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. The Company cautions that actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including availability of financing for growth, availability of adequate supply of high-quality grapes, successful performance of internal operations, impact of competition, changes in wine broker or distributor relations or performance, impact of possible adverse weather conditions, impact of reduction in grape quality or supply due to disease or smoke from forest fires, changes in consumer spending, and the reduction in consumer demand for premium wines. Many of these risks are identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with U.S. GAAP, which requires 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. The Company’s critical accounting policies, including revenue recognition, accounts receivable, inventory valuation, and vineyard development costs, are described in the Annual Report on Form 10-K for the year ended December 31, 2023.

Overview

Willamette Valley Vineyards is one of the largest wine producers in Oregon by volume. The Company’s goal is to continue building a reputation for producing some of Oregon’s finest, most sought-after wines. The Company has focused on strategic growth through property purchases, property development, and the issuance of Series A Redeemable Preferred Stock.

The Company generates revenue from the sale of wine to wholesalers and direct-to-consumers. Direct-to-consumer sales, which include tasting rooms, telephone, internet, and wine club, are at higher unit prices than wholesale sales. The Company continues to emphasize growth in direct-to-consumer sales.

The Company sold 91,102 and 96,269 cases of produced wine during the six months ended June 30, 2024 and 2023, respectively, a decrease of 5.4%. Cost of sales includes grape costs, winemaking and processing costs, bottling, packaging, warehousing, and shipping and handling.

Willamette Valley Vineyards continues to receive positive recognition, including awards for Best Wine Tasting Room and Best Wine Club in the country, and high ratings for its wines from industry publications.

Results of Operations

Revenue

Sales revenue for the three months ended June 30, 2024 decreased by 3.7% compared to the prior year period, due to a decrease in sales through distributors, partially offset by an increase in direct sales. Sales revenue for the six months ended June 30, 2024 increased by 0.5% compared to the prior year period, due to an increase in direct sales, partially offset by a decrease in sales through distributors.

Cost of Sales

Cost of Sales for the three and six months ended June 30, 2024 decreased by 13.7% and 11.0%, respectively, compared to the prior year periods, primarily due to fewer products sold.

Gross Profit

Gross profit as a percentage of net sales increased by 4.3 percentage points and 5.0 percentage points for the three and six months ended June 30, 2024, respectively, compared to the prior year periods, primarily due to higher prices and a higher percentage of direct sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2024 decreased slightly, while for the six months ended June 30, 2024 increased by 3.6%, primarily due to higher legal costs.

Interest Expense

Interest expense increased by 60.2% and 70.7% for the three and six months ended June 30, 2024, respectively, compared to the prior year periods, due to increased debt.

Income Taxes

Income tax expense increased for the three months ended June 30, 2024 due to higher pre-tax income, while the income tax benefit decreased for the six months ended June 30, 2024 due to lower pre-tax loss, compared to the prior year periods.

Net Income (Loss)

Net income for the three months ended June 30, 2024 increased by 80.7%, while net loss for the six months ended June 30, 2024 decreased by 48.8%, compared to the prior year periods, primarily due to higher prices for products sold.

Net Loss Applicable to Common Shareholders

Net loss applicable to common shareholders for the three and six months ended June 30, 2024 decreased by 8.9% and 12.5%, respectively, compared to the prior year periods, due to a lower net loss, partially offset by higher accrued preferred stock dividends.

Liquidity and Capital Resources

As of June 30, 2024, the Company had a working capital balance of $22.8 million and a current working capital ratio of 3.08:1. The Company had a cash balance of $279,807 at June 30, 2024, compared to $238,482 at December 31, 2023.

Cash used in operating activities in the six months ended June 30, 2024 was $2,212,072, primarily associated with reduced grapes payable and increased inventories. Cash used in investing activities was $1,188,276, consisting of property, equipment, and vineyard development costs. Cash generated from financing activities was $3,441,673, primarily from proceeds from the issuance of Preferred Stock and long-term debt, partially offset by debt repayment.

The Company has a revolving line of credit agreement with Umpqua Bank that allows borrowing up to $5,000,000, and had an outstanding balance of $2,334,415 at June 30, 2024. The Company also has long-term debt with AgWest, with a total balance of $10,832,629 as of June 30, 2024.

The Company believes that cash flow from operations and available credit facilities will be sufficient to meet its short-term needs.