===========================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-QSB
_________________________
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1996
Commission File Number 0-21522
WILLAMETTE VALLEY VINEYARDS, INC.
(Exact name of registrant as specified in charter)
Oregon 93-0981021
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
_______________________________
8800 Enchanted Way, S.E.,
Turner, Oregon 97392
(503)-588-9463
(Address, including Zip code, and telephone number,
including area code, of registrant's principal executive
offices)
________________________________
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.
[X] YES [ ] NO
Number of shares of common stock outstanding as of
September 30, 1996
3,785,356 shares, no par value
===========================================================
WILLAMETTE VALLEY VINEYARDS, INC.
Balance Sheet
September 30,
1996 December 31,
ASSETS (unaudited) 1995
_____________ ____________
Current assets:
Cash and cash
equivalents $ 1,066 $ 599,895
Accounts receivable
trade, net 317,617 132,072
Other receivable 28,122 18,727
Inventories 1,985,614 1,890,048
Prepaid and other
current expenses 86,478 64,211
Deferred income taxes 93,872 93,872
_____________ ____________
Total current
assets 2,512,769 2,798,825
Vineyard development
cost, net 379,941 372,676
Property and equipment,
net 5,079,349 4,849,747
Investments 124,173 153,893
Notes receivable 136,120 129,002
Debt issuance costs, net 34,869 36,416
_____________ ____________
Total assets $ 8,267,221 $ 8,340,559
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 296,270 $ 135,969
Accrued commissions
and payroll cost 70,202 94,816
Other accrued
liabilities 24,986 14,756
Grape payable - 344,642
Line of credit 202,041 161,300
Current portion of
long term debt 66,493 66,493
_____________ ____________
Total current
liabilities 659,992 817,976
Long-term debt 1,957,894 2,007,870
Deferred income taxes 56,938 56,938
_____________ ____________
Total liabilities 2,674,824 2,882,784
_____________ ____________
Shareholders' equity:
Common stock, no par value - 10,000,000
shares authorized, 3,785,356 shares issued
outstanding 5,369,868 5,369,868
Retained earnings 222,529 87,907
_____________ ____________
Total shareholders'
equity 5,592,397 5,457,775
_____________ ____________
Total liabilities and
shareholders'
equity $ 8,267,221 $ 8,340,559
============= =============
The accompanying notes are an integral part of this
financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Income
(Unaudited)
Three Months Ended
September 30, Nine Months Ended
September 30,
1996 1995 1996 1995
__________ _________ __________ __________
Revenues:
Total
Revenue $1,152,093 $ 951,213 $2,826,870 $2,280,670
Cost of Sales:
Winery
operations 483,098 472,143 1,204,199 1,084,370
__________ _________ __________ __________
Gross Margin 668,995 479,070 1,622,671 1,196,300
__________ _________ __________ __________
Selling, general and
administrative
expenses 515,955 400,927 1,346,459 1,152,052
__________ _________ __________ __________
Other income (expense)
Interest income 2,747 3,368 11,798 14,730
Interest
expense (51,262) (45,285) (147,403) (97,147)
Other income 20,030 2,408 21,727 2,408
__________ _________ __________ __________
(28,485) (39,509) (113,878) (80,009)
__________ _________ __________ __________
Net income (loss) before
income taxes 124,555 38,634 162,334 (35,761)
Income tax (27,712) - (27,712) 9,000
__________ _________ __________ __________
Net income
(loss) 96,843 38,634 134,622 (26,761)
Retained earnings
(accumulated deficit),
beginning of
period 125,686 16,188 87,907 81,583
__________ _________ __________ __________
Retained earnings
(accumulated deficit),
end of
period $222,529 $54,822 $222,529 $54,822
========= ========= ========== ==========
Net income (loss) per
common share $ 0.03 $ 0.01 $ 0.04 $ (0.01)
========= ========= ========== ===========
Weighted average
number of
common shares
outstanding 3,785,356 3,785,356 3,785,356 3,785,356
========= ========= ========== ==========
The accompanying notes are an integral part of this
financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Nine Months Ended September 30,
_______________________________
1996 1995
__________ __________
Cash flows from operating
activities:
Net income (loss) $ 134,622 $ (26,761)
Reconciliation of net
income (loss)
to net cash used for
operating activities:
Depreciation and
amortization 265,856 173,548
Changes in assets and
liabilities:
Accounts receivable
trade (185,545) (35,199)
Accounts receivable
affiliated co - (69,978)
Other receivable (9,395) (13,726)
Inventories (95,566) 2,180
Prepaid and other
expenses (24,993) (20,201)
Grape payable (344,642) (198,203)
Accounts payable 160,301 162,728
Accrued commissions and
payroll cost (24,614) -
Taxes payable 27,712 (39,597)
Deferred taxes - (70,440)
Accrued liabilities (14,756) (10,319)
__________ __________
Net cash used by
operating activities (111,020) (145,968)
__________ __________
Cash Flow from investing activities
Construction expenditures and
purchases of equipment (485,656) (910,658)
Vineyard development
expenditures (17,067) (435)
Change in investments 29,720 (8,880)
Change in notes receivable (7,118) 8,792
__________ __________
Net cash used by investing
activities (480,121) (911,181)
__________ __________
Cash Flows from financing activities:
Line of credit borrowings 40,741 184,376
Capitalized loan fee 1,547 (13,122)
Mortgage loan funds (49,976) 681,370
__________ __________
Net cash provided by
financing activities (7,688) 852,624
__________ __________
Net decrease in cash
and cash equivalents (598,829) (204,525)
Cash and cash equivalents:
Beginning of period 599,895 448,800
__________ __________
End of period $ 1,066 $ 244,275
=========== ===========
The accompanying notes are an integral part of this
financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
NOTES TO FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The interim financial statements have been prepared by the
Company, without audit and subject to year-end adjustment,
in accordance with generally accepted accounting principles,
except that certain information and footnote disclosure made
in the latest annual report have been condensed or omitted
for the interim statements. Certain costs are estimated for
the full year and are allocated to interim periods based on
estimates of operating time expired, benefit received, or
activity associated with the interim period. The financial
statements reflect all adjustments which are, in the opinion
of management, necessary for fair presentation. The financial
should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995
filed with the Securities and Exchange Commission on
March 30, 1996. The results of operations for an interim
period are not necessarily indicative of the results of
operations for a full year.
Effective July 1, 1994, Willamette Valley, Inc.
Microbreweries Across America ("WVI"), an affiliated
company, formed an administrative, accounting and stock
transfer department to provide services to its subsidiaries
and to any affiliated companies that elected to contract
such services. Beginning July 1, 1994 until December 3,
1995, the Company contracted to purchase certain
administrative, accounting, and stock transfer services from
WVI rather than provide those services internally. On
December 3, 1995, the Company added personnel to replace the
services which, prior to this date, were provided by WVI.
2) Inventories by major classifications are summarized as
follows:
September 30, December 31,
1996 1995
_____________ ____________
Winemaking and packaging
materials $ 39,646 $ 71,725
Work-in-progress (costs relating
to unprocessed and/or
unbottled wine products) 110,799 942,189
Finished goods (bottled wines
and related products) 1,835,169 876,134
$ 1,985,614 $ 1,890,048
============ ============
3) Property and Equipment consist of the following:
September 30, December 31,
1996 1995
_____________ ____________
Land and improvements $ 562,217 $ 562,217
Winery building 1,314,133 1,300,410
Equipment 2,314,579 1,860,498
Hospitality Center 2,250,088 2,232,236
_____________ ____________
$ 6,441,017 $ 5,955,361
Less accumulated
depreciation (1,361,668) (1,105,614)
_____________ _____________
$ 5,079,349 $ 4,849,747
============ ============
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Revenue
The Company's revenues from winery operations are summarized
as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
________ ________ ________ ________
Tasting room
and hospitality
sales $ 250,706 $213,719 $615,001 $507,129
On-site and
off-site
festivals 127,713 187,747 320,240 359,147
In-state sales 415,118 319,881 1,125,087 822,349
Out-of-state
sales 358,556 229,866 766,542 592,045
__________ ________ _________ ________
Total
Revenue $1,152,093 $951,213 $2,826,870 $2,280,670
========== ========= ========== ==========
Tasting Room and Hospitality sales for the three months
ending September 30, 1996 increased 17% over the same
period in 1995. For the first nine months of 1996, these
sales have increased 21% over the same period in 1995.
Hospitality rental income alone has grown $24,047 in 1996,
versus same period in 1995. These rental revenue increases
are the result of continuing facility promotion through
businesses, agencies, civic groups, caterers, industry
groups and visitor associations. The increase in rental use
has also contributed to growth of foot traffic in the
Tasting Room. Many rental visitors introduced to the
winery and facilities at special events later return, with
friends and family, to the Tasting Room to purchase wines
and other merchandise.
In the third quarter, the Company experienced turnover of
two key retail division positions. The existing employees
chose to take new positions in related industry companies.
The first replacement hire was a new Retail Manager. Eddie
Valente, formerly Food & Beverage Director of Salishan
Lodge, accepted our offer to lead the retail division. Mr.
Valente was also Cellarmaster for Salishan which boasts one
of the country's largest wine cellars. He brings much need
wine expertise, as well as strong management skills to this
leadership position. The second hire was a new Tasting
Room Supervisor. Sheila Haegerty took this important
position. Ms. Haegerty has extensive experience in retail
sales and restaurant management.
On-site and off-site festival sales for the third quarter
decreased 32% as compared to the same period in 1995. For
the first nine months of 1996, sales in this category
decreased 11% versus 1995. The major decrease in this quarter
was directly attributable to the elimination of our Oregon
State Fair retail booth. The Company decided to eliminate
this effort because it was unprofitable. Overall, the
Company has decided to eliminate many off-site and
restructure some on-site festivals to improve
profitability. This sales arena contributed significantly
to gross revenues, but many of the festivals did not break-
even. Thus far, the Company has been able to replace these
lost revenues with even greater sales increases in other
divisions with lower operating costs. The net result has
contributed to improved Company profitability.
Sales within Oregon, through the Company's self-
distribution sales force, increased 30% in the third
quarter versus 1995. For the first nine months of 1996, self-
distribution sales have increased 37% over the same period
in 1995. The Wholesale Sales Manager, Bruce Eskenazi,
cited several new placements of the Company's wines as the
main reasons for improved sales. These new placements
include several Indian gaming restaurants, Oregon
destination attractions and medium-sized chain restaurant
chains. In addition, the Company has garnered significant
new shelf space in several large grocery chains and
wholesale warehouse chains. Since becoming Oregon's largest
selling winery, the Company has been able to secure more
and better-positioned shelf space in virtually every retail
package outlet.
Out-of-state sales in the third quarter of 1996 increased
56% over the same period in 1995. Through the first nine
months, these sales increased 29% versus 1995. The Company
now sells wine in 28 states, the District of Columbia and
six foreign countries. The Company continues to receive
strong third-party endorsements via competitions and wine
periodicals. This along with enhanced point-of-sale
materials and on-going promotional efforts has contributed
to growing demand for the Company's wines. In the third
quarter the winery obtained a license to ship into
Connecticut for the first time. Opening sales to that
market totaled $134,000.
At present, the Company has all products on allocation in
all markets. The Company is quite confident that demand is
not yet being met in existing markets. Thus there is not
only growth to be realized by opening new markets, but also
in meeting demand in existing markets. The Company
continues to pursue a strategy of global distribution for
its products. Demand for American wine globally continues
to grow. Presently, the Company is negotiating for
representation in southeast Asia beginning in 1997.
Pinot Noir, which now constitutes about one-third of the
Company's production, is among the fastest growing wine
varietals. According to InfoScan reports, Pinot Noir sales
in American retail stores have grown 47% over the past 52
weeks. In comparison, Chardonnay sales (the number one
varietal wine) grew about 19% in the same time period. New
consumers are coming into the wine category. Positive
press regarding the healthful use of wine continues to
stimulate demand. The Company expects demand for its wines
to remain strong for the foreseeable future.
Gross Profit
As a percentage of revenue, gross profit from winery
operations increased to 58% in the third quarter of 1996,
as compared to 50% in the same quarter of 1995. For the
first nine months of 1996, gross profit from winery
operations increased to 57% from 52% in 1995. The Company
has initiated an aggressive program to help control costs
through monthly management meetings designed to monitor
actual expenditures against each division manager's
operating budget. Through better manager education and
quick analysis of actual results, the Company has been able
to better control cost of goods. In 1996, the Company has
successfully increased prices in all sales venues. This
resulted in an increase in the gross margin percentage over
the same period in 1995.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased 29%
to $515,955 in the third quarter of 1996 from $400,927 in
the third quarter of 1995. Selling, general and
administrative expenses for the first nine months of 1996
increased 17% to $1,346,459 from $1,152,052 over the same
period in 1995. As a percentage of revenue from winery
operations, selling, general and administrative expenses
increased to 45% in the third quarter of 1996 from 42% in
the third quarter of 1995. Yet for the first nine months of
1996, these costs as a percentage of revenue decreased to
48% in 1996 from 50% in 1995. The Company has started an
aggressive, expense control program teaching each department
manager how to effectively work within a tight budget. The
Controller meets with each department manager after each
month-end to review in detail all monthly expenditures and
compare the actual costs versus the budgeted costs. After
which, each department manager develops a program to bring
any budget variance under control. This effort is already
yielding positive results as demonstrated by the reduction
in selling, general, and administration expenses as a
percentage of revenue in the first nine months of 1996. The
staff changes in late 1995 in which the Company took over
control from WVI of all administrative functions has greatly
stabilized the staff and has reduced costs at the same time.
During the third quarter of 1996 part of the increase in
expenses was due to the increased sales volume. Commissions
paid to the independent sales force increased about $28,000
over the same period in 1995. Since commissions are based on
a percentage of revenue there is no adverse affect in the
income ratio.
Another significant expense increase was in the Retail
Department for increased labor to staff the new Hospitality
Center. This expense is partially offset by the increase in
revenues generated from making the winery a major center for
tourism, conventions, weddings and other meetings. In
particular, for the third quarter of 1996, the Company's
revenue from rental of its new Hospitality Center increased
to $47,865 from $22,834 for the same period in 1995. This
increase in revenues necessitated the hiring of more part-
time staff to supervise events held at the winery after
normal business hours, as well as additional supplies and
equipment to operate at higher levels.
Other Income and Expense
Interest income decreased to $2,747 for the third quarter of
1996 from $3,368 for the third quarter of 1995. For the
first nine months of 1996, the interest income decreased to
$11,798 from $14,730 in 1995.
Interest expense has increased to $51,262 in the third
quarter of 1996 from $45,285 in 1995 due to the funds
borrowed to complete the Hospitality Center. For the first
nine months of 1996, interest expense has increased to
$147,403 from $97,147 in 1995. This large increase was due to the
fact that for the first few months of 1995 part of expense
was capitalized with the construction of the new Hospitality
Center.
Income Taxes
The Company generated net operating income at September 30, 1996
of $162,334. The Company anticipates income tax expense to
be $27,712.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had a working capital
balance of $1.9 million and a current ratio of 4:1. At
December 31, 1995, the Company had a working capital balance
of $2.0 million and a current ratio of 3:1. The increase in
the current ratio is primarily due to the final payment in
the first half of 1996 for grapes purchased in the prior
year. Also, as part of the increased crush for 1996, the
Company has spent funds to purchase additional wine barrels
and other equipment.
The Company obtained a line of credit of $500,000 from
Farm Credit Services during 1995 which will expire in March
of 1997. At September 30 1996, outstanding borrowings
against the line of credit totaled $202,041. Since the
Company intends to increase the quantity of grapes purchased
at crush for the next several years, it has requested from
Farm Credit Services to increase its line of credit to
$1,000,000 to fund this increase in inventory. As of
November 7, 1996, Farm Credit Services has agreed to the new
credit limit.
The Company has completed the new Hospitality Center located
at the Winery and financed an increase in production
capacity in 1995. This Debt of nearly two million dollars
from Farm Credit Service will be repaid over a term of
twenty years. With the new Hospitality Center, the Company
projects to increase rental activity in the next few years
to between $150,000 and $250,000 annually. The production
expansion allowed the Company to increase its capacity from
49,000 cases of wine in 1994 to 65,000 cases in 1995.
In the third quarter of 1996, the Company revamped its
production facility to enable it to process about 1,300 tons
of grapes as compared to 890 tons harvested in 1995. This
increased the capacity to in excess of 90,000 cases per
year. It added one large press, six stainless steel
fermentors, and several pieces of equipment to more
efficiently process grapes at harvest. Also, in the spring
of 1997, the Company will construct a 20,000 sq. ft.
building to house the bottling line and store all of its
case goods which are currently being stored off-site. To
finance this new construction, the company has the approval
from Farm Credit Service to increase its long term note by
$1,200,000. The funds will be released in the fourth quarter
of 1996.
At September 30, 1996, the Company has entered into grape
contracts for the 1996 fall production crop which amounts to
approximately $1,000,000. About 50% of these will be due to
the growers on December 1, 1996. The Company intends to pay
the growers from funds borrowed from its line of credit and
retained earnings. The remaining 50% are due in the first
part of 1997.
SUBSEQUENT EVENTS
On July 22, 1996, the company hired Joe Dobbes, Jr. as our
full-time winemaker. He had been operating on a part time
basis as a consulting winemaker since last fall. Mr. Dobbes
is one of Oregon's most accomplished winemakers. His wines
have received numerous gold medals in some of the most
prestigious wine competitions. Just recently, his Sparkling
Muscat was served at a White House dinner. For the past five
years, he served as winemaker for Hinman Vineyards/Silvan
Ridge. Prior to that he was with Eola Hills Winery for two
years and Elk Cove Vineyards for two years. Joe developed
his winemaking skills by working in several fine wineries in
Burgundy, France, Domaine George Roumier in Chambolle-
Musigny and Domaine des Comtes Lafon in Meursault. He began
his career in 1985 at Weingut Erbhof Tesch Winery in
Germany.
WILLAMETTE VALLEY VINEYARDS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None.
(b) No reports were filed on Form 8-K during
the quarter for which this report is filed.
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:_________________________________By /s/ Kevin Chambers
Kevin Chambers
General Manager
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:_______________________ By: /S/ Kevin Chambers
Kevin Chambers
General Manager
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,066
<SECURITIES> 124,173
<RECEIVABLES> 317,617
<ALLOWANCES> 0
<INVENTORY> 1,985,614
<CURRENT-ASSETS> 2,512,769
<PP&E> 5,079,349
<DEPRECIATION> 265,856
<TOTAL-ASSETS> 8,267,221
<CURRENT-LIABILITIES> 659,992
<BONDS> 0
0
0
<COMMON> 5,369,868
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,267,221
<SALES> 2,826,870
<TOTAL-REVENUES> 2,826,870
<CGS> 1,204,199
<TOTAL-COSTS> 2,550,658
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,403
<INCOME-PRETAX> 162,334
<INCOME-TAX> 134,622
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,622
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
