SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2000
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, 2000
4,253,431 shares, no par value
Transitional Small Business Disclosure
[ ] YES [X] NO
WILLAMETTE VALLEY VINEYARDS, INC.
INDEX TO FORM 10-QSB
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
Item 1 FINANCIAL STATEMENTS
WILLAMETTE VALLEY VINEYARDS
Balance Sheet
March 31, December 31,
2000 1999
ASSETS. (unaudited) ____________
Current Assets:
Cash and cash equivalents $ 1,102 $ 219,041
Accounts receivable trade, net 437,574 429,495
Inventories 6,180,002 6,142,697
Prepaid expenses and other
current assets 90,072 79,102
Deferred income taxes 100,798 100,798
_________ _________
Total current assets 6,809,548 6,971,133
Vineyard development cost, net 1,372,597 1,381,163
Property and equipment, net 6,249,679 6,402,023
Investments 4,974 4,974
Notes receivable 49,166 52,975
Debt issuance costs, net 63,701 72,107
Other assets 141,655 141,655
_________ _________
Total assets $ 14,691,320 $ 15,026,030
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Line of credit $ 2,240,584 $ 1,685,584
Current portion of long term debt 198,618 213,502
Accounts payable 686,590 960,479
Accrued commissions and payroll 99,285 126,375
Income Taxes payable - 42,429
Grapes payable 431,945 827,843
________ ________
Total current liabilities 3,657,022 3,856,212
Long-term debt 3,534,308 3,583,007
Deferred gain 501,703 508,054
Deferred income taxes ___100,798 ___100,798
Total liabilities 7,793,831 8,048,071
Shareholders' equity
Common stock, no par value - 10,000,000
shares authorized,4,253,431 shares issued
outstanding 6,815,972 6,815,972
Retained earnings 81,517 161,987
___________ __________
Total shareholders' equity 6,897,489 6,977,959
Total liabilities and shareholders'
equity $ 14,691,320 $ 15,026,030
The accompanying notes are an integral part of this financial statement
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Operations
(Unaudited)
Three months ended March 31,
2000 1999
Net Revenues
Case Revenue $ 1,257,421 $ 1,116,236
Bulk Revenue - -
Total Revenue 1,257,421 1,116,236
Cost of Sales
Case 634,369 501,705
Bulk - -
Total Cost of Sales 634,369 501,705
Gross Margin 623,052 614,531
Selling, general and
administrative expense 592,322 646,009
Net operating income 30,730 (31,478)
Other income (expense)
Interest income 961 2,026
Interest expense (119,176) (109,923)
Other income 7,015 189
Net loss before income taxes (80,470) (139,186)
Income tax - -
Net loss (80,470) (139,186)
Retained earnings beginning of
period 161,987 254,219
Retained earnings end of period 81,517 115,033
Basic gain (loss) per common share (.02) (.03)
Diluted loss per common share (.02) (.03)
Weighted average number of
basic common shares
outstanding 4,253,431 4,237,231
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Three Months Ended March 31,
2000 1999
Cash flows from operating activities:
Net loss $ (80,470) $ (139,186)
Reconciliation of net loss to net cash used
for operating activities:
Depreciation and amortization 185,852 176,686
Changes in assets and liabilities:
Accounts receivable trade (8,079) 10,759
Inventories (37,305) (219,194)
Prepaid expenses (10,970) (22,616)
Grape payable (395,898) (61,931)
Accounts payable (273,889) 204,087
Income tax payable (42,429) -
Accrued liabilities (27,089) (105,049)
Net cash provided (used) by operating
activities (690,277) (156,444)
Cash Flow from investing activities
Construction expenditures and purchases
of equipment (23,344) (115,735)
Vineyard development expenditures (1,599) (45,903)
Cash received for investments - -
Notes receivable 3,809 (851)
Net cash used by investing activities (21,134) (162,489)
Cash Flows from financing activities:
Line of credit borrowings (repayment) 555,000 300,000
Debt issuance cost 8,406 2,583
Equity change - 7,800
Change in deferred gain (6,351) -
Increase (decrease) in long term debt (63,583) (12,281)
Net cash provided by financing activities 493,472 298,102
Net increase in cash and cash equivalents (217,939) (20,831)
Cash and cash equivalents:
Beginning of period 219,041 149,401
End of period 1,102 128,570
The accompanying notes are an integral part of this financial statement
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
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 10-QSB 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, and other risks detailed below as well
as those discussed elsewhere in this Form 10-QSB 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,
2000 1999
Winemaking and packaging materials $ 519,646 $ 276,571
Work-in-progress (costs relating
to unprocessed and/or bulk
wine products 2,352,912 2,463,709
Finished goods (bottled wines 3,307,444 3,402,417
and related products _________ __________
$ 6,180,002 $6,142,697
========= =========
3) PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
March 31, December 31,
2000 1999
Land and improvements $ 938,990 $ 938,990
Winery building and hospitality center 4,527,573 4,527,573
Equipment 4,112,642 4,089,297
_________ __________
$ 9,579,205 $9,555,860
Less accumulated depreciation (3,329,526) (3,153,837)
_________ _________
$ 6,249,679 $6,402,023
========= =========
4) SUBSEQUENT EVENTS:
None.
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operation
While the Company has always produced a net loss in the First Quarter,
the weakest quarter in the industry, these losses are lower than the
previous year due to reductions in sales expenses. The first quarter of
the previous year marked the beginning of the Company's introduction of
it's re-positioned core brand, Willamette Valley Vineyards and two new
estate brands, Tualatin Estate Vineyards and Griffin Creek into national
distribution. Management expects to experience additional brand
introduction expenses as new varieties complete their aging periods and
become ready to market.
During this first quarter, the Wine Spectator magazine, rated the
Company's '96 Griffin Creek Merlot the number one red wine from Oregon
in 1999. The publication also released a series of ratings on Oregon
wine which included a "89" for the Company's '98 Griffin Creek Pinot
Gris, a "89" for the Tualatin Estate '98 Semi-Sparkling Muscat, a "88"
for the Tualatin Estate '97 Chardonnay and an "87" and "Best in Market"
designation for the '98 Willamette Valley Vineyards Pinot Noir.
Due to overly ambitious multiple year grape contracts signed in 1996 and
early 1997 by previous management, the Company continues to find ways of
dealing with certain varieties of excess fruit. This quarter shows
several very large sales made to institutional buyers below standard
margins to reduce excess inventory of lower priced white wine.
RESULTS OF OPERATIONS
Revenue
Winery Operations
The Company's revenues from winery operations are summarized as follows:
Three Months Ended
March 31,
2000 1999
Tasting Room sales & Rental Income $ 146,411 $ 150,497
On-site and off-site festivals 133,046 114,415
In state sales 443,056 415,895
Out of state sales 578,034 457,619
Bulk wine /misc sales ___ 6,280 ___16,965
Gross Revenue $1,306,827 $ 1,155,391
Less Excise Taxes 49,406 39,155
Net Revenues 1,257,421 1,116,236
========== ==========
Tasting Room sales and rental income for the three months ended March
31, decreased 3% to $146,411 in 2000 from $150,497 for the same period
in 1999. Sales in the tasting room increased slightly during the first
quarter of 2000. However, the rental income received during the quarter
from the Company's Hospitality Facility decreased by $14,000 in the
first quarter of 2000 over the same period in 1999. The Company
contracts out its hospitality and catering service in order to reach a
greater number of clientele and to service the customer with a wider
variety of products. The Company felt that the decrease in revenue in
the first quarter of 2000 was due to added competition from two new
facilities in the local area.
On-site and off-site festival sales for the first quarter of 2000
increased 16% to $133,046 from $114,415 over the first quarter of 1999.
In January 2000, the Company held a successful Crab Festival at its
facility to pair its wines with crab and local seafood. The Company also
joined forces with a local seafood restaurant to educate its customers
on the pairing of wine with a popular seafood founded at local
restaurants. The result of festival increased revenue for on-site
festivals in January by $16,000. Off-site revenues were up slightly to
$26,395 in the first quarter of 2000 over the same period in 1999.
Sales in the state of Oregon, through the Company's independent sales
force, increased 7% to $443,056 in the first quarter of 2000 from
$415,895 over the first quarter of 1999. Sales in cases of the
Company's Riesling variety continues to grow compared to last year. For
the first quarter of 2000, 1227 cases of Riesling were sold as compared
to 1046 cases in the first quarter of 1999. Although the cases sales
increased the dollar revenue increased only $4,000 because the Company
was forced to lower its case price on the Riesling to keep its strong
hold in the market. A Washington competitor has used aggressive
discounted pricing in an attempt to increase its market share. Also,
sales in the Griffin Creek higher-priced and higher-margin wines grew
from 85 cases ($12,108) in the first quarter in 1999 to 218 cases
($31,443) in the first quarter of 2000.
Out-of-state sales in the first quarter of 2000 increased 26% to
$578,034 from $457,619 over the first quarter of 1998. In the first
quarter of 2000, the Company made several large sales to institutional
buyers. One of these buyer purchased 2,688 cases of Pinot Gris at a
price below the Company's FOB standard price. This increased the number
of cases of Pinot Gris sold in the first quarter of 2000 over 1999 plus
brought an infusion of $148,000 of cash into the Company. The Company
also sold 926 cases of its 1997 Tualatin Estate Riesling at a
substantially lower margin.
Excise taxes
The Company's excise taxes increased in the first quarter of 2000 to
$49,406 from $39,155 the same period in 1999. This was due to the
increase of case depletions in the first quarter of 2000.
Gross Profit
Winery Operations
As a percentage of revenue, gross profit for the winery operations
decreased to 50% in the first quarter of 2000 as compared to 55% in the
first quarter of 1999. After adjusting for the sale of lower margin
Pinot Gris and Tualatin Estate Riesling wines to institutional buyers as
described above, the gross margin would have been 55% in the first
quarter of 2000. The Company expects the gross margins in 2000 will be
lower than 1999. This will reduce the Company's inventory in 2000 to
bring it to what it considers a desirable operation level.
Selling, General and Administrative Expense
Selling, general and administrative expenses decreased 8% to $592,322 in
the first quarter of 2000 from $646,273 in the first quarter of 1999. As
a percentage of revenue from winery operations, selling, general and
administrative expenses decreased to 47% in the first quarter of 2000
from 58% in the first quarter of 1999. The Company reduced its spending
in the first quarter of 2000 in several categories. In the first quarter
of 2000, the Company reduced it sales and marketing traveling expenses
by $25,000 by reducing the number of trips to its distributors. The
Company also reduced its commissions paid to its independent sales
brokers on sales outside the State of Oregon. This saved the Company
approximately $22,000 in the first quarter of 2000 over the same period
in 1999.
The Company also implemented significant cost saving measures in the
first quarter of 2000 for its on-site events. This resulted in a savings
of $16,000 in direct expense for the on-site events plus a reduction of
$13,000 in printing charges over the same quarter in 1999.
Interest Income, Other Income and Expense
Interest income decreased to $961 for the first quarter of 2000 from
$2,026 for the first quarter of 1999. Interest expense increased to
$119,176 in the first quarter of 2000 from $109,923 in 1999. Interest
costs were higher because the Company paid additional interest on a
higher balance on its line of credit and also the interest rate for its
line of credit was higher in the first quarter of 2000 as compared to
1999. . In the first quarter of 1999, the Company also capitalized
$7,258 of interest cost to vineyard development for money borrowed to
plant grapes at Tualatin Estate which did not occur in the first quarter
of 2000. Other income increased to $7,055 for the first quarter 2000
from $1,022 for the first quarter of 1999.
Income Taxes
As in prior years, the Company has operated with a net loss for the
first three months in 2000. Therefore, no income tax expense was accrued
in the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had a working capital balance of $3.2
million and a current ratio of 1.9:1. At December 31, 1999, the Company
had a working capital balance of $3.1 million and a current ratio of
1.8:1.
The Company had a cash balance of $1,102 at March 31, 2000.
At March 31, 2000, the line of credit balance was $2,240,584. On March
31, 1999, the Company obtained an increase in its line of credit from
Farm Credit Services. The Company increased the maximum amount that may
be borrowed under the line of credit to $2,500,000 from $2,000,000 to
meet the Company cash needs in 1999 until renewal in May 2000. As of
this date, Farm Credit Services has agreed to extend the Company's line
of credit until February 1, 2001. The interest rate will be 10% as
compared to a current base of 8.25%. The maximum amount that may be
borrowed under the line of credit will be increased to $2,750,000 from
$2,500,000 less $50,000 commitment. The Company is subject to two
borrowing deadlines. If the balance on the line is greater than
$2,273,000 on September 30, 2000, the lender will increase the rate by
.5% to 10.5%. If the balance on the line is greater than $2,292,000 on
December 31, 2000, the interest rate will continue at 11%. If the
Company meets this loan requirements it will not be charged the
additional interest rate. If the balance on the line of credit is less
than the amounts set forth above on the applicable dates, the interest
rate will remain at 10%.
As of March 31, 2000, the Company had a total long term debt balance of
$3,732,926 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, 1999, the Company was in
violation of one of its debt coverage covenants. Farm Credit Services
has released the Company from complying with this one covenant.
In December 1999, the Company sold one partial of land and leased it
back from the purchaser. This result created a liability account called
deferred gain of $508,054. According to general accepted accounting
rules, this gain must be recognized over the life of the 20 year lease.
This allows the Company to record $6,350 as other income each quarter
for the duration of the 20 year lease.
At March 31, 2000, the Company owed $431,945 on grape contracts. The
Company pays one grape grower as product is sold according to an
agreement with that particular grape grower.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.
(a)
) Exhibits
(3) Articles of Incorporation and Bylaws:
(a) Articles of Incorporation of Willamette Valley
Vineyards, Inc. (incorporated by reference from
the Company's Regulation A Offering Statement on
Form 1-A [File No. 24S-2996])
(b) Bylaws of Willamette Valley Vineyards,
Inc.(incorporated by reference from the
Company's Regulation A Offering Statement on
Form 1-A [File No. 24S-2996])
(10) Material Contract
(a) Employment Agreement between Willamette Valley
Vineyards, Inc. and James W. Bernau dated August
3, 1988 (incorporated by reference from the
Company's Regulation A Offering Statement on
Form 1-A [File No. 24S-2996])
(b) Indemnity Agreement between Willamette Valley
Vineyards, Inc. and James W. Bernau dated May 2,
1988 (incorporated by reference from the
Company's Regulation A Offering Statement on
Form 1-A [File No. 24S-2996])
(h) Revolving Note and Loan Agreement dated May 28,
1992 by and between Northwest Farm Credit
Services, Willamette Valley Vineyards, Inc. and
James W. and Cathy Bernau (incorporated by
reference from the Company's Regulation A
Offering Statement on Form 1-A [File No. 24S-
2996])
(j) Amendment to Founders' Escrow Agreement dated
September 20, 1988 (incorporated by reference
from the Company's Regulation A Offering
Statement on Form 1-A [File No. 24S-2996])
(m) Acquisition of Tualatin Vineyards, Inc. dated
April 15, 1997. (File No.
(n) Sale and leaseback agreement with Fifty Eight
Acres, Inc.
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, as
amended, 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 More
John More
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,102
<SECURITIES> 0
<RECEIVABLES> 491,574
<ALLOWANCES> (54,000)
<INVENTORY> 6,180,002
<CURRENT-ASSETS> 6,809,548
<PP&E> 9,579,205
<DEPRECIATION> (3,329,526)
<TOTAL-ASSETS> 14,691,320
<CURRENT-LIABILITIES> 3,657,022
<BONDS> 0
0
0
<COMMON> 6,815,972
<OTHER-SE> 81,517
<TOTAL-LIABILITY-AND-EQUITY> 14,691,320
<SALES> 1,257,421
<TOTAL-REVENUES> 1,257,421
<CGS> 634,369
<TOTAL-COSTS> 634,369
<OTHER-EXPENSES> 592,322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,176
<INCOME-PRETAX> (80,470)
<INCOME-TAX> 0
<INCOME-CONTINUING> (80,470)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (80,470)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
