<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 SEPTEMBER 30, 1999
[ ] 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 0-27116
____________________
PYRAMID BREWERIES INC.
(Exact name of registrant as specified in its charter)
Washington 91-1258355
(State or other jurisdiction of (IRS 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: 8,240,303 shares of Common Stock
outstanding as of September 30, 1999
Pages 1 of 15 sequentially numbered pages.
<PAGE>
PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTERLY AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets
September 30, 1999 and December 31, 1998........................................... 3
Statements of Operations
Three Month and Nine Month Periods Ended September 30, 1999 and 1998............... 4
Statements of Cash Flows
Nine Month Periods Ended September 30, 1999 and 1998............................... 5
Notes to Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................... 12
SIGNATURE........................................................................... 13
EXHIBIT INDEX....................................................................... 14
Exhibit 27.......................................................................... 15
</TABLE>
2
<PAGE>
PART I
Item 1 -- FINANCIAL STATEMENTS
PYRAMID BREWERIES INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited) (Audited)
--------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,395,847 $ 5,245,134
Accounts receivable, net 1,356,858 1,003,789
Inventories 1,516,114 1,202,793
Deferred income taxes 444,216 444,216
Prepaid expenses and other 365,361 621,009
--------------------------------------
Total current assets 10,078,396 8,516,941
--------------------------------------
Fixed assets, net 26,506,849 27,558,848
Deferred income taxes 490,576 490,576
Other assets 805,084 865,286
--------------------------------------
Total assets $ 37,880,905 $ 37,431,651
======================================
CURRENT LIABILITIES:
Accounts payable $ 660,910 $ 218,964
Accrued expenses 1,433,773 1,312,593
Refundable deposits 521,620 462,747
Restructuring reserve -- 69,238
--------------------------------------
Total current liabilities 2,616,303 2,063,542
Deferred rent 967,720 782,245
--------------------------------------
Total liabilities 3,584,023 2,845,787
--------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Preferred stock, 10,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value; 40,000,000 shares authorized,
8,240,303 and 8,219,532 shares issued and outstanding 82,403 82,195
Additional paid-in capital 35,070,649 35,036,869
Retained deficit (856,170) (533,200)
Total stockholders' equity 34,296,882 34,585,864
--------------------------------------
Total liabilities and stockholders' equity $ 37,880,905 $ 37,431,651
======================================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PYRAMID BREWERIES INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Gross sales.............................. $7,811,037 $7,183,862 $21,777,002 $20,903,362
Less excise taxes........................ 471,873 425,799 1,318,734 1,273,122
---------- ---------- ----------- -----------
Net sales............................ 7,339,164 6,758,063 20,458,268 19,630,240
Cost of sales............................ 5,522,541 5,190,131 15,515,872 15,130,470
---------- ---------- ----------- -----------
Gross margin......................... 1,816,623 1,567,932 4,942,396 4,499,770
Selling, general and administrative
expenses............................... 1,948,205 1,982,401 5,655,712 6,164,441
---------- ---------- ----------- -----------
Operating loss........................... (131,582) (414,469) (713,316) (1,664,671)
Other income, net........................ 189,175 95,077 390,346 503,841
---------- ---------- ----------- -----------
Income (loss) before income taxes........ 57,593 (319,392) (322,970) (1,160,830)
Benefit for income taxes................. -- 84,530 -- 364,027
---------- ---------- ----------- -----------
Net income (loss)........................ $ 57,593 $ (234,862) $ (322,970) $ (796,803)
========== ========== =========== ===========
Basic and diluted net income (loss) per
share................................... $ 0.01 $ (0.03) $ (0.04) $ (0.10)
========== ========== =========== ===========
Weighted average common shares
outstanding............................. 8,239,402 8,214,029 8,230,642 8,211,447
========== ========== =========== ===========
Beer barrels shipped..................... 28,300 26,900 81,400 79,900
========== ========== =========== ===========
Soda barrels shipped..................... 8,600 8,600 22,200 21,900
========== ========== =========== ===========
Total barrels shipped.................... 36,900 35,500 103,600 101,800
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PYRAMID BREWERIES INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
----------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $ (322,970) $ (796,803)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization.......................... 2,086,138 2,078,771
Loss on sale of fixed assets........................... 22,497 104,814
Deferred income taxes.................................. -- (289,513)
Deferred rent.......................................... 185,475 147,762
Restructuring charge................................... (69,238) (316,590)
Changes in operating assets and liabilities:
Accounts receivable.................................... (353,069) (18,397)
Inventories............................................ (313,321) (240,372)
Prepaid expenses and other............................. (88,605) (152,090)
Income taxes receivable................................ -- (117,485)
Accounts payable and accrued expenses.................. 563,126 973,751
Refundable deposits.................................... 58,873 (8,839)
---------- -----------
Net cash provided by operating activities.......... 1,768,906 1,365,009
INVESTING ACTIVITIES:
Acquisitions of fixed assets.............................. (688,929) (1,042,578)
Proceeds from sales of fixed assets....................... 36,748 241,641
---------- -----------
Net cash used in investing activities.............. (652,181) (800,937)
FINANCING ACTIVITIES:
Proceeds from the sale of common stock.................... 33,988 16,679
---------- -----------
Net cash provided by financing activities.......... 33,988 16,679
---------- -----------
Increase in cash and cash equivalents......................... 1,150,713 580,751
Cash and cash equivalents at beginning of period.............. 5,245,134 5,393,251
---------- -----------
Cash and cash equivalents at end of period.................... $6,395,847 $ 5,974,002
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PYRAMID BREWERIES INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
Pyramid Breweries Inc. (the "Company"), a Washington corporation, 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 Ales, Thomas Kemper Brewing Company and Brasserie Monx brands.
Pyramid manufactures a line of batch-brewed sodas under the Thomas Kemper Soda
Company label, which are sold primarily in Washington, Oregon and California.
As of September 30, 1999, the Company's products were distributed in 32 states
and Canada. The Company operates restaurants adjacent to each of its breweries
under the Pyramid Brewery and Alehouse brand name.
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, 1998, 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. INVENTORIES:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw Materials..................... $ 779,778 $ 618,302
Finished Goods.................... 736,336 584,491
------------- ------------
$ $1,516,114 $1,202,793
============= ============
</TABLE>
Inventories are stated at the lower of average cost or market. Cost is
determined by the first-in-first-out method and market represents the lower of
replacement cost or estimated net realizable value.
3. FIXED ASSETS:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Brewery and retail equipment.................. $ 17,554,440 $ 17,283,235
Furniture and fixtures........................ 985,443 618,910
Leasehold improvements........................ 14,059,609 13,909,636
Construction in progress...................... 181,829 340,514
Assets held for sale.......................... -- 32,000
------------- ------------
32,781,321 32,184,295
Less accumulated depreciation................. (6,274,472) (4,625,447)
------------- ------------
$ 26,506,849 $ 27,558,848
============= ============
</TABLE>
4. 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>
5. SEGMENT INFORMATION:
The Company adopted Statement of Financial Accounting Standards No. 131 (SFAS
131) "Disclosures about Segments of an Enterprise and Related Information,"
during 1998. Following the provisions of SFAS 131, the Company is reporting
segment information in the same format as reviewed by the Company's management
(the "Management Approach"), which is organized around differences in products
and services. All segment information is presented here except for the total
asset line items for 1998 because obtaining the information was impracticable.
Products and Services
The Company's reportable segments include brewery operations, soda operations
and alehouses. Brewery operations include the production and sale of Pyramid
Ales, Thomas Kemper beers and Brasserie Monx Belgian Style beers. Soda
operations include the production and sale of Thomas Kemper Soda Company
products. The third segment consists of two full-service alehouses
(restaurants), which market and sell the full line of the Company's beer and
soda products as well as food and certain merchandise.
Factors used to identify reportable segments
The Company's reportable segments are strategic business units that offer
different products and services. These segments are managed separately because
each business requires different management and marketing strategies.
Measurement of segment profit and segment assets
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before income taxes not
including nonrecurring gains and losses. The Company records intersegment sales
at current market prices.
Segment profit and segment assets are as follows:
<TABLE>
<CAPTION>
Brewery Soda
Operations Operations Alehouses Other Total
---------- ----------- --------- ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Quarter ended September 30, 1999
Revenues from external customers........ $ 4,567 $ 1,056 $ 2,188 $ -- $ 7,811
Intersegment revenues................... 122 18 (140) -- --
Interest income......................... -- -- -- 89 89
Depreciation and amortization........... 538 28 105 35 706
Operating income (loss)................. 106 201 206 (645) (132)
Income tax benefit...................... -- -- -- -- --
Capital expenditures.................... 93 -- 63 21 177
Total assets............................ 21,846 556 3,519 11,960 37,881
Quarter ended September 30, 1998
Revenues from external customers........ $ 4,377 $ 1,108 $ 1,699 $ -- $ 7,184
Intersegment revenues................... 116 10 (126) -- --
Interest income......................... -- -- -- 81 81
Depreciation and amortization........... 499 27 90 20 636
Operating income (loss)................. 183 238 59 (894) (414)
Income tax provision.................... -- -- -- 85 85
Capital expenditures.................... 182 -- 21 89 292
Nine months ended September 30, 1999
Revenues from external customers........ $ 13,358 $ 2,815 $ 5,604 $ -- $21,777
Intersegment revenues................... 381 42 (423) -- --
Interest income......................... -- -- -- 240 240
Depreciation and amortization........... 1,584 84 312 106 2,086
Operating income (loss)................. 146 699 346 (1,904) (713)
Income tax benefit...................... -- -- -- -- --
Capital expenditures.................... 270 -- 276 143 689
Total assets............................ 21,846 556 3,519 11,960 37,881
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine months ended September 30, 1998
Revenues from external customers $ 13,332 $ 2,828 $ 4,743 $ -- $ 20,903
Intersegment revenues............... 326 27 (353) -- --
Interest income..................... -- -- -- 233 233
Depreciation and amortization....... 1,572 83 348 76 2,079
Operating (loss) income............. (106) 696 109 (2,364) (1,665)
Income tax benefit.................. -- -- -- 364 364
Capital expenditures................ 475 146 171 251 1,043
</TABLE>
Other
Other consists of interest income, general and administrative expense,
corporate office assets and other reconciling items that are not allocated to
segments for internal management reporting purposes. Total assets include all
assets except for fixed assets, which are presented by segment.
8
<PAGE>
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>
Three Months Ended September 30,
---------------------------------------------------
% of % of
1999 Net Sales 1998 Net Sales
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Gross sales........................................ $ 7,811,037 $ 7,183,862
Less excise taxes.................................. 471,873 425,799
------------ ------------
Net sales.......................................... 7,339,164 100.0 6,758,063 100.0
Cost of sales...................................... 5,522,541 75.2 5,190,131 76.8
------------ ----- ------------ -----
Gross margin..................................... 1,816,623 24.8 1,567,932 23.2
Selling, general and administrative expense........ 1,948,205 26.6 1,982,401 29.3
------------ ----- ------------ -----
Operating loss..................................... (131,582) (1.8) (414,469) (6.1)
Other income, net.................................. 189,175 2.6 95,077 1.4
------------ ----- ------------ -----
Income (loss) before income taxes.................. 57,593 0.8 (319,392) (4.7)
Benefit for income taxes........................... -- -- 84,530 1.2
------------ ----- ------------ -----
Net income (loss).................................. $ 57,593 0.8 $ (234,862) (3.5)
============ ===== ============ =====
$0.01 $ $(0.03)
Basic and diluted net income (loss) per share...... ============ ============
Weighted average common shares outstanding........ 8,239,402 8,214,029
============ ==========
Operating data (in barrels):
Beer barrels shipped............................. 28,300 26,900
============ ==========
Soda barrels shipped............................. 8,600 8,600
============ ==========
Total barrels shipped............................ 36,900 35,500
============ ==========
Production capacity at period end................ 172,000 172,000
============ ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------
% of % of
1999 Net Sales 1998 Net Sales
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Gross sales........................................ $21,777,002 $20,903,362
Less excise taxes.................................. 1,318,734 1,273,122
----------- -----------
Net sales.......................................... 20,458,268 100.0 19,630,240 100.0
Cost of sales...................................... 15,515,872 75.8 15,130,470 77.1
----------- ----- ----------- -----
Gross margin....................................... 4,942,396 24.2 4,499,770 22.9
Selling, general and administrative expense........ 5,655,712 27.6 6,164,441 31.4
----------- ----- ----------- -----
Operating loss..................................... (713,316) (3.4) (1,664,671) (8.5)
Other income, net.................................. 390,346 1.9 503,841 2.5
----------- ----- ----------- -----
Loss before income taxes........................... (322,970) (1.5) (1,160,830) (6.0)
Benefit for income taxes........................... -- -- 364,027 1.9
----------- ----- ----------- -----
Net loss........................................... $ (322,970) (1.5) $ (796,803) (4.1)
=========== ===== =========== =====
Basic and diluted net loss per share............... $(0.04) $ (0.10)
=========== ===========
Weighted average common shares outstanding........ 8,230,642 8,211,447
=========== ===========
Operating data (in barrels):
Beer barrels shipped............................. 81,400 79,900
=========== ===========
Soda barrels shipped............................. 22,200 21,900
=========== ===========
Total barrels shipped............................. 103,600 101,800
=========== ===========
Production capacity at period end................. 172,000 172,000
=========== ===========
</TABLE>
9
<PAGE>
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998
Gross Sales. Gross sales increased 8.7% to $7,811,000 for the third quarter
ended September 30, 1999 from $7,184,000 in the same quarter of the prior year.
This increase in gross sales was mainly the result of increased alehouse and
craft beer sales, which were slightly offset by decreased soda sales. Alehouse
sales increased 28.8% to $2,188,000 from $1,699,000 for quarters ended September
30, 1999 and 1998, respectively, due mainly to increased patronage at the
Seattle alehouse from the opening of the new Mariner baseball stadium, Safeco
Field, directly across the street from the alehouse during third quarter of
1999. Craft beer sales increased 4.3% to $4,567,000 for the third quarter of
1999 from $4,377,000 in the same quarter of the prior year which resulted
primarily from a 5.2% increase in beer shipments to 28,300 barrels, up from
26,900 barrels in the same quarter of the prior year. Draft beer sales, which
carry a lower average sales price, were 40.8% for the quarter ended September
30, 1999 up from 38.8% for the same quarter of the prior year. Soda sales
decreased 4.7% to $1,056,000 for the third quarter of 1999 from $1,108,000 in
the same quarter of the prior year on shipments of 8,600 barrels for the same
quarter of both years. The decline in soda sales price per barrel is
attributable to a lower average sales price and a higher percentage of draft
sales to 17.4% for the quarter ended September 30, 1999 from 14.6% for the same
quarter of the prior year.
Excise Taxes. Excise taxes increased slightly to 6.4% of net sales for the
third quarter ended September 30, 1999 from 6.3% of net sales in the same
quarter of the prior year.
Gross Margin. Gross margin increased 15.9% to $1,817,000 for the third quarter
ended September 30, 1999 from $1,568,000 in the same quarter of the prior year.
Gross margin as a percentage of net sales increased to 24.8% for the third
quarter ended September 30, 1999 from 23.2% for the same quarter of the prior
year. This increase as a percentage of net sales was due primarily to a greater
proportion of beer production at the more efficient Berkeley production plant
and a shift in product mix to higher margin products.
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased 1.7% to $1,948,000 from $1,982,000 for the
quarters ended September 30, 1999 and 1998, respectively. Selling, general and
administrative expense as a percent of net sales also decreased to 26.6% from
29.3% for the same quarter of the prior year. This decrease resulted from a
decrease in non-recurring costs related to the upgrading of the Company's
computer systems and other expenses in the third quarter of 1998.
Other Income, net. Other income, net increased to $189,000 for the third
quarter ended September 30, 1999 from $95,000 reported for the third quarter of
the prior year. This increase in other income was due, in part, to increased
parking and interest income during the current quarter compared the same quarter
of the prior year.
Income Taxes. The Company recorded no income tax benefit for the third quarter
ended September 30, 1999 compared to the $85,000 benefit in the same quarter of
1998. During the first quarter of 1999, the Company established a valuation
allowance to offset the further accumulation of deferred tax assets and no tax
benefit or provision has been recognized for the current year pre-tax losses.
Net Income (Loss). The Company reported a $293,000 increase in net income for
the quarter ended September 30, 1999 to $58,000 as compared to a net loss of
$235,000 reported for the third quarter of the prior year. The increase in net
income was due mainly to increased gross margin and increased other income for
the third quarter ended September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Gross Sales. Gross sales increased 4.2% to $21,777,000 for the nine month
period ended September 30, 1999 from $20,903,000 in the same nine month period
of the prior year. This increase in gross sales was mainly the result of
increased sales from the alehouses. Alehouse sales increased 18.2% to $5,604,000
from $4,743,000 for nine months ended September 30,1999 and 1998, respectively,
due to increased sales prices and patronage at both alehouses and the opening of
the new Mariner baseball stadium across the street from the Seattle Alehouse
during the third quarter. Craft beer shipments increased 1.9% to 81,400 barrels
for the nine month period ended September 30, 1999 from 79,900 barrels in the
same period of the prior year while soda shipments increased 1.4% to 22,200
barrels from 21,900 barrels in the same period of the prior year. Craft beer
sales increased less than 1% to $13,358,000 for the nine month period ended
September 30, 1999 from $13,332,000 in the same period of the prior year. Soda
sales decreased less than 1% to $2,815,000 for the nine month period ended
September 30, 1999 from $2,828,000 in the same period of the prior year. The
decrease in soda sales resulted primarily from an increase in draft sales, which
carry a lower price per barrel than bottled soda. The beer and soda product mix
shifted to a higher percentage of draft sales to 39.6% and 18.0%, respectively,
for the nine months ended September 30, 1999 versus 37.8% and 15.7% for the same
period of the prior year.
Excise Taxes. Excise taxes decreased slightly to 6.4% of net sales for the
nine month period ended September 30, 1999 from 6.5% of net sales for the same
nine month period of the prior year.
10
<PAGE>
Gross Margin. Gross margin increased 9.8% to $4,942,000 for the nine month
period ended September 30, 1999 from $4,500,000 for the same nine month period
of the prior year. Gross margin as a percentage of net sales improved to 24.2%
for the nine month period ended September 30, 1999 from 22.9% for the same nine
month period of the prior year. This increase as a percentage of net sales was
due mainly to a greater proportion of beer production at the more efficient
Berkeley production plant and a shift in sales mix to higher margin products in
1999.
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased 8.2% to $5,656,000 for the nine month period
ended September 30, 1999 from $6,164,000 for the same period of the prior year.
Selling, general and administrative expense as a percent of net sales also
decreased to 27.6% from 31.4% for the same period of the prior year. This
decrease resulted from planned sales and marketing expenditure reductions, a
decrease in legal costs and a decrease in non-recurring costs related to the
upgrading of the Company's computer systems in the first nine months of 1998.
Other Income, net. Other income, net decreased to $390,000 for the nine month
period ended September 30,1999 from $504,000 for the same nine month period of
the prior year. The decrease in other income was due primarily to the successful
outcome of a long-standing securities lawsuit which resulted in the Company's
insurers refunding expenditures on legal costs of $250,000 in the nine month
period ended September 30, 1998.
Income Taxes. The Company recorded no income tax benefit for the period ended
September 30, 1999 compared to the $364,000 benefit recorded in the same period
of 1998. During the first quarter of 1999, the Company established a valuation
allowance to offset the further accumulation of deferred tax assets and no tax
benefit or provision has been recognized for the current year pre-tax losses.
Net Loss. The net loss for the nine month period ended September 30, 1999
decreased 59.5% to $323,000, as compared to net loss of $797,000 reported for
the same period of the prior year. The decrease in net loss was due mainly to
increased gross margin and decreased selling, general and administrative
expenses, which was partially offset by the elimination of a tax benefit for the
prior year loss and the $250,000 refund of legal expenditures in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine month period ended
September 30, 1999 was $1,769,000 compared to $1,365,000 for the same nine month
period of the prior year. This increase was due primarily to the $474,000
decrease in net loss for the nine months ended September 30, 1999 compared to
the same period of the prior year. Net cash used in investing activities for the
period ended September 30, 1999 was $652,000 compared to net cash used in
investing activities of $801,000 for the same period of the prior year. The cash
used in investing activities in 1999 included funds used to expand the Seattle
alehouse, upgrade corporate office equipment and installation of production
equipment at the Berkeley and Seattle breweries. At September 30, 1999, the
Company had working capital of $7,462,000 compared to $6,453,000 at December 31,
1998.
The Company has a $10 million line of credit (the Line of Credit) for short-
term operating needs. The Line of Credit revolves through April 30, 2000, 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 the cost of
acquisition of businesses, brands and 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 1999 are expected to
be less than 1998 expenditures. Planned projects include the continued upgrading
of brewery equipment and alehouse facilities in the Seattle and Berkeley
locations. 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 1999.
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.
11
<PAGE>
YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. If not addressed,
the direct result could be a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process customer transactions or engage in similar normal business
activities.
The Company's Year 2000 Project has proceeded on schedule. Early in 1998,
the Company began a project to improve its information systems by inventorying
and replacing existing business software. The new system replaces all critical
systems and approximately 90% of all computer systems which the Company's
inventory showed to be affected by the year 2000 issue. The Company's inventory
revealed no other significant problems arising from non-compliant computer chips
embedded in other equipment. The total cost of the Company's Year 2000 Project
was approximately $450,000, including the cost of installing the business
software. The project is substantially complete as of September 30, 1999.
The Company is dependent upon certain suppliers and its wholesale customers
and has communicated with these companies to assess their readiness for the year
2000. Contingency plans have been made where practicable to cope with
interruption of supplies or services and failures by wholesalers to properly
service the Company's markets. However, it should be noted that there are many
cases, such as utility supply and servicing of remote markets, where no feasible
alternatives are available to the Company and the Company is vulnerable to
failures by external third parties.
Although management anticipates that its systems and applications will be
year 2000 compliant, there can be no assurance that the systems of other
companies on which the Company's systems rely will be year 2000 compliant in the
same time frame. Any such failure on the part of other companies with whom the
Company transacts business, to be year 2000 compliant on a timely basis, may
have an adverse impact on the operations of the Company.
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. 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 Form 10-K for the year ended December 31, 1998.
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.
3.1* Amended and Restated Articles of Incorporation
3.2* Amended and Restated Bylaws
27 Financial Data Schedule
*Incorporated by reference to the exhibits filed as part of the Company's
Registration Statement on Form S-1 (File No. 33-97834).
(B) REPORTS ON FORM 8-K
None filed during the quarter ended September 30, 1999.
Items 1,2, 3, 4 and 5 of PART II are not applicable and have been omitted
12
<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 November 11, 1999.
PYRAMID BREWERIES INC.
By: /s/ RICHARD DENMARK
-------------------
Richard Denmark, Vice President
and Chief Financial Officer
DATE: November 11, 1999
13
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule
14
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,395,847
<SECURITIES> 0
<RECEIVABLES> 1,387,704
<ALLOWANCES> 30,846
<INVENTORY> 1,516,114
<CURRENT-ASSETS> 10,078,396
<PP&E> 32,781,321
<DEPRECIATION> 6,274,472
<TOTAL-ASSETS> 37,880,905
<CURRENT-LIABILITIES> 2,616,303
<BONDS> 0
0
0
<COMMON> 82,403
<OTHER-SE> 34,214,479
<TOTAL-LIABILITY-AND-EQUITY> 37,880,905
<SALES> 20,458,268
<TOTAL-REVENUES> 21,777,002
<CGS> 15,515,872
<TOTAL-COSTS> 21,171,584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30,846
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (322,970)
<INCOME-TAX> 0
<INCOME-CONTINUING> (322,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (322,970)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
