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COMMITMENTS AND CONTINGENCIES
 12 Months Ended
Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 12 – 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.

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 Company extended the lease in January 2019 until January 2025. This property is referred to as the Peter Michael Vineyard and includes approximately 69 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 first five year extension has been exercised. The lease contains a formula-based escalation provision with a maximum increase of 4% every three years. This property is referred to as the Meadowview Vineyard and includes approximately 49 acres of producing vineyards.

 

In February 2007, the Company entered into a lease agreement for 59 acres of vineyard land at Elton Vineyard. In June 2021, the company entered into a new 11 year lease for this property. The lease contains an escalation provision tied to the CPI not to exceed 2% per annum. This property includes 54 acres of producing vineyards and 2 additional plantable acres.

 

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 0.5% per year capped at 4%. This property is referred to as part of Ingram Vineyard and includes 93 acres of producing vineyards and 17 additional plantable acres.

 

In March 2017, the Company entered into a 25-year lease for approximately 17 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 and includes 9 acres of pre-production vineyards.

 

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. In May 2022 the Company amended the lease to extend the lease to August 2025 with one three year renewal option and defined payments over the term of the lease.

 

In January 2018, the Company assumed a lease, through December 2022, for its Maison Bleue tasting room in Walla Walla, Washington. In December 2022, the Company entered into a new lease to December 2027 with one five year renewal option, and defined payments over the term of the lease.

 

In February 2020, the Company entered into a lease for 5 years, with three five-year renewal options for a retail wine facility in Folsom, California, referred to as Willamette Wineworks. The lease contains an escalation provision tied to the CPI not to exceed 3% per annum with increases not allowed in any year being carried forward to following years.

 

In March 2021, the Company entered into a lease for 10 years, with two five-year renewal options for a retail wine facility in Vancouver, Washington. The lease defines the payments over the term of the lease and option periods.

 

In February 2022, the Company entered into a lease for 10 years, with three five-year renewal options for a retail wine facility in Lake Oswego, Oregon. The lease defines the payments over the term of the lease and option periods.

 

In May 2022, the Company entered into a lease for 10 years, with two five-year renewal options for a retail wine facility in Happy Valley, Oregon. The lease defines the payments over the term of the lease and option periods.

The following tables provide lease cost and other lease information for the year ended December 31, 2022:

 

   Year Ended 
   December 31, 2022 
Lease Cost     
Operating Lease cost - Vineyards  $459,128 
Operating Lease cost - Other   690,924 
Short-term lease cost   37,746 
      
Total Lease Cost  $1,187,798 
      
Other information     
Cash paid for amounts included in the measurement of lease liabilities,     
Operating cash flows from operating leases - Vineyard   450,026 
Operating cash flows from operating leases - Other   437,091 
Weighted-average remaining lease term - Operating leases in years   11.15 
Weighted-average discount rate - Operating leases   5.15%

 

Right-of-use assets obtained in exchange for new operating lease obligations were $3,369,363 and $1,729,981 for the years ended December 31 2022 and 2021, respectively.

 

The Company has two additional operating leases that has not yet commenced as of December 31, 2022, and as such, has not been recognized in the Company’s balance sheet. These operating leases are expected to commence in 2023 with lease terms of 5 and 10 years.

 

As of December 31, 2022, maturities of lease liabilities were as follows:

 

   Operating 
Years Ended December 31,  Leases 
2023  $1,215,935 
2024   1,224,702 
2025   1,139,179 
2026   1,095,471 
2027   1,146,487 
Thereafter   6,621,417 
Total minimal lease payments   12,443,191 
Less present value adjustment   (3,167,543)
Operating lease liabilities   9,275,648 
Less current lease liabilities   (768,818)
Lease liabilities, net of current portion  $8,506,830 

 

Grape Purchases – The Company has entered into long-term grape purchase agreements with a number of Willamette Valley wine grape growers. With these agreements 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. The Company purchased grapes amounting to $2,508,419 and $2,928,398 during the years ended December 31, 2022 and 2021, respectively. The Company had an outstanding balance due on grape purchase agreements of $1,208,673 and $1,388,601 as of December 31, 2022 and 2021, respectively.