-----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, O1liWL7qhbZ2rioqq6EVAL4Tst2eGH5a+9BEKzZUxv+gjX8GEc/beoRNiUpZXqUl yfO6WnFzHc3q92pAyLyRFA== 0001144204-08-064182.txt : 20081114 0001144204-08-064182.hdr.sgml : 20081114 20081114144211 ACCESSION NUMBER: 0001144204-08-064182 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20080930 FILED AS OF DATE: 20081114 DATE AS OF CHANGE: 20081114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENDOCINO BREWING CO INC CENTRAL INDEX KEY: 0000919134 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 680318293 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13636 FILM NUMBER: 081190122 BUSINESS ADDRESS: STREET 1: 13351 S HWY 101 CITY: HOPLAND STATE: CA ZIP: 95449 BUSINESS PHONE: 7077441015 MAIL ADDRESS: STREET 1: 13351 S HWY 101 CITY: HOPLAND STATE: CA ZIP: 95449 10-Q 1 v132188_10q.htm
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2008
 
¨
Transition report pursuant to 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.
(Exact name of Registrant as Specified in its Charter)
 
California
  
68-0318293
(State or Other Jurisdiction of
  
(IRS Employer
Incorporation or Organization)
  
Identification No.)
 
1601 Airport Road, Ukiah, CA 95482
(Address of principal executive offices)
 
(707) 463-2627
(Registrant's Telephone Number, Including Area Code)
 
Not Applicable
    (Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
 
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. Yes x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer, "accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer ¨  Accelerated Filer ¨  Non-Accelerated Filer ¨  Smaller Reporting Company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
APPLICABLE ONLY TO CORPORATE ISSUERS
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: The number of shares of the issuer's common stock outstanding as of November 14, 2008 is 11,991,686.


PART I
 
FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
MENDOCINO BREWING COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
September 30,
  
December 31,
  
   
2008
  
2007
  
   
(Unaudited)
      
Assets
              
Current Assets
              
Cash
  
$
191,000
  
$
339,700
  
Accounts receivable, net of allowance for doubtful
              
accounts of $64,600 and $52,600, respectively
    
7,122,200
    
7,411,400
  
Inventories
    
1,998,700
    
1,461,200
  
Prepaid expenses
    
364,500
    
585,800
  
Total Current Assets
    
9,676,000
    
9,798,100
  
               
Property and Equipment
   
13,024,300
    
13,218,300
  
               
Other Assets
              
Deposits and other assets
    
504,100
    
313,600
  
Intangibles net of amortization
    
47,600
    
47,600
  
Total Other Assets
    
551,700
    
361,200
  
               
Total Assets
  
$
23,252,400
  
$
23,377,600
  
               
Liabilities and Stockholders' Equity
              
             
Secured lines of credit
  
$
3,550,100
  
$
3,801,400
  
Accounts payable
    
6,343,200
    
7,167,800
  
Accrued liabilities
    
1,722,700
    
1,309,100
  
Current maturities of notes to related parties
    
106,800
    
119,100
  
Current maturities of obligations under long-term debt
    
307,900
    
254,400
  
Current maturities of obligations under capital leases
    
78,100
    
69,500
  
Total Current Liabilities
    
12,108,800
    
12,721,300
  
               
Long-Term Liabilities
              
Notes to related parties including accrued
              
interest of $1,100,500 and $1,000,900, respectively
    
3,336,400
    
3,392,500
  
Long term debt, less current maturities
    
3,897,300
    
3,972,600
  
   
103,000
    
49,800
  
Total Long-Term Liabilities
    
7,336,700
    
7,414,900
  
               
Total Liabilities
    
19,445,500
    
20,136,200
  
               
Stockholders' Equity
              
Preferred stock, Series A, no par value, with aggregate liquidation
              
preference of $227,600;10,000,000 shares authorized,
             
227,600 shares issued and outstanding
    
227,600
    
227,600
  
Common stock, no par value: 30,000,000 shares authorized,
             
11,991,686 shares issued and outstanding
    
14,902,300
    
14,902,300
  
Accumulated comprehensive income
    
311,900
    
157,300
  
Accumulated deficit
    
(11,634,900
)
  
(12,045,800
)
Total Stockholders' Equity
    
3,806,900
    
3,241,400
  
               
Total Liabilities and Stockholders' Equity
  
$
23,252,400
  
$
23,377,600
  

See accompanying notes to these condensed financial statements.


MENDOCINO BREWING COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
THREE MONTHS ENDED
September 30 
  
NINE MONTHS ENDED
September 30
  
   
2008
  
2007
  
2008
  
2007
  
Sales
  
$
9,588,500
  
$
10,268,600
  
$
28,867,600
  
$
28,353,700
  
Excise taxes
    
209,600
    
242,800
    
713,100
    
604,800
  
Net sales
    
9,378,900
    
10,025,800
    
28,154,500
    
27,748,900
  
Cost of goods sold
    
6,929,000
    
7,220,200
    
20,483,200
    
19,682,500
  
Gross profit
    
2,449,900
    
2,805,600
    
7,671,300
    
8,066,400
  
Operating expenses
                          
Marketing and distribution
    
1,235,300
    
1,452,000
    
3,750,200
    
4,050,400
  
General and administrative
    
989,300
    
1,109,200
    
2,926,600
    
3,186,600
  
Total operating expenses
    
2,224,600
    
2,561,200
    
6,676,800
    
7,237,000
  
Income from operations
    
225,300
    
244,400
    
994,500
    
829,400
  
Other income (expense)
                          
Other income
   
17,800
    
12,200
    
39,300
    
34,300
  
Gain (Loss) on sale of equipment
    
2,900
    
(22,400
)
  
2,900
    
(26,700
)
Interest expense
    
(187,100
)
  
(271,000
)
  
(622,000
)
  
(801,600
)
Total other expenses
    
(166,400
)
  
(281,200
)
  
(579,800
)
  
(794,000
)
Income (loss) before income taxes
    
58,900
    
(36,800
)
  
414,700
    
35,400
  
Provision for income taxes
    
-
    
600
    
3,800
    
7,000
  
Net income (loss)
  
$
58,900
  
$
(37,400
)
$
410,900
  
$
28,400
  
Other comprehensive income (loss), net of tax Foreign Currency Translation Adjustment
    
118,300
    
(31,500
)
  
154,600
    
(80,300
)
Comprehensive income (loss)
  
$
177,200
  
$
(68,900
)
$
565,500
  
$
(51,900
)
Net income (loss) per common share – Basic and Diluted
  
$
0.00
  
$
(0.00
)
$
0.03
  
$
0.00
  
Weighted average common shares outstanding - Basic and Diluted
    
11,991,686
    
11,991,686
    
11,991,686
    
11,809,930
  

See accompanying notes to these condensed financial statements.


MENDOCINO BREWING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Nine Months Ended September 30
  
   
2008
 
2007
  
CASH FLOWS FROM OPERATING ACTIVITIES
              
Net income
 
$
410,900
  
$
28,400
  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
              
Depreciation and amortization
    
826,000
    
807,500
  
Allowance for doubtful accounts
    
16,900
    
188,900
  
(Gain) Loss on sale of assets
    
(2,900
)
  
26,700
  
Interest accrued on related party notes
    
99,600
    
139,300
  
Stock issued for services
    
-
    
55,000
  
Changes in:
              
Accounts receivable
    
(367,800
)
  
(414,900
)
Inventories
    
(537,500
)
  
130,000
  
Prepaid expenses
   
197,700
   
81,600
 
Deposits and other assets
    
(208,400
)
  
(142,600
)
Accounts payable
    
(268,200
)
  
(193,200
)
Accrued liabilities
    
495,900
    
200,300
  
Net cash provided by operating activities:
    
662,200
   
907,000
 
CASH FLOWS FROM INVESTING ACTIVITIES
              
Purchases of property, equipment, and leasehold improvements
    
(662,800
)
  
(451,200
)
Proceeds from sale of fixed assets
    
2,900
   
21,800
 
Net cash used in investing activities:
    
(659,900
)
  
(429,400
)
CASH FLOWS FROM FINANCING ACTIVITIES
              
Net borrowing on line of credit
    
25,800
    
76,100
  
Borrowing on long-term debt
    
168,500
        
Repayment on long-term debt
    
(307,100
)
  
(295,900
)
Payments on obligation under capital leases
    
(54,900
)
  
(107,500
)
Net cash used in financing activities:
    
(167,700
)
  
(327,300
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
16,700
    
(11,800
)
NET CHANGE IN CASH
    
(148,700
)
  
138,500
 
CASH, beginning of period
    
339,700
    
345,900
  
CASH, end of period
  
$
_191,000
  
$
_484,400
  
SUPPLEMENTAL CASH FLOW INFORMATION
             
Cash paid during the period for:
              
Interest
  
$
522,400
  
$
662,300
  
Income taxes
  
$
3,800
  
$
7,000
  
Non-cash investing and financing activity
              
Lease Financed assets
  
$
159,800
  
$
100,600
  

See accompanying notes to these condensed financial statements.


MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited)
 
1. Description of Operations and Summary of Significant Accounting Policies
 
Description of Operations
 
Mendocino Brewing Company, Inc., (the "Company" or "MBC"), has operating subsidiaries, Releta Brewing Company, ("Releta"), and United Breweries International (UK) Limited, ("UBI"). In the United States, MBC and its subsidiary, Releta, operate two breweries that produce beer for the specialty "craft" segment of the beer market. The breweries are located in Ukiah, California and Saratoga Springs, New York. The Company also owns and operates a brewpub and gift store located in Hopland, California and a tasting room and gift store in the brewery premises in Saratoga Springs, New York. The majority of sales for Mendocino Brewing Company are in California. The Company brews several brands, of which Red Tail Ale is the flagship brand. In addition, the Company performs contract brewing for several other brands, and MBC holds the license to brew and distribute Kingfisher Premium Lager Beer in the US.
 
The Company's UK subsidiary, UBI, is a holding company for UBSN Limited ("UBSN"). UBSN is a distributor of alcoholic beverages, mainly Kingfisher Lager, in the United Kingdom and Europe. The distributorship is located in Faversham, Kent in the United Kingdom.
 
Basis of Presentation and Organization
 
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The financial statements and notes are representations of the management and the Board of Directors, who are responsible for their integrity and objectivity.
 
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, except as otherwise indicated, considered necessary for a fair presentation of the financial condition, results of operations and cash flows for the periods presented. The consolidated balance sheet at December 31, 2007 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's most recent Annual Report on Form 10-K/A, as filed with the Securities and Exchange Commission, which contains additional financial and operating information and information concerning the significant accounting policies followed by the Company.
 
Operating results for the nine months ended September 30, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008 or any future period.
 
Principles of Consolidation
 
The consolidated financial statements present the accounts of Mendocino Brewing Company, Inc., and its wholly-owned subsidiaries, Releta, and UBI. All inter-company balances, profits and transactions have been eliminated.
 
 
SIGNIFICANT ACCOUNTING POLICIES
 
Adoption of New Accounting Standards
 
Effective January 1, 2008, the Company implemented FAS No. 157, Fair Value Measurements (“FAS 157”) for its financial assets and liabilities that are remeasured and reported at fair value at each reporting period and non-financial assets and liabilities that are remeasured and reported at fair value at least annually. In accordance with the provisions of FSP No. FAS 157-2, Effective Date of FASB Statement No. 157, the Company elected to defer implementation of FAS 157 as it relates to its non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009. The adoption of FAS 157 with respect to financial assets and liabilities that are remeasured and reported at fair value at least annually did not have an impact on the Company’s financial statements. The Company is evaluating the impact, if any, that adopting FAS 157 will have on its non-financial assets and liabilities.
 
Effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115.” SFAS No. 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement of certain financial assets and liabilities under an instrument-by-instrument election. Subsequent measurements for the financial assets and liabilities an entity elects to fair value will be recognized in the results of operations. SFAS No. 159 also establishes additional disclosure requirements. The Company did not elect the fair value option under SFAS No. 159 for any of its financial assets or liabilities upon adoption. The adoption of SFAS No. 159 did not have a material impact on the Company’s results of operations or financial position.
 
Except as noted above, there have been no significant changes in the Company's significant accounting policies during the nine months ended September 30, 2008 compared to what was previously disclosed in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2007.
 
Cash and Cash Equivalents, Short and Long-Term Investments
 
For purposes of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Other investments with maturities less than twelve months from the balance sheet date are considered short-term investments, and those with maturities greater than twelve months from the balance sheet date are considered long-term investments.
 
Deferred Financing Costs
 
Costs relating to obtaining financing are capitalized and amortized over the term of the related debt. Deferred financing costs were $311,300, and the related accumulated amortization at September 30, 2008 was $131,600. Amortization of deferred financing costs charged to operations was $49,000 and $38,500 for the nine months ended September 30, 2008 and 2007. The Company will continue to amortize these fees until 2011. When a loan is paid in full, any unamortized financing costs are removed from the related accounts and charged to operations.
 
 
Concentration of Credit Risks
 
Financial instruments that potentially subject the Company to credit risk consist principally of trade receivables, cash deposits in excess of FDIC limits, and assets located in the United Kingdom. Substantially all of the Company's cash deposits are deposited with commercial banks in the US and the UK.
 
Wholesale distributors account for substantially all accounts receivable; therefore, this risk concentration is limited due to the number of distributors and the laws regulating the financial affairs of distributors of alcoholic beverages. The Company has approximately $110,300 in cash deposits and $5,263,700 of accounts receivable due from customers located in the United Kingdom as of September 30, 2008.
 
Income Taxes
 
The Company accounts for its income taxes using the Financial Accounting Standards Board Statements of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the establishment of a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit carryforwards. Deferred tax expense or benefit is recognized as a result of timing differences between the recognition of assets and liabilities for book and tax purposes during the year.
 
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognized for deductible temporary differences and operating loss, and tax credit carryforwards. A valuation allowance is established to reduce the deferred tax asset if it is "more likely than not" that the related tax benefits will not be realized. Management believes that sufficient uncertainty exists regarding the future realization of deferred tax assets and, accordingly, a full valuation allowance has been provided against net deferred tax assets. Tax expense has taken into account any change in the valuation allowance for deferred tax assets where the realization of various deferred tax assets is subject to uncertainty.
 
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company had no changes in the carrying value of its tax assets or liabilities for any unrecognized tax benefits.
 
Stock-Based Compensation
 
On January 1, 2006, the Company adopted SFAS 123(R) which requires the measurement and recognition of compensation expense for all share-based awards made to employees and directors, including employee stock options and employee stock purchases, based on estimated fair values. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
 
During the three and nine months ended September 30, 2008 and 2007, the Company did not grant any options or warrants and no stock options were outstanding as of September 30, 2008.
 
Basic and Diluted Earnings (Loss) per Share
 
In accordance with SFAS No. 128, "Earnings Per Share," the basic net income (loss) per share is computed by dividing the income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares outstanding during the period. The conversion of potentially dilutive securities would have increased earnings per share during the periods presented and therefore were antidilutive.
 
 
Foreign Currency Translation
 
The assets and liabilities of UBI were translated at the United Kingdom pound sterling - U.S. dollar exchange rates in effect at September 30, 2008 and December 31, 2007, and the statements of operations were translated at the average exchange rates for each of the nine months ended September 30, 2008 and 2007. Gains and losses resulting from the translations were deferred and recorded as a separate component of consolidated stockholders' equity. Cash at UBI was translated at exchange rates in effect at September 30, 2008 and December 31, 2007, and its cash flows were translated at the average exchange rates for each of the nine months ended September 30, 2008 and 2007. Changes in cash resulting from the translations are presented as a separate item in the statements of cash flows.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America includes having the Company make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The amounts estimated could differ from actual results. Significant estimates include the allowance for bad debts, depreciation and amortization periods, and the future utilization of deferred tax assets. The Company has determined that deferred tax assets associated with net operating loss carryforwards in the US may expire prior to utilization. The Company has placed a valuation allowance on these assets in the US.
 
Comprehensive Income (Loss)
 
Comprehensive income (loss) is composed of the Company's net income (loss) and changes in equity from non-stockholder sources. The accumulated balances of these non-stockholder sources are reflected as a separate item in the equity section of the balance sheet.
 
The components of other comprehensive income (loss) for the three months and nine months ended September 30, 2008 and 2007 are reflected as a separate item in the statements of operations.
 
Reportable Segments
 
The Company manages its operations through two business segments: brewing operations, including tavern and tasting room operations (domestic) and distributor operations (international). The international business segment sells the Company's products outside the U.S.
 
The Company evaluates performance based on operating income. Where applicable, portions of the administrative function expenses are allocated between the operating segments. The operating segments do not share manufacturing or distribution facilities. In the event any materials and/or services are provided to one operating segment by the other, the transaction is valued according to the Company's transfer policy, which approximates market price. The costs of operating the manufacturing plants are captured discretely within each segment. The Company's property, plant and equipment, inventory, and accounts receivable are captured and reported discretely within each operating segment.
 
 
Reclassifications
 
Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net income or loss or accumulated deficit.
 
Recent Accounting Pronouncements
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), or SFAS No. 141(R), Business Combinations. Under SFAS No. 141(R), an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in-process research and development, or IPR&D is capitalized as an intangible asset and amortized over its estimated useful life. SFAS 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Early adoption is not permitted. Generally, the effect of SFAS 141(R) will depend on future acquisitions.

Also in December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for noncontrolling interest (minority interest) in a subsidiary, provides guidance on the accounting for and reporting of the deconsolidation of a subsidiary, and increases transparency through expanded disclosures. Specifically, SFAS 160 requires the recognition of minority interest as equity in the consolidated financial statements and separate from the parent company’s equity. It also requires consolidated net earnings in the consolidated statement of earnings to include the amount of net earnings attributable to minority interest. This statement will be effective for the Company as of the beginning of fiscal year 2009. Early adoption is not permitted. The Company is presently evaluating the impact of the adoption of SFAS 160 and believes there will be no material impact on its consolidated financial statements.

In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” an amendment of FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities”. FAS No. 161 requires entities to provide greater transparency about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS No. 133, and how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. The statement is effective for fiscal years and interim periods beginning after November 15, 2008, and is not expected to have a significant impact on the Company's results of operations, financial condition or liquidity.
 
In April 2008, the FASB issued FSP FAS No. 142-3 “Determination of the Useful Life of Intangible Assets,” (“FSP No. 142-3”), which amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under FAS No. 142, “Goodwill and Other Intangible Assets.” The FSP requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141, “Business Combinations.” The FSP is effective for fiscal years beginning after December 15, 2008, and the guidance for determining the useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective date. The FSP is not expected to have a significant impact on the Company's results of operations, financial condition or liquidity.
 
 
In May 2008, the FASB issued Financial Accounting Standard (“FAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are prepared in conformance with generally accepted accounting principles. Unlike Statement on Auditing Standards (“SAS”) No. 69, “The Meaning of Present in Conformity With GAAP,” FAS No. 162 is directed to the entity rather than the auditor. The statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with GAAP,” and is not expected to have any impact on the Company's results of operations, financial condition or liquidity.
 
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force ("EITF"), the American Institute of Certified Public Accountants ("AICPA"), and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.
 
2. Liquidity and Management Plans
 
At September 30, 2008, the Company had cash and cash equivalents of $191,000, a working capital deficit of $2,432,400 and an accumulated deficit of $11,634,900. Additionally, the Company has a history of past losses as infrastructure costs were incurred in advance of obtaining revenues.
 
Management has taken actions, including reductions in discretionary expenditures, which management believes will permit the Company to possess sufficient cash for its working capital needs through September 30, 2009. In addition, the Company’s majority shareholder has issued a letter of support to provide financial assistance, if necessary. The Company may also consider obtaining additional capital infusions to support operations, if available. Management believes that these actions combined with increased sales will enable the Company to meet its working capital needs through September 30, 2009. Furthermore, during the nine months ended September 30, 2008, the Company generated income from operations and cash flows from operating activities.
 
3. Inventories
 
Inventories are stated at the lower of average cost or market and consist of the following:

   
30-Sep-08
  
 31-Dec-07
  
Raw Materials
  
$
880,600
  
$
601,000
  
Beer-in-process
    
271,700
   
177,200
  
Finished Goods
    
817,800
   
647,200
  
Merchandise
    
28,600
   
35,800
  
TOTAL
  
$
1,998,700
  
$
1,461,200
  
 
 
4. Line of Credit and Note Payable
 
In November 2006, Marquette Business Credit, Inc. ("Marquette") provided a line of credit drawable on eligible receivables and inventory until June 2011. The borrowings were collateralized, with recourse, by certain eligible trade receivables up to a maximum percentage of 85% of the qualified net amounts of such receivables of each of MBC and Releta and 60% of MBC's and Relata's eligible inventory located in the US. This facility carries interest at a rate of one-month LIBOR plus 4.25% and is secured by substantially all of the assets, excluding real property, of Releta and MBC. The amount outstanding on this line of credit as of September 30, 2008 was approximately $1,088,200.
 
The Company retains the right to recall any of the collateralized receivables under the line of credit, and the receivables are subject to recourse. Therefore, the transaction does not qualify as a sale. Included in the Company's balance sheets as accounts receivable at September 30, 2008, are account balances totaling $2,148,700 of uncollected accounts receivable collateralized to Marquette under this facility.
 
On April 26, 2005, Royal Bank of Scotland Commercial Services Limited ("RBS") provided an invoice discounting facility to UBSN Limited for a maximum amount of £1,750,000 based on 80% prepayment against qualified accounts receivable related to UBSN's United Kingdom customers. The initial term of the facility was for a one year period after which time the facility could be terminated by either party by providing the other party with six months notice. This facility carries an interest rate of 1.38% above the RBS base rate and a service charge of 0.10% of each invoice discounted. The amount outstanding on this line of credit as of September 30, 2008 was approximately $2,461,900.
 
5. Long-Term Debt
 
Maturities of long-term debt for succeeding years are as follows:
 
   
September 30,
2008
  
December 31,
2007
  
Note to a financial institution, payable in monthly installments of $18,200, plus interest at one month LIBOR plus 5.25% with a balloon payment of $544,600 in June 2011; secured by substantially all assets of Releta Brewing Company and Mendocino Brewing Company, excluding real property at Ukiah.
  
$
1,125,600
  
$
1,289,000
  
               
Note to a financial institution, payable in monthly installments of $2,300, plus interest at one month LIBOR plus 5.25% with a balloon payment of $96,000 in June 2011; secured by substantially all assets of Releta Brewing Company and Mendocino Brewing Company, excluding real property at Ukiah.
    
168,500
        
               
Note to a financial institution, payable in monthly installments of $27,300 including interest at prime plus 1.75% with a balloon payment of approximately $2,867,900 in June 2011 (net of discount of $20,400 and $25,900) secured by real property at Ukiah.
    
2,911,100
    
2,938,000
  
     
4,205,200
    
4,227,000
  
               
Less current maturities
    
307,900
    
254,400
  
   
$
3,897,300
  
$
3,972,600
  
 
 
6. Notes to Related Party
 
Subordinated Convertible Notes Payable
 
Notes payable to a related party consist of unsecured convertible notes to United Breweries of America ("UBA) in the aggregate principal amount of $1,915,400, with interest at the prime rate plus 1.5%, but not to exceed 10% per year. The UBA notes have accrued interest of $1,100,500 and $1,000,900 as at September 30, 2008 and December 31, 2007, respectively. The UBA notes are convertible into shares of the Company's common stock at $1.50 per share. The UBA notes were extended until June 2009. UBA may demand payment within 60 days of the end of the extension period but is precluded from doing so because the notes are subordinated to long-term debt agreements with Grand Pacific Financing Corporation and Marquette Business Credit, both maturing in June 2011. Therefore, the Company will not require the use of working capital to repay any of the UBA notes until the above-mentioned facilities are repaid. Accordingly, the entire amount due under the UBA notes is classified as a long term liability.
 
5% Notes Payable
 
Notes payable also includes an unsecured loan from Shepherd Neame Limited to UBSN Limited payable in annual installments of approximately $106,800 with interest at 5% per year beginning June 2003 and maturing June 2013. The amounts outstanding under this loan as of September 30, 2008 and December 31, 2007 were $427,300 and $595,300, respectively, including current maturities of $106,800 and $119,100 on those dates.
 
7. Commitments and Contingencies
 
Legal
 
The Company is periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The Company is not currently aware of any legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company's financial position or results of operations.
 
Operating Leases
 
The Company leases many of its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2009 and provide for renewal options ranging from month-to-month to five year terms. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties. The leases provide for increases in future minimum annual rental payments based on defined increases which are generally meant to correlate with the Consumer Price Index, subject to certain minimum increases. Also, the agreements generally require the Company to pay executory costs (real estate taxes, insurance and repairs).
 
The Company and its subsidiaries have various lease agreements for the brewpub and gift store in Hopland, California; a sales office in Petaluma, California; the building at its Saratoga Springs, New York, facility; a building in the United Kingdom; and certain personal property. The land lease includes a renewal option for two additional five-year periods, which the Company intends to exercise.
 
 
Keg Management Agreement
 
In September 2004, the Company renewed the keg management agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar provides all kegs for the Company for a service fee ranging between $5 and $15, depending on the territory. The agreement is effective for five years ending in September 2009. If the agreement is terminated, the Company is required to purchase three times the average monthly keg usage for the preceding six-month period from MicroStar at purchase prices ranging from $54 to $84 per keg. The Company expects to continue this relationship.
 
8. Related-Party Transactions
 
MBC and its subsidiaries have entered into or amended several agreements with affiliated and related entities. Among these are a Market Development Agreement, a Distribution Agreement, and a Brewing License Agreement between MBC and UBSN; a Distribution Agreement between UBI and UBSN; a Trademark Licensing Agreement between MBC and Kingfisher of America, Inc.; and a License Agreement between UBI and UB Limited. UBSN is a party to a brewing agreement and a loan agreement with Shepherd Neame Limited ("Shepherd Neame"). Additional information about these transactions may be found in the Company's annual report on Form 10-K/A for the year ended December 31, 2007.
 
The following table reflects the value of the transactions for the nine months ended September 30, 2008 and 2007 and the balances outstanding as of September 30, 2008 and 2007.
 
   
2008
  
2007
  
Sales to Shepherd Neame
  
$
2,788,400
  
$
3,142,700
  
Purchases from Shepherd Neame
  
$
11,884,700
  
$
12,046,500
  
Expense reimbursement to Shepherd Neame
  
$
797,500
  
$
936,300
  
Interest expense associated with UBA convertible notes payable
  
$
99,600
  
$
139,300
  
Accounts payable to Shepherd Neame
  
$
4,418,100
  
$
5,474,600
  
Accounts receivable from Shepherd Neame
  
$
1,132,100
  
$
789,500
  

9. Stockholders' Equity
 
The following table summarizes equity transactions during the nine months ended September 30, 2008.

   
Series A Preferred
      
Other
          
   
Stock
  
Common Stock
  
Comprehensive
  
Accumulated
  
Total
  
   
Shares
  
Amount
  
Shares
  
Amount
  
Income / (Loss)
  
Deficit
  
Equity
  
Balance, December 31, 2007
    
227,600
 
$
227,600
    
11,991,686
 
$
14,902,300
  
$
157,300
  
$
(12,045,800
)
$
3,241,400
  
                                             
Net Income
    
-
    
-
    
-
    
-
    
-
    
410,900
    
410,900
  
                                             
Currency Translation Adjustment
    
-
    
-
    
-
    
-
    
154,600
    
-
    
154,600
  
                                             
Balance, September 30, 2008
    
227,600
 
$
227,600
    
11,991,686
  
$
14,902,300
  
$
311,900
  
$
(11,634,900
)
$
3,806,900
  

 
The following table summarizes equity transactions during the nine months ended September 30, 2007.
 
   
Series A Preferred
          
Other
          
   
Stock
  
Common Stock
  
Comprehensive
  
Accumulated
  
Total
  
   
Shares
  
Amount
  
Shares
  
Amount
  
Income / (Loss)
  
Deficit
  
Equity
  
                               
Balance, December 31, 2006
    
227,600
 
$
227,600
    
11,628,174
 
$
14,815,300
  
$
124,400
  
$
(11,661,800
)
$
3,505,500
  
Stock issued for accrued compensation*
                
113,512
    
32,000
                
32,000
  
Stock issued for services*
                
250,000
    
55,000
                
55,000
  
Net Income
    
-
    
-
    
-
    
-
    
-
    
28,400
    
28,400
  
                                             
Currency Translation Adjustment
    
-
    
-
    
-
    
-
    
(80,300
)
  
-
    
(80,300
)
                                             
Balance, September 30, 2007
    
227,600
 
$
227,600
    
11,991,686
  
$
14,902,300
  
$
44,100
  
$
(11,633,400
)
$
3,540,600
  

*Independent outside members of the Board of Directors are compensated for attending Board of Directors and committee meetings.
 
Preferred Stock
 
Ten million shares of preferred stock have been authorized, of which 227,600 are designated as Series A. Series A shareholders are entitled to receive cash dividends and/or liquidation proceeds equal, in the aggregate, to $1.00 per share before any cash dividends are paid to the common stock or any other series of preferred stock. When the entire Series A dividend/liquidation proceeds have been paid, the Series A shares are automatically canceled and will cease to be outstanding. Only a complete corporate dissolution will cause a liquidation preference to be paid.
 
 
No stock options were outstanding as of September 30, 2008 and September 30, 2007.
 
Valuation and Expense Information under SFAS 123(R)
 
 
 
11. Segment Information
 
The Company's business presently consists of two segments. The first is brewing for wholesale to distributors and other retailers including beer for sale along with merchandise at the Company's brewpub and retail merchandise store located at the Hopland and Saratoga Springs breweries. The second segment consists of distributing alcoholic beverages to retail establishments and restaurants in the United Kingdom and Europe. A summary of each segment is as follows:

   
Nine months ended September 30, 2008 
  
   
Domestic
Operations
  
European
Territory
  
Corporate &
Others
  
Total
  
                   
Net Sales
 
$
11,590,000
  
$
16,564,500
  
$
-
  
$
28,154,500
  
Operating Income
 
$
685,200
  
$
309,300
  
$
-
  
$
994,500
  
Identifiable Assets
 
$
12,802,500
  
$
7,498,400
  
$
2,951,500
  
$
23,252,400
  
Depreciation & Amortization
 
$
400,100
  
$
425,900
  
$
-
  
$
826,000
  
Capital Expenditures
 
$
281,000
  
$
541,600
  
$
-
  
$
822,600
  

   
Nine months ended September 30, 2007
  
   
Domestic
Operations
  
European
Territory
  
Corporate &
Others
  
Total
  
Net Sales 
  
$
11,340,500
  
$
17,013,200
  
$
-
  
$
28,353,700
  
Operating Income
 
$
792,800
  
$
36,600
  
$
-
  
$
829,400
  
Identifiable Assets
 
$
12,399,500
  
$
9,164,300
  
$
2,825,100
  
$
24,388,900
  
Depreciation & mortization
 
$
372,700
  
$
419,200
  
$
15,600
  
$
807,500
  
Capital Expenditures
 
$
33,500
  
$
518,300
  
$
-
  
$
551,800
  

12. Unrestricted Net Assets
 
The Company's wholly-owned subsidiary, UBI, has undistributed losses of approximately $436,600 as of September 30, 2008. Under UBSN's line of credit agreement with RBS, distributions and other payments to the Company from its subsidiary are not permitted if retained earnings drop below approximately £1,000,000 (pounds sterling). Condensed financial information of the parent company, Mendocino Brewing Company, Inc. together with its other subsidiary, Releta Brewing Company is as follows:
 
 
   
September 30, 2008
  
December 31, 2007
  
   
(unaudited)
  
(audited)
  
Assets
              
Cash
  
$
80,700
  
$
32,000
  
Accounts receivable
    
1,772,900
    
1,643,400
  
Inventories
    
1,998,700
    
1,461,200
  
Other current assets
    
191,900
    
192,800
  
Total current assets
    
4,044,200
    
3,329,400
  
               
Investment in UBI
    
1,225,000
    
1,225,000
  
Property and equipment
    
11,158,100
    
11,228,200
  
Other assets
    
551,700
    
361,200
  
 Total assets
  
$
16,979,000
  
$
16,143,800
  
               
Liabilities and Stockholders' Equity
              
Line of credit
 
$
1,088,200
  
$
1,313,500
  
Accounts payable
    
1,584,200
    
1,270,900
  
Accrued liabilities
    
1,003,600
    
510,500
  
Current maturities of debt and leases
    
324,100
    
261,500
  
Total current liabilities
    
4,000,100
    
3,356,400
  
               
Intercompany payable to UBI
    
609,000
    
753,900
  
Long-term debt and capital leases
    
3,918,800
    
3,972,600
  
Notes payable to related party
    
3,015,900
    
2,916,300
  
Total liabilities
    
11,543,800
    
10,999,200
  
               
Stockholders' equity
              
Common stock
    
14,902,300
    
14,902,300
  
Preferred stock
    
227,600
    
227,600
  
Accumulated deficit
    
(9,694,700
)
  
(9,985,300
)
Total stockholders' equity
    
5,435,200
    
5,144,600
  
 Total liabilities and stockholders' equity
  
$
16,979,000
  
$
16,143,800
  
 
12. Unrestricted Net Assets (continued)

Statements of Operations
  
Three months ended
September 30
  
Nine months ended
September 30
  
   
2008
  
2007
  
2008
  
2007
  
   
(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
  
Net sales
  
$
3,763,100
  
$
3,883,200
  
$
11,590,000
  
$
10,735,700
  
Cost of goods sold
    
2,928,600
    
2,855,600
    
8,683,200
    
7,709,300
  
Selling, marketing, and retail expenses
    
374,900
    
332,500
    
968,800
    
961,100
  
General and administrative expenses
    
445,400
    
418,500
    
1,337,500
    
1,345,800
  
Income from operations
    
14,200
    
276,600
    
600,500
    
719,500
  
                           
Other (income)
    
(43,500
)
  
(40,700
)
  
(121,800
)
  
(123,000
)
Interest expense
    
131,300
    
189,100
    
427,900
    
587,700
  
Provision for taxes
    
-
    
600
    
3,800
    
7,000
  
Net income (loss)
  
$
(73,600
)
$
127,600
  
$
290,600
  
$
247,800
  
 
 
Statements of Cash Flows
  
Nine months ended
September 30
  
   
2008
  
2007
  
   
(unaudited)
  
(unaudited)
  
Net cash provided by operating activities
  
$
691,100
  
$
723,700
  
Purchase of property and equipment
    
(230,900
)
  
(33,500
)
Proceeds from sale of fixed assets
    
-
    
2,700
  
Net repayment of line of credit
    
(225,300
)
  
(287,600
)
Borrowing on long term debt
    
168,500
    
—
  
Repayment on long term debt
    
(190,300
)
  
(176,600
)
Payment on obligation under capital lease
    
(19,500
)
  
(7,300
)
Net change in payables to UBI
    
(144,900
)
  
(223,600
)
Increase (decrease) in cash
    
48,700
    
(2,200
)
Cash, beginning of period
    
32,000
    
55,700
  
Cash, end of period
  
$
80,700
  
$
53,500
  

 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion summarizes the significant factors affecting the consolidated operating results for the three months and nine months ended September 30, 2008, compared to the three months and nine months ended September 30, 2007, financial condition and liquidity/cash flows of the Company for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2007.
 
In this Report, the term "the Company" and its variants is generally used to refer to Mendocino Brewing Company, Inc. and its subsidiaries, while the term "MBC" is used to refer to Mendocino Brewing Company, Inc. as an individual entity standing alone.
 
Forward Looking Statements
 
Various portions of this Quarterly Report, including but not limited to the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain forward-looking information. Such information involves risks and uncertainties that are based on current expectations, estimates and projections about the Company's business, Management's beliefs, and assumptions made by Management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and variations of those and similar words are intended to identify such forward-looking information. Any forward-looking statements made by the Company are intended to provide investors with additional information with which they may assess the Company's future potential. All forward-looking statements are based on assumptions about an uncertain future and are based on information available at the date such statements are issued. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking information due to numerous factors, including but not limited to: changes in the pricing environment for the Company's products; changes in demand for malt beverage products in different Company markets; changes in distributor relationships or performance; changes in customer preference for the Company's malt beverage products; regulatory or legislative changes; the impact of competition; changes in raw materials' prices; availability of financing for operations; changes in interest rates; changes in the Company's European beer and/or restaurant business, and other risks discussed elsewhere in this Quarterly Report 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 in general domestic and European economic and political conditions. The Company undertakes no obligation to update these forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made or to publicly release the results of any revision to these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.
i
 
Critical Accounting Policies
 
There have been no significant changes in our accounting policies during the nine months ended September 30, 2008 compared to what was previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2007. In 2008, the adoption of SFAS No. 157 and SFAS No. 159 did not have a material impact on our financial statements. The process of preparing financial statements, in accordance with generally accepted accounting principles in the United States requires our management to make estimates and judgments regarding certain items and transactions. These judgments are based on historical experience, current economic and industry trends, information provided by outside sources, and management estimates. It is possible that materially different amounts could be recorded if these estimates and judgments change or if the actual results differ from these estimates and judgments. We consider the following to be our most significant critical accounting policies which involve the judgment of our management.
 
Revenue Recognition

We recognize revenue from sales upon the transfer of title for the goods. We classify amounts billed to customers for shipping and handling as revenues, with the related shipping and handling costs included in cost of goods sold.
 
 
We have adopted EITF – 01-09 "Accounting for Consideration Given by a Vendor to a Customer (including a Reseller of the Vendor's Products)". This EITF requires that certain cash consideration paid to customers for services or placement fees are to be reported as a reduction in revenue rather than as an expense.
 
Inventories
 
Consolidated inventories are stated at the lower of cost or market. On a quarterly basis, we evaluate the carrying cost of our inventory to ensure that it is stated at the lower of cost or market. Our products are typically not subject to obsolescence and consequently our reserves for slow moving and obsolete inventory have historically been zero. Cash flows from the sale of inventory are reported in cash flows from operations in the consolidated statements of cash flows.

 
Income Taxes
 
We conduct operations in separate legal entities; as a result, income tax amounts are reflected in these consolidated financial statements for each of those jurisdictions.
 
Net operating losses and credit carryforwards are recorded in the event such benefits are expected to be realized. Deferred taxes result from differences between the financial and tax bases of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
 
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowances.
 
Segment Information
 
Our management has identified two primary operating segments, US operations and European operations, which are organized around differences in products and services and are managed separately because each business requires different production, management and marketing strategies. Our US business operations consist of manufacturing and distribution of beer, which accounted for the majority of the our gross sales, and retail sales (primarily at our Hopland, California, tavern and merchandise store) which generally accounted for less than 5% of gross sales (by revenue). Our European operations are conducted by our wholly-owned subsidiary, United Breweries International (UK), Ltd. ("UBI") which consists of distribution of beer (primarily Kingfisher) in the U.K. and Ireland, continental Europe, and Canada (the "European Territory"). This segment accounted for 57% and 60% of our gross sales during the first nine months of 2008 and 2007 respectively, with our United States operations, including manufacturing and distribution of beer as well as retail sales (the "Domestic Territory") accounting for the remaining 43% and 40% during the first nine months of 2008 and 2007, respectively. Management expects that retail sales, as a percentage of total sales, will continue to be less than 5% of our wholesale beer sales. We evaluate performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses for both segements, and our accounting polices are consistent for both segments.
 
Seasonality
 
Sales of our products are somewhat seasonal. Historically, sales volumes in all geographic areas have been comparatively low during the first quarter of the calendar year in both the Domestic Territory and the European Territory. In the Domestic Territory, sales volumes have been stronger during the second and third quarters and slower again during the fourth quarter, while in the European Territory the fourth quarter has generated the highest sales volume. The volume of sales in any given area may also be affected by several factors including local weather conditions. Because of the seasonality of the our business, results for any one quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

 
Recent Developments
Pricing
 
During 2008, we implemented a series of global price increases in response to continuing increases in raw material costs; such price increases were generally broad-based across our product line.
 
Raw Materials
 
During 2008, we have incurred increases in the prices of malt and hops as a result of increased demand for these commodities coupled with shortages in availability. We believe that increased costs of raw materials are affecting our industry generally, and we cannot predict if or when the current situation will change or improve.

 
Summary of Financial Results
 
We ended the first nine months of 2008 with a net profit of $410,900, compared to $28,400 for the corresponding period in 2007. During the first nine months of 2008 net sales increased by $405,600 as compared to the corresponding period in 2007, mainly due to price increases. Costs of goods sold increased by $800,700, marketing costs decreased by $300,200, general and administrative costs decreased by $260,000, and interest expenses decreased by $179,600, all of which contributed to our results for the period.
 
Three Months Ended September 30, 2008 Compared To
Three Months Ended September 30, 2007
 
Net Sales
 
Overall net sales for the third quarter of 2008 were $9,378,900, a decrease of $646,900, or 6.5%, compared to $10,025,800 for the third quarter of 2007. The decrease was mainly due to lower sales volume.
 
Domestic Operations: Net sales for the third quarter of 2008 were $3,763,100 compared to $3,883,200 for the corresponding period in 2007, a decrease of $120,100, or 3.1% mainly due to lower sales volume of contract brands. Our total sales volume decreased to 18,400 barrels in the third quarter of 2008 from 22,700 barrels in the third quarter of 2007 for a net decrease of 4,300 barrels, or 18.9%. Of the decrease, sales of contract brands decreased by 4,700 barrels or 60.8%. This decrease was partially offset by increases in sales of our own brands by 200 barrels or 1.7% and increased sales volume of the Kingfisher brand by 200 barrels or 7.4%.
 
European Territory: Net sales for the third quarter of 2008 were $5,615,800 (£ 2,964,200) compared to $6,142,600 (£ 3,043,300) during the corresponding period of 2007, a decrease of $526,800, or 8.6% mainly due to decreased sales volume. During the third quarter of 2008, UBSN sold 16,500 barrels, compared to 17,800 barrels during the third quarter of 2007, representing a decrease of 1,300 barrels, or 7.3%. When measured from period to period exclusively in Pounds Sterling (which is the basic currency of account for the European Territory), our net sales in the European Territory decreased by 2.6%.

 
Cost of Goods Sold
 
Cost of goods sold as a percentage of net sales during the third quarter of 2008 was 73.9%, as compared to 72% during the corresponding period of 2007, mainly due to increased costs of materials.
 
Domestic Operations: Cost of goods sold as a percentage of net sales in the United States during the third quarter of 2008 was 77.8%, as compared to 73.5% during the corresponding period of 2007. The increase in costs of goods sold is mainly due to price increases for raw materials and packaging materials.
 
European Territory: Cost of goods sold as a percentage of net sales in the United Kingdom during the third quarter of 2008 was 71.8%, as compared to 71.5% during the corresponding period of 2007 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation).
 
Gross Profit
 
Gross profit for the third quarter of 2008 decreased to $2,449,900, from $2,805,600 during the corresponding period of 2007, representing a decrease of $355,700 or 12.7% mainly due to decreased sales volume. As a percentage of net sales, gross profit during the third quarter of 2008 decreased to 26.1% from 28% for the third quarter of 2007.
 
Operating Expenses
 
Operating expenses for the third quarter of 2008 were $2,224,600, a decrease of $336,600, or 13.1%, as compared to $2,561,200 for the corresponding period of 2007 mainly due to decreased distribution and promotional costs and reductions in provisions against bad debts in the European Territory. Operating expenses consist of marketing, distribution and general and administrative expenses.
 
Marketing and Distribution Expenses: Marketing and distribution expenses for the third quarter of 2008 were $1,235,300, as compared to $1,452,000 for the third quarter of 2007, representing a decrease of $216,700 or 14.9%. These expenses decreased to 13.2% of net sales for the third quarter of 2008, as compared to 14.5% for the corresponding period in 2007.
 
Domestic Operations: Expenses for the third quarter of 2008 were $374,900 compared to $332,500 during the corresponding period of 2007, representing an increase of $42,400 or 12.8%. As a percentage of net sales in the United States, the expenses increased to 10% during the third quarter of 2008, compared to 8.6% during the corresponding period of 2007. The increase in expenses resulted mainly from higher salary and travel costs due to increases in headcount.
 
European Territory: Expenses for the third quarter of 2008 were $860,400 compared to $1,119,500 during the corresponding period of 2007, representing a decrease of $259,100 or 23.1% mainly due to decreases in distribution and promotional costs. As a percentage of net sales in the United Kingdom, the expenses decreased to 15.3% during the third quarter of 2008 compared to 18.2% during the corresponding period of 2007 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation).
 
General And Administrative Expenses: The Company’s general and administrative expenses were $989,300 for the third quarter of 2008, representing a decrease of $119,900 or 10.8%, as compared to $1,109,200 for the corresponding period in 2007. General and administrative expenses decreased to 10.5% of net sales for the third quarter of 2008, as compared to 11.1% for the corresponding period in 2007.

 
Domestic Operations. Domestic general and administrative expenses were $445,400 for the third quarter of 2008, representing an increase of $26,900, or 6.4%, from $418,500 for the third quarter of 2007.
 
European Territory. General and administrative expenses related to the European Territory were $543,900 for the third quarter of 2008, representing a decrease of $146,800, or 21.3%, compared to $690,700 for the third quarter of 2007 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation) mainly due to reductions in provision against bad debts.
 
Other Expenses
 
Other expenses for the third quarter of 2008 totaled $166,400, representing a decrease of $114,800, or 40.8%, when compared to the third quarter of 2007 due to decreased interest expenses. In addition, for the first three months of 2008, we had a gain on the sale of certain assets as compared to a loss in the corresponding period of 2007.
 
Income Taxes
 
We did not provide for income taxes for the third quarter of 2008 as opposed to including a provision of $600 for the corresponding period of 2007. The provision for taxes in 2007 related to the estimated amount of taxes that would be imposed by taxing authorities in the United States.
 
Net Loss
 
Our net income for the third quarter of 2008 was $58,900, as compared to a net loss of $37,400 for the third quarter of 2007. After providing for a positive foreign currency translation adjustment of $118,300 during the third quarter of 2008 (as compared to a negative adjustment of $31,500 for the corresponding period in 2007), comprehensive income for the third quarter of 2008 was $177,200, compared to a loss of $68,900 for the correspoding period in 2007.
 
Nine Months Ended September 30, 2008 Compared To
Nine Months Ended September 30, 2007
 
Net Sales
 
Overall net sales for the first nine months of 2008 were $28,154,500, an increase of $405,600, or 1.5%, compared to $27,748,900 for the corresponding period in 2007. The increase was mainly due to increased sales prices of our products.
 
Domestic Operations: Domestic net sales for the first nine months of 2008 were $11,590,000 compared to $10,735,700 for the corresponding period in 2007, an increase of $854,300 or 8% mainly due to price increases. Domestic sales volume decreased to 57,700 barrels during the first nine months of the year 2008 representing a decrease of 1,500 barrels or 2.5% compared to domestic sales of 59,200 barrels in the first nine months of 2007. Sales of our brands increased by 2,900 barrels or 8.3%, sales of the Kingfisher brand increased by 1,100 barrels or 16%. In contrast, sales of contract brands decreased by 5,500 barrels or 32.1%.
 
European Territory: Net sales for the first nine months of 2008 were $16,564,500 (£8,508,100) compared to $17,013,200 (£8,559,700) during the corresponding period of 2007, a decrease of $448,700 or 2.6%. During the first nine months of 2008, UBSN sold 48,800 barrels compared to 50,100 barrels during the first nine months of 2007, a decrease of 1,300 barrels, or 2.6%. However, due to positivie exchange rate fluctuations, net sales (when compared in Pounds Sterling) decreased by only 0.6%.

 
Cost of Goods Sold
 
Cost of goods sold as a percentage of net sales during the first nine months of the year 2008 was 72.8%, as compared to 70.9% during the corresponding period of 2007.
 
Domestic Operations: Cost of goods sold as a percentage of net sales in the United States during the first nine months of 2008 was 74.9%, as compared to 71.8%, during the corresponding period of 2007. This increase is mainly due to significant increases in the costs of raw materials and packaging materials.
 
European Territory: Cost of goods sold as a percentage of net sales in the United Kingdom during the first nine months of 2008 was 71.8%, as compared to 70.8% during the corresponding period in 2007 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation).
 
Gross Profit
 
As a result of the higher costs described above, gross profit for the first nine months of 2008 decreased to $7,671,300, from $8,066,400 during the corresponding period of 2007, representing a decrease of $395,100 or 4.9%. As a percentage of net sales, gross profit during the first nine months of 2008 decreased to 27.2% from 29.1% during the corresponding period in 2007.
 
Operating Expenses
 
Operating expenses for the first nine months of the year 2008 were $6,676,800, a decrease of $560,200, or 7.7%, as compared to $7,237,000 for the corresponding period of 2007. Operating expenses consist of marketing and distribution expenses and general and administrative expenses.
 
Marketing and Distribution Expenses: Our marketing and distribution expenses for the first nine months of 2008 were $3,750,200, as compared to $4,050,400 for the corresponding period in 2007, representing a decrease of $300,200 or 7.4%. These expenses were equal to 13.3% of net sales for the first nine months of 2008, as compared to 14.6% for the corresponding period in 2007.
 
Domestic Operations: Expenses for the first nine months of 2008 were $968,800 compared to $961,100 during the corresponding period of 2007, representing an increase of $7,700 or 0.8%. Expenses, as a percentage of net sales in the United States, decreased to 8.4% during the first nine months of 2008, compared to 9% during the corresponding period of 2007.
 
European Territory: Expenses for the first nine months of 2008 were $2,781,400 compared to $3,089,300 during the corresponding period of 2007, representing a decrease of $307,900 or 10% mainly due to decreases in distribution expenses and sales commission. Expenses, as a percentage of net sales in the United Kingdom, decreased to 16.8% during the first nine months of 2008 compared to 18.2% during the corresponding period of 2007 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation).

 
General And Administrative Expenses: The Company’s general and administrative expenses were $2,926,600 for the first nine months of 2008, representing a decrease of $260,000 or 8.2%, compared to $3,186,600 for the corresponding period in 2007. These expenses were equal to 10.4% of net sales for the first nine months of 2008, as compared to 11.5% for the corresponding period in 2007.
 
Domestic Operations. Domestic general and administrative expenses were $1,337,500 for the first nine months of 2008, representing a decrease of $8,300, or 0.6%, from $1,345,800 for the corresponding period in 2007.
 
European Territory. General and administrative expenses related to the European Territory were $1,589,100 for the first nine months of 2008, representing a decrease of $251,700 or 13.7%, as compared to $1,840,800 for the corresponding period in 2007 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation). These decreases were mainly due to decreases in provisions against bad debts.
 
Other Expenses
 
Other expenses for the first nine months of 2008 totaled $579,800 representing a decrease of $214,200 or 27% when compared to the same period in 2007 mainly due to decreased interest expenses. In addition, for the first nine months of 2008, we had a gain on the sale of certain assets as compared to a loss in the corresponding period of 2007.
 
Income Taxes
 
We have a provision for income taxes of $3,800 for the first nine months of 2008, compared to $7,000 for the same period in 2007. The provision for taxes is mainly related to the estimated amount of taxes that will be imposed by taxing authorities in the United States.
 
Net Income
 
Our net income for the first nine months of 2008 was $410,900, as compared to $28,400 for the corresponding period of 2007. After providing for a positive foreign currency translation adjustment of $154,600 during the first nine months of 2008 (as compared to a negative adjustment of $80,300 for the corresponding period in 2007), we had comprehensive income for the first nine months of 2008 of $565,500, compared to a comprehensive loss of $51,900 for the corresponding period of 2007.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Unused capacity at our Ukiah and Saratoga Springs facilities has continued to place demands on our working capital. Prior to 2008, proceeds from operations of the US breweries were not sufficient to cover our working capital needs. However, during the nine months ended September 30, 2008, we generated positive cash flows from operations. We are a party to several loans, lines of credit, other credit facilities, and lease agreements. We are currently making timely payments on our debt and lease commitments as they fall due. Any breach of a loan or lease which actually leads to default, or to an attempt by a creditor to exercise its rights in our tangible or intangible assets, could potentially make it difficult, at least in the short term, for us to continue our operations.
 
We had $191,000 and $339,700 in cash and cash equivalents and $7,122,200 and $7,411,400 in accounts receivable at September 30, 2008 and December 31, 2007, respectively. At September 30, 2008, we had a working capital deficit of $2.4 million compared to a deficit of $2.9 million at December 31, 2007. The reduction in our working capital deficit is reflective of our improved operating results for the nine months ended September 30, 2008.


Net cash provided by operating activities for the nine months ended September 30, 2008 was $662,200, compared to $907,000 for the nine months ended September 30, 2007. We generally do not require significant cash on hand to meet our operating needs.
 
Net cash used in investing activities totaled approximately $659,900 for the nine months ended September 30, 2008 compared to net cash used of $429,400 for the corresponding period of 2007. Net cash used for investing activities consists of purchases of capital assets. 

Net cash used in financing activities totaled approximately $167,700 during the nine months ended September 30, 2008, compared to $327,300 for the corresponding period of 2007. For the nine months ended September 30, 2008, net cash used in financing activities prncipally consisted of debt payments and lease installments.
 
Description of Our Indebtedness
 
MARQUETTE LINE OF CREDIT
 
In November 2006, Marquette Business Credit, Inc. ("Marquette") provided a line of credit drawable up to 85% of eligible receivables and 60% of eligible inventory. The Marquette line of credit terminates in June 2011. The borrowings are collateralized, with recourse, by certain eligible trade receivables up to a maximum percentage of 85% of the qualified net amounts of such receivables of each of MBC and Releta and 60% of MBC's and Relata's eligible inventory located in the US. This facility accrues interest at a rate of one-month LIBOR plus 4.25% and is secured by substantially all of the assets of MBC and Releta, excluding the real property in Ukiah.
 
MASTER LINE OF CREDIT. On August 31, 1999, MBC and United Breweries of America, Inc. ("UBA"), one of our principal shareholders, entered into a Master Line of Credit Agreement, which was subsequently amended in April 2000 and February 2001 (the "Credit Agreement"). The terms of the Credit Agreement provide us with a line of credit in a principal amount of up to $1,600,000. We have executed an Extension of Term of Notes under Master Line of Credit Agreement (the "Extension Agreement") with UBA. The Extension Agreement confirms the extension of the terms of the UBA Notes until June 30, 2009.
 
As of the date of this filing, UBA has made thirteen (13) separate advances to us under the Credit Agreement and one additional advance on substantially the same terms as those under the Credit Agreement, pursuant to a series of individual eighteen-month promissory notes (the "UBA Notes"). The aggregate outstanding principal amount of the UBA Notes as of September 30, 2008 was $1,915,400, and the accrued but unpaid interest thereon was equal to approximately $1,100,500, for a total of $3,015,900.
 
The outstanding principal amount of the Notes and the unpaid interest thereon may be converted, at UBA's discretion, into shares of our unregistered common stock at a conversion rate of $1.50 per share. As of September 30, 2008, the outstanding principal and interest on the UBA Notes would be convertible upon exercise into approximately 2,010,600 shares of our common stock. On December 28, 2001, we entered into a Confirmation of Waiver with UBA which confirms that as of August 13, 2001, UBA waived its rights with regard to all conversion rate protection as set forth in the UBA Notes.


The UBA Notes require us to make quarterly interest payments to UBA on the first day of April, July, October, and January. To date, UBA has permitted us to capitalize all accrued interest; therefore, we have borrowed the maximum amount available under the facility. Upon maturity of any of the UBA Notes, unless UBA has given us prior instructions to commence repayment of the outstanding principal balance, the outstanding principal and accrued but unpaid interest on such UBA Note may be converted, at the option of UBA, into shares of our common stock. If UBA does not elect to so convert any UBA Notes upon maturity, it has the option to extend the term of such notes for any period of time mutually agreed upon by UBA and us. During the extended term of any note, UBA has the right to require us to repay the outstanding principal balance, along with the accrued and unpaid interest thereon, within sixty (60) days.
 
The UBA Notes are subordinated to our credit facilities with Grand Pacific Financing Corporation ("Grand Pacific") and Marquette pursuant to subordination agreements executed by UBA. As per the terms of the subordination agreements, UBA is precluded from demanding repayment of the UBA Notes unless the Grand Pacific and Marquette facilities are settled in full. Hence we do not expect to make payments on the UBA Notes until June 2011.
 
GRAND PACIFIC FINANCING CORPORATION LOAN: On July 3, 2006, we have obtained a $3.0 million loan from Grand Pacific, secured by a first priority deed of trust on the Ukiah land, fixtures attached to the land, and improvements. The loan is payable in partially amortizing monthly installments of $27,261  including interest at the rate of 1.75% over the prime rate published by The Wall Street Journal, maturing June 28, 2011 with a balloon payment. The amount of the balloon payment will vary depending on the change in interest rates over the term of the loan. We used the proceeds of the loan to repay in full our outstanding loans owed to Savings Bank of Mendocino County. Grand Pacific also collects on a monthly basis approximately $10,500 for property taxes for the Ukiah property and pays such taxes when they become due.
 
MARQUETTE FACILITY: On November 21, 2006, Marquette extended us a total facility of $4,925,000 with a maturity date of June 27, 2011 consisting of a $2,750,000 revolving facility, a $1,525,000 term loan and a $650,000 capital expenditure loan. The rate of interest on the term loan and capital expenditure loan is the one-month LIBOR rate published in the Wall Street Journal plus a margin of 5.25% and is the one-month LIBOR rate published in the Wall Street Journal plus a margin of 4.25% on the revolving facility . The facility is subject to certain financial covenants including prescribed minimum fixed charges coverage, maintaining prescribed minimum tangible net worth and minimum earnings before interest, depreciation and taxes. The facility also has a prepayment penalty if settled prior to the maturity date. The facility is secured by substantially all of our assets located in the United States excluding the real property and fixtures located in Ukiah, California.
 
OTHER LOANS AND CREDIT FACILITIES.
 
ROYAL BANK OF SCOTLAND FACILITY: Royal Bank of Scotland ("RBS") provided UBSN with a £1,750,000 maximum revolving line of credit with an advance rate based on 80% of UBSN's qualified accounts receivable. This facility has a minimum maturity of twelve months, but will be automatically extended unless terminated by either party upon six months' written notice.
 
SHEPHERD NEAME LOAN: Shepherd Neame has a contract with UBSN to brew Kingfisher Premium Lager for our European and Canadian markets. As consideration for extending the brewing contract, Shepherd Neame advanced a loan of £600,000 to UBSN, repayable in annual installments of £60,000 per year, commencing in June 2003. The loan carries a fixed interest rate of 5% per year.


WEIGHTED AVERAGE INTEREST: The weighted average interest rates paid on our U.S. debts was 7.5% for the first nine months of 2008 and 10.2% for the corresponding period in 2007. For loans primarily associated with the European Territory, the weighted average rate paid was 6.9% for the first nine months of 2008 and 6.8% for the corresponding period in 2007.
 
KEG MANAGEMENT ARRANGEMENT: On September 1, 2004, we entered into a five-year keg management agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar provides us with half-barrel kegs for which we pay a filling and use fee. Distributors return the kegs directly to MicroStar. MicroStar then supplies us with additional kegs. If, on any given month, the agreement is not extended and terminates, we are required to purchase a certain number of kegs from MicroStar. We anticipate that we would finance such purchase through debt or lease financing, if available. However, there can be no assurance that we will be able to finance the purchase of kegs. Our failure to purchase the necessary kegs from MicroStar on termination of the agreement would likely have a material adverse effect on us.
 
CURRENT RATIO: Our ratio of current assets to current liabilities on September 30, 2008 was 0.8 to 1.0 and our ratio of total assets to total liabilities was 1.2 to 1.0. On September 30, 2007, our ratio of current assets to current liabilities was 0.8 to 1.0 and our ratio of total assets to total liabilities was 1.17 to 1.0.
 
RESTRICTED NET ASSETS: Our wholly-owned subsidiary, UBI, has undistributed losses of approximately $436,600 as of September 30, 2008. Under UBSN's line of credit agreement with RBS, distributions and other payments to us from our subsidiary are not permitted if retained earnings drop below approximately £1,000,000 (pounds sterling).
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
As of September 30, 2008, we did not hold any derivative instruments, or engage in hedging activities, of any material value or in any material amount, whether for trading or for hedging purposes. We have some interest-related market risk due to floating interest rate debt totaling $10,261,800 as of September 30, 2008.
 
Interest Rate Risk
 
As of September 30, 2008, we had total debt of $10,118,400 of which $9,691,100 was subject to variable rates of interest (either prime or LIBOR plus 1.5% or prime plus 1.75% or LIBOR plus 4.25% or LIBOR plus 5.25%). As of September 30, 2008, our long-term debt (including the current portion) totaled $6,568,300, of which $427,300 had fixed interest rates and the balance of $6,141,000 was subject to variable interest rates. $3,550,100 of our short term debt is subject to variable rates. At current borrowing levels, an increase in prime and LIBOR rates of 1% would result in an annual increase of $96,900 in interest expense on our variable rate loans.
 
Foreign Currency Rate Fluctuations
 
Our earnings and cash flows at our subsidiaries UBI and UBSN are subject to fluctuations due to changes in foreign currency rates. We believe that changes in the foreign currency exchange rate would not have a material adverse effect on our results of operations as the majority of our foreign transactions are delineated in UBI's functional currency, the British Pound.

 
Item 4. Controls and Procedures
 
Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2008.
 
Changes in Internal Control Over Financial Reporting
 
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, we have also identified areas requiring further improvement as identified below. 
 
As of September 30, 2008, the following significant deficiencies in our internal control over financial reporting were identified:
 
 1. We did not formally document certain of the reviews conducted by the financial department in the processing and preparation of our financial statements. These processes include journal entries, account reconciliations, consolidations, equity reconciliations, disclosure checklists and tax return preparation. We plan to remediate these issues by formalizing our documentation of financial reviews.  
 
2. We did not conduct sufficient testing in 2007 to satisfy Sarbanes-Oxley requirements as a non- accelerated filer. We are in the process of remediating this issue. In addition, we have engaged the services of an outside consulting firm to assist with our internal control compliance procedures.
 
3. Human Resource documents including job descriptions, employee handbooks, and reviews were not current. We are in the process of remediating this issue. In addition, we have engaged the services of an outside consulting firm to assist with our internal control compliance procedures.
 
4. The Whistleblower contact will be established in 2008, and the contact will be independent of management.
 
 
We have enhanced our accounting procedures to review and monitor critical accounts and transactions on a timely basis. We have implemented a new ERP system to further improve controls at our Ukiah brewery and plan to implement the same system at our Saratoga Springs brewery by the end of 2008.
 
LIMITATIONS ON CONTROLS
 
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving our disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in such controls and procedures, including the fact that human judgment in decision making can be faulty and that breakdowns in internal controls can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.
 
PART II
 
OTHER INFORMATION
 
Item 4. Submission of Matters to a Vote of Security Holders
 
We held our 2008 Annual Meeting of Shareholders on October 6, 2008. At that meeting, our shareholders voted to elect all seven of the Board's director nominees. The votes cast for each of the nominees were as follows. There were no broker non-votes; ballots for a total of 1,096,619 shares were not cast with respect to any candidate.
 
Director's Name
  
Votes for
  
Withheld
  
           
Dr. Vijay Mallya
    
10,855,432
    
39,635
  
               
H. Michael Laybourn
    
10,864,157
    
30,910
  
             
 
Jerome G. Merchant
    
10,864,032
    
31,035
  
               
Scott R. Heldfond
    
10,860,657
    
34,410
  
       
 
      
Sury Rao Palamand
    
10,859,032
    
36,035
  
             
 
Kent D. Price
    
10,864,157
    
30,910
  
               
Yashpal Singh
    
10,860,432
    
34,635
  
 
In addition, our shareholders voted to ratify the selection of PMB Helin Donovan LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008. 10,869,128 votes were cast for such action, 8,067 votes were cast against such action and there were 17,872 broker non-votes.

 
Item 6. Exhibits
 
Exhibit Number
      
Description of Document
3.1
  
(T)
  
Articles of Incorporation of the Company, as amended.
3.2
  
(T)
  
Bylaws of the Company, as amended.
10.1
  
 
  
[Intentionally omitted]
10.2
      
[Intentionally omitted]
10.3
  
(A)
  
Wholesale Distribution Agreement between the Company and Bay Area Distributing.
10.4
      
[Intentionally omitted]
10.5
  
(B)
  
Liquid Sediment Removal Services Agreement with Cold Creek Compost, Inc.
10.6
      
[Intentionally omitted]
10.7
  
(C)
  
Commercial Real Estate Purchase Contract and Receipt for Deposit (previously filed as Exhibit 19.2).
10.8
  
(D)
  
Commercial Lease between Stewart's Ice Cream Company, Inc. and Releta Brewing Company LLC.
10.9
      
[Intentionally omitted]
10.10
  
(F)
  
Keg Management Agreement with MicroStar Keg Management LLC.
10.11
  
(G)
  
Agreement to Implement Condition of Approval No. 37 of the Site Development Permit 95-19 with the City of Ukiah, California (previously filed as Exhibit 19.6).
10.12
      
[Intentionally omitted]
10.13
      
[Intentionally omitted]
10.14
      
[Intentionally omitted]
10.15
      
[Intentionally omitted]
10.16
      
[Intentionally omitted]
10.17
      
[Intentionally omitted]
10.18
      
[Intentionally omitted]
10.19
  
(K)
  
Investment Agreement with United Breweries of America, Inc.
10.20
      
[Intentionally omitted]
10.21
  
 
  
[Intentionally omitted]
10.22
  
(L)
  
Indemnification Agreement with Vijay Mallya.
10.23
  
(L)
  
Indemnification Agreement with Michael Laybourn.
10.24
  
(L)
  
Indemnification Agreement with Jerome Merchant.
10.25
  
(L)
  
Indemnification Agreement with Yashpal Singh.
10.27
  
(L)
  
Indemnification Agreement with Robert Neame.
10.28
  
(L)
  
Indemnification Agreement with Sury Rao Palamand.
10.29
  
(L)
  
Indemnification Agreement with Kent Price.
10.30
      
[Intentionally omitted]
10.31
      
[Intentionally omitted]
10.32
      
[Intentionally omitted]
10.33
  
(N)
  
Employment Agreement with Yashpal Singh.
10.35
  
(O)
  
Master Line of Credit Agreement between the Company and United Breweries of America Inc. dated August 31, 1999.
10.36
  
(O)
  
Convertible Note in favor of United Breweries of America Inc. dated Sept. 7, 1999.
10.37
  
(P)
  
Convertible Note in favor of United Breweries of America Inc. dated October 21, 1999.
 

Exhibit Number
      
Description of Document
10.38
  
(P)
  
Convertible Note in favor of United Breweries of America Inc. dated November 12, 1999.
10.39
  
(P)
  
Convertible Note in favor of United Breweries of America Inc. dated December 17, 1999.
10.40
  
(P)
  
Convertible Note in favor of United Breweries of America Inc. dated December 31, 1999.
10.41
  
(P)
  
Convertible Note in favor of United Breweries of America Inc. dated February 16, 2000.
10.42
  
(P)
  
Convertible Note in favor of United Breweries of America Inc. dated February 17, 2000.
10.43
  
(P)
  
Convertible Note in favor of United Breweries of America Inc. dated April 28, 2000.
10.44
  
(P)
  
First Amendment to Master Line of Credit Agreement between the Company and United Breweries of America, Inc., dated April 28, 2000.
10.45
  
(Q)
  
Convertible Note in favor of United Breweries of America Inc. dated September 11, 2000.
10.46
  
(Q)
  
Convertible Note in favor of United Breweries of America Inc. dated September 30, 2000.
10.47
  
(Q)
  
Convertible Note in favor of United Breweries of America Inc. dated December 31, 2000.
10.48
  
(Q)
  
Convertible Note in favor of United Breweries of America Inc. dated February 12, 2001.
10.49
  
(R)
  
Convertible Note in favor of United Breweries of America Inc. dated July 1, 2001.
10.50
  
(S)
  
Confirmation of Waiver Between Mendocino Brewing Company, Inc. and United Breweries of America, Inc., dated as of December 28, 2001.
10.51
  
(S)
  
Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America, Inc., dated February 14, 2002.
10.52
  
(T)
  
License Agreement between United Breweries Limited and United Breweries International (U.K.), Limited.
10.53
  
(T)
  
Supplemental Agreement to License Agreement between United Breweries Limited and United Breweries International (U.K.), Limited.
10.54
  
(T)
  
Distribution Agreement between United Breweries International (U.K.), Limited and UBSN, Ltd.
10.55
  
(T)
  
Supplemental Agreement to Distribution Agreement between United Breweries International (U.K.), Limited and UBSN, Ltd.
10.56
  
(T)
  
Market Development, General and Administrative Services Agreement between Mendocino Brewing Company, Inc. and UBSN, Ltd.
10.57
  
(T)
  
Contract to Brew and Supply Kingfisher Products among Shepherd Neame, Limited, United Breweries International (U.K.), Limited and UBSN, Ltd.
10.58
  
(T)
  
Supplemental Agreement to Contract to Brew and Supply Kingfisher Products among Shepherd Neame, Limited, United Breweries International (U.K.), Limited. and UBSN, Ltd.
10.59
  
(T)
 
Loan Agreement between Shepherd Neame, Limited and UBSN, Ltd.
10.60
  
(T)
  
Brewing License Agreement between UBSN, Ltd. and Mendocino Brewing Company, Inc.
10.61
  
(T)
  
Kingfisher Trade Mark and Trade Name License Agreement between Kingfisher of America, Inc. and Mendocino Brewing Company, Inc.
10.62
  
(U)
  
First Amendment to Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America, Inc., dated November 13, 2002.
10.63
  
(U)
  
Second Amendment to Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America, Inc., dated March 31, 2003.
 

Exhibit Number
      
Description of Document
10.64
      
[Intentionally omitted]
10.65
      
[Intentionally omitted]
10.66
  
(W)
  
Third Amendment to Extension of Term of Notes under Master Line of Credit Agreement, dated August 14, 2003.
10.67
      
[Intentionally omitted]
10.68
  
(X)
  
Fourth Amendment to Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America, Inc., dated as of August 14, 2004.
10.69
      
[Intentionally omitted]
10.70
  
(Z)
  
Second Agreement dated October 9, 1998 between UBSN, Ltd. and Shepherd Neame, Ltd.
10.71
      
[Intentionally omitted]
10.72
      
[Intentionally omitted]
10.73
      
[Intentionally omitted]
10.74
 
(BB)
 
Convertible Promissory Note of Mendocino Brewing Company, Inc. in favor of United Breweries of America, Inc., dated March 2, 2005.
10.75
      
[Intentionally omitted]
10.76
  
(DD)
  
Invoice Discounting Agreement between The Royal Bank of Scotland Commercial Services Limited and UBSN Limited, dated April 26, 2005.
10.77
      
[Intentionally omitted]
10.78
      
[Intentionally omitted]
10.79
  
(EE)
  
Loan Agreement by and between Mendocino Brewing Company, Inc. and Grand Pacific Financing Corporation dated June 28, 2006.
10.80
  
(EE)
  
Promissory Note of Mendocino Brewing Company, Inc. in favor of Grand Pacific Financing Corporation, dated June 28, 2006.
10.81
      
[Intentionally omitted]
10.82
  
(FF)
  
Loan and Security Agreement by and among Marquette Business Credit Inc. and Mendocino Brewing Company, Inc. and Releta Brewing Company, LLC, dated November 16, 2006.
10.83
  
(FF)
  
Revolving Note of Mendocino Brewing Company, Inc. and Releta Brewing Company, LLC in favor of Marquette Business Credit Inc., dated November 16, 2006.
10.84
  
(FF)
  
Term Note of Mendocino Brewing Company, Inc. and Releta Brewing Company, LLC in favor of Marquette Business Credit Inc., dated November 16, 2006.
10.85
  
(FF)
  
CAPEX Note of Mendocino Brewing Company, Inc. and Releta Brewing Company, LLC in favor of Marquette Business Credit Inc., dated November 16, 2006.
10.86
  
(FF)
  
Fifth Amendment to Extension of Term of Notes Under Master Line of Credit Agreement, effective August 31, 2005.
10.87
  
(FF)
 
Sixth Amendment to Extension of Term of Notes under Master Line of Credit Agreement, effective December 31, 2006.
10.88
  
(FF)
  
Second Amendment to Convertible Promissory Note, effective December 31, 2006.
10.89
  
(GG)
  
Seventh Amendment to Extension of Term of Notes under Master Line of Credit Agreement effective June 30, 2007
10.90
  
(GG)
  
Third Amendment to Convertible Promissory Note, effective June 30, 2007
10.91
  
(HH)
  
Employment Agreement of Yashpal Singh (Management Contract)
14.1
  
(V)
  
Code of Ethics
 
NOTES: Each Exhibit listed above that is annotated with one or more of the following letters is incorporated by reference from the following sources:
 
 
(A)
The Company's Registration Statement dated June 15, 1994, as amended, previously filed with the Commission, Registration No. 33-78390-LA.
 
 
 
(B)
The Company's Annual Report on Form 10-KSB for the period ended December 31, 1995.
 
 
(C)
The Company's Quarterly Report on Form 10-QSB for the period ended March 31, 1995.
 
 
(D)
The Company's Quarterly Report on Form 10-QSB/A No. 1 for the period ended September 30, 1997.
 
 
(F)
The Company's Annual Report on Form 10-KSB for the period ended December 31, 1996.
 
 
(G)
The Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1995.
 
 
(I)
The Company's Annual Report on Form 10-KSB for the period ended December 31, 1997.
 
 
(K)
Schedule 13D filed November 3, 1997, by United Breweries of America, Inc. and Vijay Mallya.
 
 
(L)
The Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1998.
 
 
(N)
The Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1999.
 
 
(O)
Amendment No. 5 to Schedule 13D filed September 15, 1999, by United Breweries of America, Inc. and Vijay Mallya.
 
 
(P)
Amendment No. 6 to Schedule 13D filed May 12, 2000, by United Breweries of America, Inc. and Vijay Mallya.
 
 
(Q)
Amendment No. 7 to Schedule 13D filed February 22, 2001, by United Breweries of America, Inc. and Vijay Mallya.
 
 
(R)
Amendment No. 8 to Schedule 13D filed August 22, 2001, by United Breweries of America, Inc and Vijay Mallya.
 
 
(S)
The Company's Current Report on Form 8-K filed as of February 19, 2002.
 
 
(T)
The Company's Annual Report on Form 10-KSB for the period ended December 31, 2001.
 
 
(U)
Amendment No. 9 to Schedule 13D filed March 31, 2003, by United Breweries of America, Inc. and Vijay Mallya.
 
 
(V)
The Company's Annual Report on Form 10-KSB for the year ended December 31, 2003.
 
 
(W)
Amendment No. 10 to Schedule 13D filed August 18, 2003 by United Breweries of America, Inc. and Dr. Vijay Mallya.
 
 
(X)
Amendment No. 11 to Schedule 13D, jointly filed by United Breweries of America, Inc. and Dr. Vijay Mallya on August 16, 2004.
 
 
(Z)
The Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.
 
 
(BB)
The Company's Current Report on Form 8-K filed as of March 8, 2005.
 
 
(DD)
The Company's Quarterly Report on Form 10-Q for the period ended June 30, 2005.
 
 
(EE)
The Company's Quarterly Report on Form 10-Q for the period ended June 30, 2006.
 
 
(FF)
The Company's Annual Report on Form 10-K for the year ended December 31, 2006
 
 
 
(GG)
The Company's Quarterly Report on Form 10Q for the period ended June 30, 2007
 
 
(HH)
The Company's Annual Report on Form 10-QK/A for the period ended December 31, 2007
 
(b)
Exhibits Attached The following Exhibits are attached to this Quarterly Report on Form 10-Q:
 
 
10.92
Eighth Amendment to Extension of Term of Notes under Master Line of Credit Agreement, effective June 30, 2008.
 
 
10.93
Fourth Amendment to Convertible Promissory Note, effective June 30, 2008.
 
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
 
 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
 
 
32.1
Certification of Chief Executive Officer Pursuant to U.S.C. 1350.
 
 
32.2
Certification of Chief Financial Officer Pursuant to U.S.C. 1350.
 
(c)
Excluded Financial Statements. None.


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   
MENDOCINO BREWING COMPANY, INC.
       
Dated: November 14, 2008
  
By:
/s/ Yashpal Singh
       
     
Yashpal Singh
     
President and Chief Executive Officer
       
Dated: November 14, 2008
  
By:
/s/ Mahadevan Narayanan
       
     
Mahadevan Narayanan
     
Chief Financial Officer and Secretary

 
 EX-10.92 2 v132188_ex10-92.htm
EIGHTH AMENDMENT TO
EXTENSION OF TERM OF NOTES UNDER MASTER LINE OF CREDIT AGREEMENT

This Eighth Amendment to Extension of Term of Notes under Master Line of Credit Agreement (this "Amendment") is entered into to be effective as of June 30, 2008 (the "Effective Date") by and between Mendocino Brewing Company, Inc., a California corporation ("Borrower"), and United Breweries of America, Inc., a Delaware corporation ("Lender").
 
RECITALS

A. Borrower and Lender entered into an Extension of Term of Notes Under Master Line of Credit Agreement dated February 14, 2002, and amended as of August 15, 2002, March 31, 2003, August 14, 2003, August 14, 2004, August 31, 2005, December 31, 2006 and June 30, 2007 (the "Original Agreement"), which provides that the terms of certain of the Notes made by Borrower in favor of Lender shall be extended until June 30, 2008.
 
B. Subject to the terms and conditions of this Amendment, the parties now wish to further extend the terms of certain of the Notes.
 
C. Any capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, Borrower and Lender agree as follows:
 
1. Extension of Term. Section 1 of the Original Agreement is amended to read as follows:
 
The Notes provide that Lender has the right, at any time on or after the respective maturity dates of the Notes, to convert the Notes into shares of Borrower's common stock. However, Section 3 of the Notes provides that in the event that Lender has not converted the entire principal amount of any Note on or before its respective maturity date, Lender has the right to extend the term of such Note for a period of time mutually agreed upon between Lender and Borrower. The parties hereby modify their previous agreement and agree to extend the term of each of the Notes itemized Nos. 1 through 13 on Exhibit A, effective as of the maturity date of each respective Note, for a period of time ending on June 30, 2009.
 
2. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of laws principles of that or any other jurisdiction.
 
3. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all taken together shall constitute one and the same instrument.

 
1
 
 
4. Miscellaneous. This Amendment, in connection with the Original Agreement, contains all of the agreements, conditions, promises and covenants between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous agreements, representations or understandings with respect to the subject matter hereof. In the event of any conflict between the terms of the Original Agreement and this Amendment, the terms of this Amendment shall govern. Except as set forth in this Amendment, the terms of the Original Agreement shall remain in full force and effect. This Amendment may not be amended, modified, altered or otherwise changed in any respect except by written agreement signed by authorized representatives on behalf of Borrower and Lender. If any one or more of the provisions contained in this Amendment shall be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not in any way be affected or impaired.
 
[signature page to follow]

 
2
 

IN WITNESS WHEREOF, duly executed representatives of each of the parties hereto have executed and delivered this Amendment, to be effective as of the Effective Date first stated above.
 
Borrower:
  
Lender:
     
MENDOCINO BREWING COMPANY, INC.
a California corporation
  
UNITED BREWERIES OF AMERICA, INC.
a Delaware corporation
     
By:
/s/ N. Mahadevan
  
By:
/s/ Anil Pisharody
         
Name:
N. Mahadevan
  
Name:
Anil Pisharody
         
Title:
Chief Financial Officer and Secretary
  
Title:
Secretary

 
3
 
 
 EX-10.93 3 v132188_ex10-93.htm
FOURTH AMENDMENT TO CONVERTIBLE PROMISSORY NOTE
MENDOCINO BREWING COMPANY, INC.
 
This Fourth Amendment to Convertible Promissory Note (this "Amendment") is effective as of June 30, 2008 by and between United Breweries of America, Inc., a Delaware corporation ("Holder") and Mendocino Brewing Company, Inc., a California corporation (the "Company").
 
RECITALS
 
A. The Company issued a convertible promissory note (the "Note") to Holder in the principal amount of Four Hundred Thousand Dollars ($400,000) dated March 2, 2005.
 
B. The Holder and the Company entered into the First Amendment to Convertible Promissory Note effective August 31, 2006 as amended by the Second Amendment to Convertible Promissory Note effective December 31, 2006 and the Third Amendment to Convertible Promissory Note effective June 30, 2007, which provide that the term of the Note made by the Company in favor of Holder was extended until June 30, 2008.
 
C. Subject to the terms and conditions of this Amendment, the parties now wish to further extend the term of the Note.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby agreed, the parties agree as follows:
 
1. Extension of Term. The first sentence of Paragraph 1 of the Note is hereby amended and restated to read as follows:
 
"Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America, Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Four Hundred Thousand Dollars ($400,000.00) on presentation and surrender of this Convertible Note ("Note") on June 30, 2009 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to the lesser of (i) one and one-half percent (1.5%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California, or (ii) ten percent (10%)."
 
2. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of laws principles of that or any other jurisdiction.
 
3. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all taken together shall constitute one and the same instrument.

1
 
4. Miscellaneous. This Amendment contains all of the agreements, conditions, promises and covenants between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous agreements, representations or understandings with respect to the subject matter hereof. In the event of any conflict between the terms of the Note and this Amendment, the terms of this Amendment shall govern. Except as set forth in this Amendment, the terms of the Note shall remain in full force and effect. This Amendment may not be amended, modified, altered or otherwise changed in any respect except by written agreement signed by authorized representatives on behalf of Borrower and Holder. If any one or more of the provisions contained in this Amendment shall be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not in any way be affected or impaired.
 
[signature page to follow]

2

IN WITNESS WHEREOF, duly executed representatives of each of the parties hereto have executed and delivered this Amendment, to be effective as of the Effective Date first stated above. 

 
Holder:
     
MENDOCINO BREWING COMPANY, INC.
  
UNITED BREWERIES OF AMERICA, INC.
a California corporation
  
a Delaware corporation
         
By:
/s/ N. Mahadevan
  
By:
/s/ Anil Pisharody
         
Name:   
N. Mahadevan
  
Name:    
Anil Pisharody
         
Title:
Chief Financial Officer and Secretary
  
Title:
Secretary

3
     EX-31.1 4 v132188_ex31-1.htm
CERTIFICATIONS
 
I, Yashpal Singh, certify that:
 
 
1.
I have reviewed this quarterly report on Form 10-Q of Mendocino Brewing Company, Inc.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
 
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date: November 14, 2008
 
/s/ Yashpal Singh
Yashpal Singh,
Chief Executive Officer

 
 
 
 EX-31.2 5 v132188_ex31-2.htm
CERTIFICATIONS
 
I, Mahadevan Narayanan, certify that:
 
 
1.
I have reviewed this quarterly report on Form 10-Q of Mendocino Brewing Company, Inc.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
 
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date: November 14, 2008
 
/s/ Mahadevan Narayanan
Mahadevan Narayanan
Chief Financial Officer

 
 
 
 EX-32.1 6 v132188_ex32-1.htm
CERTIFICATION PURSUANT TO TITLE 18, UNITED STATES CODE,
SECTION 1350
 
In connection with the Quarterly Report of Mendocino Brewing Company, Inc. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Yashpal Singh, Chief Executive Officer of the Company, certify, pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
Date: November 14, 2008
 
/s/ Yashpal Singh
Name: Yashpal Singh
Title: Chief Executive Officer
 
 
 
 
 EX-32.2 7 v132188_ex32-2.htm
CERTIFICATION PURSUANT TO TITLE 18, UNITED STATES CODE,
SECTION 1350
 
In connection with the Quarterly Report of Mendocino Brewing Company, Inc. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mahadevan Narayanan, Chief Financial Officer of the Company, certify, pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
Date: November 14, 2008
 
Title: Chief Financial Officer
 
 
 
 
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