type=chunk) | Segment (Three months ended March 31) | Direct Sales 2025 ($) | Direct Sales 2024 ($) | Distributor Sales 2025 ($) | Distributor Sales 2024 ($) | | :------------------------------------ | :-------------------- | :-------------------- | :------------------------- | :------------------------- | | Sales, net | 4,310,474 | 4,286,156 | 3,231,109 | 4,516,924 | | Cost of Sales | 1,185,593 | 1,295,145 | 1,596,882 | 2,235,213 | | Gross Profit | 3,124,881 | 2,991,011 | 1,634,227 | 2,281,711 | | Selling and Marketing Expenses | 3,086,255 | 3,263,381 | 640,035 | 504,424 | | Contribution Margin | 38,626 | (272,370) | 994,192 | 1,777,287 | [7) SALE OF PREFERRED STOCK](index=11&type=section&id=7)%20SALE%20OF%20PREFERRED%20STOCK) - The Company has issued Series A Redeemable Preferred Stock through various offerings, with net proceeds of **$3,558,807** and **$3,938,066** received as of March 31, 2025, from offerings filed in 2022 and 2023, respectively[31](index=31&type=chunk)[32](index=32&type=chunk) - Shareholders can receive dividends as cash or gift cards; unused dividend gift cards totaled **$1,637,861** at March 31, 2025, recorded as unearned revenue[33](index=33&type=chunk) - The Company has the option to redeem outstanding preferred stock at the original issue price plus accrued unpaid dividends and a **3%** redemption premium after June 1, 2021[34](index=34&type=chunk) [8) LEASES](index=11&type=section&id=8)%20LEASES) - The Company has operating leases for vineyards and non-vineyard properties (tasting rooms), with ROU assets and lease liabilities recognized on the balance sheet[35](index=35&type=chunk)[38](index=38&type=chunk)[43](index=43&type=chunk) | Lease Cost (Three months ended March 31) | 2025 ($) | 2024 ($) | | :--------------------------------------- | :------- | :------- | | Operating lease cost - Vineyards | 125,181 | 114,782 | | Operating lease cost - Other | 246,341 | 250,640 | | Short-term lease cost | 10,166 | 8,427 | | Total lease cost | 381,688 | 373,849 | - As of March 31, 2025, total minimal lease payments for operating leases amount to **$20,287,511**, with operating lease liabilities (net of current portion) of **$11,237,369**[51](index=51&type=chunk) [9) COMMITMENTS AND CONTINGENCIES](index=13&type=section&id=9)%20COMMITMENTS%20AND%20CONTINGENCIES) - The Company is involved in legal proceedings in the normal course of business, but management believes these will not have a material adverse effect on financial position, results of operations, or cash flows[52](index=52&type=chunk) - Long-term grape purchase agreements are in place, but minimum/maximum payments cannot be calculated due to unknowns like fruit quantity needed and quality standards[53](index=53&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=13&type=section&id=Item%202%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of financial condition and results of operations for Q1 2025, covering business strategy, revenue, expenses, net loss, liquidity, and capital resources [Forward Looking Statements](index=14&type=section&id=Forward%20Looking%20Statements) - The report contains forward-looking statements subject to risks and uncertainties, including financing availability, grape supply, competition, weather, consumer spending, and economic conditions[55](index=55&type=chunk) - The Company disclaims any obligation to update or revise forward-looking statements, except as required by law[55](index=55&type=chunk) [Critical Accounting Policies](index=14&type=section&id=Critical%20Accounting%20Policies) - The Company's critical accounting policies, including revenue recognition, accounts receivable, inventory valuation, and vineyard development costs amortization, remained unchanged during the three months ended March 31, 2025[56](index=56&type=chunk) - Management's estimates are based on historical experience and reasonable assumptions, with actual results potentially differing under various conditions[56](index=56&type=chunk) [Overview](index=14&type=section&id=Overview) - The Company's success relies on growing/purchasing high-quality grapes, vinifying premium wines, achieving brand recognition, effective distribution, and building direct-to-consumer sales[57](index=57&type=chunk) - Strategic growth through property purchases, development, and preferred stock issuance is expected to negatively impact near-term financial results due to associated costs[58](index=58&type=chunk) - Wine case sales decreased by **23.5%** (**10,128** cases) in Q1 2025 compared to Q1 2024, primarily due to lower wholesale case sales[62](index=62&type=chunk) [Results of Operations](index=15&type=section&id=RESULTS%20OF%20OPERATIONS) Key Financial Performance Indicators (Three months ended March 31) | Metric | 2025 ($) | 2024 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Sales, Net | 7,541,583 | 8,803,080 | (1,261,497) | -14.3% | | Cost of Sales | 2,782,475 | 3,530,358 | (747,883) | -21.2% | | Gross Profit | 4,759,108 | 5,272,722 | (513,614) | -9.7% | | Gross Profit as % of Net Sales | 63.1% | 59.9% | 3.2 pp | 5.3% | | Selling, General and Administrative Expenses | 5,629,086 | 5,875,299 | (246,213) | -4.2% | | Interest Expense, net | 298,221 | 229,678 | 68,543 | 29.8% | | Income Tax Benefit | 296,742 | 212,407 | 84,335 | 39.7% | | Net Loss | (728,981) | (521,805) | (207,176) | 39.7% | | Net Loss Applicable to Common Shareholders | (1,292,158) | (1,084,982) | (207,176) | 19.1% | - The decrease in net sales was primarily due to a **$1,285,815** decrease in distributor sales, partially offset by a **$24,318** increase in direct-to-consumer sales, mainly from higher wine club revenues[67](index=67&type=chunk) - The increase in net loss was primarily driven by lower case sales to distributors in 2025[74](index=74&type=chunk) [Liquidity and Capital Resources](index=16&type=section&id=Liquidity%20and%20Capital%20Resources) - As of March 31, 2025, the Company had a working capital balance of **$26.7 million** and a current working capital ratio of **3.60:1**[76](index=76&type=chunk) - Cash and cash equivalents increased slightly to **$332,889** at March 31, 2025, from **$320,883** at December 31, 2024[76](index=76&type=chunk) - The Company believes that cash flow from operations, existing credit facilities, and preferred stock sales will be sufficient to meet long-term needs[84](index=84&type=chunk) [Item 3 - Quantitative and Qualitative Disclosures about Market Risk](index=17&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, the Company is exempt from providing quantitative and qualitative disclosures about market risk - The Company is exempt from providing market risk disclosures as it qualifies as a smaller reporting company[85](index=85&type=chunk) [Item 4 - Controls and Procedures](index=17&type=section&id=Item%204%20-%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[86](index=86&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025[87](index=87&type=chunk) [PART II: OTHER INFORMATION](index=17&type=section&id=Part%20II%20-%20Other%20Information) [Item 1 - Legal Proceedings](index=17&type=section&id=Item%201%20-%20Legal%20Proceedings) Legal proceedings in the ordinary course of business are not expected to materially adversely affect the Company's financial condition or results - Management believes that current legal proceedings will not materially adversely affect the Company's financial position, results of operations, or cash flows[88](index=88&type=chunk) [Item 1A - Risk Factors](index=17&type=section&id=Item%201A%20-%20Risk%20Factors) Readers are referred to the Annual Report on Form 10-K for risk factors, acknowledging potential impact from unknown risks - Readers should consider risk factors outlined in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[89](index=89&type=chunk) - Additional unknown or currently immaterial risks may eventually prove to materially adversely affect the business[90](index=90&type=chunk) [Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds](index=17&type=section&id=Item%202%20-%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds occurred during the reporting period - No unregistered sales of equity securities or use of proceeds occurred[91](index=91&type=chunk) [Item 3 - Defaults Upon Senior Securities](index=18&type=section&id=Item%203%20-%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported during the period - There were no defaults upon senior securities[92](index=92&type=chunk) [Item 4 - Mine Safety Disclosures](index=18&type=section&id=Item%204%20-%20Mine%20Safety%20Disclosures) This item is not applicable to the Company's operations - Mine Safety Disclosures are not applicable to the Company[93](index=93&type=chunk) [Item 5 - Other Information](index=18&type=section&id=Item%205%20-%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 or Non-Rule 10b5-1 trading arrangements in Q1 2025 - No director or officer adopted or terminated a Rule 10b5-1 or Non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2025[94](index=94&type=chunk) [Item 6 - Exhibits](index=19&type=section&id=Item%206%20-%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate documents and iXBRL-formatted financial information - The exhibits include various corporate documents such as Articles of Incorporation, Bylaws, and certifications from the CEO and CFO[96](index=96&type=chunk) - Financial information for the quarter ended March 31, 2025, is provided in Inline Extensible Business Reporting Language (iXBRL) format[96](index=96&type=chunk) [SIGNATURES](index=20&type=section&id=SIGNATURES) - The report was signed by James W. Bernau, Chief Executive Officer, and John Ferry, Chief Financial Officer, on May 13, 2025[98](index=98&type=chunk)