XML 34 R7.htm IDEA: XBRL DOCUMENT  v2.3.0.11
Significant Accounting Policies
6 Months Ended
Jun. 30, 2011
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]
2.           Significant Accounting Policies
 
Principles of Consolidation
 
The consolidated financial statements present the accounts of Mendocino Brewing Company, Inc., and its wholly-owned subsidiaries, Releta and UBIUK.  All inter-company balances, profits and transactions have been eliminated.
 
Basis of Presentation and Organization
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US generally accepted accounting principles for complete annual consolidated financial statements. 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. Operating results for the three months and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or any future period.
 
The consolidated balance sheet at December 31, 2010 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 consolidated condensed financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and related notes, included in the Company's  most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2011.
 
Liquidity and Management's Plans
 
On June 23, 2011, MBC and Releta entered into a Credit and Security Agreement (the "Agreement") with Cole Taylor Bank, an Illinois banking corporation (“Cole Taylor”).  The Agreement provides a credit facility of up to $10,000,000 with a maturity date of June 23, 2016 consisting of a $4,119,000 revolving facility, a $1,934,000 machinery & equipment term loan, a $2,947,000 real estate term loan and a $1,000,000 capital expenditure term loan.  The proceeds were used to repay credit facilities provided by Marquette Business Credit, Inc. ("Marquette") and Grand Pacific Financing Corporation ("Grand Pacific"). The convertible promissory notes payable to United Breweries of America, Inc. ("UBA") are subordinated to Cole Taylor.

At June 30, 2011, the Company had cash and cash equivalents of $279,300, an accumulated deficit of $14,262,400, and a working capital deficit of $2,890,000 due to losses incurred since 2005 in connection with KBEL's operations in the UK.  (For additional information, see Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.")

The Company has had a history of past losses in domestic US operations as substantial infrastructure costs were incurred in advance of obtaining customers and generating revenue.  

On February 15, 2011, United Breweries (Holdings) Limited ("UBHL") issued a letter of financial support on behalf of KBEL (the "Letter of Support"), to KBEL's accountants, to confirm that UBHL had agreed to provide funding on an as needed basis to KBEL to ensure that KBEL is able to meet its financial obligations as and when they fall due.  There is no maximum dollar limit on the amount of funds which UBHL will provide to KBEL specified in the Letter of Support.  The type of financial support provided by UBHL and the terms of such financial support are not specified in the Letter of Support.  UBHL's financial support to KBEL is contingent upon compliance with any applicable exchange control requirements and other applicable laws and regulations relating to the transfer of funds from India to the UK.  The Letter of Support was issued for at least a one year minimum period which runs through February 14, 2012.  Management intends to request that UBHL continue to keep the Letter of Support in force beyond the minimum specified period, if necessary.  UBHL controls the Company’s two largest shareholders, UBA and Inversiones Mirabel S.A., respectively, and as such UBHL is an indirect majority shareholder.  UBHL represented in the Letter of Support that it has the requisite financial resources to meet its commitment to KBEL under the Letter of Support. The Chairman of the Board of Directors, Dr. Vijay Mallya, is also the Chairman of the Board of Directors of UBHL.
 
Management has taken several actions to enable us to meet working capital needs through June 30, 2012, including reducing discretionary expenditures, expanding business in new territories and also securing additional brewing contracts in an effort to utilize a portion of excess production capacity.   The Company may need to seek additional capital infusions to support operations.
 
 
If it becomes necessary to seek UBHL's financial assistance under the Letter of Support and UBHL is either unable or unwilling to fulfill its commitment to KBEL under the Letter of Support or to extend the time period of such commitment if necessary, it may result in a material adverse effect on KBEL's, UBIUK's and the Company’s financial position and on their ability to continue operations.  In addition, if they are in default under the secured credit facilities, their lenders may seek to satisfy any outstanding obligations through recourse against the applicable pledged collateral which may include our real property and fixed and current assets.  The loss of any material pledged asset would likely have a material adverse effect on the Company’s financial position and results of operations.