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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, 1997
Commission File Number 0-25986
Willamette Valley, Inc.
Micorbreweries 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, 1997:
4,860,996 shares, $.001 par value
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Willamette Valley, Inc.
Microbreweries across America
INDEX TO FORM 10-QSB
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Part I - FINANCIAL INFORMATION
The information included herein is unaudited. However, such
information reflects all adjustments (consisting solely of
normal, recurring adjustments) which are, in the opinion of
the Company's management, necessary for a fair presentation
of the results of operations for the interim periods. The
interim financial information and notes thereto should be
read in conjunction with the Company's latest annual report
on Form 10-KSB/A. The results of operations for the six
months ended June 30, 1997 are not necessarily indicative of
results to be expected for the entire year.
Item 1 -- Financial Statements
Balance Sheet - June 30, 1997 and December 31, 1996. . .
Statement of Operations - Three Months Ended and Six
Months Ended June 30, 1997 and 1996 . . . . . . . . . .
Statement of Cash Flows - Three Months Ended and Six
Months Ended June 30, 1997 and 1996 . . . .. . . . . . .
Notes to Financial Statements. . . . . . . . . .. . . . .
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . .
Part II - OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . .
Item 1 -- Financial Statements
BASIS OF PRESENTATION
The Company's financial statements enclosed herein are
unaudited and, because of the seasonal nature of the
business and the varying schedule of its special sales
efforts, these results are not necessarily indicative of the
results to be expected for the entire year. In the opinion
of management, the interim financial statements reflect all
adjustments, consisting of only normal recurring items which
are necessary for a fair presentation of the results for the
periods presented. The accompanying financial statements
have been prepared in accordance with GAAP and SEC
guidelines applicable to interim financial information which
require management to make certain estimates and
assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues
and expenses during the period. Actual results could differ
from those estimates. The accompanying financial statements
and related notes should be read in conjunction with the
financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB/A.
The Company is a development stage company 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. From
the date of inception (December 2, 1993) through March 31,
1997, the Company's efforts have been directed primarily
toward organizing and issuing a public offering of its
common stock and providing support to its subsidiaries in
their efforts to raise additional capital and build and
equip their breweries.
The accompanying financial statement have been prepared
assuming the Company will continue as a going concern. The
Company is a development stage company which has a limited
and unprofitable operating history, has negative working
capital of $283,995 and has limited access to capital to
fund future operations. There can be no assurance that the
Company will produce and sell its products on a profitable
basis to sustain operations. Such factors, among other,
raise substantial doubt as to the Company's ability to
continue as a going concern.
In light of significant losses and negative working capital
the Company has developed and is implementing plans for the
continuation of the business. In particular, the Company
has taken steps to: (i) reduce or eliminate cooperative
brewing arrangements which proved to be inefficient and
costly; (ii) eliminate national roll-out programs in favor
of stepped-up regional sales and marketing efforts; (iii)
negotiate with past due creditors which could involve
extended terms and payment plans; (iv) hire and retain high-
quality employees familiar with the brewing industry, (v)
use available bridge loans from a proposed investor (see
Proposed Merger note) to fund operations until new
strategies result in positive cash flows and improved
profitability, and; (vi) use proceeds from the disposition
of duplicative and/or under utilized assets created by the
proposed merger. Management believes these plans will
result in the Company sustaining operations as a going
concern for the next 12 months.
As part of the plan, the Company entered into an investment
agreement to be merged with other affiliated companies and
convert its stock into shares of a new publicly traded
entity as discussed in the Proposed Merger note.
Shareholders' Equity
The Company is authorized to issue 10 million shares of its
common stock. Each share of common stock entitles the
holder to one vote. In December 1993, WVI received $111,111
in stock subscriptions from its founding shareholders in
exchange for 3,353,826 shares of unregistered common stock.
The cash was received in 1994.
In connnection with WVI's initial stock offering under
Oregon securities laws, WVI agreed to place in escrow
3,353,826 of its shares of common stock. These shares will
be released from escro to WVI's founders when WVI satisfies
one or more certain earnings requirements or establishes a
bona fide over-the-counter trading market for its common
stock and maintains a bid price equal to or greater than a
stipulated benchmark price for 26 or more consecutive weeks.
Unless released pursuant to these conditions, the 3,353,826
shares sall remain in escrow until unconditionally released
in 25% increments on October 31, 2000, 2001, 2002, and 2003.
The shares, while in escrow, entitle WVI's founders to the
same rights and privileges as all other shareholders of
common stock, except for certain rights relating to
transferability and liquidation. Based on the ownership
change anticipated by management described in the Proposed
Merger note, the shares will not be released from escrow,
and all shares will be converted to shares of the new
Company.
Net Loss Per Share
Net loss per common share is calculated based on the
weighted average number of common shares and common share
equivalents outstanding. Outstanding options to purchase
shares of the Company's common shares have not been included
in the calculations as their effect would be anti-dilutive.
Stock Incentive and Stock Grant Plans
During 1994, the Board of Directors established a pool of
591,851 shares of the Company's common stock for a stock
incentive plan for issuance to employees, directors and
consultants of the Company pursuant to the exercise of stock
options granted under the plan or stock grants or stock
sales. Administration of the plan, including determination
of the number of shares to be issued, the term of exercise
of any option, the option exercise price, and type of
options to be granted, lies with the Board of Directors or a
duly authorized committee of the Board of Directors.
As of June 30, 1997, options for a total of 587,500 shares
have been awarded, net of cancellations. Options have
vesting periods ranging from five years to ten years. As of
June 30, 1997 no options had been exercised.
No compensation expense has been recorded as a result of
granting any of the options as all such options were granted
with an exercise price equal to the market price on the date
of grant.
Options granted by the Company are expected to be converted
to options of the new company expected to be formed in the
consolidation of the Company and its affiliates at the same
conversion rate as the conversion of common stock discussed
in the Pending Consolidation note.
Income Taxes
No benefit for income taxes was recognized for the six
months or three months ended June 30, 1997 and 1996 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 benefits could be realized.
Accumulated net operating loss carryforwards at June 30,
1997 and December 31, 1996 were approximately $6.5 and $6
million, respectively.
At June 30, 1997, the Company had a net operating loss
carryforward aggregating approximately $6.5 for federal
income tax purposes, which may be used to offset future
taxable income, if any. The annual utilization of this
carryforward may be limited if the Company undergoes the
ownership change anticipated by management (see Proposed
Merger note) or fails to meet continuity of business
requirements defined by the Internal Revenue Code. The
Company's net operating loss carryforwards beginning
expiring in 2010.
Related Parties
Nature of related parties
The Company's president, Jim Bernau, partially owns and
controls Willamette Valley Vineyards (WVV), a winery in
Oregon, Willamette Valley Inc. (WVI) and Nor'Wester Brewing
Company, Inc.(Nor'Wester), a microbrewery in Oregon.
Additionally, Mr. Bernau is the president of each of the
following subsidiaries of WVI: Aviator Ales, Inc. (AAI);
Mile High Brewing Company (MHBC); Bayhawk Ales, Inc. (BAI);
and North Country Brewing Company, Inc. (NCBCI); development
stage companies located in Washington, Colorado and
California, respectively. As a result of certain
arrangements between the Company and its affiliates, as well
as Mr. Bernau's positions with and/or ownership interests in
each of these companies, inherent conflicts of interest
exist with respect to the pricing of services, the sharing
of resources and allocation of the Mr. Bernau's time.
Strategic Alliance and Cooperative Brewing AgreementsThe
Company has entered into a Strategic Alliance (the
"Alliance") with AAI, Nor'Wester, MHBC, NCBCI, and WVI.
Nor'Wester, AAI, MHBC, and BAI are individually referred to
as a "Cooperative Brewer." The purpose of the Alliance is
to promote and support the growth of all of the Alliance
members by increasing production at each Cooperative
Brewer's facility and supporting the entry of Nor'Wester
products into new markets. To achieve this goal, each
Cooperative Brewer agreed to cooperatively brew Nor'Wester's
products, and to support the entry of these products into
new markets by facilitating Nor'Wester's access to the
Cooperative Brewer's network of distributors. During
January, 1997, AAI and MHBC ceased cooperative brewing of
Nor'Wester beers.
As a result of the administrative services purchased and
loans received from Nor'Wester, the Company has advances and
loans payable to affiliates of $336,312 at June 30, 1997.
Because management expects these advances and loan will
eventually be eliminated when the proposed merger occurs, as
discussed in the Proposed Merger note, these advances have
been classified as current payables to affiliates at June
30, 1997.
Proposed Merger and Investment by UBA
In light of lower than anticipated 1996 operating results,
lower than anticipated first quarter 1997 sales and other
operating results and adverse conditions within the craft
beer industry in general, representatives of UBA and
management and the investment bankers of the affiliated
companies renegotiated the terms of the original UBA
investment discussed in Form 10KSB/A for the year ended 1996
and Form 10QSB/A for the quarter ended March 31, 1997. The
renegotiation reflects a significantly lower valuation for
the affiliate companies, a reduction in the total amount of
cash to be invested by UBA to $5.5 million and a reduction
of UBA's percentage ownership position in UCB to 40%
following consolidation. The Company and its affiliates
(Nor'Wester, WVI, AAI and MHB) entered into an investment
agreement with United Breweries of America, Inc. (UBA), an
entity controlled by the UB Group of Bangalore, India. The
agreement provides for Nor'Wester, WVI, AAI, MHBC and BAI to
merge into a company to be known as United Craft Brewers
(UCB). This proposed merger will result in the issuance of
newly registered shares of UCB common stock in exchange for
shares of Nor'Wester, WVI and its subsidiaries. The merger
and share exchange will require approval by the Boards of
Directors and shareholders of each of the entities.
Following the merger, all shareholders in the Nor'Wester
/WVI alliance will hold shares in UCB, a company which is
intended to be listed for trading on the Nasdaq National
Market system under the symbol ALES. Shares of Nor'Wester,
WVI, AAI, BAI, and MHB outstanding at the effective time of
each merger (other than shares of Aviator common stock,
Bayhawk common stock and Mile High common stock owned by
WVI) will be converted into the right to receive 0.3333333,
0.0785714, 0.0523809, 0.0785714 and 0.0523809 shares,
respectively, of UCB common stock.
Impact of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards
Board("FASB") issued Statement of Financial Accounting
StandardsNo. 128 "Earnings Per Share" ("SFAS 128") and
Statement ofFinancial Accounting Standards No. 129,
"Disclosure ofInformation about Capital Structure" ("SFAS
129") which are effective for fiscal years ending after
December 15, 1997. The Company believes the implementation
of these statementswill not have a material effect on its
results of operationsor financial statement disclosures.
Subsequent Events
Final adoption of the Proposed Merger and Investment is
subject to approval by shareholder vote scheduled to take
place at the Company's annual shareholder meeting on August
25, 1997, shareholder approval by vote for each of the
Company's affiliates (Nor'Wester, AAI, BAI and MHB) also
scheduled to be held on August 25, 1997 and other closing
conditions contained within the Investment Agreement.
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of
this Form 10-QSB contains forward-looking information within
the meaning of the Private Securities Litigation Reform Act
of 1995. This forward-looking information involves risks
and uncertainties that are based on current expectations,
estimates and projections about the Company's business,
management's 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 information. Therefore, actual outcomes and
results may differ materially from what is expressed or
forecasted in such forward-looking information due to
numerous factors, including, but not limited to,
availability of financing for operations, successful
performance of internal operations, impact of competition,
changes in distributor relationship or performance,
successful completion of the planned consolidation of the
Affiliated Companies, and other risks detailed below as well
as those discussed elsewhere in this Form 10-QSB. In
addition, such statements could be affected by general
industry and market conditions and growth rates, and general
domestic economic conditions.
Liquidity and Capital Resources
WVI requires significant capital to continue its operations.
However, WVI has very little capital resources and has
insufficient operating results to obtain a bank line of
credit. WVI's management believes that current working
capital together with projected income from operations is
not sufficient to meet the cash needs of WVI's operating
subsidiaries through the end of 1997. WVI's independent
accountants expressed substantial doubt as to WVI's ability
to continue as a going concern in their report on WVI's 1996
consolidated financial statements.
To address recent losses and the need for working capital,
WVI has developed and is in the process of implementing
plans designed to sustain operations until profitability is
reached. In particular, Bayhawk has taken steps to: (i)
implement a more focused marketing and sales plan designed
to increase sales on a regional basis; (ii) significantly
reduce or eliminate cooperative brewing arrangements with
affiliates which proved to be inefficient and costly; (iii)
negotiate with past-due creditors for extended terms and
payment plans and to allow for the possibility of obtaining
debt financing; (iv) hire and retain highly qualified
employees familiar with the brewing industry; (v) use bridge
loans from UBA to fund operations until the Investment
closes; and (vi) sell duplicate and/or under utilized assets
created by the Consolidation for cash.
While management believes these plans will sustain WVI's
operations through June 30, 1998, no assurance can be given
that these plans will provide the necessary revenue and
profits to sustain WVI through that period. If, for any
reason, the Investment does not occur, alternative sources
of debt financing and/or equity capital would have to be
developed. There can be no assurance that such debt
financing or capital will be available or, if available,
under terms and conditions acceptable to WVI. WVI's
inability to obtain additional capital would result in a
material adverse effect on WVI's business and results of
operations.
Furthermore, assuming the Investment closes, UCB will be
dependent upon the receipt of additional debt or equity
financing to sustain operations of the Company until
revenues are sufficiently increased and costs controlled to
enable them to achieve positive cash flow and profitability.
No assurance can be given that additional debt or equity
financing will be available on terms acceptable to UCB or at
all. Failure to obtain additional financing would have a
material adverse effect on the operations and financial
condition of the Company.
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
which this report is filed.
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 Vallye, Inc.
Microbreweries across America
Date: August 14, 1997 By _____________________
Jim Bernau
President
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 Vallye, Inc.
Microbreweries across America
Date: August 12, 1997 By /s/ Jim Bernau
Jim Bernau
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the consolidated balance sheet and the
consolidated statement of operations filed as part of the
quarterly report on form 10-QSB and is qualified in its
entirety by reference to such report on form 10-QSB.
</LEGEND>
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<PERIOD-END> JUN-30-1997
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