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, 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 September 30, 2000
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,
2000 1999
ASSETS
(unaudited) _________
Current Assets:
Cash and cash equivalents $2,471 $219,041
Accounts receivable trade, net 489,222 429,495
Inventories 6,316,199 6,142,697
Prepaid expenses 47,903 79,102
Deferred income taxes 100,798 100,798
_________ _________
Total current assets 6,956,594 6,971,133
Vineyard development cost, net 1,389,399 1,381,163
Property and equipment, net 6,055,429 6,402,023
Investments 4,974 4,974
Notes receivable 50,974 52,975
Debt issuance costs, net 61,882 72,107
Other Assets 141,655 141,655
_________ _________
Total assets $14,660,907 $15,026,030
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Line of credit $2,400,584 $1,685,584
Current portion of long term debt 198,618 213,502
Accounts payable 733,282 960,479
Accrued commissions and payroll 104,886 126,375
Income Tax Payable (71) 42,429
Grapes payable 346,999 827,843
_________ _________
Total current liabilities 3,784,298 3,856,212
Long-term debt 3,464,265 3,583,007
Deferred Gain 454,306 508,054
Deferred income taxes 100,798 100,798
_________ _________
Total liabilities 7,803,667 8,048,071
Shareholders' equity
Common stock, no par value - 10,000,000
shares authorized, 4,237,481 shares issued
outstanding 6,815,972 6,815,972
Retained earnings 41,268 161,987
_________ _________
Total shareholders' equity 6,857,240 6,977,959
Total liabilities and shareholders'
equity $ 14,660,907 $ 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 Nine months ended
September 30, September 30,
2000 1999 2000 1999
Net Revenues
Case Revenue $1,469,903 $1,640,133 $4,310,626 $3,986,774
Bulk Revenue 112,655 - 112,655 -
Total Revenue 1,582,558 1,640,133 4,423,281 3,986,774
Cost of Sales
Case 743,897 786,726 2,149,784 1,816,503
Bulk 170,774 - 170,849 -
Total Cost of Sales 914,671 786,726 2,320,633 1,816,503
Gross Margin 667,887 853,407 2,102,648 2,170,271
Selling, general and
administrative expense 730,366 693,557 1,971,737 2,018,667
Net operating income (loss) (62,479) 159,850 130,911 151,604
Other income (expense)
Interest income 971 2,132 2,893 6,639
Interest expense (137,027) (124,201) (386,562) (356,632)
Other income 118,453 57,166 134,481 58,188
Other expense (2,263)
Net income (loss) before
income taxes (80,082) 94,947 (120,540) (140,201)
Income tax (79) - (79) -
Net income (loss) (80,161) 94,947 (120,619) (140,201)
Retained earnings beginning of
period 121,429 19,071 161,987 254,219
Retained earnings end of period 41,268 114,018 41,268 114,018
Basic gain (loss) per common share (.02) .02 (.03) (.03)
Diluted gain (loss) per common share(.02) .02 (.03) (.03)
Weighted average number of
basic common shares
outstanding 4,253,431 4,237,481 4,253,431 4,237,481
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Nine Months Ended September 30,
2000 1999
Cash flows from operating activities:
Net income (loss) $(120,620) $(140,201)
Reconciliation of net income (loss) to net cash used
for operating activities:
Depreciation and amortization 570,093 538,377
Equity change 7,800
Changes in assets and liabilities:
Accounts receivable trade (59,728) (13,732)
Other receivable 0 0
Inventories (173,502) (562,453)
Prepaid expenses 31,199 18,117
Grapes payable (480,844) (355,474)
Accounts payable (227,297) 379,237
Taxes payable (42,500) -
Accrued liabilities (21,488) (28,267)
Net cash provided (used)
by operating activities (524,687) (156,596)
Cash Flow from investing activities
Construction expenditures and
purchases of equipment (173,430) (333,190)
Vineyard development expenditures (58,306) (93,719)
Cash received for investments 0 0
Notes receivable 2,001 (4,676)
Net cash used by investing activities (229,735) (431,585)
Cash Flows from financing activities:
Line of credit borrowings 715,000 605,000
Capitalized loan fee 10,226 (71,096)
Deferred gain (53,748)
Increase in long term debt (133,626) 9,436
Net cash provided by financing activities 537,852 543,340
Net increase in cash and cash equivalents (216,570) (44,841)
Cash and cash equivalents:
Beginning of period 219,041 149,401
End of period 2,471 104,560
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 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, 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 10-QSB 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,
2000 1999
Winemaking and packaging materials $ 614,104 $ 276,571
Work-in-progress (costs relating
to unprocessed and/or bulk
wine products 2,471,615 2,463,709
Finished goods (bottled wines 3,230,480 3,402,417
and related products)
_________ __________
$ 6,208,069 $ 6,142,697
3) PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
June 30, December 31,
2000 1999
Land and improvements $ 938,990 $ 938,990
Winery building and hospitality
center 4,540,878 4,527,573
Equipment 4,249,422 4,089,297
_________ _________
9,729,290 9,555,860
Less accumulated depreciation (3,673,861) (3,153,837)
_________ _________
$ 6,055,429 $ 6,402,023
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Third Quarter results are summarized as follows:
- Total revenues were ahead of budget with sales from the Company's
distribution force to Oregon retail and restaurant accounts increasing by 22%
over the prior year.
- A significant, unexpected loss of $58,000 resulted from the sale of bulk
wine below cost. Early in 1997, the Company's previous management contracted
for grapes on a long-term basis at above market prices and far in excess of the
Company's sales history. The present management has dealt with this over supply
by selling the bulk wine between harvests. This is the first time the
Company has been faced with falling bulk market prices for these varieties.
These grape contracts will end by 2001 with the remaining over supply resulting
from white varieties off of a leased vineyard, entered into in early 1997 with a
ten-year term.
- Sales to out-of-state distributors were lower this quarter compared to the
previous quarter and the same quarter of the previous year. This was expected
as the new vintage of the Company's flagship Pinot noir was introduced last
quarter with prices increasing this quarter, causing distributors to place
substantial orders in the Second Quarter. Last year, the buy-in made by
distributors was in the Third Quarter with prices increasing in the Fourth
Quarter.
- Retail sales relating to off-site events were lower than the previous year
due to poor weather during an important weekend, reducing customer turnout and
purchases. Hospitality revenues are lower due to increased competition from
several new facilities recently opened in the area.
The Company is continuing to demonstrate progress on its key initiatives. Wine
quality advancements have been reflected in wine consumer publications like the
Wine Spectator where recent submissions of two of the Company's new Single
Vineyard Designated Pinot Noirs received scores of 90. The Signature Cuvee
Pinot noir received a score of 93 by the Wine Enthusiast and a listing among the
top 100 wines in the world for this year. Hugh Johnson, in his Pocketbook
Encyclopedia of Wine for 2000 selected three wines from Oregon to feature: a
Domaine Drouhin Chardonnay, a Panther Creek Pinot noir and the Willamette Valley
Vineyards Joe Dobbes Signature Cuvee Pinot noir.
Through the first nine months distributor depletions to their retail customers
are ahead of the previous year for the same period by 20%, where last year they
were down 9% from the previous year. The Company is experiencing increases in
wholesaler to retailer depletions with its flagship Pinot Noir and decreases
with Chardonnay and Pinot Gris.
Due to improved cash flow over the previous year, the management has
strengthened its Portland area sales force to improve placements of it high-end
wines in key restaurants and bottle shops. While this new effort has increased
sales expenses relative to total sales, it addresses an important long term
objective of capturing high margin sales in the key "brand positioning" accounts
in the state's major population area.
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,
2000 1999 2000 1999
Tasting Room Sales
and Rental Income $ 279,168 $ 293,838 $ 680,594 $ 671,120
On-site and off-site
festivals 64,114 135,227 273,603 335,562
In state sales 766,312 627,298 1,931,841 1,540,462
Out of state sales 442,155 630,668 1,639,663 1,539,525
Bulk wine/ Misc. sales 112,655 6,944 118,935 36,663
Total Revenue $ 1,664,403 $ 1,693,975 $ 3,964,042 $ 4,123,332
Less Excise Taxes 57,707 53,842 165,128 136,558
Net Revenue $ 1,606,696 $ 1,640,133 $ 3,798,914 $ 3,986,774
Tasting Room sales and rental income for the three months ended September 30,
2000, decreased 5% over the same period in 1999. For the first nine months of
2000, the sales increased 1.5% over the same period in 1999. Retail sales in the
tasting room decreased in the third quarter of 2000 but continue to bring the
total revenue in the first nine months of 2000 over last years total. The
Company has hired a Preferred Customer Representative who is solely responsible
to contact and promote sale of wine to valued past customers who have made
significant purchases in the past.
On-site and off-site festival sales for the three months ended September
30, 2000 decreased 52% over the third quarter of 1999. For the first nine
months of 2000, sales in this category decreased 18% over the same period in
1999.
Sales in the state of Oregon, through the Company's independent sales force,
increased 22% in the three months ending September 30, 2000 over the same period
in 1999. For the first nine months of 2000, the sales increased 25% over the
same period in 1999. In the third quarter of 2000, the Company took steps to
grow its largest in-state market, the Portland Area, by improving self-
distribution in the market. The Company hired a high quality Sales Manager to
spearhead the push in the market. Additionally, the Company continued to
identify the biggest retail outlets in the state and began to offer tastes and
promoting the product to the wine consumers. The number of cases sold in the
first three quarters of 2000, increased to 6,510 cases against sales of 4,332
cases for the same period in 1999. Also, sales in the Griffin Creek higher-
priced and higher-margin wines grew from 257 cases ($32,823) in the first six
months of 1999 to 646 cases ($90,728) in the first six months of 2000.
Out-of-state sales in the three months ending September 30, 2000, decreased 30%
over the same period in 1999. For the first nine months of 2000,out-of-state
sales increased 6% over the same period in 1999. This was expected with prices
increasing this quarter on the new vintage of the Company's flagship Pinot noir,
distributors placed substantial orders in the Second Quarter to take advantage
of a buy in at the lower previous years prices. In 1999, the same buy-in made
by distributors was in the Third Quarter, increasing sales then, with prices
increasing in the Fourth Quarter.
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 2000 was $165,128. For the same period in 1999, the excise taxes
collected was $136,558.
Gross Margin
Winery Operations
As a percentage of revenue, gross margin for the winery operations decreased to
42% for the quarter ending September 30, 2000 as compared to 52% in the third
quarter of 1999. For the first three quarters of 2000, the gross margin
decreased to 48% as compared to 54% for the first three quarters of 1999. In the
third quarter of 2000 the company sold a significant amount of excess bulk Pinot
Gris below cost to free up winemaking capacity for the 2000 vintage. These
sales drastically lowered the overall gross margin for the quarter, and had a
significant impact on lowering the margin compared to the same period in 1999.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased 5% to $730,366 in the
third quarter of 2000 from $693,557 in the third quarter of 1999. For the first
nine months of 2000, selling, general and administrative expenses decreased 2%
to $1,971,737 from $2,018,667 in the first nine months of 1999.
As a percentage of revenue from winery operations, selling, general and
administrative expenses increased to 46% in the third quarter of 2000 from 42%
in the third quarter of 1999. For the three quarters of 2000, as a percentage
of revenue from winery operations, selling, general and administrative expenses
decreased to 45% from 51% in the third quarter of 1999.
The company experienced increases in its selling, general, and administrative
expenses in two significant categories. By the retirement of the controller and
the hiring of a new controller, the Company increased its accounting services
expenses during a transitional phase when the new controller had begun working
and the outgoing controller was consulting, essentially doubling expenses
temporarily. The other category was in the development of the Portland sales
team. A new sales manager was hired to spearhead efforts to increase visibility
and distribution within the Portland area. Additionally, a delivery truck was
leased and a full time driver was hired to service the accounts. By investing
in high quality management, and providing delivery services, the Company hopes
to build a lucrative market in the Portland area. Also, by closing monitoring
its revenues verses expenses for the Portland market, the Company will be able
to analyze the overall contribution of its new strategy.
Interest Income, Other Income and Expense
Interest income/other income increased to $119,424 for the third quarter of 2000
from $60,101 for the third quarter of 1999. For the nine months of 2000,
interest income/other income increased to $137,374 from $65,630 for the first
three quarters of 1999.
Interest expense increased to $137,027 in the third quarter of 2000 from
$124,200 in 1999. For the first nine months of 2000, interest expense increased
to $386,562 from $356,062 for the first nine months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had a working capital balance of $3.2 million
and a current ratio of 1.8:1. 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 $2,471 at September 30, 2000.
At September 30, 2000, the line of credit balance was $2,400,584. 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. In March of 2000, 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 the old base of 8.25%. The maximum
amount that may be borrowed under the line of credit was 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 these 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 June 30, 2000, the Company had a total long-term debt balance of
$3,484,654 owed 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, 1999, 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. The covenants will be reviewed
for compliance at the end of the year.
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
$486,978. 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 September 30, 2000, the Company owed $346,999 on grape contracts. A large
portion is owed to a grape grower, which will be paid as the wine is sold.
PART II. OTHER INFORMATION
Other
Item 6 Exhibits and Reports on Form 8-K.
No exhibits or reports.
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/ Sean M. Cary
Sean M. Cary
Controller
