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, 1999
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, 1999 4,237,481 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
September 30, December 31,
1999 1998
ASSETS (unaudited) __________
Current Assets:
Cash and cash equivalents $ 104,560 $ 149,401
Accounts receivable trade, net 385,269 371,537
Income taxes receivable 24,436 24,436
Inventories 5,164,263 4,601,808
Prepaid expenses 68,869 86,986
Deferred income taxes 234,203 234,203
_______ _________
Total current assets 5,981,600 5,468,371
Vineyard development cost, net 1,933,532 1,892,538
Property and equipment, net 6,638,523 6,790,985
Investments 4,974 4,974
Notes receivable 51,613 46,937
Debt issuance costs, net 190,340 119,244
Other Assets 67,813 67,813
_________ _________
Total assets 14,868,395 $ 14,390,862
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit $ 2,257,667 $ 1,652,667
Current portion of
long term debt 191,176 191,176
Accounts payable 694,422 315,185
Accrued commissions and payroll 184,945 213,210
Grapes payable 225,820 581,294
________ ________
Total current liabilities 3,554,030 2,953,532
Long-term debt 4,111,208 4,101,772
Deferred income taxes 300,083 300,083
_________ ________
Total liabilities 7,965,321 7,355,387
Shareholders' equity
Common stock, no par value - 10,000,000
shares authorized, 4,237,481 shares issued
outstanding 6,789,056 6,781,256
Retained earnings 114,018 254,219
________ ________
Total shareholders' equity 6,903,074 7,035,475
Total liabilities and
shareholders' equity $ 14,868,395 $ 14,390,862
The accompanying notes are an integral part of this
financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Operations
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Net Revenues
Case Revenue
$ 1,640,133 $ 1,678,549 $ 3,986,774 $ 4,124,564
Bulk Revenue
- - - 323,645
Total Revenue
1,640,133 1,678,549 3,986,774 4,448,209
Cost of Sales
Case 786,726 814,631 1,816,503 1,913,924
Bulk - - - 306,314
Total Cost
of Sales 786,726 814,631 1,816,503 2,220,238
Gross Margin 853,407 863,918 2,170,271 2,227,971
Selling, general and
administrative expense
693,557 654,270 2,018,667 1,861,344
Net operating income
159,850 209,648 151,604 366,627
Other income (expense)
Interest income
2,132 5,549 6,639 22,218
Interest expense
(124,201) (123,555) (356,632) (373,311)
Other income 57,166 - 58,188 3,647
Net income (loss) before income taxes
94,947 91,642 (140,201) 19,181
Income tax - - - -
Net income (loss)
94,947 91,642 (140,201) 19,181
Retained earnings beginning of
period 19,071 253,738 254,219 326,199
Retained earnings end of period
114,018 345,380 114,018 345,380
Basic gain (loss) per common share
.02 .02 (.03) -
Diluted gain (loss) per common share
.02 .02 (.03) -
Weighted average number of
basic common shares outstanding
4,237,481 4,232,681 4,237,481 4,232,681
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Nine Months Ended September 30,
1999 1998
Cash flows from operating activities:
Net income (loss) $ (140,201) $ 19,181
Reconciliation of net income (loss) to net cash used
for operating activities:
Depreciation and amortization
538,377 446,523
Stock issued for compensation
7,800 2,188
Changes in assets and liabilities:
Accounts receivable trade,net
(13,732) 98,633
Other receivable 0 3,122
Inventories (562,455) 474,481
Prepaid expenses 18,117 (53,648)
Grape payable (355,474) (499,028)
Accounts payable 379,237 (195,330)
Taxes payable - -
Accrued liabilities (28,265) (19,527)
Net cash provided (used) by operating activities
(156,596) 276,595
Cash Flow from investing activities
Construction expenditures and purchases of equipment
(333,190) (296,142)
Vineyard development expenditures
(93,719) (240,573)
Cash received for investments 0 92,956
Notes receivable (4,676) 102,233
Net cash used by investing activities
(431,585) (341,526)
Cash Flows from financing activities:
Line of credit borrowings 605,000 180,370
Capitalized loan fee (71,096) 1,043
Increase in long term debt 9,436 264,659
Net cash provided by financing activities
543,340 446,072
Net increase (decrease) in cash and cash equivalents
(44,841) 381,141
Cash and cash equivalents:
Beginning of period 149,401 13,541
End of period 104,560 394,682
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 disclosures
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. 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 effected by general industry and market conditions
and growth rates, and general domestic economic conditions.
2) INVENTORIES BY MAJOR CLASSIFICATION ARE SUMMARIZED AS
FOLLOWS:
September 30, December 31,
1999 1998
Winemaking and packaging materials
$ 299,378 $ 211,550
Work-in-progress (costs relating
to unprocessed and/or bulk
wine products 1,553,986 1,923,852
Finished goods (bottled wines 3,310,899 2,466,406
and related products)
________ ________
$ 5,164,263 $ 4,601,808
3) PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
September 30, December 31,
1999 1998
Land and improvements $ 1,143,348 $ 1,041,326
Winery building and hospitality
center 4,530,576 4,539,821
Equipment 3,956,026 3,715,612
________ ________
9,629,950 9,296,759
Less accumulated depreciation (2,991,427) (2,505,774)
_________ _________
6,638,523 6,790,985
Management's Discussion and Analysis of
Financial Condition and Results of Operation
RESULTS OF OPERATION
The Company continues to implement its five year plan
developed following the return in September, 1997, of the
Company's Founder, Jim Bernau, as operator of the business.
Wine quality has increased under the leadership of Vice
President of Production and Winemaker, Joe Dobbes, and
winegrape quality and vineyard management has improved under
the leadership of Senior Vineyard Manager, Stirling Fox.
Higher margin wine sales have increased under the leadership
of Vice President of Sales, Todd Collatin. Management is
implementing its plan to reduce its bank debt and payables,
and improve its cash position.
Wine Quality
The Company's wine ratings are the highest in its history.
In the June 30, 1999 issue, The Wine Spectator magazine gave
the Willamette Valley Vineyards 1997 Late Harvest Viognier a
"93" with senior editor Harvey Steiman calling it a
"stunner". The Tualatin Estate 1997 Late Harvest
Gewurztraminer received a "90" from the Wine Spectator's
June 30, 1999, issue. Also, the Griffin Creek 1996 Merlot
received a "91" from the Wine Spectator's May 31, 1999,
issue .
The Willamette Valley Vineyard 1996 Founders' Reserve
Chardonnay won the "Best of the Best" award at the
Northwest Wine Summit held at Timberline Lodge in May 1999,
and the 1996 Estate Chardonnay was rated a "90" by Wine
Enthusiast magazine in the February 1999 issue. The 1998
Tualatin Estate Semi-Sparkling Muscat received a Double Gold
at the San Francisco International Wine Competition in July,
1999, and gold medals at the Los Angeles County Fair in
June, 1999, and Grand Harvest Awards in January 1999,
sponsored by Vineyard & Winery magazine. The editor of the
Wine Spectator wrote a feature story in the February 1999,
issue about our Semi-Sparkling Muscat and how Joe Dobbes,
our winemaker, pioneered the style.
The Griffin Creek 1997 Pinot Noir won the Gold medal for its
variety at the 1999 Dallas Morning News Competition in Texas
and was named one of the best of the vintage at Atwaters' (a
premier Oregon restaurant), Annual Pinot Noir Dinner in
Portland, Oregon.
The Beverage Testing Institute, which provides ratings to
Epicurious, the website for Gourmet and Bon Appetite
magazines gave our new release, the 1997 Griffin Creek
Merlot a "91" rating in July 1999. Whereas the Company
was previously known for its great values and "Best Buys",
it is now receiving recognition for most expensive wines.
The most significant review was the annual review in 1998 of
Oregon Pinot Noirs by Clive Coates, Master of Wine and
Publisher of the "The Vine" where he rated the Company
first release of its 1996 Signature Cuvee as the leading
Pinot Noir of the 1996 Oregon vintage.
Sales
The price increases, which went into effect September of
1998 resulted in a substantial purchases of product by the
Company's distributors in the third quarter of 1998, before
the price increases went into effect. These higher prices
were eventually reflected into the trade, at the retailer
level beginning in April of this year. For our vintage
line, particularly Pinot Noir, Pinot Gris, and Chardonnay,
out-of-state sales to the retail customer slowed
significantly following the price increases. Revenues from
out-of-state distributors in the third quarter of 1999 were
down 27% and case volume was down 39% as compared to the
third quarter of 1998. Revenues per case from out-of-state
distributors in the third quarter of 1999 were up 19%
($13.52 per case) and gross profit per case up 28% ($9.64
per case) as compared to the third quarter of 1998.
Sales incentive programs to encourage distributor sales
representatives to present the Company's products have
resulted in higher sales in October (FOB sales $291,000 in
1999 vs. $120,000 in 1998) with some short term sacrifice in
gross margin.
Since the price increases were adopted in Oregon, in July of
last year, the quarter to quarter review is more comparable.
Cases sold in the state of Oregon in the third Quarter of
1999 were down 3%, revenues up 14% ($9.91 per case) and
gross profit per case up 15% ($5.98 per case) as compared to
the same period in 1998.
The Griffin Creek brand, the Company's new and most
expensive wines, are selling at a rate of 147% ahead of plan
and have been placed on allocation to distributors and
accounts. The production of these wines is growing. Since
1997, the Griffin Creek label has produced 1,460 cases from
its 1996 vintage, 3,457 cases from its 1997 vintage, and
8,790 cases from its 1998 vintage.
The new estate grown brand, Tualatin Estate, is also
experiencing higher than budgeted sales for its
Gewurztraminer, Pinot Blanc, and Semi-Sparkling Muscat. The
Tualatin Estate Chardonnay label won the Oregon State Fair
Label Design Award in August 1999, and has been recently
released. The 1997 Tualatin Estate Pinot Noir was poured at
this year's International Pinot Noir Celebration where
Decanter magazine wrote, "Tualatin, one of Oregon's oldest
vineyards, has returned to top form with its 1997
bottling". This wine is now limited to Tasting Room sales.
The re-introduction of the vineyard's Pinot Noir to the
general market will be with the 1998 vintage scheduled for
May 2000 release.
Wine Inventory
The winery's inventory of high margin wines has never been
greater. Successful distribution of these wines will result
in higher total revenues and margins. For Example:
Cases Revenue @ FOB
@9/30/98 @9/30/99 @9/30/98 @9/30/99
Willamette Valley Vineyards
Founders Pinot Noir 3,143 3,130 $ 553,168 $ 550,880
Vineyard Designate Pinot Noir
1,131 2,909 271,440 814,520
Signature Pinot Noir 842 1,117 286,280 402,120
Chardonnay Vintage Series
7,936 7,745 706,304 689,305
Pinot Noir Vintage Series
18,345 16,732 1,852,845 1,890,716
Pinot Gris Vintage Series
5,647 6,713 463,054 617,596
Griffin Creek Label
Merlot 724 433 140,456 109,116
Syrah 221 49,946
Pinot Noir 76 1,232 17,176 278,432
Pinot Gris 902 1,173 90,200 136,068
Tualatin Estate Label
5,400 7,407 475,200 651,816
Subtotal 44,156 48,812 4,856,123 6,190,515
Cases bottled in October 99 not included in totals (Bottling
in 1998 was completed by 9/30/98).
Willamette Valley Vineyards
Founders Pinot Noir 2,539 446,864
Chardonnay Vintage Series 811 72,179
Pinot Noir Vintage Series 6,679 754,727
Pinot Gris Vintage Series 2,004 184,368
Griffin Creek Label
Merlot Syrah 1,393 172,036
Total 44,146 62,238 4,856,123 7,820,689
Per Case average of FOB
projected revenue before any discounts 110.00 125.66
Debt Reduction
In order to reduce depreciation and interest charges and
increase cash availability, in the third quarter of 1999 the
Company embarked on a plan to sell its Tualatin Estate
assets and lease back on a long term basis what the Company
needed. This necessitated purchasing adjoining property to
permit the division of the land into three marketable
parcels. These parcels are called Mt. Hood Estate (78
acres) with 63 acres of new vines, Meadow View Estate (75
acres) with 23 acres of mature vineyard, and the Winery
Estate (115 acres) with 54 acres of mature vineyard and the
winery related buildings. The total aggregate asking price
for these parcels is $4.2 million.
The purchase of 33 adjoining acres was completed by July
1999, and financed, in part, by thinning timber out of the
remote wooded areas of the property. As a result of this
property addition, the plantable acreage at Tualatin Estate
has increased to 37 acres. Eighty (80) acres of mature
vines were acquired at the time of purchase in April 1997.
An additional 63 acres were planted in 1997 through 1999.
There is now a total of 180 acres of vines and plantable
acreage at Tualatin Estate.
The Company has accepted offers of $1.5 million on the Mt.
Hood Estate and $800,000 on the Meadow View Estate. The Mt.
Hood Estate is in escrow while the interested party conducts
his due diligence. Management is negotiating a purchase
agreement on the Meadow View Estate and expects to be in
escrow in December. The remaining parcel, the Winery
Estate, has been recently appraised at the direction of the
Company's lender for $1.825 million. Management is actively
advertising the winery's availability in the Wine Spectator
and Wine Enthusiast magazines and fielding questions from
callers and visitors. The options for the Winery Estate are
selling the property and leasing back the vineyards and
needed buildings; operate the winery as a joint venture to
provide for future additional capacity or failing to sell
the property, hold it for future use if needed. In any
event, the wine grapes from the property are needed for the
Company production needs.
The Company intends to leave $900,000 of the $1.3 million
long term Tualatin mortgage on the Winery Estate property
and use the balance of the sale proceeds to reduce interest
expense, and increase liquidity by paying down the credit
line and payables. By leasing back the vineyards on a long-
term basis, the Company has the benefit of controlling
winegrape quality and growing costs.
Revenue
Winery Operations
The Company's revenues from winery operations before the
deduction of excise taxes are summarized as follows:
Three Months ended Nine Months ended
September 30, September 30,
1999 1998 1999 1998
Tasting Room Sales and Rental Income
$ 293,838 $ 274,378 $ 671,120 $ 652,706
On-site and off-site festivals
135,227 131,616 335,562 357,117
In state sales 627,298 530,555 1,540,462 1,532,746
Out of state sales
630,668 810,650 1,539,525 1,747,488
Bulk wine sales 6,944 - 36,663 323,645
Total Revenue
$1,693,975 $1,747,199 $4,123,332 $4,613,702
Less Excise Taxes
53,842 68,650 136,558 165,493
Net Revenue
$1,640,133 $1,678,549 $3,986,774 $4,448,209
Tasting Room sales and rental income for the three months
ended September 30, 1999 increased 7% over the same period
in 1998. For the first nine months of 1999, the sales
increased 3% over the same period in 1998.
On-site and off-site festival sales for the three months
ended September 30, 1999 increased 3% over the third quarter
of 1998. For the first nine months of 1999, sales in this
category decreased 6% over the same period in 1998.
Sales in the state of Oregon, through the Company's
independent sales force, increased 18% in the three months
ending September 30, 1999 over the same period in 1998. For
the first nine months of 1999, the sales increased 1% over
the same period in 1998. Beginning July 1, 1998, the
Company increased the price of its wine by an average of 8%
in state. For the first half of 1999, the Company's revenues
were lower due to the 1998 price increase. Results for the
three months ending September 30, 1999, however shows that
the Company has at least partially recovered from the effect
of the mid-1998 price increases.
In the fourth quarter of 1998, the Company introduced its
Griffin Creek product line from grapes produced in Southern
Oregon. The sales of this high price and high margin wines
have grown steadily in the first nine months of 1999. In-
state sales for the third quarter of 1999 were $78,000,
which represents new sales that did not exist in the third
quarter of 1998. For the nine months ending September 30,
1999, in-state sales from the Griffin Creek product line
amounted to $98,378 as compared to no sales in the same time
period in 1998. The Griffin Creek 1996 Merlot, retailing for
$35 per bottle, received a score of "91" from "The Wine
Spectator" May 1999 issue. This was the highest score ever
received by the winery for one of its wines, until the
"93" score on the Willamette Valley Vineyards Late Harvest
Viognier received in the June issue.
Out-of-state sales in the three months ending September 30,
1999, decreased 22% over the same period in 1998. For the
first nine months ending September 30, 1999, sales decreased
12% over the same period in 1998. Effective September 1
1998, the Company raised it price to all out-of-state
distributors, which caused the distributors to make large
purchases in August 1998 in anticipation of the price
increases. The out-of-state revenues in August 1998 exceeded
August 1999 revenues by $36,000. In addition, September 1998
out-of-state revenues exceeded September 1999 out-of-state
revenues, by $90,000 due to a one time $102,000 order sold
to a Stanford University alumni group.
The May 15, 1998, issue of the Wine Spectator magazine rated
the 1996 Willamette Valley Vineyards Chardonnay as a leading
"top pick\best buy" in the world class category. The
article also quoted Harvey Steiman, editor at large,
"Willamette Valley Vineyards, Oregon's second largest
winery, is on its way to becoming that state's most reliable
producer of widely available wine...The best is yet to
come." With that great endorsement, the Company spent a
considerable amount of funds in advertising to project the
Company's Chardonnay image as a best value in its class.
This endorsement came at the time where the Company had
significant inventory of Chardonnay. The revenues generated
from this article plus the aggressive price and marketing
efforts of the Company helped reduce the excessive
Chardonnay inventory. Since then, the Company has reduced
the amount of Chardonnay it produces to balance the reduced
sales the Company expects in 1999. In the months of May
through September 1998, the Company sold 3,443 cases of
Vintage Chardonnay to out-of-state distributors as compared
to 1,210 cases for the same period in 1999. A large part of
the Company's sales came from a 1,600 case order from
Stanford University.
Bulk wine sales were made in the first half of 1998 to
further reduce excess inventories from the large harvest of
1997. No such sales were made in the nine months ending
September 30, 1999.
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 nine months of 1999
was $136,558. For the same period in 1998, the excise taxes
collected was $165,493.
Gross Margin
As a percentage of revenue, gross margin for the winery
operations increased to 52% for the quarter ending September
30, 1999 as compared to 51% in the same period in 1998. For
the first nine months of 1999, the gross margin increased to
54% as compared to 50% for the first nine months of 1998.
After adjusting for the lower margin bulk wine sales, the
gross margin would have been 54% for the first nine months
of 1999 as compared to 54% for the same period in 1998. In
each of the third quarters of 1998 and 1999, the Company
wrote off $10,000 of idle plant expense on its inactive
Tualatin production facility. The idle plant expense is
charged directly to cost of goods. Also, in the third
quarter of 1999, the Company sold $44,000 of product to its
sales agents in England and Japan at a lower gross margin.
In the third quarter of 1999, the Company offered special
promotional allowances on its product, which amounted to a
revenue reduction of $30,000 or nearly one percent of gross
margin. 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 6% to
$693,557 in the third quarter of 1999 from $654,270 in the
third quarter of 1998. For the first nine months of 1999,
selling, general and administrative expenses increased 8% to
$2,018,667 from $1,861,344 for the same period in 1998. As
a percentage of revenue from winery operations, selling,
general and administrative expenses increased to 42% in the
third quarter of 1999 from 39% in the third quarter of 1998.
For the first nine months of 1999, as a percentage of
revenue from winery operations, selling, general and
administrative expenses increased to 51% in 1999 from 42% in
1998. In the third quarter of 1999, the Company sponsored
two major events in 1999, which they did not sponsor in
1998. The Company spent $6,000 for the MT Hood Jazz Festival
and $8,000 for the Portland Rose Festival. The Company is
"rolling-out" the new Griffin Creek brand, its new higher
quality Signature Cuvee and Single Vineyard Designate and
the re-introduction of the Tualatin Estate brand resulting
in higher sales costs.
At the beginning of 1999, the Company hired a new West Coast
Sales Manager and an East Coast Sales Manager, each of whom
replaced several different sales agents who were paid by
commissions on collected revenue. In the six months of 1999,
as the agents were phased out, the Company had the expense
of commissions paid to the agents and the expenses paid to
the new managers. The direct travel expense for the new
managers was up $42,000 in the first six months of 1999 from
1998 as the new managers traveled to the majority of the
Company's distributors throughout the United States.
Interest Income, Other Income and Expense
Interest income/other income decreased to $2,132 for the
third quarter of 1999 from $5,549 for the third quarter of
1998 because the Company no longer receives interest income
from invested funds set aside for the completion of the
storage facility. For the first nine months of 1999,
interest income/other income decreased to $6,639 from
$22,218 for the same period in 1998.
Interest expense increased to $124,201 in the third quarter
of 1999 from $123,555 for the same period in 1998. For the
first nine months of 1999, interest expense decreased to
$356,632 from $373,311 for the first nine months of 1998.
Interest costs have been lower in 1999 because the Company
paid additional interest fees in 1998 to renegotiate its
long-term loans to lower its rates over the term of the
loans. Also, in the first nine months of 1999, the Company
capitalized $22,796 of interest cost to vineyard development
for money borrowed to plant grapes at Tualatin Estate. It
is the Company's goal to reduce its debt over time to ease
the heavy burden of interest cost and provide better
financial flexibility.
Other income in the third quarter of 1999 was $57,166 due to
the sale of timber from a thinning operation on its Tualatin
Estate property. This increased the other income for the
nine-month period in 1999 to $58,188 as compared to $3,647
for the first nine months of 1998.
Income Taxes
The Company has operated at a loss for the first nine months
of 1999 and has not booked any income tax expense at this
time.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had a working capital
balance of $2.4 million and a current ratio of 1.7:1. At
December 31, 1998, the Company had a working capital balance
of $2.5 million and a current ratio of 1.9:1.
The Company had a cash balance of $104,560 at September 30,
1999. Of the total cash available, the Company has held
$60,000 in reserve to complete the development of newly
planted 60 acres at Tualatin Vineyards. This amount
remained from a $1.3 million loan taken out in April of 1997
to purchase Tualatin Vineyards and to plant additional
acreage at Tualatin.
On March 31, 1999, the Company obtained an increase in its
line of credit from Farm Credit Services. At September 30,
1999, the line of credit balance was $2,257,667. The Company
raised the line of credit to $2,500,000 from $2,000,000 to
meet the Company cash needs in 1999 until renewal in March
2000.
At September 30,1999, inventory was at $5,164,263 as
compared to $3,782,246 for the same time period in 1998. The
increase is mainly due to planned buildup of higher price
and higher margin wines.
As of September 30, 1999, the Company had a total long-term
debt balance of $4,302,384 with the majority owed to Farm
Credit Services. This debt was used to finance the
Hospitality Center, invest in winery equipment to increase
the Company's winemaking capacity, complete the storage
facility, and purchase Tualatin Vineyards. At December 31,
1998, the Company was in violation of one of its debt
coverage covenants. Farm Credit Services has temporarily
released the Company from complying with this one covenant.
Farm Credit Services has notified the Company that unless
the Company is able to comply with the debt coverage
covenant and reduce borrowing under the line of credit from
its balance at September 30, 1999, of $2,257,667 to
$1,900,000 at December 31, 1999, that Farm Credit Services
can make no assurances for continued financing under the
line of credit beyond the May 1, 2000 operating loan
maturity date.
At September 30, 1999, the Company has paid all grape
contracts due for the 1998 fall production crop and has
contracted approximately $800,000 for the 1999 harvest.
At September 30, 1999, the Company owed $214,674 payable to
a grape grower for the 1997 and 1998 harvest, which will be
paid on a quarterly basis for wine sold during that quarter.
This payable is a reflection of a joint effort by a Rogue
Valley wine grower and the Company to develop a market for
high quality Bordeaux and Rhone varieties under the label
owned by the Company called Griffin Creek.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.
Other
(a) Status of Computer Software for the year 2000.
The Company began to develop its strategy in the first part
of 1998 to make itself "business ready" for the year 2000.
Its first step was to make all levels of the Company aware of
the basic problems that the Company can expect as the year
2000 approaches. The Company began to set aside time in each
meeting to discuss the problem in detail. The Company has
made educational awareness a priority in 1999. The Company's
small staff makes it easy to communicate with its employees
and develop strategy plans.
In November of 1998, the Company's outside computer
consultants identified each of the different computer based
systems, which support the Company's business and production
needs. Once the equipment was identified, tests were
performed to determine which equipment passed or failed the
Y2K compliance testing. A list of the equipment was made and
the Company started to replace the critical equipment
immediately. From its plan, the Company replaced the
majority of the effected equipment by the year 2000. At this
date, there are only two pieces of equipment that are
completely Y2K compliant. These are the telephone system and
the tank control system. The Company expects that both
systems will operate after January 1, 2000. The
manufacturers warn that erroneous or nonsense dates could be
generated, which could obscure the Company's ability to
collect data with the correct date displayed.
All critical items on the equipment list have been addressed,
including the financial reporting, networking communications,
Point-of-Sale system in the tasting room, and production
monitoring equipment. As of September 30, 1999, the Company
has spent $20,000 on software and hardware upgrades and
expects to spend an additional $20,000 in 1999 to ensure that
its basic needs are taken care of by December 31, 1999. All
personnel computers will be replaced by December 15, 1999
making them compliant by the end of the year.
Due to the nature of the winemaking business, the Company
feels most of the critical needs are now fulfilled. The
Company is currently testing all temperature control systems
for its stainless steel tanks and is prepared to take any
necessary action to make them compliant for the year 2000.
However, in January, typically, there is very little activity
on the production side of the winery. At that time, the wine
is aging in stainless steel tanks and oak barrels. The
Company does not expect to bottle any wine during the first
few months after the year 2000. The Winery's average
temperature ranges from 40 to 50 degrees in these months so
the wine shall not be in danger of spoiling.
The Company has prepared a short survey to mail to its
primary vendors and all distributors to inquire as to their
abilities for compliance in the year 2000. The surveys were
sent out in the first part of May 1999 and the Company has
received most of the surveys back from its vendors. From the
returned surveys, the Company will determine any critical
needs to be met by the end of the year. The majority of the
Company's customers in the state of Oregon are on a cash-
collected-at-delivery basis so there is no need to see if
their payable software is compliant for the year 2000. The
out-of-state customers pose the most significant problem
since the Company must be aware that all of their
distributors have the means to conduct normal business after
2000. All of the survey returned have indicated that all
respondents are Y2K compliant or will be by December 31,
1999.
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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