<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM 10-Q
------------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE QUARTER ENDED MARCH 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-20355
------------------------------
HART BREWING, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1258355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
91 SO. ROYAL BROUGHAM WAY,
SEATTLE, WA 98134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 682-8322, ext. 214
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 .
--- ---
Common Stock, par value of $.01 per share: 8,200,000 shares of Common Stock
outstanding as of March 31, 1996.
Pages 1 of 13 sequentially numbered pages.
1
<PAGE> 2
HART BREWING, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
-- March 31, 1996 and December 31, 1995............... 3
Statements of Income
-- Three Months Ended March 31, 1996 and 1995.......... 4
Statements of Cash Flows
-- Three Months Ended March 31, 1996 and 1995.......... 5
Notes to Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 7
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 10
SIGNATURES.............................................................. 11
EXHIBIT INDEX
Exhibit 11..................................................... 12
</TABLE>
2
<PAGE> 3
PART I.
ITEM 1 FINANCIAL STATEMENTS
HART BREWING, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................... $ 5,865,093 $12,503,850
Investments ........................................ 18,896,715 17,772,199
Accounts receivable ................................ 2,002,258 2,166,893
Inventories ........................................ 709,943 681,979
Prepaid expenses and other ......................... 366,923 234,717
----------- -----------
Total current assets ............................ 27,840,932 33,359,638
Fixed Assets, net .................................... 11,114,857 9,541,215
Other ................................................ 83,333 80,732
----------- -----------
Total assets ............................... $39,039,122 $42,981,585
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................... $ 1,177,764 $ 1,238,349
Accrued expenses ................................... 947,483 828,361
Refundable deposits ................................ 422,535 396,275
Income taxes payable ............................... 164,468 101,087
Notes payable to stockholders ...................... -- 4,689,866
---------- -----------
Total current liabilities ....................... 2,712,250 7,253,938
Long-Term Debt, net of current portion ............... -- --
Deferred Rent ........................................ 118,927 114,832
Deferred Income Taxes ................................ 401,894 369,561
----------- -----------
Total liabilities .......................... 3,233,071 7,738,331
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized, none
issued........................................... -- --
Common stock, $.01 par value; 40,000,000 shares
authorized, 8,200,000 shares issued and
outstanding ...................................... 82,000 82,000
Additional paid-in capital ......................... 35,107,084 35,107,084
Retained earnings .................................. 616,967 54,170
----------- -----------
Total stockholders' equity ................. 35,806,051 35,243,254
----------- -----------
Total liabilities and stockholders' equity . $39,039,122 $42,981,585
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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HART BREWING, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Gross Sales ........................ $ 5,752,920 $ 4,268,599
Less Excise Taxes .................. 463,408 333,516
----------- -----------
Net Sales .......................... 5,289,512 3,935,083
Cost of Sales ...................... 3,306,737 2,261,543
----------- -----------
Gross Margin ............. 1,982,775 1,673,540
Selling, General and Administrative
Expenses ......................... 1,482,175 723,680
----------- -----------
Operating Income ................... 500,600 949,860
Interest Expense ................... 34,460 41,365
Other Expense (Income), Net ........ (283,171) (1,782)
----------- -----------
Income Before Income Taxes ......... 749,311 910,277
Provision (Benefit) for Income Taxes 186,514 317,687(1)
----------- -----------
Net Income ......................... $ 562,797 $ 592,590(1)
=========== ===========
Net Income Per Share ............... $ 0.07 $ 0.09(1)
=========== ===========
Shares Outstanding ................. 8,200,000 6,734,000(1)
=========== ===========
Barrels Shipped .................... 27,780 21,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
(1) Pro forma amounts presented, see Notes 3 and 4 below.
4
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HART BREWING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
---------------------------
1996 1995
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................. $ 562,797 $ 592,590
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ....................... 275,223 131,291
(Gain) Loss on sale of fixed assets ................. (758) 1,376
Deferred income taxes ............................... 32,333 --
Deferred rent ....................................... 4,095 --
Changes in operating assets and liabilities:
Accounts receivable ................................. 164,635 (22,079)
Inventories ......................................... (27,964) 83,523
Prepaid expenses and other .......................... (174,697) (135,734)
Accounts payable and accrued expenses ............... 121,918 (369,842)
Refundable deposits ................................. 26,260 50,406
------------ -----------
Net cash provided by operating
activities ................................... 983,842 331,531
------------ -----------
INVESTING ACTIVITIES:
Acquisitions of fixed assets ........................... (1,811,195) (1,968,080)
Proceeds from sales of fixed assets .................... 2,978 --
Sales of investments ................................... (1,124,516) --
------------ -----------
Net cash used in investing activities .......... (2,932,733) (1,968,080)
------------ -----------
FINANCING ACTIVITIES:
Net borrowings on line of credit ....................... -- 750,000
Proceeds from issuance of long-term debt ............... -- 600,000
Principal payments on long-term debt ................... -- (49,290)
Distributions to stockholders .......................... -- (125,000)
Borrowings from related parties ........................ -- 200,000
(Repayments) to related parties ........................ (4,689,866) --
------------ -----------
Net cash provided by (used in)
financing activities ......................... (4,689,866) 1,375,710
------------ -----------
Decrease in cash and cash equivalents .................... (6,638,757) (260,839)
Cash and cash equivalents at beginning of period ......... 12,503,850 261,921
------------ -----------
Cash and cash equivalents at end of period ............... $ 5,865,093 $ 1,082
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
HART BREWING, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Hart Brewing, Inc. (the "Company") was incorporated in 1984 and is
engaged in the brewing, marketing and serving of craft beers, under the brand
names: "Pyramid" and "Thomas Kemper." The products are sold primarily in
Washington, Oregon and Northern California.
The accompanying consolidated financial statements have been prepared
by the Company, without audit, in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the audited financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995. In the opinion
of management, the accompanying unaudited financial statements contain all
material adjustments, consisting only of those of a normal recurring nature,
considered necessary for a fair presentation of the Company's financial
position, results of operations and cash flows at the dates and for the periods
presented. The operating results for the interim periods presented are not
necessarily indicative of the results expected for the full year.
2. INVENTORIES
Inventories consist of the following:
March 31, December 31,
1996 1995
--------- ------------
Finished goods............. $558,567 $525,135
Raw materials.............. 151,376 156,844
--------- ------------
$709,943 $681,979
========= ============
Finished goods include beer held in fermentation prior to the
filtration and packaging process.
3. INCOME TAXES
The financial statements of the Company for periods prior to the public
offering, December 13, 1995, did not include a provision for income taxes
because the Company was a Subchapter S corporation under the provisions of the
Internal Revenue Code. Accordingly, any tax liability or benefit associated
with the Company's income or loss flowed directly to its shareholders. For
comparative purposes, the statement of income for the quarter ended March 31,
1995 includes a pro forma income tax provision using an effective rate of 34.9%,
which rate approximates the federal and state tax rates.
4. EARNINGS PER SHARE
For the quarter ended March 31, 1995, earnings per share are presented
on a pro forma basis to allow for comparison to the first quarter of 1996. Pro
forma earnings per share is computed by dividing pro forma net income plus
interest expense, net of tax, on debt that was assumed to be retired with the
proceeds of its initial public offering, by the pro forma number of shares of
common stock outstanding during the quarter.
5. INITIAL PUBLIC OFFERING
On December 13, 1995, the Company completed an initial public offering
and sold 2,000,000 shares of its Common Stock for $19 per share in an
underwritten offering, which resulted in net proceeds to the Company of
$34,150,000, after deducting underwriting discounts and other offering costs.
6
<PAGE> 7
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
unaudited operating data, expressed as a percentage of net sales.
SELECTED UNAUDITED OPERATING DATA
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------------------------
% OF % OF
1996 NET SALES 1995 NET SALES
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Gross Sales....................... $5,752,920 $4,268,599
Less Excise Taxes................. 463,408 333,516
---------- ----------
Net Sales......................... 5,289,512 100.0 3,935,083 100.0
Cost of Sales..................... 3,306,737 62.5 2,261,543 57.5
---------- ----- ---------- -----
Gross Margin...................... 1,982,775 37.5 1,673,540 42.5
Selling, General and Administrative 1,482,175 28.0 723,680 18.4
---------- ----- ---------- -----
Operating Income.................. 500,600 9.5 949,860 24.1
Interest Expense.................. 34,460 0.7 41,365 1.0
Other (Income), Net............... (283,171) (5.4) (1,782) -
---------- ----- ---------- -----
Income Before Income Taxes........ 749,311 14.2 910,277 23.1
Income Tax Provision.............. 186,514 3.6 317,687 8.0
---------- ----- ---------- -----
Net Income........................ $ 562,797 10.6 $ 592,590 15.1
========== ===== ========== =====
Net Income per Share.............. $ .07 $ .09
========== ==========
Shares Outstanding................ 8,200,000 6,734,000
========== ==========
OPERATING DATA (IN BARRELS):
Barrels Shipped................... 27,780 21,500
========== ==========
Production Capacity at
Period End...................... 170,000 170,000
========== ==========
</TABLE>
QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995
Gross Sales. Gross sales increased by 35% to $5.8 million in the first
quarter ended March 31, 1996 from $4.3 million in the first quarter of 1995. The
increase was primarily the result of a 29% increase in barrels shipped to 27,780
barrels in the first quarter of 1996 from 21,500 barrels in the first quarter of
the 1995. The remainder of the increase was attributable to an increase in the
Company's retail operations, including sales of food, beer, branded goods and
related items. Selling price changes were not a material factor in the increase
in gross sales.
Excise Taxes. Excise taxes increased to 8.8% of net sales in the first
quarter of 1996 from 8.5% of net sales in the same quarter of the prior year.
The increase in excise taxes as a percentage of net sales was due to the
increased excise tax rate applicable to annual production in excess of 60,000
barrels.
Gross Margin. Gross margin increased by 18.4% to $2.0 million in the first
quarter of 1996 from $1.7 million in the same quarter of 1995. Gross margin as a
percentage of net sales declined by 5.0% to 37.5% in the first quarter of 1996
from 42.5% in the same quarter of 1995. This decrease as a percentage of sales
was due to greater fixed and semi-fixed costs, associated with the operation of
the Seattle Brewery and the lower gross margin associated with the increase in
sales of beer, food and branded merchandise at the Company's pubs. Retail sales
increased to 15.5% of gross sales in the first quarter of 1996 from 12.7% of
gross sales in the same period of 1995, due primarily to growth in the Company's
retail operations at the Seattle pub, which opened in February 1995. Changes in
the cost of raw materials and packaging did not, in the aggregate, have a
significant impact on gross margin during either period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 104.1% to $1.5 million, 28.0% of net sales,
in the first quarter of 1996 from $724,000, 18.4 % of net sales, in the same
quarter of 1995. This increase was primarily attributable to the accelerated
pace of new market entry. The number of sales personnel doubled over the same
period of the prior year, and increased promotional and marketing expenses were
incurred in connection with the Company's expansion into new markets.
7
<PAGE> 8
Other Income. Other income increased to $283,171 in the first quarter of
1996 from $1,782 in the first quarter of 1995. The increase in other income was
due primarily to interest income earned from investing the net proceeds for the
initial public stock offering, which proceeds were primarily invested in tax
exempt bonds.
Net Income. Net income decreased by 5.0% to $562,797 for the first quarter
of 1996, or 10.6% of net sales, from $592,590, or 15.1% of net sales, in the
same quarter of the 1995.
LIQUIDITY AND CAPITAL RESOURCES
On December 13, 1995, the Company, in its initial public offering (the
"Offering"), sold 2,000,000 shares of Common Stock at $19 per share, generating
net proceeds of approximately $34,150,000. Prior to the offering, the Company
had funded its operations and capital requirements through cash generated from
operations, and bank borrowings. Net cash provided by operating activities in
the first quarter of 1996 was $983,842 compared to $331,531 for the same
quarter of the prior year. Net cash provided by operating activities was
primarily generated by net income.
At March 31, 1996, the Company had working capital of $25.1 million
compared to $26.1 million at December 31, 1995. As of March 31, 1996 and
December 31, 1995, the working capital balance resulted primarily from the net
proceeds of the Offering.
Net cash used in investing activities in the first quarter of 1996 and 1995
were $2.9 million and $2.0 million, respectively. The increase in cash used in
investing activities in 1996 was primarily to pay for the Company's brewery
expansion in Seattle and purchasing equipment for the Company's brewery and pub
under construction in Berkeley, California.
The Company commenced construction of its Berkeley Brewery in January, 1996
and expects to complete construction in late 1996. Estimated
construction costs for the Berkeley Brewery are $8.5 million, which will be
financed with the proceeds of the Offering or from the proceeds of an Industrial
Development Bond, or from a combination of these sources.
The Company also has a $15.0 million line of credit (the "Line of Credit")
with a commercial lender. The Line of Credit revolves through December 31, 1997,
during which time the required payments are interest only. At that date, the
outstanding balance is converted into a term note that will fully amortize no
later than four years from such expiration date. Borrowings under the Line of
Credit accrue interest, at the Company's option, at either the bank's prime rate
plus 0% to 0.5%, depending on the Company's ratio of debt to tangible net worth,
or, if at least $250,000 in borrowings are drawn, at LIBOR plus 1.0% to 1.5%,
depending on the Company's ratio of debt to tangible net worth. The Line of
Credit includes provisions that require the Company to maintain certain
financial ratios and a minimum tangible net worth. The Line of Credit expires on
December 31, 2001. The Company has not borrowed funds under this Line of Credit.
On December 1, 1995, the Company issued $6.0 million of unsecured notes
("Stockholder Notes") to its stockholders in payment of a dividend of
undistributed S corporation earnings. The balance due under the Stockholder
Notes of $4.7 million was fully paid on February 16, 1996.
The Company had cash and cash equivalents of $5.9 million and $12.5 million
as of March 31, 1996 and 1995, respectively. The Company believes that net cash
flow from operations and bank borrowings under the Line of Credit will be
sufficient to meet short-term liquidity requirements. Cash flow from operations
and the net proceeds from the Offering will be used to repay existing bank
borrowings and to finance the construction and equipment of new brewing
facilities.
The costs associated with future brewing facilities may vary substantially
from those of the Kalama and Seattle facilities. Capital requirements may vary
depending on such factors as real estate costs in the
8
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markets selected for future expansion, whether such real estate is leased or
purchased and the extent of improvements necessary. The Company intends to
construct two additional breweries in 1997. Estimated costs to complete these
breweries are approximately $11.0 to $14.0 million. The Company believes that
the net proceeds of the Offering, together with cash from operations, and
borrowings under the Line of Credit, will be sufficient to construct additional
breweries.
The Company's future cash requirements and cash flow expectations are
closely related to its expansion plans. The Company generally expects to meet
future financing needs through cash flow from operations and, to the extent
required and available, additional bank borrowings, industrial development
bonds, and offerings of debt or equity securities.
9
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PART II. -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibits are filed as part of this report.
Page
11.1 Computation of Earnings Per share ............................... 12
(B) REPORTS ON FORM 8-K
None filed during the quarter ended MARCH 31, 1996.
Items 1, 2, 3, 4 AND 5 OF PART II ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
10
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Seattle,
State of Washington, on May 14, 1996.
HART BREWING, INC.
By: /s/ Don Burdick
------------------------------
Don Burdick Vice President and
Chief Financial Officer
(Principal Accounting Officer)
DATE: May 14, 1996
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
11.1 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
12
<PAGE> 1
EXHIBIT 11.1
HART BREWING, INC.
EARNINGS PER SHARE COMPUTATION
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
---------------------------
1995
1996 (PRO FORMA)
---------- -----------
<S> <C> <C>
Income Before Income Taxes....................... $ 749,311 $ 910,277
Plus Interest Expense............................ 0 41,365
---------- ----------
Income Before Income Taxes....................... 749,311 951,642(1)
Income Tax Provision............................. 186,514 332,123(1)
---------- ----------
Net Income for EPS Calculation................... $ 562,797 $ 619,519
========== ==========
Weighted average common shares outstanding ...... 8,200,000 6,200,000
Pro Forma shares issued to retire debt and repay
stockholder notes.............................. 0 534,000(2)
---------- ----------
Shares Outstanding............................... 8,200,000 6,734,000
========== ==========
Earnings per Share............................... $0.07 $0.09
===== =====
</TABLE>
- ---------------
(1) Pro forma net income represents the Company's reported income before income
taxes, plus interest expense, less a pro forma income tax provision that
would have been applicable had the Company been taxed as a C corporation.
The Company had elected to be treated as an S corporation from January 1,
1993 until prior to the closing date of the Offering and, as a result, was
not subject to federal and certain state income taxes.
(2) Pro forma shares issued to retire debt and repay stockholder notes
represents the number of shares of Common Stock which would be required to
be sold to repay the $6.0 million notes issued by the Company to its
stockholders in payment of a dividend representing the distribution of
retained S corporation earnings and retire outstanding debt.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,865,093
<SECURITIES> 18,896,715
<RECEIVABLES> 2,002,258
<ALLOWANCES> 0
<INVENTORY> 709,943
<CURRENT-ASSETS> 27,840,932
<PP&E> 11,114,857
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,039,122
<CURRENT-LIABILITIES> 2,712,250
<BONDS> 0
0
0
<COMMON> 82,000
<OTHER-SE> 35,107,084
<TOTAL-LIABILITY-AND-EQUITY> 39,039,122
<SALES> 5,289,512
<TOTAL-REVENUES> 0
<CGS> 3,306,737
<TOTAL-COSTS> 1,482,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,460
<INCOME-PRETAX> 749,311
<INCOME-TAX> 186,514
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 562,797
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
