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 December 31, 1996
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[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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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. Employer
Incorporation or Organization) 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 X No
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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
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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:
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January 31, 1997 - 3,885,051 shares outstanding
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Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
THE LION BREWERY, INC.
BALANCE SHEETS
December 31, September 30,
1996 1996
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,467,000 $ 1,992,000
Accounts receivable, less allowance for
doubtful accounts of $160,000
at December 31, 1996 and $157,000
at September 30, 1996 1,469,000 2,001,000
Inventories 2,226,000 2,128,000
Prepaid expenses and other assets 231,000 190,000
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Total current assets 6,393,000 6,311,000
Property, plant & equipment, net of
accumulated depreciation of $1,838,000
at December 31, 1996 and $1,684,000
at September 30, 1996 3,920,000 3,600,000
Goodwill, net of accumulated amorization
of $516,000 at December 31, 1996
and $475,000 at September 30, 1996 5,998,000 6,039,000
Other assets 4,000 4,000
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$ 16,315,000 $ 15,954,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,713,000 $ 1,663,000
Accrued expenses 998,000 839,000
Refundable deposits 216,000 205,000
Income taxes payable 81,000 178,000
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3,008,000 2,885,000
Net pension liability 243,000 243,000
Deferred income taxes 182,000 206,000
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Total liabilities 3,433,000 3,334,000
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Stockholders' equity:
Common stock, $.01 par value; 10,000,000
shares authorized; 3,885,051
issued and outstanding at December 31,
1996 and September 30, 1996 39,000 39,000
Additional paid-in capital 10,612,000 10,612,000
Adjustment to reflect minimum pension
liability, net of deferred
income taxes (42,000) (42,000)
Retained earnings 2,273,000 2,011,000
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Total stockholders' equity 12,882,000 12,620,000
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Total liabilities and stockholders'
equity $ 16,315,000 $ 15,954,000
============ ============
The accompanying notes to financial statements are an integral part of
these financial statements.
<PAGE>
THE LION BREWERY, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1996 1995
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Cash flows from operating activities:
Net income $ 262,000 $ 248,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 195,000 217,000
Bad debt expense 3,000 3,000
Provision for inventory reserve 6,000 15,000
Benefit for deferred income taxes (24,000) (33,000)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 529,000 574,000
Inventories (104,000) (297,000)
Prepaid expenses and other assets (41,000) (2,000)
Increase (decrease) in:
Accounts payable, accrued expenses
and refundable deposits 220,000 (431,000)
Income taxes payable (97,000) 25,000
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Cash provided by operating
activities 949,000 319,000
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Cash flows from investing activities:
Purchase of equipment (474,000) (43,000)
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Cash flows from financing activities:
Net reductions in line of credit 0 (37,000)
Repayment of long term debt 0 (239,000)
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Net cash used in financing activities 0 (276,000)
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Net increase in cash 475,000 0
Cash and cash equivalents, beginning
of year 1,992,000 0
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Cash and cash equivalents, end of year $2,467,000 $ 0
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Supplementary disclosure of cash
flow information:
Cash paid for:
Interest $ 0 $ 215,000
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Income taxes $ 337,000 $ 211,000
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The accompanying notes to financial statements are an integral part of
these financial statements.
<PAGE>
THE LION BREWERY, INC.
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1996 1995
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Gross sales $ 5,927,000 $ 6,029,000
Less excise taxes 110 000 107,000
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Net sales 5,817,000 5,922,000
Cost of sales 4,392,000 4,470,000
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Gross profit 1,425,000 1,452,000
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Operating expenses:
Delivery 172,000 195,000
Selling advertising and
promotional expenses 460,000 220,000
General and administrative 342,000 355,000
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974,000 770,000
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Operating income 451,000 682,000
Interest expense (income) and
amortization of debt discount (27,000) 231,000
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Income before provision for
income taxes 478,000 451,000
Provision for income taxes 216,000 203,000
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Net income 262,000 248,000
Warrant accretion 0 89,000
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Net income available to
common shareholders $ 262,000 $ 159,000
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Net income per share $ 0.07 $ 0.08
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Shares used in the per share
calculation 3,925,000 1,902,000
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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 December
31, 1996 and for the three month periods ended December 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 10-KSB for the year
ended September 30, 1996.
2. LINES OF CREDIT:
In February 1997, the Company obtained a $5,000,000 revolving line of
credit and a $2,500,000 revolving equipment line of credit from a
financial institution. Both facilities are unsecured and interest is
payable monthly based upon either the Bank's prime rate minus 1/2%,
LIBOR plus 75 basis points or the Bank's offered rate. These lines of
credit mature in 3 years, and the Company, at its option, may convert
the principal outstanding on the revolving equipment line to a term
loan of either 3 or 5 years at the same rates or at a fixed rate to be
determined by the lending institution.
<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. In 1996, the
Company produced a flavored, alcoholic, malt based brew under contract.
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's flagship line of distinctive full-flavored beers are marketed
under the Brewery Hill name. The Brewery Hill line includes Brewery Hill
PennCenntenial Lager, Brewery Hill Carmel Porter, Brewery Hill Black and
Tan, Brewery Hill Honey Amber, Brewery Hill Raspberry Red, Brewery Hill
Pale Ale and Brewery Hill Cherry Wheat. The Company's original specialty
beers 1857 Premium Lager, Stegmaier Porter and Liebotschaner Cream Ale are
reminiscent of the Company's rich brewing heritage. Since the brewhouse
was built at the turn of the century in Wilkes-Barre, Pennsylvania, The
Lion Brewery benefits from a long brewing tradition. Company label beers,
brewed in its own brewery, have won several prestigious awards. The
Company's 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. The quality of the
Company's products continues to be recognized. Company brands have captured
the following medals at the 1996 World Beer Championships:
Brewery Hill Black and Tan 1st Place World Champ
Brewery Hill Cherry Wheat 1st Place World Champ
Brewery Hill Honey Amber Silver Medal
Brewery Hill Raspberry Red Silver Medal
1857 Premium Lager Silver Medal
Stegmaier Gold Medal Beer Silver Medal
Stegmaier Porter Bronze Medal
In addition, Brewery Hill Honey Amber won a bronze medal in the specialty
category at the 1996 World Beer Cup. Furthermore, the craft beers and
specialty soft drinks brewed under contract have won several awards.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
GROSS SALES AND EXCISE TAXES
The Company's gross sales decreased 1.7% to $5,927,000 in the three months
ended December 31, 1996 from $6,029,000 in the three months ended December
31, 1995. However, gross sales of the Company's flagship line of
distinctive full-flavored beers marketed under the Brewery Hill name
increased 17.1% to $247,000 in the three months ended December 31, 1996, up
from $211,000 in the same period of the prior fiscal year.
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 2.8% to
$110,000 in the first three months of fiscal 1997 from $107,000 in the same
period of fiscal 1996. Excise taxes are accrued at a rate higher than $7
per barrel in expectation that beer production will exceed 60,000 barrels.
NET SALES
The Company's net sales decreased 1.8% to $5,817,000 in the three months
ended December 31, 1996 from $5,922,000 in the three months ended December
31, 1995. Net sales of the Company's flagship line of distinctive full-
flavored beers marketed under the Brewery Hill name increased 15.1% to
$229,000 in the three months ended December 31, 1996, up from $199,000 in
the same period of the prior fiscal year. Net sales of Malta and specialty
soft drinks increased .3% and 6.1% respectively during the first three
months of fiscal 1997 as compared to the same period in fiscal 1996. Net
sales of the craft beers and specialty malt beverages decreased 7.4% and
net sales of popular priced beers decreased 27.7%. The decrease in net
sales of craft beer and specialty malt beverages primarily resulted from a
decrease in the sales of the Classic Collection variety pack. The Company
continued its strategy initiated in fiscal 1995 to discontinue some of the
slower selling, less profitable popular priced beers.
The Company increased sales of its Brewery Hill line of craft beers through
increased penetration in its existing markets, expansion into contiguous
regional markets and new product introductions. In November 1996, the
Company introduced Brewery Hill PennCenntenial Lager, along with its winter
seasonal, Brewery Hill Carmel Porter.
GROSS MARGINS
The Company's gross margins (gross profit as a percentage of net sales)
remained at 24.5% in the first three months of fiscal 1997, in comparison
to the first three months of fiscal 1996.
DELIVERY EXPENSE
Delivery expense as a percentage of net sales decreased to 3.0% of net
sales, or $172,000, during the first three months of fiscal 1997 from 3.3%
of net sales or $195,000, during the first three months of fiscal 1996.
Delivery expense decreased to 4.0% of Malta sales in the first three months
<PAGE>
of fiscal 1997 from 4.6% of Malta sales in the first three months of fiscal
1996. Malta products are usually shipped common carrier at the Company's
expense. This decrease primarily results from seasonal shipments of Malta
at the customers' expense. Substantially all beer sales are shipped F.O.B.
shipping point.
SELLING, ADVERTISING AND PROMOTIONAL EXPENSE
Selling, advertising and promotional expenses increased 109.1% to $460,000
in the first three months of fiscal 1997 from $220,000 in the comparable
period of fiscal 1996. 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. With the
introduction of Brewery Hill PennCenntenial Lager and Carmel Porter, the
Company began radio, billboard and print media advertisements in select
markets. A significant portion of the Company's sales and marketing
efforts is dedicated to the introduction of its new labels and the
implementation of promotional programs, including advertising, point of
sale materials and package design. Along with the introduction of the
Brewery Hill PennCenntenial Lager and Carmel Porter, the Company utilized a
sales blitz in its local marketplace and in January 1997 sales blitzes were
utilized in Maryland and Massachusetts. The Company also expanded its
distribution in the New England states and added a full time sales
representative in this area.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $342,000 or 5.9% of net sales in
the first three months of fiscal 1997 in comparison to 6.0% or $355,000 in
the first three months of fiscal 1996.
OPERATING INCOME
Operating income was $478,000, or 8.2% of net sales, in the first three
months of fiscal 1997. As a result of the increase in selling, advertising
and promotional expenses of $240,000, operating income decreased from
$682,000, or 11.5% of net sales in the first three months of fiscal 1996.
The Company believes the increased selling, advertising and promotional
expenditures will have a positive effect on future sales of its specialty
craft beers, however there can be no assurance thereof.
INTEREST EXPENSE (INCOME)
Interest income was $27,000 in the first three months of fiscal 1997
compared to interest expense of $231,000 in the first three months of
fiscal 1996. The interest income and decrease in interest expense resulted
from income earned on short-term investments and the repayment of the debt
outstanding with the proceeds from the company's initial public offering in
May 1996.
PROVISION FOR INCOME TAXES
The effective tax rate was 45% for the first three months of fiscal 1997
and 1996. State income taxes and nondeductible goodwill amortization
impact the effective tax rates.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded operations primarily through cash
generated from operations and bank and other debt. On May 2, 1996, the
Company completed an initial public offering of equity securities. A
portion of the proceeds from the offering was used to repay indebtedness of
the Company. In February 1997, the Company obtained a $5,000,000 revolving
line of credit and a $2,500,000 revolving equipment line of credit from a
financial institution. Both facilities are unsecured and interest is
payable monthly based upon either the Bank's prime rate minus 1/2%, LIBOR
plus 75 basis points or the Bank's offered rate. These lines of credit
mature in 3 years and the Company, at its option, may convert the principal
outstanding on the revolving equipment line to a term loan of either 3 or 5
years at the same rates or at a fixed rate to be determined by the lending
institution. There are no borrowings under these lines of credit to date.
Cash flows provided from operations were $949,000 and $319,000 in the first
three months of fiscal 1997 and 1996, respectively. The cash flows from
operations was primarily generated from net income, collections of
accounts receivable, an increase in accounts payable and accrued expenses
and the payment of income taxes. The increase in accounts receivable
collections is consistent with the increase in sales in the fourth quarter
of fiscal 1996 and the seasonality of the beverage industry. The increase
in accounts payable and accrued expenses is primarily attributable to
increases in professional fees, payroll, payroll taxes and insurance
payables.
In the first three months of fiscal 1997, the cash provided from operations
was used to purchase equipment. During the first three months of fiscal
1997, the Company expended $474,000 on capital improvements. The Company
is in the midst of its capital expenditure program to increase its annual
production capacity from 340,000 to 400,000 barrels. The Company is
currently adapting its seven ounce bottling line to also accommodate 12 oz.
bottles and installing a malt silo system. During the first three months
of fiscal 1997, the Company completed refurbishing of existing storage
tanks.
The Company believes that the net proceeds from the initial public
offering, together with cash flows from operations and borrowing
availability under its revolving credit facilities, will be sufficient to
support the Company's capital expenditure and working capital requirements
through the end of fiscal 1998.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
This report contains forward looking statements based upon current
expectations that involve a number of risks and uncertainties. The factors
that could cause actual results to differ materially include the following:
general economic conditions and growth rates in the malt beverage, soft
drink and related industries, competitive factors and pricing pressures,
changes in the Company's product mix, the timely development and acceptance
of new products, inventory risks due to shifts in market demands, supply of
recycled glass and other constraints and shortages, and the ramp-up and
expansion of manufacturing capacity.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
EXHIBIT 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.
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(Registrant)
Date: February 12, 1997
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/s/ Charles E. Lawson
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CHARLES E. LAWSON
President and Chief Executive
Officer
Date: February 12, 1997
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/s/ Patrick E. Belardi
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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 DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,467
<SECURITIES> 0
<RECEIVABLES> 1,469
<ALLOWANCES> 160
<INVENTORY> 2,226
<CURRENT-ASSETS> 6,393
<PP&E> 3,920
<DEPRECIATION> 1,838
<TOTAL-ASSETS> 16,315
<CURRENT-LIABILITIES> 3,008
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 12,843
<TOTAL-LIABILITY-AND-EQUITY> 16,315
<SALES> 5,817
<TOTAL-REVENUES> 5,817
<CGS> 4,392
<TOTAL-COSTS> 4,392
<OTHER-EXPENSES> 974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 478
<INCOME-TAX> 216
<INCOME-CONTINUING> 262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
