SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2004
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, 2004
4,485,978 shares, no par value
Transitional Small Business Disclosure
[ ] YES [X] NO
WILLAMETTE VALLEY VINEYARDS, INC.
INDEX TO FORM 10-QSB
Part I - Financial Information
Item 1--Financial Statements
Balance Sheet
Statement of Operations
Statement of Cash Flows
Notes to Consolidated Financial Statements
Item 2--Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3--Controls and Procedures
Part II - Other Information
Item 1--Exhibits and Reports of Form 8-K
Item 5--Other Information
Signatures
PART 1 FINANCIAL INFORMATION
ITEM 1
Financial Statements
WILLAMETTE VALLEY VINEYARDS, INC.
Balance Sheet
June 30, December 31,
2004 2003
(unaudited)
ASSETS __________ __________
Current assets
Cash and cash equivalents $ 67,876 $ 213,681
Accounts receivable trade, net 616,206 796,836
Inventories 7,785,779 7,335,378
Prepaid expenses and other
current assets 60,909 46,565
Income taxes receivable - 81,670
Deferred income taxes 174,323 174,323
__________ __________
Total current assets 8,705,093 8,648,453
Vineyard development cost, net 1,700,671 1,698,970
Inventories 552,414 552,414
Property and equipment, net 4,551,972 4,698,915
Notes receivable from officer and other 68,374 66,134
Debt issuance costs, net 60,676 62,805
Other assets 207,416 215,148
__________ __________
Total assets $15,846,616 $15,942,839
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit $ 1,034,407 $ 1,130,516
Current portion of long-term debt 250,291 250,291
Accounts payable 796,981 752,219
Accrued expenses 445,511 459,219
Income taxes payable 49,108 -
Grapes payable 514,293 669,714
__________ __________
Total current liabilities 3,090,591 3,261,959
Long-term debt 2,559,134 2,693,108
Distributor obligation 1,500,000 1,500,000
Deferred rent liability 120,390 108,995
Deferred gain 387,251 399,743
Deferred income taxes 300,856 300,856
__________ __________
Total liabilities 7,958,222 8,264,661
__________ __________
Shareholders' equity
Common stock, no par value - 10,000,000
shares authorized, 4,485,978 and 4,479,478
shares issued and outstanding at June 30,
2004 and December 31, 2003 7,181,639 7,167,589
Retained earnings 706,755 510,589
__________ __________
Total shareholders' equity 7,888,394 7,678,178
__________ __________
Total liabilities and shareholders'
equity $15,846,616 $15,942,839
========== ==========
The accompanying notes are an integral part of these financial statements.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Operations
(unaudited)
Three months ended June 30, Six months ended June 30,
2004 2003 2004 2003
__________ __________ __________ __________
Net revenues
Case revenue $ 2,096,773 $ 1,545,706 $ 3,931,383 $ 2,883,892
Custom crush-facility lease-
bulk revenue 7,041 8,640 16,057 163,815
__________ __________ __________ __________
Total net revenues 2,103,814 1,554,346 3,947,440 3,047,707
Cost of sales
Case 1,061,808 744,882 1,945,827 1,375,339
Bulk - 6,324 - 121,611
__________ __________ __________ __________
Total cost of sales 1,061,808 751,206 1,945,827 1,496,950
Gross margin 1,042,006 803,140 2,001,613 1,550,757
Selling, general and administrative
expenses 846,570 670,176 1,539,933 1,294,341
__________ __________ __________ __________
Net operating
income 195,436 132,964 461,680 256,416
Other income (expense)
Interest income 1,346 1,313 2,548 2,627
Interest expense (75,440) (86,411) (151,822) (173,532)
Other income
(expense) - 1,076 14,538 26,999
__________ __________ __________ __________
Net income before
income taxes 121,342 48,942 326,944 112,510
Income tax 48,537 19,611 130,778 45,038
__________ __________ __________ __________
Net income 72,805 29,331 196,166 67,472
Retained earnings beginning of
period 633,950 410,510 510,589 372,369
__________ __________ __________ __________
Retained earnings
end of period $ 706,755 $ 439,841 $ 706,755 $ 439,841
========== ========== ========== ==========
Basic earnings per
common share $ .02 $ .01 $ .04 $ .02
Diluted earnings per
common share $ .02 $ .01 $ .04 $ .02
Weighted average number of
basic common shares
outstanding 4,485,780 4,474,854 4,484,030 4,473,663
Weighted average number of
diluted common shares
outstanding 4,567,637 4,474,854 4,565,887 4,473,663
The accompanying notes are an integral part of these financial statements.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Six months ended June 30,
2004 2003
__________ __________
Cash flows from operating activities:
Net income $ 196,166 $ 67,472
Reconciliation of net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 325,541 363,721
Loss (gain) on disposal of fixed assets 1,898 (3,004)
Stock issued for compensation 11,500 8,819
Changes in assets and liabilities:
Accounts receivable trade 180,630 66,817
Inventories (450,401) 94,242
Prepaid expenses and other
current assets (14,344) 12,173
Note receivable (2,240) (2,075)
Other assets 7,732 8,657
Accounts payable 44,762 (135,935)
Accrued commissions and payroll costs (13,708) 1,640
Income taxes payable 130,778 (24,084)
Grape payables (155,421) (303,555)
Deferred rent liability 11,395 11,396
Deferred gain (12,492) (12,492)
__________ __________
Net cash provided by
operating activities 261,796 153,792
__________ __________
Cash flows from investing activities;
Additions to property and equipment (130,518) (70,238)
Vineyard development expenditures (40,462) (6,057)
Proceeds from the sale of property
and equipment - 15,128
Investments - 1,000
__________ __________
Net cash used in investing activities (170,980) (60,167)
__________ __________
Cash flows from financing activities:
Debt issuance costs (9,088) (12,710)
Net decrease in line of
Credit balance (96,109) (307,097)
Proceeds from stocks options exercised 2,550 -
Repayments of long-term debt (133,974) (129,565)
__________ __________
Net cash used in financing activities (236,621) (449,372)
__________ __________
Net decrease in cash and
cash equivalents (145,805) (355,747)
Cash and cash equivalents:
Beginning of period 213,681 632,183
__________ __________
End of period $ 67,876 $ 276,436
========== ==========
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The accompanying unaudited financial statements as of and for the three and
six months ended June 30, 2004 and 2003, have been prepared in conformity with
accounting principles generally accepted in the United States. The financial
information as of December 31, 2003, is derived from the audited financial
statements presented in the Willamette Valley Vineyards, Inc. (the "Company")
Annual Report on Form 10-KSB for the year ended December 31, 2003. Certain
information or footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, the accompanying
financial statements include all adjustments necessary (which are of a normal
and recurring nature) for the fair presentation of the results of the interim
periods presented. The accompanying financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 2003, as presented in the Company's Annual Report on Form 10-KSB.
Operating results for the three and six months ended June 30, 2004, are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2004, or any portion thereof.
The Company has a single operating segment consisting of the retail, instate
self-distribution and out of state sales departments. These departments have
similar economic characteristics, offer comparable products to customers, and
utilize similar processes for production and distribution.
Basic earnings per share are computed based on the weighted-average number of
common shares outstanding each period. Diluted earnings per share are computed
using the weighted average number of shares of common stock and dilutive common
equivalent shares outstanding during the year. Common equivalent shares from
stock options and other common stock equivalents are excluded from the
computation when their effect is anti-dilutive. There were total common stock
equivalent shares of 81,857 shares included in the computation of dilutive
earnings per share for the three and six-month period ended June 30, 2004.
Options to purchase shares of common stock outstanding at June 30, 2003 were
not included in the computation of diluted earnings per share for the three
and six-month period ended June 30, 2003 because the exercise prices were
greater than fair value.
2) STOCK BASED COMPENSATION
The Company accounts for the employee and director stock options in accordance
with provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees. Pro forma disclosures as required under SFAS
No. 123, Accounting for Stock Based Compensation, and as amended by SFAS
No. 148, Accounting for Stock Based Compensation - Transition and Disclosure,
are presented below.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards consistent with the
provisions of SFAS No. 123, the Company's net earnings would have been reduced
to the pro forma amounts indicated as follows for the three and six months
ended June 30:
Three months ended June 30, Six months ended June 30,
2004 2003 2004 2003
(unaudited) (unaudited) (unaudited) (unaudited)
__________ __________ __________ __________
Net income,
as reported $ 72,805 $ 29,331 $ 196,166 $ 67,472
Add stock-based
employee compensation
expense included in
reported net income,
net of related tax
effects - - 11,500 8,819
Deduct total stock based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
effects (5,124) (5,948) (18,033) (20,715)
__________ __________ __________ __________
Pro forma net
income $ 67,681 $ 23,383 $ 189,633 $ 55,576
Earnings per share:
Basic -
as reported $ 0.02 $ 0.01 $ 0.04 $ 0.02
Basic -
pro forma $ 0.02 $ 0.01 $ 0.04 $ 0.01
Diluted -
as reported $ 0.02 $ 0.01 $ 0.04 $ 0.02
Diluted -
pro forma $ 0.01 $ 0.01 $ 0.04 $ 0.01
For purposes of disclosure, the Black-Scholes option pricing model was used to
calculate fair values for stock options granted. The estimated fair value of
the options is amortized to expense over the options' vesting period.
3) INVENTORIES BY MAJOR CLASSIFICATION ARE SUMMARIZED AS FOLLOWS:
June 30, December 31,
2004 2003
(unaudited)
__________ __________
Winemaking and packaging materials $ 140,181 $ 80,886
Work-in-progress (costs relating
to unprocessed and/or bulk
wine products) 2,136,742 1,982,469
Finished goods (bottled wines 6,061,270 5,824,437
and related products) __________ __________
8,338,193 7,887,792
Less: amounts designated for distributor (552,414) (552,414)
__________ __________
Current inventories $ 7,785,779 $ 7,335,378
========== ==========
4) PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
June 30, December 31,
2004 2003
(unaudited)
__________ __________
Land and improvements $ 984,256 $ 976,838
Winery building and hospitality center 4,647,272 4,577,467
Equipment 4,979,294 4,933,329
__________ __________
10,610,822 10,487,634
Less accumulated depreciation (6,058,850) (5,788,719)
__________ __________
$ 4,551,972 $ 4,698,915
========== ==========
5) SUBSEQUENT EVENTS:
None.
ITEM 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward Looking Statement:
This Management's Discussion and Analysis of Financial Condition and Results of
Operation and other sections of this Form 10-QSB contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements involve risks and uncertainties that
are based on current expectations, estimates and projections about the
Company's business, and beliefs and assumptions made by management. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and variations of such words and similar expressions are intended
to identify such forward-looking statements. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements due to numerous factors, including, but not limited
to: availability of financing for growth, availability of adequate supply of
high quality grapes, successful performance of internal operations, impact of
competition, changes in wine broker or distributor relations or performance,
impact of possible adverse weather conditions, impact of reduction in grape
quality or supply due to disease, impact of governmental regulatory decisions,
and other risks detailed below as well as those discussed elsewhere in this
Form 10-QSB and from time to time in the Company's Securities and Exchange
Commission filings and reports. In addition, such statements could be affected
by general industry and market conditions and growth rates, and general
domestic economic conditions.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
Revenues increased in the three and six months ended June 30, 2004 compared to
the prior year period, particularly in the six month period where total revenue
increased 30%. This was due primarily to increased sales through the Bacchus
Fine Wines and out of state sales departments. While total costs of sales and
selling, general and administrative expenses also increased in both the three
and six months periods, net operating income increased approximately 47% for
the three months ended June 30, 2004 and 80% for the six months ended June 30,
2004, compared in each case to the prior year period. Net income before taxes
increased 148% and 191% for the three and six month periods ended June 30, 2004
compared to the prior year periods and earnings per share doubled in each of
the three and six month periods ended June 30, 2004 compared to the prior year
period. This was due entirely to the increase in our net revenue for those
periods.
We expect revenues to increase in the future because of the continued growth of
Bacchus Fine Wines. We also expect total costs of sales and selling, general
and administrative expense to increase.
The Company has hired a viticulture consultant to improve vineyard care and
increase wine quality. The winemaker and vineyard manager have spent one day
each week with her this quarter, resulting in a number of vineyard improvements
including using straw under the vine rows to increase natural soil nutrition
and as well as using other organic methods of improving vine health. These
activities have resulted in higher per acre costs. We believe these higher
costs will be offset by increased quality of grapes, which should result in our
wines demanding premium pricing, and increasing revenues.
The gross margin is higher than expected, elevating profitability. As our
distribution in Oregon of wines produced by others grows, we expect this gross
margin to fall. Therefore, we believe conclusions should not be drawn by this
Quarter's favorable gross margin.
Also in this quarter, the Company favorably resolved its review of invoices to
the out-of-state distribution network and bill-backs received by this network
and credits taken against Company invoices by this network. This review
resulted in the reduction of sample and sales allowance expenses and thereby
providing a one time increase in profitability in this quarter.
As a result of the Sarbanes-Oxley Act and accompanying regulations relating to
public company financial reporting, we are expecting to incur significantly
greater costs, including accounting, legal and consulting fees in the future.
We anticipate these fees will reduce the Company's profitability in future
periods.
Revenues from Bacchus Fine Wines, the Company's wholesale wine distribution
department, increased 54% in the 2nd Quarter of 2004 compared to the same
period in 2003. At the same time, expenses attributable to Bacchus' operations
increased at a higher rate(68%) and exceeded planned expenses for the three
months ended June 30, 2004 compared to the prior year period. We believe we
are in an infrastructure building stage, which will be supported by increased
sales in the future, thereby spreading these new fixed costs over greater
volume and increasing profitability. Sales of Company produced products
through Bacchus Fine Wines increased 8% and sales of products produced by other
wineries increased 570% in the three months ended June 30, 2004 compared to the
prior year period.
Out-of-state sales to distributors increased 36% for the three months ended
June 30, 2004 compared to the prior year period with lower selling costs than
in the comparable prior year period, as well as budget. The unusual sale of
the remaining stock of 2002 Pinot gris to United Airlines for its First Class
Cabin wine service on international and transcontinental flights in the three
months ended June 30, 2004 contributed to these positive results. This same
wine was named in USA Today as one of the top white wines of summer, in an
article written March 26, 2004, titled, "The Pours of Summer". We believe the
Company will need to increase sales expenses, in particular out-of-state travel
to distributor markets, to increase retail and restaurant account calls to
remain competitive with other wine producers. These additional costs could
reduce future profitability.
Retail revenues were down 6% in the three months ended June 30, 2004 compared
to the prior year period due primarily to lower direct sales made by the
Company's key customer sales representatives. Staff turnover with vacancies
in these positions is the primary reason for these lower sales. Higher
tasting room sales in the three months ended June 30, 2004 compared to the
prior year period did not completely offset the direct sale revenue
reductions. Results have improved at the Tualatin winery as compared to the
prior year since we leased a portion of the facility to our former head
winemaker which generated rent income of $6,909 and $15,924, respectively for
the three and six months ended June 30, 2004.
The Company's wines continued to receive strong reviews from prominent
reviewers. Willamette Valley Vineyards 2003 Pinot gris received an
"Exceptional" rating from renowned wine critic Dan Berger and was awarded the
"Sweepstakes White" wine, one of the top awards from among 1,600 wines
submitted at the Long Beach Grand Cru.
RESULTS OF OPERATIONS
Revenue
The Company's revenues are summarized as follows:
Three months ended June 30, Six months ended June 30,
2004 2003 2004 2003
__________ __________ __________ __________
Tasting Room Sales and
Rental Income $ 331,363 $ 351,414 $ 659,122 $ 647,081
On-site and off-site
festivals 11,766 21,826 61,735 64,997
In state sales 1,171,162 758,465 2,072,989 1,348,997
Out of state sales 649,470 478,770 1,246,648 926,806
Bulk wine/
Misc. sales 7,041 8,640 16,057 163,815
__________ __________ __________ __________
Total Revenue 2,170,802 1,619,115 4,056,551 3,151,696
Less Excise Taxes 66,988 64,769 109,111 103,989
__________ __________ __________ __________
Net Revenue $ 2,103,814 $ 1,554,346 $ 3,947,440 $ 3,047,707
========== ========== ========== ==========
Tasting room and retail sales, and rental income for the three months ending
June 30, 2004 decreased 6% to $331,363 in 2004 from $351,414 for the comparable
period in 2003. For the six months ended June 30, 2004 sales increased 2% over
the comparable prior year period. Tasting room and retail sales decreased
during the second quarter of 2004 due in part to staff turnover and vacancies
in key customer sales.
On-site and off-site festival sales for the three months ended June 30, 2004
decreased 46% to $11,766 from $21,826 compared to the prior year period, and
decreased 5% for the six months ended June 30, 2004 compared to the prior year
period. These decreases are due primarily to the continuing focus away from
on-site and off-site events, in favor of telephone, mail order and retail
sales.
Sales in the state of Oregon, through the Company's independent sales force
and through direct sales from the winery, increased 54% to $1,171,162 in the
three months ended June 30, 2004 from $758,465 as compared to the prior year
period. Sales through the Company's independent sales force alone for the
three months ended June 30, 2004 increased 60% to $949,675 from $593,566 from
the comparable prior year period. The Company's direct instate sales to our
largest customer increased 153% to $193,067 from $76,328 in the three months
ended June 30, 2004 compared to the prior year period. These increases are
largely the result of the improved sales management and broader product lines
presented through the development of Bacchus Fine Wines.
Out-of-state sales in the three months ended June 30, 2004 increased 36% to
$649,470 from $478,770 compared to the prior year period. During the six
months ended June 30, 2004, sales increased 35% compared to the prior year
period. The higher sales are a result of increased promotional allowances
offered to distributors by the Company that are resulting in higher depletions
by the Company's distributors.
Excise taxes
The Company's excise taxes increased in the three months ended June 30, 2004
to $66,988 from $64,769 compared to the prior year period, and increased to
$109,111 from $103,689 for the six months ended June 30, 2004 compared to the
prior year period. This was due largely to the increased sales in the three
months ended June 30, 2004, increasing overall sales volumes and taxes paid
by volume.
In February and March of 2004, the Alcohol and Tobacco Tax and Trade Bureau of
the U.S. Treasury Department audited the Company's excise tax. The preliminary
result of this audit was back excise taxes due principally to the Company's
incorrect application of the federal small winery tax credit. Congress
previously increased wine taxes from 17 cents to $1.07 per gallon but provided
a 90-cent exemption for small wineries on the first 100,000 gallons produced.
This credit declines when production surpasses 150,000 gallons by 1% for every
additional 1,000 gallons. The Company's error in the application of this
credit may also result in penalty and interest assessments due in part to the
requirement that tax returns must be accurately filed every two weeks.
Although sales declined in 2002, the tax rate on those sales actually rose due
to the processing of the large amount of grape tonnage in the past several
years. Although the exact amount of any back taxes, accrued interest and
penalties, if any, is not known, we included in accrued expenses for
December 31, 2003 and June 30, 2004, an estimate of $80,000 in relation to
expected back excise taxes due.
Gross Margin
As a percentage of net revenue, gross margin decreased to 50% in the three
months ended June 30, 2004 as compared to 52% in the comparable prior year
period. Gross margin for the six months ended June 30, 2004 and the comparable
prior year period was approximately 51%. While the Company is continuing its
focus on, and improved distribution of, higher margin products, as well as
continuing to reduce grape and production costs, we anticipate the Company's
increased representation of brands other than its own through its Oregon sales
force will further erode the gross margins due to the lower margins associated
with selling those brands.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased to $846,570 in the
three months ended June 30, 2004 from $670,176 in the comparable prior year
period. Selling, general and administrative expenses increased to $1,539,933
for the six months ended June 30, 2004 from $1,294,341 for the comparable prior
year period. As a percentage of net revenue from winery operations, selling,
general and administrative expenses decreased to 40% in the three months ended
June 30, 2004 from 43% in the comparable prior year period, and to 39% in the
six months ended June 30, 2004 from 42% in the comparable prior year period,
primarily as a result of increased revenues.
Interest Income, Other Income and Expense
Interest income increased to $1,346 for the three months ended June 30, 2004
from $1,313 for the comparable prior year period. Interest expense decreased
to $75,440 for the three months ended June 30, 2004 compared to $86,411 in the
comparable prior year period. Interest income decreased to $2,548 the six
months ended June 30, 2004 compared to $2,627 for the comparable prior year
period. Interest expense decreased to $151,822 for the six months ended
June 30, 2004 compared to $173,532 in the comparable prior year period.
Interest costs were lower primarily due to less debt outstanding during the
period.
The Company's other income is summarized as follows:
Three months ended June 30, Six months ended June 30,
2004 2003 2004 2003
__________ __________ __________ __________
Gain on Tualatin
bare land sale $ - $ - $ - $ 3,004
Farm Credit interest
rebate - - 14,504 22,617
Miscellaneous rebates - 1,076 34 1,378
__________ __________ __________ __________
Other income
(expense) $ - $ 1,076 $ 14,538 $ 26,999
Income Taxes
As the Company experienced a net profit for the three and six months ended
June 30, 2004, we accrued $48,537 in income tax expense for the three months
ended June 30, 2004, making the total accrued $130,778 for the six months
ended June 30, 2004. The Company's estimated tax rate for the three and six
months ended June 30, 2004 was 40 percent.
Liquidity and Capital Resources
At June 30, 2004, the Company had a working capital balance of $5.6 million
and a current ratio of 2.82:1. At December 31, 2003, the Company had a
working capital balance of $5.4 million and a current ratio of 2.65:1. The
Company had a cash balance of $67,876 at June 30, 2004.
Total cash provided by operating activities in the six months ended June 30,
2004 was $261,796 compared to $153,792 in the prior year period. Cash provided
by operating activities in the six months ended June 30, 2004 was comprised of
net income of $196,166 plus depreciation of $325,541 less changes in assets
and liabilities and other non-cash charges of $259,911. Cash provided by
operating activities in the six months ended June 30, 2003 was comprised of
net income of $67,472 plus depreciation of $363,721 less changes in assets and
liabilities and other non-cash charges of $277,401.
Total cash used in investing activities in the six months ended June 30, 2004
was $170,980 compared to $60,167 in the prior year period. Cash used in
investing activities comprised of property and equipment additions and
vineyard development costs.
Total cash used in financing activities in the six months ended June 30, 2004
was $236,621 compared to $449,372 in the prior year period. Cash used in
financing activities was primarily comprised of payments on the long term debt
(2004 $133,974 and 2003 $129,565) and payments on the line of credit
(2004 $96,109 and 2003 $307,097).
At June 30, 2004, the line of credit balance was $1,034,407 compared to
$1,130,516 on December 31, 2003. The Company's loan agreement with GE
Commercial Distribution Finance Corporation contains certain restrictive
financial covenants with respect to total equity, debt-to-equity and debt
coverage, which must be maintained by the Company on a quarterly basis. As of
June 30, 2004, the Company was in compliance with all of the financial
covenants.
As of June 30, 2004, the Company had a total long-term debt balance of
$2,809,425 owed primarily to Farm Credit Services. This debt was used to
finance the Hospitality Center, invest in winery equipment to increase the
Company's winemaking capacity, complete the storage facility, and purchase
Tualatin Vineyards.
At June 30, 2004, the Company owed $514,293 on grape contracts. A large
portion is owed to a single grape grower, which will be paid as the wine made
from those grapes is sold.
The Company believes that cash flow from operations and funds available under
credit facilities will be sufficient to meet the Company's liquidity
requirements for the next 12 months.
Critical Accounting Policies:
The discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to revenue recognition, collection of accounts receivable,
valuation of inventories, and amortization of vineyard development costs. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or conditions. A
description of our critical accounting policies and related judgments and
estimates that affect the preparation of our financial statements is set forth
in our Annual Report on Form 10-KSB for the year ended December 31, 2003.
ITEM 3
Controls and Procedures
a) We carried out an evaluation, under the supervision and with the
participation of the Chief Executive Officer, Chief Financial Officer and other
management personnel, of the effectiveness of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and
Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the our disclosure controls and
procedures as of June 30, 2004 were effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission's rules and forms.
The Company does not expect that its disclosure controls and procedures will
prevent all error and all fraud. A control procedure, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control procedure are met. Because of the inherent
limitations in all control procedures, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the control. The Company considered
these limitations during the development of it disclosure controls and
procedures, and will continually reevaluate them to ensure they provide
reasonable assurance that such controls and procedures are effective.
b) There were no changes in the Company's internal control procedures over
financial reporting that occurred during the three months ended June 30, 2004
that have materially affected, or are reasonably likely to materially affect,
the our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1
Exhibits and Reports on Form 8-K.
a) The exhibits filed herewith are listed in the Exhibit Index following the
signature page of this report.
b) No reports on Form 8-K were filed during the three months ended June 30,
2004.
ITEM 5
Other Information
Non-Audit Fees:
The Audit Committee of the Board Of Directors has approved the following
non-audit services, which are being performed by PricewaterhouseCoopers, our
independent accountants, during the calendar year ending December 31, 2004:
- Income tax advisory services related to: income tax returns;
acquisitions
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLAMETTE VALLEY VINEYARDS, INC.
Date: August 13, 2004 By /s/ James W. Bernau
James W. Bernau
President
Date: August 13, 2004 By /s/ Sean M. Cary
Sean M. Cary
Controller
EXHIBIT INDEX
Exhibit
31.1 Certification by James W. Bernau pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934
31.2 Certification by Sean M. Cary pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.