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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-22857
SCHEID VINEYARDS INC.
(Exact name of small business issuer as specified in its charter)
Delaware 77-0461833
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13470 Washington Blvd., Suite 300
Marina del Rey, California 90292
(Address of principal executive offices) (Zip Code)
(310) 301-1555
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 X No
----- -----
There were 6,400,000 shares outstanding of registrant's Common Stock, par value
$.001 per share, as of September 3, 1997.
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SCHEID VINEYARDS INC.
FORM 10-QSB INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
a. Combined Balance Sheets at December 31, 1996
and June 30, 1997 3
b. Combined Statements of Operations for the six
months and three months ended June 30, 1996
and 1997 4
c. Combined Statements of Cash Flows for the six
months ended June 30, 1996 and 1997 5
d. Notes to Combined Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHEID VINEYARDS INC.
COMBINED BALANCE SHEETS
(amounts in thousands)
December 31, June 30,
------------ --------
1996 1997
------------ --------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,024 --
Accounts receivable, trade 274 3
Accounts receivable, stockholder -- 3,030
Accounts receivable, other 3 12
Inventories 100 3,540
Supplies and prepaid expenses 819 1,430
------- -------
Total current assets 5,220 8,015
PROPERTY, PLANT AND EQUIPMENT, NET 16,342 24,867
LONG-TERM RECEIVABLE 2,233 3,766
OTHER ASSETS, NET 274 212
------- -------
$24,069 $36,860
------- -------
------- -------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $458 $458
Notes payable to affiliates 807 --
Notes payable -- 10,500
Note due stockholder 1,000 --
Accounts payable and accrued liabilities 497 1,772
Accrued interest payable 204 275
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Total current liabilities 2,966 13,005
LONG TERM DEBT 11,458 15,421
DEFERRED COMPENSATION 584 622
EQUITY:
Common stock 2 2
Additional paid-in capital 124 124
Retained earnings 5,621 4,019
Partners' capital 3,314 3,667
9,061 7,812
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$24,069 $36,860
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------- -------
See accompanying Notes to Combined Financial Statements.
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SCHEID VINEYARDS INC.
COMBINED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Sales -- $16 -- $16
Vineyard management, services and other fees 429 563 219 216
-------- -------- -------- --------
429 579 219 232
Cost of sales -- 24 -- 24
-------- -------- -------- --------
GROSS PROFIT 429 555 219 208
General and administrative 1,101 1,458 423 830
Interest expense (net of interest income) 249 322 155 137
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (921) (1,225) (359) (759)
PROVISION FOR INCOME TAXES -- -- -- --
-------- -------- -------- --------
NET LOSS ($921) ($1,225) ($359) ($759)
-------- -------- -------- --------
-------- -------- -------- --------
PRO FORMA AMOUNTS:
LOSS BEFORE INCOME TAXES AS REPORTED (921) (1,225) (359) (759)
PRO FORMA INCOME TAX BENEFIT 368 490 144 304
-------- -------- -------- --------
PRO FORMA NET LOSS ($553) ($735) ($215) ($455)
-------- -------- -------- --------
PRO FORMA NET LOSS PER SHARE ($0.13) ($0.17) ($0.05) ($0.10)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying Notes to Combined Financial Statements
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SCHEID VINEYARDS INC.
COMBINED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------------
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($921) ($1,225)
Adjustments to reconcile net loss to net cash provided
by operating activities-
Deferred compensation 35 38
Changes in operating assets and liabilities-
Accounts receivable, trade (273) 271
Accounts receivable, stockholder -- (3,030)
Accounts receivable, other 54 (9)
Inventories (1,909) (3,440)
Supplies and prepaid expenses 522 (611)
Accounts payable and accrued liabilities (309) 1,346
Net cash used in operating activities (2,801) (6,660)
CASH FLOWS FROM INVESTING ACTIVITIES:
Long-term receivable (1,438) (1,533)
Additions to property, plant and equipment (1,925) (8,525)
Other assets 41 62
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Net cash used in investing activities (3,322) (9,996)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable, short term -- 10,500
Repayments on notes payable, short term (463) (1,807)
Increase in long-term debt 4,099 3,963
Partnership distributions (44) (24)
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Net cash provided by financing activities 3,592 12,632
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Decrease in cash and cash equivalents (2,531) (4,024)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,559 4,024
-------- --------
Cash and cash equivalents, end of period $1,028 $0
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Combined Financial Statements
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SCHEID VINEYARDS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The combined financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of the Company, the foregoing
statements contain all adjustments necessary to present fairly the financial
position of the Company as of June 30, 1997, and its results of operations and
cash flows for the three- and six-month periods ended June 30, 1997 and 1996,
respectively. The Company's combined balance sheet as of December 31, 1996
included herein has been taken from the Company's audited financial statements
of that date included in the Company's Registration Statement on Form SB-2.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The accompanying
combined financial statements should be read in conjunction with the combined
financial statements and the notes thereto filed as part of the Company's
Registration Statement on Form SB-2 (File No. 333-27871).
The Company completed its initial public offering of 2,000,000 shares of
Class A Common Stock, par value $.001 per share, on July 30, 1997. The
additional capital received by the Company was $18,000,000. The increase in net
worth due to the public offering is estimated at $17,300,000, after deduction of
offering-related expenses.
On September 3, 1997, the underwriters of the Company's public offering
exercised their overallotment option to purchase 300,000 additional shares of
Class A Common Stock. The additional capital to be received by the Company on
September 8, 1997 will be $2,700,000.
PRO FORMA AMOUNTS AND SUBSEQUENT EVENTS (UNAUDITED)
EXCHANGE OF SHARES, PARTNERSHIP UNITS AND LIMITED LIABILITY COMPANY
INTERESTS FOR CLASS B COMMON STOCK -- Prior to the Company's initial public
offering, Scheid Vineyards California Inc., a California corporation and
wholly-owned subsidiary of the Company ("SVI-Cal"), was the general partner of
two California limited partnerships, Vineyard Investors 1972 ("VI-1972") and
Vineyard 405 ("V-405") and was a member of a California limited liability
company, Quadra Partners LLC ("Quadra Partners"). In connection with the
Company's public offering, Scheid Vineyards Inc., a Delaware corporation
("SVI-Del") was formed to act as a holding company for SVI-Cal. The capital
stock of SVI-Cal held by its sole stockholder, the membership interests held by
all members (other than SVI-Cal) of Quadra Partners, and the limited partnership
units held by all limited partners (other than SVI-Cal) in VI-1972 were
contributed to SVI-Del in exchange for (i) 4,400,000 shares of Class B Common
Stock of the Company (the "Exchange Transaction") and (ii) a commitment by
SVI-Cal to make the distributions described below. See "-- Distributions".
SVI-Del, as part of the Exchange Transaction, simultaneously contributed such
limited partnership units in VI-1972 and such membership interests in Quadra
Partners to SVI-Cal. As a result, each of VI-1972, V-405 and Quadra Partners
was terminated and dissolved, and their respective former limited partners and
members and the former sole stockholder of SVI-Cal received all of the 4,400,000
shares of Class B Common Stock outstanding prior to the offering.
S CORPORATION CONVERSION -- The Exchange Transaction resulted in
termination of SVI-Cal's S Corporation status. As a result, SVI will pay income
taxes at the corporate level. The pro forma income tax provision in the
combined statements of operations is based upon an assumed 40% federal and state
income tax rate.
DISTRIBUTIONS -- SVI-Cal's cumulative S Corporation earnings will be
determined up to the effective date of the offering and a distribution will be
made to its former sole stockholder. This amount is estimated at $3,030,000.
In addition, a distribution of $455,000 was made to the limited partners of
VI-1972 (as of
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immediately prior to the Exchange Transaction) to pay income taxes on income
from the partnership. These distributions resulted in a decrease in net worth
immediately prior to the offering.
DEFERRED INCOME TAXES -- In connection with the conversion of SVI-Cal's S
Corporation Status to C Corporation status, SVI is required by FASB No. 109 to
record deferred tax liabilities and deferred tax assets. Such change will
result in a net charge to earnings of approximately $1,300,000 in the fiscal
quarter in which the conversion to C Corporation status takes place. This
one-time charge is a result of differences in the accounting and tax treatment
of certain of the Company's assets and liabilities and is reflected through (i)
an increase in deferred income tax liabilities, partially offset by (ii) an
increase in the Company's deferred tax assets.
EARNINGS PER SHARE AND CLASSES OF COMMON STOCK -- The pro forma earnings
per share in the combined statements of operations is based upon 4,400,000
shares of Class B Common Stock. In connection with the stock offering, the
Company offered 2,000,000 shares of Class A Common Stock. On September 3,
1997, the underwriters of the Company's public offering exercised their
option to purchase an additional 300,000 shares of Class A Common Stock.
Each share of Class A Common Stock is entitled to one vote and each share of
Class B Common stock is entitled to five votes on all matters submitted to a
vote of the shareholders. The holders of the Class A Common Stock, voting as
a separate class, elect 25% of the total Board of Directors, rounded up to
the nearest whole number, of the Company and the holders of the Class B
Common Stock, voting as a separate class, elect the remaining directors.
Each share of Class B Common Stock is convertible into one share of Class A
Common Stock at the option of the holder or automatically upon transfer to a
person other than certain specified persons.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SVI derives its revenues from three sources: (i) sales of wine grapes
pursuant to long-term purchase contracts; (ii) vineyard management and services
revenues consisting primarily of management and harvest fees and equipment
rentals for services provided to owners of vineyards; and (iii) sales of wine
and wine-related merchandise sold primarily through the Company's tasting room
which opened in late April 1997. The majority of SVI's revenue is derived from
sales of wine grapes and the Company recognizes all of its grape sales revenues
at the time of its annual harvest in September and October. Because success of
the Company's operations is dependent upon the results of the Company's annual
harvest, the first two fiscal quarters have historically resulted in a loss and
quarterly results are not considered indicative of those to be expected for a
full year. Profits, if any, are recognized in the last two fiscal quarters of
the year when revenues from grape sales are recognized.
SIX MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 30, 1996
REVENUES. Revenue from vineyard management, services and other fees
increased by 31.2% to $563,000 for the six months ended June 30, 1997 from
$429,000 for the same period in 1996, an increase of $134,000. This increase
was due primarily to the addition of a 445 acre long-term management contract
which became operative in early 1997. Revenue from the sale of wine and
wine-related merchandise at the Company's newly opened tasting room was $16,000
for the six months ended June 30, 1997.
GROSS PROFIT. Because the costs incurred throughout the year to farm and
harvest the Company's wine grape crop are capitalized as inventory until the
revenues associated with such costs are recognized, the only cost of sales
recognized for the six months ended June 30, 1997 are those associated with the
sale of wine and wine-related merchandise through the Company's tasting room.
These costs were $24,000 for the six months ended June 30, 1997, reflecting the
start-up costs of getting the new tasting room into operation. Gross profit
increased by 29.4% to $555,000 for the six months ended June 30, 1997 from
$429,000 for the same period in 1996, an increase of $126,000.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased by
32.4% to $1,458,000 for the six months ended June 30, 1997 from $1,101,000 for
the same period in 1996, an increase of $357,000. The increase was due to
start-up and promotional costs to open the Company's new tasting room in late
April 1997, as well as additional costs associated with increased compensation
and overall office expenses due to expansion of the Company's business.
INTEREST EXPENSE, NET. Net interest expense increased to $322,000 for the
six months ended June 30, 1997 from $249,000 for the same period in 1996, an
increase of $73,000. This increase in net interest expense was primarily due to
increased levels of borrowing by the Company to finance crop growing costs and
decreased income from earned interest.
NET LOSS. Due to the above factors, the Company had a net loss for the
six months ended June 30, 1997 of $1,225,000, compared to a net loss of $921,000
for the same period in 1996.
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FINANCIAL CONDITION
Cash used in operating activities was $6,660,000 for the six months ended
June 30, 1997, compared to $2,801,000 for the same period in 1996, an increase
of $3,859,000. The increase was primarily due to a $3,030,000 receivable from
the Company's principal stockholder resulting from advances related to SVI-Cal's
S Corporation status and an increase in inventories due to an increase in
deferred crop production costs.
Cash used in investing activities was $9,996,000 for the six months ended
June 30, 1997, compared to $3,322,000 for the same period in 1996, an increase
of $6,674,000. The increase was principally the result of additions to
property, plant and equipment due to the Company's acquisition of a 370-acre
vineyard known as Riverview Vineyard on June 26, 1997 for $5,500,000,
improvements of the Company's existing vineyards, and ongoing development of
approximately 374 acres of new vineyards.
Cash provided by financing activities was $12,632,000 for the six months
ended June 30, 1997, compared to $3,592,000 for the same period in 1996, an
increase of $9,040,000. The increase was primarily due to borrowings on
short-term notes payable of $10,500,000, of which approximately $5,500,000 was
due to the Company's acquisition of Riverview Vineyard. The balance of the
borrowings on short-term notes payable was used to finance crop production costs
and vineyard improvements. The increase in cash provided by financing
activities was offset primarily by an increase in repayment of short-term notes
payable of $1,344,000. Subsequent to June 30, 1997, the Company increased
long-term debt by $2,563,000 and reduced its short-term notes payable.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Management's Discussion and Analysis
of Financial Condition and Results of Operations are "forward-looking
statements" intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995. These
forward-looking statements can generally be identified as such because the
context of the statement will include such words as the company "believes,"
"anticipates," "expects," or words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals
are also forward-looking statements. Such forward looking statements are
subject to certain factors, risks and uncertainties which could cause
actual results to differ materially from those currently anticipated. Such
factors, risks and uncertainties include, but are not limited to, (i)
planting and harvesting of new vineyards, (ii) potential acquisitions of
additional properties for vineyard development and related businesses,
(iii) consumer demand and preferences for the wine grape varieties
produced by the Company, (iv) general health and social concerns regarding
consumption of wine and spirits, (v) the size and growth rate of the
California wine industry, (vi) seasonality of the wine grape producing
business, (vii) increases or changes in government regulations regarding
environmental impact, water use, labor or consumption of alcoholic
beverages, (viii) competition from other producers and wineries and (ix)
proposed expansion of the Company's wine business. These factors, risks
and uncertainties are discussed in the Company's Registration Statement on
Form SB-2 (File No. 333-27871) filed with the Securities and Exchange
Commission on July 21, 1997, and are incorporated herein by this reference.
Stockholders, potential investors and other readers are urged to consider
these factors carefully in evaluating the forward-looking statements and
are cautioned not to place undo reliance on such forward-looking
statements. The forward-looking statements made herein are only made as of
the date of this Form 10-QSB and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent
events or circumstances.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Neither the Company nor its subsidiary is currently a party to nor is
any of their property the subject of any legal proceedings which would
be material to the business or financial condition of the Company on a
consolidated basis.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herewith:
Not Applicable.
(b) The Company did not file any reports on Form 8-K during the
quarter for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September __, 1997 SCHEID VINEYARDS INC.
/S/ HEIDI M. SCHEID
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Heidi M. Scheid
Vice President Finance and Chief Financial
Officer
(Duly Authorized Officer and Principal
Financial Officer)
/s/ Ernest M. Brown
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Ernest M. Brown
Vice President, Secretary and Controller
(Duly Authorized Officer and Principal
Accounting Officer)
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