-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bu+JY4byeFq77osEkN4v4Iu5FJAr92Yxu8Pdg5M44z2IR0jFFnnhxN3dJ9tDDEKq kDIGWp1L96WZMVLQWly8Pw== 0000950005-96-000239.txt : 19960620 0000950005-96-000239.hdr.sgml : 19960620 ACCESSION NUMBER: 0000950005-96-000239 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENDOCINO BREWING CO INC CENTRAL INDEX KEY: 0000919134 STANDARD INDUSTRIAL CLASSIFICATION: 2082 IRS NUMBER: 680318293 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-13636 FILM NUMBER: 96561842 BUSINESS ADDRESS: STREET 1: 13351 S HWY 101 CITY: HOPLAND STATE: CA ZIP: 95449 BUSINESS PHONE: 7077441015 10QSB 1 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------------- ----------------------- Commission file number: 1-13636 Mendocino Brewing Company, Inc. (Name of small business issuer in its charter) California 68-0318293 (State or other jurisdiction of (I.R.S. Employee Identification No.) incorporation or organization) 13351 South Highway 101, Hopland, CA 95449 (Address of principal executive offices) (Zip code) Issuer's telephone number: (707) 744-1015 Securities registered under Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, no par value The Pacific Stock Exchange Securities registered under Section 12(g) of the Act: Not applicable (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ The number of shares the issuer's common stock outstanding as of March 31, 1996 is 2,322,222. PART I Item 1. Financial Statements. The financial statements required by Item 310(b) of Regulation S-B are set forth at pages 6-9. Item 2. Management's Discussion and Analysis. Forward Looking Statements Statements in this Report covering future performance, developments, expectations, and events, including without limitation the discussion of the Company's strategy for future sales, inventory reduction, and building and equipment financing, are subject to a number of risks and uncertainties which might cause actual results to differ materially from stated expectations. These include without limitation the risks and uncertainties described in this Report and those identified by the Company from time to time in other filings with the Commission, press releases, and other communications. Overview The business is divided into two operating segments. Brewing operations consists of the manufacture and sale of the Company's beer to distributors and other retailers. Retail operations consist of operating the Hopland Brewery brewpub and gift shop. The Company's current brewing capacity is approximately 18,000 bbl. (1 barrel = 31 gallons) per year, up from 13,600 bbl. per year in 1995 as a result of process and equipment changes. In the first three months of 1996, brewing operations accounted for 74.10% of the Company's sales (down from 79.75% for 1995). Retail sales as a percentage of total sales for the first three months of 1996 were 9.98%--draft and bottled beer (up from 8.06% from the same period in 1995) and 13.44%--food and merchandise (up from 12.20% from the same period in 1995). The Hopland Brewery brewpub has a local base clientele, but depends heavily on tourist trade business. The Company's expansion plan, currently underway, calls for the construction of a new turn-key brewery. The currently proposed expansion will initially increase the Company's production capability to 50,000 bbl. per year. The facility's production potential can be increased to 200,000 bbl. per year. Results of Operations: Three Months Ending March 31, 1996 Compared to Three Months Ending March 31, 1995. The following discussion sets forth information for the three month periods ending March -1- 31, 1995 and 1996. This information has been derived from unaudited interim financial statements of the Company contained elsewhere herein and reflects, in Management's opinion, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for these periods. Results of operations for any interim period are not necessarily indicative of results to be expected for the full fiscal year. The following table sets forth, as a percentage of sales, certain items included in the Company's Statements of Income, see Financial Statements elsewhere in this Report, for the periods indicated: Three Months Ended March 31, ---------------------------- 1996 1995 ------------ ------------ Statements of Income Data: Sales ....................................... 108.38% 104.95% Excise taxes ................................ 8.38 4.95 Net sales ................................... 100.00 100.00 Costs of sales .............................. 51.46 57.68 Gross profit ................................ 48.54 42.32 Retail operating expense .................... 28.56 17.53 Marketing expense ........................... 14.74 7.82 General and administrative expense .......... 24.77 22.81 Total operating expenses .................... 68.07 48.16 Loss from operations ........................ (19.53) (5.84) Other income ................................ 1.78 4.81 Loss before income taxes .................... (17.75) (1.03) Provision for income taxes .................. 0.13 0.10 Net loss .................................... (17.88) (1.13) At March 31, ------------------------------ 1996 1995 ------------- ------------- Balance Sheet Data: Cash and cash equivalents ............ $ 523,410 $ 3,234,022 Working capital ...................... (420,390) 3,589,195 Property and equipment ............... 5,197,818 590,912 Deposits and other assets ............ 109,016 33,463 Total assets ......................... 6,596,871 4,455,787 Long-term debt ....................... 554,937 -- Total liabilities .................... 2,285,564 214,040 Shareholders' equity ................. 4,311,307 4,241,748 Sales. Gross sales were 15.0% less in the first three months of 1996 than the year-earlier period, while the cost of sales decreased 26.6% during the same period. Gross profit decreased 5.6% from the 1995 period to the 1996 period. Management attributes the reduction in sales to increased competition in the craft beer market segment and slower demand due to seasonality. For the first time since 1988, the Company did not sell its entire production as distributors were not prepared for increased allocations. Management anticipates that the resulting build-up of -2- beer inventory will be absorbed during the spring and summer months. The Company has formulated and is implementing a marketing plan to address changes in the market and its increased capacity. The decrease in cost of sales was mostly attributable to the lower shipments of beer to distributors and a lowering of production unit costs by 15.0% in the first quarter of 1996 compared to the same period in 1995. Production unit costs decreased as a result of changes in the brewing process implemented in September 1995, in which a 24 hour brewing schedule and an additional bottling tank enabled production efficiencies to improve. Total retail sales at the Hopland Brewery brewpub and gift shop increased 8.8% from the same period in 1995. Combined beer and food sales increased 12.5% from the same period in 1995, which management attributes to a revised menu and a price increase for on premises draft beer, both implemented in 1995. Cost of retail sales increased 16.2% overall, mostly attributable to increased sales. Excise taxes for the first three months, which are paid on packaged beer before shipping, increased $14,952 in 1996 over that of 1995 due to the increase in production. Operating expenses. Operating expenses increased 16.3% over the comparable period in 1995. This was due to increases in labor and music costs in The Hopland Brewery brewpub. In addition, marketing costs increased as a result of the implementation of the revised marketing plan. Increases in marketing labor, promotions, price discount specials to distributors in January, and advertising were due to the development of current and expansion into new market areas. The increase in operating expenses were partially offset by a decrease in general and administrative expenses. As a result of these factors, net loss in the three months ended March 31, 1996 was $112,817 compared to $8,676 for the earlier period. However, in 1995, the Company realized a $173,700 net profit despite experiencing a net loss in the first quarter. There may not necessarily be any correlation between the first quarter of 1996 and the full year's results of operations. Balance Sheet. Cash and cash equivalents decreased in the first quarter of 1996 compared to 1995 due to the on-going construction and equipment costs of the new brewery expansion. Management presently estimates that construction, which began in September 1995, will be completed in September 1996. A $492,872 loan from the City of Ukiah enabled the Company to purchase the eight acres selected as the new brewery site through the Redevelopment Agency of Ukiah. The loan is due in monthly installments of $4,435 including interest at 9%, matures in June 1997, and is secured by the real property. A loan from the owner of the property for $76,200 enabled the Company to purchase an additional acre of land adjacent to the above eight acre parcel in November 1995. The note is due in full December 1998 and bears interest at 9%. A short term loan from the Savings Bank of Mendocino County for $400,000 was obtained in March 1996 at an interest rate of 10.25%. Liquidity and Capital Resources. The Company has yet to secure permanent financing for the new brewery in the amount of approximately $3,700,000 for the construction of the building and $2,100,000 for the acquisition of brewing equipment. Management expects the financing to be completed during the next quarter. -3- PART II Item 1. Litigation. On September 21, 1995, the Company filed an opposition with the United States Patent and Trademark Office Trademark Trial and Appeal Board against the proposed intent-to-use application for registration by Oregon Beer and Brewing Company, Inc. of the word mark RED HAWK. The Company's opposition is based on its rights to the marks "Black Hawk", "Eye of the Hawk", and "Red Tail Ale". On December 28, 1995, the Company filed an opposition with the United States Patent and Trademark Office Trademark Trial and Appeal Board against the proposed registration by North Coast Brewing Co., Inc. of RUEDRICH'S RED SEAL and a design which prominently features "Mendocino County". The Company's opposition is based on its rights to the marks "Red Tail Ale" and "Mendocino Brewing Company". Item 5. Other Information. The Company has federal registrations of the word marks BLUE HERON (Reg. No. 1,820,076), PEREGRINE PALE ALE (Reg. No. 1,667,796), EYE OF THE HAWK SELECT ALE (Reg. No. 1,673,594), BLACK HAWK STOUT (Reg. No. 1,791,807), and YULETIDE PORTER (Reg. No. 1,666,891). The registration for the word mark RED TALE ALE (Reg. No. 1,575,386) became subject to automatic cancellation on January 2, 1996. The Company has pending a special application for a new registration of that mark. In addition, the Company has pending applications for registration of its Blue Heron Pale Ale design (Serial No. 74/734782), its Eye of the Hawk Anniversary Ale design (Serial No. 74/734781), its Eye of the Hawk Select Ale design (Serial No. 74/734784), and its Red Tail Ale design (Serial No. 74/734783). The registration of the word mark BLUE HERON is a concurrent use registration which gives the Company the exclusive right to use the word mark BLUE HERON throughout the United States with the exception of Oregon, Idaho, Washington, and Montana. Bridgeport Brewing Company, the other concurrent owner, has the exclusive right to use the word mark BLUE HERON in those states. The Company's use of the word mark BLACK HAWK STOUT is, by agreement with Hiram Walker & Sons, Inc., subject to the restriction that it be used only in conjunction with the words "Mendocino Brewing Company". Hiram Walker & Sons, Inc. owns previous federal registrations for the mark BLACKHAWK in stylized form for bourbon whiskey and for the mark BLACKHAWK in stylized form for Canadian whiskey. Item 6. Exhibits and Reports on Form 8-K. Exhibit Number Description of Document - - ------- ----------------------- 3.1 Restated Articles of Incorporation, as amended, of the Company (Incorporated by reference from the Company's Registration Statement dated June 15, 1994, as -4- amended, previously filed with the Commission, Registration No. 33-78390-LA.) 3.2 Bylaws of the Company (Incorporated by referenced from the Company's Report on Form 10-KSB for the annual period ended December 31, 1994 previously filed with the Commission.) 4.1 Articles 5 and 6 of the Restated Articles of Incorporation, as amended, of the Company (Reference is made to Exhibit 3.1) 4.2 Article 10 of the Restated Articles of Incorporation, as amended, of the Company (Reference is made to Exhibit 3.2) 20 Proxy Statement for the 1996 Annual Meeting of Shareholders and 1995 Annual Report to Shareholders (Incorporated by referenced from the Proxy Statement for the 1996 Annual Meeting of Shareholders and 1995 Annual Report previously filed with the Commission.) 27 Financial Data Schedule No reports on Form 8-K were filed during the quarter for which this report is filed. SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized. Mendocino Brewing Company, Inc. (Registrant) Date May 10, 1996 /s/ H. Michael Laybourn ---------------------------- ----------------------------------------- H. Michael Laybourn, President Date May 10, 1996 /s/ Norman H. Franks ---------------------------- ----------------------------------------- Norman H. Franks, Chief Financial Officer -5- MENDOCINO BREWING COMPANY, INC. BALANCE SHEET March 31, 1996 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 523,410 Accounts receivable 250,075 Inventories 448,709 Prepaid expenses and taxes 52,343 Deferred income taxes 15,500 ---------------- Total Current Assets: 1,290,037 ---------------- Property and Equipment 5,197,818 ---------------- Other Assets Label development costs, net of amortization 14,344 Deposits and other assets 94,672 ---------------- Total Other Assets: 109,016 ---------------- Total Assets: $ 6,596,871 ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-term borrowing $ 400,000 Accounts payable 138,131 Accrued wages and related expense 98,379 Accrued construction costs 1,011,295 Accrued profit sharing 30,000 Accrued liabilities 24,518 Current maturities of long-term debt 8,104 ---------------- Total Current Liabilities: 1,710,427 Long term debt - less current maturities 554,937 Deferred income taxes 20,200 ---------------- Total Liabilities: 2,285,564 Commitments - Stockholders' Equity Common stock, no par value; 20,000,000 shares authorized; 3,869,569 2,322,222 shares issued and outstanding Preferred stock, 2,000,000 shares authorized, 227,600 of 227,600 which are designated Series A, no par value, with aggregate liquidation preference of $227,600; 227,600 Series A shares issued and outstanding Retained earnings 214,138 ---------------- Total Stockholders' Equity: 4,311,307 ---------------- Total Liabilities and Stockholders' Equity: $ 6,596,871 ================ The accompanying notes are an integral part of these financial statements
-6- MENDOCINO BREWING COMPANY, INC. STATEMENT OF OPERATIONS (Unaudited) Three Months Ended March 31, 1996 1995 ---- ---- Sales $ 683,945 $ 804,551 Less excise taxes 52,911 37,939 Net Sales 631,034 766,612 Cost of goods sold 324,739 442,161 Gross profit 306,295 324,451 ----------- ----------- Operating expenses Retail operations 180,203 134,360 Marketing and distribution 92,990 59,924 General and administrative 156,338 174,902 ----------- ----------- 429,531 369,186 ----------- ----------- Loss from Operations (123,236) (44,735) Other income Interest income 10,550 36,582 Other income 669 277 ----------- ----------- 11,219 36,859 ----------- ----------- Loss before income taxes (112,017) (7,876) Provision for income taxes 800 800 ----------- ----------- Net Loss $ (112,817) $ (8,676) =========== =========== Earnings per share $ (0.05) $ (0.00) =========== =========== Weighted average common shares outstanding 2,322,222 2,264,667 The accompanying notes are an integral part of these financial statements -7- MENDOCINO BREWING COMPANY, INC. STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (112,817) $ (8,676) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 11,250 10,995 Changes in: Accounts receivable 208,803 (48,607) Inventories (192,455) (4,606) Prepaid expenses and taxes (5,247) (2,873) Accounts payable 32,450 (12,293) Accrued wages and related expense (31,496) (6,851) Accrued profit sharing (45,000) Accrued liabilities 2,318 (8,273) Income taxes payable (34,200) (12,394) -------------- ------------ Net Cash Used by Operating Activities: (121,394) (138,578) -------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,254,225) (300,442) Deposits and other assets (23,736) 211,333 Reduction of deferred offering costs - 41,681 -------------- ------------ Net Cash Used by Investing Activities: (1,277,961) (47,428) -------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowing 400,000 - Principal payments on long-term debt (2,316) (7,866) Accrued construction costs (171,028) - Proceeds from sale of common stock - 527,117 -------------- ------------ Net Cash Provided by Financing Activities: 226,656 519,251 INCREASE (DECREASE) IN CASH (1,172,699) 333,245 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,696,109 2,900,777 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 523,410 $ 3,234,022 -------------- ------------ Supplemental Cash Flow Information Includes the Following: Cash Paid During the Period for: Interest $ 10,988 $ - Income Taxes $ 52,500 $ 12,550 The accompanying notes are an integral part of these financial statements
-8- MENDOCINO BREWING COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. It is believed, however, that the disclosures are adequate to make the information presented not misleading. The financial statements, in the opinion of management, reflect all adjustments necessary to fairly state the financial position and the results of operations. These are not necessarily to be considered indicative of the results for the entire year. Note 2 - Long-Term Debt Long-term debt consists of a note payable, due in monthly installments of $4,435 including interest at 9%, maturing June 1997, and secured by real property and a note payable, due one lump sum of $76,200 plus interest at 9%, maturing December 1998, and secured by real property. Note 3 - Short-Term Borrowing Short-term borrowing consists of a $400,000 advance from a bank with interest at 10.25% which matured and was paid in full in April 1996. -9- EX-27 2 FINANCIAL DATA SCHEDULE
5 The unaudited financial statements of Mendocino Brewing Company, Inc. as of March 31, 1996 3-MOS DEC-31-1996 JAN-31-1996 MAR-31-1996 523,410 0 250,075 0 448,709 1,290,037 5,705,287 507,469 6,596,871 1,710,427 0 3,869,569 0 227,600 214,138 6,596,871 683,945 683,945 324,739 324,739 429,531 0 0 (112,017) 800 (112,817) 0 0 0 (112,817) (0.05) 0
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