UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
 
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
Commission File Number 000-21522
 
WILLAMETTE VALLEY VINEYARDS, INC.

(Exact name of registrant as specified in charter)
 
Oregon
93-0981021
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
8800 Enchanted Way, S.E., Turner, Oregon 97392

(Address of principal executive offices) (Zip Code)
 
Registrant's telephone number, including area code: (503) 588-9463
 

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: ☒ YES ☐ NO
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): ☒ YES ☐ NO
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer
Accelerated filer
 
 
Non-accelerated filer
Smaller reporting company
 
 
Emerging Growth Company
 
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ YES ☒ NO
 
 
1
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
 Common Stock,
 
WVVI
 
NASDAQ Capital Market
Series A Redeemable Preferred Stock
 
WVVIP
 
NASDAQ Capital Market
 
Number of shares of common stock outstanding as of November 13, 2019: 4,964,529
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
2
 
 
  WILLAMETTE VALLEY VINEYARDS, INC.
INDEX TO FORM 10-Q
 
 

Part I - Financial Information
4
 
 
Item 1 - Financial Statements (unaudited)
4
 
 
Balance Sheets
4
 
 
Statements of Operations
5
 
 
Statements of Shareholders’ Equity
6
 
 
Statements of Cash Flows
7
 
 
Notes to Unaudited Interim Financial Statements
8
 
 
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
15
 
 
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
21
 
 
Item 4 - Controls and Procedures
21
 
 
Part II - Other Information
21
 
 
Item 1 - Legal Proceedings
21
 
 
Item 1A – Risk Factors
21
 
 
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
21
 
 
Item 3 - Defaults Upon Senior Securities
22
 
 
Item 4 – Mine Safety Disclosures
22
 
 
Item 5 – Other Information
22
 

Item 6 – Exhibits
22
 
 
Signatures
23


 
 
 
3
 
 
PART I: FINANCIAL INFORMATION
 
Item 1 – Financial Statements
 
 
WILLAMETTE VALLEY VINEYARDS, INC.
 BALANCE SHEETS
(Unaudited)
  
 
ASSETS          
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
December 31,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $7,511,913 
 $9,737,467 
Accounts receivable, net
  2,069,793 
  2,352,890 
Inventories (Note 2)
  16,529,308 
  16,247,109 
Prepaid expenses and other current assets
  166,333 
  219,800 
Income tax receivable
  16,158 
  77,063 
Total current assets
  26,293,505 
  28,634,329 
 
    
    
Other assets
  13,824 
  34,836 
Vineyard development costs, net
  7,517,381 
  7,028,920 
Property and equipment, net (Note 3)
  27,868,829 
  25,784,451 
Operating lease right of use assets
  4,917,783 
  - 
 
    
    
TOTAL ASSETS
 $66,611,322 
 $61,482,536 
 
    
    
 
LIABILITIES AND SHAREHOLDERS’ EQUITY      
 
 
    
    
CURRENT LIABILITIES
    
    
Accounts payable
 $656,155 
 $844,820 
Accrued expenses
  1,015,168 
  911,129 
Current portion of notes payable
  1,488,676 
  1,685,181 
Current portion of long-term debt
  433,005 
  417,293 
Current portion of lease liabilities
  197,338 
  - 
Unearned revenue
  426,864 
  517,710 
Grapes payable
  285,500 
  1,019,129 
Total current liabilities
  4,502,706 
  5,395,262 
 
    
    
 
    
    
Long-term debt, net of current portion and debt issuance costs
  5,934,221 
  6,251,316 
Lease liabilities, net of current portion
  4,747,578 
  - 
Deferred rent liability
  26,823 
  50,480 
Deferred gain
  912 
  24,983 
Deferred income taxes
  2,200,227 
  2,200,227 
Total liabilities
  17,412,467 
  13,922,268 
 
    
    
COMMITMENTS AND CONTINGENCIES
    
    
 
    
    
SHAREHOLDERS’ EQUITY
    
    
 
Redeemable preferred stock, no par value, 10,000,000 shares authorized,
 
    
 
4,662,768 shares issued and outstanding, liquidation preference
 
    
 
$19,863,392 at September 30, 2019 and 4,662,768 shares issued and
 
    
 
outstanding, liquidation preference $19,350,487, at December 31, 2018,
 
    
respectively.
  19,088,459 
  18,319,102 
 
Common stock, no par value, 10,000,000 shares authorized, 4,964,529
 
    
shares issued and outstanding at September 30, 2019 and
    
    
December 31, 2018, respectively.
  8,512,489 
  8,512,489 
  Retained earnings
  21,597,907 
  20,728,677 
Total shareholders’ equity
  49,198,855 
  47,560,268 
 
    
    
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $66,611,322 
 $61,482,536 
  
The accompanying notes are an integral part of this financial statement
  
 
4
 
 
WILLAMETTE VALLEY VINEYARDS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
 
  Three months ended
 
 
  Nine months ended
 
 
 
September 30,
 
 
September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SALES, NET
 $6,758,367 
 $5,461,039 
 $17,547,990 
 $15,814,950 
COST OF SALES
  2,694,345 
  1,918,868 
  6,704,974 
  5,660,429 
 
    
    
    
    
GROSS PROFIT
  4,064,022 
  3,542,171 
  10,843,016 
  10,154,521 
 
    
    
    
    
OPERATING EXPENSES
    
    
    
    
Sales and marketing
  1,860,537 
  1,699,236 
  5,542,123 
  4,867,687 
General and administrative
  929,158 
  869,993 
  2,865,697 
  2,662,643 
Total operating expenses
  2,789,695 
  2,569,229 
  8,407,820 
  7,530,330 
 
    
    
    
    
INCOME FROM OPERATIONS
  1,274,327 
  972,942 
  2,435,196 
  2,624,191 
 
    
    
    
    
OTHER INCOME (EXPENSE)
    
    
    
    
Interest income
  25,268 
  1,964 
  35,554 
  10,968 
Interest expense
  (110,547)
  (119,270)
  (332,049)
  (354,272)
Other income/(expense), net
  (18,060)
  25,967 
  103,040 
  164,009 
 
    
    
    
    
INCOME BEFORE INCOME TAXES
  1,170,988 
  881,603 
  2,241,741 
  2,444,896 
 
    
    
    
    
INCOME TAX PROVISION
  (318,788)
  (239,966)
  (603,154)
  (669,549)
 
    
    
    
    
NET INCOME
  852,200 
  641,637 
  1,638,587 
  1,775,347 
 
    
    
    
    
Accrued preferred stock dividends
  (256,452)
  (256,438)
  (769,357)
  (767,770)
 
    
    
    
    
INCOME APPLICABLE TO COMMON SHAREHOLDERS
 $595,748 
 $385,199 
 $869,230 
 $1,007,577 
 
    
    
    
    
Income per common share after preferred dividends
 $0.12 
 $0.08 
 $0.18 
 $0.20 
 
    
    
    
    
Weighted average number of
    
    
    
    
common shares outstanding
  4,964,529 
  4,964,529 
  4,964,529 
  4,964,529 
 
The accompanying notes are an integral part of this financial statement
 
 
 
 

 
 
 
 
 
 
 
 
5
 
 
WILLAMETTE VALLEY VINEYARDS, INC.
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
 
Nine-Month Period Ended September 30, 2019        
 
 
 
  Redeemable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Preferred Stock
 
 
  Common Stock
 
 
 Retained
 
 
 
 
 
 
Shares
 
 
Dollars
 
 
Shares
 
 
Dollars
 
 
 Earnings
 
 
 Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
  4,662,768 
 $18,319,102 
  4,964,529 
 $8,512,489 
 $20,728,677 
 $47,560,268 
 
    
    
    
    
    
    
Preferred stock dividends accrued
  - 
  256,452 
  - 
  - 
  (256,452)
  - 
 
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  426,476 
  426,476 
 
    
    
    
    
    
    
Balance at March 31, 2019
  4,662,768 
 $18,575,554 
  4,964,529 
 $8,512,489 
 $20,898,701 
 $47,986,744 
 
    
    
    
    
    
    
Preferred stock dividends accrued
  - 
  256,452 
  - 
  - 
  (256,452)
  - 
 
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  359,911 
  359,911 
 
    
    
    
    
    
    
Balance at June 30, 2019
  4,662,768 
 $18,832,006 
  4,964,529 
 $8,512,489 
 $21,002,160 
 $48,346,655 
 
    
    
    
    
    
    
Preferred stock dividends accrued
  - 
  256,452 
  - 
  - 
  (256,452)
  - 
 
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  852,200 
  852,200 
 
    
    
    
    
    
    
Balance at September 30, 2019
  4,662,768 
 $19,088,459 
  4,964,529 
 $8,512,489 
 $21,597,907 
 $49,198,855 
 
 
 
 
Nine-Month Period Ended September 30, 2018        
 
 
 
  Redeemable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Preferred Stock
 
 
  Common Stock
 
 
 Retained
 
 
 
 
 
 
Shares
 
 
Dollars
 
 
Shares
 
 
Dollars
 
 
 Earnings
 
 
 Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
  4,427,991 
 $17,339,508 
  4,964,529 
 $8,512,489 
 $18,889,012 
 $44,741,009 
 
    
    
    
    
    
    
Preferred stock sold
  206,432 
  435,856 
    
    
    
  435,856 
 
    
    
    
    
    
    
Preferred stock dividends accrued
  - 
  254,893 
  - 
  - 
  (254,893)
  - 
 
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  330,454 
  330,454 
 
    
    
    
    
    
    
Balance at March 31, 2018
  4,634,423 
 $18,030,257 
  4,964,529 
 $8,512,489 
 $18,964,573 
 $45,507,319 
 
    
    
    
    
    
    
Preferred stock sold
  28,095 
  543,807 
    
    
    
  543,807 
 
    
    
    
    
    
    
Preferred stock dividends accrued
  - 
  256,438 
  - 
  - 
  (256,438)
  - 
 
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  803,255 
  803,255 
 
    
    
    
    
    
    
Balance at June 30, 2018
  4,662,518 
 $18,830,502 
  4,964,529 
 $8,512,489 
 $19,511,390 
 $46,854,381 
 
    
    
    
    
    
    
Preferred stock dividends accrued
  - 
  256,438 
  - 
  - 
  (256,438)
  - 
 
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  641,637 
  641,637 
 
    
    
    
    
    
    
Balance at September 30, 2018
  4,662,518 
 $19,086,940 
  4,964,529 
 $8,512,489 
 $19,896,589 
 $47,496,018 
  
The accompanying notes are an integral part of this financial statement
 
 
6
 
 
WILLAMETTE VALLEY VINEYARDS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
Nine months ended September 30,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
Net income
 $1,638,587 
 $1,775,347 
Adjustments to reconcile net income to net cash
    
    
from operating activities:
    
    
Depreciation and amortization
  1,293,783 
  1,205,565 
Loss on disposition of property & equipment
  487 
  805 
Non-cash loss from other assets
  21,012 
  14,317 
Loan fee amortization
  9,875 
  9,935 
Deferred rent liability
  (23,657)
  (23,658)
Deferred gain
  (24,072)
  (24,072)
Change in operating assets and liabilities:
    
    
Accounts receivable, net
  283,097 
  191,823 
Inventories
  (282,199)
  (548,950)
Prepaid expenses and other current assets
  53,467 
  (28,366)
Unearned revenue
  (90,846)
  (61,933)
Deferred revenue-distribution agreement
  - 
  (95,220)
Grapes payable
  (733,629)
  (1,053,715)
Accounts payable
  (206,896)
  (206,797)
Accrued expenses
  104,039 
  218,666 
Income taxes payable
  60,905 
  177,256 
Net cash from operating activities
  2,103,953 
  1,551,003 
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES
    
    
Additions to vineyard development costs
  (571,065)
  (1,121,992)
Additions to property and equipment
  (3,250,679)
  (3,325,232)
Net cash from investing activities
  (3,821,744)
  (4,447,224)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES
    
    
Payment on installment note for property purchase
  (196,505)
  (193,103)
Payments on long-term debt
  (311,258)
  (295,882)
Proceeds from issuance of preferred stock
  - 
  549,238 
Net cash from financing activities
  (507,763)
  60,253 
 
    
    
NET CHANGE IN CASH AND CASH EQUIVALENTS
  (2,225,554)
  (2,835,968)
 
    
    
CASH AND CASH EQUIVALENTS, beginning of period
  9,737,467 
  13,776,257 
 
    
    
CASH AND CASH EQUIVALENTS, end of period
 $7,511,913 
 $10,940,289 
 
    
    
NON-CASH INVESTING AND FINANCING ACTIVITIES
    
    
Purchases of property and equipment and vineyard development
    
    
costs included in accounts payable
 $154,775 
 $177,338 
 
The accompanying notes are an integral part of this financial statement
 
 
 
 
7
 
 
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
 
1) BASIS OF PRESENTATION
 
The accompanying unaudited interim financial statements as of September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018 have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements. The financial information as of December 31, 2018 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, 2018. 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 financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2018, as presented in the Company’s Annual Report on Form 10-K.
 
Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2019, 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.
 
Earnings 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:
 
 
 
Three months ended September 30,
 
 
Nine months ended September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 $852,200 
 $641,637 
 $1,638,587 
 $1,775,347 
Accrued preferred stock dividends
  (256,452)
  (256,438)
  (769,357)
  (767,770)
 
    
    
    
    
Net income applicable to common shares
 $595,748 
 $385,199 
 $869,230 
 $1,007,577 
 
    
    
    
    
Denominator
    
    
    
    
 
    
    
    
    
Weighted average common shares
  4,964,529 
  4,964,529 
  4,964,529 
  4,964,529 
 
    
    
    
    
Income per common share
    
    
    
    
     after preferred dividends
 $0.12 
 $0.08 
 $0.18 
 $0.20 
 
Recently issued accounting standards (adopted) In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). This update requires that lessees recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include both qualitative and quantitative information. The effective date for ASU 2016-02 is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with earlier adoption permitted. The Company adopted this new standard on its financial statements on January 1, 2019 using the cumulative effect adjustment method and determined right-of-use assets to be approximately $5.0 million as of December 31, 2018 of which approximately $4.8 million, or 96.0%, represent the lease of vineyard property. The Company recognized these right-of-use assets, and their respective liabilities, and began amortizing them prospectively beginning in first quarter 2019. This standard had a material impact on its Balance Sheet but a minimal direct impact on its Statement of Operations. Because 96.0% of the Company’s leases are for vineyard land, lease costs are recognized either as part of capitalized vineyard development costs or inventory valuation depending on the productive or pre-productive nature of the vineyard. Therefore, most changes to lease expenses as a result of this standard flow through inventory and ultimately become part of cost of sales.
 
 
 
8
 
 
The accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
 
2) INVENTORIES
 
The Company’s inventories, by major classification, are summarized as follows, as of the dates shown:
 
 
 
September 30, 2019
 
 
December 31, 2018
 
 
 
 
 
 
 
 
Winemaking and packaging materials
 $637,332 
 $736,902 
Work-in-process (costs relating to
    
    
unprocessed and/or unbottled wine products)
  6,128,079 
  8,527,814 
Finished goods (bottled wine and related products)
  9,763,897 
  6,982,393 
 
    
    
Current inventories
 $16,529,308 
 $16,247,109 
  
3) PROPERTY AND EQUIPMENT
 
The Company’s property and equipment consists of the following, as of the dates shown:
 
 
 
September 30, 2019
 
 
December 31, 2018
 
 
 
 
 
 
 
 
Construction in progress
 $4,156,742 
 $1,747,047 
Land, improvements and other buildings
  11,764,811 
  11,135,596 
Winery building and hospitality center
  16,099,297 
  15,993,490 
Equipment
  12,843,875 
  12,750,152 
 
    
    
 
  44,864,725 
  41,626,285 
 
    
    
Accumulated depreciation
  (16,995,896)
  (15,841,834)
 
    
    
Property and equipment, net
 $27,868,829 
 $25,784,451 
   
4) DISTRIBUTION AGREEMENT RECEIVABLE AND DEFERRED REVENUE
 
Effective September 1, 2011, the Company entered into an agreement with Young’s Market Company for distribution of Company-produced wines in Oregon and Washington. The terms of this contract include exclusive rights to distribute Willamette Valley Vineyard’s wines in Oregon and Washington for seven years expiring September 1, 2018. To facilitate the transition, with as little disruption as possible, Young’s Market Company agreed to compensate Willamette Valley Vineyards for ongoing Oregon sales and branding efforts. As a result, the Company was due to receive $250,000 per year starting on September 2011 for each of the next four years for a total of $1,000,000. In October of 2014, the Company received payment of the final $250,000 under this agreement. The total amount of $1,000,000 received by the Company related to this agreement is being recognized as revenue on a straight-line basis over the seven year life of the agreement. For the three months ended September 30, 2019 and 2018, the Company has recognized revenue related to this agreement in the amount of $0 and $23,790, respectively, recorded to other income. For the nine months ended September 30, 2019 and 2018, the Company has recognized revenue related to this agreement in the amount of $0 and $95,220, respectively, recorded to other income.
 
 
 
9
 
 
5) DEBT
 
Line of Credit Facility – In December of 2005 the Company entered into a revolving line of credit agreement with Umpqua Bank that allows borrowings of up to $2,000,000 against eligible accounts receivable and inventories as defined in the agreement. The revolving line bears interest at prime, is payable monthly, and is subject to annual renewal. In July of 2019, the Company renewed the credit agreement until July 31, 2021. The interest rate was 5.00% at September 30, 2019 and 4.00% at December 31, 2018. At September 30, 2019 and December 31, 2018 there was no outstanding balance on this revolving line of credit.
 
Notes payable –In March of 2017 the Company purchased approximately 45 acres of farmland in the Walla Walla AVA under terms that included paying one third of the price upon closing, one third on March 15, 2018 and one third on March 15, 2019. As of September 30, 2019 the Company did not have a balance due on this note. As of December 31, 2018 the Company had a balance due of $137,667.
 
In February of 2017 the Company purchased property, including vineyard land, bare land and structures in the Dundee Hills AVA under terms that included a 15 year note payable with quarterly payments of $42,534 at 6%. The note may be called by the owner, up to the outstanding balance, with 180 days written notice. As of September 30, 2019 the Company had a balance of $1,488,674 due on this note. As of December 31, 2018 the Company had a balance of $1,547,514 due on this note.
 
Long Term Debt –The Company has two long term debt agreements with Farm Credit Services with an aggregate outstanding balance of $6,514,278 and $6,816,928 as of September 30, 2019 and December 31, 2018. These 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. The general purposes of these loans were to make capital improvements to the winery and vineyard facilities.
 
The Company has an outstanding loan with Toyota Credit Corporation maturing in February 2021, at zero interest, with an outstanding balance of $15,300 and $23,906 as of September 30, 2019 and December 31, 2018, respectively. The purpose of this loan was to purchase a vehicle.
 
As of September 30, 2019 the Company had unamortized debt issuance costs of $162,350. As of December 31, 2018 the Company had unamortized debt issuance costs of $172,225.
 
6) INTEREST AND TAXES PAID
 
Income taxes – The Company paid $163,000 and $158,000 in income taxes for the three months ended September 30, 2019 and 2018, respectively. The Company paid $542,250 and $492,250 in income taxes for the nine months ended September 30, 2019 and 2018, respectively.
 
Interest - The Company paid $106,996 and $113,889 for the three months ended September 30, 2019 and 2018, respectively, in interest on long-term debt. The Company paid $324,715 and $343,726 for the nine months ended September 30, 2019 and 2018, respectively, in interest on long-term debt.
 
7) 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 includes retail sales in the tasting room and remote sites, Wine Club 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 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.
 
 
 
10
 
 
The following table outlines the sales, cost of sales, gross margin, directly attributable selling expenses, and contribution margin of the segments for the three and nine month periods ending September 30, 2019 and 2018. Sales figures are net of related excise taxes.
 
 
 
Three Months Ended September 30,        
 
 
 
Direct Sales
 
 
Distributor Sales
 
 
Total    
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales, net
 $2,383,256 
 $2,333,721 
 $4,375,111 
 $3,127,318 
 $6,758,367 
 $5,461,039 
Cost of Sales
  703,331 
  542,154 
  1,991,014 
  1,376,714 
  2,694,345 
  1,918,868 
Gross Margin
  1,679,925 
  1,791,567 
  2,384,097 
  1,750,604 
  4,064,022 
  3,542,171 
Selling Expenses
  1,175,802 
  1,073,089 
  545,617 
  554,408 
  1,721,419 
  1,627,497 
Contribution Margin
 $504,123 
 $718,478 
 $1,838,480 
 $1,196,196 
 $2,342,603 
 $1,914,674 
Percent of Sales
    35.3%
    42.7%
    64.7%
    57.3%
    100.0%
    100.0%
 
 
 
Nine Months Ended September 30,        
 
 
 
Direct Sales
 
 
Distributor Sales
 
 
Total    
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales, net
 $6,458,908 
 $6,237,364 
 $11,089,082 
 $9,577,586 
 $17,547,990 
 $15,814,950 
Cost of Sales
  1,735,974 
  1,580,697 
  4,969,000 
  4,079,732 
  6,704,974 
  5,660,429 
Gross Margin
  4,722,934 
  4,656,667 
  6,120,082 
  5,497,854 
  10,843,016 
  10,154,521 
Selling Expenses
  3,406,569 
  3,089,948 
  1,676,676 
  1,550,114 
  5,083,245 
  4,640,062 
Contribution Margin
 $1,316,365 
 $1,566,719 
 $4,443,406 
 $3,947,740 
 $5,759,771 
 $5,514,459 
Percent of Sales
    36.8%
    39.4%
    63.2%
    60.6%
    100.0%
    100.0%
 
Direct sales include $418 and $66,420 of bulk wine sales in the three months ended September 30, 2019 and 2018, respectively. Direct sales include $45,981 and $201,390 of bulk wine sales in the nine months ended September 30, 2019 and 2018, respectively.
 
8) SALE OF PREFERRED STOCK
 
In August 2015, the Company commenced a public offering of our Series A Redeemable Preferred Stock pursuant to a registration statement filed with the Securities and Exchange Commission. The preferred stock under this issue is non-voting and ranks senior in rights and preferences to the Company’s common stock. Shareholders of this issue are entitled to receive dividends, when and as declared by the Company’s Board of Directors, at a rate of $0.22 per share. 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 of $4.15 per share plus accrued but unpaid dividends and a redemption premium equal to 3% of the original issue price of $4.15 per share. The Company registered this transaction with the securities authorities of the States of Oregon and Washington and subsequently obtained a listing on the NASDAQ under the trading symbol WVVIP. This issue had an aggregate initial offering price not to exceed $6,000,000 and was fully subscribed as of December 31, 2015.
 
On December 23, 2015 the Company filed a Registration Statement on 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. On February 28, 2016 shareholders of the Series A Redeemable Preferred Stock approved an increase in shares designated as Series A Redeemable Preferred Stock, from 1,445,783 to 2,857,548 shares, and amended the certificate of designation for those shares to allow the Company’s Board of Directors to make future increases.
 
On March 10, 2016 the Company filed a Prospectus Supplement to the December 2015 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 970,588 additional shares of Series A Redeemable Preferred stock having proceeds not to exceed $4,125,000. This stock was established to be sold in four offering periods beginning with an offering price of $4.25 per share and concluding at $4.55 per share. The Company sold all preferred stock available under this offering.
 
 
 
11
 
 
On May 3, 2017, the Company filed with the SEC a Prospectus Supplement to the December 2015 Form S-3, pursuant to which the Company proposed to offer and sell, on a delayed or continuous basis, up to 2,298,851 additional shares of Series A Redeemable Preferred stock having proceeds not to exceed $10,000,000. This stock was established to be sold in four offering periods beginning with an offering price of $4.35 per share and concluding at $4.65 per share. The Company sold all preferred stock available under this offering.
 
9) LEASES
 
In February 2016, the FASB issued Accounting Standards Update 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires lessees to recognize a right-of-use (ROU) asset and lease liability in the balance sheet for all leases, including operating leases, with terms of more than twelve months. Recognition, measurement and presentation of expenses and cash flows from a lease by a lessee have not significantly changed from previous guidance. The amendments also require qualitative disclosures along with specific quantitative disclosures. We adopted this guidance using the cumulative-effect adjustment method on January 1, 2019, meaning we did not restate prior periods. Current year financial information is presented under the guidance in Topic 842, while prior year information will continue to be presented under Topic 840. Adoption of the standard resulted in the recognition of an operating ROU asset of approximately $5.0 million, of which $4.8 million, or 96.0%, represent the lease of vineyard property. Vineyard lease costs are recognized either as part of capitalized vineyard development costs or inventory valuation depending on the productive or pre-productive nature of the vineyard. As such, adoption of the standard did not have a material impact on our Statement of Operations or Statement of Cash flows but did have a material impact on our Balance Sheet.
 
We determine if an arrangement is a lease at inception. On our balance sheet, our operating leases are included in Operating lease right-of-use assets, 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 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 gain of approximately $500,000 is being amortized over the life of the lease. This property is referred to as the Peter Michael Vineyard and includes approximately 66 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 lease contains a formula-based escalation provision with a maximum increase of 4% every three years. Approximately $99,000 of the total gain of $176,000 has been deferred and is being amortized over the life of the lease. This property is referred to as the Meadowview Vineyard, and includes approximately 49 acres of producing vineyards.
 
The amortization of the deferred gain is recorded as an offset to expense in selling, general and administrative expenses.
 
 
 
12
 
 
In February 2007, the Company entered into a lease agreement for 59 acres of vineyard land at Elton Vineyards. This lease is for a 10-year term with four five-year renewals at the Company’s option. The lease contains an escalation provision tied to the CPI not to exceed 2% per annum. In 2017, the Company exercised its option to renew the lease until December 31, 2022.
 
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 .5% per year capped at 4%. This property is referred to as part of Ingram Vineyard.
 
In March 2017, the Company entered into a 25-year lease for approximately 20 acres of agricultural land in Dundee, Oregon. These acres are being developed into vineyards. 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.
 
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. The lease contains an escalation provision with a cap at 3% per year.
 
In January 2018, the Company assumed a lease, with four remaining years, for its Maison Bleue tasting room in Walla Walla, Washington. The lease contains fixed payments that increase over the term of the agreement.
 
Operating leases – Not yet commenced – The Company has entered into a contract to build and lease a retail wine facility in Folsom, California, referred to as Willamette Wineworks, and anticipates this lease commencing in the fourth quarter 2019.
 
The following tables provide lease cost and other lease information for the three and nine months ended September 30, 2019:
 
 
 
 Three Months Ended
 
 
 Nine Months Ended
 
 
 
 September 30, 2019
 
 
 September 30, 2019
 
 
 
 
 
 
 
 
 Lease Cost
 
 
 
 
 
 
 Operating Lease cost - Vineyards
 $113,685 
 $341,055 
 Operating Lease cost - Other
  17,580 
  52,740 
 Short-term lease cost
  9,005 
  26,905 
 Total Lease Cost
 $140,270 
 $420,700 
 
    
    
 Other information
    
    
 (Gains) and losses on sale and leaseback transactions, net
 $(8,024)
 $(24,071)
 Cash paid for amounts included in the measurement
    
    
 of lease liabilities
    
    
 Operating cash flows from operating leases - Vineyard
  104,948 
  314,461 
 Operating cash flows from operating leases - Other
  17,400 
  52,200 
 Weighted-average remaining lease term - operating leases
  18.24 
  18.24 
 Weighted-average discount rate - operating leases
  6.24%
  6.24%

 
 
 
 
13
 
 
As of September 30, 2019, maturities of lease liabilities were as follows:
 
 
 
Operating
 
Years Ended December 31,
 
Leases
 
2019
 $45,959 
2020
  203,481 
2021
  210,307 
2022
  197,651 
2023
  190,730 
Thereafter
  4,096,788 
Present value of operational lease liabilities
 $4,944,916 
 
10) 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 a long-term grape purchase agreement with one of its Willamette Valley wine grape growers. This contract amended and extended three separate contracts for the purchase of fruit through the 2023 harvest year. With this agreement 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.
 
NOTE 11 – SUBSEQUENT EVENTS
 
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. The Company recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are issued.
 
 
 
 
 
 
 
 
 
 
14
 
 
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” “intends,” “plans,” “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, changes in consumer spending, the reduction in consumer demand for premium wines and the impact of governmental regulatory decisions. 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 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, 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 financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these 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, 2018. Such policies were unchanged during the nine months ended September 30, 2019.
 
Overview
 
The Company’s wines are made from grapes grown in vineyards owned, leased or contracted by the Company, and from grapes purchased from other nearby vineyards. The grapes are harvested, fermented and made into wine 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, Pere Mi 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.
 
 
 
15
 
 
Direct to consumer sales primarily include sales through the Company’s tasting rooms and wine club. Direct to consumer sales are more profitable to the Company 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 remodeled 35,642 square foot hospitality facility at the Winery and expansion and growth in wine club membership. Additionally, the Company’s preferred stock sales since August 2015 have resulted in approximately 5,744 new preferred stockholders many of which the Company believes are wine enthusiasts. When considering joint ownership, we believe these new stockholders represent approximately 9,000 potential customers of the Company. Membership in the Company’s wine club increased by approximately 145 net members, or 1.9%, to a total of 7,653 members during the nine months ending September 30, 2019. The Company believes the increase in preferred stockholders, who receive enhanced discounts, has reduced the number of people who would otherwise become wine club members. However, management anticipates that new preferred stockholders will purchase the Company’s wines over a longer period of time, than the average wine club member, making their enhanced winery status beneficial to the Company.
 
Periodically, the Company will sell grapes or bulk wine, due to them not meeting Company standards or being excess to production targets, however this is not a significant part of the Company’s activities. The Company had bulk wine sales of $418 for the three months ended September 30, 2019 and $66,420 in bulk wine sales for the same period of 2018. The Company had bulk wine sales of $45,981 for the nine months ended September 30, 2019 and $201,390 in bulk wine sales for the same period of 2018.
 
The Company sold approximately, 111,778 and 102,155 cases of produced wine during the nine months ended September 30, 2019 and 2018, respectively, an increase of 9,623 cases, or 9.4% in the current year period over the prior year period.  The increase in wine case sales was primarily the result of increased 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 September 30, 2019, wine inventory included approximately 146,091 cases of bottled wine and 286,383 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 approximately 159,926 cases during the nine months ended September 30, 2019.
 
The Company continues to position itself for strategic growth through property purchases, property development and issuance of 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.
 
Willamette Valley Vineyards continues to receive positive recognition through national magazines, regional publications, local newspapers, online articles and broadcast networks in the third quarter of 2019.
 
​​Wine Enthusiast awarded the Company’s 2016 Griffin Creek Merlot with 91 points, the 2016 Griffin Creek Syrah with 90 points, the 2018 Whole Cluster Rosé of Pinot Noir with 90 points and Editors' Choice, the 2016 Méthode Champenoise Brut with 90 points and 2018 Estate Rosé of Pinot Noir with 90 points.
 
Wine & Spirits awarded the Company’s 2016 Tualatin Estate Chardonnay with 92 points and was named "Year's Best Chardonnays", the 2017 Estate Chardonnay with 91 points and named a “Best Buy”, the 2016 Bernau Block Chardonnay with 90 points and named the 2016 Dijon Clone Chardonnay a “Best Buy”.
 
The Company’s 2016 Méthode Champenoise Brut won Double Gold and was named Best Sparkling in the Northwest by Sip Northwest Magazine. The Company’s 2016 Père Ami won a gold medal in Sip Northwest Magazine’s Best of the Northwest Wine Competition.
 
The Company’s 2015 Méthode Champenoise Brut won Double Gold in the Six Nations Wine Challenge, a global competition where wineries from the United States received a small percentage of the awards, a total of 14 Double Gold awards, including the Company’s Brut.
 
The Company’s 2018 Whole Cluster Rosé won Double Gold at the American Fine Wine Rosé Competition.
 
 
16
 
 
The Company’s 2015 Bernau Block Pinot Noir, 2018 Whole Cluster Rosé, 2017 Whole Cluster Pinot Noir, 2017 Pinot Blanc, 2017 Pinot Gris, 2017 Griffin Creek Viognier, 2015 Griffin Creek Grenache, 2015 Yamhill-Carlton AVA Series Pinot Noir, 2014 Dijon Clone Chardonnay, 2018 Riesling and 2016 Maison Bleue Voltigeur Viognier were featured in articles by Medium, Great Northwest WineCapital Gazette, South Florida ReporterMarshall IndependentPassing the VineThe Barrel CellarNittany Epicurean, Chuck Hill Wine Reviews and the New Hampshire Wine-man blog.
 
The Company’s Winery Director, Christine Clair, was selected by Wine Enthusiast as one of their 2019 40 Under 40 Tastemakers and was featured in a full-page article.
 
The Company’s Winery Director, Christine Clair, was quoted in a USA Today article about the ways in which climate change is affecting the wine industry. An image of the Company’s Estate Vineyard graced the front cover of USA Today Weekend. The Company was also included in a USA Today Travel article about harvests on the west coast with a picture of the Estate.
 
The Company’s Founder/CEO, Jim Bernau, was named a 2019 Top Wine Industry Leader and was featured on the cover of Wine Business Monthly with an article describing his contributions to the growing Oregon wine industry, describing him as a “champion of Oregon wine.”
 
The Company’s Founder/CEO, Jim Bernau, was quoted in an Oregonian article about the booming Oregon Wine Industry, which was also shared on Yahoo News.
 
Oregon Solidarity, the Company’s joint winemaking project with King Estate Winery, Silvan Ridge Winery and The Eyrie Vineyards whose proceeds benefit the Rogue Valley winegrowers whose contracts were abruptly canceled by a large California wine producer, was featured in numerous articles, including Portland MonthlyOregon Wine PressThe Growler, Newport News Times, Eugene Register-GuardGrowing Produce and CU4 Wine Blog.
 
Wine Enthusiast selected Oregon Solidarity as the winner of the Wine Star Award for Innovator of the Year and featured the Company’s Founder/CEO, Jim Bernau, in an article announcing the finalists and a follow-up article announcing the winners. The Eugene Register-GuardThe Columbian, Statesman Journal, Yahoo Finance News and Wine Business Monthly shared that the Oregon Solidarity collaboration won the Wine Enthusiast Wine Star Award
 
The Company was named the 13th fastest-growing company (2016-2018) in Oregon & SW Washington by the Portland Business Journal. The Company was also featured in the Portland Business Journal Corporate Philanthropy Awards, honoring companies that excel in community service and corporate giving.
 
Eastern OregonianUnion-Bulletin and My Columbia Basin covered the Company’s partnership with the city of Milton-Freewater to build a shared winemaking and tasting room facility at the Maison Bleue Estate Vineyard in The Rocks District.
 
The Company’s Walla Walla wine brands, Maison Bleue and Pambrun, were included in an Associated Press article about Walla Walla wines. The article was shared on more than 120 major news outlets including The Washington Post, The New York Times, ABC News, Yahoo News, Chicago TribuneUnion-Bulletin, Federal News Radio, Daily Herald, The Sentinel, SFGate, Kansas City Star, Napa Valley Register and Edge Media Network.
 
The Company’s wines were highlighted in an MSN Lifestyle article about Vegan spirits, beer and wine.
 
The Company’s Estate Tasting Room, food pairing offerings and yoga events were featured with images in Travel + Leisure Magazine. The Company’s Estate Tasting Room was featured in other travel articles, including Sip Northwest Magazine, Travel Oregon and Travel Salem.
 
The Statesman Journal, Wine Business MonthlyOregon Wine Press and The Oregonian included the Company in coverage about the first Women in Wine conference held at the Company’s Estate in Turner, Oregon.
 
The Company’s Winemaker, Joe Ibrahim, was featured in an in-depth article in The Barrel Cellar.
 
Statesman Journal did a featured article on Salem Dining Month and included the Company as the presenting sponsor.
 
 
17
 
 
The Company was included in a Yahoo News article about a new Oregon wine quiz with Alexa developed by Travel Oregon.
 
The Company’s Founder/CEO, Jim Bernau, was quoted in several articles regarding wine legislation and the OLCC Listening Sessions, including the Capital PressMarket Screener, The Seattle Times, Statesman Journal, Eugene Register-Guard, Miami Herald, Bend Bulletin, Washington Times and Sacramento Bee.
 
The Company’s 29th Annual Grape Stomp Championship & Harvest Celebration was the only Oregon event featured in a Budget Travel article about harvest festivals in the United States. The Company’s event was also featured on KPTV Fox Channel 12 (Portland network affiliate), ThrillistStatesman JournalOregon Travel DailyWinged M and Travel Salem.
 
 
RESULTS OF OPERATIONS

Revenue
 
Sales revenue for the three months ended September 30, 2019 and 2018 were $6,758,367 and $5,461,039, respectively, an increase of $1,297,328, or 23.8%, in the current year period over the prior year period. This increase was mainly caused by an increase in sales through distributors of $1,247,793 and an increase in direct sales of $49,535 in the current year three-month period over the prior year period. The increase in direct sales to consumers was primarily the result of retail sales increases in wine club and kitchen sales, partially offset by a decrease in bulk wine and grape sales. The increase in revenue from sales through distributors was partially the result of timing attributed to recovering lower sales from quarter 2 in quarter 3. Sales revenue for the nine months ended September 30, 2019 and 2018 were $17,547,990 and $15,814,950, respectively, an increase of $1,733,040, or 11.0%, in the current year period over the prior year period. This increase was mainly caused by an increase in revenues from direct sales of $221,544 and an increase in revenues from sales through distributors of $1,511,496 in the current year period over the prior year period. The increase in revenues from direct sales to consumers was primarily the result of increased wine club and kitchen sales combined with a decrease in bulk wine sales in 2019 when compared to 2018.
 
Cost of Sales
 
Cost of Sales for the three months ended September 30, 2019 and 2018 were $2,694,345 and $1,918,868, respectively, an increase of $775,477, or 40.4%, in the current period over the prior year period. This change was primarily the result of increased sales volumes combined with an increase in cost per case of newly released vintages. The Company continues to evaluate its cost structure to minimize product costs wherever possible. Cost of Sales for the nine months ended September 30, 2019 and 2018 were $6,704,974 and $5,660,429, respectively, an increase of $1,044,545, or 18.5%, in the current period over the prior year period. This change was primarily the result of increased sales volumes combined with sales of higher cost vintages in the current year period compared to the same period in 2018.
 
Gross Profit
 
Gross profit for the three months ended September 30, 2019 and 2018 was $4,064,022 and $3,542,171, respectively, an increase of $521,851, or 14.7%, in the current year period over the prior year period. This increase was primarily the result of higher sales revenues being partially offset by higher unit cost of sales when compared to the corresponding period in the prior year. Gross profit for the nine months ended September 30, 2019 and 2018 was $10,843,016 and $10,154,521, respectively, an increase of $688,495, or 6.8%, in the current year period over the prior year period. This increase was primarily the result of an increase in case sales over the first nine months of the year compared to the same period in 2018, being partially offset by higher cost of product sales in the current period compared to the same period in 2018.
 
Gross profit as a percentage of net sales for the three months ended September 30, 2019 and 2018 was 60.1% and 64.9%, respectively, a decrease of 4.8% in the current year period over the prior year period. Gross profit as a percentage of net sales for the nine months ended September 30, 2019 and 2018 was 61.8% and 64.2%, respectively, a decrease of 2.4% points in the current year period over the prior year period.
 
 
 
18
 
 
Selling, General and Administrative Expense
 
Selling, general and administrative expense for the three months ended September 30, 2019 and 2018 was $2,789,695 and $2,569,229 respectively, an increase of $220,466, or 8.6%, in the current year period over the prior year period. This increase was primarily the result of an increase in selling expenses of $161,301, or 9.5% in addition to an increase in general and administrative expenses of $59,165, or 6.8% in the current quarter compared to the same quarter of 2018. Selling, general and administrative expense for the nine months ended September 30, 2019 and 2018 was $8,407,820 and $7,530,330, respectively, an increase of $877,490, or 11.7%, in the current year period over the prior year period. This increase was primarily the result of an increase in selling expenses of $674,436, or 13.9% and an increase in general and administrative expenses of $203,054, or 7.6% in the current year period compared to the same period in 2018. Selling expenses increased in the first nine months, and third quarter, of 2019 compared to the same period in 2018 primarily as a result of increases in sales staffing and incentive costs, shipping, product demonstrations and marketing, among other selling related activities. General and administrative expenses increased in both the third quarter and first nine months of 2019 compared to the same periods in 2018 primarily a result of increased staffing and professional fees driven mostly by long-term term development and brand protection activities in 2019.
 
Interest Expense
 
Interest expense for the three months ended September 30, 2019 and 2018 was $110,547 and $119,270, respectively, a decrease of $8,723 or 7.3%, in the current year period over the prior year period. Interest expense for the nine months ended September 30, 2019 and 2018 was $332,049 and $354,272, respectively, a decrease of $22,223 or 6.3%, in the current year period over the prior year period. The decrease in interest expense for the third quarter and first nine months of 2019 was primarily the result of decreased debt compared to the third quarter and first nine months of 2018.
 
Income Taxes
 
The income tax expense for the three months ended September 30, 2019 and 2018 was $318,788 and $239,966, respectively, an increase of $78,822 or 32.8%, in the current year period over the prior year period mostly as a result of higher pre-tax income in the third quarter of 2019, compared to the same quarter in 2018. The Company’s estimated federal and state combined income tax rate was 27.2% for both the three months ended September 30, 2019 and 2018. The income tax expense for the nine months ended September 30, 2019 and 2018 was $603,154 and $669,549, respectively, a decrease of $66,395 or 9.9%, in the current year period over the prior year period mostly a result of lower pre-tax income in the first nine months of 2019, compared to the same period in 2018. The Company’s estimated federal and state combined income tax rate was 26.9% and 27.4% for the three months ended September 30, 2019 and 2018, respectively.
 
Net Income
 
Net income for the three months ended September 30, 2019 and 2018 was $852,200 and $641,637, respectively, an increase of $210,563, or 32.8%, in the current year period over the prior year period. Net income for the nine months ended September 30, 2019 and 2018 was $1,638,587 and $1,775,347, respectively, a decrease of $136,760, or 7.7%, in the current year period over the prior year period. The increase in net income for the third quarter of 2019 over the same quarter in 2018, was primarily the result of an increase in gross profit being partially offset by increased selling, general and administrative expenses in the current quarter compared to the same quarter in 2018. The decrease in net income for the first nine months of 2019 compared to the same period in 2018, was primarily the result of higher selling, general & administrative expenses more than offsetting increased gross profit during the current period compared to the same period in 2018.
 
Income Applicable to Common Shareholders
 
Income applicable to common shareholders for the three months ended September 30, 2019 and 2018 was $595,748 and $385,199, respectively, an increase of $210,549, or 54.7%, in the current year quarter over the prior year period. Income applicable to common shareholders for the nine months ended September 30, 2019 and 2018 was $869,230 and $1,007,577, respectively, a decrease of $138,346, or 13.7%, in the current year period over the prior year period. The increase in income applicable to common shareholders in the third quarter of 2019 compared to the same quarter in 2018 was primarily the result of higher net income in the current quarter. The decrease in income applicable to common shareholders in the first nine months of 2019 compared to the same period in 2018, was primarily the result of lower net income in the current period.
 
 
19
 
 
Liquidity and Capital Resources
 
At September 30, 2019, the Company had a working capital balance of $21.8 million and a current working capital ratio of 5.84:1.
 
At September 30, 2019, the Company had a cash balance of $7,511,913, while at December 31, 2018, the Company had a cash balance of $9,737,467. The decrease in our cash balance during the first nine months of 2019 was primarily the result of investment in vineyard development and property and equipment.
 
In 2019, our board of directors approved the construction of a new tasting room at the Bernau Estate, expected to be mostly completed during the 2020 fiscal year. The total construction costs for the Bernau Estate Tasting Room is expected to be approximately $13.1 million, of which we expect will be funded through a combination of cash on hand as well as debt and/or equity financing. Construction on the Bernau Estate Tasting Room began in July, 2019 and as of September 30, 2019, we had spent approximately $1.5 million on the project from our cash reserves.
 
Total cash provided by operating activities in the nine months ended September 30, 2019 was $2,103,953. Cash provided by operating activities for the nine months ended September 30, 2019 was primarily associated with income from operations adjusted for depreciation expense and accounts receivable, partially offset by cash used for inventory. grape and accounts payable.
 
Total cash used in investing activities in the nine months ended September 30, 2019 was $3,821,744. Cash used in investing activities for the nine months ended September 30, 2019 primarily consisted of property and equipment purchases and vineyard development.
 
Total cash used in financing activities in the nine months ended September 30, 2019 was $507,763. Cash used in financing activities for the nine months ended September 30, 2019 consisted primarily of the payment of debt.
 
Non-cash investing and financing activities in the nine months ended September 30, 2019 was $154,775. This was primarily the result of the vineyard development and property and equipment acquisition costs in accounts payable.
 
The Company has an asset-based loan agreement (the “line of credit”) with Umpqua Bank that allows it to borrow up to $2,000,000. The Company renewed this agreement, in July 2019, until July 31, 2021. The index rate of prime plus zero, with a floor of 3.25%, at September 30, 2019 was 5.0%. The loan agreement contains certain restrictive financial covenants with respect to total equity, debt-to-equity and debt coverage that must be maintained by the Company on a quarterly basis. As of September 30, 2019, the Company was in compliance with all of the financial covenants.
 
At September 30, 2019 and December 31, 2018 the Company had no balance outstanding on the line of credit. At September 30, 2019, the Company had $2,000,000 available on the line of credit.
 
As of September 30, 2019 the Company had a 15 year installment note payable of $1,488,676, due in quarterly payments of $42,534, associated with the purchase of property in the Dundee Hills AVA.
 
As of September 30, 2019, the Company had a total long-term debt balance of $6,367,226, including the portion due in the next year, owed to Farm Credit Services and Toyota Credit Corporation, net of debt issuance costs of $162,350. As of December 31, 2018, the Company had a total long-term debt balance of $6,840,834, exclusive of debt issuance costs of $172,225.
 
The Company believes that cash flow from operations, funds available under the Company’s existing credit facilities, and our ability to raise additional capital through debt and/or equity financing will be sufficient to meet the Company’s foreseeable short and long-term needs.
 
Off Balance Sheet Arrangements
 
As of September 30, 2019 and December 31, 2018, the Company had no off-balance sheet arrangements.
 
 
 
20
 
 
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.
 
ITEM 4:
 
CONTROLS AND PROCEDURES
 
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 September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
PART II: OTHER INFORMATION
 
Item 1 - Legal Proceedings.
 
From time to time, the Company is a party to various judicial and administrative proceedings arising in the ordinary course of business. The Company’s management and legal counsel have reviewed the probable outcome of any proceedings that were pending during the period covered by this report, the costs and expenses reasonably expected to be incurred, the availability and limits of the Company’s insurance coverage, and the Company’s established liabilities. While the outcome of legal proceedings cannot be predicted with certainty, based on the Company’s review, the Company believes that any unrecorded liability that may result as a result of any legal proceedings is not likely to have a material effect on the Company’s liquidity, financial condition or results from operations.
 
Item 1A - Risk Factors.
 
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, 2018 (the “2018 Annual Report”), which could materially affect our business, results of operations or financial condition.
 
The risk factors have not materially changed as of September 30, 2019 from those disclosed in the 2018 Annual Report. However, it is important to note that the risks described in our 2018 Annual Report are not the only risks facing us. 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, results of operations or financial condition.
 
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
 
21
 
 
Item 3 - Defaults upon Senior Securities.
 
None.
 
Item 4 - Mine Safety Disclosures.
 
Not applicable.
 
Item 5 – Other Information.
 
None.
 
Item 6 – Exhibits.
 
3.1 Articles of Incorporation of Willamette Valley Vineyards, Inc. (incorporated by reference from the Company's Regulation A Offering Statement on Form 1-A, File No. 24S-2996)
 
3.2 Articles of Amendment, dated August 22, 2000 (incorporated herein by reference to Exhibit 3.4 to the Company’s Form 10-Q for the quarterly period ended June 30, 2008, filed on August 14, 2008, File No. 000-21522)
 
3.3 Amended and Restated Bylaws of Willamette Valley Vineyards, Inc. (incorporated by reference from the Company's Current Reports on Form 8-K filed on November 20, 2015, File No. 001-37610)
 
31.1 Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 (Filed herewith)
 
31.2 Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 (Filed herewith)
 
32.1 Certification of James W. Bernau pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
 
32.2 Certification of John A. Ferry pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
 
101 The following financial information from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, furnished electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Operations; (iii) Statements of Cash Flows; and (iv) Notes to Financial Statements, tagged as blocks of text. (Filed herewith).
 
 
 
 
 
 
 
22
 
 
SIGNATURES
 
Pursuant to the requirements of the Security Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
WILLAMETTE VALLEY VINEYARDS, INC.
 
 
Date: November 13, 2019
By:  
/s/ James W. Bernau
 
 
James W. Bernau
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
 
Date: November 13, 2019
By:  
/s/  John A. Ferry
 
 
John A. Ferry
 
 
Chief Financial Officer
 
 
(Principal Accounting and Financial Officer)
 


 
 
 
 
 
 
 
 
 
 
 
 
 
23
Blueprint
 
Exhibit 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
 
I, James W. Bernau, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Willamette Valley Vineyards, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: November 13, 2019
By:  
/s/ James W. Bernau
 
 
James W. Bernau
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
 

 
 
Blueprint
 
Exhibit 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
 
I, John A. Ferry, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Willamette Valley Vineyards, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date: November 13, 2019
By:  
/s/  John A. Ferry
 
 
John A. Ferry
 
 
Chief Financial Officer
 
 
(Principal Accounting and Financial Officer)
 
 
Blueprint
 
Exhibit 32.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
I, James W. Bernau, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
the Quarterly Report of Willamette Valley Vineyards, Inc. on Form 10-Q for the quarterly period ended September 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
information contained in the Report fairly presents in all material respects the financial condition and results of operations of Willamette Valley Vineyards, Inc.
 
Date: November 13, 2019
By:  
/s/ James W. Bernau
 
 
James W. Bernau
 
 
Title: Chief Executive Officer
 
 
(Principal Executive Officer)
  
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Willamette Valley Vineyards, Inc. and will be retained by Willamette Valley Vineyards, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Willamette Valley Vineyards, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Willamette Valley Vineyards, Inc. specifically incorporates it by reference.
 
 
 
 
 
 
 
 
 
 
 
 
Blueprint
 
Exhibit 32.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
I, John A. Ferry, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
the Quarterly Report of Willamette Valley Vineyards, Inc. on Form 10-Q for the quarterly period ended September 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
information contained in the Report fairly presents in all material respects the financial condition and results of operations of Willamette Valley Vineyards, Inc.
 
Date: November 13, 2019
By:  
/s/  John A. Ferry
 
 
John A. Ferry
 
 
Title: Chief Financial Officer
 
 
(Principal Accounting and Financial Officer)
 
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Willamette Valley Vineyards, Inc. and will be retained by Willamette Valley Vineyards, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Willamette Valley Vineyards, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Willamette Valley Vineyards, Inc. specifically incorporates it by reference.
 
 
 
 
 
 
 
 
 
v3.19.3
6. INTEREST AND TAXES PAID (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Other Income and Expenses [Abstract]        
Income taxes paid $ 163,000 $ 158,000 $ 542,250 $ 492,250
Interest paid $ 106,996 $ 113,889 $ 324,715 $ 343,726
v3.19.3
3. PROPERTY AND EQUIPMENT (Tables)
9 Months Ended
Sep. 30, 2019
Property, Plant and Equipment [Abstract]  
Property and equipment
   September 30, 2019  December 31, 2018
       
Construction in progress  $4,156,742   $1,747,047 
Land, improvements and other buildings   11,764,811    11,135,596 
Winery building and hospitality center   16,099,297    15,993,490 
Equipment   12,843,875    12,750,152 
           
    44,864,725    41,626,285 
           
Accumulated depreciation   (16,995,896)   (15,841,834)
           
Property and equipment, net  $27,868,829   $25,784,451 
v3.19.3
2. INVENTORIES (Details) - USD ($)
Sep. 30, 2019
Dec. 31, 2018
Inventory Disclosure [Abstract]    
Winemaking and packaging materials $ 637,332 $ 736,902
Work-in-progress (costs relating to unprocessed and/or unbottled wine products) 6,128,079 8,527,814
Finished goods (bottled wine and related products) 9,763,897 6,982,393
Current inventories $ 16,529,308 $ 16,247,109
v3.19.3
6. INTEREST AND TAXES PAID
9 Months Ended
Sep. 30, 2019
Other Income and Expenses [Abstract]  
NOTE 6. INTEREST AND TAXES PAID

Income taxes – The Company paid $163,000 and $158,000 in income taxes for the three months ended September 30, 2019 and 2018, respectively. The Company paid $542,250 and $492,250 in income taxes for the nine months ended September 30, 2019 and 2018, respectively.

 

Interest - The Company paid $106,996 and $113,889 for the three months ended September 30, 2019 and 2018, respectively, in interest on long-term debt. The Company paid $324,715 and $343,726 for the nine months ended September 30, 2019 and 2018, respectively, in interest on long-term debt.

v3.19.3
10. COMMITMENTS AND CONTINGENCIES
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
NOTE 10. 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 a long-term grape purchase agreement with one of its Willamette Valley wine grape growers. This contract amended and extended three separate contracts for the purchase of fruit through the 2023 harvest year. With this agreement 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.

 

v3.19.3
9. LEASES (Details)
3 Months Ended 9 Months Ended
Sep. 30, 2019
USD ($)
Sep. 30, 2019
USD ($)
Lease Cost    
Operating lease cost - vineyards $ 113,685 $ 341,055
Operating lease cost - other 17,580 52,740
Short-term lease cost 9,005 26,905
Total lease cost 140,270 420,700
Other Information    
(Gains) and losses on sale and leaseback transactions, net (8,024) (24,071)
Operating cash flows from operating leases - vineyard 104,948 314,461
Operating cash flows from operating leases - other $ 17,400 $ 52,200
Weighted-average remaining lease term - operating leases 18 years 2 months 26 days 18 years 2 months 26 days
Weighted-average discount rate - operating leases 6.24% 6.24%
v3.19.3
BALANCE SHEETS (Unaudited) - USD ($)
Sep. 30, 2019
Dec. 31, 2018
CURRENT ASSETS    
Cash and cash equivalents $ 7,511,913 $ 9,737,467
Accounts receivable, net 2,069,793 2,352,890
Inventories (Note 2) 16,529,308 16,247,109
Prepaid expenses and other current assets 166,333 219,800
Income tax receivable 16,158 77,063
Total current assets 26,293,505 28,634,329
Other assets 13,824 34,836
Vineyard development costs, net 7,517,381 7,028,920
Property and equipment, net (Note 3) 27,868,829 25,784,451
Operating lease right of use assets 4,917,783 0
TOTAL ASSETS 66,611,322 61,482,536
CURRENT LIABILITIES    
Accounts payable 656,155 844,820
Accrued expenses 1,015,168 911,129
Current portion of note payable 1,488,676 1,685,181
Current portion of long-term debt 433,005 417,293
Current portion of lease liabilities 197,338 0
Unearned revenue 426,864 517,710
Grapes payable 285,500 1,019,129
Total current liabilities 4,502,706 5,395,262
Long-term debt, net of current portion and debt issuance costs 5,934,221 6,251,316
Lease liabilities, net of current portion 4,747,578 0
Deferred rent liability 26,823 50,480
Deferred gain 912 24,983
Deferred income taxes 2,200,227 2,200,227
Total liabilities 17,412,467 13,922,268
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY    
Redeemable preferred stock, no par value, 10,000,000 shares authorized, 4,662,768 shares issued and outstanding, liquidation preference $19,863,392 at September 30, 2019 and 4,662,768 shares issued and outstanding, liquidation preference $19,350,487, at December 31, 2018, respectively. 19,088,459 18,319,102
Common stock, no par value, 10,000,000 shares authorized, 4,964,529 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively. 8,512,489 8,512,489
Retained earnings 21,597,907 20,728,677
Total shareholder's equity 49,198,855 47,560,268
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 66,611,322 $ 61,482,536
v3.19.3
STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 1,638,587 $ 1,775,347
Adjustments to reconcile net income to net cash from operating activities:    
Depreciation and amortization 1,293,783 1,205,565
Loss on disposition of property & equipment 487 805
Non-cash loss from other assets 21,012 14,317
Loan fee amortization 9,875 9,935
Deferred rent liability (23,657) (23,658)
Deferred gain (24,072) (24,072)
Change in operating assets and liabilities:    
Accounts receivable, net 283,097 191,823
Inventories (282,199) (548,950)
Prepaid expenses and other current assets 53,467 (28,366)
Unearned revenue (90,846) (61,933)
Deferred revenue-distribution agreement 0 (95,220)
Grapes payable (733,629) (1,053,715)
Accounts payable (206,896) (206,797)
Accrued expenses 104,039 218,666