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 June 30, 1997
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
June 30, 1997 4,226,096 shares, no par value
WILLAMETTE VALLEY VINEYARDS, INC.
Balance Sheet
June 30, December 31,
1997 1996
(unaudited)
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 248,966 * $ 794,885
Accounts receivable trade, net 380,493 288,905
Other receivable 765 12,388
Inventories 3,565,976 2,843,053
Prepaid expenses 130,120 94,790
Deferred income taxes 111,438 111,438
-------- ---------
Total current assets 4,437,758 4,145,459
Vineyard development cost, net 1,458,784 386,605
Property and equipment, net 6,463,417 5,421,016
Investments 143,086 115,218
Notes receivable 143,229 138,511
Debt issuance costs,net 166,777 56,896
----------- -----------
Total assets $12,813,051 $10,263,705
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit $ 1,099,627 $ 479,626
Current portion of long term 124,191 97,819
debt
Accounts payable 566,786 117,428
Accrued commissions and payroll 42,497 122,745
Other accrued liabilities 34,103 51,511
Income taxes payable 14,148 29,148
Grapes payable (1,065) 551,014
--------- ---------
Total current liabilities 1,880,287 1,449,291
Long-term debt 3,900,226 3,072,181
Deferred income taxes 114,028 114,028
--------- ---------
Total liabilities 5,894,541 4,635,500
Shareholders' equity
Common stock, no par value
- - 10,000,000 shares authorized,
3,785,356 shares at 12/31/96
and 4,226,096 at 4/15/96
issued and outstanding 6,763,652 5,369,868
Retained earnings 154,858 258,337
--------- ---------
Total shareholders' equity 6,918,510 5,628,205
Total liabilities and
shareholders' equity $12,813,051 $10,263,705
=========== ===========
* $156,000 restricted cash see Liquidity and Capital
Resources
The accompanying notes are an integral part of this
financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30
1997 1996 1997 1996
Revenues:
Total Revenue $1,260,179 $947,288 $2,077,301 $1,628,574
Cost of Sales:
Total Cost of
Sales 580,512 412,774 937,291 721,101
---------- -------- ---------- ----------
Gross Margin 679,667 534,514 1,140,010 907,473
Selling, general
and administrative
expenses 585,835 420,063 1,087,035 784,301
Other income (expense)
Interest income 8,374 2,363 19,732 9,051
Interest expense (104,399) (47,166) (184,312) (96,141)
Other income 6,323 - 8,126 1,697
-------- -------- --------- --------
(89,702) (44,803) (156,454) (85,393)
Net income(loss)
before income
taxes 4,130 69,648 (103,479) 37,779
Income tax benefit - - - -
Net income(loss) 4,130 69,648 (103,479) 37,779
====== ======= ======== ======
Retained earnings
(accumulated deficit),
beginning of period
150,728 56,038 258,337 87,907
Retained earnings
(accumulated deficit),
end of period $154,858 $125,686 $154,858 $125,686
======== ======== ======== ========
Net income(loss)
per common share $ - $ 0.02 $ (0.02) $ 0.01
Weighted average number
of common shares
outstanding 4,226,096 3,785,356 4,226,096 3,785,356
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Six Months Ended June 30,
1997 1996
Cash flows from operating activities:
Net loss $ (103,479) $ 37,779
Reconciliation of net loss
to net cash used
for operating activities:
Depreciation and amortization 233,022 172,128
Changes in assets and liabilities:
Accounts receivable trade (91,588) (62,444)
Other receivable 11,623 (597)
Inventories (722,923) (34,612)
Prepaid expenses (35,330) (51,371)
Notes receivable (4,718) (4,728)
Grape payable (552,079) (344,642)
Accounts payable 449,358 59,382
Taxes payable (15,000) (14,100)
Accrued liabilities (97,656) (41,119)
--------- -------
Net cash used by operating
activities (928,770) (284,324)
Cash Flow from investing activities
Construction expenditures
and purchases of equipment (866,680) * (170,271)
Vineyard development expenditures (87,138) * (17,067)
Cash received/paid for investments (27,868) 29,720
-------- -------
Net cash used by investing
activities (981,686) (157,618)
Cash Flows from financing activities:
Line of credit borrowings
(repayment) 620,001 (131,808)
Debt issuance cost (109,881) 1,027
Mortgage loan funds 854,417 (26,151)
--------- --------
Net cash provided by financing
activities 1,364,537 (156,932)
Net decrease in cash and
cash equivalents (545,919) (598,874)
Cash and cash equivalents:
Beginning of period 794,885 599,895
End of period $ 248,966 $ 1,021
======== ======
* excludes a non cash purchase of equipment and land in
exchange for stock issued as part of the purchase of
Tualatin Vineyards
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.
2) Inventories by major classifications are summarized as
follows:
June 30, December 31,
1997 1996
Winemaking and packaging material $ 74,392 $ 87,321
Work-in-progress (costs relating 924,863 1,559,612
to unprocessed and/or unbottled
wine products)
Finished goods (bottled wines
and related products) 2,566,721 1,196,120
--------- ---------
$ 3,565,976 $2,843,053
========= =========
2
3) Property and Equipment consist of the following:
June 30, December 31,
1997 1996
Land and improvements $ 1,037,072 $ 563,077
Winery building and Hospitality 3,752,292 3,718,733
Center
Equipment 2,909,174 2,576,748
Construction in progress 448,398 27,913
---------- ----------
$8,146,936 $6,886,471
Less accumulated depreciation (1,683,519) (1,465,455)
----------- ----------
$ 6,463,417 $ 5,421,016
========= =========
4) Tualatin Acquisition:
On April 15, 1997, the Company acquired 100 percent of the
outstanding stock of Tualatin Vineyards Inc. ("TVI") . The
purchase price paid by the Company to the TVI shareholders
in exchange for their shares was $1,824,000 plus TVI's
current assets minus TVI's current and long term
liabilities as reflected in its balance sheet dated April
15, 1997. The Company paid 35 percent of the purchase price
in the form of cash with the balance paid through the
issuance of unregistered shares of the Company's Common
Stock at an exchange rate based on an agreed price for the
Company's Common Stock of $3.162366 per share. A portion of
the purchase price is being held pending completion and
delivery of the final balance sheet from TVI setting forth
the actual current assets, current liabilities, and long
term liabilities on the closing date April 15, 1997.
5) Excise taxes:
For the second quarter and the first half of 1997, the
Company has reported its excise taxes as a deduction of
sales revenue to equal a net revenue total (as shown on the
Statement of Operations). In past Quarterly reports the
Company has reported excise taxes as selling, general and
administrative expense. Since the Company only collects
these excise taxes for the federal and state governments,
it should not consider these expense as legitimate selling,
general and administrative expenses. The amount for the
second quarter of 1997 was $53,673 and $77,861. For the
same periods in 1996, the excise taxes collected was
$24,181 for the second quarter of 1996 and $46,203 for the
first half of 1996. The Company has restated the second
quarter and first half of 1996 financial to reflect this
change of deducting excise taxes from gross revenue.
6) Cash Flow:
In the second quarter of 1997, the Company recorded the
acquisition of Tualatin Vineyards to its Balance Sheet.
Since 65% of the transaction was in the form of a stock
purchase, the "Statement of Cash Flow" will not reflect this
non-cash transaction.
7) Forward Looking Statement:
This Management's Discussion and Analysis of Financial
Condition and Results of Operation and other sections of
this Form 10Q 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" 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, impact of governmental regulatory decisions,
successful completion of the acquisition of Tualatin
Vineyards and assimilation of Tualatin's business with that
of the Company and other risks detailed below as well as
those discussed elsewhere in this Form 10 and from time to
time in the company's Securities and Exchange Commission
filing and reports. In addition, such statements could be
affected by general industry and market conditions and
growth rates, and general domestic economic conditions.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Revenue
Winery Operations
The Company's revenues from winery operations are summarized
as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Tasting room and
hospitality sales $ 211,303 $ 213,303 $ 351,902 $364,295
On-site and off-
site 92,391 116,435 178,013 192,527
In state sales 462,258 402,699 779,222 709,969
Bulk sales 37,724 37,724
Out of state 510,175 239,032 808,301 407,986
sales
--------- ------- --------- ---------
Total Revenue $ 1,313,852 $ 971,469 $2,155,162 $1,674,777
Less Excise taxes 53,673 24,181 77,861 46,203
--------- ------- --------- ---------
Net Revenues $ 1,260,179 $ 947,288 $2,077,301 $1,628,574
========= ======== ========= =========
Tasting Room and Hospitality sales for the three months
ended June 30, 1997 decreased 1% over the same period in
1996. For the first six months of 1997, the sales decreased
3% over the same period in 1996. The management has
scheduled several new events and programs to help bolster
sales in the Tasting Room in the first half of 1997. With
the purchase of Tualatin Vineyards, the Company has added a
new line of award winning wines for sale in the Company's
Tasting Room. The Company closed Tualatin's Tasting Room to
consolidate its staff and attract Tualatin customers to its
Tasting Room in Turner. Rental revenue from the Company's
Hospitality Center remained strong in the first half of
1997. Wedding, business meeting and family events make up
the types of revenue producing events held at the Winery.
On-site and off-site festival sales for the second quarter
of 1997 decreased 21% over the second quarter of 1996. For
the first half of 1997, sales in this category decreased 8%
over the same period in 1996. The Company has added
additional on-site events to its calendar in an attempt to
increase the decreased revenue. The Company started a
"fourth Friday of the month" which showcases its wines,
food, music, and art. It will feature a range of events
from art shows to big band dances to winemaker dinners. The
Company has also been a major sponsor to a Jazz concert
series held at a local community college in Salem. The
Company's Wine Club, started in 1996 continues to grow. It
hopes that additional promotion of the Wine Club in all
Company mailings and on-site festivals will added a
significant amount of new members.
Sales in the state of Oregon, through the Company's
independent sales force, increased 15% in the second quarter
of 1997 from the second quarter of 1996. For the first
half of 1997, the sales increased 10% over the same period
in 1996. The Company has made significant efforts to
increase sales by expanding the supply of Edelweiss (a
Muscat and Riesling base wine) to in-state wholesale
accounts. This wine has proven to be a best seller in the
Tasting Room since its introduction in 1995. The net result
has been to double its sale in this quarter as compared to
the same period in 1996. In the first half of 1997, the
Company received three gold medals for its 1996 White
Riesling, a double gold from the Taster's Guild, a gold from
the Newport Wine and Seafood Festival, and a gold and "best
of class" from the McMinnville Wine Classic. The promotion
of this award winning wine resulted in additional sales in
the second quarter of 1997. The Company also ran a special
pricing on another of its wines, Oregon Blossom, which led
to additional revenue in the second quarter of 1997.
Out-of-state sales in the second quarter of 1997 have
increased 113% over the second quarter of 1996. In the
first half of 1997, these sales increased 98% over the first
six months of 1995. The Pinot Noir product line showed a
strong growth in the second quarter of 1997. The revenue
from sales of Pinot Noir shipped out of the state in the
second quarter of 1997 increased to $291,372 from $83,966
in the second quarter of 1996. Overall sales increase is a
result of the efforts of the Company's Sales Director who
has focused on developing domestic and international
markets. The Company now sells wine in 33 states and six
foreign countries. As compared to the first of 1996, several
new distributors produced significant revenues in the first
half of 1997. The markets that showed increased revenues
were in the states of : Minnesota, Ohio, Rhode Island,
Connecticut, Texas, and the District of Columbia. Increased
sales promotion in California and New York resulted in a
significant revenue increase in the first half of 1997 as
compared to the same period in 1996.
Gross Profit
Winery Operations
As a percentage of revenue, gross profit for the winery
operations decreased to 54 % of revenue in the second
quarter of 1997 as compared to 56% in the second quarter of
1996. For the first half of 1997, the gross profit
decreased from 55% as compared to 56% for the first half of
1996. The Company expects the gross margins to remain at
this level through 1997. During the second quarter of
1997, the Company sold about $55,000 of Tualatin Vineyard
wine at a lower gross margin which impacted the margin
experienced in the quarter as compared to the same period
in 1996. In the past few years, the Company has experienced
higher production costs specifically in the price of
grapes. In order to keep the margin at a sustained level,
the Company has expanded its marketing efforts to sell more
higher priced wines which have greater profit margin.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased 39%
to $585,835 in the second quarter of 1997 from $420,063 in
the second quarter of 1996. Selling, general, and
administrative expenses for the first half of 1997 increased
39% to $1,087,035 from $784,301 over the same period in
1996. As a percentage of revenue from winery operations,
selling, general and administrative expenses increased to
46% in the second quarter of 1997 from 44% in the second
quarter of 1996. For the first six months of 1997, these
costs as a percentage of revenue increased to 52% in 1997
from 48% in 1996.
During the second quarter of 1997, the selling, general, and
administrative expenses increased by additional commissions
paid to the independent sales force of $35,000 over the same
period in 1996. Since commissions are based on the same
percentage of revenue, there is no adverse effect in the
income ratio. In the second quarter of 1997, the Company
has experienced increased expenses relating to samples,
travel, point-of-sale expenses, and shipping charges for
the development of new markets and the expansion of sales
outside of the state. The out-of-state sales
representatives are given a predefined percentage of
revenue for wine samples and point of sale material. Thus,
as the gross revenues increase, the actual dollar
expenditures for wine samples and point-of-sale material
increases.
In May of 1996, the Company hired a General Manager. Thus,
the selling, general and administrative expenses
increased in the second quarter of 1997 over the same
period in 1996 as the Company has hired a full time General
Manager and other additional personnel to provide
management.
Other Income and Expense
Interest and other income increased to $14,697 for the
second quarter of 1997 from $2,363 for the second quarter of
1996. For the first half of 1997, the interest and other
income increased to $27,858 from $10,748 in 1996.
Interest expense increased to $104,399 in the second
quarter of 1997 from $47,166 in 1996. For the first half of
1997, the interest expense increased to $184,312 from
$96,141 in 1996. The Company incurred additional interest
expense from funds borrowed from Farm Credit Services in
the fall of 1996 to finance additional production capacity
for growing its business. In April 1997, the Company
borrowed an additional $1.3 million from Farm Credit
Services to purchase Tualatin Vineyards and procure funds
to plant an additional 50 acres of vineyards at Tualatin
Vineyards.
Income Taxes
The Company has operated at a net loss for the first six
months in 1997 but truly expects to show a profit by the
end of 1997. Income taxes associated with the loss in the
first six months of 1997 were immaterial.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had a working capital balance
of $2.6 million and a current ratio of 2.4:1. At December
31, 1996 , the Company had a working capital balance of $2.7
million and a current ratio of 3:1.
The Company has a cash balance of $248,966 at June 30,
1997. It has committed $156,000 of the cash balance for the
completion of a 20,000 square foot storage building on
site, which is expected to be completed by August 1997.
The Company obtained a line of credit of $1,000,000 from
Farm Credit Services during the last quarter of 1996 and an
additional $1,000,000 to the line in the second quarter of
1997. At June 30, 1997, the line of credit balance was
$1,099,627.
The Company has a total long term debt balance of
$4,024,417, not including its line of credit, owed to Farm
Credit Services. This debt was used to finance the
Hospitality Center and invest in winery equipment to
increase its capacity to produce 100,000 cases of wine per
year. An additional $1,300,000 was borrowed to finance the
acquisition of Tualatin Vineyards. This debt is represented
by four separate notes with Farm Credit Services, each of
which becomes due in fifteen years. The interest rates are
8.15%, 9.95%, 8.55%, and 8.1% .
At June 30, 1997, the Company has contracted 1.2M in
grape contracts for the harvest in the fall of 1998.
The Company expects that cash available at June 30, 1997,
together with income from operations and periodic
borrowings from its line of credit, will satisfy its cash
requirements for at least the next twelve months.
Subsequent Events:
On July 25, Kevin Chambers resigned as General Manager due
to personal reasons. The Company has already began its
search for a new General Manager and expects to hire in the
fourth quarter. In the interim, Jim Bernau, President and
CEO, has assumed Kevin's duties assisted by Jim Ellis,
Corporate Secretary.
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/ James W Bernau
James W Bernau
President
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 .
James W Bernau
President
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