THIS DOCUMENT IS A COPY OF THE FORM 10-QSB FILED ON AUGUST 15, 1996
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
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 1934
For the quarterly period ended June 30, 1996
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
Commission file number 0-20845
MICHIGAN BREWERY, INC.
(Exact name of Registrant as specified in its charter)
Michigan 38-3196031
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1999 WALDEN DRIVE
GAYLORD, MICHIGAN 49735
(517) 731-0401
(Address of principal executive offices and Registrant's
telephone number, including area code)
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_
As of August 9, 1996, there were outstanding 5,275,000 shares of common
stock, $.01 par value, of the registrant.
<TABLE>
<CAPTION>
MICHIGAN BREWERY, INC.
FORM 10-QSB
INDEX
Page Number
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of December 31, 1995 and June 30, 1996 1
Statements of Operations for the three months ended June 30, 1995 and for the 2
thirteen weeks ended June 30, 1996 and
for the six months ended June 30, 1995 and
for the twenty-six weeks ended June 30, 1996
Statements of Cash Flows for the six months ended June 30, 1995 3
and for the twenty-six weeks ended June 30, 1996
Notes to Financial Statements 4
Item 2 Management's Discussion and Analysis of 5
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 13
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN BREWERY, INC.
Balance Sheets
June 30, December 31,
1996 1995
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,899,274 $ 339,062
Inventories 103,406 140,195
Prepaids and other 163,859 36,236
Total current assets 10,166,539 515,493
PROPERTY AND EQUIPMENT, net 5,856,646 5,751,313
OTHER ASSETS, net 121,428 85,785
$ 16,144,613 $ 6,352,591
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade $ 508,408 $ 246,246
Accounts payable--related party 30,972 480,986
Accrued expenses 202,523 145,496
Notes payable to shareholders -- 300,000
Line of credit -- 325,000
Current maturities of long-term debt 999,471 731,068
Total current liabilities 1,741,374 2,228,796
LONG-TERM DEBT, less current maturities 2,340,265 2,714,141
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000
shares authorized; 2,500,000 and
5,175,000 shares issued and outstanding 51,750 25,000
Warrants 26,150 18,600
Class A warrants 122,500 --
Additional paid-in capital 13,709,461 2,482,470
Accumulated deficit (1,846,888) (1,116,416)
Total shareholders' equity 12,062,973 1,409,654
$ 16,144,613 $ 6,352,591
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<TABLE>
<CAPTION>
MICHIGAN BREWERY, INC.
Statements of Operations
(Unaudited)
Three Months Thirteen Weeks Twenty-Six
Ended Ended Six Months Ended Weeks Ended
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
<S> <C> <C> <C> <C>
REVENUE:
Restaurant sales $ 284,485 $ 944,817 $ 284,485 $ 1,773,769
Wholesale beer and gift shop sales 24,188 107,191 24,188 168,728
Total revenue 308,673 1,052,008 308,673 1,942,497
COSTS AND EXPENSES:
Cost of sales 266,403 374,023 266,403 728,279
Restaurant salaries and benefits 25,383 316,927 31,412 595,466
Operating expenses 200,845 261,282 222,496 583,185
General and administrative expenses 21,865 194,182 35,139 331,391
Depreciation and amortization 43,711 141,495 43,711 248,147
Total costs and expenses 558,207 1,287,909 599,161 2,486,468
LOSS FROM OPERATIONS (249,534) (235,901) (290,488) (543,971)
INTEREST EXPENSE 29,705 125,668 35,972 211,237
INTEREST INCOME -- (19,574) -- (24,736)
NET LOSS $ (279,239) $ (341,995) $ (326,460) $ (730,472)
NET LOSS PER COMMON SHARE $ (0.12) $ (0.11) $ (0.14) $ (0.26)
WEIGHTED AVERAGE SHARES OUTSTANDING $ 2,412,550 $ 3,010,714 $ 2,412,550 $ 2,791,325
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
MICHIGAN BREWERY, INC.
Statements of Cash Flows
Six Months Twenty-Six Weeks
Ended Ended
June 30, 1995 June 30,1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (326,460) $ (730,472)
Adjustments to reconcile net loss to cash flows used in
operating activities-
Depreciation and amortization 43,711 251,726
Change in operating assets and liabilities:
Inventories (13,981) 36,789
Prepaids and other 6,270 (127,623)
Accounts payable 179,015 (187,852)
Accrued expenses 11,158 57,027
Other -- (45,701)
Net cash used in operating activities (100,277) (745,072)
INVESTING ACTIVITIES:
Purchases of property and equipment, net (3,517,233) (244,900)
FINANCING ACTIVITIES:
Proceeds from line-of-credit borrowings 100,000 --
Payments on line-of-credit borrowings -- (325,000)
Net proceeds from initial public offering of units -- 10,963,750
Payments on debt to shareholders -- (300,000)
Proceeds from long-term debt 2,256,409 750,000
Payments on long-term debt -- (605,473)
Proceeds from issuance of common stock -- 617,537
Proceeds from issuance of warrants -- 7,500
Capital contributions 1,244,610 --
Payment of deferred financing costs -- (147,802)
Net cash provided by financing activities 3,601,019 10,550,184
INCREASE IN CASH (16,491) 9,560,212
CASH, beginning of year 181,185 339,062
CASH, end of year $ 164,694 $ 9,899,274
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 35,972 $ 205,526
Income taxes paid -- --
NONCASH TRANSACTION:
Conversion of debt to common stock -- 250,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
MICHIGAN BREWERY, INC.
Notes to Financial Statements
June 30, 1996
1. The accompanying financial statements included herein have been prepared by
Michigan Brewery, Inc. (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. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures made
are adequate to make the information not misleading.
The unaudited balance sheet as of June 30, 1996 and the unaudited
statements of operations for the thirteen and twenty-six weeks ended June
30, 1996 and the unaudited statement of cash flows for the twenty-six weeks
ended June 30, 1996 include, in the opinion of management, all adjustments,
consisting solely of normal recurring adjustments, necessary for a fair
presentation of the financial results for the respective interim periods
and are not necessarily indicative of results of operations to be expected
for the entire fiscal year ending December 29, 1996. The accompanying
interim financial statements have been prepared under the presumption that
users of the interim financial information have either read, or have access
to, the audited financial statements and notes in the Company's
Registration Statement on Form SB-2. Accordingly, footnote disclosures
which would substantially duplicate the disclosures contained in the
December 31, 1995 audited financial statements have been omitted from these
interim financial statements except for the disclosures below. It is
suggested that these interim financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's Registration Statement.
2. On June 13, 1996, the Securities and Exchange Commission declared effective
a Registration Statement on Form SB-2 relating to the initial public
offering of the Company's 2,450,000 units, each unit consisting of one
share of common stock and one redeemable Class A warrant. Following the
effective date of the Registration Statement, the Company issued 2,450,000
units at $5.00 per share and the Company received net proceeds of $11.0
million on June 18, 1996. The financial statements reflect the effect of
this offering net of transaction-related expenses.
During July 1996, the underwriters exercised a portion of their
overallotment option and issued 100,000 additional Units at $5.00 per unit.
3. Effective January 1, 1996, the Company changed its fiscal year from a
calendar year-end to a 52- 53-week year. Accordingly, the quarter ended
June 30, 1996 consisted of thirteen weeks and the two quarters ended June
30, 1996 consisted of twenty-six weeks. The quarter ended June 30, 1995
consisted of thirteen weeks and the two quarters ended June 30, 1995
consisted of twenty-five weeks and six days. All future quarterly periods
will consist of thirteen weeks. The Company believes that the change in
reporting periods does not have a material effect on the comparability of
the accompanying financial statements.
4. The Company had been an S corporation since inception for federal income
tax purposes. As a result, the Company's losses were, for federal and state
income tax purposes, included in the personal tax returns of the Company's
shareholders. The Company organized a private placement offering of debt
and common stock which caused the income tax status of the Company to
change, and the Company is no longer eligible for S corporation status
effective February 5, 1996.
As of June 30, 1996, the Company had net operating loss carryforwards for
income tax purposes of approximately $650,000. These net operating loss
carryforwards expire in the year 2010. Because of the lack of
profitability, a full valuation allowance has been recorded against the net
deferred tax asset.
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
The Company was capitalized in 1994 to develop, own and operate
microbrewery/restaurants with the name Big Buck Brewery and Steakhouses (Big
Buck Breweries). Until May 1995 when the Gaylord Brewery opened, the Company had
no operations or revenues and its activities were devoted solely to development.
Future revenues and profits will depend upon various factors, including market
acceptance of Big Buck Breweries and general economic conditions. The Company's
present sole source of revenue is the Gaylord Brewery. There can be no
assurances that the Company will successfully implement its expansion plans, in
which case the Company will continue to be dependent on the revenues from the
Gaylord Brewery. The Company also faces all of the risks, expenses and
difficulties frequently encountered in connection with the expansion and
development of a new business. Furthermore, to the extent that the Company's
expansion strategy is successful, it must mange the transition to multiple site,
higher volume operations, the control of overhead expenses and the addition of
necessary personnel.
The Company's sales and earnings are expected to fluctuate based on seasonal
patterns. The Company anticipates that its highest earnings will occur in the
second and third quarters. Quarterly results in the future are likely to be
substantially affected by the timing of new brewery openings. Because of the
seasonality of the Company's business and the impact of new brewery openings,
results for any quarter are not necessarily indicative of the results that may
be achieved for a full fiscal year and cannot be used to indicate financial
performance for the entire year.
The Company is currently searching for potential sites for additional Big Buck
Brewery locations and anticipates beginning development on its second location
during the third quarter of 1996.
QUARTERS ENDED JUNE 30, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1995 AND
TWENTY-SIX WEEKS ENDED JUNE 30, 1996
The following table is derived from the Company's statements of operations and
expresses the results from operations as a percent of total revenue:
<TABLE>
<CAPTION>
Three Thirteen Six Months Twenty-Six
Months Weeks Ended Ended Weeks Ended
Ended June 30, June 30, June 30, 1996
June 30, 1996 1995
1995
REVENUE:
<S> <C> <C> <C> <C>
Restaurant sales 92.2% 89.8% 92.2% 91.3%
Wholesale beer and gift shop sales 7.8 10.2 7.8 8.7
Total revenue 100.0 100.0 100.0 100.0
COST AND EXPENSES:
Cost of sales 86.3 35.6 86.3 37.5
Restaurant salaries and benefits 8.2 30.1 10.2 30.7
Operating expenses 65.1 24.8 72.1 30.0
General and administrative expenses 14.2 13.4 14.2 12.8
Depreciation and amortization 7.1 18.5 11.4 17.1
Interest expense, net 9.6 10.0 11.7 9.7
NET LOSS (90.5)% (32.4)% (105.9)% (37.8)%
</TABLE>
RESULTS OF OPERATIONS
REVENUES
Revenues increased $734,335 to $1,052,008 in the quarter ended June 30, 1996
from $308,673 in the comparable quarter of 1995. For the six months ended June
30, 1996, revenues increased $1,633,824 to $1,942,497 from $308,673 for the
comparable period in 1995. The large increase in revenues is due to the Gaylord
brewery being open for only 36 days in the second quarter of 1995, opening to
the public on May 26, 1995.
COST OF SALES
Cost of sales, which consists of food, merchandise and brewery supplies,
increased $107,260 to $374,023 in the second quarter of 1996 from the second
quarter of 1995 and increased $461,876 to $728,279 for the six months ended June
30, 1996 compared to the same period in 1995. As a percentage of revenues, cost
of sales decreased to 35.6% in the second quarter of 1996 from 86.3% for the
second quarter of 1995 and decreased to 37.5% for the six months ended June 30,
1996 from 86.3% for the comparable period in 1995. These decreases are
attributable to operating efficiencies, menu pricing and improved kitchen
management since the opening in May 1995.
RESTAURANT SALARIES AND BENEFITS
Restaurant salaries and benefits, which consist of restaurant management and
hourly employee wages and benefits, payroll taxes and workers' compensation
insurance, increased $291,544 to $316,927 in the second quarter of 1996 compared
to the second quarter in 1995 and increased $564,054 to $595,466 for the six
months ended June 30, 1996 compared to the same period in 1995. As a percentage
of revenues, restaurant salaries and benefits increased to 30.1 % in the second
quarter of 1996 compared to 8.2% in 1995, and 30.7% for the six months ended
June 30, 1996 compared to 10.2% for the same period in 1995. These increases are
due to the added salaries of additional kitchen management staff, maintenance
staff and a general manager and an assistant general managers as a result of
larger than expected volume of customers.
OPERATING EXPENSES
Operating expenses, which include supplies, utilities, repairs, maintenance,
advertising and occupancy costs increased $60,437 to $261,282 in the second
quarter of 1996 compared to the second quarter of 1995, and increased $360,689
to $583,185 for the six months ended June 30, 1996 from the comparable period in
1995. As a percentage of revenues, operating expenses decreased to 24.8 % in the
second quarter of 1996 from 65.1 % for the second quarter in 1995, and decreased
to 30.0 % for the six months ended June 30, 1996 from 72.1 % for the comparable
period in 1995. This decrease is due primarily to improved management and
operating controls as well as the Gaylord Brewery not opening until May 26, 1995
and therefore the second quarter of 1995 has higher than normal expenses
including preopening costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $172,317 to $194,182 in the second
quarter of 1996 compared to the second quarter of 1995, and increased $296,252
to $331,391 in the six months ended June 30, 1996 compared to the same period in
1995. As a percentage of revenues, these expenses have increased to 18.5% in the
second quarter of 1996 from 7.1% for the same quarter of 1995, and increased to
17.1% for the six months ended June 30, 1996 from 11.4% for the comparable
period in 1995. The increase in expenses reflects the additional corporate
overhead costs associated with the addition of senior corporate management whom
the brewery hired to position itself to execute its development plans. As the
Company opens additional breweries, general and administrative expenses as a
percentage of total revenues are expected to decrease.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased to $97,784 to $141,495 in the
second quarter of 1996 compared to $43,711 for the comparable period in 1995,
and increased $204,436 to $248,147 for the six months ended June 30, 1996
compared to the same period in 1995. The increase in deprecation and
amortization results from the additional time the Gaylord Brewery was in
operation in 1996 as compared to 1995. Additional amortization expense was
incurred in 1996 from the bridge financing which took place in early 1996.
INTEREST EXPENSES/INTEREST INCOME
Interest expense increased $95,963 to $125,668 in the second quarter of 1996
compared to the second quarter of 1995 and increased to $175,265 to $211,237 in
the six months ended June 30, 1996 compared to the same period in 1995. The
increase was due to additional interest expense from the bridge financing as
well as interest expenses for the full quarter in 1996 from the line of credit,
equipment loan and mortgage as compared to the second quarter of 1995.
Interest income was $19,574 in the second quarter of 1996 as compared to none
for the same period in 1995 and was $22,516 for the six months ended June 30,
1996 as compared to none for the comparable period in 1995. The increase in
interest income results from investment of cash proceeds received from the
Bridge Financing and the Company's public offering completed in June 1996.
NET LOSS
The continued net loss is primarily attributable to the Company's corporate
overhead structure and reduced sales due to expected reduced seasonal demand
during the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $100,000 and $745,000 in cash for operating activities for the
six months ended June 30, 1995 and the twenty-six weeks ended June 30, 1996. At
June 30, 1996, the Company had working capital of $8.4 million. The Company
expects this it will use a significant portion of its capital resources to fund
new brewery development and construction. Since inception, the Company's
principal capital requirements have been the funding of (i) the development of
the Company and the Big Buck Brewery format and (ii) the construction of the
Gaylord Brewery and the acquisition of its furniture, fixtures and equipment.
Total capital expenditures for the Gaylord Brewery were approximately $5.8
million.
The Company generated approximately $10,550,000 in cash from financing
activities during the twenty-six weeks ended June 30, 1996. On June 13, 1996,
the Company's initial public offering of the Company's 2,450,000 units at $5.00
per share, each units consisting of one share of common stock and one redeemable
Class A warrant, became effective with the Securities and Exchange Commission.
The Company received net proceeds of $11.0 million on June 18, 1996. Total net
proceeds have been reflected in the unaudited financial statements net of
transaction-related expenses. During July 1996, the underwriters exercised a
portion of their overallotment option and issued 100,000 additional Units at
$5.00 per unit.
Prior to this Offering, the Company has met its capital requirements through
capital contributions, loans form its principal shareholders and officers, bank
borrowings and certain private placement offerings.
In December 1995, the Company entered into a financing agreement with Pyramid
Partners, L.P. for the issuance of (i) $250,000 noninterest-bearing promissory
note (the Pre-Bridge Convertible Note) which is convertible into a number of
shares of common stock equal to $250,000 divided by the less of (x) $4.00 or (y)
two-thirds of the price to public of the units in the Offering, (ii) a $250,000
nonconvertible promissory note bearing interest at 10% per annum which will
become due upon the earlier of the completion of the Offering or July 1996, and
(iii) warrants to purchase 62,500 shares of common stock at the lesser of (x)
$4.00 or (y) two-thirds of the price to public of the units in the Offering.
During June 1996, the Pre-Bridge Convertible Note was converted to 75,000 shares
of the Company's common stock and the other note was repaid in full.
In February 1996, the Company sold, for $25,000 each, 60 bridge units, each
Bridge Unit consisting of (i) 2,500 shares of common stock, (ii) a $12,500
principal amount promissory note bearing interest at 10% per annum due upon the
earlier of 20 days after the completion of the Offering or August 1996, and
(iii) warrants to purchase 2,500 shares of common stock at $5.00 per share
expiring in February 2001. The promissory notes were repaid in full subsequent
to June 30, 1996.
The proceeds of the private placements were used to retire certain debt,
purchase additional brewing and bottling equipment, purchase an option to
acquire a potential site for a future brewery and for working capital.
The Company anticipates it will develop and open three additional Big Buck
Breweries during the next eighteen months. The Company intends to obtain real
estate financing for up to 55% of the cost of developing and opening the three
new breweries. The net proceeds of the offering together with such financing are
expected to be sufficient to finance these expansion plans depending on the
definitive locations, site conditions, construction costs and sized and types of
breweries built. The Company believes that the net proceeds from the offering
together with the real estate financing will satisfy the financial needs of the
Company during the next eighteen months. There are no assurances that such real
estate financing will be available on terms acceptable or favorable to the
Company, or at all. Without such additional financing, the Company's development
plans will be slower than planned or even unachievable.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 11.1--Computation of Net Loss Per Common Share
b. Reports on Form 8-K
None.
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.
Michigan Brewery, Inc.
(Registrant)
Date: August __, 1996 By: _________________________
Anthony Dombrowski
Chief Financial Officer
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Michigan Brewery, Inc.
Exhibit Index to Form 10-QSB
EXHIBIT NUMBER DESCRIPTION PAGE
11.1 Computation of Net Loss Per Common Share 14
Exhibit 11.1
<TABLE>
<CAPTION>
MICHIGAN BREWERY, INC.
Computation of Net Loss Per Common Share
Three Months Thirteen Weeks Twenty-Six
Ended June 30, Ended June 30, Six Months Weeks Ended
1995 1996 Ended June 30, June 30, 1996
1995
<S> <C> <C> <C> <C>
Weighted average number of issued shares
outstanding 2,025,000 2,500,000 2,025,000 2,500,000
Effect of:
Common shares issued during 1996 (1)
- 510,714 - 291,325
Dilutive effect of cheap stock after
application of treasury stock method (1)
387,550 - 387,550 -
Shares outstanding used to compute net loss
per share 2,412,550 3,010,714 2,412,550 2,791,325
Net loss $ (279,239) $ (341,995) $ (326,460) $ (730,472)
Net loss per common share $ (0.12) $ (0.11) $ (0.14) $ (0.26)
</TABLE>
(1) Cheap stock and common shares issued during 1996 are included in the
computation for all periods presented in accordance with Staff Accounting
Bulletin Topic 4 (D).
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,899,274
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 103,406
<CURRENT-ASSETS> 10,166,539
<PP&E> 5,856,646
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,144,613
<CURRENT-LIABILITIES> 1,741,374
<BONDS> 2,340,265
0
0
<COMMON> 51,750
<OTHER-SE> 12,011,223
<TOTAL-LIABILITY-AND-EQUITY> 16,144,613
<SALES> 1,942,497
<TOTAL-REVENUES> 1,942,497
<CGS> 728,279
<TOTAL-COSTS> 2,486,468
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,501
<INCOME-PRETAX> (730,472)
<INCOME-TAX> 0
<INCOME-CONTINUING> (730,472)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (730,472)
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>