0001493152-16-009918.txt : 20160516 0001493152-16-009918.hdr.sgml : 20160516 20160516164401 ACCESSION NUMBER: 0001493152-16-009918 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 70 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160516 DATE AS OF CHANGE: 20160516 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: 161654593 BUSINESS ADDRESS: STREET 1: 1601 AIRPORT ROAD CITY: UKIAH, STATE: CA ZIP: 95482 BUSINESS PHONE: 7077441015 MAIL ADDRESS: STREET 1: 1601 AIRPORT ROAD CITY: UKIAH, STATE: CA ZIP: 95482 10-Q 1 form10-q.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 March 31, 2016

 

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   (I.R.S. Employer
Incorporation or Organization)   Identification No.)
     
1601 Airport Road, Ukiah, California   95482
(Address of principal executive offices)   (Zip Code)

 

(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:

 

The number of shares of Mendocino Brewing Company, Inc.’s common stock outstanding as of May 13, 2016 was 12,611,133.

 

 

 

 
   

 

MENDOCINO BREWING COMPANY, INC.

 

INDEX

 

        Page
PART I. FINANCIAL INFORMATION    
         
  ITEM 1. Financial Statements   F-1
         
    Condensed consolidated balance sheets as of March 31, 2016 (unaudited) and December 31, 2015   F-1
         
    Condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2016 and 2015 (unaudited)   F-2
         
    Condensed consolidated statements of cash flows for the three months ended March 31, 2016 and 2015 (unaudited)   F-3
         
    Notes to condensed consolidated financial statements (unaudited)   F-4
         
  ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   3
         
  ITEM 3. Quantitative and Qualitative Disclosures about Market Risk   16
         
  ITEM 4. Controls and Procedures   16
         
PART II. OTHER INFORMATION    
         
  ITEM 1. Legal Proceedings  
         
  ITEM 1A. Risk Factors  
         
  ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds  
         
  ITEM 3. Defaults Upon Senior Securities   17
         
  ITEM 4. Mine Safety Disclosures  
         
  ITEM 5. Other Information  
         
  ITEM 6. Exhibits   17
         
SIGNATURES   18

 

 2 
   

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

MENDOCINO BREWING COMPANY, INC.

 CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31, 2016   December 31, 2015 
   (Unaudited)     
ASSETS          
Current Assets          
Cash  $52,900   $129,600 
Accounts receivable, net   3,291,300    3,835,500 
Inventories   1,465,000    1,547,000 
Prepaid expenses   627,300    759,900 
Total Current Assets   5,436,500    6,272,000 
           
Property and Equipment, net   10,368,000    10,588,200 
Deposits and other assets   295,400    175,800 
           
Total Assets  $16,099,900   $17,036,000 
           

LIABILITIES AND STOCKHOLDERS’ DEFICIT

          
           
Current Liabilities          
Secured lines of credit  $1,084,800   $1,663,400 
Accounts payable   4,407,800    4,489,000 
Accrued liabilities   2,072,400    1,908,700 
Notes payable to related party   2,545,300    2,119,600 
Subordinated convertible notes to related party   3,704,000    3,680,100 
Current maturities of secured notes payable   3,244,900    3,378,600 
Current maturities of long-term debt to related party   359,500    491,500 
Current maturities of obligations under capital leases   22,700    23,100 
Current maturities of severance payable   244,100    119,700 
Total Current Liabilities   17,685,500    17,873,700 
           
Long-Term Liabilities          
Capital lease obligations, less current maturities   72,400    79,200 
Severance payable   569,700    678,400 
Total Long-Term Liabilities   642,100    757,600 
           
Total Liabilities   18,327,600    18,631,300 
           
Commitments and contingencies   -    - 
           

Stockholders’ Deficit

          
Preferred stock, Series A, no par value, withliquidation preference of $1 per share; 10,000,000shares 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   477,100    472,400 
Accumulated deficit   (18,032,700)   (17,395,600)

Total Stockholders’ Deficit

   (2,227,700)   (1,595,300)
           

Total Liabilities and Stockholders’ Deficit

  $16,099,900   $17,036,000 

 

See accompanying notes to these condensed consolidated financial statements.

 

 F-1 
   

 

MENDOCINO BREWING COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

   Three Months Ended 
   March 31, 
   2016   2015 
         
Sales  $6,911,000   $6,807,300 
Less excise taxes   110,100    113,200 
Net Sales   6,800,900    6,694,100 
Cost of goods sold   4,878,800    4,598,500 
Gross Profit   1,922,100    2,095,600 
Operating Expense          
Marketing   1,202,800    1,402,900 
General and administrative   1,217,000    1,211,600 
Total Operating Expense   2,419,800    2,614,500 
Loss from operations   (497,700)   (518,900)
           
Other income (expense):          
Other income   3,700    3,100 
Interest expense   (143,100)   (154,300)
Total Other Expense   (139,400)   (151,200)
           
Loss before income taxes   (637,100)   (670,100)
Provision for income taxes   -    3,800 
Net loss   (637,100)   (673,900)
           
Foreign currency translation gain   4,700    27,100 
Comprehensive Loss  $(632,400)  $(646,800)
           
Net loss per common share (basic and diluted)  $(0.05)  $(0.05)
           
Weighted average common shares outstanding          
Basic and diluted   12,611,133    12,611,133 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 F-2 
   

 

MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Three Months Ended 
   March 31, 
   2016   2015 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net Loss  $(637,100)  $(673,900)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

          
Depreciation and amortization   283,600    284,700 
Allowance for doubtful accounts   (1,700)   (700)

Changes in operating assets and liabilities:

          
Interest accrued on notes payable to related party   49,600    37,800 
Accrued severance payable   15,700    - 
Accounts receivable   442,400    643,200 
Inventories   80,800    330,400 
Prepaid expenses   118,600    (257,900)
Deposits and other assets   (96,900)   (131,400)
Accounts payable   (35,000)   (345,400)
Accrued liabilities   186,100    (365,300)
Net cash provided by (used in) operating activities   406,100    (478,500)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchases of property, equipment, and leasehold improvements   (82,200)   (70,800)
Net cash used in investing activities   (82,200)   (70,800)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Net borrowing (repayment) on line of credit   (547,600)   183,000 
Borrowing on note payable to related party   400,000    500,000 
Repayment on long-term debt   (133,700)   (133,700)
Repayment of related party debt   (119,300)   (126,200)
Payments on obligations under long term leases   (5,200)   (1,300)
Net cash (used in) provided by financing activities   (405,800)   421,800 
           
EFFECT OF EXCHANGE RATE CHANGES ON CASH   5,200    19,000 
           
NET CHANGE IN CASH   (76,700)   (108,500)
           
CASH, beginning of period   129,600    145,100 
           
CASH, end of period  $52,900   $36,600 
           
SUPPLEMENTARY CASH FLOW INFORMATION          
Cash paid during the period for:          
Income taxes  $-   $3,800 
Interest  $93,500   $116,500 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

  

 F-3 
   

 

MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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, and has two operating subsidiaries: Releta Brewing Company, LLC (“Releta”), and United Breweries International (UK) Limited (“UBIUK”). In the United States (the “US”), MBC and 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 MBC 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. Generally, product shipments are made directly from the breweries to the wholesalers or distributors in accordance with state and local laws.

 

MBC’s United Kingdom (the “UK”) subsidiary, UBIUK, is a holding company for Kingfisher Beer Europe Limited (“KBEL”). KBEL is a distributor of alcoholic beverages, mainly Kingfisher Lager Beer, in the UK and Europe. The offices of KBEL are located in Maidstone, Kent in the UK. In addition, during the period covered by this report, through UBIUK, the Company had production and distribution rights to Kingfisher Premium Lager in Canada and the United States. The Company has the right to use the Kingfisher mark and the name “Kingfisher Brewing Company” in connection with the brewing and distribution of assorted beers in the United States pursuant to an agreement with Kingfisher America, Inc. Generally sales are made through distributors.

 

All of the Company’s beers sold in Europe (except for beers sold in Germany) are procured under a contract with Heineken UK Limited (“HUK”). This contract expires in October 2018. KBEL is the distributor of Kingfisher Premium Lager to specialty restaurant trade distributors, liquor and convenience stores in the United Kingdom, Ireland, and continental Europe, but does not physically distribute the Company’s products to customers. KBEL relies on HUK for distribution of the product in Europe in exchange for a fee paid to HUK, except in Germany where beers are manufactured and distributed pursuant to a separate contract with a different entity. In addition, HUK has the exclusive right to sell Kingfisher Premium Lager, for a royalty fee payable to KBEL, to certain large retail customers, including, but not limited to, Sainsbury’s, Asda, and Tesco.

 

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 on which the Company’s financial statements are electronically prepared for filing with the Securities and Exchange Commission (“SEC”).

 

Principles of Consolidation

 

The consolidated financial statements present the accounts of MBC and its wholly-owned subsidiaries, Releta and UBIUK. All material intracompany and inter-company balances, profits and transactions have been eliminated.

 

Basis of Presentation and Organization

 

The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the US. These condensed consolidated 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 SEC, which contains additional financial and operating information and information concerning significant accounting policies followed by the Company. The financial statements and notes are representations of the Company’s management (“Management”) and its board of directors (the “Board of Directors”), who are responsible for their integrity and objectivity.

 

 F-4 
   

 

The Company’s consolidated financial statements for fiscal year 2015 were prepared on a going concern basis. The continuation of the Company as a going concern is dependent upon the continued financial support from Catamaran Services, Inc. (“Catamaran”) and/or United Breweries Holdings, Ltd., an Indian public limited company (“UBHL”), its ability to obtain other debt or equity financing, and generating profitable operations from the Company’s future operations. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

 

Operating results from the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any future period.

 

Reclassifications

 

Certain items in the financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income or equity.

 

SIGNIFICANT ACCOUNTING POLICIES

 

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2016 compared to what was previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

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 the brewing and distribution operations in accordance with Accounting Standards Codification 605 of the Financial Accounting Standards Board. The Company recognizes revenue from product sales, net of discounts.

 

The Company recognizes revenue 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 the Company’s contractual obligations.

 

 F-5 
   

 

“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 collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment terms. Balances over 90 days past due and other higher risk amounts are reviewed individually for collectability. 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 (current replacement cost). 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 related to a borrowing made in June 2011 were $225,000. Amortization of deferred financing costs charged to operations was $11,300 for the three months ended March 31, 2016 and 2015.

 

Concentration of Credit Risks

 

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents, and accounts receivable. Substantially all of the Company’s cash and cash equivalents are deposited with commercial banks in the US and the UK that have minimal credit risk. Accounts receivable are generally unsecured and customers are subject to an initial credit review and ongoing monitoring. 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 $2,600 in cash deposits and $2,174,200 of accounts receivable due from customers located in the UK as of March 31, 2016.

 

 F-6 
   

 

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. The Company periodically assesses uncertain tax positions that the Company has taken or expects to take on a tax return, including a decision whether to file or not to file a return in a particular jurisdiction. The Company evaluated its tax positions and determined that there were no uncertain tax benefits as of March 31, 2016 and December 31, 2015.

 

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. Basic net earnings (loss) per share exclude the dilutive effect of stock options or warrants and convertible notes. If the Company’s operations result in net loss for any period, diluted net loss per share would be the same as basic net loss per share, since the effect of any potentially dilutive securities would be anti-dilutive. Therefore, the conversion of the related party convertible notes (see “Subordinated Convertible Notes Payable” below) has been excluded from the Company’s calculation of net loss per share. The computations of basic and dilutive net loss per share are as follows:

 

   Three months ended March 31 
   2016   2015 
Net loss  $(637,100)   (673,900)
Weighted average shares of common stock outstanding   12,611,133    12,611,133 
Basic net loss per share  $(0.05)   (0.05)
Interest expense on convertible notes  $     
Loss for purpose of computing diluted net earnings per share  $(637,100)   (673,900)
Incremental shares from assumed exercise of dilutive securities        
Dilutive potential of shares of common stock   12,611,133    12,611,133 
Diluted net earnings per share  $(0.05)   (0.05)

 

Foreign Currency Translation

 

The Company has subsidiaries located in the UK, where the local currency, the 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. Cash flows were translated at the average exchange rates for the three months then ended. Changes in cash resulting from the translations are presented as a separate item in the statements of cash flows.

 

 F-7 
   

 

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 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.

 

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 UK (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.

 

Recent Accounting Pronouncements

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.

 

2. Liquidity and Management Plans

 

MB Financial Credit and Security Agreement

 

On June 23, 2011, MBC and Releta entered into a Credit and Security Agreement (as amended, the “Credit and Security Agreement”) with Cole Taylor Bank, an Illinois banking corporation (“Cole Taylor”). Cole Taylor merged into MB Financial Bank, an Illinois banking corporation (“MB Financial”) on August 18, 2014. As used in this Report, “Lender” shall refer to Cole Taylor prior to August 18, 2014 and to MB Financial, as successor in interest to Cole Taylor, on or after August 18, 2014. The Credit and Security Agreement provided 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 (the “Revolver”), 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. Convertible promissory notes issued to United Breweries of America, Inc. (“UBA”), one of the Company’s principal shareholders, are subordinated to the Lender’s credit facility. The applicable interest rates are as follows: (a) with respect to the Revolver, the Wall Street Journal prime rate plus a margin of 1.00%, (b) with respect to the machinery and equipment term loan and the capital expenditure term loan, the Wall Street Journal prime rate plus a margin of 1.50%, and (c) with respect to the real estate term loan, the Wall Street Journal prime rate plus a margin of 2.00%. As described below, effective September 1, 2013, Lender is charging a default interest rate equal to two percent (2%) per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement. As described below, the Second Amendment (among other things) reduces the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by 2% each month. The advance rates are used in the calculation of the borrowing base of each of MBC and Releta, which is used in the determination of the amount available to each of MBC and Releta pursuant to the Revolver. Under the terms of the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base of each of MBC and Releta fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable. The Credit and Security Agreement binds the Company to certain financial covenants including maintaining prescribed minimum tangible net worth and prescribed minimum fixed charges coverage. There is a prepayment penalty if we prepay all of our obligations prior to the maturity date. The credit facility is secured by a first priority interest in all of MBC’s and Releta’s personal property and a first mortgage on our Ukiah, California real property, among other MBC and Releta assets.

  

 F-8 
   

 

The Credit and Security Agreement requires MBC and Releta to maintain certain minimum fixed charge coverage ratios for trailing twelve month periods and minimum tangible net worth. The minimum tangible net worth MBC and Releta are required to maintain is subject to increase based on the net income of MBC and Releta. On March 29, 2013, MBC, Releta, and Lender entered into a First Amendment to the Credit and Security Agreement to clarify the method by which the fixed charge coverage ratio is calculated, with retrospective application.

 

The required fixed charge coverage ratio for the trailing twelve month periods ended March 31, 2013 onwards fell short of the required ratio. The tangible net worth fell short of the required amount for the period beginning June 1, 2013 onwards.

 

On September 18, 2013, MBC and Releta received a notice (the “Default Notice”) from Lender regarding its intention to exercise certain rights with respect to events of default of the Company pursuant to the Credit and Security Agreement and, effective September 1, 2013, began charging a default interest rate equal to 2% per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement.

 

On April 18, 2014, MBC and Releta received a second notice (the “Second Default Notice”) from Lender regarding its intention to exercise certain rights with respect to events of default of the Company pursuant to the Credit and Security Agreement. The Second Default Notice required MBC and Releta to engage a consultant to perform a viability analysis and prepare a revised projection for 2014, to be delivered to Lender on or before April 30, 2014. MBC and Releta engaged a consultant and delivered a revised projection on April 30, 2014. As stated in the Second Default Notice, the Company continued to be in default on the fixed charge coverage ratio for each measurement period beginning March 31, 2013 through February 28, 2014. The required fixed charge coverage ratio was initially required to be at least 1.05 to 1.00, but as of July 31, 2013, the required fixed charge coverage ratio increased to 1.10 to 1.00 pursuant to the terms of the Credit and Security Agreement. The Second Default Notice also stated that the tangible net worth of MBC and Releta continued to fall short of the required amount as measured through February 28, 2014.

 

Effective August 20, 2014, pursuant to a notice to MBC and Releta dated August 18, 2014 (the “Third Default Notice”) which referred to MBC’s and Releta’s continued failure to meet the required fixed charge coverage ratio and the tangible net worth requirement, Lender notified MBC and Releta that it would reduce the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by 2% each month. The advance rates are used in the calculation of the borrowing base of each of MBC and Releta, which is used in the determination of the amount available to each of MBC and Releta pursuant to the Revolver. Under the terms of the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base of each of MBC and Releta fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

On January 21, 2015, MBC, Releta, and Lender entered into a Second Amendment (the “Second Amendment”) to the Credit and Security Agreement. The Second Amendment reduced the maximum amount of the Revolver from $4,119,000 to $2,500,000. The Second Amendment also changed the definition of borrowing base (including by lowering certain advance rates) such that the calculation of the borrowing base will result in a lower number than it would have if calculated prior to the effectiveness of the Second Amendment. The borrowing base is used in the determination of the amount available to each borrower pursuant to the Revolver. Pursuant to the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

The Second Amendment also reduced the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by two percent (2%) and continues to reduce each by an additional two percent (2%) on the 20th day of each month thereafter. The advance rates are used in the calculation of the borrowing base of each borrower, which is used in the determination of the amount available to each borrower pursuant to the Revolver. As stated above, if such availability is less than $0, or if certain components of the borrowing base fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

  

 F-9 
   

 

As of March 31, 2016, pursuant to the Credit and Security Agreement, the fixed charge coverage ratio was required to be 1.15 to 1. The Company calculated that the fixed charge coverage ratio as of March 31, 2016 was -0.20 to 1. The Company calculated that the required tangible net worth of MBC and Releta was $6,181,400 as of March 31, 2016 and the actual tangible net worth on such date was $3,576,900. The Company does not anticipate that it will regain compliance with the required fixed charge coverage ratio or the minimum tangible net worth, as required by the Credit and Security Agreement, in the immediate future.

 

The Credit and Security Agreement provides that the failure of MBC and Releta to observe any covenant will constitute an event of default under the Credit and Security Agreement. Lender has not waived the events of default described in the Default Notice, the Second Default Notice or the Third Default Notice and has reserved the right to all other available rights and remedies under the Credit and Security Agreement, certain other related documents and applicable law. An event of default shall be deemed continuing until waived in writing by Lender. Under the Credit and Security Agreement, upon the occurrence of an event of default, all of MBC’s and Releta’s obligations under the Credit and Security Agreement may, at Lender’s option, be declared, and immediately shall become, due and payable, without notice of any kind. Lender could declare the full amount owed under the Credit and Security Agreement due and payable at any time for any reason or no reason. Since executing the Second Amendment, the Company has not received any notice or other communication from Lender that it intends to exercise any other remedies available to it under the Credit and Security Agreement in connection with the events of default. As noted above, effective September 1, 2013, Lender elected, and continues, to charge a default interest rate equal to two percent (2%) per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement. The Company estimates that the increased interest rate currently results in the payment by the Company to Lender of additional interest of approximately $120,000 per year. The exercise of additional remedies by Lender may have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate. The Credit and Security Agreement expires on June 23, 2016. There is no guarantee that MBC and Releta will be able to obtain alternate financing on terms favorable to the Company or on any terms. If the Company is unable to obtain alternate financing, it will have a material adverse effect on the Company’s financial condition and the Company’s ability to operate.

 

RBS Facility

 

On April 26, 2005, Royal Bank of Scotland Commercial Services Limited (“RBS”) provided an approximately $2.8 million (£1,750,000) invoice discounting facility to KBEL, 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 March 31, 2016 was approximately $964,100. Included in the Company’s balance sheet at March 31, 2016 are account balances totaling $2,174,200 of accounts receivable collateralized to RBS under this facility.

 

On November 24, 2015, KBEL received a notice from Royal Bank of Scotland (“RBS”) regarding its intention to terminate the credit line and all other banking services it currently provides to KBEL on February 26, 2016. RBS subsequently extended the termination date to June 15, 2016, with any remaining amounts due 15 days later. The Company has engaged in discussions with a bank which provided an indicative offer to provide alternate financing and banking services to KBEL. If KBEL does not finalize such alternate financing and provision of banking services, and if KBEL is unable to find alternate financing and banking services before termination of the RBS facilities, it would have a material adverse effect on KBEL and the Company.

 

 F-10 
   

 

Catamaran Notes

 

On January 22, 2014, Catamaran, a related party, provided a loan to MBC in the principal amount of $500,000 evidenced by a promissory note. On April 24, 2014, Catamaran provided a second loan in the principal amount of $500,000 on terms similar to the previous note. On February 5, 2015, Catamaran provided a third loan in the principal amount of $500,000 on terms similar to the previous notes. On June 30, 2015, Catamaran provided a fourth loan in the principal amount of $500,000 on terms similar to the previous notes, and the Company received the proceeds against this note on July 6, 2015. These four Catamaran notes are payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. However, each time Catamaran provided a loan, the Company received a letter from Lender permitting the Company to obtain such loans subject to certain conditions, including that no portion of such loans would be payable until either (a) certain obligations of the Company to Lender pursuant to the Credit and Security Agreement were satisfied in full, or (b) such payment was a Permitted Payment. A “Permitted Payment” with respect to the notes dated January 22, 2014, April 24, 2014, and February 5, 2015 means a payment made from an equity investment by the Company’s majority shareholder in excess of $500,000. A “Permitted Payment” with respect to the note dated June 30, 2015 means a payment made from an equity investment by the Company’s majority shareholder. On March 14, 2016, Catamaran provided a fifth loan in the principal amount of $325,000 on terms substantially similar to the previous notes, except that the definition of “Permitted Payment” was revised to mean, for purposes of this fifth note, a payment made from a bridge loan by the Company’s majority shareholder in excess of $600,000. On March 30, 2016, Catamaran provided a sixth loan in the principal amount of $75,000 on terms substantially similar to the fifth note. The Catamaran loans evidenced by those promissory notes dated March 14, 2016 and March 30, 2016 are also payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. If Catamaran ceases to provide ongoing financial support to the Company, it would have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate.

 

Interest shall accrue from the date of the applicable Catamaran note on the unpaid principal 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 Corporation in San Francisco, California, or (ii) ten percent (10%) per annum, until the principal is fully paid.

 

The Catamaran notes may be prepaid without penalty at the option of the Company; however, no payments on the Catamaran notes may be made unless such payment is a “Permitted Payment” or certain existing obligations of the Company to Lender pursuant to the Credit and Security Agreement have been satisfied in full. The Catamaran notes may not be amended without the prior written consent of Lender.

 

UBHL

 

In response to the losses incurred in connection with the Company’s operations, UBHL issued a letter of comfort to the Company’s accountants on March 5, 2015 (the “Letter of Comfort”) to confirm that UBHL had agreed to provide funding on an as needed basis to ensure that the Company is able to meet its financial obligations as and when they fall due. The Letter of Comfort does not specify either the terms of UBHL’s support, or a maximum dollar limit and is not a legally binding agreement or guarantee. However, to date UBHL through its affiliated company, Catamaran, has provided loans for working capital needs as described above. UBHL’s financial support is contingent upon compliance with any applicable exchange control requirements, other applicable laws, and regulations relating to the transfer of funds from India. The Letter of Comfort does not specify any time limit for extending support. If it becomes necessary to seek UBHL’s financial assistance under the Letter of Comfort or otherwise and UBHL does not provide such financial assistance to MBC, it may result in a material adverse effect on the Company’s financial position and on its ability to continue operations. UBHL controls the Company’s two largest shareholders, United Breweries of America, Inc. (“UBA”) and Inversiones Mirabel, S.A., a Panamanian corporation (“Inversiones”), and as such, is the Company’s indirect majority shareholder. The Company’s Chairman of the Board, Dr. Vijay Mallya, is also the Chairman of the board of directors of UBHL.

 

 F-11 
   

 

The board of directors of UBHL during this quarter has approved debt financing to the Company in the form of $1,000,000 of bridge loans. If UBHL does not consummate such debt financing, it would have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate.

 

Gordian Group

 

On December 9, 2015, the Company engaged Gordian Group, LLC (“Gordian Group”) to serve as the Company’s exclusive investment banker to assist the Company in evaluating, exploring and, if deemed appropriate by the Company, pursuing and implementing certain strategic and financial options and transactions that may be available to the Company, including in connection with a possible debt or equity capital financing, merger, consolidation, joint venture or other business combination involving, or sale of substantially all or a material portion of the assets (outside of the ordinary course of business) or outstanding securities of, the Company and/or its subsidiaries, and/or the acquisition of substantially all or a material portion of the assets or outstanding securities of another entity (each, a “Financial Transaction”). Gordian Group is a New York-based independent investment banking firm. While the Company has commenced evaluating its available options, no conclusion as to any specific option or transaction has been reached, nor has any specific timetable been fixed for this effort, and there can be no assurance that any strategic or financial option or transaction will be presented, implemented or consummated. The Company intends to use proceeds of the Financial Transaction, if any, to repay the amount owed to Lender when it becomes due.

 

At March 31, 2016, the Company had cash and cash equivalents of $52,900, an accumulated deficit of $18,032,700, and a working capital deficit of $12,249,000 due to losses incurred, and to debts payable to Lender and subordinated notes payable to UBA on June 23, 2016. In addition, the book value of the Company’s assets was lower than the book value of its liabilities at March 31, 2016.

 

Management has taken several actions to reduce the Company’s working capital needs through March 31, 2017, including reducing discretionary expenditures, reducing manpower, securing additional brewing contracts in an effort to utilize a portion of excess production capacity, and pursuing export opportunities. The Company is pursuing a Financial Transaction through Gordian Group as described above. The Company has relied upon the continued loans from Catamaran to support operations. The current revenue from operations is insufficient to meet the working capital needs of the Company over the next 12 months. The Company has requested UBHL to make a capital infusion.

 

If UBHL or other sources do not provide sufficient financial assistance to MBC, it will result in a material adverse effect on the Company’s financial position and on its ability to continue operations and it may have to seek capital by selling some of its operating assets. In addition, the Company’s lenders may seek to satisfy any outstanding obligations through recourse against the applicable pledged collateral which includes the Company’s real and personal property in the United States and the United Kingdom. The loss of any material pledged asset would have a material adverse effect on the Company’s financial position and results of operations.

 

Vijay Mallya, the Company’s Chairman and indirect majority shareholder is presently subject to certain legal proceedings in India, which may impair the Company’s ability to obtain financing from UBHL and other potential funding sources.

 

3. Inventories

 

Inventories are stated at the lower of average cost or market and consist of the following:

 

   March 31, 2016   December 31, 2015 
Raw Materials  $551,500   $628,100 
Beer-in-process   339,300    312,200 
Finished Goods   510,200    541,400 
Merchandise   64,000    65,300 
TOTAL  $1,465,000   $1,547,000 

 

 F-12 
   

 

4. Secured Lines of Credit

 

MB Financial Credit and Security Agreement

 

The borrowings under the Credit and Security Agreement are collateralized, with recourse, by MBC’s and Releta’s trade receivables and inventory located in the US. This facility currently carries interest (including default interest) at a rate of prime plus 3% and is secured by substantially all of the assets of Releta and MBC. The amount outstanding on this line of credit as of March 31, 2016 was approximately $120,700. Included in the Company’s balance sheet as at March 31, 2016 are account balances totaling $1,117,100 of accounts receivable and $1,375,000 of inventory collateralized to Lender under this facility. The Credit and Security Agreement expires on June 23, 2016.

 

RBS Facility

 

On April 26, 2005, RBS provided an approximately $2.8 million (£1,750,000) invoice discounting facility to KBEL 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 March 31, 2016 was approximately $964,100. Included in the Company’s balance sheet at March 31, 2016 are account balances totaling $2,174,200 of accounts receivable collateralized to RBS under this facility.

 

On November 24, 2015, KBEL received a notice from RBS regarding its intention to terminate the credit line and all other banking services it currently provides to KBEL on February 26, 2016. RBS subsequently extended the termination date to June 15, 2016, with any remaining amounts due 15 days later. The Company engaged in discussions with a bank which provided an indicative offer to provide alternate financing and banking services to KBEL. If KBEL does not finalize such alternate financing and provision of banking services, and if KBEL is unable to find alternate financing and banking services before termination of the RBS facilities, it would have a material adverse effect on KBEL and the Company.

 

5. Notes Payable to Related Parties

 

Notes payable to a related party consist of notes payable to Catamaran dated January 22, 2014, April 24, 2014, February 5, 2015, June 30, 2015, March 14, 2016, and March 30, 2016 for a total value of $2,545,300 including accrued interest of $145,300. Catamaran Holdings, Ltd. (“Holding”), the sole shareholder of Catamaran, has directors in common with Inversiones, one of the major shareholders of MBC. The indirect beneficial owner of Inversiones is UBHL. Dr. Vijay Mallya, the Chairman of the Board of Directors of the Company is also the Chairman of the Board of Directors of UBHL.

 

The first four Catamaran notes are payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. However, each time Catamaran provided a loan, the Company received a letter from Lender permitting the Company to obtain such loans subject to certain conditions, including that no portion of such loans would be payable until either (a) certain obligations of the Company to Lender pursuant to the Credit and Security Agreement were satisfied in full, or (b) such payment was a Permitted Payment. A “Permitted Payment” with respect to the notes dated January 22, 2014, April 24, 2014, and February 5, 2015 means a payment made from an equity investment by the Company’s majority shareholder in excess of $500,000. A “Permitted Payment” with respect to the note dated June 30, 2015 means a payment made from an equity investment by the Company’s majority shareholder. On March 14, 2016, Catamaran provided a fifth loan in the principal amount of $325,000 on terms substantially similar to the previous notes, except that the definition of “Permitted Payment” was revised to mean, for purposes of this fifth note, a payment made from a bridge loan by the Company’s majority shareholder in excess of $600,000 (a “Permitted Bridge Loan Payment”). On March 30, 2016, Catamaran provided a sixth loan in the principal amount of $75,000 on terms substantially similar to the fifth note. The Catamaran loans evidenced by those promissory notes dated March 14, 2016 and March 30, 2016 are also payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. If Catamaran ceases to provide ongoing financial support to the Company, it would have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate.

  

 F-13 
   

 

Interest shall accrue from the date of the applicable Catamaran note on the unpaid principal 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 Corporation in San Francisco, California, or (ii) ten percent (10%) per annum, until the principal is fully paid.

 

The Catamaran notes may be prepaid without penalty at the option of the Company; however, no payments on the Catamaran notes may be made unless such payment is a “Permitted Payment” or certain existing obligations of the Company to Lender pursuant to the Credit and Security Agreement have been satisfied in full. The Catamaran notes may not be amended without the prior written consent of Lender.

 

6. Secured Notes Payable

 

Maturities of secured notes payable for succeeding years are as follows:

 

   March 31, 2016   December 31, 2015 
Loan from MB Financial, payable in monthly installments of $12,300, plus interest (including default interest) at prime plus 4% with a balloon payment of approximately $2,202,500 in June 2016; secured by substantially all assets of Releta and MBC.  $2,239,400   $2,276,200 
           
Loans from MB Financial, payable in monthly installments of $32,300 plus interest (including default interest) at prime plus 3.5% with a balloon payment of approximately $908,700 in June 2016; secured by substantially all assets of Releta and MBC.   1,005,500    1,102,400 
    3,244,900    3,378,600 
           
Less current maturities   3,244,900    3,378,600 
   $-   $- 

 

7. Long-Term Debt – Related Party

 

   March 31, 2016   December 31, 2015 
Loan from Heineken UK Limited, payable in quarterly installments of $137,900, plus interest at UK prime plus 5% maturing on October 9, 2016, secured by licensing rights pursuant to a Sub-License Agreement.  $359,500   $491,500 
           
Less current maturities   359,500    491,500 
   $-   $- 

 

 F-14 
   

 

On April 18, 2013, KBEL entered into a loan agreement (the “HUK Loan Agreement”) with HUK pursuant to which HUK provided KBEL with a secured term loan of £1,000,000 on October 9, 2013 to be repaid in twelve quarterly installments of £83,333.33 each, commencing from January 9, 2014 and to be repaid in full by October 9, 2016. Interest on the HUK loan is payable quarterly in arrears on the outstanding balance of the loan at the rate of 5% above the Bank of England base rate. Prepayment is permitted. Upon an Event of Default, as defined in the HUK Loan Agreement, if HUK and KBEL fail to agree on a payment plan acceptable to HUK, HUK may, among other remedies, declare the loan immediately due and repayable or exercise its right to an exclusive license pursuant to the Sub-License Agreement as described and defined in the HUK Loan Agreement.

 

8. Capital Lease Obligations

 

The Company leases certain brewing equipment under an agreement that is classified as a capital lease. The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of March 31, 2016, are as follows:

 

Nine months Ending December 31, 2016  $21,600 
Year Ending December 31, 2017   27,600 
Year Ending December 31, 2018   21,300 
Year Ending December 31, 2019   21,300 
Year Ending December 31, 2020   21,000 
    112,800 
Less amounts representing interest   (17,700)
Present value of minimum lease payments   95,100 
Less current maturities   22,700 
Non-current leases payable  $72,400 

 

9. Subordinated Convertible Notes Payable to Related Party

 

Subordinated convertible notes to related parties are unsecured convertible notes payable to UBA for a total value including interest (at the prime rate plus 1.5%, but not to exceed 10% per year) of $3,704,000 and $3,680,100 as of March 31, 2016 and December 31, 2015, respectively. Thirteen of the UBA notes are convertible into common stock at $1.50 per share and one UBA note is convertible at a rate of $1.44 per share. The UBA notes have been extended until June 2016 but have 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. UBA may demand payment within 60 days following the end of the extension period but is precluded from doing so pursuant to a subordination agreement with Lender. The loans from Lender to which the UBA notes are subordinated mature in June 2016. The Company expects the UBA notes to be continued to be subordinated to any new financing facility obtained after maturity of Lender’s facility. The Company will also attempt to induce conversion of UBA notes to equity. The Company does not expect to have to use working capital to repay any of the UBA notes. The UBA notes include $1,788,600 and $1,764,700 of accrued interest at March 31, 2016 and December 31, 2015, respectively.

 

10. Severance Payable

 

The Company is a party to a Separation and Severance Agreement (the “Separation Agreement”) with Mr. Yashpal Singh, its President and Chief Executive Officer. Pursuant to the terms of the Separation Agreement, upon Mr. Singh’s (i) termination of employment for Good Reason (as defined in the Separation Agreement), (ii) termination of employment at the end of the employment term, (iii) death, (iv) disability or (v) termination by the Company without Cause (as defined in the Separation Agreement), he shall be entitled to certain severance benefits and payments. The severance payment shall equal the product of 2.5 times his average monthly base salary (calculated over the twelve (12) month period preceding the termination event), multiplied by the number of years (on a pro-rated basis) he had been employed by the Company at the Termination Date (as defined in the Separation Agreement); provided, however, that the severance payment may not exceed thirty (30) months of Mr. Singh’s average monthly base salary (calculated over the twelve (12) months preceding his termination date). Payments due to Mr. Singh under the Separation Agreement shall be paid in equal monthly installments by the Company over a 20 month period. Mr. Singh’s current employment contract ends on June 30, 2016. The receipt of payments is contingent on Mr. Singh executing a release of claims for the benefit of the Company. As of March 31, 2016, the Company has accrued $813,800 against this obligation.

 

 F-15 
   

 

11. 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.

 

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. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

On September 26, 2014, The New Buffalo Brewing Co., Inc. (“NBB”) initiated an action against Releta in the Supreme Court of the State of New York for the County of Erie to recover damages for alleged breaches of a Brewing Production Agreement between NBB and Releta dated September 6, 2013 (the “Brewing Production Agreement”), as well as for a declaration rescinding and nullifying the Brewing Production Agreement, and, in case of Releta’s failure to answer or appear, damages resulting from the alleged breaches, rescission of the Brewing Production Agreement, attorneys’ fees and any other relief deemed proper by the court. In a demand letter to Releta dated October 16, 2014, NBB demanded payment of the sum of $500,000. The Company has engaged a law firm in New York to respond. The trial date is set for January 17, 2017.

 

On June 3, 2015, IAE International Aero Engines AG (“IAE”) served the Company with a complaint (the “Complaint”), filed in Marin County Superior Court, California (the “Court”), which requests, among other things, (i) that the Court recognize and enforce a foreign judgment against an Indian corporate entity (which is an affiliate of the Company), the alleged judgment debtor, and (ii) that such judgment be made enforceable against any assets of the Company (and of the other defendants) that are located in California, on the alleged ground that the Company (along with the other defendants) is an “alter ego” of the alleged judgment debtor. Along with the Complaint, IAE also served the Company with an ex parte application for a right to attach order and a writ of attachment, and, in the alternative, a temporary protective order (collectively, the “ex parte application”) to, among other things, stop the Company from making certain transfers to related parties other than in the ordinary of business.

 

The ex parte application came up for hearing before the Court on June 5, 2015. At the conclusion of that hearing, the Court: (i) issued a temporary protective order of limited scope, providing that to the extent the Company had possession, custody or control of any stock belonging to the alleged judgment debtor (which the Company does not), it should not transfer said stock out of Marin County, California until 5:00 PM (Pacific Time), June 9, 2015; and (ii) continued the hearing on the ex parte application to 3:00 PM on June 9, 2015. At the conclusion of the continued hearing on June 9, 2015, the Court denied the ex parte application for a writ of attachment and dissolved the limited temporary protective order.

 

The Company believes that the allegations in the Complaint are without merit and will continue to vigorously defend against the lawsuit.

 

As discussed in more detail in the Company’s Current Report on Form 8-K filed on June 9, 2015, the Company has discussed with the Lender the allegations set forth in the Complaint and the ex parte application and, as of the date of this Quarterly Report, the Company has not received any notice or other communication from the Lender that the Lender intends to exercise any of the remedies available to it under the Credit and Security Agreement in connection therewith.

 

 F-16 
   

 

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 2020 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 (including real estate taxes, insurance and repairs).

 

The Company and its subsidiaries have various lease agreements for the brewpub and gift store in Ukiah, California; land at its Saratoga Springs, New York, facility; a building in the UK; and certain equipment. The New York lease includes renewal options for two additional five-year periods beginning in 2019, which the Company presently intends to exercise, and some leases are adjusted annually for changes in the consumer price index.

 

12. Related-Party Transactions

 

The Company conducts business with United Breweries of America, Inc. (“UBA”), which owns approximately 25% of the Company’s common stock. Until October 2013, KBEL had significant transactions with Shepherd Neame, Ltd., which is a related party with respect to a former Board member. KBEL also has had significant transactions with HUK, a related party with respect to one of MBC’s Board members, beginning in October 2013.

 

The following table reflects the value of such transactions during the quarters ended March 31, 2016 and 2015 and the balances outstanding as of March 31, 2016 and December 31, 2015.

 

   March 31, 2016   March 31, 2015 
TRANSACTIONS          
Purchases from HUK  $2,600,400   $2,404,600 
Expense reimbursement to HUK  $216,200   $208,500 
Interest expense related to UBA & Catamaran notes  $49,600   $37,700 
Borrowing from Catamaran  $400,000   $500,000 

 

   Mar 31, 2016   Dec 31, 2015 
ACCOUNT BALANCES          
Accounts payable and accrued liability to HUK  $1,661,500   $1,669,400 
Notes payable to Catamaran  $2,545,300   $2,119,600 
Notes payable to UBA  $3,704,000   $3,680,100 

 

13. Segment Information

 

The Company’s business presently consists of two segments – the North American Territory and the Foreign Territory. The Company’s operations in the North American Territory consist primarily of brewing and marketing proprietary craft beers. For distribution in the North American Territory, the Company brews its brands in its own facilities, which are located in Ukiah, California and Saratoga Springs, New York. The Company’s operations in the Foreign Territory, which are conducted through its wholly-owned subsidiary UBIUK and UBIUK’s wholly-owned subsidiary KBEL, consist primarily of the marketing and distribution of Kingfisher Premium Lager in the Foreign Territory.

 

 F-17 
   

 

A summary of each segment is as follows:

 

   Three Months Ended March 31, 2016 
   North American Territory   Foreign
Territory
   Total 
             
Net Sales  $2,702,400   $4,208,600   $6,911,000 
Operating Loss  $(482,100)  $(15,600)  $(497,700)
Identifiable Assets  $12,162,800   $3,937,100   $16,099,900 
Depreciation & Amortization  $169,700   $113,900   $283,600 
Capital Expenditures  $-   $82,200   $82,200 

 

   Three Months Ended March 31, 2015 
   North American Territory   Foreign
Territory
   Total 
             
Net Sales  $2,373,700   $4,320,400   $6,694,100 
Operating Income (Loss)  $(581,000)  $62,100   $(518,900)
Identifiable Assets  $13,398,300   $4,159,700   $17,558,000 
Depreciation & Amortization  $168,700   $116,000   $284,700 
Capital Expenditures  $-   $70,800   $70,800 

 

14. Unrestricted Net Assets

 

The Company’s wholly-owned subsidiary, UBIUK, had undistributed losses of $361,800 as of March 31, 2016. 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 $1,431,000. Condensed financial information of MBC, together with its other subsidiary, Releta is as follows:

 

Balance Sheets

 

   March 31, 2016   December 31, 2015 
   (unaudited)     
Balance Sheets          
           
Assets          
Cash and cash equivalents  $50,300   $61,300 
Accounts receivable, net   1,117,100    1,121,300 
Inventories   1,375,000    1,490,100 
Other current assets   104,900    199,800 
Total current assets   2,647,300    2,872,500 
           
Investment in subsidiary   1,225,000    1,225,000 
Property and equipment   9,220,100    9,378,500 
Intercompany receivable   272,600    284,000 
Other assets   295,400    175,800 
Total assets  $13,660,400   $13,935,800 
           
Liabilities          
Line of credit  $120,700   $453,100 
Accounts payable   2,692,200    2,640,400 
Accrued liabilities   1,293,800    1,021,000 
Note payable to related party   2,545,300    2,119,600 
Subordinated convertible notes to related party   3,704,000    3,680,100 
Current maturities of debt, leases and severance   3,496,600    3,505,900 
Total current liabilities   13,852,600    13,420,100 
           
Long-term capital  leases   12,600    14,000 
Severance payable   569,700    678,400 
Total liabilities   14,434,900    14,112,500 
           

Stockholders’ deficit

          
Common stock   15,100,300    15,100,300 
Preferred stock   227,600    227,600 
Accumulated deficit   (16,102,400)   (15,504,600)

Total stockholders’ deficit

   (774,500)   (176,700)

Total liabilities and stockholders’ deficit

  $13,660,400   $13,935,800 

 

 F-18 
   

 

Statements of Operations    
   Quarter ended March 31 
   2016   2015 
   (unaudited)   (unaudited) 
Net sales  $2,592,300   $2,373,700 
Cost of goods sold   2,225,100    2,122,600 
Selling, marketing, and retail expenses   291,500    353,400 
General and administrative expenses   559,500    480,100 
Loss from operations   (483,800)   (582,400)
           
Other (income)   (3,700)   (3,100)
Interest expense   117,700    123,000 
Provision for taxes   -    3,800 
Net loss  $(597,800)  $(706,100)

 

Statements of Cash Flows     
   Quarter ended March 31 
   2016   2015 
   (unaudited)   (unaudited) 
Cash flows from operating activities  $45,100   $(269,200)
Purchase of property and equipment   -    - 
Net borrowing (repayment) on line of credit   (332,400)   (90,200)
Borrowing on note payable   400,000    500,000 
Repayment on long term debt   (133,700)   (133,700)
Payment on obligation under capital lease   (1,400)   (1,300)
Net change in payable to UBIUK   11,400    (30,800)
Decrease in cash   (11,000)   (25,200)
Cash, beginning of period   61,300    61,500 
Cash, end of period  $50,300   $36,300 

 

15. Income Taxes

 

In the three months ended March 31, 2016 and 2015, the Company recorded tax expenses related to state franchise taxes only, and did not record income tax expenses due to the availability of deferred tax assets to offset any taxable income in the US (at the federal and state level to the extent applicable) 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 has not yet been met. During the three months ended March 31, 2016 and March 31, 2015, the Company’s effective tax rates were de minimis.

 

The Company’s 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 2012 through 2015. 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 tax jurisdiction.

 

16. Subsequent Events

 

Pursuant to a resolution adopted on September 10, 2013 by the Company’s Board of Directors, the Company entered into a Separation and Severance Agreement with Mr. Mahadevan Narayanan, the Company’s Chief Financial Officer and Secretary on April 12, 2016. Pursuant to the terms of the agreement, upon Mr. Narayanan’s (i) termination of employment for Good Reason (as defined in the agreement), (ii) death, (iii) disability or (iv) termination by the Company without Cause (as defined in the agreement), he shall be entitled to certain severance benefits and payments. The severance payment shall equal the product of 2.5 times his average monthly base salary (calculated over the twelve (12) month period preceding the termination event), multiplied by the number of years (on a pro-rated basis) he had been employed by the Company at the Termination Date (as defined in the agreement); provided, however, that the severance payment may not exceed thirty (30) months of Mr. Narayanan’s average monthly base salary (calculated over the twelve (12) months preceding his termination date). If Mr. Narayanan’s employment is terminated without Cause, in addition to the severance payment described above, he shall also receive either (i) 365 days prior written notice or (ii) a lump sum payment equal to twelve (12) months of his base salary at the rate in place at the Termination Date (the “Notice Payment”). Payments due to Mr. Narayanan under the Separation Agreement shall be paid in equal monthly installments by the Company over a 20 month period.

 

 F-19 
   

 

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, financial condition and liquidity/cash flows of the Company for the three months ended March 31, 2016, compared to the three months ended March 31, 2015. 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 for the year ended December 31, 2015.

 

In the rest of this Quarterly Report on Form 10-Q, the terms “we”, “us”, “our”, and “the Company” and its variants are 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 on Form 10-Q, including but not limited to the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contain forward-looking statements. Such information involves risks and uncertainties and 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 statements. 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 as of the date such statements are issued. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including but not limited to, our ability to continue as a going concern, 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 the prices of raw materials, availability of financing for operations, changes in interest rates, changes in the Company’s European beer business, and other risks discussed elsewhere in this Quarterly Report on Form 10-Q and from time to time in the Company’s Securities and Exchange Commission (“SEC”) filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic, Canadian 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 revisions to these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

 

 3 
   

 

Segment Information

 

Prior to 2001, the Company’s business operations were exclusively located in the US, and consisted of the manufacture and distribution of beer. With the Company’s acquisition of United Breweries International (UK), Ltd. (“UBIUK”) in August 2001, the Company gained a new business segment ― distribution of beer outside the US, primarily in the United Kingdom (the “UK”) and continental Europe (collectively, the “Foreign Territory”). This segment accounted for 60% and 64% of the Company’s gross sales during the first quarter of 2016 and 2015 respectively, with the US and Canada (the “North American Territory”) accounting for the remaining 40% and 36% during the first quarter of 2016 and 2015 respectively.

 

Seasonality

 

Sales of the Company’s products are somewhat seasonal. Historically, sales volumes in both the Company’s North American and Foreign Territories have been comparatively low during the first quarter of the calendar year. The volume of sales in any given area may also be affected by local weather conditions. Because of the seasonality of the Company’s business, results for any one quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

 

Summary of Financial Results

 

The Company ended the first quarter of 2016 with a net loss of $637,100, as compared to a net loss of $673,900 for the same period in 2015. As set forth more fully under the section captioned “Results of Operations” below, during the first quarter of 2016, net sales increased by $106,800 compared to the first quarter of 2015. Compared to the first quarter of 2015, costs of goods sold increased by $280,300, operating expenses decreased by $194,700, and net other expenses decreased by $11,800 in the first quarter of 2016, all of which contributed to the Company’s results for the period.

 

RESULTS OF OPERATIONS

 

Three months ended March 31, 2016 compared to Three Months ended March 31, 2015

 

Net Sales

 

Overall net sales for the first quarter of 2016 were $6,800,900, an increase of $106,800, or 1.6%, compared to $6,694,100 for the first quarter of 2015.

 

North American Territory: Net sales in the North American Territory for the first quarter of 2016 were $2,592,300, compared to $2,373,700 for the same period in 2015, an increase of $218,600, or 9%. The sales volume increased to 12,700 barrels in the first quarter of 2016 from 11,600 barrels in the first quarter of 2015, representing an increase of 1,100 barrels, or 9%. Of the numerical barrel increase, sales of our brands decreased by 500 barrels mainly due to lower demand, and sales of contract brands increased by 1,600 barrels. The Company continues to solicit opportunities to enter into non-binding contract brewing arrangements to address the low production capacity utilization rates in our Ukiah, California and Saratoga Springs, New York brewing facilities, and anticipate that fluctuations in the availability of such contract brewing arrangements will continue to impact our net sales in the North American Territory.

 

 4 
   

 

Foreign Territory: Net sales in the Foreign Territory for the first quarter of 2016 were $4,208,600, compared to $4,320,400 during the corresponding period of 2015, a decrease of $111,800, or 3%. The decrease was due to lower sales in core channels and currency rate fluctuation.

 

Cost of Goods Sold

 

Cost of goods sold as a percentage of net sales during the first quarter of 2016 was 72% compared to 69% during the first quarter of 2015.

 

North American Territory: Cost of goods sold as a percentage of net sales in the North American Territory during the first quarter of 2016 was 86%, as compared to 89% during the corresponding period of 2015, due to higher sales realization. Utilization of our production capacity has a direct impact on cost. Generally, when facilities are operating at lower percentage of production capacity, cost is unfavorably affected because fixed and semi-variable operating costs, such as depreciation and production costs, are spread over a smaller volume base. Our production capacity is currently underutilized. In addition to capacity utilization, other factors that could affect cost of sales include unanticipated increases in material and shipping costs, the availability and prices of raw materials and packaging materials, and the availability of contract brewing arrangements.

 

Foreign Territory: Cost of goods sold as a percentage of net sales in the Foreign Territory during the first quarter of 2016 was 63% compared to 57% during the first quarter of the year 2015. The increase was due to lower sales realization and currency rate fluctuation.

 

Gross Profit

 

As a result of the increase in cost of goods sold described above, gross profit for the first quarter of 2016 decreased to $1,922,100, compared to $2,095,600 during the corresponding period of 2015. As a percentage of net sales, gross profit during the first quarter of 2016 decreased to 28% compared to 31% in 2015 due to lower sales realization in the Foreign Territory.

 

Operating Expenses

 

Operating expenses for the first quarter of 2016 were $2,419,800, a decrease of $194,700, or 7%, as compared to $2,614,500 for the first quarter of 2015. Operating expenses consist of marketing and distribution expenses and general and administrative expenses.

 

Marketing and Distribution Expenses

 

The Company’s marketing and distribution expenses for the first quarter of 2016 were $1,202,800, as compared to $1,402,900 for the first quarter of 2015, representing a decrease of $200,100, or 14%. These expenses decreased to 18% of net sales for the first quarter of 2016 compared to 21% during the first quarter of 2015.

 

North American Territory: Marketing and distribution expenses in the North American Territory for the first quarter of 2016 were $291,500, compared to $353,400 during first quarter of 2015, representing a decrease of $61,900, or 18% due to reduction in manpower. As a percentage of net sales in the North American Territory, marketing and distribution expenses increased to 11% of net sales for the first quarter of 2016 compared to 15% during the first quarter of 2015.

 

Foreign Territory: Marketing and distribution expenses in the Foreign Territory for the first quarter of 2016 were $911,300, compared to $1,049,500 during the first quarter of 2015, representing a decrease of $138,200, or 13%. As a percentage of net sales in the UK, marketing and distribution expenses during the first quarter of 2016 was 22% compared to 24% during the first quarter of 2015. The decrease was mainly due to decrease in advertising and promotional expenses.

 

 5 
   

 

General and Administrative Expenses

 

The Company’s general and administrative expenses were $1,217,000 for the first quarter of 2016, compared to $1,211,600 for the first quarter of 2015, representing an increase of $5,400. As a percentage of net sales, these expenses remained at 18% during the first quarter of 2016 and 2015.

 

North American Territory: General and administrative expenses related to the North American Territory were $559,500 during the first quarter of 2016, compared to $480,100 for the corresponding period of 2015, representing an increase of $79,400, or 17% mainly due to increase in salary of administrative employees and accrued compensation to Directors on account of increase in number of meetings. As a percentage of net sales in the North American Territory, expenses increased to 22% during the first quarter of 2016, compared to 20% during the first quarter of 2015.

 

Foreign Territory: General and administrative expenses related to the Foreign Territory decreased to $657,500 for the first quarter of 2016, representing a decrease of $74,000, or 10%, compared to $731,500 for the first quarter of 2015 due to reduction in recruitment related training expenses. As a percentage of net sales in the Foreign Territory, expenses decreased to 16% during the first quarter of 2016, compared to 17% during the first quarter of 2015. The decrease was mainly due to decrease in training expenses and other miscellaneous expenses.

 

Other Expenses

 

Other expenses for the first quarter of 2016 totaled $139,400, representing a decrease of $11,800 or 8% when compared to other expenses of $151,200 for the first quarter of 2015 due to reduction in interest expenses on account of reduction in debts.

 

Income Taxes

 

The Company recorded provisions of $3,800 for income taxes associated with operations in the North American Territory during the first quarter of 2015. The Company did not record any provision for income taxes associated with operations in the North American territory in the first quarter of 2016.

 

Net Loss

 

The Company’s net loss for the first quarter of 2016 was $637,100, as compared to a net loss of $673,900 for the first quarter of 2015. After providing for a positive foreign currency translation adjustment of $4,700 during the first quarter of 2016, as compared to a positive foreign currency translation adjustment of $27,100 for the same period in 2015, the comprehensive loss for the first quarter of 2016 was $632,400, as compared to $646,800 for the same period in 2015.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Unused capacity at our Ukiah, California and Saratoga Springs, New York facilities has continued to place demands on our working capital. Historically, our operations have not generated sufficient cash flow to provide us with sufficient working capital. However, we have received $400,000 from Catamaran this year and believe that the liquidity we would derive from debt financing in the form of $1,000,000 of bridge loans, approved by the board of directors of UBHL, and cash flow attributable to our operations would be sufficient to fund our capital expenditures, debt maturities and other business needs for the next twelve months.

 

The continuation of the Company as a going concern is dependent upon the continued financial support from Catamaran and/or UBHL, its ability to obtain other debt or equity financing, and generating profitable operations from the Company’s future operations. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

 

 6 
   

 

On December 9, 2015, the Company engaged Gordian Group, LLC (“Gordian Group”) to serve as the Company’s exclusive investment banker to assist the Company in evaluating, exploring and, if deemed appropriate by the Company, pursuing and implementing certain strategic and financial options and transactions that may be available to the Company, including in connection with a possible debt or equity capital financing, merger, consolidation, joint venture or other business combination involving, or sale of substantially all or a material portion of the assets (outside of the ordinary course of business) or outstanding securities of, the Company and/or its subsidiaries, and/or the acquisition of substantially all or a material portion of the assets or outstanding securities of another entity (each, a “Financial Transaction”). Gordian Group is a New York-based independent investment banking firm. While the Company has commenced evaluating its available options, no conclusion as to any specific option or transaction has been reached, nor has any specific timetable been fixed for this effort, and there can be no assurance that any strategic or financial option or transaction will be presented, implemented or consummated. The Company intends to use proceeds of the Financial Transaction, if any, to repay the amount owed to MB Financial when it becomes due.

 

Vijay Mallya, the Company’s Chairman and indirect majority shareholder is presently subject to certain legal proceedings in India, which may impair the Company’s ability to obtain financing from UBHL and other potential funding sources.

 

UBHL Support. The Company received a letter dated November 11, 2013 from UBHL, the Company’s indirect majority shareholder, expressing its willingness to commit to invest up to $2,000,000 in the Company in four installments to be paid every six months over a two year period. The letter did not state definitive terms for the proposed investment but stated that UBHL would consider such additional investment based on a business plan to be provided by the Company. We provided a business plan in February 2015 and requested additional investment from UBHL and are awaiting UBHL’s response.

 

In addition, in response to the losses incurred in connection with the Company’s operations, UBHL issued the Letter of Comfort to the Company’s accountants on March 5, 2015, to confirm that UBHL had agreed to provide funding on an as needed basis to ensure that the Company is able to meet its financial obligations as and when they fall due. The Letter of Comfort does not specify either the terms of UBHL’s support, or a maximum dollar limit and is not a legally binding agreement or guarantee. However, to date, UBHL through its affiliated company, Catamaran, has provided loans for working capital needs as described below. UBHL’s financial support is contingent upon compliance with any applicable exchange control requirements, other applicable laws, and regulations relating to the transfer of funds from India. The Letter of Comfort does not specify any time limit for extending support. If it becomes necessary to seek UBHL’s financial assistance under the Letter of Comfort or otherwise and UBHL does not provide such financial assistance to MBC, it may result in a material adverse effect on the Company’s financial position and on its ability to continue operations. UBHL controls the Company’s two largest shareholders, UBA and Inversiones, and as such, is the Company’s indirect majority shareholder. The Company’s Chairman of the Board, Dr. Vijay Mallya, is also the Chairman of the board of directors of UBHL.

 

The board of directors of UBHL during this quarter has approved debt financing to the Company in the form of $1,000,000 of bridge loans. If UBHL does not consummate such debt financing, it would have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate.

 

 7 
   

 

Catamaran Notes. On January 22, 2014, Catamaran, a related party, provided a loan to MBC in the principal amount of $500,000 evidenced by a promissory note. On April 24, 2014, Catamaran provided a second loan in the principal amount of $500,000 on terms similar to the previous note. On February 5, 2015, Catamaran provided a third loan in the principal amount of $500,000 on terms similar to the previous notes. On June 30, 2015, Catamaran provided a fourth loan in the principal amount of $500,000 on terms similar to the previous notes, and the Company received the proceeds against this note on July 6, 2015. These four Catamaran notes are payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. However, each time Catamaran provided a loan, the Company received a letter from Lender (as defined below) permitting the Company to obtain such loans subject to certain conditions, including that no portion of such loans would be payable until either (a) certain obligations of the Company to Lender pursuant to the Credit and Security Agreement (as defined below) were satisfied in full, or (b) such payment was a Permitted Payment. A “Permitted Payment” with respect to the notes dated January 22, 2014, April 24, 2014, and February 5, 2015 means a payment made from an equity investment by the Company’s majority shareholder in excess of $500,000. A “Permitted Payment” with respect to the note dated June 30, 2015 means a payment made from an equity investment by the Company’s majority shareholder. On March 14, 2016, Catamaran provided a fifth loan in the principal amount of $325,000 on terms substantially similar to the previous notes, except that the definition of “Permitted Payment” was revised to mean, for purposes of this fifth note, a payment made from a bridge loan by the Company’s majority shareholder in excess of $600,000 (a “Permitted Bridge Loan Payment”). On March 30, 2016, Catamaran provided a sixth loan in the principal amount of $75,000 on terms substantially similar to the fifth note. The Catamaran loans evidenced by those promissory notes dated March 14, 2016 and March 30, 2016 are also payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. If Catamaran ceases to provide ongoing financial support to the Company, it would have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate.

 

Interest shall accrue from the date of the applicable Catamaran note on the unpaid principal 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 Corporation in San Francisco, California, or (ii) ten percent (10%) per annum, until the principal is fully paid.

 

The Catamaran notes may be prepaid without penalty at the option of the Company; however, no payments on the Catamaran notes may be made unless such payment is a “Permitted Payment” or certain existing obligations of the Company to Lender pursuant to the Credit and Security Agreement have been satisfied in full. The Catamaran notes may not be amended without the prior written consent of Lender.

 

MB Financial Facility. On June 23, 2011, MBC and Releta entered into a Credit and Security Agreement (as amended, the “Credit and Security Agreement”) with Cole Taylor Bank, an Illinois banking corporation (“Cole Taylor”). Cole Taylor merged into MB Financial Bank, an Illinois banking corporation (“MB Financial”) on August 18, 2014. As used in this Report, “Lender” shall refer to Cole Taylor prior to August 18, 2014 and to MB Financial, as successor in interest to Cole Taylor, on or after August 18, 2014. The Credit and Security Agreement provided 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 (the “Revolver”), 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 applicable interest rates are as follows: (a) with respect to the Revolver, the Wall Street Journal prime rate plus a margin of 1.00%, (b) with respect to the machinery and equipment term loan and the capital expenditure term loan, the Wall Street Journal prime rate plus a margin of 1.50%, and (c) with respect to the real estate term loan, the Wall Street Journal prime rate plus a margin of 2.00%. As described below, effective September 1, 2013, Lender is charging a default interest rate equal to two percent (2%) per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement. As described below, the Second Amendment (as defined below) (among other things) reduces the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by 2% each month. The advance rates are used in the calculation of the borrowing base of each of MBC and Releta Brewing Company, LLC ("Releta"), which is used in the determination of the amount available to each of MBC and Releta pursuant to the Revolver. Under the terms of the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base of each of MBC and Releta fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable. The Credit and Security Agreement binds the Company to certain financial covenants including maintaining prescribed minimum tangible net worth and prescribed minimum fixed charges coverage. There is a prepayment penalty if we prepay all of our obligations prior to the maturity date. The credit facility is secured by a first priority interest in all of MBC’s and Releta’s personal property and a first mortgage on our Ukiah, California real property, among other MBC and Releta assets.

 

 8 
   

 

The Credit and Security Agreement requires MBC and Releta to maintain certain minimum fixed charge coverage ratios for trailing twelve month periods and minimum tangible net worth. The minimum tangible net worth MBC and Releta are required to maintain is subject to increase based on the net income of MBC and Releta. On March 29, 2013, MBC, Releta, and Lender entered into a First Amendment to the Credit and Security Agreement to clarify the method by which the fixed charge coverage ratio is calculated, with retrospective application.

 

The required fixed charge coverage ratio for the trailing twelve month periods ended March 31, 2013 onwards fell short of the required ratio. The tangible net worth fell short of the required amount for the period beginning June 1, 2013 onwards.

 

On September 18, 2013, MBC and Releta received a notice (the “Default Notice”) from Lender regarding its intention to exercise certain rights with respect to events of default of the Company pursuant to the Credit and Security Agreement and, effective September 1, 2013, began charging a default interest rate equal to 2% per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement.

 

On April 18, 2014, MBC and Releta received a second notice (the “Second Default Notice”) from Lender regarding its intention to exercise certain rights with respect to events of default of the Company pursuant to the Credit and Security Agreement. The Second Default Notice required MBC and Releta to engage a consultant to perform a viability analysis and prepare a revised projection for 2014, to be delivered to Lender on or before April 30, 2014. MBC and Releta engaged a consultant and delivered a revised projection on April 30, 2014. As stated in the Second Default Notice, the Company continued to be in default on the fixed charge coverage ratio for each measurement period beginning March 31, 2013 through February 28, 2014. The required fixed charge coverage ratio was initially required to be at least 1.05 to 1.00, but as of July 31, 2013, the required fixed charge coverage ratio increased to 1.10 to 1.00 pursuant to the terms of the Credit and Security Agreement. The Second Default Notice also stated that the tangible net worth of MBC and Releta continued to fall short of the required amount as measured through February 28, 2014.

 

Effective August 20, 2014, pursuant to a notice to MBC and Releta dated August 18, 2014 (the “Third Default Notice”) which referred to MBC’s and Releta’s continued failure to meet the required fixed charge coverage ratio and the tangible net worth requirement, Lender notified MBC and Releta that it would reduce the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by 2% each month. The advance rates are used in the calculation of the borrowing base of each of MBC and Releta, which is used in the determination of the amount available to each of MBC and Releta pursuant to the Revolver. Under the terms of the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base of each of MBC and Releta fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

On January 21, 2015, MBC, Releta, and Lender entered into a Second Amendment (the “Second Amendment”) to the Credit and Security Agreement. The Second Amendment reduced the maximum amount of the Revolver from $4,119,000 to $2,500,000. The Second Amendment also changed the definition of borrowing base (including by lowering certain advance rates) such that the calculation of the borrowing base will result in a lower number than it would have if calculated prior to the effectiveness of the Second Amendment. The borrowing base is used in the determination of the amount available to each borrower pursuant to the Revolver. Pursuant to the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

The Second Amendment also reduced the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by two percent (2%) and continues to reduce each by an additional two percent (2%) on the 20th day of each month thereafter. The advance rates are used in the calculation of the borrowing base of each borrower, which is used in the determination of the amount available to each borrower pursuant to the Revolver. As stated above, if such availability is less than $0, or if certain components of the borrowing base fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

 9 
   

 

As of March 31, 2016, pursuant to the Credit and Security Agreement, the fixed charge coverage ratio was required to be 1.15 to 1. The Company calculated that the fixed charge coverage ratio as of March 31, 2016 was -0.20 to 1. The Company calculated that the required tangible net worth of MBC and Releta was $6,181,400 as of March 31, 2016 and the actual tangible net worth on such date was $3,576,900. The Company does not anticipate that it will regain compliance with the required fixed charge coverage ratio or the minimum tangible net worth, as required by the Credit and Security Agreement, in the immediate future.

 

The Credit and Security Agreement provides that the failure of MBC and Releta to observe any covenant will constitute an event of default under the Credit and Security Agreement. Lender has not waived the events of default described in the Default Notice, the Second Default Notice or the Third Default Notice and has reserved the right to all other available rights and remedies under the Credit and Security Agreement, certain other related documents and applicable law. An event of default shall be deemed continuing until waived in writing by Lender. Under the Credit and Security Agreement, upon the occurrence of an event of default, all of MBC’s and Releta’s obligations under the Credit and Security Agreement may, at Lender’s option, be declared, and immediately shall become, due and payable, without notice of any kind. Lender could declare the full amount owed under the Credit and Security Agreement due and payable at any time for any reason or no reason. Since executing the Second Amendment, the Company has not received any notice or other communication from Lender that it intends to exercise any other remedies available to it under the Credit and Security Agreement in connection with the events of default. As noted above, effective September 1, 2013, Lender elected, and continues, to charge a default interest rate equal to two percent (2%) per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement. The Company estimates that the increased interest rate currently results in the payment by the Company to Lender of additional interest of approximately $120,000 per year. The exercise of additional remedies by Lender may have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate. The Credit and Security Agreement expires on June 23, 2016. There is no guarantee that MBC and Releta will be able to obtain alternate financing on terms favorable to the Company or on any terms. If the Company is unable to obtain alternate financing, it will have a material adverse effect on the Company’s financial condition and the Company’s ability to operate.

 

HUK Facility. On April 18, 2013, KBEL entered into a Loan Agreement with HUK pursuant to which HUK agreed to provide KBEL with a secured term loan facility of £1,000,000 to be made available, subject to the fulfillment of certain conditions precedent, on October 9, 2013, to be repaid in full by October 9, 2016. KBEL availed itself of the loan on October 9, 2013. The Loan Agreement with HUK is described under the section captioned “Description Of Our Indebtedness” below.

 

Our available cash is insufficient to fund our future activities, and therefore we need to raise additional funds through bank credit arrangements, or public or private equity or debt financings as described above. If we are not able to obtain bank credit arrangements or to effect an equity or debt financing on terms acceptable to us or at all, this may have a material adverse effect on the Company’s financial condition and ability to continue operations.

 

We have several loans, lines of credit, other credit facilities and lease agreements which are currently outstanding (collectively, “Indebtedness”). We currently make timely payments of principal and interest relating to the Indebtedness as they fall due. However, if we fail to maintain any of the financial covenants under the Credit and Security various agreements governing Indebtedness (such as the defaults under the Agreement described above), fail to make timely payments of amounts due under the Indebtedness, or commit any other breach resulting in an event of default under the agreements governing Indebtedness, such events of default (including cross-defaults) could have a material adverse effect on our financial condition. If our existing debt were accelerated and terminated, we would need to obtain replacement financing, the lack of which would have a material adverse effect on our financial condition and ability to continue operations. In addition, actions taken by secured parties against the Company’s assets which have been pledged as collateral could have a material adverse effect on our financial condition and operations.

 

 10 
   

 

At March 31, 2016, the Company had cash and cash equivalents of $52,900, an accumulated deficit of $18,032,700, and a working capital deficit of $12,249,000 due to losses incurred, and to debts payable to MB Financial and subordinated notes payable to UBA on June 23, 2016. In addition, the book value of the Company’s assets was lower than the book value of its liabilities at March 31, 2016.

 

Management has taken several actions to reduce the Company’s working capital needs through March 31, 2017, including reducing discretionary expenditures, reducing manpower, securing additional brewing contracts in an effort to utilize a portion of excess production capacity, and pursuing export opportunities. The Company is pursuing a Financial Transaction through Gordian Group as described above. The Company has relied upon the continued loans from Catamaran to support operations. The current revenue from operations is insufficient to meet the working capital needs of the Company over the next 12 months. The Company has requested UBHL to make a capital infusion.

 

If UBHL or other sources do not provide sufficient financial assistance to MBC, it will result in a material adverse effect on the Company’s financial position and on its ability to continue operations and it may have to seek capital by selling some of its operating assets. In addition, the Company’s lenders may seek to satisfy any outstanding obligations through recourse against the applicable pledged collateral which includes the Company’s real and personal property in the United States and the United Kingdom. The loss of any material pledged asset would have a material adverse effect on the Company’s financial position and results of operations.

 

Vijay Mallya, the Company’s Chairman and indirect majority shareholder is presently subject to certain legal proceedings in India, which may impair the Company’s ability to obtain financing from UBHL and other potential funding sources.

 

Cash Flow Results

 

Net cash provided by operating activities for the three months ended March 31, 2016 was $406,100, compared to net cash used in operations of $478,500 for the three months ended March 31, 2015. During the first quarter of 2016, accounts receivable decreased by $442,400 due to increased collections in Foreign Territory. Accounts payable during the first quarter of 2016 decreased by $35,000. Our inventory decreased by $80,800 during the first three months of 2016 due to lower production in North American Territory. Accrued liabilities increased by $186,100 during the first quarter of the year 2016 due to accrued Directors compensation and legal expenses.

 

Net cash used in investing activities totaled $82,200 for the first quarter of 2016, compared to $70,800 during the corresponding period in 2015, due to increased purchases of beer dispensing equipment.

 

Net cash used in financing activities during the first quarter of 2016 totaled $405,800, compared to net cash provided by financing activities during the first quarter of 2015 of $421,800, as a result of decrease in use of the revolving line of credit and repayment of debts to MB Financial.

 

 11 
   

 

Description of Our Indebtedness

 

MB Financial Facility

 

On June 23, 2011, MBC and Releta entered into the Credit and Security Agreement with Cole Taylor. Cole Taylor merged into MB Financial on August 18, 2014. As used in this Report, “Lender” shall refer to Cole Taylor prior to August 18, 2014 and to MB Financial, as successor in interest to Cole Taylor, on or after August 18, 2014. The Credit and Security Agreement provided a credit facility with a maturity date of June 23, 2016 of up to $10,000,000 consisting of a $4,119,000 Revolver, 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 applicable interest rates are as follows: (a) with respect to the Revolver, the Wall Street Journal prime rate plus a margin of 1.00%, (b) with respect to the machinery and equipment term loan and the capital expenditure term loan, the Wall Street Journal prime rate plus a margin of 1.50%, and (c) with respect to the real estate term loan, the Wall Street Journal prime rate plus a margin of 2.00%. As described below, effective September 1, 2013, Lender is charging a default interest rate equal to two percent (2%) per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement. As described below, the Second Amendment (among other things) reduces the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by 2% each month. The advance rates are used in the calculation of the borrowing base of each of MBC and Releta, which is used in the determination of the amount available to each of MBC and Releta pursuant to the Revolver. Under the terms of the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base of each of MBC and Releta fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable. The Credit and Security Agreement binds the Company to certain financial covenants including maintaining prescribed minimum tangible net worth and prescribed minimum fixed charges coverage. There is a prepayment penalty if we prepay all of our obligations prior to the maturity date. The credit facility is secured by a first priority interest in all of MBC’s and Releta’s personal property and a first mortgage on our Ukiah, California real property, among other MBC and Releta assets.

 

The Credit and Security Agreement requires MBC and Releta to maintain certain minimum fixed charge coverage ratios for trailing twelve month periods and minimum tangible net worth. The minimum tangible net worth MBC and Releta are required to maintain is subject to increase based on the net income of MBC and Releta. On March 29, 2013, MBC, Releta, and Lender entered into a First Amendment to the Credit and Security Agreement to clarify the method by which the fixed charge coverage ratio is calculated, with retrospective application.

 

The required fixed charge coverage ratio for the trailing twelve month periods ended March 31, 2013 onwards fell short of the required ratio. The tangible net worth fell short of the required amount for the period beginning June 1, 2013 onwards.

 

On September 18, 2013, MBC and Releta received a Default Notice from Lender regarding its intention to exercise certain rights with respect to events of default of the Company pursuant to the Credit and Security Agreement and, effective September 1, 2013, began charging a default interest rate equal to 2% per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement.

 

On April 18, 2014, MBC and Releta received the Second Default Notice from Lender regarding its intention to exercise certain rights with respect to events of default of the Company pursuant to the Credit and Security Agreement. The Second Default Notice required MBC and Releta to engage a consultant to perform a viability analysis and prepare a revised projection for 2014, to be delivered to Lender on or before April 30, 2014. MBC and Releta engaged a consultant and delivered a revised projection on April 30, 2014. As stated in the Second Default Notice, the Company continued to be in default on the fixed charge coverage ratio for each measurement period beginning March 31, 2013 through February 28, 2014. The required fixed charge coverage ratio was initially required to be at least 1.05 to 1.00, but as of July 31, 2013, the required fixed charge coverage ratio increased to 1.10 to 1.00 pursuant to the terms of the Credit and Security Agreement. The Second Default Notice also stated that the tangible net worth of MBC and Releta continued to fall short of the required amount as measured through February 28, 2014.

 

Effective August 20, 2014, pursuant to the Third Default Notice to MBC and Releta dated August 18, 2014, which referred to MBC’s and Releta’s continued failure to meet the required fixed charge coverage ratio and the tangible net worth requirement, Lender notified MBC and Releta that it would reduce the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by 2% each month. The advance rates are used in the calculation of the borrowing base of each of MBC and Releta, which is used in the determination of the amount available to each of MBC and Releta pursuant to the Revolver. Under the terms of the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base of each of MBC and Releta fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

 12 
   

 

On January 21, 2015, MBC, Releta, and Lender entered into the Second Amendment to the Credit and Security Agreement. The Second Amendment reduced the maximum amount of the Revolver from $4,119,000 to $2,500,000. The Second Amendment also changed the definition of borrowing base (including by lowering certain advance rates) such that the calculation of the borrowing base will result in a lower number than it would have if calculated prior to the effectiveness of the Second Amendment. The borrowing base is used in the determination of the amount available to each borrower pursuant to the Revolver. Pursuant to the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

The Second Amendment also reduced the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by two percent (2%) and continues to reduce each by an additional two percent (2%) on the 20th day of each month thereafter. The advance rates are used in the calculation of the borrowing base of each borrower, which is used in the determination of the amount available to each borrower pursuant to the Revolver. As stated above, if such availability is less than $0, or if certain components of the borrowing base fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

As of March 31, 2016, pursuant to the Credit and Security Agreement, the fixed charge coverage ratio was required to be 1.15 to 1. The Company calculated that the fixed charge coverage ratio as of March 31, 2016 was -0.20 to 1. The Company calculated that the required tangible net worth of MBC and Releta was $6,181,400 as of March 31, 2016 and the actual tangible net worth on such date was $3,576,900. The Company does not anticipate that it will regain compliance with the required fixed charge coverage ratio or the minimum tangible net worth, as required by the Credit and Security Agreement, in the immediate future.

 

The Credit and Security Agreement provides that the failure of MBC and Releta to observe any covenant will constitute an event of default under the Credit and Security Agreement. Lender has not waived the events of default described in the Default Notice, the Second Default Notice or the Third Default Notice and has reserved the right to all other available rights and remedies under the Credit and Security Agreement, certain other related documents and applicable law. An event of default shall be deemed continuing until waived in writing by Lender. Under the Credit and Security Agreement, upon the occurrence of an event of default, all of MBC’s and Releta’s obligations under the Credit and Security Agreement may, at Lender’s option, be declared, and immediately shall become, due and payable, without notice of any kind. Lender could declare the full amount owed under the Credit and Security Agreement due and payable at any time for any reason or no reason. Since executing the Second Amendment, the Company has not received any notice or other communication from Lender that it intends to exercise any other remedies available to it under the Credit and Security Agreement in connection with the events of default. As noted above, effective September 1, 2013, Lender elected, and continues, to charge a default interest rate equal to two percent (2%) per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement. The Company estimates that the increased interest rate currently results in the payment by the Company to Lender of additional interest of approximately $120,000 per year. The exercise of additional remedies by Lender may have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate. The Credit and Security Agreement expires on June 23, 2016. There is no guarantee that MBC and Releta will be able to obtain alternative financing on terms favorable to the Company or on any terms. If the Company is unable to obtain alternate financing, it will have a material adverse effect on the Company’s financial condition and the Company’s ability to operate.

 

Master Line of Credit and UBA Notes

 

On August 31, 1999, MBC and 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 the principal amount of up to $1,600,000. As of the date of this filing, UBA has made thirteen separate advances to us under the Credit Agreement and one additional advance on March 2, 2005 on substantially the same terms as those under the Credit Agreement, pursuant to a series of individual eighteen-month promissory notes issued by us to UBA (the “UBA Notes”). Thirteen of the UBA Notes are convertible into common stock at a rate of $1.50 per share and one UBA Note is convertible at a rate of $1.44 per share. UBA has executed an Extension of Term of Notes under Master Line of Credit Agreement and an amendment to the March 2, 2005 note (together, the “Extension Agreements”). The Extension Agreements, as amended, confirm UBA’s extension of the terms of the UBA Notes for a period ending on June 30, 2015 with automatic renewals after such maturity date for successive one year terms, provided that either MBC or UBA may elect not to extend a 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 the applicable term.

 

 13 
   

 

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 Notes may be converted, at the option of UBA, into shares of our common stock. During the extended term of the UBA Notes, UBA has the right to require us to repay the outstanding principal balance, along with the accrued and unpaid interest thereon, to UBA within 60 days.

 

The UBA Notes are subordinated to credit facilities extended to us by Lender pursuant to a subordination agreement executed by UBA. Per the terms of the subordination agreement, UBA is precluded from demanding repayment of the UBA Notes unless and until the Lender’s facility is repaid in full.

 

The aggregate outstanding principal amount of the UBA Notes as of March 31, 2016 was $1,915,400, and the accrued but unpaid interest thereon was equal to approximately $1,788,600, for a total amount outstanding of $3,704,000.

 

As of March 31, 2016, the outstanding principal and interest on the UBA Notes was convertible into approximately 2,469,300 shares of our common stock. However, as the current market price of our common stock is substantially less than the conversion rate, voluntary conversion by UBA is unlikely.

 

Catamaran Notes

 

On January 22, 2014, Catamaran, a related party, provided a loan to MBC in the principal amount of $500,000 evidenced by a promissory note. On April 24, 2014, Catamaran provided a second loan in the principal amount of $500,000 on terms similar to the previous note. On February 5, 2015, Catamaran provided a third loan in the principal amount of $500,000 on terms similar to the previous notes. On June 30, 2015, Catamaran provided a fourth loan in the principal amount of $500,000 on terms similar to the previous notes, and the Company received the proceeds against this note on July 6, 2015. These four Catamaran notes are payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. However, each time Catamaran provided a loan, the Company received a letter from Lender permitting the Company to obtain such loans subject to certain conditions, including that no portion of such loans would be payable until either (a) certain obligations of the Company to Lender pursuant to the Credit and Security Agreement were satisfied in full, or (b) such payment was a Permitted Payment. A “Permitted Payment” with respect to the notes dated January 22, 2014, April 24, 2014, and February 5, 2015 means a payment made from an equity investment by the Company’s majority shareholder in excess of $500,000. A “Permitted Payment” with respect to the note dated June 30, 2015 means a payment made from an equity investment by the Company’s majority shareholder. On March 14, 2016, Catamaran provided a fifth loan in the principal amount of $325,000 on terms substantially similar to the previous notes, except that the definition of “Permitted Payment” was revised to mean, for purposes of this fifth note, a payment made from a bridge loan by the Company’s majority shareholder in excess of $600,000 (a “Permitted Bridge Loan Payment”). On March 30, 2016, Catamaran provided a sixth loan in the principal amount of $75,000 on terms substantially similar to the fifth note. The Catamaran loans evidenced by those promissory notes dated March 14, 2016 and March 30, 2016 are also payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. If Catamaran ceases to provide ongoing financial support to the Company, it would have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate.

 

 14 
   

 

Interest shall accrue from the date of the applicable Catamaran note on the unpaid principal 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 Corporation in San Francisco, California, or (ii) ten percent (10%) per annum, until the principal is fully paid.

 

The Catamaran notes may be prepaid without penalty at the option of the Company; however, no payments on the Catamaran notes may be made unless such payment is a “Permitted Payment” or certain existing obligations of the Company to Lender pursuant to the Credit and Security Agreement have been satisfied in full. The Catamaran notes may not be amended without the prior written consent of Lender.

 

Other Loans, Credit Facilities and Commitments

 

Heineken Loan

 

On April 18, 2013, KBEL entered into a loan agreement (the “HUK Loan Agreement”) with HUK pursuant to which HUK provided KBEL with a secured term loan of £1,000,000 on October 9, 2013 to be repaid in twelve quarterly installments of £83,333.33 each, commencing from January 9, 2014 and to be repaid in full by October 9, 2016. Interest on the HUK loan is payable quarterly in arrears on the outstanding balance of the loan at the rate of 5% above the Bank of England base rate. Prepayment is permitted. Upon an Event of Default, as defined in the HUK Loan Agreement, if HUK and KBEL fail to agree on a payment plan acceptable to HUK, HUK may, among other remedies, declare the loan immediately due and repayable or exercise its right to an exclusive license pursuant to the Sub-License Agreement as described and defined in the HUK Loan Agreement.

 

Royal Bank of Scotland Facility

 

On April 26, 2005, RBS provided an approximately $2.8 million (£1,750,000) invoice discounting facility to KBEL 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 March 31, 2016 was approximately $964,100. Included in the Company’s balance sheet at March 31, 2016 are account balances totaling $2,174,200 of accounts receivable collateralized to RBS under this facility.

 

On November 24, 2015, KBEL received a notice from RBS regarding its intention to terminate the credit line and all other banking services it currently provides to KBEL on February 26, 2016. RBS subsequently extended the termination date to June 15, 2016, with any remaining amounts due 15 days later. The Company engaged in discussions with a bank which provided an indicative offer to provide alternate financing and banking services to KBEL. If KBEL does not finalize such alternate financing and provision of banking services, and if KBEL is unable to find alternate financing and banking services before termination of the RBS facilities, it would have a material adverse effect on KBEL and the Company.

 

Weighted Average Interest

 

The weighted average interest rates paid on our US debts was 6% for the first quarters of 2016 and 2015. For loans primarily associated with our Foreign Territory, the weighted average rate paid was 4% and 5% for the first quarters of 2016 and 2015 respectively.

 

Current Ratio

 

Our ratio of current assets to current liabilities on March 31, 2016 was 0.31 to 1.00 and the ratio of total assets to total liabilities was 0.88 to 1.00. Our ratio of current assets to current liabilities on March 31, 2015 was 0.46 to 1.00 and the ratio of total assets to total liabilities was 0.94 to 1.00.

 

 15 
   

 

Restricted Net Assets

 

The Company’s wholly-owned subsidiary, UBIUK, had undistributed losses of $361,800 as of March 31, 2016. 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 $1,431,000.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required for smaller reporting companies.

 

Item 4. Controls and Procedures

 

Disclosure Controls And Procedures

 

Our Management team, under the supervision and with the participation of our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the last day of the quarter ended March 31, 2016. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us 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. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to Management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2016.

 

Changes In Internal Control Over Financial Reporting

 

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 16 
   

 

PART II

 

OTHER INFORMATION

 

Item 3. Defaults Upon Senior Securities

 

The discussion provided under the heading “Liquidity and Capital Resources” with respect to our default under our agreement with Lender, and the discussion under the subheading “MB Financial Facility,” under the heading “Description of Our Indebtedness,” both set forth in Item 2 of PART I of this Report, are hereby incorporated by reference in their entirety.

 

Item 6. Exhibits

 

Exhibit
Number
  Description
     
31.1   Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.*
31.2   Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.*
32.1   Certification of Principal Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.**
32.2   Certification of Principal Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 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

 

 

* Filed herewith.

** Furnished herewith.

 

 17 
   

 

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:  May 16, 2016 By:   /s/Yashpal Singh
    Yashpal Singh
    President and Chief Executive Officer
    (Principal Executive Officer)
     
Dated:  May 16, 2016 By: /s/ Mahadevan Narayanan
    Mahadevan Narayanan
    Chief Financial Officer and Secretary
    (Principal Financial and Accounting Officer)

 

 18 
   

 

 

 

EX-31.1 2 ex31-1.htm

 

CERTIFICATION

 

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: May 16, 2016

 

  /s/ Yashpal Singh
  Yashpal Singh,
  Chief Executive Officer
  (Principal Executive Officer)

 

 
 

 

 

EX-31.2 3 ex31-2.htm

 

CERTIFICATION

 

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: May 16, 2016

 

  /s/ Mahadevan Narayanan
  Mahadevan Narayanan,
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

 
 

 

EX-32.1 4 ex32-1.htm

 

CERTIFICATION

 

In connection with the Quarterly Report of Mendocino Brewing Company, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2016, 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: May 16, 2016

 

  /s/ Yashpal Singh
  Yashpal Singh
  Title: Chief Executive Officer
   (Principal Executive Officer)

 

 
 

 

EX-32.2 5 ex32-2.htm

 

CERTIFICATION

 

In connection with the Quarterly Report of Mendocino Brewing Company, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2016, 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: May 16, 2016

 

  /s/ Mahadevan Narayanan
  Mahadevan Narayanan
  Title:  Chief Financial Officer
   (Principal Financial and Accounting Officer)

 

 
 

 

 

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31, 2019 Year Ending December 31, 2020 Capital lease future minimum payment due, total Less amounts representing interest Present value of minimum lease payments Less current maturities Non-current leases payable Percentage of convertible notes interest, prime rate plus Percentage of convertible notes interest rate, maximum Unsecured convertible notes Debt instruments conversion price per share Convertible notes payable maturity date, description Accrued interest Number of times on average monthly base salary Number of monthly installments Severance payable Current employment contract end date Demanded payment in legal dispute Percentage of ownership interest Purchases from related party Expenses reimbursement to related party Interest expenses associated with related party notes Borrowing from Catamaran Notes payable including accrued interest Accounts payable and accrued liability Number of segments Operating Activities [Axis] Net Sales Operating Income (Loss) Identifiable Assets Depreciation & Amortization Capital Expenditures Unrestricted Net Assets Details Narrative Undistributed losses of UBIUK Minimum Retained Earning required for distributions and other payments to MBC from KBEL Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Investment in subsidiary Property and equipment Intercompany receivable Other assets Total assets Line of credit Accounts payable Accrued liabilities Note payable to related party Subordinated convertible notes to related party Current maturities of debt, leases and severance Total current liabilities Long-term capital leases Severance payable Total liabilities Common stock Preferred stock Accumulated deficit Total stockholders' deficit Total liabilities and stockholders' deficit Unrestricted Net Assets - Condensed Statement Of Operations Of Us Operations Details Net sales Cost of goods sold Selling, marketing, and retail expenses General and administrative expenses Loss from operations Other (income) Interest expense Provision for taxes Net loss Unrestricted Net Assets - Condensed Statement Of Cash Flows Of Us Operations Details Cash flows from operating activities Purchase of property and equipment Net borrowing (repayment) on line of credit Borrowing on note payable Repayment of long term debt Payment on obligations under capital leases Net change in payable to UBIUK Decrease in cash Cash, beginning of period Cash, end of period Accounts Payable And Accrued Expenses To Related Parties Accounts Payables Accumulated Deficit Accumulated deficit of subsidiary. 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MB Financial Bank Notes with Three Point Five Percentage of Prime Plus Interest Rate [Member] Machinery And Equipment Term Loan [Member] Mahadevan Narayanan [Member] March 14, 2016 [Member] March 30, 2016 [Member] Mb Financial Bank [Member] Mb Financial Bank Notes With Four Percentage of Prime Plus Interest Rate [Member] Percentage of monthly inventory work in progress. Net change in payable to UBIUK. No Individual Customer [Member] North American Territory [Member] North American Territory Operations [Member] Note Payable To Related Party. Notes Payable Related Parties Current. Notes To Related Parties [Text Block] Number of times on average monthly base salary. One United Breweries Of America Inc Note [Member] Parent And Subsidiary Or Affiliate Company [Member] Payment On Obligation Under Capital Lease Percentage of Increase Interest. Percentage Of Prepayment Of Against Qualified Accounts Receivable Percentage Of Service Charge Discounted On Invoice Preferred Stock Amount Property And Equipment Provision For Taxes Real Estate Term Loan [Member] Related Party Transaction Expense Reimbursement To Related Party Repayment On Long Term Debt Required fixed charge coverage ratio. Royal Bank Of Scotland Commercial Services Limited [Member] Schedule of related party debt [Table Text Block]. Selling And Marketing and Retail Expense Separation and Severance Agreement [Member] Severance Payable Disclosure [Text Block] Severance Payable Long Term [Member] Severance payable Severance payable noncurrent. Severance Payables Noncurrent. Severance payment term number of monthly installments. Subordinated Convertible Notes Payable [Member] Subordinated Convertible Notes Payable To Related Party [Text Block]. Subordinated convertible notes to related party. Thirteen United Breweries Of America Inc Notes [Member] Total Assets Total Current Assets Total Current Liabilities Total Liabilities And Stockholders Equity Total Liabilities Total Stockholders Equity Unrestricted Assets UBIUK [Member] UBA Convertible Notes [Member] United Breweries Holding Limited [Member]. United Breweries Of America [Member]. United Kingdom [Member] Unrestricted Assets Disclosure [Text Block] Working Capital Deficit Increased fixed charges coverage ratio.. Decrease in cash. Net borrowing (repayment) on line of credit. Percentage of convertible notes interest, prime rate plus. Percentage of convertible notes interest rate, maximum. MBC And Releta [Member] Accounts receivable, net. Line of credit. Tangible net worth - Required. 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Document and Entity Information - shares
3 Months Ended
Mar. 31, 2016
May. 13, 2016
Document And Entity Information    
Entity Registrant Name MENDOCINO BREWING CO INC  
Entity Central Index Key 0000919134  
Document Type 10-Q  
Document Period End Date Mar. 31, 2016  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   12,611,133
Trading Symbol MENB  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2016  
XML 13 R2.htm IDEA: XBRL DOCUMENT v3.4.0.3
Condensed Consolidated Balance Sheets - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Current Assets    
Cash $ 52,900 $ 129,600
Accounts receivable, net 3,291,300 3,835,500
Inventories 1,465,000 1,547,000
Prepaid expenses 627,300 759,900
Total Current Assets 5,436,500 6,272,000
Property and Equipment, net 10,368,000 10,588,200
Deposits and other assets 295,400 175,800
Total Assets 16,099,900 17,036,000
Current Liabilities    
Secured lines of credit 1,084,800 1,663,400
Accounts payable 4,407,800 4,489,000
Accrued liabilities 2,072,400 1,908,700
Notes payable to related party 2,545,300 2,119,600
Subordinated convertible notes to related party 3,704,000 3,680,100
Current maturities of secured notes payable 3,244,900 3,378,600
Current maturities of long-term debt to related party 359,500 491,500
Current maturities of obligations under capital leases 22,700 23,100
Current maturities of severance payable 244,100 119,700
Total Current Liabilities 17,685,500 17,873,700
Long-Term Liabilities    
Capital lease obligations, less current maturities 72,400 79,200
Severance payable 569,700 678,400
Total Long-Term Liabilities 642,100 757,600
Total Liabilities $ 18,327,600 $ 18,631,300
Commitments and contingencies
Stockholders’ Deficit    
Preferred stock, Series A, no par value, withliquidation preference of $1 per share; 10,000,000shares 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 477,100 472,400
Accumulated deficit (18,032,700) (17,395,600)
Total Stockholders’ Deficit (2,227,700) (1,595,300)
Total Liabilities and Stockholders’ Deficit $ 16,099,900 $ 17,036,000
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.4.0.3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Preferred stock, no par value
Preferred stock, Series A, liquidation preference per share $ 1 $ 1
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
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 15 R4.htm IDEA: XBRL DOCUMENT v3.4.0.3
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Income Statement [Abstract]    
Sales $ 6,911,000 $ 6,807,300
Less excise taxes 110,100 113,200
Net Sales 6,800,900 6,694,100
Cost of Goods Sold 4,878,800 4,598,500
Gross Profit 1,922,100 2,095,600
Operating Expenses    
Marketing 1,202,800 1,402,900
General and administrative 1,217,000 1,211,600
Total Operating Expenses 2,419,800 2,614,500
Loss from Operations (497,700) (518,900)
Other income (expense):    
Other income 3,700 3,100
Interest expense (143,100) (154,300)
Total Other Expense (139,400) (151,200)
Loss before income taxes $ (637,100) (670,100)
Provision for Income Taxes 3,800
Net Loss $ (637,100) (673,900)
Foreign currency translation gain 4,700 27,100
Comprehensive Loss $ (632,400) $ (646,800)
Net loss per common share (basic and diluted) $ (0.05) $ (0.05)
Weighted average common shares outstanding    
Basic and diluted 12,611,133 12,611,133
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.4.0.3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES    
Net Loss $ (637,100) $ (673,900)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Depreciation and amortization 283,600 284,700
Allowance for doubtful accounts (1,700) (700)
Changes in operating assets and liabilities:    
Interest accrued on notes payable to related party 49,600 $ 37,800
Accrued severance payable 15,700
Accounts receivable 442,400 $ 643,200
Inventories 80,800 330,400
Prepaid expenses 118,600 (257,900)
Deposits and other assets (96,900) (131,400)
Accounts payable (35,000) (345,400)
Accrued liabilities 186,100 (365,300)
Net cash provided by (used in) operating activities 406,100 (478,500)
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchases of property, equipment, and leasehold improvements (82,200) (70,800)
Net cash used in investing activities: (82,200) (70,800)
CASH FLOWS FROM FINANCING ACTIVITIES    
Net borrowing (repayment) on line of credit (547,600) 183,000
Borrowing on note payable to related party 400,000 500,000
Repayment on long-term debt (133,700) (133,700)
Repayment of related party debt (119,300) (126,200)
Payments on obligations under long term leases (5,200) (1,300)
Net cash (used in) provided by financing activities (405,800) 421,800
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5,200 19,000
NET CHANGE IN CASH (76,700) (108,500)
CASH, beginning of period 129,600 145,100
CASH, end of period $ 52,900 36,600
Cash paid during the period for:    
Income taxes 3,800
Interest $ 93,500 $ 116,500
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Operations and Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
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, and has two operating subsidiaries: Releta Brewing Company, LLC (“Releta”), and United Breweries International (UK) Limited (“UBIUK”). In the United States (the “US”), MBC and 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 MBC 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. Generally, product shipments are made directly from the breweries to the wholesalers or distributors in accordance with state and local laws.

 

MBC’s United Kingdom (the “UK”) subsidiary, UBIUK, is a holding company for Kingfisher Beer Europe Limited (“KBEL”). KBEL is a distributor of alcoholic beverages, mainly Kingfisher Lager Beer, in the UK and Europe. The offices of KBEL are located in Maidstone, Kent in the UK. In addition, during the period covered by this report, through UBIUK, the Company had production and distribution rights to Kingfisher Premium Lager in Canada and the United States. The Company has the right to use the Kingfisher mark and the name “Kingfisher Brewing Company” in connection with the brewing and distribution of assorted beers in the United States pursuant to an agreement with Kingfisher America, Inc. Generally sales are made through distributors.

 

All of the Company’s beers sold in Europe (except for beers sold in Germany) are procured under a contract with Heineken UK Limited (“HUK”). This contract expires in October 2018. KBEL is the distributor of Kingfisher Premium Lager to specialty restaurant trade distributors, liquor and convenience stores in the United Kingdom, Ireland, and continental Europe, but does not physically distribute the Company’s products to customers. KBEL relies on HUK for distribution of the product in Europe in exchange for a fee paid to HUK, except in Germany where beers are manufactured and distributed pursuant to a separate contract with a different entity. In addition, HUK has the exclusive right to sell Kingfisher Premium Lager, for a royalty fee payable to KBEL, to certain large retail customers, including, but not limited to, Sainsbury’s, Asda, and Tesco.

 

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 on which the Company’s financial statements are electronically prepared for filing with the Securities and Exchange Commission (“SEC”).

 

Principles of Consolidation

 

The consolidated financial statements present the accounts of MBC and its wholly-owned subsidiaries, Releta and UBIUK. All material intracompany and inter-company balances, profits and transactions have been eliminated.

 

Basis of Presentation and Organization

 

The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the US. These condensed consolidated 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 SEC, which contains additional financial and operating information and information concerning significant accounting policies followed by the Company. The financial statements and notes are representations of the Company’s management (“Management”) and its board of directors (the “Board of Directors”), who are responsible for their integrity and objectivity.

 

The Company’s consolidated financial statements for fiscal year 2015 were prepared on a going concern basis. The continuation of the Company as a going concern is dependent upon the continued financial support from Catamaran Services, Inc. (“Catamaran”) and/or United Breweries Holdings, Ltd., an Indian public limited company (“UBHL”), its ability to obtain other debt or equity financing, and generating profitable operations from the Company’s future operations. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

 

Operating results from the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any future period.

 

Reclassifications

 

Certain items in the financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income or equity.

 

SIGNIFICANT ACCOUNTING POLICIES

 

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2016 compared to what was previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

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 the brewing and distribution operations in accordance with Accounting Standards Codification 605 of the Financial Accounting Standards Board. The Company recognizes revenue from product sales, net of discounts.

 

The Company recognizes revenue 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 the 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 collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment terms. Balances over 90 days past due and other higher risk amounts are reviewed individually for collectability. 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 (current replacement cost). 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 related to a borrowing made in June 2011 were $225,000. Amortization of deferred financing costs charged to operations was $11,300 for the three months ended March 31, 2016 and 2015.

 

Concentration of Credit Risks

 

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents, and accounts receivable. Substantially all of the Company’s cash and cash equivalents are deposited with commercial banks in the US and the UK that have minimal credit risk. Accounts receivable are generally unsecured and customers are subject to an initial credit review and ongoing monitoring. 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 $2,600 in cash deposits and $2,174,200 of accounts receivable due from customers located in the UK as of March 31, 2016.

 

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. The Company periodically assesses uncertain tax positions that the Company has taken or expects to take on a tax return, including a decision whether to file or not to file a return in a particular jurisdiction. The Company evaluated its tax positions and determined that there were no uncertain tax benefits as of March 31, 2016 and December 31, 2015.

 

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. Basic net earnings (loss) per share exclude the dilutive effect of stock options or warrants and convertible notes. If the Company’s operations result in net loss for any period, diluted net loss per share would be the same as basic net loss per share, since the effect of any potentially dilutive securities would be anti-dilutive. Therefore, the conversion of the related party convertible notes (see “Subordinated Convertible Notes Payable” below) has been excluded from the Company’s calculation of net loss per share. The computations of basic and dilutive net loss per share are as follows:

 

    Three months ended March 31  
    2016     2015  
Net loss   $ (637,100 )     (673,900 )
Weighted average shares of common stock outstanding     12,611,133       12,611,133  
Basic net loss per share   $ (0.05 )     (0.05 )
Interest expense on convertible notes   $        
Loss for purpose of computing diluted net earnings per share   $ (637,100 )     (673,900 )
Incremental shares from assumed exercise of dilutive securities            
Dilutive potential of shares of common stock     12,611,133       12,611,133  
Diluted net earnings per share   $ (0.05 )     (0.05 )

 

Foreign Currency Translation

 

The Company has subsidiaries located in the UK, where the local currency, the 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. Cash flows were translated at the average exchange rates for the three months then ended. 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 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 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.

 

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 UK (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.

 

Recent Accounting Pronouncements

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.

XML 18 R7.htm IDEA: XBRL DOCUMENT v3.4.0.3
Liquidity and Management Plans
3 Months Ended
Mar. 31, 2016
Liquidity And Management Plans  
Liquidity and Management Plans

2. Liquidity and Management Plans

 

MB Financial Credit and Security Agreement

 

On June 23, 2011, MBC and Releta entered into a Credit and Security Agreement (as amended, the “Credit and Security Agreement”) with Cole Taylor Bank, an Illinois banking corporation (“Cole Taylor”). Cole Taylor merged into MB Financial Bank, an Illinois banking corporation (“MB Financial”) on August 18, 2014. As used in this Report, “Lender” shall refer to Cole Taylor prior to August 18, 2014 and to MB Financial, as successor in interest to Cole Taylor, on or after August 18, 2014. The Credit and Security Agreement provided 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 (the “Revolver”), 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. Convertible promissory notes issued to United Breweries of America, Inc. (“UBA”), one of the Company’s principal shareholders, are subordinated to the Lender’s credit facility. The applicable interest rates are as follows: (a) with respect to the Revolver, the Wall Street Journal prime rate plus a margin of 1.00%, (b) with respect to the machinery and equipment term loan and the capital expenditure term loan, the Wall Street Journal prime rate plus a margin of 1.50%, and (c) with respect to the real estate term loan, the Wall Street Journal prime rate plus a margin of 2.00%. As described below, effective September 1, 2013, Lender is charging a default interest rate equal to two percent (2%) per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement. As described below, the Second Amendment (among other things) reduces the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by 2% each month. The advance rates are used in the calculation of the borrowing base of each of MBC and Releta, which is used in the determination of the amount available to each of MBC and Releta pursuant to the Revolver. Under the terms of the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base of each of MBC and Releta fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable. The Credit and Security Agreement binds the Company to certain financial covenants including maintaining prescribed minimum tangible net worth and prescribed minimum fixed charges coverage. There is a prepayment penalty if we prepay all of our obligations prior to the maturity date. The credit facility is secured by a first priority interest in all of MBC’s and Releta’s personal property and a first mortgage on our Ukiah, California real property, among other MBC and Releta assets.

 

The Credit and Security Agreement requires MBC and Releta to maintain certain minimum fixed charge coverage ratios for trailing twelve month periods and minimum tangible net worth. The minimum tangible net worth MBC and Releta are required to maintain is subject to increase based on the net income of MBC and Releta. On March 29, 2013, MBC, Releta, and Lender entered into a First Amendment to the Credit and Security Agreement to clarify the method by which the fixed charge coverage ratio is calculated, with retrospective application.

 

The required fixed charge coverage ratio for the trailing twelve month periods ended March 31, 2013 onwards fell short of the required ratio. The tangible net worth fell short of the required amount for the period beginning June 1, 2013 onwards.

 

On September 18, 2013, MBC and Releta received a notice (the “Default Notice”) from Lender regarding its intention to exercise certain rights with respect to events of default of the Company pursuant to the Credit and Security Agreement and, effective September 1, 2013, began charging a default interest rate equal to 2% per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement.

 

On April 18, 2014, MBC and Releta received a second notice (the “Second Default Notice”) from Lender regarding its intention to exercise certain rights with respect to events of default of the Company pursuant to the Credit and Security Agreement. The Second Default Notice required MBC and Releta to engage a consultant to perform a viability analysis and prepare a revised projection for 2014, to be delivered to Lender on or before April 30, 2014. MBC and Releta engaged a consultant and delivered a revised projection on April 30, 2014. As stated in the Second Default Notice, the Company continued to be in default on the fixed charge coverage ratio for each measurement period beginning March 31, 2013 through February 28, 2014. The required fixed charge coverage ratio was initially required to be at least 1.05 to 1.00, but as of July 31, 2013, the required fixed charge coverage ratio increased to 1.10 to 1.00 pursuant to the terms of the Credit and Security Agreement. The Second Default Notice also stated that the tangible net worth of MBC and Releta continued to fall short of the required amount as measured through February 28, 2014.

 

Effective August 20, 2014, pursuant to a notice to MBC and Releta dated August 18, 2014 (the “Third Default Notice”) which referred to MBC’s and Releta’s continued failure to meet the required fixed charge coverage ratio and the tangible net worth requirement, Lender notified MBC and Releta that it would reduce the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by 2% each month. The advance rates are used in the calculation of the borrowing base of each of MBC and Releta, which is used in the determination of the amount available to each of MBC and Releta pursuant to the Revolver. Under the terms of the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base of each of MBC and Releta fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

On January 21, 2015, MBC, Releta, and Lender entered into a Second Amendment (the “Second Amendment”) to the Credit and Security Agreement. The Second Amendment reduced the maximum amount of the Revolver from $4,119,000 to $2,500,000. The Second Amendment also changed the definition of borrowing base (including by lowering certain advance rates) such that the calculation of the borrowing base will result in a lower number than it would have if calculated prior to the effectiveness of the Second Amendment. The borrowing base is used in the determination of the amount available to each borrower pursuant to the Revolver. Pursuant to the Credit and Security Agreement, if such availability is less than $0, or if certain components of the borrowing base fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

The Second Amendment also reduced the advance rate for (i) eligible finished goods and raw material inventory and (ii) eligible work-in progress inventory by two percent (2%) and continues to reduce each by an additional two percent (2%) on the 20th day of each month thereafter. The advance rates are used in the calculation of the borrowing base of each borrower, which is used in the determination of the amount available to each borrower pursuant to the Revolver. As stated above, if such availability is less than $0, or if certain components of the borrowing base fall below certain limits in relation to outstanding revolving loans, such difference shall be immediately due and payable.

 

As of March 31, 2016, pursuant to the Credit and Security Agreement, the fixed charge coverage ratio was required to be 1.15 to 1. The Company calculated that the fixed charge coverage ratio as of March 31, 2016 was -0.20 to 1. The Company calculated that the required tangible net worth of MBC and Releta was $6,181,400 as of March 31, 2016 and the actual tangible net worth on such date was $3,576,900. The Company does not anticipate that it will regain compliance with the required fixed charge coverage ratio or the minimum tangible net worth, as required by the Credit and Security Agreement, in the immediate future.

 

The Credit and Security Agreement provides that the failure of MBC and Releta to observe any covenant will constitute an event of default under the Credit and Security Agreement. Lender has not waived the events of default described in the Default Notice, the Second Default Notice or the Third Default Notice and has reserved the right to all other available rights and remedies under the Credit and Security Agreement, certain other related documents and applicable law. An event of default shall be deemed continuing until waived in writing by Lender. Under the Credit and Security Agreement, upon the occurrence of an event of default, all of MBC’s and Releta’s obligations under the Credit and Security Agreement may, at Lender’s option, be declared, and immediately shall become, due and payable, without notice of any kind. Lender could declare the full amount owed under the Credit and Security Agreement due and payable at any time for any reason or no reason. Since executing the Second Amendment, the Company has not received any notice or other communication from Lender that it intends to exercise any other remedies available to it under the Credit and Security Agreement in connection with the events of default. As noted above, effective September 1, 2013, Lender elected, and continues, to charge a default interest rate equal to two percent (2%) per annum in excess of the interest rate otherwise payable under the Credit and Security Agreement. The Company estimates that the increased interest rate currently results in the payment by the Company to Lender of additional interest of approximately $120,000 per year. The exercise of additional remedies by Lender may have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate. The Credit and Security Agreement expires on June 23, 2016. There is no guarantee that MBC and Releta will be able to obtain alternate financing on terms favorable to the Company or on any terms. If the Company is unable to obtain alternate financing, it will have a material adverse effect on the Company’s financial condition and the Company’s ability to operate.

 

RBS Facility

 

On April 26, 2005, Royal Bank of Scotland Commercial Services Limited (“RBS”) provided an approximately $2.8 million (£1,750,000) invoice discounting facility to KBEL, 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 March 31, 2016 was approximately $964,100. Included in the Company’s balance sheet at March 31, 2016 are account balances totaling $2,174,200 of accounts receivable collateralized to RBS under this facility.

 

On November 24, 2015, KBEL received a notice from Royal Bank of Scotland (“RBS”) regarding its intention to terminate the credit line and all other banking services it currently provides to KBEL on February 26, 2016. RBS subsequently extended the termination date to June 15, 2016, with any remaining amounts due 15 days later. The Company has engaged in discussions with a bank which provided an indicative offer to provide alternate financing and banking services to KBEL. If KBEL does not finalize such alternate financing and provision of banking services, and if KBEL is unable to find alternate financing and banking services before termination of the RBS facilities, it would have a material adverse effect on KBEL and the Company.

 

Catamaran Notes

 

On January 22, 2014, Catamaran, a related party, provided a loan to MBC in the principal amount of $500,000 evidenced by a promissory note. On April 24, 2014, Catamaran provided a second loan in the principal amount of $500,000 on terms similar to the previous note. On February 5, 2015, Catamaran provided a third loan in the principal amount of $500,000 on terms similar to the previous notes. On June 30, 2015, Catamaran provided a fourth loan in the principal amount of $500,000 on terms similar to the previous notes, and the Company received the proceeds against this note on July 6, 2015. These four Catamaran notes are payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. However, each time Catamaran provided a loan, the Company received a letter from Lender permitting the Company to obtain such loans subject to certain conditions, including that no portion of such loans would be payable until either (a) certain obligations of the Company to Lender pursuant to the Credit and Security Agreement were satisfied in full, or (b) such payment was a Permitted Payment. A “Permitted Payment” with respect to the notes dated January 22, 2014, April 24, 2014, and February 5, 2015 means a payment made from an equity investment by the Company’s majority shareholder in excess of $500,000. A “Permitted Payment” with respect to the note dated June 30, 2015 means a payment made from an equity investment by the Company’s majority shareholder. On March 14, 2016, Catamaran provided a fifth loan in the principal amount of $325,000 on terms substantially similar to the previous notes, except that the definition of “Permitted Payment” was revised to mean, for purposes of this fifth note, a payment made from a bridge loan by the Company’s majority shareholder in excess of $600,000. On March 30, 2016, Catamaran provided a sixth loan in the principal amount of $75,000 on terms substantially similar to the fifth note. The Catamaran loans evidenced by those promissory notes dated March 14, 2016 and March 30, 2016 are also payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. If Catamaran ceases to provide ongoing financial support to the Company, it would have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate.

 

Interest shall accrue from the date of the applicable Catamaran note on the unpaid principal 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 Corporation in San Francisco, California, or (ii) ten percent (10%) per annum, until the principal is fully paid.

 

The Catamaran notes may be prepaid without penalty at the option of the Company; however, no payments on the Catamaran notes may be made unless such payment is a “Permitted Payment” or certain existing obligations of the Company to Lender pursuant to the Credit and Security Agreement have been satisfied in full. The Catamaran notes may not be amended without the prior written consent of Lender.

 

UBHL

 

In response to the losses incurred in connection with the Company’s operations, UBHL issued a letter of comfort to the Company’s accountants on March 5, 2015 (the “Letter of Comfort”) to confirm that UBHL had agreed to provide funding on an as needed basis to ensure that the Company is able to meet its financial obligations as and when they fall due. The Letter of Comfort does not specify either the terms of UBHL’s support, or a maximum dollar limit and is not a legally binding agreement or guarantee. However, to date UBHL through its affiliated company, Catamaran, has provided loans for working capital needs as described above. UBHL’s financial support is contingent upon compliance with any applicable exchange control requirements, other applicable laws, and regulations relating to the transfer of funds from India. The Letter of Comfort does not specify any time limit for extending support. If it becomes necessary to seek UBHL’s financial assistance under the Letter of Comfort or otherwise and UBHL does not provide such financial assistance to MBC, it may result in a material adverse effect on the Company’s financial position and on its ability to continue operations. UBHL controls the Company’s two largest shareholders, United Breweries of America, Inc. (“UBA”) and Inversiones Mirabel, S.A., a Panamanian corporation (“Inversiones”), and as such, is the Company’s indirect majority shareholder. The Company’s Chairman of the Board, Dr. Vijay Mallya, is also the Chairman of the board of directors of UBHL. 

 

The board of directors of UBHL during this quarter has approved debt financing to the Company in the form of $1,000,000 of bridge loans. If UBHL does not consummate such debt financing, it would have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate.

 

Gordian Group

 

On December 9, 2015, the Company engaged Gordian Group, LLC (“Gordian Group”) to serve as the Company’s exclusive investment banker to assist the Company in evaluating, exploring and, if deemed appropriate by the Company, pursuing and implementing certain strategic and financial options and transactions that may be available to the Company, including in connection with a possible debt or equity capital financing, merger, consolidation, joint venture or other business combination involving, or sale of substantially all or a material portion of the assets (outside of the ordinary course of business) or outstanding securities of, the Company and/or its subsidiaries, and/or the acquisition of substantially all or a material portion of the assets or outstanding securities of another entity (each, a “Financial Transaction”). Gordian Group is a New York-based independent investment banking firm. While the Company has commenced evaluating its available options, no conclusion as to any specific option or transaction has been reached, nor has any specific timetable been fixed for this effort, and there can be no assurance that any strategic or financial option or transaction will be presented, implemented or consummated. The Company intends to use proceeds of the Financial Transaction, if any, to repay the amount owed to Lender when it becomes due.

 

At March 31, 2016, the Company had cash and cash equivalents of $52,900, an accumulated deficit of $18,032,700, and a working capital deficit of $12,249,000 due to losses incurred, and to debts payable to Lender and subordinated notes payable to UBA on June 23, 2016. In addition, the book value of the Company’s assets was lower than the book value of its liabilities at March 31, 2016.

 

Management has taken several actions to reduce the Company’s working capital needs through March 31, 2017, including reducing discretionary expenditures, reducing manpower, securing additional brewing contracts in an effort to utilize a portion of excess production capacity, and pursuing export opportunities. The Company is pursuing a Financial Transaction through Gordian Group as described above. The Company has relied upon the continued loans from Catamaran to support operations. The current revenue from operations is insufficient to meet the working capital needs of the Company over the next 12 months. The Company has requested UBHL to make a capital infusion.

 

If UBHL or other sources do not provide sufficient financial assistance to MBC, it will result in a material adverse effect on the Company’s financial position and on its ability to continue operations and it may have to seek capital by selling some of its operating assets. In addition, the Company’s lenders may seek to satisfy any outstanding obligations through recourse against the applicable pledged collateral which includes the Company’s real and personal property in the United States and the United Kingdom. The loss of any material pledged asset would have a material adverse effect on the Company’s financial position and results of operations.

 

Vijay Mallya, the Company’s Chairman and indirect majority shareholder is presently subject to certain legal proceedings in India, which may impair the Company’s ability to obtain financing from UBHL and other potential funding sources.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.4.0.3
Inventories
3 Months Ended
Mar. 31, 2016
Inventory Disclosure [Abstract]  
Inventories

3. Inventories

 

Inventories are stated at the lower of average cost or market and consist of the following:

 

    March 31,2016     December 31, 2015  
Raw Materials   $ 551,500     $ 628,100  
Beer-in-process     339,300       312,200  
Finished Goods     510,200       541,400  
Merchandise     64,000       65,300  
TOTAL   $ 1,465,000     $ 1,547,000  

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.4.0.3
Secured Lines of Credit
3 Months Ended
Mar. 31, 2016
Line of Credit Facility [Abstract]  
Secured Lines of Credit

4. Secured Lines of Credit

 

MB Financial Credit and Security Agreement

 

The borrowings under the Credit and Security Agreement are collateralized, with recourse, by MBC’s and Releta’s trade receivables and inventory located in the US. This facility currently carries interest (including default interest) at a rate of prime plus 3% and is secured by substantially all of the assets of Releta and MBC. The amount outstanding on this line of credit as of March 31, 2016 was approximately $120,700. Included in the Company’s balance sheet as at March 31, 2016 are account balances totaling $1,117,100 of accounts receivable and $1,375,000 of inventory collateralized to Lender under this facility. The Credit and Security Agreement expires on June 23, 2016.

 

RBS Facility

 

On April 26, 2005, RBS provided an approximately $2.8 million (£1,750,000) invoice discounting facility to KBEL 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 March 31, 2016 was approximately $964,100. Included in the Company’s balance sheet at March 31, 2016 are account balances totaling $2,174,200 of accounts receivable collateralized to RBS under this facility.

 

On November 24, 2015, KBEL received a notice from RBS regarding its intention to terminate the credit line and all other banking services it currently provides to KBEL on February 26, 2016. RBS subsequently extended the termination date to June 15, 2016, with any remaining amounts due 15 days later. The Company engaged in discussions with a bank which provided an indicative offer to provide alternate financing and banking services to KBEL. If KBEL does not finalize such alternate financing and provision of banking services, and if KBEL is unable to find alternate financing and banking services before termination of the RBS facilities, it would have a material adverse effect on KBEL and the Company.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.4.0.3
Notes Payable to Related Parties
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Notes Payable to Related Parties

5. Notes Payable to Related Parties

 

Notes payable to a related party consist of notes payable to Catamaran dated January 22, 2014, April 24, 2014, February 5, 2015, June 30, 2015, March 14, 2016, and March 30, 2016 for a total value of $2,545,300 including accrued interest of $145,300. Catamaran Holdings, Ltd. (“Holding”), the sole shareholder of Catamaran, has directors in common with Inversiones, one of the major shareholders of MBC. The indirect beneficial owner of Inversiones is UBHL. Dr. Vijay Mallya, the Chairman of the Board of Directors of the Company is also the Chairman of the Board of Directors of UBHL.

 

The first four Catamaran notes are payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. However, each time Catamaran provided a loan, the Company received a letter from Lender permitting the Company to obtain such loans subject to certain conditions, including that no portion of such loans would be payable until either (a) certain obligations of the Company to Lender pursuant to the Credit and Security Agreement were satisfied in full, or (b) such payment was a Permitted Payment. A “Permitted Payment” with respect to the notes dated January 22, 2014, April 24, 2014, and February 5, 2015 means a payment made from an equity investment by the Company’s majority shareholder in excess of $500,000. A “Permitted Payment” with respect to the note dated June 30, 2015 means a payment made from an equity investment by the Company’s majority shareholder. On March 14, 2016, Catamaran provided a fifth loan in the principal amount of $325,000 on terms substantially similar to the previous notes, except that the definition of “Permitted Payment” was revised to mean, for purposes of this fifth note, a payment made from a bridge loan by the Company’s majority shareholder in excess of $600,000 (a “Permitted Bridge Loan Payment”). On March 30, 2016, Catamaran provided a sixth loan in the principal amount of $75,000 on terms substantially similar to the fifth note. The Catamaran loans evidenced by those promissory notes dated March 14, 2016 and March 30, 2016 are also payable within six months following the date of the notes, and if the Company is not able to satisfy its obligations on these notes within the six month period following the date of the notes, the notes shall be automatically extended for additional six month terms until they are paid. If Catamaran ceases to provide ongoing financial support to the Company, it would have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate.

  

Interest shall accrue from the date of the applicable Catamaran note on the unpaid principal 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 Corporation in San Francisco, California, or (ii) ten percent (10%) per annum, until the principal is fully paid.

 

The Catamaran notes may be prepaid without penalty at the option of the Company; however, no payments on the Catamaran notes may be made unless such payment is a “Permitted Payment” or certain existing obligations of the Company to Lender pursuant to the Credit and Security Agreement have been satisfied in full. The Catamaran notes may not be amended without the prior written consent of Lender.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.4.0.3
Secured Notes Payable
3 Months Ended
Mar. 31, 2016
Long-term Debt, Unclassified [Abstract]  
Secured Notes Payable

6. Secured Notes Payable

 

Maturities of secured notes payable for succeeding years are as follows:

 

    March 31, 2016     December 31, 2015  
Loan from MB Financial, payable in monthly installments of $12,300, plus interest (including default interest) at prime plus 4% with a balloon payment of approximately $2,202,500 in June 2016; secured by substantially all assets of Releta and MBC.   $ 2,239,400     $ 2,276,200  
                 
Loans from MB Financial, payable in monthly installments of $32,300 plus interest (including default interest) at prime plus 3.5% with a balloon payment of approximately $908,700 in June 2016; secured by substantially all assets of Releta and MBC.     1,005,500       1,102,400  
      3,244,900       3,378,600  
                 
Less current maturities     3,244,900       3,378,600  
    $ -     $ -  

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.4.0.3
Long-Term Debt - Related Party
3 Months Ended
Mar. 31, 2016
Long-term Debt - Related Party  
Long-Term Debt - Related Party

7. Long-Term Debt – Related Party

 

    March 31, 2016     December 31, 2015  
Loan from Heineken UK Limited, payable in quarterly installments of $137,900, plus interest at UK prime plus 5% maturing on October 9, 2016, secured by licensing rights pursuant to a Sub-License Agreement.   $ 359,500     $ 491,500  
                 
Less current maturities     359,500       491,500  
    $ -     $ -  

 

On April 18, 2013, KBEL entered into a loan agreement (the “HUK Loan Agreement”) with HUK pursuant to which HUK provided KBEL with a secured term loan of £1,000,000 on October 9, 2013 to be repaid in twelve quarterly installments of £83,333.33 each, commencing from January 9, 2014 and to be repaid in full by October 9, 2016. Interest on the HUK loan is payable quarterly in arrears on the outstanding balance of the loan at the rate of 5% above the Bank of England base rate. Prepayment is permitted. Upon an Event of Default, as defined in the HUK Loan Agreement, if HUK and KBEL fail to agree on a payment plan acceptable to HUK, HUK may, among other remedies, declare the loan immediately due and repayable or exercise its right to an exclusive license pursuant to the Sub-License Agreement as described and defined in the HUK Loan Agreement.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.4.0.3
Capital Lease Obligations
3 Months Ended
Mar. 31, 2016
Capital Lease Obligations [Abstract]  
Capital Lease Obligations

8. Capital Lease Obligations

 

The Company leases certain brewing equipment under an agreement that is classified as a capital lease. The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of March 31, 2016, are as follows:

 

Nine months Ending December 31, 2016   $ 21,600  
Year Ending December 31, 2017     27,600  
Year Ending December 31, 2018     21,300  
Year Ending December 31, 2019     21,300  
Year Ending December 31, 2020     21,000  
      112,800  
Less amounts representing interest     (17,700 )
Present value of minimum lease payments     95,100  
Less current maturities     22,700  
Non-current leases payable   $ 72,400  

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subordinated Convertible Notes Payable To Related Party
3 Months Ended
Mar. 31, 2016
Subordinated Convertible Notes Payable To Related Party  
Subordinated Convertible Notes Payable To Related Party

9. Subordinated Convertible Notes Payable to Related Party

 

Subordinated convertible notes to related parties are unsecured convertible notes payable to UBA for a total value including interest (at the prime rate plus 1.5%, but not to exceed 10% per year) of $3,704,000 and $3,680,100 as of March 31, 2016 and December 31, 2015, respectively. Thirteen of the UBA notes are convertible into common stock at $1.50 per share and one UBA note is convertible at a rate of $1.44 per share. The UBA notes have been extended until June 2016 but have 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. UBA may demand payment within 60 days following the end of the extension period but is precluded from doing so pursuant to a subordination agreement with Lender. The loans from Lender to which the UBA notes are subordinated mature in June 2016. The Company expects the UBA notes to be continued to be subordinated to any new financing facility obtained after maturity of Lender’s facility. The Company will also attempt to induce conversion of UBA notes to equity. The Company does not expect to have to use working capital to repay any of the UBA notes. The UBA notes include $1,788,600 and $1,764,700 of accrued interest at March 31, 2016 and December 31, 2015, respectively.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.4.0.3
Severance Payable
3 Months Ended
Mar. 31, 2016
Severance Payable  
Severance Payable

10. Severance Payable

 

The Company is a party to a Separation and Severance Agreement (the “Separation Agreement”) with Mr. Yashpal Singh, its President and Chief Executive Officer. Pursuant to the terms of the Separation Agreement, upon Mr. Singh’s (i) termination of employment for Good Reason (as defined in the Separation Agreement), (ii) termination of employment at the end of the employment term, (iii) death, (iv) disability or (v) termination by the Company without Cause (as defined in the Separation Agreement), he shall be entitled to certain severance benefits and payments. The severance payment shall equal the product of 2.5 times his average monthly base salary (calculated over the twelve (12) month period preceding the termination event), multiplied by the number of years (on a pro-rated basis) he had been employed by the Company at the Termination Date (as defined in the Separation Agreement); provided, however, that the severance payment may not exceed thirty (30) months of Mr. Singh’s average monthly base salary (calculated over the twelve (12) months preceding his termination date). Payments due to Mr. Singh under the Separation Agreement shall be paid in equal monthly installments by the Company over a 20 month period. Mr. Singh’s current employment contract ends on June 30, 2016. The receipt of payments is contingent on Mr. Singh executing a release of claims for the benefit of the Company. As of March 31, 2016, the Company has accrued $813,800 against this obligation.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.4.0.3
Commitments and Contingencies
3 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

11. 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.

 

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. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

On September 26, 2014, The New Buffalo Brewing Co., Inc. (“NBB”) initiated an action against Releta in the Supreme Court of the State of New York for the County of Erie to recover damages for alleged breaches of a Brewing Production Agreement between NBB and Releta dated September 6, 2013 (the “Brewing Production Agreement”), as well as for a declaration rescinding and nullifying the Brewing Production Agreement, and, in case of Releta’s failure to answer or appear, damages resulting from the alleged breaches, rescission of the Brewing Production Agreement, attorneys’ fees and any other relief deemed proper by the court. In a demand letter to Releta dated October 16, 2014, NBB demanded payment of the sum of $500,000. The Company has engaged a law firm in New York to respond. The trial date is set for January 17, 2017.

 

On June 3, 2015, IAE International Aero Engines AG (“IAE”) served the Company with a complaint (the “Complaint”), filed in Marin County Superior Court, California (the “Court”), which requests, among other things, (i) that the Court recognize and enforce a foreign judgment against an Indian corporate entity (which is an affiliate of the Company), the alleged judgment debtor, and (ii) that such judgment be made enforceable against any assets of the Company (and of the other defendants) that are located in California, on the alleged ground that the Company (along with the other defendants) is an “alter ego” of the alleged judgment debtor. Along with the Complaint, IAE also served the Company with an ex parte application for a right to attach order and a writ of attachment, and, in the alternative, a temporary protective order (collectively, the “ex parte application”) to, among other things, stop the Company from making certain transfers to related parties other than in the ordinary of business.

 

The ex parte application came up for hearing before the Court on June 5, 2015. At the conclusion of that hearing, the Court: (i) issued a temporary protective order of limited scope, providing that to the extent the Company had possession, custody or control of any stock belonging to the alleged judgment debtor (which the Company does not), it should not transfer said stock out of Marin County, California until 5:00 PM (Pacific Time), June 9, 2015; and (ii) continued the hearing on the ex parte application to 3:00 PM on June 9, 2015. At the conclusion of the continued hearing on June 9, 2015, the Court denied the ex parte application for a writ of attachment and dissolved the limited temporary protective order.

 

The Company believes that the allegations in the Complaint are without merit and will continue to vigorously defend against the lawsuit.

 

As discussed in more detail in the Company’s Current Report on Form 8-K filed on June 9, 2015, the Company has discussed with the Lender the allegations set forth in the Complaint and the ex parte application and, as of the date of this Quarterly Report, the Company has not received any notice or other communication from the Lender that the Lender intends to exercise any of the remedies available to it under the Credit and Security Agreement in connection therewith.

 

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 2020 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 (including real estate taxes, insurance and repairs).

 

The Company and its subsidiaries have various lease agreements for the brewpub and gift store in Ukiah, California; land at its Saratoga Springs, New York, facility; a building in the UK; and certain equipment. The New York lease includes renewal options for two additional five-year periods beginning in 2019, which the Company presently intends to exercise, and some leases are adjusted annually for changes in the consumer price index.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.4.0.3
Related-Party Transactions
3 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Related-Party Transactions

12. Related-Party Transactions

 

The Company conducts business with United Breweries of America, Inc. (“UBA”), which owns approximately 25% of the Company’s common stock. Until October 2013, KBEL had significant transactions with Shepherd Neame, Ltd., which is a related party with respect to a former Board member. KBEL also has had significant transactions with HUK, a related party with respect to one of MBC’s Board members, beginning in October 2013.

 

The following table reflects the value of such transactions during the quarters ended March 31, 2016 and 2015 and the balances outstanding as of March 31, 2016 and December 31, 2015.

 

    March 31, 2016     March 31, 2015  
TRANSACTIONS                
Purchases from HUK   $ 2,600,400     $ 2,404,600  
Expense reimbursement to HUK   $ 216,200     $ 208,500  
Interest expense related to UBA & Catamaran notes   $ 49,600     $ 37,700  
Borrowing from Catamaran   $ 400,000     $ 500,000  

 

    Mar 31, 2016     Dec 31, 2015  
ACCOUNT BALANCES                
Accounts payable and accrued liability to HUK   $ 1,661,500     $ 1,669,400  
Notes payable to Catamaran   $ 2,545,300     $ 2,119,600  
Notes payable to UBA   $ 3,704,000     $ 3,680,100  

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.4.0.3
Segment Information
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Segment Information

13. Segment Information

 

The Company’s business presently consists of two segments – the North American Territory and the Foreign Territory. The Company’s operations in the North American Territory consist primarily of brewing and marketing proprietary craft beers. For distribution in the North American Territory, the Company brews its brands in its own facilities, which are located in Ukiah, California and Saratoga Springs, New York. The Company’s operations in the Foreign Territory, which are conducted through its wholly-owned subsidiary UBIUK and UBIUK’s wholly-owned subsidiary KBEL, consist primarily of the marketing and distribution of Kingfisher Premium Lager in the Foreign Territory.

 

A summary of each segment is as follows:

 

    Three Months Ended March 31, 2016  
    North American Territory     Foreign
Territory
    Total  
                   
Net Sales   $ 2,702,400     $ 4,208,600     $ 6,911,000  
Operating Loss   $ (482,100 )   $ (15,600 )   $ (497,700 )
Identifiable Assets   $ 12,162,800     $ 3,937,100     $ 16,099,900  
Depreciation & Amortization   $ 169,700     $ 113,900     $ 283,600  
Capital Expenditures   $ -     $ 82,200     $ 82,200  

 

    Three Months Ended March 31, 2015  
    North American Territory     Foreign
Territory
    Total  
                   
Net Sales   $ 2,373,700     $ 4,320,400     $ 6,694,100  
Operating Income (Loss)   $ (581,000 )   $ 62,100     $ (518,900 )
Identifiable Assets   $ 13,398,300     $ 4,159,700     $ 17,558,000  
Depreciation & Amortization   $ 168,700     $ 116,000     $ 284,700  
Capital Expenditures   $ -     $ 70,800     $ 70,800  

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.4.0.3
Unrestricted Net Assets
3 Months Ended
Mar. 31, 2016
Unrestricted Net Assets  
Unrestricted Net Assets

14. Unrestricted Net Assets

 

The Company’s wholly-owned subsidiary, UBIUK, had undistributed losses of $361,800 as of March 31, 2016. 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 $1,431,000. Condensed financial information of MBC, together with its other subsidiary, Releta is as follows:

 

Balance Sheets

 

    March 31, 2016     December 31, 2015  
    (unaudited)        
Balance Sheets                
                 
Assets                
Cash and cash equivalents   $ 50,300     $ 61,300  
Accounts receivable, net     1,117,100       1,121,300  
Inventories     1,375,000       1,490,100  
Other current assets     104,900       199,800  
Total current assets     2,647,300       2,872,500  
                 
Investment in subsidiary     1,225,000       1,225,000  
Property and equipment     9,220,100       9,378,500  
Intercompany receivable     272,600       284,000  
Other assets     295,400       175,800  
Total assets   $ 13,660,400     $ 13,935,800  
                 
Liabilities                
Line of credit   $ 120,700     $ 453,100  
Accounts payable     2,692,200       2,640,400  
Accrued liabilities     1,293,800       1,021,000  
Note payable to related party     2,545,300       2,119,600  
Subordinated convertible notes to related party     3,704,000       3,680,100  
Current maturities of debt, leases and severance     3,496,600       3,505,900  
Total current liabilities     13,852,600       13,420,100  
                 
Long-term capital  leases     12,600       14,000  
Severance payable     569,700       678,400  
Total liabilities     14,434,900       14,112,500  
                 
Stockholders’ deficit                
Common stock     15,100,300       15,100,300  
Preferred stock     227,600       227,600  
Accumulated deficit     (16,102,400 )     (15,504,600 )
Total stockholders’ deficit     (774,500 )     (176,700 )
Total liabilities and stockholders’ deficit   $ 13,660,400     $ 13,935,800  

 

Statements of Operations      
    Quarter ended March 31  
    2016     2015  
    (unaudited)     (unaudited)  
Net sales   $ 2,592,300     $ 2,373,700  
Cost of goods sold     2,225,100       2,122,600  
Selling, marketing, and retail expenses     291,500       353,400  
General and administrative expenses     559,500       480,100  
Loss from operations     (483,800 )     (582,400 )
                 
Other (income)     (3,700 )     (3,100 )
Interest expense     117,700       123,000  
Provision for taxes     -       3,800  
Net loss   $ (597,800 )   $ (706,100 )

 

Statements of Cash Flows      
    Quarter ended March 31  
    2016     2015  
    (unaudited)     (unaudited)  
Cash flows from operating activities   $ 45,100     $ (269,200 )
Purchase of property and equipment     -       -  
Net borrowing (repayment) on line of credit     (332,400 )     (90,200 )
Borrowing on note payable     400,000       500,000  
Repayment on long term debt     (133,700 )     (133,700 )
Payment on obligation under capital lease     (1,400 )     (1,300 )
Net change in payable to UBIUK     11,400       (30,800 )
Decrease in cash     (11,000 )     (25,200 )
Cash, beginning of period     61,300       61,500  
Cash, end of period   $ 50,300     $ 36,300  

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.4.0.3
Income Taxes
3 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

15. Income Taxes

 

In the three months ended March 31, 2016 and 2015, the Company recorded tax expenses related to state franchise taxes only, and did not record income tax expenses due to the availability of deferred tax assets to offset any taxable income in the US (at the federal and state level to the extent applicable) 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 has not yet been met. During the three months ended March 31, 2016 and March 31, 2015, the Company’s effective tax rates were de minimis.

 

The Company’s 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 2012 through 2015. 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 tax jurisdiction.

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subsequent Events
3 Months Ended
Mar. 31, 2016
Subsequent Events [Abstract]  
Subsequent Events

16. Subsequent Events

 

Pursuant to a resolution adopted on September 10, 2013 by the Company’s Board of Directors, the Company entered into a Separation and Severance Agreement with Mr. Mahadevan Narayanan, the Company’s Chief Financial Officer and Secretary on April 12, 2016. Pursuant to the terms of the agreement, upon Mr. Narayanan’s (i) termination of employment for Good Reason (as defined in the agreement), (ii) death, (iii) disability or (iv) termination by the Company without Cause (as defined in the agreement), he shall be entitled to certain severance benefits and payments. The severance payment shall equal the product of 2.5 times his average monthly base salary (calculated over the twelve (12) month period preceding the termination event), multiplied by the number of years (on a pro-rated basis) he had been employed by the Company at the Termination Date (as defined in the agreement); provided, however, that the severance payment may not exceed thirty (30) months of Mr. Narayanan’s average monthly base salary (calculated over the twelve (12) months preceding his termination date). If Mr. Narayanan’s employment is terminated without Cause, in addition to the severance payment described above, he shall also receive either (i) 365 days prior written notice or (ii) a lump sum payment equal to twelve (12) months of his base salary at the rate in place at the Termination Date (the “Notice Payment”). Payments due to Mr. Narayanan under the Separation Agreement shall be paid in equal monthly installments by the Company over a 20 month period.

XML 33 R22.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Operations and Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Description of Operations

Description of Operations

 

Mendocino Brewing Company, Inc. (the “Company” or “MBC”), was formed in 1983 in California, and has two operating subsidiaries: Releta Brewing Company, LLC (“Releta”), and United Breweries International (UK) Limited (“UBIUK”). In the United States (the “US”), MBC and 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 MBC 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. Generally, product shipments are made directly from the breweries to the wholesalers or distributors in accordance with state and local laws.

 

MBC’s United Kingdom (the “UK”) subsidiary, UBIUK, is a holding company for Kingfisher Beer Europe Limited (“KBEL”). KBEL is a distributor of alcoholic beverages, mainly Kingfisher Lager Beer, in the UK and Europe. The offices of KBEL are located in Maidstone, Kent in the UK. In addition, during the period covered by this report, through UBIUK, the Company had production and distribution rights to Kingfisher Premium Lager in Canada and the United States. The Company has the right to use the Kingfisher mark and the name “Kingfisher Brewing Company” in connection with the brewing and distribution of assorted beers in the United States pursuant to an agreement with Kingfisher America, Inc. Generally sales are made through distributors.

 

All of the Company’s beers sold in Europe (except for beers sold in Germany) are procured under a contract with Heineken UK Limited (“HUK”). This contract expires in October 2018. KBEL is the distributor of Kingfisher Premium Lager to specialty restaurant trade distributors, liquor and convenience stores in the United Kingdom, Ireland, and continental Europe, but does not physically distribute the Company’s products to customers. KBEL relies on HUK for distribution of the product in Europe in exchange for a fee paid to HUK, except in Germany where beers are manufactured and distributed pursuant to a separate contract with a different entity. In addition, HUK has the exclusive right to sell Kingfisher Premium Lager, for a royalty fee payable to KBEL, to certain large retail customers, including, but not limited to, Sainsbury’s, Asda, and Tesco.

Subsequent Events

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 on which the Company’s financial statements are electronically prepared for filing with the Securities and Exchange Commission (“SEC”).

Principles of Consolidation

Principles of Consolidation

 

The consolidated financial statements present the accounts of MBC and its wholly-owned subsidiaries, Releta and UBIUK. All material intracompany and 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 for the three months ended March 31, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the US. These condensed consolidated 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 SEC, which contains additional financial and operating information and information concerning significant accounting policies followed by the Company. The financial statements and notes are representations of the Company’s management (“Management”) and its board of directors (the “Board of Directors”), who are responsible for their integrity and objectivity.

 

The Company’s consolidated financial statements for fiscal year 2015 were prepared on a going concern basis. The continuation of the Company as a going concern is dependent upon the continued financial support from Catamaran Services, Inc. (“Catamaran”) and/or United Breweries Holdings, Ltd., an Indian public limited company (“UBHL”), its ability to obtain other debt or equity financing, and generating profitable operations from the Company’s future operations. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

 

Operating results from the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any future period.

Reclassifications

Reclassifications

 

Certain items in the financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income or equity.

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 the brewing and distribution operations in accordance with Accounting Standards Codification 605 of the Financial Accounting Standards Board. The Company recognizes revenue from product sales, net of discounts.

 

The Company recognizes revenue 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 the 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 collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment terms. Balances over 90 days past due and other higher risk amounts are reviewed individually for collectability. 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

 

Inventories are stated at the lower of average cost, which approximates the first-in, first-out method, or market (current replacement cost). 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

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 related to a borrowing made in June 2011 were $225,000. Amortization of deferred financing costs charged to operations was $11,300 for the three months ended March 31, 2016 and 2015.

Concentration of Credit Risks

Concentration of Credit Risks

 

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents, and accounts receivable. Substantially all of the Company’s cash and cash equivalents are deposited with commercial banks in the US and the UK that have minimal credit risk. Accounts receivable are generally unsecured and customers are subject to an initial credit review and ongoing monitoring. 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 $2,600 in cash deposits and $2,174,200 of accounts receivable due from customers located in the UK as of March 31, 2016.

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. The Company periodically assesses uncertain tax positions that the Company has taken or expects to take on a tax return, including a decision whether to file or not to file a return in a particular jurisdiction. The Company evaluated its tax positions and determined that there were no uncertain tax benefits as of March 31, 2016 and December 31, 2015.

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. Basic net earnings (loss) per share exclude the dilutive effect of stock options or warrants and convertible notes. If the Company’s operations result in net loss for any period, diluted net loss per share would be the same as basic net loss per share, since the effect of any potentially dilutive securities would be anti-dilutive. Therefore, the conversion of the related party convertible notes (see “Subordinated Convertible Notes Payable” below) has been excluded from the Company’s calculation of net loss per share. The computations of basic and dilutive net loss per share are as follows:

 

    Three months ended March 31  
    2016     2015  
Net loss   $ (637,100 )     (673,900 )
Weighted average shares of common stock outstanding     12,611,133       12,611,133  
Basic net loss per share   $ (0.05 )     (0.05 )
Interest expense on convertible notes   $        
Loss for purpose of computing diluted net earnings per share   $ (637,100 )     (673,900 )
Incremental shares from assumed exercise of dilutive securities            
Dilutive potential of shares of common stock     12,611,133       12,611,133  
Diluted net earnings per share   $ (0.05 )     (0.05 )

Foreign Currency Translation

Foreign Currency Translation

 

The Company has subsidiaries located in the UK, where the local currency, the 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. Cash flows were translated at the average exchange rates for the three months then ended. Changes in cash resulting from the translations are presented as a separate item in the statements of cash flows.

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 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.

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 UK (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.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.

XML 34 R23.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Operations and Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Schedule of Basic and Dilutive Net Loss Per Share

The computations of basic and dilutive net loss per share are as follows:

 

    Three months ended March 31  
    2016     2015  
Net loss   $ (637,100 )     (673,900 )
Weighted average shares of common stock outstanding     12,611,133       12,611,133  
Basic net loss per share   $ (0.05 )     (0.05 )
Interest expense on convertible notes   $        
Loss for purpose of computing diluted net earnings per share   $ (637,100 )     (673,900 )
Incremental shares from assumed exercise of dilutive securities            
Dilutive potential of shares of common stock     12,611,133       12,611,133  
Diluted net earnings per share   $ (0.05 )     (0.05 )

XML 35 R24.htm IDEA: XBRL DOCUMENT v3.4.0.3
Inventories (Tables)
3 Months Ended
Mar. 31, 2016
Inventory Disclosure [Abstract]  
Schedule of Inventories

Inventories are stated at the lower of average cost or market and consist of the following:

 

    March 31,2016     December 31, 2015  
Raw Materials   $ 551,500     $ 628,100  
Beer-in-process     339,300       312,200  
Finished Goods     510,200       541,400  
Merchandise     64,000       65,300  
TOTAL   $ 1,465,000     $ 1,547,000  

XML 36 R25.htm IDEA: XBRL DOCUMENT v3.4.0.3
Secured Notes Payable (Tables)
3 Months Ended
Mar. 31, 2016
Long-term Debt, Unclassified [Abstract]  
Summary of Long-term Debt

Maturities of secured notes payable for succeeding years are as follows:

 

    March 31, 2016     December 31, 2015  
Loan from MB Financial, payable in monthly installments of $12,300, plus interest (including default interest) at prime plus 4% with a balloon payment of approximately $2,202,500 in June 2016; secured by substantially all assets of Releta and MBC.   $ 2,239,400     $ 2,276,200  
                 
Loans from MB Financial, payable in monthly installments of $32,300 plus interest (including default interest) at prime plus 3.5% with a balloon payment of approximately $908,700 in June 2016; secured by substantially all assets of Releta and MBC.     1,005,500       1,102,400  
      3,244,900       3,378,600  
                 
Less current maturities     3,244,900       3,378,600  
    $ -     $ -  

XML 37 R26.htm IDEA: XBRL DOCUMENT v3.4.0.3
Long-Term Debt - Related Party (Tables)
3 Months Ended
Mar. 31, 2016
Long-term Debt - Related Party  
Schedule of Related Party Debt

    March 31, 2016     December 31, 2015  
Loan from Heineken UK Limited, payable in quarterly installments of $137,900, plus interest at UK prime plus 5% maturing on October 9, 2016, secured by licensing rights pursuant to a Sub-License Agreement.   $ 359,500     $ 491,500  
                 
Less current maturities     359,500       491,500  
    $ -     $ -  

XML 38 R27.htm IDEA: XBRL DOCUMENT v3.4.0.3
Capital Lease Obligations (Tables)
3 Months Ended
Mar. 31, 2016
Capital Lease Obligations [Abstract]  
Schedule of Future Minimum Lease Payments for Capital Lease Payments

The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of March 31, 2016, are as follows:

 

Nine months Ending December 31, 2016   $ 21,600  
Year Ending December 31, 2017     27,600  
Year Ending December 31, 2018     21,300  
Year Ending December 31, 2019     21,300  
Year Ending December 31, 2020     21,000  
      112,800  
Less amounts representing interest     (17,700 )
Present value of minimum lease payments     95,100  
Less current maturities     22,700  
Non-current leases payable   $ 72,400  

XML 39 R28.htm IDEA: XBRL DOCUMENT v3.4.0.3
Related-Party Transactions (Tables)
3 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Schedule of Related-Party Transactions

The following table reflects the value of such transactions during the quarters ended March 31, 2016 and 2015 and the balances outstanding as of March 31, 2016 and December 31, 2015.

 

    March 31, 2016     March 31, 2015  
TRANSACTIONS                
Purchases from HUK   $ 2,600,400     $ 2,404,600  
Expense reimbursement to HUK   $ 216,200     $ 208,500  
Interest expense related to UBA & Catamaran notes   $ 49,600     $ 37,700  
Borrowing from Catamaran   $ 400,000     $ 500,000  

 

    Mar 31, 2016     Dec 31, 2015  
ACCOUNT BALANCES                
Accounts payable and accrued liability to HUK   $ 1,661,500     $ 1,669,400  
Notes payable to Catamaran   $ 2,545,300     $ 2,119,600  
Notes payable to UBA   $ 3,704,000     $ 3,680,100  

XML 40 R29.htm IDEA: XBRL DOCUMENT v3.4.0.3
Segment Information (Tables)
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Schedule of Segment Information

A summary of each segment is as follows:

 

    Three Months Ended March 31, 2016  
    North American Territory     Foreign
Territory
    Total  
                   
Net Sales   $ 2,702,400     $ 4,208,600     $ 6,911,000  
Operating Loss   $ (482,100 )   $ (15,600 )   $ (497,700 )
Identifiable Assets   $ 12,162,800     $ 3,937,100     $ 16,099,900  
Depreciation & Amortization   $ 169,700     $ 113,900     $ 283,600  
Capital Expenditures   $ -     $ 82,200     $ 82,200  

 

    Three Months Ended March 31, 2015  
    North American Territory     Foreign
Territory
    Total  
                   
Net Sales   $ 2,373,700     $ 4,320,400     $ 6,694,100  
Operating Income (Loss)   $ (581,000 )   $ 62,100     $ (518,900 )
Identifiable Assets   $ 13,398,300     $ 4,159,700     $ 17,558,000  
Depreciation & Amortization   $ 168,700     $ 116,000     $ 284,700  
Capital Expenditures   $ -     $ 70,800     $ 70,800  

XML 41 R30.htm IDEA: XBRL DOCUMENT v3.4.0.3
Unrestricted Net Assets (Tables)
3 Months Ended
Mar. 31, 2016
Unrestricted Net Assets  
Condensed Balance Sheets

Balance Sheets

 

    March 31, 2016     December 31, 2015  
    (unaudited)        
Balance Sheets                
                 
Assets                
Cash and cash equivalents   $ 50,300     $ 61,300  
Accounts receivable, net     1,117,100       1,121,300  
Inventories     1,375,000       1,490,100  
Other current assets     104,900       199,800  
Total current assets     2,647,300       2,872,500  
                 
Investment in subsidiary     1,225,000       1,225,000  
Property and equipment     9,220,100       9,378,500  
Intercompany receivable     272,600       284,000  
Other assets     295,400       175,800  
Total assets   $ 13,660,400     $ 13,935,800  
                 
Liabilities                
Line of credit   $ 120,700     $ 453,100  
Accounts payable     2,692,200       2,640,400  
Accrued liabilities     1,293,800       1,021,000  
Note payable to related party     2,545,300       2,119,600  
Subordinated convertible notes to related party     3,704,000       3,680,100  
Current maturities of debt, leases and severance     3,496,600       3,505,900  
Total current liabilities     13,852,600       13,420,100  
                 
Long-term capital  leases     12,600       14,000  
Severance payable     569,700       678,400  
Total liabilities     14,434,900       14,112,500  
                 
Stockholders’ deficit                
Common stock     15,100,300       15,100,300  
Preferred stock     227,600       227,600  
Accumulated deficit     (16,102,400 )     (15,504,600 )
Total stockholders’ deficit     (774,500 )     (176,700 )
Total liabilities and stockholders’ deficit   $ 13,660,400     $ 13,935,800  

Condensed Statement of Operations

Statements of Operations      
    Quarter ended March 31  
    2016     2015  
    (unaudited)     (unaudited)  
Net sales   $ 2,592,300     $ 2,373,700  
Cost of goods sold     2,225,100       2,122,600  
Selling, marketing, and retail expenses     291,500       353,400  
General and administrative expenses     559,500       480,100  
Loss from operations     (483,800 )     (582,400 )
                 
Other (income)     (3,700 )     (3,100 )
Interest expense     117,700       123,000  
Provision for taxes     -       3,800  
Net loss   $ (597,800 )   $ (706,100 )

Condensed Statement of Cash Flows

Statements of Cash Flows      
    Quarter ended March 31  
    2016     2015  
    (unaudited)     (unaudited)  
Cash flows from operating activities   $ 45,100     $ (269,200 )
Purchase of property and equipment     -       -  
Net borrowing (repayment) on line of credit     (332,400 )     (90,200 )
Borrowing on note payable     400,000       500,000  
Repayment on long term debt     (133,700 )     (133,700 )
Payment on obligation under capital lease     (1,400 )     (1,300 )
Net change in payable to UBIUK     11,400       (30,800 )
Decrease in cash     (11,000 )     (25,200 )
Cash, beginning of period     61,300       61,500  
Cash, end of period   $ 50,300     $ 36,300  

XML 42 R31.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Operations and Summary of Significant Accounting Policies (Details Narrative)
3 Months Ended
Mar. 31, 2016
USD ($)
Segment
Mar. 31, 2015
USD ($)
Dec. 31, 2015
USD ($)
Jun. 30, 2011
USD ($)
Deferred financing costs on borrowings       $ 225,000
Amortization of deferred financing costs charged to operations $ 11,300 $ 11,300    
Uncertain tax benfits    
Number of business segments | Segment 2      
UK [Member]        
Cash deposits $ 2,600      
Accounts receivable due from customers $ 2,174,200      
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Operations and Summary of Significant Accounting Policies - Schedule of Basic and Dilutive Net Loss Per Share (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Accounting Policies [Abstract]    
Net loss $ (637,100) $ (673,900)
Weighted average shares of common stock outstanding 12,611,133 12,611,133
Basic net loss per share $ (0.05) $ (0.05)
Interest expense on convertible notes
Loss for purpose of computing diluted net earnings per share $ (637,100) $ (673,900)
Incremental shares from assumed exercise of dilutive securities
Dilutive potential of shares of common stock 12,611,133 12,611,133
Diluted net earnings per share $ (0.05) $ (0.05)
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.4.0.3
Liquidity and Management Plans (Details Narrative)
3 Months Ended
Mar. 30, 2016
USD ($)
Mar. 14, 2016
USD ($)
Jun. 30, 2015
USD ($)
Feb. 05, 2015
USD ($)
Jan. 21, 2015
USD ($)
Aug. 20, 2014
Apr. 24, 2014
USD ($)
Jan. 22, 2014
USD ($)
Sep. 01, 2013
USD ($)
Jun. 23, 2011
USD ($)
Jun. 23, 2011
USD ($)
Apr. 26, 2005
USD ($)
Mar. 31, 2016
USD ($)
Segment
Dec. 31, 2015
USD ($)
Mar. 31, 2015
USD ($)
Dec. 31, 2014
USD ($)
Apr. 18, 2014
Segment
Apr. 26, 2005
GBP (£)
Credit facility, maturity date                   Jun. 23, 2016                
Credit facility, agreement amount, prior to amendment                   $ 10,000,000 $ 10,000,000              
Tangible net worth - Actual                         $ 3,576,900          
Tangible net worth - Required                         $ 6,181,400          
Default interest rate in excess of regular rate                 2.00%                  
Reduction in advance rate against inventory each month           2.00%                        
Fixed charge coverage ratio - Required | Segment                         1.15       1.05  
Fixed charges coverage ratio - Increased | Segment                                 1.10  
Fixed charges coverage ratio - Calculated | Segment                         (0.20)          
Default interest per year                 $ 120,000                  
Maximum amount of facility                   10,000,000 10,000,000              
Line of credit, outstanding amount                         $ 120,700          
Account receivables                         1,117,100          
Proceeds from related party loan                         1,000,000          
Cash and cash equivalents                         52,900 $ 129,600 $ 36,600 $ 145,100    
Accumulated deficit                         18,032,700 $ 17,395,600        
Working capital deficit                         $ 12,249,000          
Catamaran Services, Inc. [Member]                                    
Proceeds from related party loan $ 75,000 $ 325,000 $ 500,000 $ 500,000     $ 500,000 $ 500,000                    
Minimum [Member] | Catamaran Services, Inc. [Member]                                    
Additional interest rate above prime rate                         1.50%          
Maximum [Member] | Catamaran Services, Inc. [Member]                                    
Maximum interest rate                         10.00%          
Revolving Credit Facility [Member]                                    
Revolver facility, agreement amount, prior to amendment                   4,119,000 $ 4,119,000              
Facility interest rate above prime lending rate                     1.00%              
Revolving Credit Facility [Member] | After Amendment [Member]                                    
Revolver facility, agreement amount, as per second amendment         $ 2,500,000                          
Machinery And Equipment Term Loan [Member]                                    
Tangible net worth - Actual                   1,934,000 $ 1,934,000              
Facility interest rate above prime lending rate                     1.50%              
Real Estate Term Loan [Member]                                    
Real estate, agreement amount                   2,947,000 $ 2,947,000              
Facility interest rate above prime lending rate                     2.00%              
Capital Expenditure Line Of Credit [Member]                                    
Capital expenditure, agreement amount                   $ 1,000,000 $ 1,000,000              
Facility interest rate above prime lending rate                     1.50%              
RBS [Member]                                    
Credit facility, agreement amount, prior to amendment                       $ 2,800,000            
Facility interest rate above prime lending rate                       1.38%            
Maximum amount of facility                       $ 2,800,000            
Percentage of prepayment against qualified accounts receivable                       80.00%           80.00%
Percentage of service charge on each invoice discounted                       0.10%           0.10%
Initial term of facility                       1 year            
Line of credit, outstanding amount                         $ 964,100          
Account receivables                         $ 2,174,200          
RBS [Member] | GBP [Member]                                    
Credit facility, agreement amount, prior to amendment | £                                   £ 1,750,000
Maximum amount of facility | £                                   £ 1,750,000
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.4.0.3
Inventories - Schedule of Inventories (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Inventory Disclosure [Abstract]    
Raw materials $ 551,500 $ 628,100
Beer-in-process 339,300 312,200
Finished goods 510,200 541,400
Merchandise 64,000 65,300
Total $ 1,465,000 $ 1,547,000
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.4.0.3
Secured Lines of Credit (Details Narrative)
3 Months Ended
Apr. 26, 2005
USD ($)
Mar. 31, 2016
USD ($)
Dec. 31, 2015
USD ($)
Jun. 23, 2011
USD ($)
Apr. 26, 2005
GBP (£)
Line of credit, outstanding amount   $ 120,700      
Account receivables   1,117,100      
Inventories   $ 1,465,000 $ 1,547,000    
Maximum amount of facility       $ 10,000,000  
MB Financial Bank [Member]          
Facility interest rate above prime lending rate   3.00%      
Line of credit, outstanding amount   $ 120,700      
Account receivables   1,117,100      
Inventories   $ 1,375,000      
Facility expiration date   Jun. 23, 2016      
RBS [Member]          
Facility interest rate above prime lending rate 1.38%        
Line of credit, outstanding amount   $ 964,100      
Account receivables   $ 2,174,200      
Maximum amount of facility $ 2,800,000        
Initial term of facility 1 year        
Percentage of prepayment against qualified accounts receivable 80.00%       80.00%
Percentage of service charge on each invoice discounted 0.10%       0.10%
RBS [Member] | GBP [Member]          
Maximum amount of facility | £         £ 1,750,000
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.4.0.3
Notes Payable to Related Party (Details Narrative) - Catamaran Services, Inc. [Member] - USD ($)
Mar. 30, 2016
Mar. 14, 2016
Jan. 30, 2016
Feb. 05, 2015
Apr. 24, 2014
Jan. 22, 2014
Mar. 31, 2016
Note payable to related party $ 2,545,300            
Interest accrued 145,300            
Proceeds from related party loan $ 75,000 $ 325,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000  
Minimum [Member]              
Additional interest rate above prime rate             1.50%
Maximum [Member]              
Maximum interest rate             10.00%
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.4.0.3
Secured Notes Payable - Summary of Long-Term Debt (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Long term debt, total $ 3,244,900 $ 3,378,600
Less current maturities $ 3,244,900 $ 3,378,600
Long-term debt non-current
MBFinancialBankNotes With 4% Prime Plus Interest Rate [Member]    
Long term debt, total $ 2,239,400 $ 2,276,200
MBFinancialBankNotes With 3.5% Prime Plus Interest Rate [Member]    
Long term debt, total $ 1,005,500 $ 1,102,400
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.4.0.3
Secured Notes Payable - Summary of Long-Term Debt (Details) (Parenthetical) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
MBFinancialBankNotes With 4% Prime Plus Interest Rate [Member]    
Loans payable in monthly installments $ 12,300 $ 12,300
Loans payable, interest rate above prime rate 4.00% 4.00%
Balloon payment of loans $ 2,202,500 $ 2,202,500
Debt instrument maturity date Jun. 30, 2016 Jun. 30, 2016
MBFinancialBankNotes With 3.5% Prime Plus Interest Rate [Member]    
Loans payable in monthly installments $ 32,300 $ 32,300
Loans payable, interest rate above prime rate 3.50% 3.50%
Balloon payment of loans $ 908,700 $ 908,700
Debt instrument maturity date Jun. 30, 2016 Jun. 30, 2016
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.4.0.3
Long-Term Debt - Related Party (Details Narrative) - HUK [Member] - GBP [Member]
Oct. 09, 2013
GBP (£)
Secured debt £ 1,000,000
Repayment of secured loan by twelve equal quarterly installments £ 83,333
Interest rate above Prime Rate 5.00%
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.4.0.3
Long-Term Debt - Related Party - Schedule of Related Party Debt (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Less current maturities $ 359,500 $ 491,500
Loan from Heineken UK Limited Notes With 5% Prime Plus Interest Rate [Member]    
Long term debt, total 359,500 491,500
Less current maturities $ 359,500 $ 491,500
Non-current loan payable
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.4.0.3
Long-Term Debt - Related Party - Schedule of Related Party Debt (Details) (Parenthetical) - Loan from Heineken UK Limited Notes With 5% Prime Plus Interest Rate [Member] - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Loans payable in quarterly installments $ 137,900 $ 137,900
Interest rate above Prime Rate 5.00% 5.00%
Debt instrument maturity date Oct. 09, 2016 Oct. 09, 2016
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.4.0.3
Capital Lease Obligations - Schedule of Future Minimum Lease Payments for Capital Lease Payments (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Capital Lease Obligations [Abstract]    
Year Ending December 31, 2016 $ 21,600  
Year Ending December 31, 2017 27,600  
Year Ending December 31, 2018 21,300  
Year Ending December 31, 2019 21,300  
Year Ending December 31, 2020 21,000  
Capital lease future minimum payment due, total 112,800  
Less amounts representing interest (17,700)  
Present value of minimum lease payments 95,100  
Less current maturities 22,700 $ 23,100
Non-current leases payable $ 72,400 $ 79,200
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subordinated Convertible Notes Payable to Related Party (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Unsecured convertible notes $ 3,704,000 $ 3,680,100
Accrued interest $ 1,788,600 $ 1,764,700
13 UBA Notes [Member]    
Debt instruments conversion price per share $ 1.50  
One UBA Note [Member]    
Debt instruments conversion price per share $ 1.44  
Subordinated Convertible Notes Payable [Member]    
Percentage of convertible notes interest, prime rate plus 1.50%  
Percentage of convertible notes interest rate, maximum 10.00%  
Convertible notes payable maturity date, description The UBA notes have been extended until June 2016 but have 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. UBA may demand payment within 60 days following the end of the extension period but is precluded from doing so pursuant to a subordination agreement with Lender. The loans from Lender to which the UBA notes are subordinated mature in June 2016.  
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.4.0.3
Severance Payable (Details Narrative)
3 Months Ended
Mar. 31, 2016
USD ($)
Number
Segment
Number of times on average monthly base salary | Number 2.5
Number of monthly installments | Segment 20
Current employment contract end date Jun. 30, 2016
Severance Payable Long Term [Member]  
Severance payable | $ $ 813,800
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.4.0.3
Commitments and Contingencies (Details Narrative)
3 Months Ended
Mar. 31, 2016
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
Demanded payment in legal dispute $ 500,000
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.4.0.3
Related-Party Transactions (Details Narrative)
Mar. 31, 2016
Related Party Transactions [Abstract]  
Percentage of ownership interest 25.00%
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.4.0.3
Related-Party Transactions - Schedule of Related-Party Transactions (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
HUK [Member]    
Purchases from related party $ 2,600,400 $ 2,404,600
Expenses reimbursement to related party 216,200 208,500
Accounts payable and accrued liability 1,661,500 1,669,400
UBA & Catamaran Notes [Member]    
Interest expenses associated with related party notes 49,600 37,700
Notes payable including accrued interest 3,704,000 3,680,100
Borrowing From Catamaran [Member]    
Borrowing from Catamaran 400,000 500,000
Catamaran Notes [Member]    
Notes payable including accrued interest $ 2,545,300 $ 2,119,600
XML 59 R48.htm IDEA: XBRL DOCUMENT v3.4.0.3
Segment Information (Details Narrative)
3 Months Ended
Mar. 31, 2016
Segment
Segment Reporting [Abstract]  
Number of segments 2
XML 60 R49.htm IDEA: XBRL DOCUMENT v3.4.0.3
Segment Information - Schedule of Segment Information (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Net Sales $ 6,911,000 $ 6,694,100
Operating Income (Loss) (497,700) (518,900)
Identifiable Assets 16,099,900 17,558,000
Depreciation & Amortization 283,600 284,700
Capital Expenditures 82,200 70,800
North American Territory [Member]    
Net Sales 2,702,400 2,373,700
Operating Income (Loss) (482,100) (581,000)
Identifiable Assets 12,162,800 13,398,300
Depreciation & Amortization $ 169,700 $ 168,700
Capital Expenditures
Foreign Territory [Member]    
Net Sales $ 4,208,600 $ 4,320,400
Operating Income (Loss) (15,600) 62,100
Identifiable Assets 3,937,100 4,159,700
Depreciation & Amortization 113,900 116,000
Capital Expenditures $ 82,200 $ 70,800
XML 61 R50.htm IDEA: XBRL DOCUMENT v3.4.0.3
Unrestricted Net Assets (Details Narrative)
Mar. 31, 2016
USD ($)
Unrestricted Net Assets Details Narrative  
Undistributed losses of UBIUK $ 361,800
Minimum Retained Earning required for distributions and other payments to MBC from KBEL $ 1,431,000
XML 62 R51.htm IDEA: XBRL DOCUMENT v3.4.0.3
Unrestricted Net Assets - Condensed Balance Sheets of US Operations (Details) - MBC and Releta [Member] - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Cash and cash equivalents $ 50,300 $ 61,300
Accounts receivable, net 1,117,100 1,121,300
Inventories 1,375,000 1,490,100
Other current assets 104,900 199,800
Total current assets 2,647,300 2,872,500
Investment in subsidiary 1,225,000 1,225,000
Property and equipment 9,220,100 9,378,500
Intercompany receivable 272,600 284,000
Other assets 295,400 175,800
Total assets 13,660,400 13,935,800
Line of credit 120,700 453,100
Accounts payable 2,692,200 2,640,400
Accrued liabilities 1,293,800 1,021,000
Note payable to related party 2,545,300 2,119,600
Subordinated convertible notes to related party 3,704,000 3,680,100
Current maturities of debt, leases and severance 3,496,600 3,505,900
Total current liabilities 13,852,600 13,420,100
Long-term capital leases 12,600 14,000
Severance payable 569,700 678,400
Total liabilities 14,434,900 14,112,500
Common stock 15,100,300 15,100,300
Preferred stock 227,600 227,600
Accumulated deficit (16,102,400) (15,504,600)
Total stockholders' deficit (774,500) (176,700)
Total liabilities and stockholders' deficit $ 13,660,400 $ 13,935,800
XML 63 R52.htm IDEA: XBRL DOCUMENT v3.4.0.3
Unrestricted Net Assets - Condensed Statement of Operations of US Operations (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Unrestricted Net Assets - Condensed Statement Of Operations Of Us Operations Details    
Net sales $ 2,592,300 $ 2,373,700
Cost of goods sold 2,225,100 2,122,600
Selling, marketing, and retail expenses 291,500 353,400
General and administrative expenses 559,500 480,100
Loss from operations (483,800) (582,400)
Other (income) (3,700) (3,100)
Interest expense $ 117,700 123,000
Provision for taxes 3,800
Net loss $ (597,800) $ (706,100)
XML 64 R53.htm IDEA: XBRL DOCUMENT v3.4.0.3
Unrestricted Net Assets - Condensed Statement of Cash Flows of US Operations (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Unrestricted Net Assets - Condensed Statement Of Operations Of Us Operations Details    
Cash flows from operating activities $ 45,100 $ (269,200)
Purchase of property and equipment
Net borrowing (repayment) on line of credit $ (332,400) $ (90,200)
Borrowing on note payable 400,000 500,000
Repayment of long term debt (133,700) (133,700)
Payment on obligations under capital leases (1,400) (1,300)
Net change in payable to UBIUK 11,400 (30,800)
Decrease in cash (11,000) (25,200)
Cash, beginning of period 61,300 61,500
Cash, end of period $ 50,300 $ 36,300
XML 65 R54.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subsequent Events (Details Narrative)
3 Months Ended
Apr. 12, 2016
Number
Segment
Mar. 31, 2016
Number
Segment
Number of times on average monthly base salary | Number   2.5
Number of monthly installments | Segment   20
Subsequent Event [Member] | Separation and Severance Agreement [Member] | Mahadevan Narayanan [Member]    
Number of times on average monthly base salary | Number 2.5  
Number of monthly installments | Segment 20  
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