<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 JUNE 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)
<TABLE>
<S> <C>
Washington 91-1258355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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: 8,236,699 shares of Common Stock
outstanding as of June 30, 1999
Pages 1 of 14 sequentially numbered pages.
1
<PAGE>
PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTERLY AND SIX MONTH PERIOD ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets
June 30, 1999 and December 31, 1998..................................... 3
Statements of Operations
Three Month and Six Month Periods Ended June 30, 1999 and 1998.......... 4
Statements of Cash Flows
Six Month Periods Ended June 30, 1999 and 1998.......................... 5
Notes to Financial Statements (Unaudited)................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................... 11
SIGNATURE................................................................ 12
EXHIBIT INDEX............................................................ 13
Exhibit 27............................................................... 14
</TABLE>
2
<PAGE>
PART I
Item 1 -- FINANCIAL STATEMENTS
PYRAMID BREWERIES INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
--------------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 6,088,132 $ 5,245,134
Accounts receivable, net 1,577,185 1,003,789
Inventories 1,542,130 1,202,793
Prepaid expenses and other 417,298 621,009
Deferred income taxes 444,216 444,216
-------------------------------------
Total current assets 10,068,961 8,516,941
-------------------------------------
Fixed assets, net 26,904,662 27,558,848
Deferred income taxes 490,576 490,576
Other assets 822,307 865,286
-------------------------------------
Total assets $ 38,286,506 $ 37,431,651
=====================================
CURRENT LIABILITIES:
Accounts payable $ 1,292,756 $ 218,964
Accrued expenses 1,311,650 1,312,593
Refundable deposits 535,094 462,747
Restructuring reserve -- 69,238
-------------------------------------
Total current liabilities 3,139,500 2,063,542
Deferred rent 912,763 782,245
-------------------------------------
Total liabilities 4,052,263 2,845,787
-------------------------------------
COMMITMENTS AND CONTINGENCIES
Preferred stock, 10,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value; 40,000,000 shares authorized,
8,236,699 and 8, 219,532 shares issued and outstanding 82,367 82,195
Additional paid-in capital 35,065,639 35,036,869
Retained deficit (913,763) (533,200)
-------------------------------------
Total stockholders' equity 34,234,243 34,585,864
-------------------------------------
Total liabilities and stockholders' equity $ 38,286,506 $ 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 Six Months Ended
June 30, June 30,
--------------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross sales $7,738,483 $7,510,552 $13,965,965 $13,719,500
Less excise taxes 489,272 487,556 846,861 847,323
---------- ---------- ----------- -----------
Net sales 7,249,211 7,022,996 13,119,104 12,872,177
Cost of sales 5,364,444 5,182,756 9,993,331 9,940,339
---------- ---------- ----------- -----------
Gross margin 1,884,767 1,840,240 3,125,773 2,931,838
Selling, general and administrative expenses 1,896,558 2,024,850 3,707,507 4,182,040
---------- ---------- ----------- -----------
Operating loss (11,791) (184,610) (581,734) (1,250,202)
Other income, net 101,222 324,279 201,171 408,764
---------- ---------- ----------- -----------
Income (loss) before income taxes 89,431 139,669 (380,563) (841,438)
(Provision) benefit for income taxes -- (66,282) -- 279,497
---------- ---------- ----------- -----------
Net income (loss) $ 89,431 $ 73,387 $ (380,563) $ (561,941)
========== ========== =========== ===========
Basic and diluted net income (loss) per share $ 0.01 $ 0.01 $ (0.05) $ (0.07)
========== ========== =========== ===========
Weighted average shares outstanding 8,229,376 8,211,055 8,226,262 8,210,156
========== ========== =========== ===========
Beer barrels shipped 29,400 29,200 53,100 53,000
========== ========== =========== ===========
Soda barrels shipped 7,800 7,500 13,600 13,300
========== ========== =========== ===========
Total barrels shipped 37,200 36,700 66,700 66,300
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PYRAMID BREWERIES INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
-------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $ (380,563) $ (561,941)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,400,242 1,442,647
Loss (gain) on sale of fixed assets 16,031 (1,971)
Deferred income taxes -- (558,941)
Deferred rent 130,518 119,010
Restructuring charge (69,238) (343,042)
Changes in operating assets and liabilities:
Accounts receivable (573,396) (564,524)
Inventories (339,337) (13,564)
Prepaid expenses and other (37,260) (117,654)
Income taxes receivable -- 250,071
Accounts payable and accrued expenses 1,072,849 370,833
Refundable deposits 72,347 18,465
-------------------------------------
Net cash provided by operating activities 1,292,193 39,389
-------------------------------------
INVESTING ACTIVITIES:
Acquisitions of fixed assets (512,785) (746,224)
Proceeds from sales of fixed assets 34,648 193,143
-------------------------------------
Net cash used in investing activities (478,137) (553,081)
-------------------------------------
FINANCING ACTIVITIES:
Proceeds from the sale of common stock 28,942 9,228
-------------------------------------
Net cash provided by financing activities 28,942 9,228
-------------------------------------
Increase (decrease) in cash and cash equivalents 842,998 (504,464)
Cash and cash equivalents at beginning of period 5,245,134 5,393,251
-------------------------------------
Cash and cash equivalents at end of period $ 6,088,132 $ 4,888,787
=====================================
</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 June 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>
June 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Raw Materials...................... $ 741,356 $ 618,302
Finished Goods..................... 800,774 584,491
----------- -----------
$ 1,542,130 $ 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>
June 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Brewery and retail equipment......... $17,500,381 $17,283,235
Furniture and fixtures............... 935,570 618,910
Leasehold improvements............... 13,867,967 13,909,636
Construction in progress............. 313,902 340,514
Assets held for sale................. -- 32,000
------------ -------------
32,617,820 32,184,295
Less accumulated depreciation........ (5,713,158) (4,625,447)
------------ -------------
$26,904,662 $ 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 capital
expenditures and 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, 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
distinct and different products and services. These segments are managed
separately because each business requires different production, 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)
Quarter ended June 30, 1999
<S> <C> <C> <C> <C> <C>
Revenues from external customers...... $ 4,959 $ 1,004 $ 1,775 $ -- $ 7,738
Intersegment revenues................. 107 17 (124) -- --
Interest income....................... -- -- -- 72 72
Depreciation and amortization......... 527 28 103 36 694
Operating income (loss)............... 224 256 119 (611) (12)
Income tax benefit.................... -- -- -- -- --
Capital expenditures.................. 37 -- 184 10 231
Total assets.......................... 22,173 572 3,563 11,979 38,287
Quarter ended June 30, 1998
Revenues from external customers...... $ 4,953 $ 963 $ 1,595 $ -- $ 7,511
Intersegment revenues................. 113 8 (121) -- --
Interest income....................... -- -- -- 76 76
Depreciation and amortization......... 519 28 91 24 662
Operating income (loss)............... 238 211 65 (699) (185)
Income tax provision.................. -- -- -- (66) (66)
Capital expenditures.................. 96 -- 88 64 248
Six months ended June 30, 1999
Revenues from external customers...... $ 8,790 $ 1,760 $ 3,416 $ -- $ 13,966
Intersegment revenues................. 259 24 (283) -- --
Interest income....................... -- -- -- 151 151
Depreciation and amortization......... 1,067 56 206 71 1,400
Operating income (loss)............... 40 498 139 (1,259) (582)
Income tax benefit.................... -- -- -- -- --
Capital expenditures.................. 178 -- 213 122 513
Total assets.......................... 22,173 572 3,563 11,979 38,287
Six months ended June 30, 1998
Revenues from external customers...... $ 8,957 $ 1,718 $ 3,045 $ -- $ 13,720
Intersegment revenues................. 210 17 (227) -- --
Interest income....................... -- -- -- 157 157
Depreciation and amortization......... 1,074 56 257 56 1,443
Operating (loss) income............... (262) 431 50 (1,469) (1,250)
Income tax benefit.................... -- -- -- 279 279
Capital expenditures.................. 293 142 150 161 746
</TABLE>
7
<PAGE>
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.
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 June 30,
-----------------------------------------------
% of % of
1999 Net Sales 1998 Net Sales
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Gross sales........................................ $ 7,738,483 $ 7,510,552
Less excise taxes.................................. 489,272 487,556
------------ ------------
Net sales.......................................... 7,249,211 100.0 7,022,996 100.0
Cost of sales...................................... 5,364,444 74.0 5,182,756 73.8
------------ ----- ------------ -----
Gross margin..................................... 1,884,767 26.0 1,840,240 26.2
Selling, general and administrative................ 1,896,558 26.2 2,024,850 28.8
------------ ----- ------------ ----
Operating loss..................................... (11,791) (0.2) (184,610) (2.6)
Other income, net.................................. 101,222 1.4 324,279 4.6
------------ ----- ------------ ----
Income before income taxes......................... 89,431 1.2 139,669 2.0
Provision for income taxes......................... -- -- (66,282) (1.0)
------------ ----- ------------ ----
Net income......................................... $ 89,431 1.2 $ 73,387 1.0
============ ===== ============ ====
Basic and diluted net income per share............. $ 0.01 $ 0.01
============ ============
Weighted average common shares outstanding........ 8,229,376 8,211,055
============ ============
Operating data (in barrels):
Beer barrels shipped............................. 29,400 29,200
============ ============
Soda barrels shipped............................. 7,800 7,500
============ ============
Total barrels shipped............................ 37,200 36,700
============ ============
Production capacity at period end................ 172,000 172,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------
% of % of
1999 Net Sales 1998 Net Sales
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Gross sales........................................ $ 13,965,965 $ 13,719,500
Less excise taxes.................................. 846,861 847,323
------------ ------------
Net sales.......................................... 13,119,104 100.0 12,872,177 100.0
Cost of sales...................................... 9,993,331 76.2 9,940,339 77.2
------------ ----- ------------ -----
Gross margin..................................... 3,125,773 23.8 2,931,838 22.8
Selling, general and administrative................ 3,707,507 28.3 4,182,040 32.6
------------ ----- ------------ -----
Operating loss..................................... (581,734) (4.5) (1,250,202) (9.8)
Other income, net.................................. 201,171 1.5 408,764 3.2
------------ ----- ------------ -----
Loss before income taxes........................... (380,563) (3.0) (841,438) (6.6)
Benefit for income taxes........................... -- -- 279,497 2.2
------------ ----- ------------ -----
Net loss........................................... $ (380,563) (3.0) $ (561,941) (4.4)
============ ===== ============ =====
Basic and diluted net loss per share............... $ (0.05) $ (0.07)
============ ============
Weighted average common shares outstanding........ 8,226,262 8,210,156
============ ============
Operating data (in barrels):
Beer barrels shipped............................. 53,100 53,000
============ ============
Soda barrels shipped............................. 13,600 13,300
============ ============
Total barrels shipped............................ 66,700 66,300
============ ============
Production capacity at period end................ 172,000 172,000
============ ============
</TABLE>
QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998
Gross Sales. Gross sales increased 3.0% to $7,738,000 for the second quarter
ended June 30, 1999 from $7,511,000 in the same quarter of the prior year. This
increase in gross sales was mainly the result of increased soda and alehouse
sales, while craft beer sales were flat. Alehouse sales increased 11.3% to
$1,775,000 from $1,595,000 for quarters ended June 30, 1999 and 1998,
respectively, due to increased sales prices and patronage at both alehouses.
Soda sales increased 4.3% to $1,004,000 for the second quarter of 1999 from
$963,000 in the same quarter of the prior year which resulted primarily from a
4.0% increase in soda shipments to 7,800 barrels, up from 7,500 barrels in the
same quarter of the prior year. Craft beer sales increased less than 1% to
$4,959,000 for the second quarter of 1999 on shipments of 29,400 barrels from
$4,953,000 and 29,200 barrels shipped in the same quarter of the prior year. The
8
<PAGE>
product mix shifted slightly to a higher percentage of draft sales to 37.0% for
the quarter ended June 30, 1999 from 36.5% for the same quarter of the prior
year.
Excise Taxes. Excise taxes decreased to 6.3% of gross sales for the second
quarter ended June 30, 1999 from 6.5% of gross sales in the same quarter of the
prior year. The decrease in excise taxes as a percentage of gross sales was due
mainly to a greater portion of alehouse sales during the quarter ended June 30,
1999, which do not bear excise tax.
Gross Margin. Gross margin increased 2.4% to $1,885,000 for the second quarter
ended June 30, 1999 from $1,840,000 in the same quarter of the prior year. Gross
margin as a percentage of net sales declined to 26.0% for the second quarter
ended June 30, 1999 from 26.2% for the same quarter of the prior year. This
small decrease as a percentage of net sales was due primarily to the higher
level of alehouse sales which has a lower gross margin as a percent of net
sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 6.3% to $1,897,000 from $2,025,000 for the
quarters ended June 30, 1999 and 1998, respectively. Selling, general and
administrative expenses as a percent of net sales also decreased to 26.2% from
28.8% for the same quarter of the prior year. This decrease resulted from
planned sales and marketing expenditure reductions and a decrease in non-
recurring costs related to the upgrading of the Company's computer systems in
the second quarter of 1998. Current quarter selling, general and administrative
expenses also included a $60,000 gain from the close-out of the 1997
restructuring reserve.
Other Income. Other income decreased 68.8% to $101,000 for the second quarter
ended June 30, 1999 from $324,000 for the second quarter 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 quarter ended June 30, 1998.
Income Taxes. The Company recorded no income tax provision for the second
quarter ended June 30, 1999 compared to the $66,000 provision 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. Net income for the quarter ended June 30, 1999 was $89,000, an
increase from $73,000 reported for the second quarter of the prior year. The
increase in net income was due mainly to increased alehouse profits, decreased
selling, general and administrative expenses and the elimination of a tax
provision for the second quarter income.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Gross Sales. Gross sales increased 1.8% to $13,966,000 for the six month
period ended June 30, 1999 from $13,720,000 in the same six month period of the
prior year. This increase in gross sales was mainly the result of increased
sales from the alehouses. Alehouse sales increased 12.2% to $3,416,000 from
$3,045,000 for six months ended June 30,1999 and 1998, respectively, due to
increased sales prices and patronage at both alehouses. Craft soda sales
increased 2.4% to $1,760,000 for the six month period ended June 30, 1999 from
$1,718,000 in the same period of the prior year while soda shipments increased
2.3% to 13,600 barrels from 13,300 barrels in the same period of the prior year.
Craft beer sales decreased 1.9% to $8,790,000 for the six month period ended
June 30, 1999 from $8,957,000 in the same period of the prior year. The decrease
resulted primarily from an increase in draft beer sales which carry a lower
price per barrel than bottled beer. Craft beer shipments increased slightly to
53,100 barrels from 53,000 barrels in the same period of the prior year. The
product mix shifted to a higher percentage of draft sales to 39.0% for the six
months ended June 30, 1999 versus 37.3% for the same period of the prior year.
Excise Taxes. Excise taxes decreased to 6.1% of gross sales for the six month
period ended June 30, 1999 from 6.2% of gross sales for the same six month
period of the prior year. The decrease in excise taxes as a percentage of gross
sales was due to a higher proportion of alehouse sales which do not bear excise
tax.
Gross Margin. Gross margin increased 6.6% to $3,126,000 for the six month
period ended June 30, 1999 from $2,932,000 for the same six month period of the
prior year. Gross margin as a percentage of net sales improved to 23.8% for the
six month period ended June 30, 1999 from 22.8% for the same six 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 11.3% to $3,708,000 for the six month period
ended June 30, 1999 from $4,182,000 for the same period of the prior year.
Selling, general and administrative expenses as a percent of net sales also
decreased to 28.3% from 32.6% for the same period of the prior year. This
decrease resulted from planned sales and marketing expenditure reductions and a
decrease in non-recurring costs related to the upgrading of the
9
<PAGE>
Company's computer systems in the first six months of 1998. Current year
selling, general and administrative expenses also included a $60,000 gain from
the close-out of the 1997 restructuring reserve.
Other Income, net. Other income, net decreased to $201,000 for the six month
period ended June 30,1999 from $409,000 for the same six 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 six month
period ended June 30, 1998.
Income Taxes. The Company recorded no income tax benefit for the period ended
June 30, 1999 compared to the $279,000 benefit recorded in the 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 six month period ended June 30, 1999 decreased
32.2% to $381,000, as compared to net loss of $562,000 reported for the same
period of the prior year. The decrease in net loss was due mainly to increased
alehouse sales 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 during the six month period ended
June 30, 1999 was approximately $1,292,000 due primarily to net income for the
quarter and the increase in the accounts payable balance in the current period
compared to prior year decreases in the restructuring charge and increases in
deferred income taxes. The increase in accounts payable during the six month
period ended June 30, 1999 was primarily due to the timing of cash disbursements
which were made the day after the period ended June 30, 1999. Net cash used in
investing activities for the six month period ended June 30, 1999 was $478,000
resulting from funds used to expand the Seattle alehouse and installation of
production equipment at the Berkeley Brewery. At June 30, 1999, the Company had
working capital of $6,929,000 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.
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 is proceeding on schedule. Early in 1998, the
Company began a project to improve its information systems by 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 is approximately
$450,000, including the cost of installing the business software. Approximately
$445,000 has been incurred as of June 30, 1999 and the project is substantially
complete.
10
<PAGE>
The Company is dependent upon certain suppliers and its wholesale customers.
There are plans to communicate with these companies to assess their readiness
for the year 2000. Contingency plans will be 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 certain 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 on a timely basis, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual shareholder meeting was held on May 13, 1999. During the meeting,
the election of three directors was submitted to a vote of security holders and
duly elected for terms of three years each. George Hancock was re-elected by a
vote of 7,264,170 for and 257,641 votes were withheld. Robert Toledo was elected
by a vote of 7,258,244 for and 263,567 withheld. Scott Barnum was elected by a
vote of 7,265,370 for and 256,441 withheld. The terms of office as directors
continued after the meeting for John Stoddard, John Bryce, George Textor and
Thomas Schwalm.
ITEM 5. OTHER INFORMATION
On June 17, 1999 a Stockholder Rights Plan was adopted. See item 6, section B
below.
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
On June 17, 1999 the Company filed a Form 8-K regarding the adoption by the
Board of Directors of the Corporation of a Stockholder Rights Plan (File No.
000-27116).
Items 1,2 and 3 of PART II are not applicable and have been omitted
11
<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 August 13, 1999.
PYRAMID BREWERIES INC.
By: /s/ RICHARD DENMARK
-----------------------
Richard Denmark, Vice President
and Chief Financial Officer
DATE: August 13, 1999
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-----------
<C> <S>
27 Financial Data Schedule
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,088,132
<SECURITIES> 0
<RECEIVABLES> 1,593,185
<ALLOWANCES> 16,000
<INVENTORY> 1,542,130
<CURRENT-ASSETS> 10,068,961
<PP&E> 32,617,820
<DEPRECIATION> 5,713,158
<TOTAL-ASSETS> 38,286,506
<CURRENT-LIABILITIES> 3,139,500
<BONDS> 0
0
0
<COMMON> 82,367
<OTHER-SE> 35,065,639
<TOTAL-LIABILITY-AND-EQUITY> 38,286,506
<SALES> 13,119,104
<TOTAL-REVENUES> 13,965,965
<CGS> 9,993,331
<TOTAL-COSTS> 13,700,838
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (380,563)
<INCOME-TAX> 0
<INCOME-CONTINUING> (380,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (380,563)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
