U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1996
---------------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____________ to _____________
Commission file number 0-28282
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THE LION BREWERY, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
PENNSYLVANIA 24-0645190
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(State or Other Jurisdiction of (I.R.S.
Incorporation or Organization) Employer
Identification
No.)
700 NORTH PENNSYLVANIA AVENUE, WILKES BARRE, PA 18703
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(Address of Principal Executive Offices)
(717) 823-8801
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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 No X
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: June 11, 1996 -
---------------
3,885,051 shares outstanding
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Transitional Small Business Disclosure Format (check one):
Yes _____ No __X__
<PAGE>
THE LION BREWERY, INC.
BALANCE SHEETS
MARCH 31, SEPT. 30,
1996 1995
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Accounts receivable, less allowance for
doubtful accounts of $135,000 at
March 31, 1996 and $129,000 at
September 30, 1995 . . . . . . . . . . $ 2,067,000 $ 2,476,000
Inventories . . . . . . . . . . . . . . . 2,571,000 2,003,000
Prepaid expenses and other assets . . . . 448,000 277,000
----------- -----------
Total current assets . . . . . . . . . 5,086,000 4,756,000
Property, plant & equipment, net of
accumulated depreciation of $1,378,000 at
March 31, 1996 and $1,122,000 at
September 30, 1995 . . . . . . . . . . . 3,221,000 3,254,000
Goodwill, net of accumulated amortization of
$476,000 at March 31, 1996 and $311,000 at
September 30, 1995 . . . . . . . . . . . 6,121,000 6,203,000
Deferred financing costs and other assets,
net of accumulated amortization of
$224,000 at March 31, 1996 and $144,000
September 30, 1995 . . . . . . . . . . . 188,000 228,000
----------- -----------
$14,616,000 $14,441,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt . . . . $ 2,239,000 $ 1,745,000
Accounts payable . . . . . . . . . . . . 1,818,000 1,978,000
Accrued expenses . . . . . . . . . . . . 687,000 478,000
Refundable deposits . . . . . . . . . . . 192,000 171,000
Income taxes payable . . . . . . . . . . 75,000 330,000
----------- -----------
5,011,000 4,702,000
Long-term debt, less current portion . . . 5,621,000 6,131,000
Net pension liability . . . . . . . . . . . 218,000 218,000
Deferred income taxes . . . . . . . . . . . 285,000 351,000
----------- -----------
Total liabilities . . . . . . . . . . . 11,135,000 11,402,000
----------- -----------
Warrants . . . . . . . . . . . . . . . . 0 722,000
----------- -----------
Redeemable equity . . . . . . . . . . . . . 811,000 0
----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000
shares authorized; 1,851,183 shares
issued and outstanding . . . . . . . . 19,000 19,000
Additional paid-in capital . . . . . . . 1,304,000 1,304,000
Adjustment to reflect minimum pension
liability, net of deferred income taxes (10,000) (10,000)
Retained earnings . . . . . . . . . . . . 1,357,000 1,004,000
----------- -----------
Total stockholders' equity . . . . . . 2,670,000 2,317,000
----------- -----------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . $14,616,000 $14,441,000
=========== ===========
The accompanying notes to financial statements are an integral
part of these financial statements.
<PAGE>
THE LION BREWERY, INC.
STATEMENTS OF INCOME
(Unaudited)
Three months ended March 31, Six months ended March 31,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
Gross sales . . . . . $5,957,000 $5,856,000 $11,986,000 $11,566,000
Less excise taxes . . 94,000 89,000 201,000 176,000
---------- ---------- ----------- -----------
Net sales . . . . . . 5,863,000 5,767,000 11,785,000 11,390,000
Cost of sales . . . . 4,460,000 4,444,000 8,930,000 8,847,000
---------- ---------- ----------- -----------
Gross profit . . . 1,403,000 1,323,000 2,855,000 2,543,000
---------- ---------- ----------- -----------
Operating expenses:
Delivery . . . . . 214,000 216,000 409,000 414,000
Selling, advertising
and promotional
expenses . . . . 254,000 215,000 474,000 387,000
General and
administrative . 350,000 343,000 705,000 704,000
---------- ---------- ----------- -----------
818,000 774,000 1,588,000 1,505,000
---------- ---------- ----------- -----------
Operating income . 585,000 549,000 1,267,000 1,038,000
Interest expense and
amortization
of debt discount . 234,000 268,000 465,000 547,000
---------- ---------- ----------- -----------
Income before
provision for
income taxes . . 351,000 281,000 802,000 491,000
Provision for income
taxes . . . . . . . 157,000 131,000 360,000 229,000
---------- ---------- ----------- -----------
Net income . . . . 194,000 150,000 442,000 262,000
Warrant accretion . . 0 0 89,000 0
---------- ---------- ----------- -----------
Net income available
to common
shareholders . . . $ 194,000 $ 150,000 $ 353,000 $ 262,000
---------- ---------- ----------- -----------
Net income
per share . . . . . $ 0.09 $ 0.07 $ 0.17 $ 0.12
========== ========== =========== ===========
Weighted average
shares
outstanding . . . . 2,045,000 2,190,000 2,045,000 2,190,000
========== ========== =========== ===========
The accompanying notes to financial statements are an integral part
of these financial statements.
<PAGE>
THE LION BREWERY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED MARCH 31,
--------------------------
1996 1995
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Cash flow from operating activities:
Net income . . . . . . . . . . . . . . . . . $ 442,000 $ 262,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . 435,000 447,000
Bad debt expense . . . . . . . . . . . . 6,000 18,000
Provision for inventory reserve . . . . . 25,000 0
Benefit for deferred income taxes . . . . (66,000) (93,000)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable . . . . . . . . . . 403,000 783,000
Inventories . . . . . . . . . . . . . . (593,000) (243,000)
Prepaid expenses and other assets . . . 147,000 188,000
Increase (decrease) in:
Accounts payable, accrued expenses and 70,000 (15,000)
refundable deposits . . . . . . . . .
Income taxes payable . . . . . . . . . (255,000) 119,000
Pension liability . . . . . . . . . . . 0 2,000
--------- ---------
Cash provided by operating activities 614,000 1,468,000
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Cash flows from investing activities:
Purchase of equipment . . . . . . . . . . . (232,000) (165,000)
--------- ---------
Cash flows from financing activities:
Deferred financing costs . . . . . . . . . 0 (18,000)
Deferred costs relating to initial public
offering . . . . . . . . . . . . . . . . (318,000) 0
Issuance of long term debt . . . . . . . . 0 500,000
Net additions (reductions) in line of
credit . . . . . . . . . . . . . . . . . 411,000 (1,477,000)
Repayment of long term debt . . . . . . . . (475,000) (449,000)
--------- ---------
Net cash used in financing activities . . (382,000) (1,444,000)
--------- ---------
Net increase (decrease) in cash . . . . 0 (141,000)
Cash, beginning of year . . . . . . . . . . . 0 141,000
--------- ---------
Cash, end of year . . . . . . . . . . . . . . $ 0 $ 0
========= =========
Supplementary disclosure of cash flow
information:
Cash paid for:
Interest . . . . . . . . . . . . . . . . $ 250,000 $ 507,000
========= =========
Income taxes . . . . . . . . . . . . . . $ 680,000 $ 149,000
========= =========
The accompanying notes to financial statements are an integral part
of these financial statements.
<PAGE>
THE LION BREWERY, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The financial statements and accompanying information as of March 31,
1996 and for the three and six month periods ended March 31, 1996 and
1995 are unaudited but, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments and
accruals) which the Company considers necessary for a fair presentation
of the financial position of the Company at such dates and the operating
results and cash flows for those periods. Results for the interim
periods are not necessarily indicative of results for the entire year.
The interim financial statements and the related notes should be read
in conjunction with the notes to the financial statements of the
Company included in the Form SB-2 (File No. 333-01644) declared
effective by the Securities and Exchange Commission on May 1, 1996.
2. PUBLIC OFFERING OF EQUITY SECURITIES:
On May 2, 1996, the Company completed an initial public offering of
equity securities. 1,875,000 shares of common stock were sold for $6.00
per share by the Company during this offering and the partial exercise
of the over-allotment option. The proceeds of the initial public
offering, net of the underwriting commissions and including the partial
exercise of the over-allotment option, totaled $10,462,500. A portion of
these proceeds were used to repay indebtedness of the Company of
$7,947,800 and to retire 132,696 shares of Common Stock, in connection
with the termination of a loan agreement, at a cost of $950,000. The
repayment of the indebtedness included all of the remaining acquisition
debt and the Company's line of credit, which had an outstanding balance
of $919,800. The remaining proceeds from the offering will be used to
pay costs related to the offering and for other corporate needs.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Lion Brewery, Inc. is a brewer and bottler of brewed beverages,
including malta, specialty beers and specialty soft drinks. Malta is a
non-alcoholic brewed beverage popular with the Caribbean and certain other
segments of the Hispanic population, which the Company produces for
distribution primarily in the eastern United States. The Company produces
malta for the major Hispanic food distribution companies including Goya
Foods, Vitarroz, Ceverceria India and 7-Up/RC of Puerto Rico and is the
dominant producer of malta in the continental United States. Specialty
beers, generally known as craft beers, are brewed by the Company for both
sale under its own brands (label) and on a contract basis for other
breweries and marketers of craft beer brands. Craft beers are
distinguishable from other domestically produced beers by their fuller
flavor and adherence to traditional European brewing styles. The Company
also produces specialty soft drinks, including all-natural brewed ginger
beverages, on a contract basis for third parties. In addition, the Company
brews beer for sale under traditional Company-owned labels for the local
market at popular prices.
The Company label craft beers include 1857 Premium Lager, Stegmaier Porter,
Liebotschaner Cream Ale, Brewery Hill Black and Tan, Brewery Hill Honey
Amber, Brewery Hill Raspberry Red and Brewery Hill Pale Ale. Company label
beers, brewed in its own brewery, have won several prestigious awards. The
Company's flagship lager, 1857 Premium Lager, was voted the Best American
Premium Lager at the Great American Beer Festival in 1994. In addition,
Liebotschaner Cream Ale won back to back Gold Medals in the American Lager
Cream Ale Category, in 1994 and 1995 at the Great American Beer Festival.
Company brands recently captured two Silver Medals at the World Beer
Championships. Furthermore, the craft beers and specialty soft drinks
brewed under contract have won several awards.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
GROSS SALES AND EXCISE TAXES
The Company's gross sales increased 3.6% to $11,986,000 in the six months
ended March 31, 1996 from $11,566,000 in the six months ended March 31,
1995. Gross sales of craft beer represented 14.1% of gross sales in the
first six months of fiscal 1996, up from 11.4% in the comparable period of
fiscal 1995. Gross sales of Company label craft beers increased $604,000
or 215.7% in the first six months of fiscal 1996, as compared to the same
period of fiscal 1995, increasing to $884,000 from $280,000. Gross sales
of popular priced beer decreased 14.0% to $547,000 in the first six months
of fiscal 1996, from $636,000 in the first six months of fiscal 1995.
The Company is required to pay federal and state excise taxes on sales of
its beer. The federal excise tax increases from $7 to $18 per barrel on
production over 60,000 barrels. Total excise taxes increased 14.2% to
$201,000 in the first six months of fiscal 1996 from $176,000 in the same
period of fiscal 1995. Excise taxes increased in the first six months of
fiscal 1996, because the excise taxes were accrued at a rate higher than $7
per barrel in expectation that beer production for calendar 1996 will
exceed 60,000 barrels.
NET SALES
The Company's net sales increased 3.5% to $11,785,000 in the six months
ended March 31, 1996 from $11,390,000 in the six months ended March 31,
1995. Net sales of craft beer increased 28.2% to $1,567,000 in the first
six months of fiscal 1996, up from $1,222,000 in the same period of fiscal
1995. Net sales of craft beers produced under the Company's own labels
increased 217.6% to $832,000 in the first six months of fiscal 1996, as
compared to $262,000 in the first six months of fiscal 1995. Malta sales
decreased $134,000 or 1.5% to $8,766,000 in the first six months of fiscal
1996, from $8,900,000 in the comparable period of fiscal 1995. The Company
expects this trend in its Malta Sales to continue throughout the second
half of fiscal 1996. Sales of soft drinks increased $272,000 or 43.0% in
the first six months of fiscal 1996, as compared to the same period of
fiscal 1995, increasing to $904,000 from $632,000. Malta sales decreased
as a percentage of net sales to 74.4% in the first six months of fiscal
1996, as compared to 78.2% in the first six months of fiscal 1995. This
decrease is primarily the result of growth in net sales of Company label
craft beers and sales of soft drinks, and to a lesser extent, the decrease
in Malta sales. The Company continued its strategy begun in fiscal 1995 to
discontinue some of the slower selling, less profitable popular priced
beers. As a result, net sales of popular priced beer decreased 23.4% to
$735,000, in the first six months of fiscal 1996.
The Company increased sales of its craft beers through increased
penetration in its existing markets, expansion into contiguous regional
markets and new product introductions. During the first quarter of fiscal
1996, the Company introduced the "Classic Collection," a variety pack
consisting of two bottles each of its six original craft beers, 1857
Premium Lager, Stegmaier Porter, Liebotschaner Cream Ale, Brewery Hill
Black & Tan, Brewery Hill Honey Amber, and Brewery Hill Raspberry Red in a
two 12-pack case. In addition, in late March 1996, the Company introduced
Brewery Hill Pale Ale.
GROSS MARGINS
The Company's gross margins (gross profit as a percentage of net sales)
increased to 24.2% in the first six months of fiscal 1996 from 22.3% in the
first six months of fiscal 1995. The increase in gross margin was
primarily the result of the growth in sales of Company label craft beers
and, to a lesser extent, soft drinks.
DELIVERY EXPENSE
Delivery expense as a percentage of net sales decreased to 3.5% of net
sales, or $409,000, during the first six months of fiscal 1996 from 3.6% of
net sales or $414,000, during the first six months of fiscal 1995.
Delivery expense remained at 4.7% of Malta sales during these periods.
Malta products are shipped common carrier at the Company's expense.
Substantially all beer sales are shipped F.O.B. shipping point.
SELLING, ADVERTISING AND PROMOTIONAL EXPENSE
Selling, advertising and promotional expenses increased 22.5% to $474,000
in the first six months of fiscal 1996 from $387,000 in the comparable
period of fiscal 1995. The increase in selling, advertising and
promotional expenses occurred as the Company began to gear up its Company
label craft beer packaging and sales and marketing efforts. In March 1996,
the Company hired Don Ladhoff as Vice President of Sales and Marketing.
Mr. Ladhoff has over twenty years experience in the alcoholic beverage
industry, most recently with Canandaigua Wine Company, Inc. Mr. Ladhoff
will be responsible for spearheading the growth of Company label craft beer
sales by further developing the Company's distribution system in the states
it currently services and in the additional states the Company is expanding
into. The Company plans to significantly increase its selling,
advertising and promotional expenses to further its strategy of rapidly
expanding its marketing of craft beers.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased as a percentage of net sales
to 6.0% in the first six months of fiscal 1996 from 6.2% in the comparable
period of the previous year as a result of controlling salaries,
professional fees and general overhead costs.
OPERATING INCOME
Operating income increased 22.1% to $1,267,000, or 10.8% of net sales, in
the first six months of fiscal 1996 from $1,038,000, or 9.1% of net sales,
for the same period of the previous year. This increase was substantially
greater than the 3.5% increase in net sales, and was primarily attributable
to the increase in craft beer sales under the Company's labels. Company
label craft beers have the highest gross margins of all the Company's
products.
INTEREST EXPENSE
Interest expense decreased 15.0% to $465,000 in the first six months of
fiscal 1996, from $547,000 in the first six months of fiscal 1995. The
decrease in interest expense resulted primarily from a reduction in the
debt outstanding.
PROVISION FOR INCOME TAXES
The effective tax rate was 45% for the first six months of fiscal 1996 and
47% for the first six months of fiscal 1995. State income taxes and
nondeductible goodwill amortization impact the effective tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded operations primarily through cash
generated from operations and bank and other debt. Cash flow provided from
operations was $614,000 and $1,468,000 in the first six months of fiscal
1996 and 1995, respectively. The cash flow from operations has been
affected by collections of accounts receivable, changes in inventory levels
maintained and income taxes payable. In the first six months of fiscal
1995, the Company made several changes to its credit and collections
policies, which resulted in faster collection periods. The Company has
continued these policies through the first six months of fiscal 1996. In
the first six months of fiscal 1996, the Company also significantly
increased its inventory of bottles, in anticipation of summer and fall
production requirements. Income taxes payable increased as the Company's
income before income taxes increased 63.3% in the first six months of
fiscal 1996 as compared to the same period in the previous year. In both
periods, the cash provided from operations was used to purchase equipment
and repay debt. In the first six months of fiscal 1996, cash provided from
operations was also offset by $318,000 of costs relating to the public
offering of the Company's stock.
On May 2, 1996, the Company completed an initial public offering of equity
securities. The proceeds of the initial public offering, net of the
underwriting commissions and including the partial exercise of the over-
allotment option, totaled $10,462,500. A portion of these proceeds were
used to repay indebtedness of the Company of $7,947,800 and to retire
132,696 shares of Common Stock, in connection with the termination of a
loan agreement, at a cost of $950,000. The repayment of the indebtedness
included all of the remaining acquisition debt and the Company's line of
credit, which had an outstanding balance of $919,800. The remaining
proceeds from the offering will be used to pay costs related to the
offering and other corporate needs. The Company has available $3.0
million under a revolving credit loan, which matures on September 30,
1996 and bears interest at 1% over the prime rate. The Company believes
that this facility will be renewed or replaced at maturity, although
there is no assurance in this regard. The amount available for borrowing
under the line is based upon a percentage of eligible accounts receivable
and inventory. The Company is currently in compliance with the financial
covenants under its credit facility.
The Company believes that the net proceeds from the initial public
offering, together with cash flow from operations and borrowing
availability under its revolving credit facility, will be sufficient to
support the Company's capital expenditure and working capital requirements
through the end of fiscal 1997.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27. FINANCIAL DATA SCHEDULE
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE LION BREWERY, INC.
---------------------------
(Registrant)
Date: June 12, 1996 /s/ Charles E. Lawson
-------------- ---------------------------
CHARLES E. LAWSON
President and Chief Executive
Officer
Date: June 12, 1996 /s/ Patrick E. Belardi
-------------- ---------------------------
PATRICK E. BELARDI
Vice President and Chief Financial
Officer
<PAGE>
EXHIBIT INDEX
Exhibit Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE LION BREWERY, INC.'S BALANCE SHEETS, STATEMENTS OF INCOME AND
STATEMENTS OF CASH FLOWS FOR THE PERIOD ENDED MARCH 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,202
<ALLOWANCES> (135)
<INVENTORY> 2,571
<CURRENT-ASSETS> 5,086
<PP&E> 4,599
<DEPRECIATION> 1,378
<TOTAL-ASSETS> 14,616
<CURRENT-LIABILITIES> 5,011
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 2,670
<TOTAL-LIABILITY-AND-EQUITY> 14,616
<SALES> 5,863
<TOTAL-REVENUES> 5,863
<CGS> 4,460
<TOTAL-COSTS> 4,460
<OTHER-EXPENSES> 818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234
<INCOME-PRETAX> 351
<INCOME-TAX> 157
<INCOME-CONTINUING> 194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 194
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
