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 March 31, 1998
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 March
31, 1998 4,232,681 shares, no par value
Transitional Small Business Disclosure Format
[[ ] YES [X]NO
WILLAMETTE VALLEY VINEYARDS, INC.
INDEX TO FORM 10-Q
Part I - Financial Information
Item 1--Balance Sheet
Statement of Operations
Cash Flow
Notes to Consolidated Financial Statements
Item 2--Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II - Other Information
Item 4--Exhibits and Reports of Form 8-K
Signature
WILLAMETTE VALLEY VINEYARDS, INC.
Balance Sheet
March 31, December 31,
1998 1997
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 422,118 $ 13,541
Accounts receivable trade, net 784,437 820,526
Income taxes receivables 24,436 24,436
Other receivable 7,712 3,122
Inventories 3,961,428 4,171,027
Prepaid expenses 122,700 75,171
Deferred income taxes 94,813 94,813
Total current assets 5,417,644 5,202,636
Vineyard development cost, net 1,560,909 1,506,906
Property and equipment, net 6,766,935 6,859,835
Investments 105,040 105,040
Notes receivable 151,149 148,448
Debt issuance costs,net 123,470 122,870
Total assets $14,125,147 $13,945,735
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit $1,667,297 $1,517,297
Current portion of long term debt 124,192 124,192
Accounts payable 346,800 363,419
Accrued commissions and payroll 152,248 225,297
Grapes payable 386,851 501,238
Total current liabilities 2,677,388 2,731,443
Long-term debt 4,207,210 3,920,751
Deferred income taxes 188,275 188,275
Total liabilities 7,072,873 6,840,469
Shareholders' equity
Common stock, no par value
- - 10,000,000 shares authorized,
4.232,681 shares issued
outstanding 6,781,256 6,779,067
Retained earnings 271,018 326,199
Total shareholders' equity 7,052,274 7,105,266
Total liabilities and
shareholders' equity $ 14,125,147 $ 13,945,735
The accompanying notes are an integral part of this
financial statement
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Operations
(Unaudited)
Three Months Ended March 31,
1998 1997
Net Revenues
Case revenue $ 1,106,885 $ 817,122
Bulk revenue 235,252 -
Total Revenue 1,342,137 817,122
Cost of Sales
Case 499,957 356,779
Bulk 211,179 -
Total Cost of sales 711,136 356,779
Gross Margin 631,001 460,343
Selling, general andadministrative
expenses 567,541 501,200
Other income (expense):
Interest income 3,569 11,358
Interest expense (125,857) (79,913)
Other income 3,647 1,803
(118,641) (66,752)
Net loss before income taxes (55,181) (107,609)
Income tax benefit (expense) - -
Net loss (55,181) (107,609)
Retained earnings beginning
of period 326,199 258,337
Retained earnings end of period $271,018 $150,728
Basic loss per common share $ (0.01) $ (0.03)
Diluted net loss per common share $ (0.01) $ (0.03)
Weighted average number of
basic common shares outstanding 4,232,681 3,785,356
Weighted average number of
diluted common shares outstanding 4,232,681 3,785,356
The accompanying notes are an integral part of this
financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Three Months Ended March 31,
1998 1997
Cash flows from operating activities:
Net loss $ (55,181) $ (107,609)
Reconciliation of net loss to net cash
used for operating activities:
Depreciation and amortization 119,440 110,265
Changes in assets and liabilities:
Accounts receivable trade 36,089 11,683
Other receivable (4,590) 496
Inventories 209,599 (214,942)
Prepaid expenses (47,529) (13,767)
Notes receivable (2,701) (2,138)
Grape payable (114,387) (125,252)
Accounts payable (16,619) 169,250
Taxes payable - (15,000)
Accrued liabilities (73,049) (84,101)
Net cash provided by
operating activities 51,072 (271,115)
Cash Flow from investing activities
Construction expenditures and
purchases of equipment (13,124) (135,504)
Vineyard development expenditures (67,419) (12,584)
Cash received for investments - 84
Net cash used by investing
activities (80,543) (148,004)
Cash Flows from financing
activities:
Line of credit borrowings 150,000 264,355
Debt issuance cost (600) (29,687)
Increase in long term debt 286,459 (26,968)
Increase in equity 2,189 -
Net cash provided by
financing activities 438,048 207,700
Net increase in cash and
cash equivalents 408,577 (211,419)
Cash and cash equivalents:
Beginning of period 13,541 794,885
End of period $ 422,118 $ 583,466
The accompanying notes are an integral part of this
financial statement.
WILLAMETTE VALLEY VINEYARDS, INC
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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.
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 assimilation of Tualatin Vineyards Inc.'s
business with that of the Company and other risks detailed
below as well as those discussed elsewhere in this Form 10Q
and from time to time in the company's Securities and
Exchange Commission filings and reports. In addition, such
statements could be affected by general industry and market
conditions and growth rates, and general domestic economic
conditions.
2) INVENTORIES BY MAJOR CLASSIFICATION ARE SUMMARIZED AS
FOLLOW:
March 31, December 31,
1998 1997
Winemaking and packaging materials $ 246,935 $ 189,062
Work-in-progress (costs relating
to unprocessed and/or bulk
wine products 1,542,523 1,725,910
Finished goods (bottled wines
and related products) 2,171,970 2,256,055
$3,961,428 $4,171,027
========= =========
3) PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
March 31, December 31,
1998 1997
Land and improvements $ 1,031,115 $ 1,031,115
Winery building and hospitality
center 4,506,344 4,506,344
Equipment 3,276,757 3,263,633
Construction in progress - -
_________ _________
$ 8,814,216 $ 8,801,092
Less accumulated depreciation (2,047,281) (1,941,257)
_________
$ 6,766,935 $6,859,835
========= =========
4) SUBSEQUENT EVENTS:
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 before the
deduction of excise taxes are summarized as follows:
Three Months Ended
March 31,
1998 1997
Tasting Room sales & Rental Income $ 154,780 $ 140,598
On-site and off-site festivals 117,904 85,622
In state sales 426,063 316,964
Out of state sales 437,190 298,126
Bulk wine sales 235,252 _____-
Total Revenue $1,371,189 $ 841,310
======= =======
Tasting Room sales and rental income for the three months
ended March 31, 1998 increased 10% over the same period in
1997. The increase in sales during the first quarter of
1998 was principally attributable to revenue increases in
room rental from the Hospitality Center over the same period
last year. The Company will be contracting its hospitality
and catering service which will save the Company the annual
salary of one employee plus offer the customer a more
complete set of services. The Company will utilize this
savings to hire a data entry person to focus on improving
the Company's customer data base which will improve the
Company's efforts in targeting direct mail and telephone
sales.
On-site and off-site festival sales for the first quarter of
1998 increased 38% over the first quarter of 1997. In
the first quarter of 1998, the Company began a campaign to
increase customer awareness in the Willamette Valley
Vineyards label and to increase traffic in its tasting
room. For its Valentines Day festivities, the Company sent
out a special mailing promoting a buying opportunity of
Pinot Noir and chocolate to 40,000 potential customers which
successfully increased the sales of Pinot Noir.
Sales in the state of Oregon, through the Company's
independent sales force, increased 34% in the first quarter
of 1998 over the first quarter of 1997. This increase was
principally due to new accounts, better point-of-sale
information, improved sales management, and targeted sales
of higher margin wines. The sales of White Riesling in a
special package in the first quarter of 1998 led to an
increase of $71,000 over the previous year. The Company's
focus on the sale of higher margin products achieved
significant increases in sales of Pinot Gris and Pinot Noir
in the first quarter of 1998 as compared to sales in the
same period for 1997. The Company also started a program to
place its wine in the top 48 restaurants in the Portland
area. So far it has been placed in about 20% of these
restaurants where the Company's wine is not currently on
their wine list. This is a substantial move in making the
Willamette Valley Vineyards brand the significant player in
the largest population center in Oregon. The Company has
also initiated a program to do a shelf survey at different
locations around the state to create data as to the prices
of its competitors and the location of its wine on the
shelves of supermarkets. This data will be used to prepare
a marketing program to strengthen the Company's position in
markets where its wine is not currently found.
Out-of-state sales in the first quarter of 1998 increased
47% over the first quarter of 1997. The Company now sells
wine in 39 states as compared to 32 states in the first
quarter of 1997. The Company's growth came primarily in two
varieties of wine: Pinot Noir and Pinot Gris. The programmed
price reduction of Pinot Gris increased the number of cases
sold in the first quarter of 1998 to 612 cases as compared
to 153 cases in the same period in 1997. Pinot Noir sales
increased to 3,811 cases in the first quarter of 1998 as
compared to 2,274 for the same period in 1997. This increase
in the Pinot Noir variety reaffirms that sales of the
Company's flagship wine remains quite strong.
Bulk wine sales were made in the first quarter of 1998 to
further reduce excess inventories from the large harvest of
1997.
Excise taxes
The Company reports its excise taxes as a deduction of sales
revenue to equal net revenue (as shown on the Statement of
Operations). The amount for the first quarter of 1998 was
$29,052. For the same period in 1997, the excise taxes
collected was $24,188.
Gross Profit
Winery Operations
As a percentage of revenue, gross profit for the winery
operations decreased to 47% in the first quarter of 1998 as
compared to 56% in the first quarter of 1997. After
adjusting for the sale of lower margin bulk wine, the gross
margin was 55% in the first quarter of 1998 as compared to
56% in the first quarter of 1997. The slight decrease was
due to the depletion allowances designed to stimulate sales
and reduce excess inventory. The Company expects the gross
margins to remain near this level through 1998. In the past
few years, the Company has experienced higher production
costs, specifically in the price of grapes that it purchases
from other vineyards. In order to keep margin's at a
sustained level, the Company has expanded its marketing
efforts to sell higher priced wines which have a greater
profit margin.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased 13%
to $567,541 in the first quarter of 1998 from $501,200 in
the first quarter of 1997. The increase was principally
attributed to higher costs due to operating at a higher
sales level. The Company pays its sales representatives by
commission. Thus, as sales revenue increases, more
commissions are due.
More importantly, as a percentage of revenue from winery
operations, selling, general and administrative expenses
decreased to 42% in the first quarter of 1998 from 61% in
the first quarter of 1997. The effect of staff
eliminations in the latter part of 1997 is partially
reflected in a lower percentage of expenses against
revenue. In addition, the reorganization of delivery routes
in the remote areas of Oregon resulted in the elimination of
two vans and accompanying costs. Also in the first quarter
of 1998, the Company highlighted certain expenses on a
"target list" due to excess spending in 1997 in these
accounts. The most significant cost reduction in the first
quarter of 1998 was a $17,000 reduction in legal fees over
last year's first quarter. Other targeted areas for reduced
spending include telephones, office supplies, dues and
publications, and printing and postage. The Company closely
monitors all expenses in the selling, general, and
administration and measures all departments strictly against
their own budgets.
Interest Income, Other Income and Expense
Interest income/other income decreased to $7,216 for the
first quarter of 1998 from $13,161 for the first quarter of
1997 because the Company no longer receives interest income
from invested funds set aside for the completion of the
storage facility. Interest expense increased to $125,857
in the first quarter of 1998 from $79,913 in 1997. Interest
costs in the first quarter rose as the Company borrowed more
funds to process and bottle wine from its 1996 and 1997
crushes ; to finance the construction of a 20,000 square
foot warehouse; and purchase Tualatin Vineyards Inc., in
1997. Additional cash needs have resulted from the Company
becoming a larger grower of grapes which means the company
needs more cash prior to the actual harvest of grapes for
labor and chemicals costs not needed previously.
Income Taxes
As in prior years, the Company has operated with a net loss
for the first three months in 1998 but expects to show a
profit by the end of 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had a working capital balance
of $2.7 million and a current ratio of 2.0:1. At December
31, 1997, the Company had a working capital balance of $2.5
million and a current ratio of 1.9:1.
The Company has a cash balance of $422,118 at March 31,
1998. It has committed $61,000 of funds held by Farm Credit
Services for a dispute of $84,000 with the contractor over
the completion of the storage facility built in 1997. The
Company is retaining the funds until he finishes several
problems in the building. In January 1998, the Company
received $371,000 from Farm Credit Services committed to
complete the planting at Tualatin Vineyards in 1998. It was
remaining funds from a $1.3 million loan taking out in April
of 1997 to purchase Tualatin Vineyards and to plant
additional acreage at Tualatin. The Company receives about
6% interest on these funds until the time the funds are
withdrawn from Farm Credit Services to pay for the new
plantings.
The Company obtained a line of credit of $2,000,000 from
Farm Credit Services in May, 1997. At March 31, 1998, the
line of credit balance was $1,667,297. On May 1, 1998, Farm
Credit Services submitted loan documents to the Company
for renewal of the line of credit for an additional year.
The
Company intends to accept the agreement.
The Company has a total long term debt balance of $4,331,402
owed to Farm Credit Services. This debt was used to finance
the Hospitality Center, invest in winery equipment to
increase its capacity, complete the storage facility, and
purchase Tualatin Vineyards. At December 31, 1997 and also
at March 31, 1998, the Company was found in violation of
some of its debt covenants. At both of these times, Farm
Credit Services released the Company from these covenants.
In
the renewal of the line of credit in May of 1998, Farm
Credit
Services revised the loan covenants to insure that the
Company
can meet the new covenants. The long term debt increased in
the first quarter of 1998 as Farm Credit disbursed the
remaining funds to plant additional vineyards at Tualatin.
At March 31, 1998, the Company still owes $386,851 on grape
contracts for the 1997 fall production crop which are due
and were paid on April 1, 1998. The Company expects to pay
off these grape contracts using funds remaining on its line
of credit.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.
(a) No Exhibits
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
Date: By /s/ John Moore
John Moore
Controller
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.
Date:
By James W Bernau
President
Date:
By John Moore
Controller
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