<PAGE>
________________________________________________________________________________
________________________________________________________________________________
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 QUARTER ENDED MARCH 31, 1998
[ ] 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
____________________
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: 8,209,862 shares of Common Stock
outstanding as of March 31, 1998
<PAGE>
PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets
March 31, 1998 and December 31, 1997..................... 3
Statements of Operations
Three Months Ended March 31, 1998 and 1997............... 4
Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997............... 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
EXHIBIT INDEX.............................................. 12
Exhibit 27................................................. 13
2
<PAGE>
PART I
Item 1 -- FINANCIAL STATEMENTS
PYRAMID BREWERIES INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 4,877,763 $ 5,393,251
Accounts receivable, net 1,431,756 1,291,681
Inventories 1,143,857 1,110,756
Income taxes receivable -- 250,071
Prepaid expenses and other 530,865 562,602
Current portion of deferred income taxes 709,417 364,662
--------------------------------------
Total current assets 8,693,658 8,973,023
--------------------------------------
Fixed assets, net 28,475,147 28,600,075
Deferred income taxes 368,802 101,449
Other assets 934,308 1,072,613
--------------------------------------
Total assets $38,471,915 $38,747,160
======================================
CURRENT LIABILITIES:
Accounts payable $ 1,093,353 $ 703,926
Accrued expenses 1,014,758 941,303
Refundable deposits 447,494 474,700
Restructuring reserve 204,908 354,148
Income taxes payable 15,378 --
--------------------------------------
Total current liabilities 2,775,891 2,474,077
Deferred rent 626,332 573,589
--------------------------------------
Total liabilities 3,402,223 3,047,666
--------------------------------------
Preferred stock, 10,000,000 shares authorized, none issued -- --
Common stock, $.01 par value; 40,000,000 shares authorized,
8,209,862 and 8,207,438 shares issued and outstanding 82,099 82,074
Additional paid-in capital 35,020,052 35,014,551
Retained (deficit) earnings (32,459) 602,869
Total Stockholders' equity 35,069,692 35,699,494
--------------------------------------
Total liabilities and stockholders' equity $38,471,915 $38,747,160
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PYRAMID BREWERIES INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1998 1997
--------------------------------------
<S> <C> <C>
Gross Sales $ 6,208,948 $6,261,126
Less Excise Taxes 359,767 456,984
--------------------------------------
Net Sales 5,849,181 5,804,142
Cost of Sales 4,757,583 4,279,132
--------------------------------------
Gross Margin 1,091,598 1,525,010
Selling, General and Administrative Expenses 2,157,190 2,161,695
--------------------------------------
Operating Loss (1,065,592) (636,685)
Other Income, net 84,485 85,102
--------------------------------------
Loss Before Income Taxes (981,107) (551,583)
Benefit for Income Taxes 345,779 189,466
--------------------------------------
Net Loss $ (635,328) $ (362,117)
======================================
Basic and Diluted Net Loss per Share $(0.08) $(0.04)
======================================
Weighted Average Shares Outstanding 8,209,862 8,204,656
======================================
Beer Barrels Shipped 23,800 28,200
======================================
Soda Barrels Shipped 5,800 1,300
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PYRAMID BREWERIES INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1998 1997
---------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (635,328) $ (362,117)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 780,891 500,058
Gain on sales of fixed assets (9,745) (37,534)
Deferred income taxes (612,108) 83,666
Realized loss on investments -- 101,244
Deferred rent 52,743 68,969
Restructuring charge (149,240) --
Changes in operating assets and liabilities:
Accounts receivable (140,075) (593,551)
Inventories (33,101) (95,410)
Prepaid expenses and other (66,490) (277,334)
Income taxes receivable/payable 265,449 (282,699)
Accounts payable and accrued expenses 462,882 (237,006)
Refundable deposits (27,206) 16,238
---------------------------------------
Net cash used in operating activities (111,328) (1,115,476)
---------------------------------------
INVESTING ACTIVITIES:
Acquisition of Thomas Kemper Soda Company -- (562,065)
Acquisitions of fixed assets (497,897) (3,786,054)
Proceeds from sales of fixed assets 92,898 57,500
Payments on deposits (4,687) --
Purchases of investments -- (4,055,317)
Redemptions and sales of investments -- 9,750,519
---------------------------------------
Net cash (used in) provided by investing activities (409,686) 1,404,583
---------------------------------------
FINANCING ACTIVITIES:
Proceeds from the sale of common stock 5,526 9,731
Principal payments on Thomas Kemper
Soda long-term debt -- (186,240)
Principal payments on Thomas Kemper
Soda capital leases -- (196,149)
---------------------------------------
Net cash provided by (used in) financing activities 5,526 (372,658)
---------------------------------------
Decrease in cash and cash equivalents (515,488) (83,551)
Cash and cash equivalents at beginning of period 5,393,251 300,487
---------------------------------------
Cash and cash equivalents at end of period $4,877,763 $ 216,936
=======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
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 and in restaurant operations. The Company
operates breweries in Seattle, Washington and Berkeley, California. The Company
sells its beer through a network of selected independent distributors primarily
in Washington, Oregon and California under the Pyramid and Thomas Kemper brands.
Pyramid manufactures a line of hand-crafted sodas under the Thomas Kemper Soda
Company label. As of March 31, 1998, the Company's products were distributed in
31 states, the District of Columbia and Canada. The Company operates two
restaurants adjacent to its breweries under the Pyramid Alehouse brand.
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. With the exception of
the historical information contained herein, the matters described may contain
forward-looking statements that involve risks and uncertainties, including those
described under the caption entitled "Risk Factors and Forward-Looking
Statements" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange Commission, and
elsewhere in the Company's periodic reports. 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. COMPREHENSIVE INCOME:
The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" effective January 1, 1998. There were no
significant items of comprehensive income in the quarters ended March 31, 1998
and 1997.
3. INVENTORIES:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Raw Materials.................................... $ 622,812 $ 558,591
Finished Goods................................... 521,045 552,165
---------- ----------
$1,143,857 $1,110,756
========== ==========
</TABLE>
Raw materials primarily include ingredients, flavorings and packaging
materials, as well as 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.
6
<PAGE>
4. FIXED ASSETS:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
<S> <C> <C>
Brewery and retail equipment..................... $16,815,548 $16,528,319
Furniture and fixtures........................... 688,635 617,009
Leasehold improvements........................... 13,626,736 13,594,538
Assets held for sale............................. 559,690 559,690
----------- -----------
31,690,609 31,299,556
Less accumulated depreciation.................... (3,215,462) (2,699,481)
----------- -----------
$28,475,147 $28,600,075
=========== ===========
</TABLE>
5. THOMAS KEMPER SODA COMPANY ACQUISITION:
In March 1997, the Company acquired substantially all of the operating
assets and assumed certain liabilities of Thomas Kemper Soda Company, a
manufacturer of premium sodas located in Seattle, Washington. The total purchase
price was $1.7 million. The purchase price was paid with approximately $562,000
in cash during the first quarter of 1997, approximately $14,000 in cash during
the second quarter of 1997 and the assumption of approximately $1,138,000 of
liabilities at the date of acquisition. The acquisition was accounted for using
the purchase method of accounting. Accordingly, the purchased assets and assumed
liabilities were recorded at their estimated fair value at the date of
acquisition. The excess purchase price over the estimated fair values of the
assets acquired was $802,513 and will be amortized over 10 years. The results of
the acquired business have been included in the statement of income since the
date of acquisition.
6. COMMITMENTS AND CONTINGENCIES:
In June 1996, the Company, certain of its directors, former directors and
officers, were named as defendants in a securities class action lawsuit,
Steckman v. Hart Brewing Inc., et al., Case No. 961077, U.S. District Court,
Southern District of California. The lawsuit alleged that the prospectus for
the Company's December 1995 initial public offering failed to disclose certain
material information. In December 1996, the court entered an order and judgment
dismissing this lawsuit. This dismissal was appealed. The Company's insurance
carrier, Genesis Indemnity and Insurance Co., has agreed to indemnify and defend
the Company and each of the named defendants, (other than the underwriter) from
the claims raised in the above lawsuit or similar lawsuits.
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.
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.
7
<PAGE>
SELECTED UNAUDITED OPERATING DATA
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------
% of % of
1998 Net Sales 1997 Net Sales
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Gross sales................................ $ 6,208,948 $6,261,126
Less excise taxes.......................... 359,767 456,984
----------- ----------
Net sales.................................. 5,849,181 100.0 5,804,142 100.0
Cost of sales.............................. 4,757,583 81.3 4,279,132 73.7
----------- ----- ---------- -----
Gross margin............................... 1,091,598 18.7 1,525,010 26.3
Selling, general and administrative........ 2,157,190 37.0 2,161,695 37.3
----------- ----- ---------- -----
Operating loss............................. (1,065,592) (18.3) (636,685) (11.0)
Other income, net.......................... 84,485 1.4 85,102 1.5
----------- ----- ---------- -----
Loss before income taxes................... (981,107) (16.9) (551,583) (9.5)
Benefit for income taxes.................. 345,779 5.9 189,466 3.3
----------- ----- ---------- -----
Net loss................................... $ (635,328) (11.0) $ (362,117) (6.2)
=========== ===== ========== =====
Basic and diluted net loss per share....... $(0.08) $(0.04)
=========== ==========
Weighted average shares outstanding....... 8,209,862 8,204,656
=========== ==========
OPERATING DATA (IN BARRELS):
Beer barrels shipped....................... 23,800 28,200
=========== ==========
Soda barrels shipped....................... 5,800 1,300
=========== ==========
Production capacity at period end.......... 172,000 273,000
=========== ==========
</TABLE>
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Gross Sales. Gross sales were $6,209,000 in the first quarter of 1998
against $6,261,000 in the same quarter of 1997. This small decrease in gross
sales was the net result of a decline in wholesale sales of craft beers offset
by increased sales of soda products and higher restaurant sales. Sales of Thomas
Kemper Soda products, which were acquired in March 1997, increased by $586,000
to $755,000 compared with the incomplete period in the prior year. Retail sales
increased from $1,388,000 to $1,450,000 due to the full quarter effect of the
Company's second alehouse in Berkeley, California which opened on February 1,
1997. Wholesale beer sales decreased 16.7% to $4.0 million in first quarter
ended March 31, 1998 from $4.8 million in the first quarter ended March 31, 1997
due to a 15.6% volume decrease to 23,800 barrels from 28,200 barrels. The volume
decreases were primarily attributable both to a decline in the Thomas Kemper
lager brand and to lower sales in areas outside the western and southwestern
states.
Excise Taxes. Excise taxes were 5.8% and 7.3% of gross sales for the
quarters ended March 31, 1998 and 1997, respectively. Excise taxes were lower as
a percentage of gross sales in the first quarter of 1998 due to a slightly lower
average federal excise tax rate resulting from lower beer barrels shipped during
the quarter ended March 31, 1998 and a greater proportion of retail and soda
sales which do not bear excise taxes.
Gross Margin. Gross margin decreased 28.4% to $1,092,000 in the first
quarter of 1998 from $1,525,000 in the same quarter of 1997. Gross margin as a
percentage of net sales declined to 18.7% in the quarter ended March 31, 1998
from 26.3% in the same quarter of 1997. This decrease as a percentage of net
sales was due to higher fixed and semi-fixed costs, including increases in
depreciation, amortization and the lower level of beer sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $2.1 million and 37.0% of net sales
for the quarters ended March 31, 1998 and 1997.
Other Income, net. Other income, net was approximately $85,000 and 1.5% of
net sales for the quarters ended March 31, 1998 and 1997.
Net Loss. The Company reported a net loss of $635,328 for the first
quarter ended March 31, 1998 compared to a net loss of $362,117 in the same
quarter of the prior year. The increase in net loss was primarily the result of
a lower gross margin on wholesale beer sales.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of $5.9 million compared
to $6.5 million at December 31, 1997 and $10.6 million at December 31, 1996. The
working capital balance resulted primarily from the net unused proceeds of the
Offering and cash flow from operations.
Net cash used in operating activities during the first quarter of 1998 was
approximately $111,000 due primarily to the net loss for the quarter partially
offset by depreciation and ammortization. Net cash used in investing activities
for the three month period ended March 31, 1998 was $410,000, resulting from
funds used to purchase system software and installation of soda production
equipment at the Berkeley Brewery.
The Company has a $15.0 million line of credit (the Line of Credit) for
short-term operating needs. The Line of Credit revolves through April 30, 1999,
during which time the payments are interest only. At that date, any outstanding
balance will be due in full. Borrowings under the Line of Credit will accrue
interest, at the Company's option, at either the bank's prime rate or at LIBOR
plus 100 basis points. Up to $5 million of the line of credit may be used to
finance acquisitions. Amounts used to finance acquisitions may be converted to a
four-year fully amortizing term loan, with an additional option to fix the rate
of interest at the bank's prime rate plus 125 basis points.
Future capital requirements may 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
expenditures in 1998 are expected to be less than 1997 expenditures. Planned
projects include the continued upgrading of brewery equipment and facilities in
the Seattle Brewery and the installation of a new computer system. While there
can be no assurance that current expectations will be realized and plans are
subject to change upon further review, the Company believes that its cash
reserves, together with cash from operations and borrowings under the Line of
Credit, will be sufficient for the Company's working capital needs during 1998.
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 on-hand, cash flow from operations and, to
the extent required and available, additional bank borrowings.
RISK FACTORS AND FORWARD LOOKING STATEMENTS
Pyramid Breweries Inc. does not provide forecasts of future financial
performance. However this report does contain forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, which are
subject to the "safe harbor" created by that section. While management is
cautiously optimistic about the Company's long-term prospects, the following
issues and uncertainties, among others, should be considered in evaluating the
Company's outlook. There are numerous important factors that could cause results
to differ materially from those anticipated by some of the statements made by
the Company. Investors are cautioned that all forward-looking statements involve
a high degree of risk and uncertainty. Additional information concerning those
and other factors is contained in the Company's Securities and Exchange
Commission filings including its IPO prospectus.
9
<PAGE>
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, 1998.
Items 1, 2, 3, 4 AND 5 OF PART II ARE NOT APPLICABLE AND HAVE BEEN OMITTED
10
<PAGE>
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, 1998.
PYRAMID BREWERIES INC.
By: /s/ RICHARD DENMARK
-------------------------------
Richard Denmark, Vice President
and Chief Financial Officer
DATE: May 14, 1998
11
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,877,763
<SECURITIES> 0
<RECEIVABLES> 1,455,391
<ALLOWANCES> 23,635
<INVENTORY> 1,143,857
<CURRENT-ASSETS> 8,693,658
<PP&E> 31,690,609
<DEPRECIATION> 3,215,462
<TOTAL-ASSETS> 38,471,915
<CURRENT-LIABILITIES> 2,775,891
<BONDS> 0
0
0
<COMMON> 82,099
<OTHER-SE> 34,987,593
<TOTAL-LIABILITY-AND-EQUITY> 38,471,915
<SALES> 5,849,181
<TOTAL-REVENUES> 6,208,948
<CGS> 4,757,583
<TOTAL-COSTS> 6,914,773
<OTHER-EXPENSES> 84,485
<LOSS-PROVISION> 23,635
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (981,107)
<INCOME-TAX> 345,779
<INCOME-CONTINUING> (635,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (635,328)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
