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SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number: 0-30002
RAVENSWOOD WINERY, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
California 94-3026706
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
18701 Gehricke Road
Sonoma, California 95476
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: 707-938-1960
Check whether the registrant (1) 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.
Yes ___ No _X_
The number of shares outstanding of the Issuer's Common Stock on May 13, 1999
was 4,568,352.
Transitional Small Business Disclosure Format: Yes ___ No _X_
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<PAGE>
RAVENSWOOD WINERY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Balance Sheets as of March 31, 1999 and June 30, 1998.
Statements of Income for the three months and nine months
ended March 31, 1999 and 1998.
Statements of Cash Flows for the nine months ended March 31,
1999 and 1998.
Notes to Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Risk Factors
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
RAVENSWOOD WINERY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RAVENSWOOD WINERY, INC.
BALANCE SHEET
<CAPTION>
March 31, June 30,
1999 1998
----------- -----------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,124,083 $ 102,272
Accounts receivable, less allowance for doubtful accounts of $10,000 2,809,527 1,906,498
Prepaid income taxes 14,850 73,849
Inventories 13,725,160 10,427,359
Prepaid expenses 69,005 38,569
Deferred stock offering costs 371,272 --
Deferred tax assets 28,500 270,822
----------- -----------
Total current assets 20,142,397 12,819,369
----------- -----------
Property, plant and equipment, less accumulated depreciation, net 4,069,828 2,973,814
Notes receivable from shareholder 59,275 28,312
Other assets 151,743 155,615
----------- -----------
4,280,846 3,157,741
----------- -----------
$24,423,243 $15,977,110
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 17,805 $ 194,464
Current portion of capital lease obligations 55,764 189,975
Short-term borrowings 1,100,000 1,350,000
Accounts payable 3,818,025 2,330,967
Accrued commissions 366,491 246,483
Accrued liabilities 560,085 381,013
----------- -----------
Total current liabilities 5,918,170 4,692,902
Long-term liabilities:
Long-term debt, net 2,445,666 1,795,665
Notes payable to shareholders, net -- 50,000
Capital lease obligations, net 375,226 199,719
Convertible debentures 2,552,500 865,000
Other long-term liabilities 22,080 --
----------- -----------
Total liabilities 11,313,642 7,603,286
----------- -----------
Shareholders' equity:
Preferred stock, no par value; 1 million shares authorized, none issued
-- --
Common stock, no par value; 20 million shares authorized 4,626,400 2,938,900
Retained earnings 8,476,384 5,434,924
Unrealized gain on available-for-sale securities 6,817 --
----------- -----------
Total shareholders' equity 13,109,601 8,373,824
----------- -----------
$24,423,243 $15,977,110
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
RAVENSWOOD WINERY, INC.
STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Nine months ended March 31, Three months ended March 31,
--------------------------------- ---------------------------------
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross sales $ 17,610,314 $ 12,650,085 $ 5,415,318 $ 3,794,901
Less excise taxes (547,830) (280,873) (272,035) (83,875)
Less discounts, returns and
allowances (518,910) (408,556) (182,226) (135,153)
------------ ------------ ------------ ------------
Net sales 16,543,574 11,960,656 4,961,057 3,575,873
Cost of goods sold 7,471,357 5,438,891 2,404,886 1,786,534
------------ ------------ ------------ ------------
Gross profit 9,072,217 6,521,765 2,556,171 1,789,339
Operating expenses 3,735,849 2,766,085 1,395,840 914,226
------------ ------------ ------------ ------------
Operating income 5,336,368 3,755,680 1,160,331 875,113
------------ ------------ ------------ ------------
Other (expense):
Interest expense (357,685) (257,950) (133,378) (93,562)
Other, net 119,077 44,671 41,726 (6,129)
------------ ------------ ------------ ------------
(238,608) (213,279) (91,652) (99,691)
------------ ------------ ------------ ------------
Income before income taxes 5,097,760 3,542,401 1,068,679 775,422
Provision for income taxes 2,056,300 1,448,000 312,451 315,000
------------ ------------ ------------ ------------
Net income $ 3,041,460 $ 2,094,401 $ 756,228 $ 460,422
============ ============ ============ ============
Basic earnings per share $ 0.87 $ 0.60 $ 0.22 $ 0.13
============ ============ ============ ============
Weighted average number of common
shares outstanding
3,498,945 3,516,445 3,498,945 3,498,945
============ ============ ============ ============
Diluted earnings per share $ 0.80 $ 0.56 $ 0.21 $ 0.12
============ ============ ============ ============
Weighted average number of common
shares and equivalents
outstanding 3,896,083 3,819,195 3,953,588 3,801,694
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
RAVENSWOOD WINERY, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine months ended March 31,
1 9 9 9 1 9 9 8
----------- -----------
<S> <C> <C>
Operations:
Net income $ 3,041,460 $ 2,094,401
Items not requiring the current use of cash:
Depreciation and amortization 292,240 136,312
Unrealized capital appreciation 6,817 --
Changes in other operating items:
Accounts receivable (903,029) (221,648)
Prepaid income taxes 73,849 33,886
Inventories (3,297,802) (3,189,132)
Deferred tax asset 242,322 (21,432)
Prepaid expenses and deferred cost (45,286) (125,886)
Accounts payable 1,373,769 1,253,426
Accrued liabilities and accrued commissions 410,873 52,646
----------- -----------
Cash provided by operations 1,195,213 12,573
----------- -----------
Investments:
Shareholder receivables (30,963) (1,403)
Additions to plant and equipment (1,208,873) (280,844)
----------- -----------
Cash used for investing activities (1,239,836) (282,247)
----------- -----------
Financing:
Short-term borrowings, net (250,000) 276,801
Proceeds from long-term debt 672,080 278,255
Repayments of long-term debt (194,231) (61,756)
Proceeds from convertible debenture and common shares issued 3,375,000 --
Repayments of related parties' notes (165,143) (9,995)
Deferred stock offering costs (371,272) --
Repurchase of common shares from former owner -- (278,255)
----------- -----------
Cash provided by financing activities 3,066,434 205,050
----------- -----------
Increase (decrease) in cash and cash equivalents 3,021,811 (64,624)
Cash and cash equivalents at beginning of period 102,272 211,961
----------- -----------
Cash and cash equivalents at end of period $ 3,124,083 $ 147,337
=========== ===========
Cash paid during the period for:
Interest $ 437,243 $ 225,598
=========== ===========
Income taxes $ 1,755,000 $ 1,540,000
=========== ===========
Noncash investing and financing information:
Equipment purchased with capital leases $ 175,507 $ --
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
RAVENSWOOD WINERY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Financial statements:
The balance sheet as of March 31, 1999, the statements of income for
the three months and nine months ended March 31, 1999 and 1998, and the
statements of cash flows for the nine months ended March 31, 1999 and 1998 have
been prepared by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the Company's financial position, results of operations and cash
flow at March 31, 1999, and for all periods presented above have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. For further information, reference
should be made to the registration statement for the Company's initial public
offering, filed with the Securities and Exchange Commission on February 4, 1999,
as amended.
NOTE 2 - Reclassifications:
Certain prior period amounts have been reclassified in order to conform
with the current period presentation.
NOTE 3 - Inventories:
Inventories are summarized as follows:
March 31, June 30,
1999 1998
----------- -----------
(unaudited)
Bulk wine $11,458,469 $ 7,898,937
Bottled wine 1,918,080 2,285,862
Crop costs 48,274 37,691
Supplies 132,827 72,902
Tasting room merchandise 167,510 131,967
----------- -----------
$13,725,160 $10,427,359
=========== ===========
NOTE 4 - Comprehensive income:
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 - Reporting Comprehensive Income
("SFAS 130"). SFAS 130 requires the additional reporting of a new measure of
income which takes into account certain elements otherwise recorded as part of
equity. For all periods presented, the difference between net income and
comprehensive income consists of the changes in the unrealized gain in
securities available-for-sale included as part the Company's equity.
<PAGE>
<TABLE>
The following is a reconciliation of net income and comprehensive
income:
<CAPTION>
Nine months ended Three months ended
March 31, March 31,
------------------------------ ------------------------------
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $3,041,460 $2,094,401 $ 756,228 $ 460,422
Change in unrealized gain on
available-for-sale securities 6,817 -- 6,817 --
---------- ---------- ---------- ----------
Comprehensive income $3,048,277 $2,094,401 $ 763,045 $ 460,422
========== ========== ========== ==========
</TABLE>
<PAGE>
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 STATEMENTS
From time to time, information provided us, statements made by our employees or
information included in our filings with the Securities and Exchange Commission
(including this Form 10-Q) may contain statements that are not historical facts,
so called "forward-looking statements," which involve risks and uncertainties.
Forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. When used in this Form
10-Q, the terms "anticipates," "expects," "estimates," "believes," and other
similar terms as they relate to us or our management are intended to identify
such forward-looking statements. For example, statements made herein relating to
other operating expenses, gross sales attributable to specific tiers, and future
capital expenditures, are forward-looking statements. Factors that may cause
actual results to vary include, but are not limited to: (i) future and past
weather and general farming conditions affecting the annual grape harvest; (ii)
variations in consumer taste and preference; (iii) changes in the wine industry
regulatory environment; and (iv) changes in the fair market value of our common
stock. Each of these factors, and others, are discussed beginning on page 12 of
this report and in the risk factor section of the Registration Statement for our
initial public offering filed with the Securities and Exchange Commission on
February 4, 1999, as amended. They will also be addressed in the future from
time to time in our filings with the Securities and Exchange Commission.
Overview
Ravenswood produces, markets and sells premium California wines exclusively
under the Ravenswood brand name. The vast majority of wines produced and sold by
Ravenswood are red wines, including Merlot, Cabernet Sauvignon and,
particularly, Zinfandel. To a lesser extent, Ravenswood produces white wines,
including Chardonnay, French Colombard and Gewurztraminer. Ravenswood's red
wines accounted for approximately 91% of its gross sales in the 1998 fiscal
year, with sales of Zinfandel accounting for approximately 63% of its gross
sales for that period. We expect similar results for fiscal 1999. Ravenswood
believes that sales of its red wines, particularly Zinfandel, will continue to
account for a significant portion of its sales in the future.
Ravenswood was founded as a partnership in 1976 by W. Reed Foster, Ravenswood's
chairman and chief executive officer, and Joel E. Peterson, Ravenswood's
president and winemaker. In its initial year of operation, Ravenswood harvested
and crushed Zinfandel grapes from two Sonoma County vineyards. In 1979,
Ravenswood converted to a limited partnership and released its first wines,
consisting of 327 cases of the 1976 vintage Zinfandel. Ravenswood incorporated
in California in 1986.
Since its inception, Ravenswood has grown by increasing its production volume
and its portfolio of wine products. For the fiscal year ended June 30, 1998,
Ravenswood realized gross sales of $17.0 million from the sale of 191,655 cases
and Ravenswood branded merchandise.
The mix of products sold in any given period affects Ravenswood's gross profit
as a percentage of net sales, or gross margin. In particular, as sales of the
value-priced Vintners Blend Series have increased as a percentage of gross
sales, Ravenswood's gross margin has decreased. The gross margin for the
Vintners Blend Series is traditionally more variable than Ravenswood's
higher-priced product series because a significant portion of the wine used in
these products is purchased in the bulk market rather than produced by
Ravenswood from grapes acquired from its traditional grape suppliers. Ravenswood
has no bulk wine purchase contracts, and the price, quality and available
quantity of bulk wine have fluctuated in the past and Ravenswood expects that
they will continue to fluctuate in the future.
The timing for release of Ravenswood's products, particularly its County Series
and Vineyard Designate Series, also significantly affects Ravenswood's sales in
specific periods. Ravenswood traditionally releases new vintages of its Vineyard
Designate Series in the fourth fiscal quarter or the first fiscal quarter of the
subsequent fiscal year. In addition, the release dates of some of Ravenswood's
County Series wines fluctuate between the third and fourth fiscal quarters of
each fiscal year. The timing of these release dates is based upon the
winemakers' determination as to the optimal flavor characteristics of these
wines. Release dates have fluctuated in the past and can be expected to continue
to fluctuate from year to year, which may make comparison of results on a
period-to-period basis less meaningful.
3
<PAGE>
The nature of the winemaking process, including the need for wine to be aged
before it is released, requires Ravenswood to incur significant expenses in
producing products which may not generate revenues until up to two years later.
Any factors that may prevent or delay the sale of Ravenswood's wines at the
prices anticipated at the time of their production could adversely affect its
liquidity and reduce its profits.
The pricing for grapes obtained from Ravenswood's suppliers is determined
annually by reference to benchmark price quotations or through negotiation. As a
result, the cost of grapes used in Ravenswood's wine production has fluctuated
and is expected to continue to fluctuate. Ravenswood has traditionally attempted
to moderate and stabilize price increases from year to year. Consequently, gross
margins realized by Ravenswood have fluctuated in the past and are expected to
continue to fluctuate with the price of grapes used in production.
Ravenswood does not have an in-house sales staff. It markets and sells its wine
both to "on-premise" restaurants and "off-premise" retailers, such as liquor
stores, specialty wine stores, supermarkets and discounters. Ravenswood sells
its products directly in California, utilizing five warehouses throughout the
state and a network of seven brokers. Ravenswood realizes significantly greater
gross margins in areas, such as California, where it relies on direct sales
facilitated through brokers without the use of distributors. Sales within
California accounted for approximately 50% of Ravenswood's gross sales in the
1998 fiscal year. Of this amount, approximately 11% of gross sales were
purchases by California and non-California consumers through Ravenswood's
tasting room and approximately 39% of gross sales were sales to retail accounts.
We expect similar results for fiscal 1999. Ravenswood believes that sales within
California will continue to account for a substantial portion of its sales in
the future.
4
<PAGE>
Results of Operations
The following table sets forth items from Ravenswood's statement of income,
expressed as a percentage of net sales, for the periods indicated:
Three Months Nine Months Ended
Ended March 31, March 31,
--------------- ---------------
Statement of Income Data: 1998 1999 1998 1999
- - ------------------------- ----- ----- ------ -----
Net Sales .............................. 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold ..................... 50.0 48.5 45.5 45.2
----- ----- ----- -----
Gross Profit ........................... 50.0 51.5 54.5 54.8
Operating Expenses:
Deferred Compensation Expense ......... -- -- -- --
Other Operating Expenses .............. 25.6 28.1 23.1 22.6
----- ----- ----- -----
Operating Income ....................... 24.4 23.4 31.4 32.2
Other Expense, net ..................... 2.8 1.9 1.8 1.4
----- ----- ----- -----
Income Before Income Taxes ............. 21.7 21.5 29.6 30.8
Provision for Income Taxes ............. 8.8 6.3 12.1 12.4
----- ----- ----- -----
Net Income ............................. 12.9% 15.2% 17.5% 18.4%
===== ===== ===== =====
Nine Months Ended March 31, 1999 and 1998
Sales
Net sales consist of gross sales of Ravenswood's wines and merchandise, less
excise taxes, discounts, returns and allowances. Net sales of Ravenswood's
products increased to $16.5 million in the nine months ended March 31, 1999,
from $12 million in the nine months ended March 31, 1998. This increase is
primarily attributable to an increase in the volume of wines produced and sold
by Ravenswood. In the nine months ended March 31, 1999, case sales of
Ravenswood's products increased to 195,600 cases, from 138,988 cases in the nine
months ended March 31, 1998, while the average price per case decreased by
approximately .7%. This decrease in average price per case is primarily
attributable to the increase in sales of Ravenswood's value-priced Vintners
Blend Series as a percentage of gross sales and, to a lesser extent, to the
respective release dates of Vineyard Designate Series Zinfandel products in each
of these periods.
The percentages of gross sales attributable to the Vintners Blend Series, County
Series and Vineyard Designate Series were approximately 53%, 27% and 18%,
respectively, in the nine months ended March 31, 1999, as compared to 53%, 26%
and 19%, respectively, in the corresponding period for fiscal 1998. Sales of
Ravenswood branded merchandise accounted for approximately 1.5% of gross sales
for the nine months ended March 31, 1999 compared to 2% for the corresponding
period in fiscal 1998. Ravenswood expects that the percentage of gross sales
attributable to sales of its Vintners Blend Series and, to a lesser extent, its
County Series, will increase relative to sales of Ravenswood's Vineyard
Designate Series as Ravenswood continues to expand its production and product
offerings within these segments.
5
<PAGE>
Cost of Goods Sold
Cost of goods sold includes the costs of:
o Grapes
o Bulk wine
o Packaging materials
o Labor used in wine production
o Bottling expenses
o Overhead allocated to production costs from winery facilities and
equipment
These costs are capitalized as inventory and depleted as costs of goods sold are
recognized. Cost of goods sold increased to $7.5 million, or 45.2% of net sales,
in the nine months ended March 31, 1999, from $5.4 million, or 45.5% of net
sales, in the corresponding period in fiscal 1998. The increase in the amount of
cost of goods sold is primarily due to an increase in the total volume of wine
sold.
Gross Profit
Ravenswood's gross profit increased to $9.1 million in the nine months ended
March 31, 1999, from $6.5 million in the corresponding period for fiscal 1998,
and increased as a percentage of net sales to 54.8% from 54.5% in these
respective periods. The increase in the amount of gross profit is primarily
attributable to increases in sales volumes across all product lines.
Operating Expenses
Deferred Compensation Expense: No deferred compensation expenses were
recognized in the nine months ended March 31, 1998 and March 31, 1999.
Other Operating Expenses: Other operating expenses consist of sales and
marketing overhead, commissions paid to independent brokers, advertising and
merchandising expenses, salaries and facilities expenses unrelated to wine
production, insurance and professional services expenses. Other operating
expenses increased to $3.7 million in the nine months ended March 31, 1999, from
$2.8 million in the corresponding period for fiscal 1998. As a percentage of net
sales, other operating expenses decreased to 22.6% of net sales in the nine
months ended March 31, 1999, from 23.1% of net sales in the nine months ended
March 31, 1998. This increase is primarily attributable to increases in
brokerage commissions related to Ravenswood's increased sales volumes,
particularly in California. Additionally, during this period, a portion of
employee bonuses were accrued which had been recognized only in the 4th quarter
in previous financial statements. The decrease in other operating expenses as a
percentage of net sales is primarily attributable to increased sales volumes
without corresponding increases in administrative staff or other overhead
expenses. Ravenswood expects other operating expenses to increase as it
continues to increase production and now that it is a public company.
Other Expense, Net
Other expense consists of non-operating income and expense items, which
primarily consist of interest on outstanding indebtedness. These items have
tended to fluctuate from year to year. Other expense amounted to $213,279 and
$238,608 in the nine months ended March 31, 1998 and 1999, respectively.
Ravenswood expects that these expenses will increase as it is required to pay
interest on $1,687,500 worth of convertible debentures issued in the second
quarter of the 1999 fiscal year. Ravenswood expects that this expense may be
offset in part by interest earned on that portion of the proceeds of our 1999
initial public offering that is retained as working capital as well as interest
earned from proceeds from the sale of common stock in 1998 that was not used for
the quarry project. Interest payments on the debentures commenced in January
1999 and will continue to be paid on a quarterly basis until the debentures are
converted or redeemed, or until they mature.
6
<PAGE>
Provision for Income Taxes
The provision for income taxes reflects an estimated annualized effective tax
rate of 40.3% at March 31, 1999, and 40.9% at March 31, 1998. Ravenswood does
not expect a material change in its effective tax rate in the near future.
Net Income and Earnings Per Share
Net income for the nine months ended March 31, 1999 increased to $3.0 million as
compared to $2.1 million for the corresponding period in fiscal 1998. The
increase was due primarily to the increased volume in sales. Diluted earnings
per share for the nine months ended March 31, 1999 increased to $.80 per share
from $.56 for the nine months ended March 31, 1998.
Three Months Ended March 31, 1999 and 1998
Sales
Net sales of Ravenswood's products increased to $5.0 million in the three months
ended March 31, 1999, from $3.6 million in the three months ended March 31,
1998. This increase is primarily attributable to an increase in the volume of
wines produced and sold by Ravenswood. In the three months ended March 31, 1999,
case sales increased to 65,108 cases from 47,306 cases in the three months ended
March 31, 1998, while the average price per case increased to $82.36 from $79.32
in these respective periods. The increase in average price per case is primarily
attributable to the increase in sales of the County Series as a percentage of
gross sales.
The percentages of gross sales attributable to the Vintners Blend Series, County
Series and Vineyard Designate Series were 65%, 29% and 5%, respectively, for the
three months ended March 31, 1999, as compared to 75%, 16% and 8%, respectively,
in the corresponding period for fiscal 1998. Sales of Ravenswood branded
merchandise accounted for approximately 1% of gross sales for the three months
ended March 31, 1999 compared to 2% for the three months ended March 31, 1998.
Cost of Goods Sold
Cost of goods sold increased to $2.4 million, or 48.5% of net sales, for the
three months ended March 31, 1999, from $1.8 million, or 50.0% of net sales, for
the corresponding period in fiscal 1998. The increase in the amount of cost of
goods sold is primarily due to an increase in the total volume of wine sold. The
decrease in cost of goods sold as a percentage of net sales is primarily
attributable to the increase in sales of Ravenswood's County Series as a
percentage of gross sales.
Gross Profit
Ravenswood's gross profit increased to $2.6 million in the three months ended
March 31, 1999, from $1.8 million in the three months ended March 31 1998, and
increased as a percentage of net sales to 51.52% from 50.04% in these respective
periods. The increase in aggregate gross profit is primarily attributable to
increases in sales volumes across all of Ravenswood's product lines. The
increase in gross profit as a percentage of net sales is primarily attributable
to an increase in sales of the County Series as a percentage of gross sales.
7
<PAGE>
Operating Expenses
No deferred compensation expenses were recognized in the three months ended
March 31, 1999 and March 31, 1998.
Other Operating Expenses: Other operating expenses increased to $1.4 million in
the three months ended March 31, 1999, from $914,226 in the corresponding period
for fiscal 1998, and increased as a percentage of net sales to 28.0% from 25.6%.
The increase in the amount of other operating expenses is primarily attributable
to increases in brokerage commissions related to Ravenswood's increased sales
volumes and to the accrual in the 1999 period of a portion of annual employee
bonuses that were recognized only in the 4th quarter in previous financial
statements.
Other Expense, Net
Other expense amounted to $91,652 and $99,691, or 1.85% and 2.79% of net sales,
in the three months ended March 31, 1999 and 1998, respectively. The decrease as
a percentage of sales was due to an offset of interest income generated from
investment of proceeds from the 1998 private equity offering.
Provision for Income Taxes
The provision for income taxes reflects an estimated annualized effective tax
rate of 29.2% for the three months ended March 31, 1999 and 40.6% for the
corresponding period in fiscal 1998. The decrease in the effective tax rate for
the three months ended March 31, 1999 was a result of application of a deferred
tax asset to the quarterly tax calculation.
Selected Quarterly Results of Operations
<TABLE>
The following table presents Ravenswood's results of operations for each of the
six quarters prior to and including the quarter ended March 31, 1999. The
quarterly information is unaudited, but management believes that the information
regarding these quarters has been prepared on the same basis as the audited
financial statements appearing in the registration statement for the Company's
initial public offering, filed with the Securities and Exchange Commission on
February 4, 1999, as amended. In the opinion of management, all necessary
adjustments have been included to present fairly the unaudited quarterly results
when read in conjunction with the financial statements and related notes
appearing elsewhere in this Form 10-Q filing.
<CAPTION>
Quarter Ended
-------------------------------------------------------------------
December 31, March 31, June 30, September 30, December 31, March 31,
1997 1998 1998 1998 1998 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
(In thousands)
Gross Sales .................................. $ 4,277 $ 3,795 $ 4,367 $ 6,342 $ 5,853 $ 5,415
Less Excise Taxes .......................... 68 84 272 225 51 272
Less Discounts, Allowances and
Returns ................................... 150 135 165 155 182 182
------- ------- ------- ------- ------- -------
Net Sales .................................... 4,059 3,576 3,930 5,962 5,620 4,961
Cost of Goods Sold ........................... 1,848 1,787 1,958 2,528 2,538 2,405
------- ------- ------- ------- ------- -------
Gross Profit ................................. 2,211 1,789 1,972 3,434 3,082 2,556
------- ------- ------- ------- ------- -------
Operating Expenses:
Deferred Compensation Expense ............... -- -- 2,206 -- -- --
Other Operating Expenses .................... 972 914 1,269 1,215 1,125 1,396
------- ------- ------- ------- ------- -------
Operating Income (Loss) ...................... 1,239 875 (1,503) 2,219 1,957 1,160
Other (Income) Expense ....................... 79 100 260 73 74 92
------- ------- ------- ------- ------- -------
Income (Loss) Before Income Taxes ............ 1,160 775 (1,763) 2,146 1,884 1,068
Provision for Income Taxes ................... 475 315 144 929 815 312
------- ------- ------- ------- ------- -------
Net Income (Loss) ............................ $ 685 $ 460 $(1,907) $ 1,217 $ 1,068 $ 756
======= ======= ======= ======= ======= =======
</TABLE>
8
<PAGE>
Ravenswood has experienced seasonal and quarterly fluctuations in sales,
operating expenses and net income. Because Ravenswood manages its business to
achieve long-term strategic objectives, it may make decisions that it believes
will enhance its long-term growth and profitability, even if these decisions
adversely affect quarterly earnings. These decisions include: (a) when to
release its wines for sale; (b) how to position its wines competitively; and (c)
which grape and bulk wine sources to use to produce its wines. In addition, the
release dates of Ravenswood's Vineyard Designate Series and County Series have
resulted in fluctuations in Ravenswood's results on a quarter-to-quarter basis.
Ravenswood's sales volume may also change depending upon its distributors'
inventory levels. The results of operations for any quarter are not necessarily
indicative of the results of any future period. The market price of Ravenswood's
common stock may fluctuate significantly in response to these quarter-to-quarter
variations.
Results of operations for the quarter ended June 30, 1998 were materially
affected by a $2.2 million expense recognized in connection with a deferred
compensation arrangement with W. Reed Foster, Ravenswood's chairman and chief
executive officer. This arrangement was terminated as of July 1, 1998. No
additional deferred compensation expenses relating to this arrangement have been
or will be incurred in subsequent periods.
FINANCIAL CONDITION
Assets
Our total assets increased to $24 million at March 31, 1999 from $16 million, or
50.2%, at June 30, 1998. Our inventory increased by $3.3 million from June 30,
1998 to $13.7 million on March 31, 1999. We expect total assets to continue to
increase as we expand inventory and build our new production facility.
Liabilities
Our total liabilities increased to $11.3 million at March 31, 1999 from $7.6
million, or 48.8%, at June 30, 1998. At March 31, 1999, our long-term debt
outstanding was $5.4 million and $1.1 million was available under the terms of
our lines of credit.
Liquidity and Capital Resources
Ravenswood has funded its capital requirements primarily with cash flows from
operations, a mix of short-term and long-term borrowings, and the sale of its
securities. Cash and cash equivalents totaled $3.1 million at March 31, 1999, as
compared to $102,272 at June 30, 1998. The increase in cash and cash equivalents
is primarily due to the receipt of the net proceeds from Ravenswood's sale of
securities completed in December 1998.
Net cash provided by operations was $1.2 million for the nine months ended March
31, 1999. The principal use of cash from operations in this period was the
acquisition of additional inventory through increased production, while the
principal source of cash was net income. Inventory acquisitions were relatively
lower for the nine months ended March 31, 1999, but are expected to increase in
the fourth quarter.
Net cash used for investing activities totaled $1.2 million for the nine months
ended March 31, 1999, as compared to $282,247 for the nine months ended March
31, 1998. The increase was primarily a result of costs associated with
Ravenswood's new production facility under construction. Ravenswood expects that
net cash used for investing activities will increase in the future as additional
investments in plant and equipment are made in completing the new production
facility.
Net cash provided by financing activities was $3.1 million for the nine months
ended March 31, 1999, as compared to $205,050 for the nine months ended March
31, 1998. The principal source of cash provided by financing activities in this
period was short- and long-term borrowings under two lines of credit with
Pacific Coast Farm Credit Services and long-term borrowings, including
additional obligations to Pacific Coast. In addition, in the nine months ended
March 31, 1999, a principal source of cash was Ravenswood's sale of securities
completed in December 1998. The principal use of cash from financing activities
in
9
<PAGE>
this period was for repayment of obligations under Ravenswood's various short-
and long-term borrowing arrangements. Ravenswood also used funds to repay notes
payable to related parties. In the 1998 fiscal year, Ravenswood used $278,255 in
cash for the repurchase of outstanding shares of common stock from one of its
former officers and later obtained a loan for that amount from Pacific Coast.
The majority of Ravenswood's grape purchases occur in the second fiscal quarter,
when the fruit is harvested. Most grape purchase contracts specify the timing of
payment for these purchases. The actual payment dates vary depending upon the
terms of the individual contract. Based upon its grape purchase contracts for
the 1998 harvest, these payments will be made in the following manner: 42%, 19%
and 21% in the second, third and fourth quarters of fiscal 1999, respectively,
and 18% in the first quarter of fiscal 2000. As a result of harvest costs and
the timing of grape and bulk purchase payments, Ravenswood's inventory and
related cash requirements generally peak during the second or third fiscal
quarters. Cash requirements also fluctuate depending upon the level and timing
of capital spending and tax payments.
Ravenswood leases barrels and other equipment used in the production of its
wines. Ravenswood estimates that aggregate lease payments for barrels and other
equipment will be $222,844 for the 1999 fiscal year. Ravenswood anticipates that
it will enter into additional leasing arrangements as it increases its
production.
In December 1994, Ravenswood completed a private sale of $865,000 of convertible
debentures due December 31, 2004. Each $10,000 debenture is convertible into
3,500 shares of common stock at any time prior to December 31, 1999 upon request
of the holder. If the debentures are not converted, Ravenswood may redeem them
at face value at any time during the period from January 1, 2000 until the
maturity date. Ravenswood pays interest quarterly on the debentures based on a
floating index tied to prime bank rates for a five-year period. The interest
rate is adjusted every 18 months, except that in no period may the interest rate
adjustment exceed 2%, or the maximum interest rate exceed 11%.
In December 1998, Ravenswood completed a private sale of $1.7 million of
convertible debentures due December 31, 2008 and $1.7 million of common stock.
Each $10,000 debenture is convertible into 900 shares of common stock at any
time prior to December 31, 2003, upon request of the holder. If the debentures
are not converted, Ravenswood may redeem them at face value at any time during
the period from January 1, 2004 until the maturity date. Ravenswood pays
interest quarterly on the debentures in an amount equal to the prime interest
rate quoted by Bank of America NT&SA plus 1%. The interest rate is adjusted
every 18 months, except that in no period may the interest rate adjustment
exceed 2%, or the maximum interest rate exceed 11%.
Ravenswood has two lines of credit with Pacific Coast Farm Credit Association,
under which Ravenswood may borrow up to a total of $2.8 million. As of March 31,
1999, Ravenswood had $1.8 million outstanding under these lines of credit. In
addition, on April 26, 1999 Ravenswood closed a $4.6 million construction loan
from Pacific Coast for the purpose of financing the construction of its new
production facility. The loan will be used as funds for construction are needed.
The loan is secured by the new production facility and its lease. The estimated
$2.5 million in remaining costs to complete the facility are to be funded from
the 1998 private equity offering. Equipment will be acquired through a $2
million commitment for leases.
Since 1989, Ravenswood has periodically borrowed funds for short-term working
capital from its executive officers. Notes to W. Reed Foster, Ravenswood's
chairman and chief executive officer, and Joel E. Peterson, its winemaker and
president, were retired during the quarter ended March 31, 1999.
10
<PAGE>
On April 14, 1999, Ravenswood completed an initial public offering of one
million shares of common stock at a price of $10.50 per share. W.R. Hambrecht &
Company, LLC acted as underwriter for the offering. The proceeds of the offering
will be used for: wine inventory, expansion of production facilities, general
corporate purposes and retirement of indebtedness, and to pay for expenses and
underwriting discounts associated with the offering. Ravenswood's shares are
listed on the Nasdaq National Market under the trading symbol RVWD.
The full extent of Ravenswood's future capital requirements and the adequacy of
its available funds will depend on many factors, not all of which can be
accurately predicted. Although no assurance can be given, Ravenswood believes
that anticipated cash flow from operations, borrowings under its existing credit
agreements, its proposed additional line of credit, and proceeds from its recent
public offering and other recent financing activities will be sufficient to fund
its capital requirements, including its planned expansion, for at least the next
12 months. In the event that additional capital is required, Ravenswood may seek
to raise that capital through public or private equity or debt financings.
Future capital funding transactions may result in dilution to shareholders.
There can be no assurance that additional capital will be available on favorable
terms, if at all. Ravenswood's inability to obtain additional capital on
acceptable terms would limit its growth and could have a negative impact on its
business. Ravenswood uses substantial amounts of its working capital to purchase
grapes and bulk wine supplies from third parties and to pay for the use of
third-party production facilities in its wine production. Ravenswood also uses
capital to fund its own grape-growing and winemaking activities. Ravenswood
expects that it will need an increased amount of working capital over the next
several years to fund increases in its production level and inventory.
Risks associated with potential Year 2000 problems
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to process correctly dates beginning in 2000 and to comply
with the Year 2000 requirements. Ravenswood is reviewing its information systems
for any potential Year 2000 problems that might arise as a result of these
requirements, and does not believe its systems will be affected by the upcoming
change in century. However, Ravenswood utilizes third-party equipment and
software that may not be Year 2000 compliant. If this third-party equipment or
software fails to process dates for the year 2000 and dates that follow
properly, Ravenswood could incur unanticipated expenses to remedy any problems,
which could harm its business.
In addition, Ravenswood relies on various service providers, including banks,
and on grape and bulk wine suppliers, third-party production facilities and
distributors. The software and computer systems of any of these entities could
have Year 2000 problems. A disruption in the supply of services or products
Ravenswood receives from any of these entities due to Year 2000 problems could
harm its business.
11
<PAGE>
FACTORS THAT MAY AFFECT RESULTS
A reduction in consumer demand for premium red wines could harm our business
Because a large percentage of the wines we produce are premium red wines,
including Merlot, Cabernet Sauvignon and, in particular, Zinfandel, our business
would be harmed if consumer demand for red wines in general, or Zinfandel in
particular, failed to grow or declined. An overall reduction in consumer demand
for premium wine would also harm our business.
A reduction in the supply of grapes and bulk wine available to us from the
independent grape growers and bulk wine suppliers on whom we rely could reduce
our annual production of wine
We rely on annual contracts, many of which are not in writing, with over 60
independent growers to purchase substantially all of the grapes used in our wine
production. We cannot assure you that we will be able to contract for the
purchase of grapes at acceptable prices from these or other suppliers in the
future. The terms of many of our purchase agreements also constrain our ability
to discontinue purchasing grapes in circumstances where we might want to do so.
Those agreements provide that, while either party may terminate the agreement at
any time, both parties must continue to abide by its terms for three years
following termination.
We are dependent on bulk wine suppliers for the production of several of our
wines, particularly our Vintners Blend Series. We do not have contracts with
bulk wine suppliers or agreements that would protect us from fluctuations in the
price or availability of bulk wine. The availability and price of bulk wine
significantly affect the quality and production levels of our products that
contain bulk wine. The price, quality and available quantity of bulk wine have
fluctuated in the past. It is possible that we will not be able to purchase bulk
wine of acceptable quality at acceptable prices and quantities in the future,
which could increase the cost or reduce the amount of wine we produce for sale.
This could cause reductions in our sales and profits.
Bad weather, plant diseases and other factors could reduce the amount or quality
of the grapes we need to produce our wines
A shortage in the supply of quality grapes may result from the occurence of any
number of the factors which determine the quality and quantity of grape supply,
such as weather conditions, pruning methods, the existence of diseases and
pests, and the number of vines producing grapes, as well as the level of
consumer demand for wine. Any shortage could cause an increase in the price of
some or all of the grape varieties required for our wine production and/or a
reduction in the amount of wine we are able to produce, which could harm our
business and reduce our sales and profits.
For example, due to the effects of El Nino, the grape supply available to us for
the 1998 harvest was lower than for the 1997 harvest, which we believe was an
unusually large
12
<PAGE>
harvest. Therefore, the inventory of our 1998 vintage may be less than that of
our 1997 vintage. As a result, the growth of our sales may be limited in fiscal
years 2000 and 2001, when most of our 1998 vintage will be released for sale.
Factors which reduce the quantity of grapes may also reduce their quality, which
in turn could reduce the quality or amount of wine we produce. A deterioration
in the quality of our wines could harm our brand name, and a decrease in our
production could reduce our sales and profits.
Although we grow only a small portion of the grapes we use, our business is
still subject to numerous agricultural risks. Most of the vineyards that supply
our grapes are primarily planted to rootstocks believed to be resistant to
Phylloxera, a pest that feeds on susceptible grape rootstocks. However, we
cannot be certain that these vineyards, or vineyards from which we obtain grapes
in the future, will not become susceptible to current or new strains of
Phylloxera, plant insects or diseases. Any resulting reduction in grape supply
could reduce our sales and profits.
An oversupply of grapes may also harm our business by increasing the supply of
wine sold by our competitors
The recent increase in demand for premium wine has resulted in the planting of
additional vineyards, both domestically and internationally, and the replanting
of existing vineyards to greater densities, which could result in a significant
increase in the supply of premium wine grapes. An oversupply of grapes may
significantly increase the amount of premium wine produced. An increase in the
supply of premium wine may reduce the price of premium wines. This oversupply of
premium wines could harm our business because we only produce premium wines.
Oversupply may also increase the amount of premium wine available to our
distributors and retail outlets, which would increase competition in our
distribution channels.
The loss of Mr. Foster, Mr. Peterson or other key employees would damage our
reputation and business
We believe that our success largely depends on the continued employment of a
number of our key employees, including W. Reed Foster, our chairman and chief
executive officer, and Joel E. Peterson, our president and winemaker. Any
inability or unwillingness of Mr. Foster, Mr. Peterson or other key management
team members to continue in their present capacities could harm our business and
our reputation. For instance, if Mr. Peterson's relationship with Ravenswood
were to terminate for any reason, we would need to find a successor winemaker.
We cannot be certain that we could find or hire a successor winemaker with
skills equivalent to those of Mr. Peterson.
Because a significant amount of our sales is made through brokers, a change in
our relationship with any of them could harm our business
In the 1998 fiscal year, approximately 75% of our gross sales were made through
brokers. A change in our relationship with any of our brokers could harm our
business and reduce our sales. Our most successful broker was responsible for
21% of our gross sales in the 1998 fiscal year, and our ten most successful
brokers were responsible for 69% of our gross sales in the 1998 fiscal year.
13
<PAGE>
Because some states have laws that prohibit distributor changes, our sales may
be reduced if we cannot replace an under-performing distributor
Our sales outside of California largely depend on the use of distributors. Our
ten largest distributors accounted for approximately 23% of our gross sales for
the 1998 fiscal year, and we expect that sales to our ten largest distributors
will continue to represent a substantial portion of our sales in the future. The
laws and regulations of several states prohibit distributor changes except under
limited circumstances. As a result, it may be difficult for us to replace
distributors that do not perform adequately, which may reduce our sales and
profits.
Our business may be harmed if our distributors fail to market our products
effectively
We depend largely on our distributors in areas outside California to market our
products to the restaurants and retail outlets they service. Other premium wine
producers, as well as the producers of alternative beverages, compete for our
distributors' marketing resources. A failure by our distributors to market our
products as effectively as they, or other distributors, market our competitors'
products could harm our business.
The market price of our stock may fluctuate due to seasonal fluctuations in our
wine sales, operating expenses and net income
We experience seasonal and quarterly fluctuations in sales, operating expenses
and net income. Generally, the second and third quarters of our fiscal year have
lower sales volumes than the first and fourth quarters. We have managed, and
will continue to manage, our business to achieve long-term objectives. In doing
so, we may make decisions that we believe will enhance our long-term
profitability, even if these decisions may reduce quarterly earnings. These
decisions include: (a) when to release our wines for sale; (b) how to position
our wines competitively; and (c) which grape and bulk wine sources to use to
produce our wines. In addition, fluctuations in our distributors' inventory
levels may affect our sales volume. These and other factors relating to
seasonality and business decisions may cause fluctuations in the market price of
our common stock.
We also compete with popular low-priced "generic" wines and with beer and other
alcoholic and non-alcoholic beverages both for demand and for access to
distribution channels. Many of the producers of these beverages also have
significantly greater financial, technical, marketing and public relations
resources than we do. Our sales may be harmed to the extent any alternative
beverages are introduced that compete with wine. We may not be able to compete
successfully against these wine or alternative beverage producers.
A reduction in our access to, or an increase in the cost of, the third-party
services we use to produce our wine could harm our business
We utilize several third-party facilities, of which there is a limited supply,
for the production activities associated with our wines. Our inability in the
future to use these or alternative facilities, at reasonable prices or at all,
could increase the cost or reduce the amount of our production, which could
reduce our sales and our profits. We do not have long-term agreements with any
of these facilities. The activities conducted at outside facilities include: (a)
crushing; (b) fermentation; (c) storage; (d) blending; and (e) bottling. Our
reliance on these third parties varies according to the type of production
activity. As production increases, we must increasingly rely upon these
third-party production facilities. Reliance on third parties will also vary with
annual harvest volumes.
14
<PAGE>
A failure to complete the expansion of our facilities as planned could limit our
production of wine and harm our business
We are currently building a new facility, which we are calling the Quarry
Facility, in order to increase our production capacity. Our failure to complete
the Quarry Facility, or otherwise expand our production capabilities, would
limit our production capacity, would require greater use of third-party
production facilities, and could reduce our sales and/or profits. Upon its
completion, we expect to use both the Quarry Facility and our current Gehricke
Road Facility for a majority of our operations.
We expect to utilize the Quarry Facility fully upon its completion. As a result,
any further expansion of our production capacity may require us to use
third-party production facilities or to continue to expand our own production
capacity. Our failure to expand our production capacity, or to secure capacity
from third parties, either at acceptable prices or at all, could limit our
production and reduce our sales and/or profits.
Adverse public opinion about alcohol may harm our business
While a number of research studies suggest that moderate alcohol consumption may
provide various health benefits, other studies conclude or suggest that alcohol
consumption has no health benefits and may increase the risk of stroke, cancer
and other illnesses. An unfavorable report on the health effects of alcohol
consumption could significantly reduce the demand for wine, which could harm our
business and reduce our sales and profits.
In recent years, activist groups have used advertising and other methods to
inform the public about the societal harms associated with the consumption of
alcoholic beverages. These groups have also sought, and continue to seek,
legislation to reduce the availability of alcoholic beverages, to increase the
penalties associated with the misuse of alcoholic beverages, or to increase the
costs associated with the production of alcoholic beverages. Over time, these
efforts could cause a reduction in the consumption of alcoholic beverages
generally, which could harm our business and reduce our sales and profits.
Contamination of our wines would harm our business
Because our products are designed for human consumption, our business is subject
to hazards and liabilities related to food products, such as contamination. A
discovery of contamination in any of our wines, through tampering or otherwise,
could result in a recall of our products. Any recall would significantly damage
our reputation for product quality, which we believe is one of our principal
competitive assets, and could seriously harm our business and sales. Although we
maintain insurance to protect against these risks, we may not be able to
maintain insurance on acceptable terms and this insurance may not be adequate to
cover any resulting liability.
15
<PAGE>
Increased regulatory costs or taxes would harm our financial performance
The wine industry is regulated extensively by the Federal Bureau of Alcohol,
Tobacco and Firearms, various foreign agencies, and state and local liquor
authorities. These regulations and laws dictate various matters, including:
o Excise taxes
o Licensing requirements
o Trade and pricing practices
o Permitted distribution channels
o Permitted and required labeling
o Advertising
o Relationships with distributors and retailers
Recent and future zoning ordinances, environmental restrictions and other legal
requirements may limit our plans to expand our production capacity, as well as
any future development of new vineyards and wineries. In addition, federal
legislation has been proposed that could significantly increase excise taxes on
wine. Other federal legislation has been proposed which would prevent us from
selling wine directly through the mail. This proposed legislation, or other new
regulations, requirements or taxes could harm our business and operating
results. Future legal or regulatory challenges to the wine industry could also
harm our business and impact our operating results.
Because our directors and officers have significant control over Ravenswood,
other investors do not have as much influence on corporate decisions as they
would if control were less concentrated
Following our initial public offering and assuming that all debentures held by
our directors and executive officers and their respective affiliates have been
converted, our directors and executive officers and their respective affiliates
will beneficially own 2,225,641 shares of common stock, or approximately 48.5%
of our outstanding common stock. Of these shares, 2,131,151 shares, plus an
additional 19,530 shares not held of record by Ravenswood's affiliates, have
been placed in a voting trust. The trustees of this voting trust are Messrs.
Foster, Peterson, Faggioli, and Wisner, all of whom serve as directors of
Ravenswood. As a result, Messrs. Foster, Peterson, Faggioli and Wisner have
significant influence in the election of directors and the approval of corporate
actions that must be submitted for a vote of shareholders.
The interests of these affiliates may conflict with the interests of other
shareholders, and the actions they take or approve may be contrary to those
desired by the other shareholders. This concentration of ownership may also have
the effect of delaying, preventing or deterring an acquisition of Ravenswood by
a third party.
Natural disasters, including earthquakes or fires, could destroy our facilities
or our inventory
The Gehricke Road Facility, the Quarry Facility and all of the third-party
facilities we use to produce and store our wine are located in areas that are
subject to earthquake activity. If we lost all or a portion of our wine prior to
its sale or distribution as a result of earthquake activity, we would lose our
investment in, and anticipated profits and cash flows from, that wine. Such a
loss would seriously harm our business and reduce our sales and profits.
In addition, we must store our wine in a limited number of locations for a
period of time prior to its sale or distribution. Any intervening catastrophies,
such as a fire, that result in
16
<PAGE>
the destruction of all or a portion of our wine would result in a loss of our
investment in, and anticipated profits and cash flows from, that wine. Such a
loss would seriously harm our business and reduce our sales and profits.
Our small size and relatively low trading volume may limit the market price,
liquidity or trading volume of our stock
Our small size and relatively low trading volume may reduce the amount of
research coverage from market analysts. This reduced level of coverage may limit
the market price, liquidity or trading volume of our common stock.
17
<PAGE>
RAVENSWOOD WINERY, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Proceeds from the public offering have been deposited into a money market
account approved by the Board of Directors at their meeting of April 6, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
As of February 1, 1999, we circulated a written consent of shareholders
representing 2,199,891 shares out of a total of 3,550,852 issued and outstanding
shares of our common stock. Pursuant to the written consent, our shareholders
approved the proposals more fully described below.
1. Election of each of the following directors: Joel E. Peterson, W. Reed
Foster, Justin M. Faggioli, James F. Wisner, Callie S. Konno and Robert E.
McGill III, each to serve until our next Annual Meeting of Shareholders and
until his or her successor is duly elected and qualified or until his or her
earlier resignation or removal.
2. Amendment and restatement of our Articles of Incorporation.
3. Amendment and restatement of our Bylaws.
4. Approval of our 1999 Equity Incentive Plan.
5. Approval of our Employee Stock Purchase Plan.
6. Approval of an officer loan from us to W. Reed Foster, our Chairman of the
Board and Chief Executive Officer, for $335,000, in connection with the
termination, effective July 1, 1998, of a deferred compensation arrangement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Number
--------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
18
<PAGE>
RAVENSWOOD WINERY, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May __, 1999 Ravenswood Winery, Inc.
- - ------------------- ----------------------------------------
(Registrant)
/s/ Callie S. Konno
----------------------------------------
Callie S. Konno
Chief Financial Officer
Dated: May __, 1999 /s/ W. Reed Foster
- - ------------------- ----------------------------------------
W. Reed Foster
Chairman of the Board and Chief
Executive Officer
19
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,124,083
<SECURITIES> 0
<RECEIVABLES> 2,819,527
<ALLOWANCES> 10,000
<INVENTORY> 13,725,160
<CURRENT-ASSETS> 20,142,397
<PP&E> 5,578,674
<DEPRECIATION> 1,508,846
<TOTAL-ASSETS> 24,423,243
<CURRENT-LIABILITIES> 5,918,170
<BONDS> 0
0
0
<COMMON> 4,626,400
<OTHER-SE> 8,483,201
<TOTAL-LIABILITY-AND-EQUITY> 24,423,243
<SALES> 16,543,574
<TOTAL-REVENUES> 16,543,574
<CGS> 7,471,357
<TOTAL-COSTS> 3,735,849
<OTHER-EXPENSES> 238,608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,097,760
<INCOME-TAX> 2,056,300
<INCOME-CONTINUING> 3,041,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,041,460
<EPS-BASIC> 0.87
<EPS-DILUTED> 0.80
</TABLE>
