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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, 2000
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 [X] No [ ]
The number of shares outstanding of the Issuer's Common Stock on May 12, 2000
was 4,855,053.
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, 2000 and June 30, 1999. 2
Statements of Income for the three months and nine months
ended March 31, 2000 and 1999. 3
Statements of Cash Flows for the three months and nine
months ended March 31, 2000 and 1999. 4
Notes to Financial Statements. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITES AND USE OF PROCEEDS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
1
<PAGE>
<TABLE>
RAVENSWOOD WINERY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RAVENSWOOD WINERY, INC.
BALANCE SHEET
<CAPTION>
March 31, June 30,
2000 1999
----------- -----------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,891,983 $11,390,903
Accounts receivable, less allowance of $10,000 5,035,388 2,763,418
Inventories 19,244,006 14,581,973
Prepaid expenses 356,927 116,676
Deferred tax assets 155,000 162,800
----------- -----------
Total current assets 31,683,304 29,015,770
Property, plant and equipment, net 14,795,450 9,001,147
Note receivable from shareholder 314,475 314,475
Other assets 98,357 186,921
----------- -----------
$46,891,586 $38,518,313
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 102,578 $ 109,722
Current portion of capital lease obligations 538,016 368,203
Short-term borrowings 1,000,000 1,700,000
Accounts payable 4,471,502 3,382,118
Accrued commissions 607,165 396,358
Accrued liabilities 742,944 433,011
----------- -----------
Total current liabilities 7,462,205 6,389,412
Long-term liabilities:
Long-term debt, net 6,277,839 4,525,231
Capital lease obligations, net 2,414,558 1,551,762
Convertible debentures 1,687,500 2,502,500
----------- -----------
Total liabilities 17,842,102 14,968,905
----------- -----------
Shareholders' equity:
Preferred stock, no par value; 1 million shares authorized, none issued -- --
Common stock, no par value; 20 million shares authorized,
4,855,053 and 4,568,352 issued and outstanding 15,038,965 14,211,018
Retained earnings 13,933,609 9,338,390
Unrealized gain on available-for-sale securities 76,910 --
----------- -----------
Total shareholders' equity 29,049,484 23,549,408
----------- -----------
$46,891,586 $38,518,313
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
2
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<TABLE>
RAVENSWOOD WINERY, INC.
STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three months ended March 31, Nine months ended March 31,
----------------------------- -------------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Sales $8,692,139 $5,415,318 $27,418,528 $17,610,314
Less excise taxes (325,967) (272,035) (859,657) (547,830)
Less discounts, allowances
and returns (239,319) (182,226) (816,243) (518,910)
---------- ---------- ----------- -----------
Net sales 8,126,853 4,961,057 25,742,628 16,543,574
Cost of goods sold 3,897,343 2,404,886 12,174,519 7,471,357
---------- ---------- ----------- -----------
Gross profit 4,229,510 2,556,171 13,568,109 9,072,217
Operating expenses 1,831,691 1,395,840 5,573,023 3,735,849
---------- ---------- ----------- -----------
Operating income 2,397,819 1,160,331 7,995,086 5,336,368
---------- ---------- ----------- -----------
Interest expense (237,883) (133,378) (594,327) (357,685)
Other income (expenses) 32,514 41,726 190,590 119,077
---------- ---------- ----------- -----------
(205,369) (91,652) (403,737) (238,608)
---------- ---------- ----------- -----------
Income before income taxes 2,192,450 1,068,679 7,591,349 5,097,760
Provision for income taxes 875,000 312,451 2,996,130 2,056,300
---------- ---------- ----------- -----------
Net income $1,317,450 $ 756,228 $ 4,595,219 $ 3,041,460
========== ========== =========== ===========
Earnings per share:
Basic $ 0.27 $ 0.22 $ 0.99 $ 0.87
========== ========== =========== ===========
Diluted $ 0.27 $ 0.21 $ 0.94 $ 0.80
========== ========== =========== ===========
Weighted average number of
common shares outstanding:
Basic 4,855,053 3,498,945 4,664,947 3,498,945
========== ========== =========== ===========
Diluted 5,008,985 3,953,588 5,007,370 3,896,083
========== ========== =========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
3
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<TABLE>
RAVENSWOOD WINERY, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three months ended March 31, Nine months ended March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Net income $ 1,317,450 $ 756,228 $ 4,595,219 $ 3,041,460
Items not requiring the current
use of cash:
Depreciation and amortization 268,649 121,572 727,480 292,240
Unrealized capital appreciation 33,694 6,817 76,910 6,817
Deferred income taxes - - 7,800 -
Changes in other operating items:
Accounts receivable 108,649 (155,047) (2,271,970) (903,029)
Prepaid income taxes - 73,849 - 73,849
Inventories 716,304 (793,822) (4,662,033) (3,297,802)
Deferred tax asset - 242,322 - 242,322
Prepaid expenses (34,052) (72,188) (240,251) (45,286)
Other assets (4,107) - (15,995) -
Accounts payable (1,883,809) (55,950) 1,089,384 1,373,769
Accrued liabilities 99,962 334,420 307,205 200,865
Income taxes payable - - - -
Accrued commissions (70,788) 81,239 210,807 210,008
----------- ---------- ----------- -----------
Cash provided by (used for) operations 551,952 539,440 (175,444) 1,195,213
----------- ---------- ----------- -----------
Investing:
Shareholder receivables - 28,472 - (30,963)
Additions to plant & equipment (1,127,413) (660,483) (5,611,873) (1,208,873)
Cash used for investing activities (1,127,413) (632,011) (5,611,873) (1,239,836)
Financing:
Short-term borrowings, net - 150,000 (700,000) (250,000)
Proceeds from long-term debt - 122,080 2,252,036 672,080
Proceeds from convertible debentures - 243,750 - 1,687,500
Proceeds from sale of securities - 39,761 12,947 1,687,500
Repayments of related parties' notes - (165,143) - (165,143)
Repayments of long-term debt (118,251) 26,104 (276,586) (194,231)
Deferred stock offering costs - (371,272) - (371,272)
----------- ---------- ----------- -----------
Cash provided by (used for) financing activities (118,251) 45,280 1,288,397 3,066,434
----------- ---------- ----------- -----------
Change in cash & cash equivalents (693,712) (47,291) (4,498,920) 3,021,811
Balance at beginning of period 7,585,695 3,171,374 11,390,903 102,272
----------- ---------- ----------- -----------
Balance at end of period $ 6,891,983 $3,124,083 $ 6,891,983 $ 3,124,083
=========== ========== =========== ===========
Cash paid during the period for:
Interest $ 274,229 $ 196,764 $ 612,687 $ 437,243
=========== ========== =========== ===========
Taxes $ 740,000 $ 85,000 $ 2,995,000 $ 1,755,000
=========== ========== =========== ===========
Noncash investing and financing:
Plant and equipment purchased with
long-term liabilities $ 185,759 $ - $ 805,353 $ 175,507
=========== ========== =========== ===========
Conversion of convertible debentures
to common stock $ - $ - $ 815,000 $ -
=========== ========== =========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
4
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RAVENSWOOD WINERY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Basis of presentation:
The financial statements included herein for Ravenswood Winery, Inc. (the
"Company") have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission, without audit. In
management's opinion, the interim financial data presented includes all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
The results of operations for the three and nine months ended March 31, 2000 are
not necessarily indicative of the operating results expected for the entire
fiscal year. The financial statements included herein should be read in
conjunction with other documents the Company files from time to time with the
Securities and Exchange Commission, including the Company's Form 10-KSB for the
fiscal year ended June 30, 1999 dated September 29, 1999 and its Quarterly
Report on Form 10-QSB dated February 8, 2000.
NOTE 2 - Reclassifications:
Certain prior period amounts have been reclassified in order to conform to the
current period presentation. These changes do not impact gross margin or net
income for any period.
NOTE 3 - Earnings per Share
Basic EPS represents the income available to common shareholders divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
represents the income available to common shareholders divided by the weighted
average of common shares outstanding while also giving effect to the potential
dilution that could occur if securities or other contracts to issue common stock
(e.g. stock options and convertible debentures) were exercised and converted
into stock. For all periods presented, the difference between basic and diluted
EPS for the Company is due to the dilutive effect of stock options and
convertible debentures. This effect is calculated using the treasury stock
method.
On December 31, 1999, debentures with a face value of $815,000 were converted
into 285,250 shares of the Company's common stock. During the three month period
ended December 31, 1999, 1,451 shares of common stock were issued under
Ravenswood's Employee Stock Purchase Plan.
NOTE 4 - Inventories:
Inventories are summarized as follows:
March 31, June 30,
2000 1999
------------------- ------------------
(Unaudited)
Bulk wine $15,454,265 $10,355,759
Bottled wine 3,331,968 3,870,548
Crop costs 74,542 88,725
Supplies 223,745 124,298
Tasting room merchandise 159,486 142,643
------------------- ------------------
$19,244,006 $14,581,973
=================== ==================
5
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NOTE 5 - Property, plant and equipment:
Property, plant and equipment is summarized as follows:
March 31, June 30,
2000 1999
------------------ ------------------
(Unaudited)
Land $ 245,135 $ 245,135
Vineyards 134,033 134,033
Vineyards under development 211,440 211,440
Buildings and improvements 1,647,637 1,647,637
Leasehold improvements 174,331 174,331
Machinery and equipment 846,160 835,850
Barrels and equipment held under
capital leases 3,911,864 2,623,977
Tanks 172,172 145,688
Office equipment 274,046 131,127
Transportation equipment 55,499 38,469
Construction in progress 9,399,128 4,466,534
------------------ ------------------
17,071,445 10,654,221
Less accumulated depreciation 2,275,995 1,653,074
------------------ ------------------
$ 14,795,450 $ 9,001,147
================== ==================
NOTE 6 - 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 of the Company's equity.
The following is a reconciliation of net income and comprehensive
income:
(Unaudited)
-------------------------------------------
Three months ended Nine months ended
March 31, March 31,
-------------------- ---------------------
2000 1999 2000 1999
---------- -------- ---------- ----------
Net income $1,317,450 $756,228 $4,595,219 $3,041,460
Change in unrealized gain on
available-for-sale securities 33,694 - 76,910 -
---------- -------- ---------- ----------
Comprehensive income $1,351,144 $756,228 $4,672,129 $3,041,460
========== ======== ========== ==========
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
From time to time, statements made by Ravenswood's employees or information
included in Ravenswood's filings with the Securities and Exchange Commission
(including this Form 10-QSB) may contain statements that are not historical
facts, so called "forward-looking statements," which are subject to risks and
uncertainties that could cause actual results to differ materially.
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-QSB, the terms "anticipates," "expects," "estimates," "believes," and other
similar terms as they relate to Ravenswood or its management are intended to
identify such forward-looking statements. For example, statements made herein
relating to operating expenses, gross sales attributable to specific product
series, 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; and (iii)
changes in the wine industry regulatory environment. Each of these factors, and
others, are discussed beginning on page 15 of this report and in the section
entitled "Factors that May Affect Future Results" of Ravenswood's Form 10-KSB
for the fiscal year ended June 30, 1999, filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Ravenswood
undertakes no obligation to update or revise these statements.
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 93% of gross sales in the 1999 fiscal year,
with sales of Zinfandel accounting for approximately 67% of gross sales for that
period. Ravenswood believes that sales of its red wines, particularly Zinfandel,
will continue to account for a significant portion of its sales in the future.
Since its inception in 1976, Ravenswood has grown by increasing its production
volume and its portfolio of wine products. For the fiscal year ended June 30,
1999, Ravenswood realized total gross sales of $23.7 million from the sale of
270,760 cases of wine 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 traditionally is also more variable than that of
Ravenswood's higher-priced wine products because a significant portion of the
wine used in the Vintners Blend series 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. 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
7
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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 and available inventory.
Fluctuation of release dates may make comparison of results on a
period-to-period basis less meaningful. 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.
Pricing for grapes purchased by Ravenswood 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.
Within the United States, Ravenswood utilizes distributors in every state except
California. Brokers are used to assist the sales effort in California and 29
other states. Brokers act as an independent sales force and receive commissions
as compensation for their sales. Brokers do not take title to the wines they
sell. Distributors purchase wine from Ravenswood and sell the wine to their own
retail accounts such as restaurants, grocery stores and wines shops. Ravenswood
uses both brokers and distributors in most of the foreign countries in which
Ravenswood's wines are sold.
Ravenswood primarily uses smaller, well-positioned brokers and distributors for
whom Ravenswood is a key brand. Although Ravenswood has very few long-term
agreements for distribution of its products, Ravenswood believes that its
relationships with existing brokers and distributors are excellent. Ravenswood's
executive management also takes an active role in assisting brokers and
distributors with sales within California and within major geographic markets
outside California.
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 48% of
Ravenswood's gross sales in the 1999 fiscal year. Of this amount, approximately
9% of gross sales were retail 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 2000.
Ravenswood believes that sales within California will continue to account for a
substantial portion of its sales in the future.
8
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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 Ended Nine Months Ended
March 31, March 31,
--------- ---------
Statement of Income Data: 1999 2000 1999 2000
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 48.5 48.0 45.2 47.3
----- ----- ----- -----
Gross Profit 51.5 52.0 54.8 52.7
Operating Expenses 28.1 22.5 22.6 21.6
---- ---- ---- ----
Operating Income 23.4 29.5 32.2 31.1
Other Expense, net 1.9 2.5 1.4 1.6
----- ----- ----- -----
Income Before Income Taxes 21.5 27.0 30.8 29.5
Provision for Income Taxes 6.3 10.8 12.4 11.6
----- ----- ----- -----
Net Income 15.2% 16.2% 18.4% 17.9%
===== ===== ===== =====
Three Months Ended March 31, 2000 and 1999
Sales
Net sales of Ravenswood's products increased to $8.1 million in the three months
ended March 31, 2000, from $5.0 million in the three months ended March 31,
1999. 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, 2000,
case sales increased to 106,249 cases from 65,108 cases in the three months
ended March 31, 1999, while the average price per case decreased to $81.28 from
$82.36 in these respective periods. The average price per case decreased as the
Vintners Blend Series increased as a percentage of gross sales. Gross sales for
each product series grew in the three months ended March 31, 2000, with
increases for Vintners Blend Series, County Series and Vineyard Designate series
of 69.0%, 28.6% and 144.8%, respectively, over the same period ended March 31,
1999. The large increase in sales for the Vineyard Designate series is mainly
attributable to the availability of product in the third quarter of fiscal 2000.
The percentages of gross sales attributable to the Vintners Blend Series, County
Series and Vineyard Designate Series were 68.1%, 23.4% and 7.9%, respectively,
for the three months ended March 31, 2000, as compared to 64.6%, 29.2% and 5.2%,
respectively, in the three months ended March 31, 1999. Sales of Ravenswood
branded merchandise accounted for approximately .6% of gross sales for the three
months ended March 31, 2000, as compared to 1.0% of gross sales for the three
months ended March 31, 1999.
Cost of Goods Sold
Cost of goods sold increased to $3.9 million, or 48.0% of net sales, for the
three months ended March 31, 2000, from $2.4 million, or 48.5% of net sales, for
the three months ended March 31, 1999. Cost of goods
9
<PAGE>
sold, as a percentage of net sales, remained fairly consistent as the combined
mix of sales of the Vintners Blend Series, County Series and Vineyard Designate
series were relatively similar for both periods.
Gross Profit
Ravenswood's gross profit increased to $4.2 million for the three months ended
March 31, 2000, from $2.6 million for the three months ended March 31, 1999, and
increased as a percentage of net sales to 52.0% from 51.5% in these respective
periods. The increase in aggregate gross profit is primarily attributable to
increases in sales volumes across all of Ravenswood's product series.
Operating Expenses
Operating expenses increased to $1.8 million for the three months ended March
31, 2000, from $1.4 million for the three months ended March 31, 1999, and
decreased as a percentage of net sales to 22.5% from 28.1% in these respective
periods. The increase in the amount of operating expenses is attributable to
several different factors. Increased sales volumes resulted in an increase in
brokerage commissions. Additionally, Ravenswood has incurred additional expenses
as a public company, such as legal and accounting fees. Ravenswood became a
public company in the quarter ended June 30, 1999. The decrease in operating
expenses as a percentage of net sales can partially be attributed to the accrual
of approximately half of annual employee bonuses in the third quarter of fiscal
1999, while a portion of these bonuses have been accrued in each quarter of
fiscal 2000. Additionally, as Ravenswood has increased sales it has not
increased administrative staff proportionately. However, in April, 2000, a
portion of Ravenwood's production and administrative staffs moved into new
offices at the Quarry Facility. With the additional space available at the
Quarry Facility, Ravenswood expects to expand its production and administrative
staffs to support its sales and production growth.
Other Expense, Net
Other expense amounted to $205,369 and $91,652, or 2.5% and 1.9% of net sales,
in the three months ended March 31, 2000, and 1999, respectively. The increase
in other expenses is primarily attributable to interest incurred on the
construction loan for its new production facility, referred to as the Quarry
Facility, and on capital leases used to finance the purchase of equipment for
the Quarry Facility. Some interest expense is offset by interest income from
unspent proceeds of Ravenswood's initial public offering.
Provision for Income Taxes
The provision for income taxes reflects an estimated annualized effective tax
rate of 39.9% for the three months ended March 31, 2000, and 29.3% for the
corresponding period in fiscal 1999. The increase is due to the recognition of a
deferred tax asset in the third quarter of fiscal 1999 for which there is no
corresponding item in fiscal 2000.
Nine Months Ended March 31, 2000 and 1999
Sales
Net sales of Ravenswood's products increased to $25.7 million in the nine months
ended March 31, 2000, from $16.5 million in the nine months ended March 31,
1999. 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,
10
<PAGE>
2000, case sales increased to 312,902 cases from 195,600 cases in the nine
months ended March 31, 1999, while the average price per case decreased to
$86.76 from $88.81 in these respective periods. The average price per case
decreased as the Vintners Blend Series increased as a percentage of gross sales.
Gross sales for each product series grew in the nine months ended March 31,
2000, with increases for Vintners Blend Series, County Series and Vineyard
Designate series of 77.3%, 23.4% and 43.8%, respectively, over the same period
ended March 31, 1999.
The percentages of gross sales attributable to the Vintners Blend Series, County
Series and Vineyard Designate Series were 60.6%, 21.4% and 17.0%, respectively,
for the nine months ended March 31, 2000, as compared to 53.2%, 27.0% and 18.4%,
respectively, in the nine months ended March 31, 1999. Sales of Ravenswood
branded merchandise accounted for approximately 1.0% of gross sales for the nine
months ended March 31, 2000, and 1.4% of gross sales for the nine months ended
March 31, 1999.
Cost of Goods Sold
Cost of goods sold increased to $12.2 million, or 47.3% of net sales, for the
nine months ended March 31, 2000, from $7.5 million, or 45.2% of net sales, for
the nine months ended March 31, 1999. The increase in cost of goods sold as a
percentage of net sales is primarily attributable to the increase in sales of
Ravenswood's Vintners Blend Series as a percentage of gross sales.
Gross Profit
Ravenswood's gross profit increased to $13.6 million for the nine months ended
March 31, 2000, from $9.1 million for the nine months ended March 31, 1999, and
decreased as a percentage of net sales to 52.7% from 54.8% in these respective
periods. The increase in aggregate gross profit is primarily attributable to
increases in sales volumes across all of Ravenswood's product series.
Traditionally Vintners Blend series wines have a lower percent gross margin than
those of the Vineyard Designate and County series wines. The decrease in gross
profit as a percentage of net sales is primarily attributable to the increase in
sales of the Vintners Blend Series as a percentage of gross sales.
Operating Expenses
Operating expenses increased to $5.6 million for the nine months ended March 31,
2000, from $3.7 million for the nine months ended March 31, 1999, and decreased
as a percentage of net sales to 21.6% from 22.6% in these respective periods.
The increase in the amount of operating expenses is attributable to several
different factors. Increased sales volumes resulted in an increase in brokerage
commissions. Additionally, Ravenswood has incurred additional expenses as a
public company, such as legal and accounting fees. Ravenswood did not become a
public company until the fourth quarter of 1999. The decrease in operating
expenses as a percentage of net sales can in part be attributed to the fact that
as Ravenswood has increased sales it has not increased administrative staff
proportionately. However, in April, 2000, a portion of Ravenwood's production
and administrative staffs moved into new offices at the Quarry Facility. With
the additional space available at the Quarry Facility, Ravenswood expects to
expand its production and administrative staffs to support its sales and
production growth.
Other Expense, Net
Other expense amounted to $403,737 and $238,608, or 1.6% and 1.4% of net sales,
in the nine months ended March 31, 2000, and 1999, respectively. The increase in
other expenses is primarily attributable to interest incurred on the
construction loan for its new production facility, referred to as the Quarry
Facility, and on
11
<PAGE>
capital leases used to finance the purchase of equipment for the Quarry
Facility. Some interest expense is offset by interest income from proceeds of
Ravenswood's initial public offering.
Provision for Income Taxes
The provision for income taxes reflects an estimated annualized effective tax
rate of 39.5% for the nine months ended March 31, 2000, and 40.3% for the
corresponding period in fiscal 1999. The decrease is due to the effective tax
rate for the nine months ended March 31, 1999 not reflecting an adjustment for
deferred taxes and recognition of manufacturer's tax credit.
<TABLE>
Selected Quarterly Results of Operations
The following table presents Ravenswood's results of operations for each of the
six quarters prior to and including the quarter ended March 31, 2000. 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 Company's Form 10-KSB for the fiscal year
ended June 30, 1999. In the opinion of management, all necessary adjustments
which include only normal recurring 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-QSB
filing.
<CAPTION>
Quarter Ended
(In Thousands)
-----------------------------------------------------------------------------------
December 31, March 31, June 30, September 30, December 31, March 31
1998 1999 1999 1999 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Gross Sales $ 5,853 $ 5,415 $ 6,119 $ 8,289 $10,437 $ 8,692
Less Excise Taxes 51 272 361 335 199 326
Less Discounts,
Allowance
and Returns 182 182 234 262 315 239
------- ------- ------- ------- ------- -------
Net Sales 5,620 4,961 5,525 7,692 9,924 8,127
Cost of Goods Sold 2,538 2,405 2,788 3,463 4,814 3,897
------- ------- ------- ------- ------- -------
Gross Profit 3,082 2,556 2,737 4,229 5,110 4,230
Other Operating Expenses 1,125 1,396 1,503 1,740 2,001 1,832
------- ------- ------- ------- ------- -------
Operating Income 1,957 1,160 1,234 2,489 3,108 2,398
Other (Income) Expense 74 92 (12) 38 160 205
------- ------- ------- ------- ------- -------
Income Before Income Taxes 1,884 1,068 1,247 2,451 2,947 2,192
Provision for Income Taxes 815 312 385 953 1,168 875
------- ------- ------- ------- ------- -------
Net Income $ 1,068 $ 756 $ 862 $ 1,498 $ 1,780 $ 1,317
======= ======= ======= ======= ======= =======
</TABLE>
Ravenswood experiences 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,
variations in 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
12
<PAGE>
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.
FINANCIAL CONDITION
Assets
Ravenswood's total assets increased by 21.7% to $46.9 million at March 31, 2000,
from $38.5 million at June 30, 1999. Ravenswood's inventory increased by 32.0%
or $4.7 million from $14.5 million at June 30, 1999 to $19.2 million on March
31, 2000. Property, plant and equipment, net of depreciation, increased 64.4%
from $9.0 million at June 30, 1999 to $14.8 million at March 31, 2000.
Ravenswood expects total assets to continue to increase as Ravenswood expands
its inventory. The rate of growth in property, plant and equipment is expected
to decrease as the Quarry Facility nears completion.
Liabilities
Ravenswood's total liabilities increased by 19.2% to $17.8 million at March 31,
2000, from $15.0 million at June 30, 1999. At March 31, 2000, Ravenswood's
long-term liabilities outstanding were $10.4 million and $1.0 million was
available under the terms of Ravenswood's 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, most recently with its initial public offering in April, 1999. Cash
and cash equivalents totaled $6.9 million at March 31, 2000, as compared to
$11.4 million at June 30, 1999. The decrease in cash and cash equivalents is
primarily due to cash required to expand inventory, to complete construction of
the Quarry Facility and to retire indebtedness.
Net cash provided by operations was $551,952 for the three months ended March
31, 2000 as compared to $539,440 for the three months ended March 31, 1999. The
principal sources of cash from operations in this period were net income and
inventory while the principal use of cash was accounts payable as Ravenswood
began to make payments to growers for grapes received in the Fall of 1999. Net
cash used by operations was $175,444 for the nine months ended March 31, 2000,
as compared to $1,195,213 provided by operations for the nine months ended March
31, 1999. The principal uses of cash from operations for the period ended March
31, 2000, were the acquisition of additional inventory, especially grapes
received in the Fall of 1999, and funding accounts receivable. Principal sources
of cash during this period were net income and the increase in accounts payable.
13
<PAGE>
Net cash used for investing activities totaled $1.1 million for the three months
ended March 31, 2000 as compared to $632,011 for the three months ended March
31, 1999. The principal use of cash for investing activities during this period
was primarily the costs associated with construction of the Quarry Facility. Net
cash used for investing activities totaled $5.6 million for the nine months
ended March 31, 2000, as compared to $1.2 million for the nine months ended
March 31, 1999. The increase was primarily attributable to costs associated with
construction of the Quarry Facility. Ravenswood expects that net cash used for
investing activities will decrease in the future as the Quarry Facility nears
completion.
Net cash used for financing activities was $118,251 for the three months ended
March 31, 2000, as compared to $45,280 provided by financing activities for the
three months ended March 31, 1999. The principal use of cash during the period
ended March 31, 2000 was the repayment of long term debt while the principal
source of cash for the period ended March 31, 1999 was the completion of the
sale of securities from Ravenswood's December, 1998, offering. Net cash provided
by financing activities was $1.3 million for the nine months ended March 31,
2000, as compared to $3.1 million for the nine months ended March 31, 1999. The
principal source of cash for the nine months ended March 31, 2000 was financing
provided by Pacific Coast Farm Credit Services to construct the Quarry Facility.
The principal source of cash for the nine months ended March 31, 1999 was
Ravenswood's sale of securities which was completed in December, 1998.
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 1999 harvest, these payments will be made in the following manner: 42%, 29%
and 17% in the second, third and fourth quarters of fiscal 2000, respectively,
and the remaining 12% in the first quarter of fiscal 2001. As a result of
harvest costs and the timing of grape and bulk wine 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 approximately $545,000 for the 2000 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 was convertible into
3,500 shares of common stock at any time prior to December 31, 1999, upon
request of the holder. $50,000 of convertible debentures were converted to
17,500 shares of common stock in April, 1999. The remaining $815,000 in
convertible debentures were converted into 285,250 shares of common stock in
December, 1999, when the conversion privilege expired.
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%.
14
<PAGE>
Ravenswood has a line of credit with Pacific Coast Farm Credit Association,
under which Ravenswood may borrow up to a total of $2 million. As of March 31,
2000, Ravenswood had $1,000,000 outstanding under this line of credit. In
addition, on April 26, 1999 Ravenswood obtained a $4.6 million construction loan
from Pacific Coast for the purpose of financing the construction of the Quarry
Facility which is estimated to cost $9.6 million. The loan is being used as
funds for construction are needed. The loan is secured by the Quarry Facility
and its lease. The estimated $5 million in remaining costs to complete the
facility are to be funded from the December, 1998, private equity offering and
proceeds from Ravenswood's initial public offering in April, 1999. Equipment is
being acquired through a $3 million commitment for leases.
In April, 1999, Ravenswood completed an initial public offering of one million
shares of its common stock at a price of $10.50 per share. W.R. Hambrecht &
Company, LLC acted as underwriter for the offering. The net proceeds from the
offering have been and will continue to be used for: investment in wine
inventory, expansion of production facilities, general corporate purposes, and
retirement of indebtedness. 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, proceeds from its initial public offering and the private placements
in 1994 and 1998 described above, will be sufficient to fund its presently
anticipated 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 and inventory.
Risks associated with potential Year 2000 problems
Even though to date Ravenswood has not experienced an adverse impact from the
transition to the Year 2000, Ravenswood cannot provide assurance that its
suppliers and customers have not been affected in a manner that is not yet
apparent. As a result, Ravenswood will continue to monitor its Year 2000
compliance and Year 2000 compliance of its suppliers and customers.
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
15
<PAGE>
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 typically 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 occurrence 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 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
16
<PAGE>
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 1999 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
22% of our gross sales in the 1999 fiscal year, and our ten most successful
brokers were responsible for 70% of our gross sales in the 1999 fiscal year.
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 1999 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.
17
<PAGE>
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.
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. While the Quarry
Facility is still under construction, we crushed and fermented a portion of the
1999 harvest at the facility. 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.
18
<PAGE>
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.
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 or the Internet. 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
Assuming the conversion of all debentures held by our directors and executive
officers and their respective affiliates and the exercise of all options
exercisable within 60 days of the date hereof by our directors and executive
officers, will be converted, our directors and executive officers and their
respective affiliates would beneficially own 2,248,276 shares of common stock,
or approximately 45.7% of our outstanding common stock and common stock
equivalents. Of these shares, 2,064,316 shares, plus an additional 9,765 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, and
Faggioli, and Ms. Konno, all of whom serve as directors of Ravenswood. As a
result, Messrs. Foster, Peterson, and Faggioli and Ms. Konno 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.
19
<PAGE>
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 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.
20
<PAGE>
RAVENSWOOD WINERY, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
<TABLE>
The following table describes the use of proceeds from Ravenswood's initial
public offering in April, 1999.
<CAPTION>
(IN THOUSANDS)
<S> <C>
Effective Date of the Company's Registration Statement: April 8, 1999
Commission File Number 333-71729
Date Offering Commenced: April 9, 1999
Date Offering Completed: Upon the sale of all the shares
registered
Names of Managing Underwriters: W. R. Hambrecht & Co., LLP
Class of Securities Registered: Common Stock
Shares Registered and Sold: 1,000*
Sold by Company: 1,000*
Sold by Shareholders: 0
Aggregate Price of Offering Amount Registered and Sold: $10,500
Gross Proceeds to Company: $10,500
Gross Proceeds to Selling Shareholders 0
Underwriter's Discounts and Commission Charged to the Company: $420
Other issuance costs: $552
Net offering proceeds to the Company: $9,528
Approximate use of net offering proceeds through March 31, 2000:
Working capital $1,265
Retirement of debt $1,000
Expansion of production facilities $2,300
<FN>
- - -----------
*In connection with the initial public offering, Ravenswood granted the
underwriters an over-allotment option to purchase 150,000 additional shares of
Ravenswood's common stock at the original initial public offering price. The
option was not exercised.
</FN>
</TABLE>
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.
21
<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 12, 2000 Ravenswood Winery, Inc.
/s/ Callie S. Konno
-------------------------------
Callie S. Konno
Chief Financial Officer
Dated: May 12, 2000
/s/ W. Reed Foster
-------------------------------
W. Reed Foster
Chairman of the Board and Chief
Executive Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,891,983
<SECURITIES> 0
<RECEIVABLES> 5,045,388
<ALLOWANCES> 10,000
<INVENTORY> 19,244,006
<CURRENT-ASSETS> 31,683,304
<PP&E> 17,071,445
<DEPRECIATION> 2,275,995
<TOTAL-ASSETS> 46,891,586
<CURRENT-LIABILITIES> 7,462,205
<BONDS> 6,380,417
0
0
<COMMON> 15,038,965
<OTHER-SE> 14,010,519
<TOTAL-LIABILITY-AND-EQUITY> 46,891,586
<SALES> 25,742,628
<TOTAL-REVENUES> 25,742,628
<CGS> 12,174,519
<TOTAL-COSTS> 5,573,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 594,327
<INCOME-PRETAX> 7,591,349
<INCOME-TAX> 2,996,130
<INCOME-CONTINUING> 4,595,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,595,219
<EPS-BASIC> 0.99
<EPS-DILUTED> 0.94
</TABLE>
