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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-QSB
_________________________
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996
Commission File Number 0-25986
WILLAMETTE VALLEY, INC.
Microbreweries across America
(Exact name of registrant as specified in charter)
Oregon 93-1131247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
_________________________
66 SE Morrison Street
Portland, OR 97214
(503) 231-7616
(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
Transitional Small Business Disclosure Format [ ] YES [X] NO
Number of shares of common stock outstanding as of June 30, 1996:
4,850,796 shares, $.01 par value
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WILLAMETTE VALLEY, INC.
Microbreweries across America
INDEX TO FORM 10-Q
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Part I - Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995 . . . . . . . . . . . . 3
Consolidated Statement of Operations -
Three Months and Six Months Ended
June 30, 1996 and June 30, 1995 . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6
Item 2 -- Management's Discussion and Analysis
of Financial Condition and Results of Operations. .. . . . 9
Part II - Other Information
Item 6 -- Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 11
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
WILLAMETTE VALLEY, INC.
Microbreweries across America
(A Development Stage Company)
Consolidated Balance Sheet
June 30,
1996 December 31,
ASSETS (unaudited) 1995
------------ ------------
Current assets:
Cash and cash equivalents $ 179,626 $ 1,117,134
Trade accounts receivable 505,002 119,393
Receivable from affiliated companies 15,153 198,569
Inventories 657,344 368,656
Other current assets 143,365 219,345
------------ ------------
Total current assets 1,500,490 2,023,097
------------ ------------
Deposits - 51,000
Property and equipment, net 5,777,766 5,460,152
Deferred stock offering costs 196,187 -
Investment in joint venture 2,455,531 -
Other non-current assets 169,076 161,177
------------ ------------
Total assets $10,099,050 $ 7,695,426
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 847,194 $ 406,797
Accrued liabilities 470,972 312,198
Payable to affiliated companies 461,607 22,698
Note payable to joint venture 2,550,000 -
Current portion of long-term debt 78,506 19,522
------------ ------------
Total current liabilities 4,408,279 761,215
Long-term debt 356,929 108,415
Advances from affiliated company 575,000 700,000
Deferred Rent 115,351 -
------------ ------------
Total liabilities 5,455,559 1,569,630
Minority interest 1,404,161 1,871,191
Shareholders' equity:
Common stock, $.01 par value - 10,000,000 48,508 48,508
shares authorized, 4,850,796 shares issued
outstanding
Additional paid-in capital 5,621,701 5,686,386
Deficit accumulated during development stage (2,430,879) (1,480,289)
------------ ------------
Total shareholders' equity 3,239,330 4,254,605
------------ ------------
Total liabilities and shareholders' equity $10,099,050 $ 7,695,426
============ ============
The accompanying notes are an integral part of this financial statement.
WILLAMETTE VALLEY, INC.
Microbreweries across America
(A Development Stage Company)
Consolidated Statement of Operations
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Revenues:
Gross sales $ 1,080,255 $ 45,932 $ 1,514,902 $ 62,361
Less: excise taxes 88,096 5,618 112,719 6,118
------------ ------------ ------------ ------------
Net sales 992,159 40,314 1,402,183 56,243
Management services 26,700 187,281 26,700 381,899
------------ ------------ ------------ ------------
1,018,859 227,595 1,428,883 438,142
Cost of beer and 1,084,208 38,401 1,654,651 61,081
related products
Cost of - 155,639 26,700 356,520
management services ------------ ------------ ------------ ------------
1,084,208 194,040 1,681,351 417,601
Gross profit (deficit) (65,349) 33,555 (252,468) 20,541
Selling, general
and administrative 613,455 450,964 1,129,325 803,681
expenses ------------ ------------ ------------ ------------
Loss from operations (678,804) (417,409) (1,381,793) (783,140)
Other income
(expense), net (14,709) 60,153 (1,781) 127,284
------------ ------------ ------------ ------------
Income (loss) before
minority interest
and joint venture (693,513) (357,256) (1,383,574) (655,856)
Loss from joint venture (76,777) - (94,469) -
------------ ------------ ------------ ------------
Income (loss) before
minority interest (770,290) (357,256) (1,478,043) (655,856)
Minority interest 300,774 57,849 527,453 120,622
------------ ------------ ------------ ------------
Net Income (loss) $ (469,516) $ (299,407) $ (950,590) $ (535,234)
============ ============ ============ ============
Net loss per
common share $ (0.10) $ (0.06) $ (0.20) $ (0.11)
============ ============ ============ ============
Weighted average
number of common
shares outstanding 4,850,796 4,850,796 4,850,796 4,850,796
============ ============ ============ ============
The accompanying notes are an integral part of this financial statement.
WILLAMETTE VALLEY, INC.
Microbreweries across America
(A Development Stage Company)
Consolidated Statement of Cash Flows
Six Months Ended June 30,
1996 1995
----------- -----------
Cash flows from operating activities:
Net loss $ (950,590) $ (535,234)
Minority interest in losses of
consolidated subsidiaries (527,453) 101,031
Equity in losses of joint venture 94,469 -
Reconciliation of net loss to net cash
used by operating activities:
Depreciation and amortization 207,976 44,008
Changes in assets and liabilities:
Trade accounts receivable (385,609) (33,986)
Receivable from affiliates 183,416 2,136
Inventories (288,688) (56,161)
Prepaid expenses and other current assets 75,980 (37,726)
Other non-current assets (7,899) 25,801
Accounts payable 440,397 72,079
Accrued liabilities 158,774 (33,408)
Payables to affiliated companies 438,909 -
----------- -----------
Net cash used for operating activities (560,318) (451,460)
Cash flows from investing activities
Deposits for property and equipment - 11,000
Disposition of property and equipment 326,569 -
Purchases of property and equipment (455,158) (1,837,421)
----------- -----------
Net cash used for investing activities (128,589) (1,826,421)
Cash flows from financing activities:
Payments on advances from affiliated companies (125,000) -
Deferred stock offering costs (196,187) (149,705)
Net proceeds from stock offerings (4,263) 569,539
Deferred rent 115,351 -
Proceeds from long-term debt - 53,177
Payments on long-term debt (38,502) -
----------- -----------
Net cash provided by financing activities (248,601) 473,011
----------- -----------
Net increase (decrease) in cash and cash equivalents (937,508) (1,804,870)
Cash and cash equivalents:
Beginning of period 1,117,134 5,816,687
----------- -----------
End of period $ 179,626 $4,011,817
=========== ===========
The accompanying notes are an integral part of this financial statement.
WILLAMETTE VALLEY, INC.
Microbreweries across America
NOTES TO FINANCIAL STATEMENTS
DEVELOPMENT STAGE COMPANY
Willamette Valley, Inc. Microbreweries across America ("WVI" or the "Company")
was formed on December 2, 1993 to establish a series of microbreweries
throughout the United States using a consumer-owned capitalization plan and
certain marketing strategies. Each microbrewery will produce and sell high-
quality hand crafted beers marketed under a label developed specifically for
each microbrewery. WVI plans to establish each microbrewery as a subsidiary
and expects to retain a substantial interest in each microbrewery following
completion of the microbrewery's initial public offering.
During 1994, WVI successfully completed an initial public offering of its
common stock and since then has formed four subsidiaries, Aviator Ales, Inc.
("AAI" - a microbrewery located in Woodinville, Washington), Mile High Brewing
Company ("MHBC" - a microbrewery located in Denver, Colorado), Bayhawk Ales,
Inc. ("BAI" - a microbrewery located in Irvine, California), and North Country
Brewery, Inc. ("NCBI" - a company formed to establish a joint venture with
Nor'Wester Brewing Company, Inc., an affiliated company, to develop, own and
operate a microbrewery located in Saratoga Springs, New York). AAI, MHBC, and
BAI have successfully completed initial public offerings of their common
stock. BAI began its brewing operations in January 1995. AAI and MHBC were
completed later in the year and began brewing beer in the third quarter of
1995. The Saratoga Springs brewery is currently under construction and is
expected to begin brewing operations in the third quarter of 1996.
WVI is a development stage enterprise with limited operating history which
consists only of developmental activities for its subsidiary microbreweries.
WVI believes it will continue as a going concern as: it and its subsidiaries
have successfully raised capital in public stock offerings; three of its
subsidiaries have successfully built and equipped breweries andhave been
producing beer since 1995; both MHBC and AAI have commenced a second public
offering of their common stock and; it believes its subsidiaries will generate
profits and positive cash flows.
The Company has provided management services to its subsidiaries and to other
affiliated companies. These services included accounting, (payroll, accounts
receivable, accounts payable, financial statements and audit support), human
resources, safety, purchasing, quality assurance, management oversight and
regulatory reporting. Beginning in 1996, the Company entered into a General
Services Agreement with Nor'Wester Brewing Company, Inc. ("Nor'Wester") whereby
the Company has contracted with Nor'Wester to provide certain of these
services.
BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited and have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
typically included in financial statements prepared in accordance with
generally accepted accounting standards have been condensed or omitted pursuant
to such rules and regulations. In the opinion of management, the financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
period presented. The financial statements should be read in conjunction with
the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on April 1, 1996. The results of operations
for an interim period are not necessarily indicative of the results of
operations for a full year.
Statement of Cash Flows
During the first half of 1996, the Company and its subsidiaries acquired
$346,000 of equipment under capital lease obligations (see "Long-Term Debt").
In addition, the Company's wholly-owned subsidiary, NCBI, acquired an interest
in a joint venture and financed the acquisition with a short-term note payable
to the joint venture (see "Joint Venture Agreement"). NCBI also transferred
assets to the joint venture for no consideration. These non-cash transactions
have been excluded from the accompanying statement of cash flows.
Inventories
Inventories consist of the following:
June 30, December 31,
1996 1995
---------- ----------
Raw materials $ 232,063 $ 76,042
Work-in-process 195,839 71,267
Finished goods 179,034 181,974
Retail products 50,408 39,373
---------- ----------
$ 657,344 $ 368,656
========== ==========
Property and Equipment
Property and equipment consists of the following:
June 30, December 31,
1996 1995
----------- -----------
Land and improvements $ 98,455 $ 98,455
Leasehold improvements 2,317,635 2,021,875
Brewery equipment 3,448,398 3,188,742
Office furniture and equipment 214,068 313,757
Vehicles 41,223 41,223
Construction in progress 32,626 20,175
----------- -----------
6,152,405 5,684,227
Less accumulated depreciation (374,639) (224,075)
----------- -----------
$5,777,766 $5,460,152
=========== ===========
Long Term Debt
On January 5, 1996, the Company's subsidiary, MHBC, entered into a capital
lease to acquire a bottling line. The capital lease obligation of $346,000
requires regular monthly payment of approximately $7,500, including principal
and interest at 11% and expires in the year 2000.
Income Taxes
No benefit for income taxes was recognized for the periods ended June 30, 1996
and 1995 in the accompanying statement of operations as there can be no
assurance that the Company will generate taxable income in the future against
which such benefit could be realized. Accumulated net operating loss
carryforwards at June 30, 1996 and December 31, 1995 were approximately
$3,279,230 and $2,338,000, respectively.
Related Party Transactions
For the six months ended June 30, 1996, the Company provided certain management
and administrative services, including operational oversight and human
resources, to affiliated companies, charging a total of $26,700. Beginning
in 1996, the Company has contracted with Nor'Wester to provide accounting and
sales management services to the Company and its subsidiaries totaling
$107,325, and with Willamette Valley Vineyards, Inc., an affiliated company, to
provide stock transfer and sales support services at a cost totaling $13,200
for the same period. In addition, these affiliates have provided stock
offering services during the six months ended June 30, 1996 at a cost of
$9,200 to the Company's subsidiaries, AAI and MHBC, who have commenced a second
pulic offering of their common stock, and NCBI, which is currently in the
securities registration process to register shares of its common stock for sale
to the public.
To further promote and support its brand presence of Nor'Wester's handcrafted
ales and lagers in Denver, Colorado, the Board of Directors of Nor'Wester
authorized a loan to MHBC for the construction of a Public Brew House adjacent
to MHBC's brewing facility. Nor'Wester expects to advance the MHBC
approximately $200,000 to this end. MHBC is currently in the process of
raising additional capital through a common stock offering. If the offering is
successful, MHBC will use $100,000 to reduce the amount owed to Nor'Wester for
the construction on the pub and the remaining balance will become a note
payable between the companies.
Net Loss Per Share
Net loss per common share is calculated based on the weighted average number of
common shares outstanding. Founder shares held in escrow are included in the
weighted average number of common shares outstanding. Common stock equivalents
are excluded from the loss per share calculation as their effect is
antidilutive.
Common Stock Offerings
MHBC and AAI have each filed registration statements with the Securities and
Exchange Commission in an effort to raise additional capital. MHBC plans to
offer 1,053,000 shares of its common stock at a price of $1.85 per share. The
amount raised to date is approximately $450,000 which has been placed in escrow
and is not available to MHBC until the escrow amount exceeds $750,000. AAI
plans to offer 820,000 of its common stock at a price of $1.85 per share, of
which approximately $400,000 has been raised to date and placed into escrow and
will be available to AAI when the escrow amount exceeds $650,000. If the MHBC
offering is successful, WVI's ownership interest in MHBC will be reduced from
approximately 51% to approximately 42%. If AAI's offering is successful,
WVI's ownership interest in AAI will be reduced from approximately 51% to 44%.
NCBI has registered an offering with the SEC in an effort to sell 2,420,417
shares of its Common Stock at an offering price of $1.20 per share.
WILLAMETTE VALLEY, INC.
Microbreweries across America
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales include revenues from the sale of beer as well as the sale of retail
merchandise such as T-shirts and caps. Net revenues from brewery operations
and retail products totaled $922,159 and $1,402,183 for the three months and
six months ended June 30, 1996, respectively. The cost of brewery revenues as
a percentage of net revenues is 109% and 118% for the same period, reflecting
the disproportionate cost of production for goods sold during a period when the
breweries are operating at less than their capacity, as well as start-up
production costs such as recipe testing. All of the breweries commenced
operations in 1995. Consequently, net brewery revenues for the three months
and six months ended June 30, 1995,consisted mainly of retail merchandise sales
at AAI and MHBC, and limited sales of beer at BAI for a combined total of
$40,314 and $56,243. Cost of sales for the comparable period in the prior year
was $38,401 and $61,081, or 95% and 109% of brewery revenues. In addition, WVI
and its subsidiaries entered into an arrangement with a national beer club,
Beers Across America, whereby the Company sold over 25,000 six-packs of beer at
cost which were then shipped to its members throughout the United States.
Fees for management services charged to the Company and its subsidiaries by
Nor'Wester Brewing Company totaled $35,250 and $64,325 for the three months and
six months ended June 30, 1996, respectively, and was included in selling,
general and administrative expenses in the accompanying statement of
operations. The Company continued to provide selected services to affiliates
at the Company's cost. Income for such services totaled $17,100 and $33,225
for the three months and six months ended June 30, 1996, respectively, and was
offset against the cost of such services in selling, general and administrative
services in the accompanying statement of operations.
Selling, general and administrative expenses for the three months and six
months ended June 30, 1996 totaled $613,455 and $1,129,325, respectively, and
increase of $162,491 and $325,644 over the comparable period in 1995. These
costs have increased as the number of companies for which the services are
provided has grown from three to four. Additionally, all but one of the
Company's subsidiaries commenced operations during 1995 requiring additional
management and administrative support.
Other income represents the interest earned on the Company's cash balances.
Interest expense was incurred on the long-term debt for the purchase of land in
Woodinville, Washington, the capital lease of the color copier in Turner,
Oregon and on the capital lease of the bottling line in Denver, Colorado.
Liquidity and Capital Resources
The Company's consolidated cash and cash equivalents were $179,626 at June 30,
1996. Amounts held by each of the Company's subsidiaries have been earmarked
for use in developing the respective subsidiary's brewery and were not
available for use by WVI in developing new business. For the six months ended
June 30, 1996, cash and cash equivalents decreased $937,508. Primary use of
funds were the net loss before minority interest of $1,478,043, property and
equipment purchases totaling $455,158, an increase in trade accounts receivable
of $385,609, an increase in inventories of $288,688, an increase in other non-
current assets, a decrease in cash advances from affiliates of $125,000, an
increase in deferred stock offering costs of $196,187 and payments on long-term
debt of $38,502. Primary sources of funds were a decrease in receivable from
affiliates $183,416, a decrease in prepaid expenses and other current assets of
$75,980, an increase in accounts payable of $440,397, an increase in accrued
liabilities of $158,774, and increase in payables to affiliates of $438,909,
disposition of property of $326,569, and an increase in deferred rent of
$115,351.
The Company will be dependent upon a combination of proceeds from operations
and debt or equity financing since cash flows from operations are not expected
to be sufficient to satisfy the Company's working capital needs for the next
twelve months. The Company's majority-owned subsidiaries, AAI and MHBC,
respectively, have filed registration statements with the Securities and
Exchange Commission for their second public offerings of common stock. The net
proceeds from these offerings are intended to be used for the equipment and
working capital necessary from expansion of the breweries of each of these
companies.
If, for any reason, the Company's subsidiaries are unable to finance future
expansion and working capital requirements through self-underwritten public
offerings, alternative methods of financing would have to be developed. No
assurance can be given that alternative methods of financing would be available
on terms acceptable to the Company or at all. Having to develop alternative
means of financing would likely slow development of additional breweries and
expansion of existing breweries, and such alternative financing may be costly.
The Company's inability to obtain additional capital could adversely affect the
Company's business and results of operations
WILLAMETTE VALLEY, INC.
Microbreweries across America
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None.
(b) No reports were filed on Form 8-K during the quarter for which
this report is filed.
WILLAMETTE VALLEY, INC.
Microbreweries across America
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, INC. Microbreweries Across America
Date: August 19, 1996 By: /s/James W. Bernau
--------------------
James W. Bernau
President
23
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<LEGEND>
This schedule contains summary financial information extracted from the Balance
sheet at June 30, 1996 (Unaudited) and the Statement of Operations for the Six
Months Ended June 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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