Willamette Valley Vineyards(WVVI) - 2025 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1 – Financial Statements (Unaudited) This section presents the unaudited condensed financial statements, including Balance Sheets, Statements of Operations, Shareholders' Equity, and Cash Flows, with detailed notes Condensed Balance Sheets Condensed Balance Sheet Highlights | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Total Assets | $106,600,616 | $109,017,140 | | Total Liabilities | $38,003,072 | $39,783,410 | | Total Shareholders' Equity | $68,597,544 | $69,233,730 | - Total assets decreased by approximately $2.4 million from December 31, 2024, to June 30, 2025, primarily due to decreases in accounts receivable, inventories, and property and equipment, net[8] - Total current liabilities decreased significantly by approximately $4.0 million, mainly driven by reductions in grapes payable, line of credit, and bank overdraft[8] Condensed Statements of Operations Condensed Statements of Operations Highlights | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | SALES, NET | $10,195,763 | $10,332,358 | $17,737,346 | $19,135,438 | | GROSS PROFIT | $6,216,618 | $6,471,690 | $10,975,726 | $11,744,412 | | INCOME (LOSS) FROM OPERATIONS | $398,164 | $536,906 | $(471,814) | $(65,671) | | NET INCOME (LOSS) | $92,795 | $195,978 | $(636,186) | $(325,827) | | LOSS APPLICABLE TO COMMON SHAREHOLDERS | $(470,381) | $(367,271) | $(1,762,539) | $(1,452,253) | | Loss per common share, basic and diluted | $(0.09) | $(0.07) | $(0.36) | $(0.29) | - Net sales decreased by 1.3% for the three months ended June 30, 2025, and by 7.3% for the six months ended June 30, 2025, compared to the prior year periods[11] - The company reported a net income of $92,795 for the three months ended June 30, 2025, a 52.7% decrease from the prior year, and a net loss of $636,186 for the six months ended June 30, 2025, a 95.3% increase in loss from the prior year[11] Condensed Statements of Shareholders' Equity Condensed Statements of Shareholders' Equity Highlights | Metric | December 31, 2024 | June 30, 2025 | | :------------------------------------ | :------------------ | :------------ | | Redeemable Preferred Stock (Dollars) | $43,357,396 | $44,483,749 | | Common Stock (Dollars) | $8,512,489 | $8,512,489 | | Retained Earnings | $17,363,845 | $15,601,306 | | Total Shareholders' Equity | $69,233,730 | $68,597,544 | - Total shareholders' equity decreased from $69,233,730 at December 31, 2024, to $68,597,544 at June 30, 2025, primarily due to net losses and accrued preferred stock dividends[14] - Accrued preferred stock dividends for the six months ended June 30, 2025, totaled $1,126,353, impacting retained earnings[14] Condensed Statements of Cash Flows Condensed Statements of Cash Flows Highlights (Six months ended June 30) | Cash Flow Activity | 2025 | 2024 | | :-------------------------------- | :----------- | :----------- | | Net cash from operating activities | $(27,768) | $(2,212,072) | | Net cash from investing activities | $(209,533) | $(1,188,276) | | Net cash from financing activities | $267,061 | $3,441,673 | | NET CHANGE IN CASH AND CASH EQUIVALENTS | $29,760 | $41,325 | | CASH AND CASH EQUIVALENTS, end of period | $350,643 | $279,807 | - Net cash used in operating activities significantly decreased from $(2,212,072) in 2024 to $(27,768) in 2025, primarily due to changes in accounts receivable, inventories, and grapes payable[17] - Net cash from financing activities decreased substantially from $3,441,673 in 2024 to $267,061 in 2025, mainly due to lower proceeds from preferred stock issuance and changes in line of credit payments[17] Notes to Unaudited Interim Financial Statements These notes provide additional detail for the unaudited interim financial statements, covering accounting policies, asset/liability breakdowns, debt, segment performance, and commitments 1) Basis of Presentation%20BASIS%20OF%20PRESENTATION) - The interim financial statements are prepared in conformity with U.S. GAAP, condensed or omitted certain disclosures per SEC regulations, and include normal recurring adjustments[18] - Operating results for the three and six months ended June 30, 2025, are not necessarily indicative of the full year's results[19] Loss Per Common Share After Preferred Dividends | Period | 2025 | 2024 | | :------------------------------------------------ | :----- | :----- | | Three months ended June 30 | $(0.09) | $(0.07) | | Six months ended June 30 | $(0.36) | $(0.29) | 2) Inventories%20INVENTORIES) Inventory Breakdown | Inventory Classification | June 30, 2025 | December 31, 2024 | | :------------------------------------------------ | :------------ | :------------------ | | Winemaking and packaging materials | $1,536,558 | $1,303,152 | | Work-in-process | $13,941,550 | $14,990,375 | | Finished goods | $17,468,487 | $16,613,962 | | Total inventories | $32,946,595 | $32,907,489 | - Total inventories remained relatively stable, increasing slightly from $32,907,489 at December 31, 2024, to $32,946,595 at June 30, 2025[22] - Finished goods inventory increased by approximately $0.85 million, while work-in-process decreased by about $1.05 million[22] 3) Property and Equipment, Net%20PROPERTY%20AND%20EQUIPMENT,%20NET) Property and Equipment, Net | Asset Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Total Property and Equipment (Gross) | $81,120,738 | $80,957,902 | | Accumulated depreciation | $(30,477,616) | $(28,945,751) | | Property and equipment, net | $50,643,122 | $52,012,151 | - Net property and equipment decreased by approximately $1.37 million from December 31, 2024, to June 30, 2025, primarily due to increased accumulated depreciation[23] - Depreciation expense for the six months ended June 30, 2025, was $1,531,865, a slight decrease from $1,582,956 in the prior year period[23] 4) Debt%20DEBT) This section details the Company's various debt instruments, including a revolving line of credit, a note payable, and multiple long-term debt agreements Line of Credit Facility - The Company's revolving line of credit with Umpqua Bank allows borrowing up to $5,000,000, bearing interest at prime less 0.5% (7.0% at June 30, 2025)[24] Line of Credit Balance | Date | Balance | | :---------------- | :------------ | | June 30, 2025 | $446,882 | | December 31, 2024 | $2,405,815 | - The line of credit was renewed in July 2025 until July 31, 2026, and the Company was in compliance with financial covenants as of December 31, 2024[25] Notes Payable - A 15-year note payable for a property purchase in Dundee Hills AVA had a balance of $940,314 at June 30, 2025, with quarterly payments of $42,534 at 6% interest[26] Long-Term Debt Long-Term Debt Aggregate Balance (AgWest) | Date | Aggregate Outstanding Balance | | :---------------- | :---------------------------- | | June 30, 2025 | $16,584,054 | | December 31, 2024 | $14,042,910 | - The Company has four long-term debt agreements with AgWest, with interest rates ranging from 4.75% to 7.10% and maturity dates up to 2039[27] Future Minimum Principal Payments of Long-Term Debt (as of June 30, 2025) | Year Ending December 31 | Amount | | :---------------------- | :------- | | 2025 | $476,819 | | 2026 | $1,008,215 | | 2027 | $4,079,491 | | 2028 | $1,130,789 | | 2029 | $1,007,284 | | Thereafter | $8,881,456 | | Total | $16,584,054 | 5) Interest and Taxes Paid%20INTEREST%20AND%20TAXES%20PAID) Income Taxes Paid | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three months ended June 30 | $45,000 | $0 | | Six months ended June 30 | $45,000 | $0 | Interest Paid on Debt and Line of Credit | Period | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | Three months ended June 30 | $267,696 | $129,539 | | Six months ended June 30 | $495,801 | $264,518 | - Interest paid on debt and the line of credit increased significantly for both the three-month and six-month periods ended June 30, 2025, compared to 2024[30] 6) Segment Reporting%20SEGMENT%20REPORTING) The Company operates in two segments, Direct Sales and Distributor Sales, with performance evaluated based on gross profit and contribution margin - The Company identifies two operating segments: Direct Sales (retail, wine club, internet, events) and Distributor Sales (wholesale through third parties)[31] - Performance is evaluated based on gross profit, with directly attributable selling expenses included, but centralized selling and general & administrative expenses are not allocated[32] Segment Performance (Three Months Ended June 30) | Metric | Direct Sales 2025 | Direct Sales 2024 | Distributor Sales 2025 | Distributor Sales 2024 | | :------------------ | :---------------- | :---------------- | :--------------------- | :--------------------- | | Sales, net | $5,497,973 | $5,721,172 | $4,697,790 | $4,611,186 | | Gross profit | $4,046,105 | $4,112,750 | $2,170,513 | $2,358,940 | | Contribution margin | $791,055 | $515,826 | $1,516,909 | $1,853,573 | Segment Performance (Six Months Ended June 30) | Metric | Direct Sales 2025 | Direct Sales 2024 | Distributor Sales 2025 | Distributor Sales 2024 | | :------------------ | :---------------- | :---------------- | :--------------------- | :--------------------- | | Sales, net | $9,808,448 | $10,007,328 | $7,928,898 | $9,128,110 | | Gross profit | $7,170,986 | $7,103,761 | $3,804,740 | $4,640,651 | | Contribution margin | $829,680 | $243,456 | $2,511,101 | $3,630,859 | 7) Sale of Preferred Stock%20SALE%20OF%20PREFERRED%20STOCK) - The Company has filed multiple shelf Registration Statements on Form S-3 to offer and sell Series A Redeemable Preferred Stock, with aggregate offering amounts up to $20,000,000[35][36][37] Net Proceeds from Preferred Stock Issuance (as of June 30, 2025) | Offering Period | Net Proceeds | | :-------------------------------- | :------------- | | August 2022 - November 2022 | $3,558,807 | | June 2023 - October 2023 | $3,938,066 | - Shareholders can receive dividends as cash or gift cards, with unused gift cards recorded as unearned revenue ($1,457,927 at June 30, 2025)[38] - The Company has the option to redeem outstanding preferred stock at the original issue price plus accrued dividends and a 3% premium after June 1, 2021[39] 8) Leases%20LEASES) This section outlines the Company's operating lease arrangements for vineyard and non-vineyard properties, detailing terms, options, and financial impact Operating Leases – Vineyard - The Company has several long-term operating leases for vineyards, including Tualatin (extended to Jan 2030, reasonably certain to Jan 2035), Meadowview (extensions exercised, reasonably certain to Nov 2033), Elton (new 11-year lease, reasonably certain to Dec 2031), Ingram (34-year lease, reasonably certain to Dec 2053), and Bernau Estate (25-year lease)[43][44][45][46][47] Operating Leases – Non-Vineyard - Non-vineyard operating leases include tasting rooms and retail wine facilities in McMinnville, Walla Walla (Maison Bleue), Folsom (Willamette Wineworks), Vancouver, Lake Oswego, and Bend, with various lease terms and renewal options[48][49][50][51][52][53] - For Willamette Wineworks, the lease was extended to February 2026, with options reasonably certain to February 2040[50] - Leases for Vancouver and Lake Oswego retail facilities have renewal options reasonably certain to August 2041 and January 2042, respectively[51][52] Lease Cost and Other Information Lease Cost and Other Information (Six Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------------------------ | :------- | :------- | | Total lease cost | $765,390 | $745,071 | | Operating cash flows from operating leases - Vineyard | $234,164 | $230,964 | | Operating cash flows from operating leases - Other | $441,334 | $388,941 | | Weighted-average remaining lease term (years) | 14.37 | 15.39 | | Weighted-average discount rate | 7.66% | 7.89% | Maturities of Lease Liabilities Maturities of Operating Lease Liabilities (as of June 30, 2025) | Years Ended December 31 | Operating Leases | | :---------------------- | :--------------- | | 2025 | $657,038 | | 2026 | $1,312,758 | | 2027 | $1,373,710 | | 2028 | $1,366,420 | | 2029 | $1,376,565 | | Thereafter | $13,861,091 | | Total minimal lease payments | $19,947,582 | | Less present value adjustment | $(8,357,567) | | Operating lease liabilities | $11,590,015 | | Less current lease liabilities | $(472,282) | | Lease liabilities, net of current portion | $11,117,733 | 9) Commitments and Contingencies%20COMMITMENTS%20AND%20CONTINGENCIES) This section addresses potential legal proceedings and long-term grape purchase agreements, with no expected material adverse effects from litigation Litigation - Management believes that current legal proceedings will not have a material adverse effect on the Company's financial position, results of operations, or cash flows[56] Grape Purchases - The Company has long-term grape purchase agreements with pre-determined prices and strict quality standards, but minimum/maximum payments cannot be calculated due to variable factors like fruit quantity and quality[57] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance and condition, including forward-looking statements, accounting policies, operations, and liquidity Forward Looking Statements - The report contains forward-looking statements based on current expectations, estimates, and projections, which involve risks and uncertainties that could cause actual results to differ materially[59] - Key risk factors include financing availability, grape supply/quality, competition, distributor relations, weather, consumer spending, and general economic conditions[59] Critical Accounting Policies - The financial statements are prepared in accordance with U.S. GAAP, requiring management estimates and judgments related to revenue recognition, accounts receivable, inventory valuation, and vineyard development costs[60] - The Company's critical accounting policies remained unchanged during the six months ended June 30, 2025[60] Overview - The Company's success depends on growing/purchasing high-quality grapes, producing premium wines, achieving brand recognition, effective distribution, and building direct-to-consumer sales[61] - Strategic growth through property purchases, development, and preferred stock issuance is expected to negatively impact near-term financial results due to associated costs[62] - Direct-to-consumer sales, including tasting rooms, internet, and wine club, are emphasized for growth due to higher unit prices[64] Produced Wine Case Sales (Six Months Ended June 30) | Year | Cases Sold | | :--- | :--------- | | 2025 | 83,968 | | 2024 | 91,102 | | Change | -7,134 (-7.8%) | - The Company's Estate Winery tasting room was awarded 'Best Wine Tasting Room in the country' by USA Today for the second consecutive year, and its wine club was ranked 2 nationally[70] Results of Operations This section provides a detailed analysis of the Company's financial performance, highlighting changes in revenue, costs, gross profit, expenses, taxes, and net income/loss Revenue Net Sales Revenue | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Three months ended June 30 | $10,195,763 | $10,332,358 | $(136,595) | -1.3% | | Six months ended June 30 | $17,737,346 | $19,135,438 | $(1,398,092) | -7.3% | - The decrease in three-month revenue was due to lower direct sales, partially offset by increased distributor sales. The six-month decrease was driven by declines in both direct and distributor sales[74] Cost of Sales Cost of Sales | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Three months ended June 30 | $3,979,145 | $3,860,668 | $118,477 | 3.1% | | Six months ended June 30 | $6,761,620 | $7,391,026 | $(629,406) | -8.5% | - The three-month increase in cost of sales was due to higher cost products sold, while the six-month decrease was a result of lower case sales[75] Gross Profit Gross Profit as a Percentage of Net Sales | Period | 2025 | 2024 | Change (pp) | | :-------------------------------- | :----- | :----- | :---------- | | Three months ended June 30 | 61.0% | 62.6% | -1.6 pp | | Six months ended June 30 | 61.9% | 61.4% | +0.5 pp | - The decrease in gross profit percentage for the three-month period was mainly due to more product discounts. The increase for the six-month period was primarily due to higher prices for direct sales products[76] Selling, General and Administrative Expenses Selling, General and Administrative Expenses | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Three months ended June 30 | $5,818,454 | $5,934,784 | $(116,330) | -2.0% | | Six months ended June 30 | $11,447,540 | $11,810,083 | $(362,543) | -3.1% | - The decrease in SG&A for both periods was primarily driven by reduced selling and marketing expenses, and for the six-month period, also by lower general and administrative expenses due to reduced legal costs[77] Interest Expense Interest Expense, Net | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Three months ended June 30 | $270,145 | $263,694 | $6,451 | 2.4% | | Six months ended June 30 | $568,366 | $493,381 | $74,985 | 15.2% | - The increase in interest expense for both periods was primarily due to increased long-term debt[78] Income Taxes Income Tax (Expense) Benefit | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Three months ended June 30 | $(37,774) | $(79,775) | $42,001 | -52.6% | | Six months ended June 30 | $258,968 | $132,632 | $126,336 | 95.3% | - The decrease in income tax expense for the three-month period was due to lower pre-tax income. The increase in income tax benefit for the six-month period was due to a higher pre-tax loss[79] - The estimated federal and state combined income tax rate was 28.9% for both periods[79] Net Income (Loss) Net Income (Loss) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Three months ended June 30 | $92,795 | $195,978 | $(103,183) | -52.7% | | Six months ended June 30 | $(636,186) | $(325,827) | $(310,359) | 95.3% | - The decrease in net income for the second quarter and increase in net loss for the first half of 2025 were primarily a result of lower revenue[80] Net Loss Applicable to Common Shareholders Net Loss Applicable to Common Shareholders | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Three months ended June 30 | $(470,381) | $(367,271) | $103,110 | 28.1% | | Six months ended June 30 | $(1,762,539) | $(1,452,253) | $310,286 | 21.4% | - The increase in loss applicable to common shareholders for both periods was a direct result of the higher net loss in the current period[81] Liquidity and Capital Resources - As of June 30, 2025, the Company had a working capital balance of $27.3 million and a current working capital ratio of 4.07:1[82] Cash and Cash Equivalents | Date | Balance | | :---------------- | :---------- | | June 30, 2025 | $350,643 | | December 31, 2024 | $320,883 | - Cash used in operating activities for the six months ended June 30, 2025, was $27,768, primarily due to net loss and changes in grapes payable and accrued expenses[83] - Cash generated from financing activities for the six months ended June 30, 2025, was $267,061, mainly from long-term debt proceeds offset by repayments[85] - The Company believes that cash flow from operations, existing credit facilities, and preferred stock sales will be sufficient to meet long-term needs[89] Item 3: Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the Company is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[90] Item 4: Controls and Procedures This section details the Company's assessment of disclosure controls and procedures and reports on changes in internal control over financial reporting Disclosure Controls and Procedures - The Company's management, including the President and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025[91] Changes in Internal Control over Financial Reporting - There have been no changes in internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[92] PART II: OTHER INFORMATION Item 1 - Legal Proceedings This section addresses legal proceedings, concluding no material adverse effect on financial position, results of operations, or cash flows is expected - The Company is a party to various legal proceedings in the ordinary course of business, but management believes these will not have a material adverse effect on the Company's financial position, results of operations, or cash flows[93] Item 1A - Risk Factors This section refers readers to the Annual Report on Form 10-K for risk factors and notes the potential for additional, unknown risks - Readers should consider the risk factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[94] - Additional unknown or immaterial risks could eventually prove to materially adversely affect the business, operations, or financial condition[95] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds The Company reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities and use of proceeds during the period[96] Item 3 - Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities during the period[97] Item 4 - Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable to the Company[98] Item 5 – Other Information No directors or officers adopted or terminated Rule 10b5-1 or Non-Rule 10b5-1 trading arrangements during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or Non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[99] Item 6 – Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and iXBRL financial information - Exhibits include Articles of Incorporation, Bylaws, Certifications of Principal Executive and Financial Officers (Rule 13a-14(a) and 18 U.S.C. Section 1350), and financial information formatted in Inline Extensible Business Reporting Language (iXBRL)[100] SIGNATURES - The report was signed on August 12, 2025, by James W. Bernau, President (Principal Executive Officer), and John Ferry, Chief Financial Officer (Principal Accounting and Financial Officer)[101][102]