SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________________________________________________
FORM 10-QSB/A
___________________________________________________________
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarter Ended March 31, 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 March 31, 2004
4,484,478 shares, no par value
Transitional Small Business Disclosure
[ ] YES [X] NO
Explanatory Note
As previously reported, in February and March 2004 the Alcohol and Tobacco Tax
and Trade Bureau of the U.S. Treasury Department audited the Company's excise
tax liability and payments for 2003, 2002 and 2001. This audit resulted in
additional excise taxes owing for those periods due principally to the
Company's incorrect application of the federal small winery tax credit. The
Company originally recorded a liability as of December 31, 2003 and a related
expense in the year then ended of the estimated excise taxes owing of $80,000.
The Company has restated its financial statements for the years ended December
31, 2003, 2002, and 2001 and the quarterly periods within each of those years
to reflect the correct excise tax for each of the periods and to record the
estimated interest and penalties with respect to the related estimated excise
tax liability. Additional excise tax of $6,284 and related interest and
penalties of $1,854 has been recorded for the three months ended March 31,
2003.
In addition, the Company previously capitalized certain label and package
design costs totaling $71,528 and was amortizing them over a five year period
through 2004. Amortization of $3,600 for each of the three month periods ended
March 31, 2004 and 2003 was included in selling, general and administrative
expenses. It has been determined that such costs should be expensed as
incurred. Accordingly, the Company has restated its financial statements for
the three months ended March 31, 2004 and 2003 to adjust for the previously
capitalized costs and related amortization.
In addition, the Company has restated its financial statements for the three
months ended March 31, 2003 to reflect the reclassification of amortization of
deferred gain arising from a sales-leaseback transaction from other income to
an offset of the related lease expense included in selling, general and
administrative expenses.
Additional detail regarding the restatement is included in Note 2 of the Notes
to Financial Statements included in Part I, Item 1 and in Management's
Discussion and Analysis of Financial Condition and Results of Operations under
Restatement of Financial Information in Part I, Item 2, of this Form 10-QSB/A.
WILLAMETTE VALLEY VINEYARDS, INC.
INDEX TO FORM 10-QSB/A
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
March 31, December 31,
2004 2003
(unaudited)
(restated) (restated)
ASSETS. __________ __________
Current Assets:
Cash and cash equivalents $ 180,736 $ 213,681
Accounts receivable trade, net 732,805 796,836
Inventories 7,448,518 7,335,378
Prepaid expenses and other
current assets 47,558 46,565
Income taxes receivable 230 83,911
Deferred income taxes 174,323 174,323
__________ __________
Total current assets 8,584,170 8,650,694
Vineyard development cost, net 1,717,120 1,698,970
Inventories 552,414 552,414
Property and equipment, net 4,638,724 4,698,915
Notes receivable from officer and other 67,254 66,134
Debt issuance costs, net 56,386 62,805
Other assets 200,442 201,220
__________ __________
Total assets $15,816,510 $15,931,152
========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Line of credit $ 1,141,336 $ 1,130,516
Current portion of long term debt 250,291 250,291
Accounts payable 664,876 752,219
Accrued expenses 420,779 471,441
Income taxes payable - -
Grapes payable 614,529 669,714
__________ __________
Total current liabilities 3,091,811 3,274,181
Long-term debt 2,624,364 2,693,108
Distributor obligation 1,500,000 1,500,000
Deferred rent liability 114,692 108,995
Deferred gain 393,497 399,743
Deferred income taxes 295,285 295,285
__________ __________
Total liabilities 8,019,649 8,271,312
__________ __________
Shareholders' equity
Common stock, no par value - 10,000,000
shares authorized, 4,484,478 and 4,479,478
shares issued and outstanding at March 31,
2004 and December 31, 2003 7,179,089 7,167,589
Retained earnings 617,772 492,251
__________ __________
Total shareholders' equity 7,796,861 7,659,840
__________ __________
Total liabilities and shareholders'
equity $15,816,510 $15,931,152
========== ==========
The accompanying notes are an integral part of this financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Operations
(unaudited)
Three months ended March 31,
2004 2003
(restated) (restated)
__________ __________
Net Revenues
Case Revenue $ 1,834,611 $ 1,331,902
Facility Lease - Custom Crush 9,015 155,175
__________ __________
Total Revenue 1,843,626 1,487,077
Cost of Sales
Case 884,019 630,457
Bulk - 115,287
__________ __________
Total Cost of Sales 884,019 745,744
Gross Margin 959,607 741,333
Selling, general and
administrative expense 689,764 621,575
__________ __________
Net operating income 269,843 119,758
Other income (expense)
Interest income 1,203 1,313
Interest expense (76,382) (87,964)
Other income 14,538 25,923
__________ __________
Net income before income taxes 209,202 59,030
Income tax (83,681) (24,016)
__________ __________
Net income 125,521 35,014
Retained earnings beginning of
period 492,251 318,523
__________ __________
Retained earnings end of period $ 617,772 $ 353,537
========== ==========
Basic income per common share $ .03 $ .01
Diluted income per common share $ .03 $ .01
Weighted average number of
basic common shares
outstanding 4,482,280 4,472,459
Weighted average number of
diluted common shares
outstanding 4,662,087 4,472,459
The accompanying notes are an integral part of this financial statement.
WILLAMETTE VALLEY VINEYARDS, INC.
Statement of Cash Flows
(unaudited)
Three months ended March 31,
2004 2003
(restated) (restated)
__________ __________
Cash flows from operating activities:
Net income $ 125,521 $ 35,014
Reconciliation of net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 166,667 183,765
Gain on disposal of fixed assets - (3,004)
Stock issued for compensation 11,500 8,819
Changes in assets and liabilities:
Accounts receivable trade 64,031 76,984
Inventories (113,140) 155,342
Prepaid expenses and other
current assets (993) (5,918)
Note receivable (1,120) (1,032)
Other assets 778 723
Accounts payable (87,343) 57,419
Accrued expenses (50,662) 23,988
Income taxes payable 83,681 (45,106)
Grape payables (55,185) (282,922)
Deferred rent liability 5,697 5,698
Deferred gain (6,246) (6,246)
__________ __________
Net cash provided by
operating activities 143,186 203,524
__________ __________
Cash flows from investing activities;
Additions to property and equipment (80,208) (49,401)
Vineyard development expenditures (37,999) -
Proceeds from the sale of property
and equipment - 15,128
__________ __________
Net cash used in investing activities (118,207) (34,273)
__________ __________
Cash flows from financing activities:
Debt issuance costs - (5,960)
Net (decrease) increase in line of
credit balance 10,820 (523,514)
Repayments of long-term debt (68,744) (66,383)
__________ __________
Net cash (used in) provided by
financing activities (57,924) (595,857)
__________ __________
Net decrease in cash and
cash equivalents (32,945) (426,606)
Cash and cash equivalents:
Beginning of period 213,681 632,183
__________ __________
End of period $ 180,736 $ 205,577
========== ==========
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 month
period ended March 31, 2004 and 2003, have been prepared in conformity with
generally accepted accounting principles. 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/A 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 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, 2003, as
presented in the Company's Annual Report on Form 10-KSB/A.
Operating results for the three months ended March 31, 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 and diluted net income per share and Basic earnings per share are
computed based on the weighted-average number of common shares outstanding each
year. 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 179,807 shares
included in the computation of dilutive earnings per share for the three months
ended March 31, 2004. Options to purchase shares of common stock outstanding
at March 31, 2003 were not included in the computation of dilutive earnings per
share because the exercise prices were greater than the average market of the
common shares; therefore, the effect would be anti-dilutive.
2) RESTATEMENT OF FINANCIAL INFORMATION
As previously reported, in February and March 2004 the Alcohol and Tobacco Tax
and Trade Bureau of the U.S. Treasury Department audited the Company's excise
tax liability and payments for 2003, 2002 and 2001. This audit resulted in
additional excise taxes owing for those periods due principally to the Company's
incorrect application of the federal small winery tax credit. The Company
originally recorded a liability as of December 31, 2003 and a related expense
in the year then ended of the estimated excise taxes owing of $80,000. The
Company has restated its financial statements for the years ended December 31,
2003, 2002, and 2001 and the quarterly periods within each of those years to
reflect the correct excise tax for each of the periods and to record the
estimated interest and penalties with respect to the related estimated excise
tax liability. Additional excise tax of $6,284 and related interest and
penalties of $1,854 has been recorded for the three months ended March 31,
2003.
In addition, the Company previously capitalized certain label and package
design costs totaling $71,528 and was amortizing them over a five year period
through 2004. Amortization of $3,600 for each of the three month periods ended
March 31, 2004 and 2003 was included in selling, general and administrative
expenses. It has been determined that such costs should be expensed as
incurred. Accordingly, the Company has restated its financial statements for
the three months ended March 31, 2004 and 2003 to adjust for the previously
capitalized costs and related amortization.
The effect of these restatements was to increase net income by $2,160 ($- per
share) for the three months ended March 31, 2004, and decrease net income by
$3,127 ($- per share) for the three months ended March 31, 2003.
In addition, the Company has restated its financial statements for the three
months ended March 31, 2003 to reflect the reclassification of amortization of
deferred gain arising from a sales-leaseback transaction of $6,246 from other
income to an offset of the related lease expense included in selling, general
and administrative expenses. There was no change to previously reported net
income as a result of this reclassification.
There was no change to previously reported cash provided by operating
activities, cash used by investing activities or cash used by financing
activities.
The following sets forth the effects of the aforementioned restatements to the
Company's Balance Sheet at March 31, 2004 and December 31, 2003, and Statements
of Operations for the three months ended March 31, 2004 and 2003.
March 31, 2004
As Reported Adjustments Restated
Current assets $ 8,583,940 $ 230 $ 8,584,170
------------ ------------ ------------
Other assets $ 210,770 $ (10,328) $ 200,442
------------ ------------ ------------
Total assets $ 15,826,608 $ (10,098) $ 15,816,510
============ ============ ============
Current liabilities $ 3,080,160 $ 11,651 $ 3,091,811
------------ ------------ ------------
Deferred income taxes $ 300,856 $ (5,571) $ 295,285
------------ ------------ ------------
Total liabilities $ 8,013,569 $ 6,080 $ 8,019,649
Shareholders' equity 7,813,039 (16,178) 7,796,861
------------ ------------ ------------
Total liabilities and
Shareholders' equity $ 15,826,608 $ (10,098) $ 15,816,510
============ ============ ============
December 31, 2003
As Reported Adjustments Restated
Current assets $ 8,648,453 $ 2,241 $ 8,650,694
------------ ------------ ------------
Other assets $ 215,148 $ (13,928) $ 201,220
------------ ------------ ------------
Total assets $ 15,942,839 $ (11,687) $ 15,931,152
============ ============ ============
Current liabilities $ 3,261,959 $ 12,222 $ 3,274,181
------------ ------------ ------------
Deferred income taxes $ 300,856 $ (5,571) $ 295,285
------------ ------------ ------------
Total liabilities $ 8,264,661 $ 6,651 $ 8,271,312
Shareholders' equity 7,678,178 (18,338) 7,659,840
------------ ------------ ------------
Total liabilities and
Shareholders' equity $ 15,942,839 $ (11,687) $ 15,931,152
============ ============ ============
Three months ended March 31, 2004(unaudited)
As Reported Adjustments Restated
Net revenues $ 1,843,626 $ - $ 1,843,626
Cost of sales 884,019 - 884,019
------------ ------------ ------------
Gross margin 959,607 - 959,607
Selling general and administrative
expenses 693,364 (3,600) 689,764
------------ ------------ ------------
Net operating income 266,243 3,600 269,843
Other income (expense),
net (60,641) - (60,641)
------------ ------------ ------------
Income before income taxes 205,602 3,600 209,202
Income tax 82,241 1,440 83,681
------------ ------------ ------------
Net income $ 123,361 $ 2,160 $ 125,521
============ ============ ============
Three months ended March 31, 2003(unaudited)
As Reported Adjustments Restated
Net revenues $ 1,493,361 $ (6,284) $ 1,487,077
Cost of sales 745,744 - 745,744
------------ ------------ ------------
Gross margin 747,617 (6,284) 741,333
Selling general and administrative
expenses 630,410 (8,835) 621,575
------------ ------------ ------------
Net operating income 117,207 2,551 119,758
Other income (expense),
net (53,639) (7,089) (60,728)
------------ ------------ ------------
Income before income taxes 63,568 (4,538) 59,030
Income tax 25,427 (1,411) 24,016
------------ ------------ ------------
Net income $ 38,141 $ (3,127) $ 35,014
============ ============ ============
3) 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 quarter ended March 31:
March 31, March 31,
2004 2003
(unaudited) (unaudited)
(restated) (restated)
__________ __________
Net income, as reported $ 125,521 $ 35,014
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 (12,909) (14,767)
__________ __________
Pro forma net income $ 124,112 $ 29,066
Earnings per share:
Basic - as reported $ 0.03 $ 0.01
Basic - pro forma $ 0.03 $ 0.01
Diluted - as reported $ 0.03 $ 0.01
Diluted - pro forma $ 0.03 $ 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.
4) INVENTORIES BY MAJOR CLASSIFICATION ARE SUMMARIZED AS FOLLOW:
March 31, December 31,
2004 2003
(unaudited)
__________ __________
Winemaking and packaging materials $ 117,418 $ 80,886
Work-in-progress (costs relating
to unprocessed and/or bulk
wine products) 2,127,240 1,982,469
Finished goods (bottled wines 5,756,274 5,824,437
and related products) __________ __________
8,000,932 7,887,792
Less: amounts designated for distributor (552,414) (552,414)
__________ __________
Current inventories $ 7,448,518 $ 7,335,378
========== ==========
5) PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
March 31, December 31,
2004 2003
(unaudited)
__________ __________
Land and improvements $ 976,838 $ 976,838
Winery building and hospitality center 4,632,439 4,577,467
Equipment 4,958,565 4,933,329
__________ __________
10,567,842 10,487,634
Less accumulated depreciation (5,929,118) (5,788,719)
__________ __________
$ 4,638,724 $ 4,698,915
========== ==========
6) 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/A 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/A 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
The Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below reflects the effects of the restatement of our
financial statements for the three months ended March 31, 2004 and 2003, and as
of March 31, 2004 and December 31, 2003 as discussed in Note 2 to the financial
statements.
The first quarter, generally the weakest in the industry, has historically been
the weakest for the Company generating a net loss in previous first quarters
with the exception of the first quarters of 2003 and 2004. This profitable
first quarter resulted primarily from the following operational factors:
- Significantly higher sales to out-of-state distributors,
- Significantly higher sales to Oregon restaurant and retail accounts made by
the Company's own sales force, and
- Higher margins on the Company's products sold.
Given last year's first quarter was profitable primarily due to a custom crush
sale and an interest rebate from one of the Company's lenders, this quarter is
unusual in its level of profitability. Management does not expect to enjoy the
high margins experienced in this quarter in future quarters this year and those
margins may account for approximately a third of the Company's positive results.
The balance is due to increased sales, some of which were stronger orders by
distributors adding to their inventories due to strong holiday sales. Actual
depletions of the Company's core offerings of Vintage Pinot noir, Whole Cluster
Pinot noir, Pinot gris and Riesling from the Company's distributors to their
retail and restaurant customers increased approximately 25%, a rate lower than
the Company's rate of shipments to the distributors in the first quarter.
The Company's wines continued to receive strong reviews from prominent
reviewers. The '99 Signature Cuvee Pinot noir earned 91 points and a Cellar
Selection designation from Wine Enthusiast Magazine and the '99 Founders'
Reserve Pinot noir earned 90 points from the Wine Spectator. Bon Appetit
magazine, in their Best of the Year January issue, named the '00 Vintage
Selection Pinot noir as among the top 25 wines in the world under $25 - the
only Pinot noir listed. USA TODAY named the Vintage Selection Pinot gris among
the Top Best White Wines in their article entitled "The Pours of Summer: White
wines get a tryout."
RESULTS OF OPERATIONS
Revenue
Winery Operations
The Company's revenues from winery operations are summarized as follows:
Three months ended March 31,
2004 2003
(restated)
__________ __________
Tasting Room sales & Rental Income $ 327,759 $ 295,667
On-site and off-site festivals 49,969 43,170
In state sales 901,827 590,533
Out of state sales 597,179 448,036
Custom crush /bulk wine /misc sales 9,015 155,175
__________ __________
Gross Revenue 1,885,749 1,532,581
Less Excise Taxes 42,123 45,504
__________ __________
Net Revenues $ 1,843,626 $ 1,487,077
========== ==========
Tasting room and retail sales, and rental income for the three months ending
March 31, increased 11% to $327,759 in 2004 from $295,667 for the same period
in 2003. Tasting room and retail sales increased during the first quarter of
2004 due in part to increased traffic flow in the Tasting Room.
On-site and off-site festival sales for the first quarter of 2004 increased 16%
to $49,969 from $43,170 over the first quarter of 2003. This increase is due
primarily to the success of the Fifth Annual Mo's Crab and Chowder Festival in
January, The Pinot and Chocolate Festival in February, and the introduction of
the Wine, Cheese, and Pear Jubilee held in March.
Sales in the state of Oregon, through the Company's independent sales force and
through direct sales from the winery, increased 53% to $901,827 in the first
quarter of 2004 from $590,533 in the first quarter of 2003. Sales through the
Company's independent sales force alone for the first quarter of 2004 increased
45% to $774,270 from $532,664 over the first quarter of 2003.
Out-of-state sales in the first quarter of 2004 increased 33% to $597,179 from
$448,036 in the first quarter of 2003. The Company's distributors experienced
higher depletions during the first quarter of 2004.
Excise taxes
The Company's excise taxes decreased in the first quarter of 2004 to $42,123
from $45,504 the same period in 2003. 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.
Restatement of Financial Information
As previously reported, in February and March 2004 the Alcohol and Tobacco Tax
and Trade Bureau of the U.S. Treasury Department audited the Company's excise
tax liability and payments for 2003, 2002 and 2001. This audit resulted in
additional excise taxes owing for those periods due principally to the
Company's incorrect application of the federal small winery tax credit. The
Company originally recorded a liability as of December 31, 2003 and a related
expense in the year then ended of the estimated excise taxes owing of $80,000.
The Company has restated its financial statements for the years ended December
31, 2003, 2002, and 2001 and the quarterly periods within each of those years
to reflect the correct excise tax for each of the periods and to record the
estimated interest and penalties with respect to the related estimated excise
tax liability. Additional excise tax of $6,284 and related interest and
penalties of $1,854 has been recorded for the three months ended March 31,
2003.
In addition, the Company previously capitalized certain label and package
design costs totaling $71,528 and was amortizing them over a five year period
through 2004. Amortization of $3,600 for each of the three month periods ended
March 31, 2004 and 2003 was included in selling, general and administrative
expenses. It has been determined that such costs should be expensed as
incurred. Accordingly, the Company has restated its financial statements for
the three months ended March 31, 2004 and 2003 to adjust for the previously
capitalized costs and related amortization.
The effect of these restatements was to increase net income by $2,160 ($- per
share) for the three months ended March 31, 2004, and decrease net income by
$3,127 ($- per share) for the three months ended March 31, 2003.
In addition, the Company has restated its financial statements for the three
months ended March 31, 2003 to reflect the reclassification of amortization of
deferred gain arising from a sales-leaseback transaction of $6,246 from other
income to an offset of the related lease expense included in selling, general
and administrative expenses. There was no change to previously reported net
income as a result of this reclassification.
There was no change to previously reported cash provided by operating
activities, cash used by investing activities or cash used by financing
activities.
The following sets forth the effects of the aforementioned restatements to the
Company's Balance Sheet at March 31, 2004 and December 31, 2003, and Statements
of Operations for the three months ended March 31, 2004 and 2003.
March 31, 2004
As Reported Adjustments Restated
Current assets $ 8,583,940 $ 230 $ 8,584,170
------------ ------------ ------------
Other assets $ 210,770 $ (10,328) $ 200,442
------------ ------------ ------------
Total assets $ 15,826,608 $ (10,098) $ 15,816,510
============ ============ ============
Current liabilities $ 3,080,160 $ 11,651 $ 3,091,811
------------ ------------ ------------
Deferred income taxes $ 300,856 $ (5,571) $ 295,285
------------ ------------ ------------
Total liabilities $ 8,013,569 $ 6,080 $ 8,019,649
Shareholders' equity 7,813,039 (16,178) 7,796,861
------------ ------------ ------------
Total liabilities and
Shareholders' equity $ 15,826,608 $ (10,098) $ 15,816,510
============ ============ ============
December 31, 2003
As Reported Adjustments Restated
Current assets $ 8,648,453 $ 2,241 $ 8,650,694
------------ ------------ ------------
Other assets $ 215,148 $ (13,928) $ 201,220
------------ ------------ ------------
Total assets $ 15,942,839 $ (11,687) $ 15,931,152
============ ============ ============
Current liabilities $ 3,261,959 $ 12,222 $ 3,274,181
------------ ------------ ------------
Deferred income taxes $ 300,856 $ (5,571) $ 295,285
------------ ------------ ------------
Total liabilities $ 8,264,661 $ 6,651 $ 8,271,312
Shareholders' equity 7,678,178 (18,338) 7,659,840
------------ ------------ ------------
Total liabilities and
Shareholders' equity $ 15,942,839 $ (11,687) $ 15,931,152
============ ============ ============
Three months ended March 31, 2004(unaudited)
As Reported Adjustments Restated
Net revenues $ 1,843,626 $ - $ 1,843,626
Cost of sales 884,019 - 884,019
------------ ------------ ------------
Gross margin 959,607 - 959,607
Selling general and administrative
expenses 693,364 (3,600) 689,764
------------ ------------ ------------
Net operating income 266,243 3,600 269,843
Other income (expense),
net (60,641) - (60,641)
------------ ------------ ------------
Income before income taxes 205,602 3,600 209,202
Income tax 82,241 1,440 83,681
------------ ------------ ------------
Net income $ 123,361 $ 2,160 $ 125,521
============ ============ ============
Three months ended March 31, 2003(unaudited)
As Reported Adjustments Restated
Net revenues $ 1,493,361 $ (6,284) $ 1,487,077
Cost of sales 745,744 - 745,744
------------ ------------ ------------
Gross margin 747,617 (6,284) 741,333
Selling general and administrative
expenses 630,410 (8,835) 621,575
------------ ------------ ------------
Net operating income 117,207 2,551 119,758
Other income (expense),
net (53,639) (7,089) (60,728)
------------ ------------ ------------
Income before income taxes 63,568 (4,538) 59,030
Income tax 25,427 (1,411) 24,016
------------ ------------ ------------
Net income $ 38,141 $ (3,127) $ 35,014
============ ============ ============
Gross Profit
Winery Operations
As a percentage of revenue, gross profit for the winery operations increased to
52% in the first quarter of 2004 as compared to 50% in the first quarter of
2003. After adjusting for the sale of bulk wines and custom crush fees in the
first quarter of 2003, the gross margin would be 53% in the first quarter of
2003. We believe this non-GAAP disclosure provides a useful comparison to the
first quarter of 2004. The Company is continuing its focus on, and improved
distribution of, higher margin products, as well as continuing to reduce grape
and production costs. 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 slimmer margin of selling those brands.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased 11% to $689,764 in the
first quarter of 2004 from $621,575 in the first quarter of 2003. As a
percentage of revenue from winery operations, selling, general and
administrative expenses decreased to 37% in the first quarter of 2004 from 42%
in the first quarter of 2003.
Interest Income, Other Income and Expense
Interest income decreased to $1,203 for the first quarter of 2004 from $1,313
for the first quarter of 2003. Interest expense decreased to $76,382 in the
first quarter of 2004 from $87,964 in 2003 primarily due to less debt
outstanding during the period.
The Company's other income is summarized as follows:
Three months ended March 31,
2004 2003
(restated)
__________ __________
Gain on Tualatin bare land sale $ - $ 3,004
Farm Credit interest rebate 14,504 22,617
Miscellaneous rebates 34 302
__________ __________
Other income 14,538 25,923
Other income decreased to $14,538 for the first quarter 2004 from $25,923 for
the first quarter of 2003. During the first quarter of 2004 the Company
received an interest rebate from Farm Credit Services for interest paid on the
Company's long-term debt in 2003, in the amount of $14,504, compared to $22,617
received during the first quarter of 2003.
Income Taxes
As the Company experienced a net profit for the first three months in 2004 an
$83,681 income tax expense was accrued. The Company's estimated tax rate for
the first quarter of 2004 and 2003 was 40 percent.
Liquidity and Capital Resources
At March 31, 2004, the Company had a working capital balance of $5.5 million
and a current ratio of 2.79:1. 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 $180,736 at March 31, 2004.
Total cash provided by operating activities in the first quarter of 2004 was
$143,186 compared to $203,254 in the first quarter of 2003. Cash provided by
operating activities in the first quarter of 2004 was comprised of net income
of $125,521 plus depreciation of $166,667 less changes in assets and
liabilities and other non-cash charges of $149,002. Cash provided by operating
activities in the first quarter of 2003 was comprised of net income of $35,014
plus depreciation of $183,765 less changes in assets and liabilities and other
non-cash charges of $15,255.
Total cash used in investing activities in the first quarter of 2004 was
$118,207 compared to $34,273 in the first quarter of 2003. Cash used in
investing activities comprised of property and equipment additions and vineyard
development costs.
Total cash used in financing activities in the first quarter of 2004 was
$57,924 compared to $595,857 in the first quarter of 2003. Cash used in
financing activities was primarily comprised of payments on the long term debt
(2004 $68,744 and 2003 $66,383) and payments on (additions to) the line of
credit (2004 ($10,820) and 2003 $523,514).
At March 31, 2004, the line of credit balance was $1,141,336. The Company has
a loan agreement with GE Commercial Distribution Finance Corporation 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 March 31, 2004, the
Company was in compliance with all of the financial covenants.
As of March 31, 2004, the Company had a total long-term debt balance of
$2,874,655 owed 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 March 31, 2004, the Company owed $614,529 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-K/A 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 as of March 31, 2004. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer initially concluded that our
disclosure controls and procedures as of March 31, 2004 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.
As described in Part I, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations under Restatement of Financial
Information and in Note 2 of the Notes to Financial Statements included in
Part I, Item 1, subsequent to the issuance of the Company's financial
statements for the year ended December 31, 2003, the Company's management
determined it was necessary to restate the Company's financial statements as of
and for the years ended December 31, 2003, 2002, and 2001 and for each of the
quarterly periods within each of those years for the following: a) the
Company's incorrect application of the federal small winery tax credit, b)
capitalization and subsequent amortization of certain label and package design
costs that should have been expensed in the period incurred, c) revision in
classification of the amortization of deferred gain from a sales-leaseback from
other income to selling, general and administrative expenses, and d) revision
in classification of an expense in other expense to cost of goods sold.
In connection with restating the Company's financial statements as provided in
this report, the Chief Executive Officer, Chief Financial Officer and other
management personnel re-evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of the end of the period covered
by the report and as of the date of this report. Based on the foregoing, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective at a reasonable assurance
level.
Management and the Company's independent registered public accounting firm,
PricewaterhouseCoopers LLP, identified and communicated to the Audit Committee
certain matters relating to the Company's internal controls and procedures
over its financial reporting for excise taxes during the periods under review
that are considered a material weakness (as defined in Public Company Accounting
Oversight Board Standard No. 2). In response thereto, the Company has
performed a review of its excise tax calculation and reporting procedures and
has put additional controls in place over the calculation and reporting of
excise taxes to ensure that they are accurately measured and reported in the
appropriate reporting period. We believe these changes to our disclosure
controls and procedures will be adequate to provide reasonable assurance that
the objectives of our disclosure controls and procedures will be met. The
Company has also implemented enhanced supervisory review procedures related to
the preparation of our financial statements, including the process used to
initially classify transactions, to ensure that amounts are appropriately
classified in accordance with generally accepted accounting principles and
classified consistently between reporting periods.
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 March 31, 2004 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 and Reports on Form 8-K.
a) 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 PricewaterhouseCoopers, our
independent accountants, during the calendar year ending December 31, 2004:
- Income tax advisory services related to: income tax returns;
acquisitions; and formation and liquidation of foreign subsidiaries
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: December 6, 2004 By /s/ James W. Bernau
James W. Bernau
President
Date: December 6, 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.