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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-QSB
_________________________
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996
Commission File Number 0-21522
WILLAMETTE VALLEY VINEYARDS, INC.
(Exact name of registrant as specified in charter)
Oregon 93-0981021
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
_________________________
8800 Enchanted Way S.E., Turner, Oregon 97392
(503) 588-9463
(Address, including Zip code, and telephone number,
including area code, of registrant's principal executive offices)
_________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
[X] YES [ ] NO
Number of shares of common stock outstanding as of
June 30, 1996
3,785,356 shares, no par value
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WILLAMETTE VALLEY VINEYARDS, INC.
Balance Sheet
June 30,
1996 December 31,
(unaudited) 1995
ASSETS ----------- -----------
Current assets:
Cash and cash equivalents $ 1,021 $ 599,895
Accounts receivable trade, net 194,516 132,072
Other receivable 19,324 18,727
Inventories 1,924,660 1,890,048
Prepaid expenses 129,682 64,211
Deferred income taxes 93,872 93,872
----------- -----------
Total current assets 2,363,075 2,798,825
Vineyard development cost, net 383,727 372,676
Property and equipment, net 4,853,906 4,849,747
Investments 124,173 153,893
Notes receivable 133,730 129,002
Debt issuance costs,net 35,389 36,416
----------- -----------
Total assets $ 7,894,000 $ 8,340,559
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 195,351 $ 135,969
Accrued commissions and payroll cost 55,898 94,816
Other accrued liabilities 12,555 14,756
Grape payable - 344,642
Line of credit 29,492 161,300
Current portion of long term debt 66,493 66,493
----------- -----------
Total current liabilities 359,789 817,976
Long-term debt 1,981,719 2,007,870
Deferred income taxes 56,938 56,938
----------- -----------
Total liabilities 2,398,446 2,882,784
----------- -----------
Shareholders' equity
Common stock, no par value,
10,000,000 shares authorized,
3,785,356 shares issued outstanding 5,369,868 5,369,868
Retained earnings 125,686 87,907
----------- -----------
Total shareholders' equity 5,495,554 5,457,775
Total liabilities and shareholders' equity $ 7,894,000 $ 8,340,559
=========== ===========
The accompanying notes are an integral part of this financial statement.
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WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- ---------- -----------
Revenues:
Winery Operations $ 971,469 $ 719,221 $ 1,674,777 $ 1,329,457
Total Revenue 971,469 719,221 1,674,777 1,329,457
-------- -------- ---------- -----------
Cost of Sales:
Winery operations 412,774 336,692 721,101 612,227
-------- -------- ---------- ----------
Total Cost of Sales 412,774 336,692 721,101 612,227
-------- -------- ---------- ----------
Gross Margin 558,695 382,529 953,676 717,230
-------- -------- ---------- ----------
Selling, general and
administrative expenses 444,244 383,550 830,504 751,125
-------- -------- ---------- ----------
Other income (expense)
Interest income 2,363 3,574 9,051 11,362
Interest expense (47,166) (46,162) (96,141) (51,862)
Other income - - 1,697 -
-------- -------- ---------- ----------
(44,803) (42,588) (85,393) (40,500)
-------- -------- ---------- ----------
Net income(loss)
before income taxes 69,648 (43,609) 37,779 (74,395)
Income tax benefit - - - 9,000
-------- -------- ---------- ----------
Net income(loss) 69,648 (43,609) 37,779 (65,395)
Retained earnings (accumulated
deficit), beginning of period 56,038 59,797 87,907 81,583
-------- -------- ---------- ----------
Retained earnings (accumulated
deficit), end of period $125,686 $16,188 $125,686 $16,188
========= ======== ========== ==========
Net income(loss)
per common share $ 0.02 $ (0.01) $ 0.01 $ (0.02)
======== ======== ========== ==========
Weighted average number of
common shares outstanding 3,785,356 3,785,356 3,785,356 3,785,356
========== ========== =========== ==========
The accompanying notes are an integral part of this financial statement.
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WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Six Months Ended June 30,
1996 1995
----------- ------------
Cash flows from operating activities:
Net income (loss) $ 37,779 $ (65,395)
Reconciliation of net income (loss)
to net cash used for operating activities:
Depreciation and amortization 172,128 139,323
Changes in assets and liabilities:
Accounts receivable trade (62,444) 45,150
Accounts receivable affiliated co - (72,650)
Other receivable (597) (870)
Inventories (34,612) 71,052
Prepaid expenses (51,371) (44,368)
Grape payable (344,642) (211,399)
Accounts payable 59,382 78,690
Accrued commisions and payroll cost (38,918) (74,894)
Taxes payable (14,800) (46,848)
Deferred taxes 700 -
Accrued liabilities (2,201) (17,028)
----------- -----------
Net cash used by operating activities (279,596) (199,237)
----------- -----------
Cash Flow from investing activities
Construction expenditures and
purchases of equipment (170,271) (708,849)
Vineyard development expenditures (17,067) (432)
Change in investments 29,720 (8,880)
Change in notes receivable (4,728) 6,687
----------- -----------
Net cash used by investing activities (162,346) (711,474)
----------- -----------
Cash Flows from financing activities:
Line of credit borrowings (131,808) 84,376
Capitalized loan fee 1,027 (13,489)
Mortgage loan funds (26,151) 686,085
----------- -----------
Net cash provided by financing activities (156,932) 756,972
----------- -----------
Net decrease in cash and cash equivalents (598,874) (153,739)
Cash and cash equivalents:
Beginning of period 599,895 448,800
End of period $ 1,021 $ 295,061
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The accompanying notes are an integral part of this financial statement.
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WILLAMETTE VALLEY VINEYARDS, INC.
NOTES TO FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The interim financial statements have been prepared by the Company, without
audit and subject to year-end adjustment, in accordance with generally accepted
accounting principles, except that certain information and footnote disclosures
made in the latest annual report have been condensed or omitted for the interim
statements. Certain costs are estimated for the full year and are allocated to
interim periods based on estimates of operating time expired, benefit received,
or activity associated with the interim period. The financial statements
reflect all adjustments which are, in the opinion of management, necessary for
fair presentation.
Effective July 1, 1994, Willamette Valley, Inc. Microbreweries Across America
("WVI"), an affiliated company, formed an administrative, accounting and stock
transfer department to provide services to its subsidiaries and to any
affiliated companies that elected to contract such services. Beginning July 1,
1994 until December 3, 1995, the Company contracted to purchase certain
administrative, accounting, and stock transfer services from WVI rather than
provide those services internally. On December 3, 1995, the Company added
personnel to replace the services which, prior to this date, were provided by
WVI.
2) Inventories by major classifications are summarized as follows:
June 30, December 31,
1996 1995
---------- ----------
Winemaking and packaging materials $ 74,430 $ 71,725
Work-in-progress (costs relating 544,345 942,189
to unprocessed and/or unbottled
wine products)
Finished goods (bottled wines 1,305,885 876,134
and related products) ---------- ----------
$1,924,660 $1,890,048
========== ==========
3) Property and Equipment consist of the following:
June 30, December 31,
1996 1995
---------- ----------
Land and improvements $ 562,217 $ 562,217
Winery building 1,300,410 1,300,410
Equipment 2,016,103 1,860,498
Hospitality Center 2,246,903 2,232,236
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$6,125,633 $5,955,361
Less accumulated depreciation (1,271,727) (1,105,614)
----------- -----------
$4,853,906 $4,849,747
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Revenue
Winery Operations
The Company's revenues from winery operations are summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----- ---- ---- ----
Tasting room and hospitality sales $ 213,303 $176,569 $364,295 $293,410
On-site and off-site festivals 116,435 94,182 192,527 171,400
In state sales 402,699 285,865 709,969 502,468
Out of state sales 239,032 162,605 407,986 362,179
------- ------- ------- -------
Total Revenue $ 971,469 $719,221 $1,674,777 $1,329,457
Tasting Room and Hospitality sales for the three months ended June 30, 1996
increased 21% over the same period in 1995. For the first six months of 1996,
the sales increased 24% over the same period in 1995. The increase in sales
during 1995 was attributable to increased marketing and promotional efforts
along with greater publicity of recent awards. Specifically, the Company
received the prestigious gold medal awards for its 1994 OVB (Our Very Best)
Chardonnay/Shea Vineyards from the Tasters Guild International and for its 1993
OVB Pinot Noir from the World Wine Championships. In addition, the Company's
sales for rental of the new Hospitality room have increased $22,615 in the
second quarter of 1996. This is a direct result of a promotional program
initiated in 1996 to increase rental revenues by marketing our facility through
direct phone contact and advertising at various local events. The Company has
witnessed increased foot traffic in the tasting room from visitors who have
returned to the winery as a direct result of attending an event in the
Hospitality room.
On-site and off-site festival sales for the second quarter of 1996 increased
24% over the second quarter of 1995. For the first half of 1996, sales in this
category increased 12% over the same period in 1995. The Company added some
significant off-site events to its calendar thus increasing the revenue over
1995. In May of 1996 the Memorial Day Festival revenue increased nearly $3,000
over 1995. During the second quarter of 1996, the Company started a wine club
not previously done in 1995 which generated an additional $3,500 in revenue.
Additionally, the Company's new Hospitality Center is a highly-visible landmark
near a major freeway which generates greater interest in the winery and its
festivals.
Sales in the state of Oregon, through the Company's independent sales force,
increased 41% in the second quarter of 1996 from the second quarter of 1995.
For the first half of 1996, the sales increased 41% over the same period in
1995. The Company has hired an in-state sales manager who has added new
accounts and better point-of-sale information, has improved sales management
and has targeted sales of higher margin wines. The Company has made
significant efforts in obtaining shelf space in several large grocery and
wholesale warehouse chains in which the Company had no presence in 1995. Since
the Company has grown to be the largest selling and most successful winery in
Oregon (Oregon Liquor Control Commissions December 1995 comsumption report),
our sales force has been able to secure more and better-located shelf space in
1996.
Out-of-state sales in the second quarter of 1996 have increased 47% over the
second quarter of 1995. In the first half of 1996, these sales increased 13%
over the first six months of 1995. This overall sales increase is a direct
result of the efforts of the Company's new Sales Director who has focused on
developing domestic and international markets. The Company now sells wine in 26
states and six foreign countries. The Company's wines have received significant
awards in out-of-state competitions which has generated demand for the
Company's products outside of the state and has made it possible to establish
long-term agreements with brokers and distributors throughout the United
States. In May of 1996, the Company made a large sale to its English wine
broker in the amount of $69,560.
Gross Profit
Winery Operations
As a percentage of revenue, gross profit from the winery operations increased
to 58% in the second quarter of 1996 as compared to 53% in the second quarter
of 1995. For the first half of 1996, the gross profit from the winery
operations increased to 57% from 54% in 1995. The Company began an aggressive
program to better measure cost reduction through management meetings designed
to monitor actual expenditures against the manager's own operating budget. With
increased education and more frequent financial meetings, the company expects
to better control the costs of goods. In the first half of 1996, the Company
increased its prices both in the Retail and Wholesale departments. This
resulted in an increase in the gross margin percentage over this same time
period in 1995.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased 16% to $444,244 in the
second quarter of 1996 from $383,550 in the second quarter of 1995. Selling,
general, and administration expenses for the first half of 1996 increased 11%
to $830,504 from $751,125 over the same period in 1995. As a percentage of
revenue from winery operations, selling, general and administrative expenses
decreased to 46% in the second quarter of 1996 from 53% in the second quarter
of 1995. For the first six months of 1996, these costs, as a percentage of
revenue, decreased to 50% in 1996 from 56% in 1995. The Company has started a
program in which it has set percentage goals for management to achieve. The
results of which has already shown up in the reduction in the percentage of
S, G, & A of revenue, in both the second quarter of 1996 and the first half of
1996. The staff changes in late 1995 in which the Winery took over control from
WVI of all administrative functions has greatly stabilized the staff and has
reduced cost at the same time.
During the second quarter part of the increase in the quarterly cost was due to
the increased sales volume. Commissions paid to the independent sales force
increased about $ 45,000 over the same period in 1995. Since commissions are
based on a percentage of revenue, there is no adverse affect in the income
ratio.
Another significant increase was in the Retail Department for increase labor to
staff the new Hospitality Center. This is offset in part by the increase in
revenues generated from making the winery a major center for tourists,
conventions, weddings and other meetings.
Other Income and Expense
Interest income decreased to $2,363 for the second quarter of 1996 from $3,574
for the second quarter of 1996. For the first half of 1996, the interest
income decreased slightly to $9,051 from $11,362 in 1995.
Interest expense has increased to $47,166 in the second quarter of 1996 from
$46,162 in 1995 due to the funds borrowed for the Hospitality Center. For the
first half of 1996, interest expense has increased to $96,141 from $51,862.
This increase was due to the fact that for the first months of 1995 part of
expense was capitalized with the construction of the new Hospitality Center.
Income Taxes
Although the Company has a small net operating income at June 30, 1996, they do
not anticipate any income tax liability for this period due to the annual
difference between book and tax methods of calculating net income. There was no
tax provisions for the second quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had a working capital balance of $2.0 million and
a current ratio of 7:1. At December 31, 1995 , the Company had a working
capital balance of $2.0 million and a current ratio of 3:1. The increase in
the current ratio is primarily due to the final payment in the first half of
1996 for grapes purchased in the prior year. Also, as part of the increased
crush for 1996, the Company has spent funds to purchase additional wine barrels
and other equipment.
The Company obtained a line of credit of $500,000 from Farm Credit Services
during 1995 and will expire in March of 1997 . At June 30, 1996, outstanding
borrowings against the line of credit totaled $29,492.
The Company has completed the new Hospitality Center located at the Winery and
financed an increase in production capacity in 1995. This debt of nearly two
million dollars from Farm Credit Service will be repaid over a term of twenty
years. With the new Hospitality Center, the Company projects to increase rental
activity in the next several years between $50,000 to $150,000. This expansion
of the winery production facility increased its current capacity in 1995 of
49,000 cases of wine per year to 65,000 cases per year in 1996.
At June 30, 1996, the Company has entered into grape contracts for the 1995
fall production crop which amounts to approximately $1.243M.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None.
(b) No reports were filed on Form 8-K during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLAMETTE VALLEY VINEYARDS, INC.
Date:________ By: ______________________
Kevin Chambers
General Manager