10-Q/A

United states

securities and exchange commission

Washington, D.C. 20549

Form 10-q/A

(Amendment No. 1)

(Mark One)

[X]       Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

or

[  ]       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) 463-2087

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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” 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 August 10, 2012 is 12,611,133.

EXPLANATORY NOTE

The sole purpose of this Amendment No. 1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 of Mendocino Brewing Company, Inc., (the “Company”) filed with the Securities and Exchange Commission on August 14, 2012 (the “Form 10-Q”), is to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T.

No other changes have been made to the Form 10-Q. This Amendment No. 1 to Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date of the Form 10-Q and does not modify or update in any way disclosures made in the original Form 10-Q.

Item 6.	Exhibits
Exhibit No.	Description of Exhibit
3.1	Articles of Incorporation of the Company, as amended*
3.2	Bylaws of the Company, as amended*
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.**
101.INS	XBRL Instance Document†
101.SCH	XBRL Taxonomy Extension Schema Document†
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document†
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document†
101.LAB	XBRL Taxonomy Extension Label Linkbase Document†
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document†

* Incorporated by reference from the Company’s Annual Report on Form 10-KSB for the period ended December 31, 2001.

** Previously filed or furnished, as applicable, as an exhibit to Mendocino Brewing Company, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed with the Securities and Exchange Commission on August 14, 2012.

† Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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: September 6, 2012	By:	/s/ Yashpal Singh
		Yashpal Singh
		President and Chief Executive Officer
Dated: September 6, 2012	By:	/s/ Mahadevan Narayanan
		Mahadevan Narayanan
		Chief Financial Officer and Secretary

XML

Related-Party Transactions - Related-Party Transactions (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
TRANSACTIONS
Sales to Shepherd Neame	$ 1,842,800	$ 2,920,000
Purchases from Shepherd Neame	7,856,800	8,447,200
Expense reimbursement to Shepherd Neame	512,900	574,600
Interest expense related to UBA convertible notes	45,400	45,100
ACCOUNT BALANCES
Accounts payable to Shepherd Neame	3,608,200		4,856,900
Accounts receivable from Shepherd Neame	$ 393,100		$ 344,700

XML

Summary of Long-Term Debt (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Long term debt total	$ 4,677,400	$ 4,704,500
Less current maturities	450,000	423,600
Long-term debt non-current	4,227,400	4,280,900
Loan from Cole Taylor, payable in monthly installments of $12,300, plus interest at prime plus 2% with a balloon payment of approximately $2,222,500 in June 2016; secured by real property at Ukiah [Member]
Long term debt total	2,811,900	2,885,600
Loan from Cole Taylor, payable in monthly installments of $25,200 including interest at prime plus 1.5% with a balloon payment of approximately $654,800 in June 2016; secured by all assets of Releta and MBC [Member]
Long term debt total	$ 1,865,500	$ 1,818,900

XML

Related-Party Transactions (Tables)

6 Months Ended

Jun. 30, 2012

Related Party Transactions [Abstract]

Related-Party Transactions

TRANSACTIONS	2012		2011
Sales to Shepherd Neame	$	1,842,800	$	2,920,000
Purchases from Shepherd Neame	$	7,856,800	$	8,447,200
Expense reimbursement to Shepherd Neame	$	512,900	$	574,600
Interest expense related to UBA convertible notes	$	45,400	$	45,100

ACCOUNT BALANCES	June 30, 2012		Dec 31, 2011
Accounts payable to Shepherd Neame	$	3,608,200	$	4,856,900
Accounts receivable from Shepherd Neame	$	393,100	$	344,700

XML

Unrestricted Net Assets - Balance Sheets (Details) (Mendocino, MBC And Releta Company [Member], USD $)	Jun. 30, 2012	Dec. 31, 2011
Mendocino, MBC And Releta Company [Member]
Cash	$ 119,500	$ 187,200
Accounts receivable, net	3,031,400	2,308,400
Inventories	1,832,900	1,799,600
Prepaid expenses	179,800	126,800
Total current assets	5,163,600	4,422,000
Investment in UBIUK	1,225,000	1,225,000
Property and equipment	10,146,800	10,349,000
Intercompany receivable	348,500	231,400
Other assets	502,500	462,500
Total assets	17,386,400	16,689,900
Line of credit	849,000	895,300
Accounts payable	1,524,500	1,511,400
Accrued liabilities	1,302,300	824,300
Current maturities of debt and leases	474,500	473,100
Total current liabilities	4,150,300	3,704,100
Long-term debt and capital leases	4,227,400	4,280,900
Notes to related parties	3,361,100	3,315,700
Total liabilities	11,738,800	11,300,700
Preferred stock	227,600	227,600
Common stock	15,100,300	15,100,300
Accumulated deficit	(9,680,300)	(9,938,700)
Total stockholders' equity	5,647,600	5,389,200
Total liabilities and stockholders' equity	$ 17,386,400	$ 16,689,900

XML

Capital Lease Obligations - Capital Lease Obligations (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Capital Lease Obligations [Abstract]
Six months ending December 31, 2012	$ 33,300
Less amounts representing interest	(1,700)
Present value of minimum lease payments	31,600
Less current maturities	(31,600)	(67,500)
Non-current leases payable

XML

Secured Lines of Credit

6 Months Ended

Jun. 30, 2012

Line of Credit Facility [Abstract]

Secured Lines of Credit

4.     Secured Lines of Credit

In June 2011, Cole Taylor provided a line of credit, from which may be drawn up to 85% of eligible receivables and 60% of eligible inventory for a period up to June 2016. The borrowings are collateralized, with recourse, by MBC’s and Releta’s trade receivables and inventory located in the US. This facility carries interest at a rate of prime plus 1% and is secured by substantially all of the assets of Releta and MBC. The amount outstanding on this line of credit as of June 30, 2012 was $849,000. Included in the Company’s balance sheet as accounts receivable at June 30, 2012, are account balances totaling $3,031,400 of accounts receivables and $1,832,900 of inventory collateralized to Cole Taylor under this facility.

On April 26, 2005, Royal Bank of Scotland Commercial Services Limited (“RBS”) provided an invoice discounting facility to KBEL for a maximum amount of £1,750,000 based on 80% prepayment against qualified accounts receivable related to KBEL’s UK customers. The initial term of the facility was one year, after which time the facility could be terminated by either party upon six months’ notice. The 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 June 30, 2012 was $1,325,800. Included in the Company’s balance sheet as accounts receivable at June 30, 2012, are account balances totaling $2,198,400 of accounts receivables collateralized to RBS under this facility. 

XML

Unrestricted Net Assets - Statements of Operations (Details) (Mendocino, MBC And Releta Company [Member], USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Mendocino, MBC And Releta Company [Member]
Net sales	$ 4,627,500	$ 4,135,900	$ 8,569,100	$ 7,964,100
Cost of goods sold	3,419,100	2,998,800	6,357,700	5,786,600
Selling, marketing, and retail expenses	443,500	410,100	872,100	762,400
General and administrative expenses	462,300	449,500	968,600	982,400
Income from operations	302,600	277,500	370,700	432,700
Other	42,900	36,500	77,600	70,300
Interest expense	92,300	93,300	189,100	198,900
Provision for taxes			800	7,100
Net income	$ 253,200	$ 220,700	$ 258,400	$ 297,000

XML

Description of Operations and Summary of Significant Accounting Policies - Basic and Diluted Earnings Per Share (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Accounting Policies [Abstract]
Net income	$ 485,400	$ 205,400	$ 438,600	$ 176,100
Weighted average common shares outstanding	12,611,133	12,427,262	12,611,133	12,427,262
Basic net income per share	$ 0.04	$ 0.02	$ 0.03	$ 0.01
Interest expense on convertible notes	22,700	22,700	45,400	45,100
Income for computing diluted net income per share	$ 508,100	$ 228,100	$ 484,000	$ 221,200
Incremental shares from assumed exercise of dilutive securities	2,257,260	2,179,911	2,257,260	2,179,911
Dilutive potential common shares	14,868,393	14,607,173	14,868,393	14,607,173
Diluted net earnings per share	$ 0.03	$ 0.02	$ 0.03	$ 0.01

XML

Description of Operations and Summary of Significant Accounting Policies (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Accounting Policies [Abstract]
Deferred financing costs related to loans repaid in June 2011		$ 311,300		$ 311,300
Deferred financing cost related to new barrowings	225,000	225,000	225,000	225,000
Amortization of deferred financing costs	11,300	16,400	22,500	32,700
cash deposits	14,500		14,500
Accounts receivable due from customers	$ 2,198,400		$ 2,198,400

XML

Unrestricted Net Assets - Statements of Cash Flows (Details) (Mendocino, MBC And Releta Company [Member], USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Mendocino, MBC And Releta Company [Member]
Cash flows from operating activities	$ 227,300	$ 57,900
Purchase of property and equipment	(84,500)	(256,600)
Proceed from sale of assets	5,000
Net (repayment) on line of credit	(46,300)	(923,100)
Borrowing on long term debt	184,700	4,881,000
Repayment on long term debt	(211,800)	(3,517,700)
Payment on obligation under capital lease	(25,000)	(23,300)
Net change in payable to UBI	(117,100)	(130,000)
(Decrease) increase in cash	(67,700)	88,200
Cash, beginning of period	187,200	64,900
Cash, end of period	$ 119,500	$ 153,100

XML

Liquidity and Management Plans (Details Narrative) (USD $)	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011	Jun. 23, 2011	Dec. 31, 2010
Credit facility, agreement amount	$ 10,000,000			$ 10,000,000
Cash and cash equivalents	134,000	312,200	279,300		69,200
Accumulated deficit	(13,950,500)	(14,389,100)
Working capital deficit	2,258,900
Revolving Credit Facility [Member]
Credit facility, agreement amount				4,119,000
Machinery And Equipment Term Loan [Member]
Credit facility, agreement amount				1,934,000
Real Estate Term Loan [Member]
Credit facility, agreement amount				2,947,000
Capital Expenditure Line Of Credit [Member]
Credit facility, agreement amount				$ 10,000,000

XML

Inventories (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Inventory Disclosure [Abstract]
Raw Materials	$ 760,500	$ 851,000
Beer-in-process	392,400	325,100
Finished Goods	639,300	582,200
Merchandise	40,700	41,300
TOTAL	$ 1,832,900	$ 1,799,600

XML

Inventories

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Abstract]

Inventories

3.     Inventories

Inventory is stated at the lower of cost or market using the average-cost method. Cost includes the acquisition cost of raw materials and components, direct labor, and manufacturing overhead.

Inventories consist of the following:

	June 30, 2012		December 31, 2011
Raw Materials	$	760,500	$	851,000
Beer-in-process		392,400		325,100
Finished Goods		639,300		582,200
Merchandise		40,700		41,300
TOTAL	$	1,832,900	$	1,799,600

XML

Secured Lines of Credit (Details Narrative)				1 Months Ended		0 Months Ended
	Jun. 30, 2012 USD ($)	Dec. 31, 2011 USD ($)	Jun. 23, 2011 USD ($)	Jun. 30, 2011 Cole Taylor [Member]	Jun. 30, 2012 Cole Taylor [Member] USD ($)	Apr. 26, 2005 RBS [Member]	Jun. 30, 2012 RBS [Member] USD ($)	Jun. 30, 2012 RBS [Member] GBP (£)
Percentage of line of credit drawn on receivables				85.00%		80.00%
Percentage of line of credit drawn on inventory				60.00%
Facility interest rate above prime lending rate				1.00%		1.38%
Line of credit, outstnding amount					$ 849,000		$ 1,325,800
Initial term of facility						1 year
Inventory	1,832,900	1,799,600			1,832,900
Acount receivables					3,031,400		2,198,400
Maximum amount of facility	$ 10,000,000		$ 10,000,000		$ 10,000,000			£ 1,750,000

XML

Schedule of Segment Information (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Net Sales	$ 19,700,100	$ 19,666,800
Operating Income	645,000	418,400
Identifiable Assets	19,510,700	20,165,800
Depreciation & Amortization	512,300	586,800
Capital Expenditures	(303,100)	(443,200)
North American Operations [Member]
Net Sales	8,569,100	7,964,100
Operating Income	440,600	489,700
Identifiable Assets	11,979,700	12,282,800
Depreciation & Amortization	309,200	319,600
Capital Expenditures	84,500	256,600
Foreign Operations [Member]
Net Sales	11,131,000	11,702,700
Operating Income	204,400	(71,300)
Identifiable Assets	3,697,800	4,732,800
Depreciation & Amortization	203,100	267,200
Capital Expenditures	218,600	186,600
Corporate And Others [Member]
Net Sales
Operating Income
Identifiable Assets	3,833,200	3,150,200
Depreciation & Amortization
Capital Expenditures

XML

Condensed Consolidated Balance Sheets (USD $)	Jun. 30, 2012	Dec. 31, 2011
Current Assets
Cash	$ 134,000	$ 312,200
Accounts receivable, net	5,229,800	5,338,700
Inventories	1,832,900	1,799,600
Prepaid expenses	599,200	412,800
Total Current Assets	7,795,900	7,863,300
Property and Equipment,  net	11,212,300	11,391,900
Deposits and other assets	502,500	462,500
Total Assets	19,510,700	19,717,700
Current Liabilities
Secured lines of credit	2,174,800	1,749,800
Accounts payable	5,520,200	6,705,900
Accrued liabilities	1,878,200	1,618,700
Current maturities of notes to related parties		93,200
Current maturities of long-term debt	450,000	423,600
Current maturities of obligations under capital leases	31,600	67,500
Total Current Liabilities	10,054,800	10,658,700
Long-Term Liabilities
Notes to related parties less current maturities	3,361,100	3,315,700
Long term debts, less current maturities	4,227,400	4,280,900
Total Long-Term Liabilities	7,588,500	7,596,600
Total Liabilities	17,643,300	18,255,300
Stockholders' Equity
Preferred stock, Series A, no par value, with liquidation preference of $1 per share; 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, 12,611,133 shares issued and outstanding	15,100,300	15,100,300
Accumulated comprehensive income	490,000	523,600
Accumulated deficit	(13,950,500)	(14,389,100)
Total Stockholders' Equity	1,867,400	1,462,400
Total Liabilities and Stockholders' Equity	$ 19,510,700	$ 19,717,700

XML

Income Taxes (Details Narrative)	6 Months Ended
	Jun. 30, 2012
Income Tax Disclosure [Abstract]
Federal statutory tax rate	35.00%

XML

Description of Operations and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Description of Operations and Summary of Significant Accounting Policies

1.     Description of Operations and Summary of Significant Accounting Policies

Description of Operations

Mendocino Brewing Company, Inc., (the “Company” or “MBC”), was formed in 1983 in California, has operating subsidiaries, Releta Brewing Company, LLC, (“Releta”), and United Breweries International (UK) Limited (“UBIUK”). In the United States (the “US”), MBC and its subsidiary, Releta, operate two breweries that produce beer and malt beverages for the specialty “craft” segment of the beer market. The breweries are located in Ukiah, California and Saratoga Springs, New York. The majority of sales for Mendocino Brewing Company in the US 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 distribute Kingfisher Premium Lager in the US. Generally, product shipments are made directly from the breweries to the wholesalers or distributors in accordance with state and local laws.

The Company’s United Kingdom (“UK”) subsidiary, UBIUK, is a holding company for Kingfisher Beer Europe, Limited (“KBEL”), a distributor of alcoholic beverages, mainly Kingfisher Premium Lager, in the UK and Europe. The distributorship is located in Maidstone, Kent in the UK.

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. 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, 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. The financial statements and notes are representations of the management and the Board of Directors, who are responsible for their integrity and objectivity.

Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or any future period.

SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Company’s significant accounting policies during the six months ended June 30, 2012 compared to what was previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Cash and Cash Equivalents, Short and Long-Term Investments

For purposes of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Revenue Recognition

The Company recognizes revenue from brewing and distribution operations through product sales, net of discounts.

Revenue is recognized only when all of the following criteria have been met:

● Persuasive evidence of an arrangement exists;

● Delivery has occurred or services have been rendered;

● The fee for the arrangement is fixed or determinable; and

● Collectability is reasonably assured.

“Persuasive Evidence of an Arrangement” – The Company documents all terms of an arrangement in a written contract or purchase order signed by the customer prior to recognizing revenue.

“Delivery Has Occurred or Services Have Been Performed” – The Company delivers the products prior to recognizing revenue or performs services as per contractual terms. Product is considered delivered upon delivery to a customer’s designated location and services are considered performed upon completion of Company’s contractual obligations.

“The Fee for the Arrangement is Fixed or Determinable” – Prior to recognizing revenue, an amount is either fixed or determinable under the terms of the written contract. The price is negotiated at the outset of the arrangement and is not subject to refund or adjustment during the initial term of the arrangement.

“Collectability is Reasonably Assured” – The Company determines that collectability is reasonably assured prior to recognizing revenue. Collectability is assessed on a customer-by-customer basis based on criteria outlined by Management. The Company does not enter into arrangements unless collectability is reasonably assured at the outset. Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined during the arrangement that collectability is not reasonably assured, revenue is recognized on a cash basis.

The Company records certain consideration paid to customers for services or placement fees as a reduction in revenue rather than as an expense. The Company reports these items on the income statement as a reduction in revenue and as a corresponding reduction in marketing and selling expenses.

Revenues from the Company’s brewpub and gift store are recognized when sales have been completed.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectibility of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectibility. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

Inventories

Inventories are stated at the lower of average cost, which approximates the first-in, first-out method, or market (net realizable value). The Company regularly reviews its inventories for the presence of obsolete product attributed to age, seasonality and quality. Inventories that are considered obsolete are written off or adjusted to carrying value.

Deferred Financing Costs

Costs relating to obtaining financing are capitalized and amortized over the term of the related debt. When a loan is paid in full, any unamortized financing costs are removed from the related accounts and charged to operations. Deferred financing costs of $311,300 related to loans repaid in June 2011 were fully amortized as of June 30, 2011. Deferred financing costs related to new borrowing made in June 2011 were $225,000. Amortization of deferred financing costs charged to operations was $22,500 and $32,700 for the six months ended June 30, 2012 and 2011, respectively. Amortization of deferred financing costs charged to operations was $11,300 and $16,400 for the three months ended June 30, 2012 and 2011, respectively.

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 UK. 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 $14,500 in cash deposits in the UK and $2,198,400 of accounts receivable due from customers located in the UK as of June 30, 2012.

Income Taxes

The Company accounts for income taxes in accordance with ASC 750 which requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 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. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at June 30, 2012 and December 31, 2011.

Basic and Diluted Earnings (Loss) per Share

The basic earnings (loss) per share is computed by dividing the earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. The computations for basic and dilutive net earnings per share are as follows:

	Three months ended				Six months ended
	6/30/2012		6/30/2011		6/30/2012		6/30/2011
Net income	$	485,400		205,400	$	438,600		176,100
Weighted average common shares outstanding		12,611,133		12,427,262		12,611,133		12,427,262
Basic net income per share	$	0.04		0.02	$	0.03		0.01
Interest expense on convertible notes	$	22,700		22,700	$	45,400		45,100
Income for computing diluted net income per share	$	508,100		228,100	$	484,000		221,200
Incremental shares from assumed exercise of dilutive securities		2,257,260		2,179,911		2,257,260		2,179,911
Dilutive potential common shares		14,868,393		14,607,173		14,868,393		14,607,173
Diluted net earnings per share	$	0.03		0.02	$	0.03		0.01

Foreign Currency Translation

The Company has subsidiaries located in the UK, where the local currency, UK Pound Sterling, is the functional currency. Financial statements of these subsidiaries are translated into US dollars using period-end exchange rates for assets and liabilities and average exchange rates during the period for revenues and expenses. Cumulative translation adjustments associated with net assets or liabilities are reported in non-owner changes in equity. Any exchange rate gains or losses related to foreign currency transactions are recognized in the income statement as incurred, in the same financial statement caption as the underlying transaction, and are not material for any year shown.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the US 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.

Comprehensive Income (Loss)

Comprehensive income (loss) is composed of the Company’s net income 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.

Reportable Segments

The Company manages its operations through two business segments: (i) brewing operations and tasting room operations in the US and distributor operations in Canada (the “North American Territory”) and (ii) distributor operations in Europe (including the United Kingdom) (the “Foreign Territory”). The Company evaluates performance based on net operating profit. 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.

XML

Summary of Maturities of Long-Term Debt for Succeeding Years (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Maturities of Long-term Debt [Abstract]
Six months ending December 31,2012	$ 225,000
Year ending December 31, 2013	450,000
Year ending December 31, 2014	450,000
Year ending December 31,2015	450,000
Year ending December 31,2016	3,102,400
Maturities of long-term debt, total	$ 4,677,400	$ 4,704,500

XML

Long-Term Debt (Tables)

6 Months Ended

Jun. 30, 2012

Maturities of Long-term Debt [Abstract]

Summary of long-term debt

	June 30, 2011		December 31, 2011
Loan from Cole Taylor, payable in monthly installments of $12,300, plus interest at prime plus 2% with a balloon payment of approximately $2,222,500 in June 2016; secured by real property at Ukiah.		2,811,900		2,885,600
Loan from Cole Taylor, payable in monthly installments of $25,200 including interest at prime plus 1.5% with a balloon payment of approximately $654,800 in June 2016; secured by all assets of Releta and MBC.		1,865,500		1,818,900
		4,677,400		4,704,500
Less current maturities		450,000		423,600
	$	4,227,400	$	4,280,900

Summary of Maturities of long-term debt for succeeding years

Six months ending December 31,2012	$	225,000
Year ending December 31, 2013		450,000
Year ending December 31, 2014		450,000
Year ending December 31,2015		450,000
Year ending December 31,2016		3,102,400
	$	4,677,400

XML

Notes to Related Parties (Details Narrative) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Unsecured convertible notes	$ 3,361,100
Outstanding principal and interest notes converted into shares	2,257,260
Accrued interest	1,445,700	1,400,300
Thirteen UBA Note [Member]
Debt instruments converison price per share	$ 1.50
One UBA Note [Member]
Debt instruments converison price per share	$ 1.44
5% Notes Payable [Member]
Interest rate of notes payable		5.00%
Notes payable to related parties include current maturities		$ 93,200

XML

Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Six months ending December 31,2012	$	815,700
Year ending December 31,2013		139,700
Year ending December 31,2014		138,500
Year ending December 31,2015		126,200
Year ending December 31,2016		64,700
	$	1,284,800

XML

Liquidity and Management Plans

6 Months Ended

Jun. 30, 2012

Liquidity And Management Plans

Liquidity and Management Plans

2.     Liquidity and Management 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 with a maturity date of June 23, 2016 of up to $10,000,000 consisting of a $4,119,000 revolving facility, a $1,934,000 machinery and equipment term loan, a $2,947,000 real estate term loan and a $1,000,000 capital expenditure line of credit. The proceeds were used to repay credit facilities provided by Marquette Business Credit, Inc. (“Marquette”) and Grand Pacific Financing Corporation (“Grand Pacific”). Convertible promissory notes issued to United Breweries of America, Inc. (“UBA”), one of the Company’s principal shareholders, are subordinated to the Cole Taylor facility.

At June 30, 2012, the Company had cash and cash equivalents of $134,000, an accumulated deficit of $13,950,500 due to losses incurred during the past and a working capital deficit of $2,258,900 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.”)

On March 2, 2012, United Breweries (Holdings) Limited (“UBHL”), MBC’s indirect majority shareholder, 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 dated March 2, 2012 was issued for a 12 month minimum period. The Company’s management intends to seek UBHL’s consent to keep the current Letter of Support in force beyond the minimum period, if necessary, or request that UBHL issue a new letter of support for the period after such minimum period. UBHL controls the Company’s two largest shareholders, UBA and Inversiones Mirabel S.A., and as such, UBHL is the Company’s 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 Company’s Board of Directors, Dr. Vijay Mallya, is also the chairman of the board of directors of UBHL.

The Company’s management has taken several actions to enable the Company to meet its working capital needs through June 30, 2013, including reducing discretionary expenditures, exploring expansion of business in new territories and pursuing additional brewing contracts in an effort to utilize a portion of excess production capacity. The Company may also seek additional capital infusions to support its operations.

If it becomes necessary to seek UBHL’s financial assistance under the current Letter of Support and UBHL is either unable or unwilling to fulfill its commitment to KBEL under the current 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 the Company is in default under its secured credit facilities, its lenders may seek to satisfy any outstanding obligations through recourse against the applicable pledged collateral which may include the Company’s 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.

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Preferred stock, Series A, liquidation preference per share (in dollars per share)	$ 1	$ 1
Preferred stock, No par value	$ 0	$ 0
Preferred stock, Series A, shares authorized	10,000,000	10,000,000
Preferred stock, Series A, shares issued	227,600	227,600
Preferred stock, Series A, shares outstanding	227,600	227,600
Common stock, No par value	$ 0	$ 0
Common stock, shares authorized	30,000,000	30,000,000
Common stock, shares issued	12,611,133	12,611,133
Common stock, shares outstanding	12,611,133	12,611,133

XML

Income Taxes

6 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Abstract]

Income Taxes

12.    Income Taxes

In the six months ending June 30, 2012 and 2011, the Company only recorded tax expense related to state franchise taxes and the Company did not report income tax expense due to the availability of deferred tax assets to offset any taxable income in the US and the UK. The Company has established a full valuation allowance against the Company's deferred tax assets based on an assessment that the criteria that deferred tax assets will more likely than not be realized is not yet met. During the six months ending June 30, 2012 and 2011, the Company's effective tax rates were de minimus. The difference between the Company's effective tax rates and the 35% US federal statutory tax rate and the UK's statutory tax rate resulted primarily from a tax benefit related to a reduction in the federal and state deferred tax asset valuation allowance.

Our major tax jurisdictions are (i) US (federal), (ii) California (state), (iii) New York (state) and (iv) UK. Tax returns remain open to examination by the applicable governmental authorities for tax years 2006 through 2011. The federal and state taxing authorities may choose to audit tax returns for prior years due to significant tax attribute carryforwards for those prior years. However, such audits will be limited to adjustments to such carryforward tax attributes. The Company is not currently being audited in any major tax jurisdiction.

XML

Document And Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 10, 2012
Document And Entity Information
Entity Registrant Name	MENDOCINO BREWING CO INC
Entity Central Index Key	0000919134
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		12,611,133
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012

XML

Subsequent Events

6 Months Ended

Jun. 30, 2012

Subsequent Events [Abstract]

Subsequent Events

13.    Subsequent Events

The Company evaluates events that occur subsequent to the balance sheet date of periodic reports, but before financial statements are issued for periods ending on such balance sheet dates, for possible adjustment to such financial statements or other disclosure. This evaluation generally occurs through the date at which the Company’s financial statements are electronically prepared for filing with the Securities and Exchange Commission (“SEC”).

XML

Condensed Consolidated Statements of Operations (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Statement [Abstract]
Sales	$ 10,577,500	$ 10,685,800	$ 20,217,800	$ 20,124,500
Excise taxes	307,300	253,900	517,700	457,700
Net Sales	10,270,200	10,431,900	19,700,100	19,666,800
Cost of goods sold	7,339,500	7,560,900	14,144,600	14,176,800
Gross Profit	2,930,700	2,871,000	5,555,500	5,490,000
Marketing	1,361,300	1,504,700	2,842,400	2,920,500
General and administrative	986,900	1,051,900	2,068,100	2,151,100
Total operating expenses	2,348,200	2,556,600	4,910,500	5,071,600
Income from operations	582,500	314,400	645,000	418,400
Other income (expense)
Other income	6,600	5,300	10,100	7,800
Profit on sale of asset	5,100		9,400
Interest expense	(108,800)	(114,300)	(225,100)	(243,000)
Total other expenses	(97,100)	(109,000)	(205,600)	(235,200)
Income before income taxes	485,400	205,400	439,400	183,200
Provision for income taxes			800	7,100
Net income	485,400	205,400	438,600	176,100
Foreign currency translation income (loss)	61,000	2,500	(33,600)	(112,900)
Comprehensive income	$ 546,400	$ 207,900	$ 405,000	$ 63,200
Basic	$ 0.04	$ 0.02	$ 0.03	$ 0.01
Diluted	$ 0.03	$ 0.02	$ 0.03	$ 0.01
Basic	12,611,133	12,427,262	12,611,133	12,427,262
Diluted	14,868,393	14,607,173	14,868,393	14,607,173

XML

Capital Lease Obligations

6 Months Ended

Jun. 30, 2012

Capital Lease Obligations [Abstract]

Capital Lease Obligations

7.    Capital Lease Obligations

The Company leases certain brewing equipment, vehicles and office equipment under agreements that are classified as capital leases. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of June 30, 2012, are as follows:

Six months ending December 31, 2012	$	33,300
Less amounts representing interest		(1,700	)
Present value of minimum lease payments		31,600
Less current maturities		(31,600	)
Non-current leases payable	$	—

XML

Notes To Related Parties

6 Months Ended

Jun. 30, 2012

Notes To Related Parties

Notes to Related Parties

6.    Notes to Related Parties

Subordinated Convertible Notes Payable

Notes payable to related parties includes unsecured convertible notes to UBA for a total value, including interest at the prime rate plus 1.5%, but not to exceed 10% per year, of $3,361,100 as of June 30, 2012. Thirteen of the UBA notes are convertible into shares of the Company’s Common Stock at $1.50 per share and one UBA Note is convertible into shares of the Company’s Common Stock at a rate of $1.44 per share. The issuance of shares of the Company’s Common Stock to non-employee directors on September 14, 2011 triggered an adjustment to the conversion rate with respect to the note that now converts at a rate of $1.44 per share. As of June 30, 2012, the outstanding principal and interest on the notes issued to UBA were convertible into 2,257,260 shares of the Company’s Common Stock.

The UBA notes were extended until June 2012 with automatic renewals after such maturity date for successive one year terms, provided that either the Company or UBA may elect not to extend the term upon written notice given to the other party no more than 60 days and no fewer than 30 days prior to the expiration of such term. The Company and UBA did not issue any such notice prior to June 2012 and hence the maturity date of the notes has been automatically extended until June 30, 2013. 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 Cole Taylor maturing in June 2016. Therefore, the Company will not require the use of working capital to repay any of the UBA notes until the Cole Taylor facilities are repaid. The UBA notes include $1,445,700 and $1,400,300 of accrued interest at June 30, 2012 and December 31, 2011, respectively. 

5% Notes Payable

Included in current maturities of notes payable to related parties as of December 31, 2011 was $93,200 related to a note bearing annual interest at 5% issued by Shepherd Neame to KBEL, which was paid in full as of June 30, 2012. 

XML

Capital Lease Obligations (Tables)

6 Months Ended

Jun. 30, 2012

Capital Lease Obligations [Abstract]

Capital Lease Obligations

Six months ending December 31, 2012	$	33,300
Less amounts representing interest		(1,700	)
Present value of minimum lease payments		31,600
Less current maturities		(31,600	)
Non-current leases payable	$	—

XML

Description of Operations and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Description of Operations

Description of Operations

Mendocino Brewing Company, Inc., (the “Company” or “MBC”), was formed in 1983 in California, has operating subsidiaries, Releta Brewing Company, LLC, (“Releta”), and United Breweries International (UK) Limited (“UBIUK”). In the United States (the “US”), MBC and its subsidiary, Releta, operate two breweries that produce beer and malt beverages for the specialty “craft” segment of the beer market. The breweries are located in Ukiah, California and Saratoga Springs, New York. The majority of sales for Mendocino Brewing Company in the US 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 distribute Kingfisher Premium Lager in the US. Generally, product shipments are made directly from the breweries to the wholesalers or distributors in accordance with state and local laws.

The Company’s United Kingdom (“UK”) subsidiary, UBIUK, is a holding company for Kingfisher Beer Europe, Limited (“KBEL”), a distributor of alcoholic beverages, mainly Kingfisher Premium Lager, in the UK and Europe. The distributorship is located in Maidstone, Kent in the UK.

Principles of Consolidation

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

Basis of Presentation and Organization

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles. 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, 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. The financial statements and notes are representations of the management and the Board of Directors, who are responsible for their integrity and objectivity.

Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or any future period.

Cash and Cash Equivalents, Short and Long-Term Investments

Cash and Cash Equivalents, Short and Long-Term Investments

For purposes of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue from brewing and distribution operations through product sales, net of discounts.

Revenue is recognized only when all of the following criteria have been met:

● Persuasive evidence of an arrangement exists;

● Delivery has occurred or services have been rendered;

● The fee for the arrangement is fixed or determinable; and

● Collectability is reasonably assured.

“Persuasive Evidence of an Arrangement” – The Company documents all terms of an arrangement in a written contract or purchase order signed by the customer prior to recognizing revenue.

“Delivery Has Occurred or Services Have Been Performed” – The Company delivers the products prior to recognizing revenue or performs services as per contractual terms. Product is considered delivered upon delivery to a customer’s designated location and services are considered performed upon completion of Company’s contractual obligations.

“The Fee for the Arrangement is Fixed or Determinable” – Prior to recognizing revenue, an amount is either fixed or determinable under the terms of the written contract. The price is negotiated at the outset of the arrangement and is not subject to refund or adjustment during the initial term of the arrangement.

“Collectability is Reasonably Assured” – The Company determines that collectability is reasonably assured prior to recognizing revenue. Collectability is assessed on a customer-by-customer basis based on criteria outlined by Management. The Company does not enter into arrangements unless collectability is reasonably assured at the outset. Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined during the arrangement that collectability is not reasonably assured, revenue is recognized on a cash basis.

The Company records certain consideration paid to customers for services or placement fees as a reduction in revenue rather than as an expense. The Company reports these items on the income statement as a reduction in revenue and as a corresponding reduction in marketing and selling expenses.

Revenues from the Company’s brewpub and gift store are recognized when sales have been completed.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectibility of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectibility. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

Deferred Financing Costs

Deferred Financing Costs

Costs relating to obtaining financing are capitalized and amortized over the term of the related debt. When a loan is paid in full, any unamortized financing costs are removed from the related accounts and charged to operations. Deferred financing costs of $311,300 related to loans repaid in June 2011 were fully amortized as of June 30, 2011. Deferred financing costs related to new borrowing made in June 2011 were $225,000. Amortization of deferred financing costs charged to operations was $22,500 and $32,700 for the six months ended June 30, 2012 and 2011, respectively. Amortization of deferred financing costs charged to operations was $11,300 and $16,400 for the three months ended June 30, 2012 and 2011, respectively.

Concentration of Credit Risks

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 UK. 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 $14,500 in cash deposits in the UK and $2,198,400 of accounts receivable due from customers located in the UK as of June 30, 2012.

Income Taxes

Income Taxes

The Company accounts for income taxes in accordance with ASC 750 which requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 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. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at June 30, 2012 and December 31, 2011.

Basic and Diluted Earnings (Loss) per Share

Basic and Diluted Earnings (Loss) per Share

The basic earnings (loss) per share is computed by dividing the earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. The computations for basic and dilutive net earnings per share are as follows:

	Three months ended				Six months ended
	6/30/2012		6/30/2011		6/30/2012		6/30/2011
Net income	$	485,400		205,400	$	438,600		176,100
Weighted average common shares outstanding		12,611,133		12,427,262		12,611,133		12,427,262
Basic net income per share	$	0.04		0.02	$	0.03		0.01
Interest expense on convertible notes	$	22,700		22,700	$	45,400		45,100
Income for computing diluted net income per share	$	508,100		228,100	$	484,000		221,200
Incremental shares from assumed exercise of dilutive securities		2,257,260		2,179,911		2,257,260		2,179,911
Dilutive potential common shares		14,868,393		14,607,173		14,868,393		14,607,173
Diluted net earnings per share	$	0.03		0.02	$	0.03		0.01

Foreign Currency Translation

Foreign Currency Translation

The Company has subsidiaries located in the UK, where the local currency, UK Pound Sterling, is the functional currency. Financial statements of these subsidiaries are translated into US dollars using period-end exchange rates for assets and liabilities and average exchange rates during the period for revenues and expenses. Cumulative translation adjustments associated with net assets or liabilities are reported in non-owner changes in equity. Any exchange rate gains or losses related to foreign currency transactions are recognized in the income statement as incurred, in the same financial statement caption as the underlying transaction, and are not material for any year shown.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the US 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.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) is composed of the Company’s net income 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.

Reportable Segments

Reportable Segments

The Company manages its operations through two business segments: (i) brewing operations and tasting room operations in the US and distributor operations in Canada (the “North American Territory”) and (ii) distributor operations in Europe (including the United Kingdom) (the “Foreign Territory”). The Company evaluates performance based on net operating profit. 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.

XML

Segment Information

6 Months Ended

Jun. 30, 2012

Segment Reporting [Abstract]

Segment Information

10.    Segment Information

Our business presently consists of two segments. The first is brewing for wholesale to distributors and other retailers, which includes beer and merchandise sales at the Company’s ale house in Ukiah, California and the Saratoga Springs brewery. The second consists of distributing alcoholic beverages to retail establishments and restaurants in the UK and Europe. A summary of the first segment is provided in the column labeled “North American Operations” in the tables below and a summary of the second segment is provided in the column labeled “Foreign Territory” below:

Six months ended June 30, 2012
	North American Operations		Foreign Operations		Corporate & Others		Total
Net Sales	$	8,569,100	$	11,131,000	$	-	$	19,700,100
Operating Income	$	440,600	$	204.400	$	-	$	645,000
Identifiable Assets	$	11,979,700	$	3,697,800	$	3,833,200	$	19,510,700
Depreciation & Amortization	$	309,200	$	203,100	$	-	$	512,300
Capital Expenditures	$	84,500	$	218,600	$	-	$	303,100

Six months ended June 30, 2011
		North America Operations		Foreign Operations			Corporate & Others		Total
Net Sales	$	7,964,100	$	11,702,700		$	-	$	19,666,800
Operating Income	$	489,700	$	(71,300	)	$	-	$	418,400
Identifiable Assets	$	12,282,800	$	4,732,800		$	3,150,200	$	20,165,800
Depreciation & Amortization	$	319,600	$	267,200		$	-	$	586,800
Capital Expenditures	$	256,600	$	186,600		$	-	$	443,200

XML

Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments And Contingencies

8.    Commitments and Contingencies

Purchase of raw materials

Production of the Company’s beverages requires quantities of various processed agricultural products, including malt and hops for beer. The Company fulfills its commodities requirements through purchases from various sources, some through contractual arrangements and others on the open market. Future payments under existing contractual arrangements are as follows:

Six months ending December 31,2012	$	815,700
Year ending December 31,2013		139,700
Year ending December 31,2014		138,500
Year ending December 31,2015		126,200
Year ending December 31,2016		64,700
	$	1,284,800

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’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment

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 some of its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2015 and provide for renewal options ranging from month-to-month to five years. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on similar 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 certain costs (real estate taxes, insurance and repairs).

MBC and its subsidiaries have various lease agreements for the brewpub and gift store in Ukiah, California, the brewery at Releta’s Saratoga Springs, New York facility, a building in the UK, and certain equipment. The New York lease includes a renewal option for three additional five-year periods, which Releta intends to exercise, and some leases are adjusted annually for changes in the consumer price index. The leases begin expiring in 2012.

Keg Management Agreement

In September 2009, the Company renewed the keg management agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar provides all kegs for which the Company pays a service fee depending on the applicable territory. The agreement is effective for five years ending in September 2014. If the agreement is terminated, the Company is required to purchase four times the average monthly keg usage for the preceding six-month period from MicroStar. The Company expects to continue this relationship. 

XML

Related-Party Transactions

6 Months Ended

Jun. 30, 2012

Related Party Transactions [Abstract]

Related-Party Transactions

9.    Related-Party Transactions

The Company 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 Trademark Licensing Agreement between MBC and Kingfisher of America, Inc., and a License Agreement between UBIUK and UBHL. KBEL is a party to a brewing agreement, and a loan agreement with Shepherd Neame which is discussed in Note 6.

The following tables reflect the value of the transactions during the six months ended June 30, 2012 and 2011 and the balances outstanding as of June 30, 2012 and December 31, 2011.

TRANSACTIONS	2012		2011
Sales to Shepherd Neame	$	1,842,800	$	2,920,000
Purchases from Shepherd Neame	$	7,856,800	$	8,447,200
Expense reimbursement to Shepherd Neame	$	512,900	$	574,600
Interest expense related to UBA convertible notes	$	45,400	$	45,100

ACCOUNT BALANCES	June 30, 2012		Dec 31, 2011
Accounts payable to Shepherd Neame	$	3,608,200	$	4,856,900
Accounts receivable from Shepherd Neame	$	393,100	$	344,700

XML

Unrestricted Net Assets

6 Months Ended

Jun. 30, 2012

Unrestricted Net Assets

Unrestricted Net Assets

11.    Unrestricted Net Assets

The Company’s wholly-owned subsidiary, UBIUK, has undistributed losses of $2,692,400 as of June 30, 2012. Under KBEL’s line of credit agreement with RBS, distributions and other payments to MBC from KBEL are not permitted if retained earnings drop below $1,568,600. Condensed financial information of the parent company, MBC together with its other subsidiary, Releta is as follows:

	June 30, 2012			December 31, 2011
	(unaudited)			(audited)
Assets
Cash	$	119,500		$	187,200
Accounts receivable, net		3,031,400			2,308,400
Inventories		1,832,900			1,799,600
Prepaid expenses		179,800			126,800
Total current assets		5,163,600			4,422,000
Investment in UBIUK		1,225,000			1,225,000
Property and equipment		10,146,800			10,349,000
Intercompany receivable		348,500			231,400
Other assets		502,500			462,500
Total assets	$	17,386,400		$	16,689,900
Liabilities and Stockholders’ Equity
Line of credit	$	849,000		$	895,300
Accounts payable		1,524,500			1,511,400
Accrued liabilities		1,302,300			824,300
Current maturities of debt and leases		474,500			473,100
Total current liabilities		4,150,300			3,704,100
Long-term debt and capital leases		4,227,400			4,280,900
Notes to related parties		3,361,100			3,315,700
Total liabilities	$	11,738,800		$	11,300,700
Stockholders’ equity
Preferred stock		227,600			227,600
Common stock		15,100,300			15,100,300
Accumulated deficit		(9,680,300	)		(9,938,700	)
Total stockholders’ equity		5,647,600			5,389,200
Total liabilities and stockholders’ equity		17,386,400			16,689,900

Statements of Operations	Three months ended June 30				Six months ended June 30
	2012		2011		2012		2011
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net sales	$	4,627,500	$	4,135,900	$	8,569,100	$	7,964,100
Cost of goods sold		3,419,100		2,998,800		6,357,700		5,786,600
Sales, marketing, and retail expenses		443,500		410,100		872,100		762,400
General and administrative expenses		462,300		449,500		968,600		982,400
Income from operations		302,600		277,500		370,700		432,700
Other		42,900		36,500		77,600		70,300
Interest expense		92,300		93,300		189,100		198,900
Provision for taxes		—		—		800		7,100
Net income	$	253,200	$	220,700	$	258,400	$	297,000

Statements of Cash Flows	Six months ended June 30
	2012			2011
	(unaudited)			(unaudited)
Cash flows from operating activities	$	227,300		$	57,900
Purchase of property and equipment		(84,500	)		(256,600	)
Proceed from sale of assets		5,000			—
Net (repayment) on line of credit		(46,300	)		(923,100	)
Borrowing on long term debt		184,700			4,881,000
Repayment on long term debt		(211,800	)		(3,517,700	)
Payment on obligation under capital lease		(25,000	)		(23,300	)
Net change in payable to UBI		(117,100	)		(130,000	)
(Decrease) increase in cash		(67,700	)		88,200
Cash, beginning of period		187,200			64,900
Cash, end of period	$	119,500		$	153,100

XML

Summary of Long-Term Debt (Details) (Parenthetical) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Loan from Cole Taylor, payable in monthly installments of $12,300, plus interest at prime plus 2% with a balloon payment of approximately $2,222,500 in June 2016; secured by real property at Ukiah [Member]
Loans payable in monthly installments	$ 12,300	$ 12,300
Loans payable, interest rate above prime rate	2.00%	2.00%
Balloon payment of loans	2,222,500	2,222,500
Loan from Cole Taylor, payable in monthly installments of $25,200 including interest at prime plus 1.5% with a balloon payment of approximately $654,800 in June 2016; secured by all assets of Releta and MBC [Member]
Loans payable in monthly installments	25,200	25,200
Loans payable, interest rate above prime rate	1.50%	1.50%
Balloon payment of loans	$ 654,800	$ 654,800

XML

Inventories (Tables)

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Abstract]

Schedule Of Inventories

	June 30, 2012		December 31, 2011
Raw Materials	$	760,500	$	851,000
Beer-in-process		392,400		325,100
Finished Goods		639,300		582,200
Merchandise		40,700		41,300
TOTAL	$	1,832,900	$	1,799,600

XML

Segment Information (Tables)

6 Months Ended

Jun. 30, 2012

Segment Reporting [Abstract]

Schedule Of Segment Information

Six months ended June 30, 2012
	North American  Operations		Foreign Operations		Corporate & Others		Total
Net Sales	$	8,569,100	$	11,131,000	$	-	$	19,700,100
Operating Income	$	440,600	$	204.400	$	-	$	645,000
Identifiable Assets	$	11,979,700	$	3,697,800	$	3,833,200	$	19,510,700
Depreciation & Amortization	$	309,200	$	203,100	$	-	$	512,300
Capital Expenditures	$	84,500	$	218,600	$	-	$	303,100

Six months ended June 30, 2011
		North America Operations		Foreign Operations			Corporate & Others		Total
Net Sales	$	7,964,100	$	11,702,700		$	-	$	19,666,800
Operating Income	$	489,700	$	(71,300	)	$	-	$	418,400
Identifiable Assets	$	12,282,800	$	4,732,800		$	3,150,200	$	20,165,800
Depreciation & Amortization	$	319,600	$	267,200		$	-	$	586,800
Capital Expenditures	$	256,600	$	186,600		$	-	$	443,200

XML

Unrestricted Net Assets (Details Narrative) (USD $)	Jun. 30, 2012
Unrestricted Net Assets
Undistributed losses from subsidaries	$ 2,692,400
Minimum retained earnings for distributions and other payments to MBC from KBEL	$ 1,568,600

XML

Consolidated Statements of Cash Flows (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 438,600	$ 176,100
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	512,300	586,800
Provision for doubtful accounts	(9,700)	(31,800)
Interest accrued on related party debt	45,400	45,100
(Profit) on sale of assets	(9,400)
Changes in
Accounts receivable	152,800	(712,200)
Inventories	(33,300)	(154,700)
Prepaid expenses	(184,400)	(267,300)
Deposits and other assets	(62,900)	(215,800)
Accounts payable	(1,242,500)	801,700
Accrued liabilities	250,600	511,000
Net cash (used in) provided by operating activities	(142,500)	738,900
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(303,100)	(443,200)
Proceeds from sale of fixed assets	12,200
Net cash used in investing activities	(290,900)	(443,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayment) on line of credit	419,300	(1,298,500)
Borrowing on long-term debt	184,700	4,881,000
Repayment on long-term debt	(306,400)	(3,614,700)
Payments on obligations under long term leases	(36,100)	(49,600)
Net cash provided by (used in) financing activities	261,500	(81,800)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(6,300)	(3,800)
NET CHANGE IN CASH	(178,200)	210,100
CASH, beginning of period	312,200	69,200
CASH, end of period	134,000	279,300
Cash paid during the period for:
Financed property and equipment	184,700
Income taxes	800	7,100
Interest	$ 179,700	$ 197,900

XML

Long-Term Debt

6 Months Ended

Jun. 30, 2012

Maturities of Long-term Debt [Abstract]

Long-Term Debt

5.    Long-Term Debt

Maturities of long-term debt for succeeding years are as follows:

	June 30, 2011		December 31, 2011
Loan from Cole Taylor, payable in monthly installments of $12,300, plus interest at prime plus 2% with a balloon payment of approximately $2,222,500 in June 2016; secured by real property at Ukiah.		2,811,900		2,885,600
Loan from Cole Taylor, payable in monthly installments of $25,200 including interest at prime plus 1.5% with a balloon payment of approximately $654,800 in June 2016; secured by all assets of Releta and MBC.		1,865,500		1,818,900
		4,677,400		4,704,500
Less current maturities		450,000		423,600
	$	4,227,400	$	4,280,900

Payments due during –

Six months ending December 31,2012	$	225,000
Year ending December 31, 2013		450,000
Year ending December 31, 2014		450,000
Year ending December 31,2015		450,000
Year ending December 31,2016		3,102,400
	$	4,677,400

XML

Unrestricted Net Assets (Tables)

6 Months Ended

Jun. 30, 2012

Unrestricted Net Assets

Balance Sheets

	June 30, 2012			December 31, 2011
	(unaudited)			(audited)
Assets
Cash	$	119,500		$	187,200
Accounts receivable, net		3,031,400			2,308,400
Inventories		1,832,900			1,799,600
Prepaid expenses		179,800			126,800
Total current assets		5,163,600			4,422,000
Investment in UBIUK		1,225,000			1,225,000
Property and equipment		10,146,800			10,349,000
Intercompany receivable		348,500			231,400
Other assets		502,500			462,500
Total assets	$	17,386,400		$	16,689,900
Liabilities and Stockholders’ Equity
Line of credit	$	849,000		$	895,300
Accounts payable		1,524,500			1,511,400
Accrued liabilities		1,302,300			824,300
Current maturities of debt and leases		474,500			473,100
Total current liabilities		4,150,300			3,704,100
Long-term debt and capital leases		4,227,400			4,280,900
Notes to related parties		3,361,100			3,315,700
Total liabilities	$	11,738,800		$	11,300,700
Stockholders’ equity
Preferred stock		227,600			227,600
Common stock		15,100,300			15,100,300
Accumulated deficit		(9,680,300	)		(9,938,700	)
Total stockholders’ equity		5,647,600			5,389,200
Total liabilities and stockholders’ equity		17,386,400			16,689,900

Statements of Operations

Statements of Operations	Three months ended June 30				Six months ended June 30
	2012		2011		2012		2011
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net sales	$	4,627,500	$	4,135,900	$	8,569,100	$	7,964,100
Cost of goods sold		3,419,100		2,998,800		6,357,700		5,786,600
Sales, marketing, and retail expenses		443,500		410,100		872,100		762,400
General and administrative expenses		462,300		449,500		968,600		982,400
Income from operations		302,600		277,500		370,700		432,700
Other		42,900		36,500		77,600		70,300
Interest expense		92,300		93,300		189,100		198,900
Provision for taxes		—		—		800		7,100
Net income	$	253,200	$	220,700	$	258,400	$	297,000

Statements of Cash Flows

Statements of Cash Flows	Six months ended June 30
	2012			2011
	(unaudited)			(unaudited)
Cash flows from operating activities	$	227,300		$	57,900
Purchase of property and equipment		(84,500	)		(256,600	)
Proceed from sale of assets		5,000			—
Net (repayment) on line of credit		(46,300	)		(923,100	)
Borrowing on long term debt		184,700			4,881,000
Repayment on long term debt		(211,800	)		(3,517,700	)
Payment on obligation under capital lease		(25,000	)		(23,300	)
Net change in payable to UBI		(117,100	)		(130,000	)
(Decrease) increase in cash		(67,700	)		88,200
Cash, beginning of period		187,200			64,900
Cash, end of period	$	119,500		$	153,100

XML

Commitments and Contingencies - Commitments and Contingencies (Details) (USD $)	Jun. 30, 2012
Commitments and Contingencies Disclosure [Abstract]
Six months ending December 31,2012	$ 815,700
Year ending December 31,2013	139,700
Year ending December 31,2014	138,500
Year ending December 31,2015	126,200
Year ending December 31,2016	64,700
Total payments	$ 1,284,800

XML

Description of Operations and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Schedule Of Basic And Dilutive Net Loss Per Share

	Three months ended				Six months ended
	6/30/2012		6/30/2011		6/30/2012		6/30/2011
Net income	$	485,400		205,400	$	438,600		176,100
Weighted average common shares outstanding		12,611,133		12,427,262		12,611,133		12,427,262
Basic net income per share	$	0.04		0.02	$	0.03		0.01
Interest expense on convertible notes	$	22,700		22,700	$	45,400		45,100
Income for computing diluted net income per share	$	508,100		228,100	$	484,000		221,200
Incremental shares from assumed exercise of dilutive securities		2,257,260		2,179,911		2,257,260		2,179,911
Dilutive potential common shares		14,868,393		14,607,173		14,868,393		14,607,173
Diluted net earnings per share	$	0.03		0.02	$	0.03		0.01