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, 2005
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, 2005
4,486,278 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
Item 5--Other Information
Signatures
PART 1 FINANCIAL INFORMATION
ITEM 1 Financial Statements
WILLAMETTE VALLEY VINEYARDS, INC.
Balance Sheet
June 30, December 31,
2005 2004
(unaudited)
ASSETS. __________ __________
Current Assets:
Cash and cash equivalents $ 89,812 $ 851,492
Accounts receivable trade, net 1,045,352 908,510
Inventories 7,217,914 7,827,982
Prepaid expenses and other
current assets 99,212 53,059
Deferred income taxes 109,401 109,401
__________ __________
Total current assets 8,561,691 9,750,444
Vineyard development cost, net 1,614,292 1,482,348
Inventories 571,355 571,355
Property and equipment, net 4,102,628 4,254,526
Note receivable - 5,000
Debt issuance costs, net 38,985 42,561
Other assets 81,021 82,315
__________ __________
Total assets $14,969,972 $16,188,549
========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Line of credit $ 134,479 $ 1,232,251
Current portion of long term debt 257,957 257,957
Accounts payable 588,300 510,803
Accrued expenses 479,647 526,860
Income taxes payable 84,924 278,970
Grapes payable 428,886 592,390
__________ __________
Total current liabilities 1,974,193 3,399,231
Long-term debt 2,150,564 2,331,987
Distributor obligation 1,500,000 1,500,000
Deferred rent liability 148,278 131,785
Deferred gain 458,261 474,309
Deferred income taxes 212,975 212,975
__________ __________
Total liabilities 6,444,271 8,050,287
__________ __________
Shareholders' equity
Common stock, no par value - 10,000,000
shares authorized, 4,501,228 and 4,486,278
shares issued and outstanding at June 30,
2005 and December 31, 2004 7,205,489 7,182,329
Retained earnings 1,320,212 955,933
__________ __________
Total shareholders' equity 8,525,701 8,138,262
__________ __________
Total liabilities and shareholders'
equity $14,969,972 $16,188,549
========== ==========
The accompanying notes are an integral part of this financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Operations
(unaudited)
Three months ended June 30, Six months ended June 30,
2005 2004 2005 2004
__________ __________ __________ __________
Net revenues
Case revenue $ 3,500,676 $ 2,096,773 $ 5,785,314 $ 3,931,383
Custom crush-facility lease-
bulk revenue 11,823 7,041 102,263 16,057
__________ __________ __________ __________
Total net revenues 3,512,499 2,103,814 5,887,577 3,947,440
Cost of sales
Case 1,931,401 1,061,808 3,161,917 1,945,827
Bulk - - 55,926 -
__________ __________ __________ __________
Total cost of sales 1,931,401 1,061,808 3,217,843 1,945,827
Gross profit 1,581,098 1,042,006 2,669,734 2,001,613
Selling, general and administrative
expenses 1,069,561 842,970 1,961,984 1,532,733
__________ __________ __________ __________
Net operating
income 511,537 199,036 707,750 468,880
Other income (expense)
Interest income 260 1,346 426 2,548
Interest expense (52,597) (75,440) (118,380) (151,822)
Other income
(expense) - - 17,336 14,538
__________ __________ __________ __________
Net income before
income taxes 459,200 124,942 607,132 334,144
Income tax 183,680 49,977 242,853 133,658
__________ __________ __________ __________
Net income 275,520 74,965 364,279 200,486
Retained earnings beginning of
period 1,044,692 617,772 955,933 492,251
__________ __________ __________ __________
Retained earnings
end of period $ 1,320,212 $ 692,737 $ 1,320,212 $ 692,737
========== ========== ========== ==========
Basic earnings per
common share $ .06 $ .02 $ .08 $ .04
Diluted earnings per
common share $ .06 $ .02 $ .08 $ .04
Weighted average number of
basic common shares
outstanding 4,492,602 4,485,780 4,489,573 4,484,030
Weighted average number of
diluted common shares
outstanding 4,598,281 4,567,637 4,595,252 4,565,887
The accompanying notes are an integral part of this financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Six months ended June 30,
2005 2004
__________ __________
Cash flows from operating activities:
Net income $ 364,279 $ 200,486
Reconciliation of net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 276,843 325,541
Loss on disposal of fixed assets - 1,898
Stock issued for compensation - 11,500
Changes in assets and liabilities:
Accounts receivable trade (136,842) 180,630
Inventories 610,068 (450,401)
Prepaid expenses and other
current assets (46,153) (14,344)
Note receivable 5,000 (2,240)
Other assets 1,294 532
Accounts payable 77,497 44,762
Accrued expenses (47,213) (13,708)
Income taxes payable (194,046) 133,658
Grape payables (163,504) (155,421)
Deferred rent liability 16,493 11,395
Deferred gain (16,048) (12,492)
__________ __________
Net cash provided by
operating activities 747,668 261,796
__________ __________
Cash flows from investing activities;
Additions to property and equipment (77,596) (130,518)
Vineyard development expenditures (171,095) (40,462)
__________ __________
Net cash used in investing activities (248,691) (170,980)
__________ __________
Cash flows from financing activities:
Debt issuance costs (4,622) (9,088)
Net (decrease) increase in line of
credit balance (1,097,772) (96 109)
Proceeds from stock options exercised 23,160 2,550
Repayments of long-term debt (181,423) (133,974)
__________ __________
Net cash used in
financing activities (1,260,657) (236,621)
__________ __________
Net increase (decrease) in cash and
cash equivalents (761,680) (145,805)
Cash and cash equivalents:
Beginning of period 851,492 213,681
__________ __________
End of period $ 89,812 $ 67,876
========== ==========
The accompanying notes are an integral part of this financial statement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
1) BASIS OF PRESENTATION
The accompanying unaudited financial statements as of and for the three and
six months ended June 30, 2005 and 2004, have been prepared in conformity with
accounting principles generally accepted in the United States. The financial
information as of December 31, 2004, 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, 2004. 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
recurring nature) for the fair statement 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, 2004, as presented in the Company's Annual Report on Form 10-KSB.
Operating results for the three and six months ended June 30, 2005, are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2005, 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 potentially
dilutive common shares outstanding during the year. Potentially dilutive
shares from stock options and other potentially dilutive shares are excluded
from the computation when their effect is anti-dilutive. Potentially dilutive
shares of 105,679 shares are included in the computation of dilutive earnings
per share for the three and six months ended June 30, 2005. Total potentially
dilutive shares of 81,857 shares are included in the computation of dilutive
earnings per share for the three and six months ended June 30, 2004.
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,
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)
__________ __________ __________ __________
Net income,
as reported $ 275,520 $ 74,965 $ 364,279 $ 200,486
Add stock-based
employee compensation
expense included in
reported net income,
net of related tax
effects - - - 11,500
Deduct total stock based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
effects (44,918) (5,124) (89,835) (18,033)
__________ __________ __________ __________
Pro forma net
income $ 230,602 $ 69,841 $ 274,444 $ 193,953
Earnings per share:
Basic -
as reported $ 0.06 $ 0.02 $ 0.08 $ 0.04
Basic -
pro forma $ 0.06 $ 0.02 $ 0.08 $ 0.04
Diluted -
as reported $ 0.06 $ 0.02 $ 0.08 $ 0.04
Diluted -
pro forma $ 0.05 $ 0.02 $ 0.06 $ 0.04
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.
During the three months ended June 30, 2005, the following transactions
related to stock option exercise occurred:
Exercise
Shares price
Stock Options Exercised 1,000 $ 2.75
4,000 1.7188
5,000 1.507
4,000 1.50
3) INVENTORIES BY MAJOR CLASSIFICATION ARE SUMMARIZED AS FOLLOW:
June 30, December 31,
2005 2004
(unaudited)
__________ __________
Winemaking and packaging materials $ 32,092 $ 134,059
Work-in-progress (costs relating
to unprocessed and/or bulk
wine products) 1,709,824 1,891,681
Finished goods (bottled wines 6,047,353 6,373,597
and related products) __________ __________
7,789,269 8,399,337
Less: amounts designated for distributor (571,355) (571,355)
__________ __________
Current inventories $ 7,217,914 $ 7,827,982
========== ==========
4) PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
June 30, December 31,
2005 2004
(unaudited)
__________ __________
Land and improvements $ 769,644 $ 769,644
Winery building and hospitality center 4,694,551 4,647,272
Equipment 3,835,392 3,805,075
__________ __________
9,299,587 9,221,991
Less accumulated depreciation (5,196,959) (4,967,465)
__________ __________
$ 4,102,628 $ 4,254,526
========== ==========
5) SUBSEQUENT EVENTS:
In August 2005, the Company completed negotiations to immediately repay the
distributor obligation incurred during 2001 when the Company entered into a
distribution agreement with a national wine distributor group (the
"distributor"), whereby the distributor paid the Company $1,500,000 for a base
amount of bottled wine. The Company will refinance the distributor obligation
with a new business loan agreement with Umpqua Bank which provides for
borrowings of $1,500,000. The agreement calls for an interest rate of 6.01
percent, and 8 quarterly payments of $200,593 including principal and interest
beginning in November of 2005. The agreement also contains, among other
things, certain restrictive financial covenants with respect to total equity,
debt-to-equity and debt coverage. The borrowings are collateralized by the
case goods inventory.
ITEM 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward Looking Statements
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.
Critical Accounting Policies:
The foregoing 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 Management 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, 2004.
Overview
The Company achieved its highest performing Quarterly results in its history.
Sales Revenue increased 67% and Net Income before taxes increased 268% for the
three months ended June 30, 2005 as compared to the prior year period, and
increased 49% and 82%, respectively, for the six months ended June 30, 2005 as
compared to the prior year period. These increased sales allowed the Company
to pay down its line of credit with Umpqua Bank by $1,130,580 resulting in
reduced interest costs for the three and six months ended June 30, 2005 which
are expected to continue in future periods. Earnings per share increased
$0.04 for the three and six months ended June 30, 2005 to $0.06 and $0.08,
respectively, compared to $0.02 and $0.04 for the comparable periods in 2004.
The primary reason for the increases in sales revenue and profitability during
the three and six months ended June 30, 2005 was sales to out-of-state
distributors, which increased 102% and 63% for the three and six months ended
June 30, 2005 as compared to the respective prior year periods. We believe
that a generally favorable business climate, heightened consumer awareness
about Pinot Noir (the Company's flagship varietal) generated by the movie
"Sideways," and the Company's sales programs are influencing these record
sales. Depletions of the Company's wines from these distributors to their
retail customers increased 62% and 52% during the three and six months ended
June 30, 2005 as compared to the respective prior year periods - the highest
percentage increase in terms of case volume ever experienced.
The Company continues to benefit from the national exposure provided by the
airing of Rachael Ray's $40 a Day on the Food Network and PBS's Caprial and
John's Kitchen, where the Company has been featured. The Company's wines
continued to receive strong reviews. The '04 Pinot Gris received four gold
medals in 2005 from the Long Beach Grand Cru Wine Awards, San Francisco
International Wine Awards, L.A. County World of Wine Awards, and the Taster's
Guild International Wine Awards. It received 89 points and is featured as one
of the "Best Wines for Summer Sippin" in the August issue of Wine Enthusiast.
Our 2004 Whole Cluster Pinot Noir was described in the July 5, 2005 issue of
The Oregonian, by writer Katherine Cole, as "lip-smacking strawberry,
cranberry, raspberry preserves". Our Griffin Creek line continues to receive
accolades as well with the 2002 Viognier winning a Best of Show at the Pacific
Rim International Wine Competition, and Best of Class at L.A. County Fair
World of Wines. The 2002 Lakeside Syrah received 91 points from Wine and
Spirits magazine.
Revenues from Bacchus Fine Wines, the Company's wholesale wine distribution
department, increased 53% in the three months ended June 30, 2005 compared to
the same period in 2004 and 46% in the six months compared to the same period
in 2004. Sales of Company produced products through Bacchus Fine Wines
increased 25% and sales of products produced by other wineries increased 92%
in the three months ended June 30, 2005 compared to the prior year period.
For the six months ended June 30, 2005, such sales increased 16% and 106%,
respectively, compared to the prior year period.
Retail revenues increased 39% and 20% in the three and six months,
respectively, ended June 30, 2005 compared to the respective prior year
periods due primarily to increased sales through the tasting room and higher
direct sales made by the Company's key customer sales representatives.
Increased sales of Company produced products have reduced excess inventories
and the Company is reviewing sales projections in order to plan appropriate
inventory production. While there remains some inventory imbalances,
management may increase wine production of Pinot noir in 2005 over the prior
year, which may spread fixed production costs and improve the margins on
future sales. The Company will purchase additional grapes and may need to
make minimal investments in its production equipment to achieve the possible
increase in wine production.
Despite the 80% increase in production of the 2004 Whole Cluster Pinot Noir
over the prior vintage, management expects distributor orders to exceed the
remaining supply before the '05 vintage is ready. Sales of Riesling are
presently exceeding long term availability of Riesling wine grapes grown in
the Willamette Valley Appellation, which will reduce revenues for this variety
until new contracted plantings mature.
In August 2005, the Company completed negotiations to immediately repay the
distributor obligation incurred during 2001 when the Company entered into a
distribution agreement with a national wine distributor group (the
"distributor"), whereby the distributor paid the Company $1,500,000 for a base
amount of bottled. The Company will refinance the distributor obligation with
a new business loan agreement with Umpqua Bank reducing financing costs by
nearly 2 percent.
RESULTS OF OPERATIONS
Revenue
Winery Operations
The Company's revenues from winery operations are summarized as follows:
Three months ended June 30, Six months ended June 30,
2005 2004 2005 2004
__________ __________ __________ __________
Tasting Room Sales and
Rental Income $ 460,109 $ 331,363 $ 794,007 $ 659,122
On-site and off-site
festivals 2,112 11,766 48,113 61,735
In-state sales 1,789,147 1,171,162 3,025,939 2,072,989
Out-of-state sales 1,310,633 649,470 2,032,337 1,246,648
Bulk wine/
Misc. sales 11,823 7,041 102,263 16,057
__________ __________ __________ __________
Total Revenue 3,573,824 2,170,802 6,002,659 4,056,551
Less Excise Taxes 61,325 66,988 115,082 109,111
__________ __________ __________ __________
Net Revenue $ 3,512,499 $ 2,103,814 $ 5,887,577 $ 3,947,440
========== ========== ========== ==========
Tasting room and retail sales, and rental income for the three months ended
June 30, 2005 increased 39% to $460,109 in 2005 compared to $331,363 for the
comparable prior year period. For the six months ended June 30, 2005, tasting
room and retail sales increased 20% to $794,007 compared to the prior year
period. Tasting room and retail sales increased during the three and six
months ended June 30, 2005 due primarily to increased customer traffic flows
and higher purchases in the tasting room and increased key customer phone
sales.
On-site and off-site festival sales for the three months ended June 30, 2005
decreased 81% to $2,112 compared to $11,766 for the comparable prior year
period, and decreased 21% for the six months ended June 30, 2005 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 53% to $1,789,147 in the
three months ended June 30, 2005 compared to $1,171,162 for the comparable
prior year period. Sales through the Company's independent sales force alone
for the three months ended June 30, 2005 increased 48% to $1,402,955 compared
to $949,675 for the comparable prior year period. The Company's direct
instate sales to our largest customer increased 75% in the three months ended
June 30, 2005 to $337,406 compared to $193,067 for the comparable prior year
period. These increases are largely the result of the broader product lines
presented through the development of Bacchus Fine Wines.
Out-of-state sales in the three months ended June 30, 2005 increased 102% to
$1,310,633 compared to $649,470 for the comparable prior year period. During
the six months ended June 30, 2005, sales increased 63% 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 decreased in the three months ended June 30, 2005
to $61,625 compared to $66,988 for the comparable prior year period, and
increased to $115,082 for the six months ended June 30, 2005 compared to
$109,111 for the comparable prior year period. This was due primarily to the
Company's efforts to manage production levels to receive the full benefit of
the federal small winery tax credit.
Gross Profit
Winery Operations
As a percentage of net revenue, gross profit decreased to 45% in the three
months ended June 30, 2005 as compared to 50% in the comparable prior year
period. As a percentage of net revenue, gross profit for the six months ended
June 30, 2005 decreased to 45% as compared to 51% in the comparable prior year
period. 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 that our increased representation of
brands other than our own through our Oregon sales force will further erode
the gross margins due to the lower margins associated with selling those
brands. While the gross margin may erode due to such representation, the
Company anticipates that net income will not follow that trend.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased to $1,069,561 in the
three months ended June 30, 2005 compared to $842,970 for the comparable prior
year period. Selling, general and administrative expenses increased to
$1,961,984 for the six months ended June 30, 2005 compared to $1,532,733 for
the comparable prior year period. These increases are due primarily to higher
fixed Oregon wholesale sales and delivery costs and increased shipping and
fuel costs. As a percentage of net revenue from winery operations, selling,
general and administrative expenses decreased to 30% for the three months
ended June 30, 2005 as compared to 40% for the comparable prior year period,
and to 33% for the six months ended June 30, 2005 as compared to 39% for the
comparable prior year period, primarily as a result of increased revenues.
Interest Income, Other Income and Expense
Interest income decreased to $260 and $426 for the three and six months,
respectively, ended June 30, 2005, compared to $1,346 and $2,548, respectively,
for the comparable prior year periods. Interest expense decreased to $52,597
for the three months ended June 30, 2005 compared to $75,440 for the
comparable prior year period, and $118,380 for the six months ended June 30,
2005 compared to $151,822 for 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,
2005 2004 2005 2004
__________ __________ __________ __________
Farm Credit interest
rebate - - 17,336 14,504
Miscellaneous rebates - - - 34
__________ __________ __________ __________
Other income
(expense) $ - $ - $ 17,336 $ 14,538
Income Taxes
Income tax expense was $183,680 and $242,853, respectively, for the three and
six months ended June 30, 2005, compared to $49,977 and $133,658,
respectively, for the prior year periods due to the Company's net profit for
the first three and six months in 2005. The Company's estimated tax rate for
the three and six months ended June 30, 2005 and 2004 was 40 percent.
Liquidity and Capital Resources
At June 30, 2005, the Company had a working capital balance of $6.6 million
and a current ratio of 4.34:1. At December 31, 2004, the Company had a
working capital balance of $6.4 million and a current ratio of 2.87:1. The
Company had a cash balance of $89,812 at June 30, 2005 compared to a cash
balance of $851,492 at December 31, 2004. The substantial decrease in cash
was primarily due to the pay down in the Company's line of credit.
Total cash provided by operating activities in the six months ended June 30,
2005 was $747,668 compared to $261,796 for the prior year period, primarily as
an increase in net income and lower depreciation in the six months ended June
30, 2005 compared to the prior year period. Cash provided by operating
activities in the six months ended June 30, 2005 consisted of net income of
$364,279 plus depreciation of $276,843 plus changes in assets and liabilities
and other non-cash charges of $106,546. Cash provided by operating activities
in the six months ended June 30, 2004 consisted of net income of $200,486 plus
depreciation of $325,541 less changes in assets and liabilities and other non-
cash charges of $264,231.
Total cash used in investing activities in the six months ended June 30, 2005
was $248,691 compared to $170,980 in the prior year period. Cash used in
investing activities consisted of property and equipment additions and
vineyard development costs.
Total cash used in financing activities in the six months ended June 30, 2005
was $1,260,657 compared to $236,621 in the prior year period. Cash used in
financing activities primarily consisted of payments on the long term debt and
the line of credit.
At June 30, 2005, the line of credit balance was $134,479, on maximum
borrowing of $2,000,000. The Company has a loan agreement with Umpqua Bank
that contains, among other things, certain restrictive financial covenants
with respect to total equity, debt-to-equity and debt coverage, that must be
maintained by the Company on a quarterly basis. As of June 30, 2005, the
Company was in compliance with all of the financial covenants.
As of June 30, 2005, the Company had a total long-term debt balance of
$2,408,521 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, 2005, the Company owed $428,886 on grape contracts. This amount
is primarily 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
its existing credit facilities will be sufficient to meet the Company's
foreseeable short and long term needs.
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 as of June 30, 2005. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures as of June 30, 2005 were effective to
ensure that information required to be disclosed by the Company in the reports
it files or submits under the Securities and Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in the
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 period ended June 30, 2005 that
have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting, except as noted above.
PART II. OTHER INFORMATION
Item 1
Exhibits
The exhibits filed herewith are listed in the Exhibit Index following the
signature page of this report.
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 Moss Adams, our independent
accountants, during the calendar year ending December 31, 2005:
- Income tax advisory services related to: income tax returns
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 12, 2005 By /s/ James W. Bernau
James W. Bernau
President
Date: August 12, 2005 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.