<PAGE> 1
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 (FEE REQUIRED)
FOR THE QUARTER ENDED MARCH 31, 1997
[ ] 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 0-27116
------------------------------
PYRAMID BREWERIES 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. 246
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: 8,207,935 shares of Common Stock
outstanding as of March 31, 1997.
Pages 1 of 12 sequentially numbered pages.
1
<PAGE> 2
PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets
-- March 31, 1997 and December 31, 1996............... 3
Statements of Operations
-- Three Months Ended March 31, 1997 and 1996.......... 4
Statements of Cash Flows
-- Three Months Ended March 31, 1997 and 1996.......... 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
SIGNATURE............................................................... 11
</TABLE>
2
<PAGE> 3
PART I.
ITEM 1 FINANCIAL STATEMENTS
PYRAMID BREWERIES INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
----------- -----------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 216,936 $ 300,487
Investments ........................................ 5,698,210 11,477,842
Accounts receivable ................................ 1,877,977 1,284,426
Inventories ........................................ 1,203,659 920,252
Income taxes receivable ............................ 572,260 289,561
Prepaid expenses and other ......................... 861,972 947,284
----------- -----------
Total current assets ............................ 10,431,014 15,219,852
Fixed Assets, net .................................... 30,202,469 27,924,296
Other ................................................ 1,353,035 346,421
----------- -----------
Total assets ............................... $41,986,518 $43,490,569
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................... $ 1,668,010 $ 3,527,256
Accrued expenses ................................... 1,075,412 623,845
Refundable deposits ................................ 546,435 459,870
---------- -----------
Total current liabilities ....................... 3,289,857 4,610,971
Deferred Rent ........................................ 360,789 291,820
Deferred Income Taxes ................................ 903,892 820,226
----------- -----------
Total liabilities .......................... 4,554,538 5,723,017
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized, none
issued........................................... -- --
Common stock, $.01 par value; 40,000,000 shares
authorized, 8,207,935 shares and 8,204,656 issued
and outstanding .................................. 82,079 82,047
Additional paid-in capital ......................... 35,133,736 35,124,037
Unrealized loss on investments ..................... (167,536) (184,350)
Retained earnings .................................. 2,383,701 2,745,818
----------- -----------
Total stockholders' equity ................. 37,431,980 37,767,552
----------- -----------
Total liabilities and stockholders' equity . $41,986,518 $43,490,569
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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PYRAMID BREWERIES INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Gross Sales ........................ $6,261,126 $ 5,752,920
Less Excise Taxes .................. 456,984 463,408
---------- -----------
Net Sales .......................... 5,804,142 5,289,512
Cost of Sales ...................... 4,279,132 3,306,737
---------- -----------
Gross Margin ............. 1,525,010 1,982,775
Selling, General and Administrative
Expenses ......................... 2,161,695 1,482,175
---------- -----------
Operating (Loss) Income ............ (636,685) 500,600
Other Income ....................... 85,102 248,711
---------- -----------
Income (Loss) Before Income Taxes .. (551,583) 749,311
Provision (Benefit) for Income Taxes (189,466) 186,514
---------- -----------
Net Income (Loss) .................. $ (362,117) $ 562,797
========== ===========
Net Income (Loss) Per Share ........ $ (0.04) $ 0.07
========== ===========
Weighted Shares Outstanding ........ 8,204,656 8,200,000
========== ===========
Barrels Shipped .................... 28,200 27,780
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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PYRAMID BREWERIES INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....................................... $ (362,117) $ 562,797
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities:
Depreciation and amortization ....................... 500,058 275,223
Gain on sale of fixed assets ........................ (37,534) (758)
Deferred income taxes ............................... 83,666 32,333
Realized loss on investments......................... 101,244 --
Deferred rent ....................................... 68,969 4,095
Changes in operating assets and liabilities:
Accounts receivable ................................. (593,551) 164,635
Inventories ......................................... (95,410) (27,964)
Prepaid expenses and other .......................... (277,334) (174,697)
Income taxes receivable ............................. (282,699) --
Accounts payable and accrued expenses ............... (237,006) 121,918
Refundable deposits ................................. 16,238 26,260
------------ ------------
Net cash (used in) provided by operating
activities ................................... (1,115,476) 983,842
------------ ------------
INVESTING ACTIVITIES:
Acquisition of Thomas Kemper Soda Company............... (562,065)
Acquisitions of fixed assets ........................... (3,786,054) (1,811,195)
Proceeds from sales of fixed assets .................... 57,500 2,978
Purchases of investments................................ (4,055,317) (1,124,516)
Redemptions and sales of investments.................... 9,750,519 --
------------ ------------
Net cash provided by (used in) investing
activities ................................... 1,404,583 (2,932,733)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from the sale of common stock.................. 9,731 --
Principal payments on Thomas Kemper Soda
long-term debt........................................ (186,240) --
Principal payments on Thomas Kemper Soda
capital leases........................................ (196,149) --
Repayments to related parties .......................... -- (4,689,866)
------------ ------------
Net cash used in financing activities .......... (372,658) (4,689,866)
------------ ------------
Decrease in cash and cash equivalents .................... (83,551) (6,638,757)
Cash and cash equivalents at beginning of period ......... 300,487 12,503,850
------------ ------------
Cash and cash equivalents at end of period ............... $ 216,936 $ 5,865,093
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
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PYRAMID BREWERIES INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
Pyramid Breweries Inc. (the "Company"), a Washington corporation, was
incorporated in 1984 and is engaged in the brewing, marketing and selling of
craft beers and premium sodas, under the brand names: "Pyramid" and "Thomas
Kemper." The products are sold primarily in Washington, Oregon and Northern
California. The Company's craft beers were distributed in 32 states at March 31,
1997.
The accompanying condensed 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, 1996. 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,
1997 1996
------------ ------------
Finished goods............. $ 629,164 $552,687
Raw materials.............. 574,495 367,565
------------ ------------
$1,203,659 $920,252
============ ============
Raw materials primarily include ingredients, flavorings and packaging
materials, as well at beer held in fermentation prior to the filtration and
packaging process. Finished goods include primarily product ready for shipment,
as well as promotional merchandise held for sale.
3. FIXED ASSETS:
Fixed assets consist of the following:
March 31, December 31,
1997 1996
----------- -----------
Land............................ $ 26,000 $ 26,000
Building........................ 274,384 274,384
Brewery equipment............... 17,762,663 10,274,601
Retail equipment................ 988,018 493,888
Furniture and fixtures.......... 587,776 451,214
Leasehold improvements.......... 13,356,078 2,815,547
Construction in progress........ - 16,085,925
----------- -----------
32,994,919 30,421,559
Less accumulated depreciation... (2,792,450) (2,497,263)
----------- -----------
$30,202,469 $27,924,296
=========== ===========
At March 31, 1997 and December 31, 1996, accounts payable included
approximately $500,000 and $2,356,000, respectively, for the acquisition of
fixed assets.
4. THOMAS KEMPER SODA COMPANY ACQUISITION:
On March 7, 1997, the Company acquired substantially all of the
operating assets and assumed certain liabilities of Thomas Kemper Soda Company
for approximately $1.7 million including certain transaction costs. The purchase
price was paid with approximately $562,000 in cash and the assumption of
approximately $1,138,000 of liabilities. Certain of these assumed liabilities
were subsequently paid by the Company by the end of the first quarter ended
March 31, 1997. In connection with the acquisition, goodwill of approximately
$803,000 has been recorded in other assets and is being amortized over 10 years.
The first quarter of 1997 includes sales of approximately $169,000 for the
period from March 7, 1997 to March 31, 1997. During 1996, Thomas Kemper Soda
Company had annual sales of approximately $3.6 million.
5. COMMITMENTS AND CONTINGENCIES:
The Company is involved from time to time in claims, proceedings and
litigation arising in the ordinary course of business. The Company does not
believe that any such claim, proceeding or litigation, either alone or in the
aggregate, will have a material adverse effect on the Company's financial
position or results of operations.
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
1997 NET SALES 1996 NET SALES
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Gross Sales....................... $6,261,126 $5,752,920
Less Excise Taxes................. 456,984 463,408
---------- ----------
Net Sales......................... 5,804,142 100.0 5,289,512 100.0
Cost of Sales..................... 4,279,132 73.7 3,306,737 62.5
---------- ----- ---------- -----
Gross Margin...................... 1,525,010 26.3 1,982,775 37.5
Selling, General and Administrative 2,161,695 37.3 1,482,175 28.0
---------- ----- ---------- -----
Operating (Loss) Income........... (636,685) (11.0) 500,600 9.5
Other Income...................... 85,102 1.5 248,711 4.7
---------- ----- ---------- -----
Income (Loss) Before Income Taxes. (551,583) (9.5) 749,311 14.2
Income Tax Provision (Benefit).... (189,466) (3.3) 186,514 3.6
---------- ----- ---------- -----
Net Income (Loss)................. $ (362,117) (6.2) $ 562,797 10.6
========== ===== ========== =====
Net Income (Loss) per Share....... $ (0.04) $ .07
========== ==========
Weighted Shares Outstanding....... 8,204,656 8,200,000
========== ==========
OPERATING DATA (IN BARRELS):
Barrels Shipped................... 28,200 27,780
========== ==========
Production Capacity at
Period End...................... 273,000 170,000
========== ==========
</TABLE>
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Gross Sales. Gross sales increased by 8.6% to $6.3 million in the first
quarter ended March 31, 1997 from $5.8 million in the first quarter of 1996. The
increase was primarily the result of an increase in sales from retail operations
to $1.4 million from $900,000 due to the opening of the Berkeley Alehouse on
February 1, 1997, an increase of 1.5% in barrels shipped to 28,200 from 27,780,
and revenue from sales of Thomas Kemper Sodas.
Excise Taxes. Excise taxes decreased to 7.9% of net sales in the first
quarter of 1997 from 8.8% of net sales in the same quarter of 1996. The decrease
in excise taxes as a percentage of net sales was due primarily to an
underestimate of the small brewers federal excise tax credit during the first
quarter of 1996.
Gross Margin. Gross margin decreased by 25.0% to $1.5 million in the first
quarter of 1997 from $2.0 million in the same quarter of 1996. Gross margin as a
percentage of net sales declined by 11.2% to 26.3% in the first quarter of 1997
from 37.5% in the same quarter of 1996. This decrease as a percentage of sales
was due to greater fixed and semi-fixed costs, including increases in
depreciation, freight costs and package design amortization expenses and the
lower gross margin associated with the increase in sales from retail operations
(primarily sales of beer, food and branded merchandise at the Company's
Alehouses). Compared to the 1996 year, the Company expects its gross margin will
be adversely impacted by the addition of the Berkeley Brewery due to lower
utilization of brewing capacity. 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 46.7% to $2.2 million, or 37.3% of net
sales, in the first quarter of 1997 from $1.5 million, or 28.0% of net sales, in
the same quarter of 1996. This increase was due primarily to the planned
increase in selling and promotional expenditures attributable to the accelerated
geographic expansion of beer sales territories and the roll-out of Pyramid DPA.
The Company's sales and marketing staff increased to 36 employees from 20
employees in the first quarter of the 1996 year. Management believes that sales
and promotional expenses are necessary investments for expansion of the
Company, and expects these expenditures to continue to adversely impact future
earnings.
7
<PAGE> 8
Other Income. Other income decreased to $85,102 in the first quarter of 1997
from $248,711 in the first quarter of 1996. The decrease in other income was due
primarily to a decrease in interest income earned from investing the net
proceeds of the initial public stock offering, which proceeds primarily were
used to finance construction of the Company's Berkeley Brewery and Alehouse,
upgrades to the Seattle Brewery and repayment of debt. The decrease in tax
exempt interest income resulted in an increase in the Company's effective
income tax rate for the first quarter of 1997.
Net (Loss) Income. The net loss for the first quarter of 1997 was
($362,000), a decrease from the net income of $563,000 reported for the first
quarter of 1996.
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 $34.1 million. Prior to the offering, the Company
had funded its operations and capital requirements through cash generated from
operations, and bank borrowings. Net cash used in operating activities in
the period ended March 31, 1997 was $1.1 million compared to cash provided by
operating activities of $983,800 for the period ended March 31, 1996.
At March 31, 1997, the Company had working capital of $7.1 million
compared to $10.6 million at December 31, 1996.
Net cash provided by investing activities in the first quarter of 1997 was
$1.4 million as compared to net cash used in investing activities of $2.9
million for the first quarter of 1996. The cash provided by investing activities
was primarily the redemptions and sales of investments. The cash used in
investing activities in 1996 primarily was applied to the construction of
the Berkeley Brewery and Alehouse and expansion of the Seattle Brewery.
The Company also has a $15.0 million line of credit (the "Line of Credit").
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 in 1997.
Future capital requirements will vary depending on such factors as real
estate costs in the markets selected for future expansion, whether such real
estate is leased or purchased and the extent of improvements necessary. Capital
expansion during 1997 is expected to be approximately $4,000,000, which includes
final payments on the Berkeley Brewery and Alehouse, the purchase of the Thomas
Kemper Soda Company, and the continued upgrading of brewery equipment and
facilities in the Company's existing breweries. While there can be no assurance
that current expectations will be realized and plans are subject to change, the
Company believes that the existing cash and investments together with cash from
operations and borrowings under the Line of Credit, will be sufficient for the
Company's working capital needs during 1997.
8
<PAGE> 9
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.
Adoption of Accounting Standards
Statement No. 128 on Earnings per Share specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS) for
entities with publicly held common stock or potential common stock. This
Statement's objective is to simplify the computation of earnings per share and
to make the U.S. standard for computing earnings per share more compatible with
the EPS standards of other countries and with that of the International
Accounting Standards Committee. This Statement shall be effective for financial
statements for both interim and annual periods ending after December 15, 1997.
The Company plans to adopt this statement upon the effective date.
Risk Factors and Forward Looking Statements
Certain statements contained herein are forward-looking statements that
involve a number of risks, uncertainties and factors that may cause actual
results to materially differ, including: lower than anticipated sales in new
and existing markets; decreased selling prices; increased competition;
expenses and uncertainties associated with construction and operation of new
breweries and expansion of the distribution network; increases in raw material
and packaging costs; and other risk factors as set forth in the Company's
Annual Report dated December 31, 1996.
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.
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
None filed during the quarter ended MARCH 31, 1997.
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 15, 1997.
PYRAMID BREWERIES INC.
By: /s/ George Hancock
------------------------------
George Hancock, President and
Chief Executive Officer
(Principal Accounting Officer)
DATE: May 15, 1997
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 216,936
<SECURITIES> 5,698,210
<RECEIVABLES> 1,877,977
<ALLOWANCES> 0
<INVENTORY> 1,203,659
<CURRENT-ASSETS> 10,431,014
<PP&E> 32,994,918
<DEPRECIATION> 2,792,450
<TOTAL-ASSETS> 41,986,518
<CURRENT-LIABILITIES> 3,289,857
<BONDS> 0
0
0
<COMMON> 82,079
<OTHER-SE> 37,431,981
<TOTAL-LIABILITY-AND-EQUITY> 41,986,518
<SALES> 5,804,142
<TOTAL-REVENUES> 6,261,126
<CGS> 4,279,132
<TOTAL-COSTS> 6,440,827
<OTHER-EXPENSES> (85,102)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (551,583)
<INCOME-TAX> (189,466)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362,117)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
