<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT
1934
For the quarterly period ended June 29, 1997
[ ] 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
incorporation or organization) Identification No.)
550 SOUTH WISCONSIN STREET
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 X No
----- -----
As of August 8, 1997, there were outstanding 5,275,000 shares of common
stock, $.01 par value, of the registrant.
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TABLE OF CONTENTS
Page
Number
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PART I FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. Financial Statements
Balance Sheets as of June 29, 1997 and December 29, 1996 . . 1
Statements of Operations for the three months ended June 29,
1997 and June 30, 1996 and for the six months ended June 29,
1997 and June 30, 1996 . . . . . . . . . . . . . . . . . . . 2
Statements of Cash Flows for the three months ended June 29,
1997 and June 30, 1996 . . . . . . . . . . . . . . . . . . . 3
Notes to Financial Statements . . . . . . . . . . . . . . . 4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . 5
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 4. Submission of Matters to a Vote of Security Holders. . . . . 9
ITEM 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 10
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 10
i
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PART I
ITEM 1. Financial Statements
MICHIGAN BREWERY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS (UNAUDITED)
$15,981,442 $15,331,693
CURRENT ASSETS:
Cash $ 69,428 $ 28,468
Short-term investments 1,200,000 4,910,000
Inventories 206,579 155,785
Prepaids and other 208,047 150,151
----------- -----------
Total current assets 1,684,054 5,244,404
PROPERTY AND EQUIPMENT, net 14,229,090 10,012,881
OTHER ASSETS, net 68,298 74,408
----------- -----------
$15,981,442 $15,331,693
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 112,429 $ 286,871
Accrued expenses 295,164 132,299
Current maturities of long-term debt 250,946 250,780
----------- -----------
Total current liabilities 658,539 669,950
LONG-TERM DEBT, less current maturities 3,398,699 2,124,391
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000 shares authorized;
5,275,000 shares issued and outstanding 52,750 52,750
Warrants 26,150 26,150
Class A warrants 127,500 127,500
Additional paid-in capital 13,034,544 13,034,544
Accumulated deficit (1,316,740) (703,592)
----------- -----------
Total shareholders' equity 11,924,204 12,537,352
----------- -----------
$15,981,442 $15,331,693
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
1
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MICHIGAN BREWERY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Restaurant sales $ 1,648,012 $ 944,817 $ 2,677,757 $ 1,773,769
Wholesale beer and gift shop sales 127,589 107,191 214,596 168,728
------------ ------------ ------------ ------------
Total revenue 1,775,601 1,052,008 2,892,353 1,942,497
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of Sales 614,392 374,023 979,013 728,279
Restaurant salaries and benefits 504,663 316,927 827,206 595,466
Operating expenses 369,830 261,282 685,753 583,185
Depreciation and amortization 129,179 141,495 226,095 248,147
------------ ------------ ------------ ------------
Total costs and expenses 1,618,064 1,093,727 2,718,067 2,155,077
------------ ------------ ------------ ------------
Restaurant operating Income (Loss) 157,537 (41,719) 174,286 (212,580)
General and Administrative expenses 350,758 194,182 711,674 331,391
LOSS FROM OPERATIONS (193,221) (235,901) (537,388) (543,971)
Interest expense (91,442) (125,668) (150,383) (211,237)
------------ ------------ ------------ ------------
Interest income 29,800 19,574 77,723 24,736
Loss on Sale of Property (3,100) (3,100)
------------ ------------ ------------ ------------
NET INCOME (LOSS) ($ 257,963) ($ 341,995) ($ 613,148) ($ 730,472)
------------ ------------ ------------ ------------
NET LOSS PER COMMON SHARE ($0.05) ($0.11) ($0.12) ($0.26)
------------ ------------ ------------ ------------
WEIGHTED AVERAGE
SHARES OUTSTANDING 5,275,000 3,010,714 5,275,000 2,791,325
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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MICHIGAN BREWERY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 29, JUNE 30,
1997 1996
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($613,148) ($730,472)
Adjustments to reconcile net loss to cash flows used in
operating activities-
Depreciation and amortization 229,195 251,726
Loss on sale of property 3,100
Change in operating assets and liabilities:
Inventories (50,794) 36,789
Prepaids and other (86,444) (127,623)
Accounts payable (174,442) (187,852)
Accrued expenses 162,865 57,027
Other 0 (45,701)
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Net cash used in operating activities (532,768) (746,106)
INVESTING ACTIVITIES:
Purchases of property and equipment, net (4,410,746) (244,900)
---------- -----------
Net cash used in investing activities (4,410,746) (244,900)
FINANCING ACTIVITIES:
Proceeds from sale of short-term investments 3,710,000 0
Payments on line-of-credit borrowings 0 (325,000)
Net proceeds from initial public offering of units 0 10,963,750
Payments on debt to shareholders 0 (300,000)
Proceeds from long-term debt 1,400,000 750,000
Payments on long-term debt (125,526) (605,473)
Proceeds from issuance of common stock 0 617,537
Proceeds from issuance of warrants 0 7,500
Payment of deferred financing costs 0 (147,802)
Payment of public offering costs 0 (409,294)
---------- -----------
Net cash provided by financing activities 4,984,474 10,551,218
---------- -----------
INCREASE IN CASH 40,960 9,560,212
CASH , beginning of period 28,468 339,062
---------- -----------
CASH, end of period $ 69,428 $ 9,899,274
---------- -----------
---------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 151,639 $ 205,526
Income taxes paid 0 0
NONCASH TRANSACTION:
Conversion of debt to common stock $ 250,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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MICHIGAN BREWERY, INC.
Notes to Financial Statements
June 29, 1997
(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 29, 1997 and the unaudited
statements of operations for the three and the six months ended June 29,
1997 and the unaudited statement of cash flows for the six months ended
June 29, 1997 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 28, 1997. 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 Form 10-KSB
for the year ended December 29, 1996. Accordingly, footnote disclosures
which would substantially duplicate the disclosures contained in the
December 29, 1996 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 1996 Annual Report and Form 10-KSB.
(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 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
unit 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.
On July 25, 1996, the underwriters exercised a portion of their
overallotment option and the Company issued 100,000 additional units at
$5.00 per unit. The Company received net proceeds of $447,500 on July 30,
1996.
(3) As of June 29, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $1.4 million. These net operating
loss carryforwards expire in the year 2012. Because of the lack of
profitability, a full valuation allowance has been recorded against the net
deferred tax asset.
(4) The Company will adopt in fiscal year ending December 28, 1997, Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No.
128), which was issued in February 1997. SFAS No. 128 requires disclosure
of basic earnings per share (EPS) and diluted EPS, which replaces the
existing primary EPS and fully diluted EPS, as defined by APB No. 15.
Basic EPS is computed by dividing net income by the weighted average number
of shares of Common Stock outstanding during the year. Dilutive EPS is
computed similar
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to primary EPS as previously reported, provided that, when applying the
treasury stock method to common equivalent shares, the Company must use
its average share price for the period rather than the more dilutive
greater of the average share price or end-of-period share price required
by APB No. 15.
(5) The Company opened its second microbrewery/restaurant on March 17, 1997, in
Grand Rapids, Michigan, and is continuing construction on its third
location in Auburn Hills, Michigan, which is scheduled to open in the fall
of 1997.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion and analysis contains certain forward-looking terminology such
as "believes," "anticipates," "expects," and "intends," or comparable
terminology. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Potential purchasers of the Company's securities are cautioned not to place
undue reliance on such forward-looking statements, which are qualified in their
entirety by the cautions and risks described herein. Please refer to the
Company's Current Report on Form 8-K, filed on May 28, 1997, for additional
factors known to the Company that may cause actual results to vary.
OVERVIEW
The Company was capitalized in 1994 to develop, own and operate
microbrewery/restaurants with the name Big Buck Brewery & Steakhouse (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 sources of revenue are the Gaylord and Grand Rapids Breweries. 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 and Grand Rapids Breweries. 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 manage the transition to
multiple site, higher volume operations, control increased overhead expenses and
hire additional 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 Big Buck Brewery openings. Because
of the seasonality of the Company's business and the impact of new Big Buck
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 closed on the purchase of the Grand Rapids Brewery site on December
2, 1996 for $1.4 million. The site includes an existing structure of
approximately 8,200 square feet and is located on 28th Street in Grand Rapids.
Seating capacity is approximately 250 for restaurant and bar combined. The
Grand Rapids Brewery opened on March 17, 1997.
On August 29, 1996, the Company purchased a 6.1 acre site on Opdyke Road in
Auburn Hills, Michigan for $2.65 million. The site is just off of Interstate 75
at exit 79. The new facility will encompass 26,372 square feet including
brewery, bar and restaurant. Seating capacity in the
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restaurant and bar will be just under 650. Construction began in late
December 1996 after receiving final approval from the city of Auburn Hills.
The Company anticipates opening this Brewery during the third quarter of 1997.
The Company completed the sale and leaseback of the Grand Rapids land and
building on April 11, 1997 to an unrelated third party for $1.4 million.
QUARTERS ENDED JUNE 29, 1997 AND 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 Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 29, June 29, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Restaurant sales 92.8% 89.8% 92.6% 91.3%
Wholesale beer and gift shop sales 7.2% 10.2% 7.4% 8.7%
---- ----- ---- ----
Total revenue 100.0% 100.0% 100.0% 100.0%
COST AND EXPENSES:
Cost of sales 34.6% 35.6% 33.8% 37.5%
Restaurant salaries and benefits 28.4% 30.1% 28.6% 30.7%
Operating expenses 20.8% 24.8% 23.7% 30.0%
Depreciation and amortization 7.3% 13.4% 7.8% 12.8%
---- ----- ---- -----
Total costs and expenses 91.1% 103.9% 94.0% 111.0%
Restaurant Operating Income (Loss) 8.9% -4.0% 6.0% -10.9%
General and Administrative expense 19.8% 18.5% 24.6% 17.1%
----- ----- ----- -----
LOSS FROM OPERATIONS -10.9% -22.4% -18.6% -28.0%
Interest expense 5.1% 11.9% 5.2% 10.9%
Interest income -1.7% -1.9% -2.7% -1.3%
Loss on Sale of Property 0.2% 0.0% 0.1% 0.0%
---- ---- ---- ----
NET INCOME (LOSS) -14.5% -32.5% -21.2% -37.6%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JUNE 29, 1997 AND JUNE 30, 1996
REVENUES
Revenues increased $723,593 to $1,775,601 in the quarter ended June 29, 1997
from $1,052,008 in the quarter ended June 30, 1996. For the six months ended
June 29, 1997, revenues increased $949,856 to $2,892,353 from $1,942,497 for
the comparable period in 1996. This increase is attributable to the opening
of the Grand Rapids Brewery on March 17, 1997.
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COST OF SALES
Cost of sales, which consists of food, merchandise and brewery supplies,
increased $240,369 to $614,392 in the second quarter of 1997 from the second
quarter of 1996 and increased $250,734 to $979,013 for the six months ended June
29, 1997, compared to the same period in 1996. As a percentage of revenues,
cost of sales decreased to 34.6% in the second quarter of 1997 from 35.6% for
the second quarter of 1996 and decreased to 33.8% for the six months ended June
29, 1997 from 37.5% for the comparable period in 1996. The percentage decreases
are the result of effective purchasing, menu pricing and improved kitchen
management.
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 $187,736 to $504,663 in the second quarter of 1997 compared
to the second quarter in 1996 and increased $231,740 to $827,206 for the six
months ended June 29, 1997 compared to the same period in 1996. As a percentage
of revenues, restaurant salaries and benefits decreased to 28.4% in the second
quarter of 1997 compared to 30.1% in 1996, and decreased to 28.6% for the six
months ended June 29, 1997 compared to 30.7% for the comparable period in 1996.
These decreases are due to more experienced staff, improved scheduling and a
reduction in workers' compensation insurance premiums.
OPERATING EXPENSES
Operating expenses, which include supplies, utilities, repairs and maintenance,
advertising and occupancy costs, increased $108,548 to $369,830 in the second
quarter of 1997 compared to the second quarter of 1996, and increased $102,568
to $685,753 for the six months ended June 29, 1997 from the comparable period in
1996. As a percentage of revenues, operating expenses decreased to 20.8% in the
second quarter of 1997 from 24.8% for the second quarter in 1996, and decreased
to 23.7% for the six months ended June 29, 1997 from 30.0% for the same period
in 1996. These decreases are due to a continued emphasis on cost controls,
improved management and a reduction in insurance premiums.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $156,576 to $350,758 in the second
quarter of 1997 compared to the second quarter in 1996, and increased $380,283
to $711,674 for the six months ended June 29, 1997 compared to the same period
in 1996. As a percentage of revenues, these expenses have increased to 19.8% in
the second quarter of 1997 from 18.5% for the same quarter of 1996, and
increased to 24.6% for the six months ended June 29, 1997 from 17.1% for the
comparable period in 1996. The increased expenses reflect the additional
corporate overhead associated with personnel additions in training, marketing
and senior management hired to execute the Company's development plans. As
additional Breweries are opened by the Company these expenses as a percentage of
revenues are expected to decrease.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses decreased $12,316 to $129,179 in the
second quarter of 1997 compared to the second quarter of 1996, and decreased
$22,052 to $226,095 for the six months ended June 29, 1997 compared to the same
period in 1996. As a percentage of revenues, these expenses decreased to 7.3%
in the second quarter of 1997 from 13.4% for the same quarter in 1996 and
decreased to 7.8% for the six months ended June 29, 1997 from 12.8% for the
comparable period in 1996. The decreases in these expenses are the result of
full amortization in 1996 of financing costs
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related to the bridge financing which took place in early 1996. The amount
of this decrease in amortization more than offset the increase in pre-opening
costs and depreciation from the opening of the Grand Rapids Brewery.
INTEREST EXPENSES/INTEREST INCOME
Interest expense decreased $34,226 to $91,442 in the second quarter of 1997
compared to second quarter of 1996, and decreased $60,854 to $150,383 for the
period ended June 29, 1997 compared to the same period in 1996. As a percentage
of revenues interest expense decreased to 5.1% in the second quarter of 1997
from 11.9% for the same period in 1996, and decreased to 5.2% for the six months
ending June 29, 1997 from 10.9% for the comparable period in 1996. The
decreases are due to the fact that the pre-bridge and bridge financings were
paid off during 1996 with the proceeds of the Company's initial public offering.
Interest income increased $10,226 to $29,800 in the second quarter of 1997
compared to $19,574 for the second quarter of 1996, and increased $52,987 to
$77,723 for the six months ended June 29, 1997 compared to $24,736 for the same
period in 1996. The increase in interest income is due to the additional time
during which the remaining proceeds from the Company's initial public offering
were invested.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $532,768 in cash for the six months ended June 29, 1997, and
used $746,106 in cash for the six months ended June 30, 1996, for operating
activities. At June 29, 1997, the Company had working capital of $1.0 million.
The Company expects that 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
Company and the Big Buck Brewery format and (ii) the construction of the Gaylord
and Grand Rapids Breweries and the acquisition of its furniture, fixtures and
equipment for such Breweries. Total capital expenditures for the Gaylord and
the Grand Rapids Breweries were approximately $5.8 million and $3.2 million,
respectively.
The Company generated approximately $5.0 million in cash from the financing
activities as a result of the sales of short term investments and proceeds from
the sale and leaseback of the Grand Rapids land and building during the six
months ended June 29, 1997. The Company used approximately $4.4 million in cash
for construction and equipment costs at the Grand Rapids and Auburn Hills
Breweries during the first two quarters of 1997.
In July 1995, the Company secured a $1.9 million mortgage on the Gaylord
Brewery's land and building and a $800,000 equipment loan. These notes are
subject to monthly payments of principal and interest at 10.2% per annum and are
payable in full by October 1,2000. These notes are collateralized by all assets
of the Company and are guaranteed by certain shareholders.
The Company opened the Grand Rapids Brewery on March 17, 1997. The cost of the
land, building, remodeling, equipment and furniture and fixtures were
approximately $3.2 million. On April 11, 1997, the Company completed the sale
and leaseback of the Grand Rapids land and building. The Company anticipates it
will develop and open the Auburn Hills Brewery and one additional Big Buck
Brewery during the remainder of 1997. The Auburn Hills Brewery is estimated to
cost approximately $8.8 million when completed, including land. As of June 29,
1997, $5.5 million had been spent on land, construction and equipment deposits
for the Auburn Hills Brewery. The remaining Brewery to be opened in 1997 is
anticipated to be a leased facility and is expected to cost between $1.3 and
$1.5 million for equipment and leasehold improvements.
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The Company has obtained real estate financing for a range from $3.0 million to
$4.0 million of the cost of developing and opening the new Breweries pursuant to
a sale and leaseback of the Auburn Hills site. The exact amount of such
financing will be determined when final construction is completed at the Auburn
Hills Brewery. While the Company continues to seek additional sources of
financing for future Breweries, the Company believes that the remaining net
proceeds of the initial public offering, together with financing pursuant to the
Auburn Hills sale/leaseback, will be sufficient to finance the Company's 1997
expansion plans, depending on the definitive locations, site conditions,
construction costs and size and types of Breweries built. There are no
assurances that any additional 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
ITEM 4. Submission of Matters to a Vote of Security Holders
a. The Annual Meeting of Shareholders was held on June 4, 1997.
b. The following directors were elected at the Annual Meeting of
Shareholders:
William F. Rolinski
Blair A. Murphy
Henry T. Siwecki
Casimer I. Zaremba
c. Five proposals were submitted for shareholder approval, all of
which passed with voting results as follows:
(1) To elect four directors for the ensuing year and until their
successors shall be elected and duly qualified.
For Withhold
--- --------
William F. Rolinski 3,615,354 17,852
Blair A. Murphy 3,620,354 12,852
Henry T. Siwecki 3,620,354 12,852
Casimer I. Zaremba 3,610,004 23,202
(2) To consider and vote upon the amendment to the Restated
Articles of Incorporation of the Company to change the name
of the Company to Big Buck Brewery & Steakhouse, Inc.
For: 3,625,010 Against: 1,345
Abstain: 6,851 Non-Votes: 0
(3) To consider and vote upon the amendment to the Restated
Articles of Incorporation of the Company to increase the
Company's authorized capital stock from 10,000,000 to
20,000,000 shares.
For: 3,541,216 Against: 68,955
Abstain: 16,350 Non-Votes: 5,675
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(4) To consider and vote upon the amendments to the Company's
1996 Stock Option Plan which, among other things, increase
the number of shares reserved thereunder for issuance of
stock options from 300,000 to 600,000 shares.
For: 3,096,650 Against: 89,071
Abstain: 18,839 Non-Votes: 428,646
(5) To ratify and approve the appointment of Arthur Andersen
LLP as the Company's independent public accountants for the
fiscal year ending December 28, 1997.
For: 3,618,263 Against: 6,100
Abstain: 8,843 Non-Votes: 0
d. Not applicable.
ITEM 5. Other Information
On August 1, 1997, the Company entered into a real estate purchase and leaseback
agreement providing for the sale of the Auburn Hills site, including all
improvements thereto, to an unrelated third party, Michael G. Eyde. The
agreement provides for financing at one of three possible levels ranging from
$3.0 to $4.0 million. Such price (the "Purchase Price") will be determined when
final construction of the Auburn Hills Brewery is completed.
The Company plans to lease the Auburn Hills Brewery pursuant to a separate lease
agreement which will provide for a minimum annual base rent ranging from
$300,000 to $400,000, and a maximum annual base rent ranging from $412,500 to
$550,000, depending upon the Purchase Price. The lease will have a 25-year term
and the Company will be able to extend such term for two additional ten-year
terms. In addition to the annual base rent, the Company will be obligated to
pay an annual percentage rent in the amount of 5% on gross sales at the site in
excess of $8.0 million per year. In the event that such annual gross sales do
not exceed $8.0 million for any two consecutive years during the lease term, the
Company will be obligated to repurchase the Auburn Hills site at the Purchase
Price, plus an amount ranging from $150,000 to $200,000 for each lease year on a
pro rata basis. The lessor will have the ability to require that the Company
issue Common Stock (valued at $5.00 per share) in payment of such repurchase
price. The Company will have the option to purchase the property from the
lessor after the seventh full lease year at the Purchase Price, plus an amount
ranging from $150,000 to $200,000 for each lease year on a pro rata basis.
Independent of annual gross sales, the lessor will have the option to require
the Company to purchase the property before the third full lease year at the
same price.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
10 Real Estate Purchase and Leaseback Agreement by and
between Michael G. Eyde, Landlord, and Michigan
Brewery, Inc., Tenant, dated August 1, 1997.
11 Computation of Net Loss Per Common Share
27 Financial Data Schedule
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<PAGE>
b. Reports on Form 8-K
The following report on Form 8-K was filed during the quarter
ended June 29, 1997:
Current Report on Form 8-K, filed on May 28, 1997, relating
to the safe harbor for forward-looking statements.
11
<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.
MICHIGAN BREWERY, INC.
Date: August 12, 1997 By /s/ Anthony P. Dombrowski
----------------------------
Anthony P. Dombrowski
Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10 Real Estate Purchase and Leaseback Agreement by and between
Michael G. Eyde, Landlord, and Michigan Brewery, Inc., Tenant,
dated August 1, 1997.
11 Computation of Net Loss Per Common Share
27 Financial Data Schedule
13
<PAGE>
EXHIBIT 10
REAL ESTATE PURCHASE AND LEASEBACK AGREEMENT
THIS AGREEMENT, made and entered by and between Michigan Brewery, Inc., a
Michigan corporation, whose address is 550 S. Wisconsin, P.O. Box 1430, Gaylord,
MI 49735 hereinafter referred to as "Seller" and Michael G. Eyde, whose address
is 6250 W. Michigan Avenue, Lansing, MI 48917 hereinafter referred to as
"Purchaser".
WITNESSETH:
That the Seller hereby agrees to sell and lease back from Purchaser, and the
Purchaser hereby agrees to purchase and lease back to Seller the following
described real estate, hereinafter called the "Property", situated in the City
of Auburn Hills, County of Oakland, State of Michigan, and further described as
follows:
SEE EXHIBIT "A" ATTACHED HERETO
together with and all of the right, title and interest of the Seller in and to
the land lying in the streets and roads abutting the Property, but excluding
therefrom any and all buildings, improvements, appurtenances and personal
property located thereon, all in accordance with the terms and provisions
hereinafter set forth.
1. PURCHASE PRICE: The purchase price shall payable by cashier's check or
federal funds wire transfer at closing and shall be, at Purchaser's option,
either Three Million and no/100 Dollars ($3,000,000.00), Three Million Five
Hundred Thousand no/100 Dollars ($3,500,000.00),or Four Million and no/100
Dollars ($4,000,000.00).
2. DEPOSIT: Immediately upon execution of this Agreement, Purchaser shall
deposit with Seller the sum of One Million and 00/100 ($1,000,000.00) Dollars,
as Purchaser's Good Faith Earnest Money Deposit, which sum shall be applied to
the purchase price at closing. Purchaser acknowledges that Seller shall have
the right to utilize such funds prior to closing for the construction of a
microbrewery/restaurant on the Property, and may immediately use such funds for
such purposes upon receipt of the funds. With Seller's consent, Purchaser may
deposit additional sums with Seller for such purposes, in an amount not to
exceed Four Million and 00/100 ($4,000,000.00) Dollars. To secure the repayment
of the Deposit, Seller shall grant Purchaser a mortgage lien on the Property,
which mortgage lien shall be subordinated to any construction mortgage given by
Seller to any institutional lender to be used for the construction of a
microbrewery/restaurant on the Premises and shall be discharged upon closing of
this transaction. Purchaser agrees to act as co-borrower in connection with
such construction financing or to provide such financing directly to Seller. In
consideration of Purchaser acting as co-borrower in connection with such
construction financing or for providing such financing directly to Seller as the
case may be, Seller shall grant to Purchaser a stock option in accordance with
the terms of a certain Stock Option Agreement executed contemporaneously
herewith.
3. USE OF THE PROPERTY: Seller intends leaseback to the Property from
Purchaser, and to construct and operate a microbrewery/restaurant as drawn on
plans and specifications prepared by Seller's licensed architect, including off
street parking and serving of food and all legal beverages on the Premises,
hereinafter referred to as Use.
<PAGE>
This statement of contemplated Use shall be used solely in connection with
interpretation of conditions, representations and warranties set forth herein,
and shall not be construed to limit or defeat any contemplated Use of the
Property by the Seller.
4. DUE DILIGENCE PERIOD: Purchaser acknowledges that it has had sufficient
opportunity to inspect the Property to conduct such due diligence as Purchaser
deemed necessary to the Property, and that Purchaser is satisfied with the
condition of the Property and all improvements thereon.
5. UTILITIES: In order for the Seller to utilize the Property for its
contemplated Use, all necessary utilities, including, without limiting same,
electricity, water, sanitary and storm sewers and gas must be available, at
costs and with capacities acceptable to Seller as shown on EXHIBIT "B" at or
within the property line. If said utilities are not at or within the property
line of the Premises as above required, Seller shall bring such utilities to the
Premises at its sole cost and expense. The obtaining of such utilities prior to
closing is a condition precedent to the obligation of the parties to close.
6. PERMITS: Seller will use best efforts to obtain at its sole cost and
expense, all necessary licenses, permits and other authorizations to utilize the
Premises for its contemplated Use as stated herein. Such approvals shall be,
without limiting same, curb cuts for reasonable ingress and egress to the
Premises, the right to erect signs acceptable to Seller, all building and
necessary construction permits and the appropriate alcoholic beverage license
issued directly by the appropriate governmental authorities at fees set by
statute, ordinance or regulation. Purchaser agrees to cooperate with Seller (at
no cost to Purchaser) and the state, county or municipal authorities to obtain
such permits and will execute any documents necessary in this regard. The
obtaining of all licenses and permits prior to closing is a condition precedent
to the obligation of the parties to close.
7. TITLE: Seller shall order a commitment for title insurance for the
Property from Metropolitan Title Insurance Company or a similar national
reputable title company acceptable to Seller. Prior to closing, such title
commitment must reveal marketable and insurable title in Seller and must be free
from all standard exceptions. Purchaser shall have a period of ten (10) days
after receipt of the above title commitment in which to give written notice to
Seller specifying Purchaser's objection to the status of title to the Premises
("Objection Period"). At the end of the Objection Period, Purchaser shall have
no further right to object to the status of Seller's title to the Property. In
the event the above referenced title insurance commitment shall reflect defects
or other conditions which would prevent an insurable and marketable title or
prevent the Seller's contemplated Use of the Property, Purchaser shall advise
Seller, and Seller shall proceed diligently and at its own expense to clear
title to the Premises within thirty (30) days from such notice; it being agreed
and understood that any defect or condition not so removed or cured if otherwise
approved or not objected to by Purchaser shall be deemed Permitted Title
Exceptions to be attached hereto as EXHIBIT "C". If Seller is unable to remedy
the title within such thirty (30) day period, then Purchaser may waive the
defect and the parties shall proceed to closing, or Purchaser may terminate this
Agreement in which case the parties shall have no further liability to each
other. Marketable and insurable title for Seller's contemplated Use prior to
closing is a condition precedent to the obligations of the parties to close.
8. LEASEBACK: Seller agrees to leaseback the Property from Purchaser, based
upon the Purchase Price Purchaser elects to pay for the Property, in accordance
with the terms set forth in a Lease Agreement between Seller and Purchaser, a
copy of which is attached hereto as EXHIBITS "D", "E" OR "F". At closing,
Purchaser and Seller shall enter into the Lease Agreement in the form attached
hereto as EXHIBIT "D", "E" OR "F" which shall be determined based upon the
amount of the Purchase Price selected to be paid for the Property by Purchaser.
If Purchaser elects a Purchase Price of Three Million and no/100 Dollars
($3,000,000.00), then the parties shall enter into the Lease Agreement exactly
in the form attached hereto as Exhibit "D". If Purchaser elects a Purchase Price
<PAGE>
of Three Million Five Hundred Thousand and no/100 Dollars ($3,500,000.00), then
the parties shall enter into the Lease Agreement exactly in the form attached
hereto as Exhibit "E". If Purchaser elects a Purchase Price of Four Million and
no/100 Dollars ($4,000,000.00), then the parties shall enter into the Lease
Agreement exactly in the form attached hereto as Exhibit "F", and, in addition,
Seller will convey to Purchaser, by Covenant Deed, certain real property
adjacent to the Property, situated in the City of Auburn Hills, County of
Oakland, State of Michigan, and more particularly described on Exhibit G
attached hereto.
9. CORPORATE APPROVAL: This Agreement is conditional upon the approval of
this transaction by President of Seller. The Seller shall have thirty (30) days
from the date of execution hereof to obtain said approval. In the event Seller
does not terminate this Agreement pursuant to this Article on or before said
date, Seller's right to do so hereunder shall be deemed waived. Purchaser shall
have the right to rely on any communication executed by an officer of Seller in
furtherance of this Article.
10. CLOSING: Closing will take place at the offices of Metropolitan Title
Company, 15851 S. US 27, Suite 21, Lansing, MI 48906, or at such other location
that is mutually acceptable to the parties within five (5) days after notice
from Seller to Purchaser that it has obtained an occupancy permit for the
microbrewery/restaurant and is prepared to commence the operation of business as
a microbrewery/restaurant. Conveyance will be by a limited or special warranty
deed. Immediately upon execution of this Agreement by Purchaser and delivery by
Purchase of the Good Faith Earnest Money Deposit to Seller, Seller shall deposit
the Deed in escrow with Metropolitan Title Insurance Company, to be held in
escrow in accordance with the terms of any Escrow Agreement in the form attached
hereto as Exhibit E. Seller shall bear the expense for the preparation of the
deed including, but not limited to, any applicable conveyance taxes. Seller
shall bear the expense of the title policy. Each party shall bear their own
legal fees. Real estate taxes shall not be prorated. All existing mortgages
and liens shall be discharged by the Seller prior to or at closing. In addition
to the deed, the Seller shall deliver at closing an affidavit of possession and
a no lien affidavit and, if appropriate, an affidavit in compliance with Section
1445 of the Internal Revenue Code, reasonably acceptable to Purchaser. The
parties shall execute and deliver the Lease in the form attached hereto as
Exhibit "D" at closing. The parties agree to execute and provide such other and
further documents as may be required either by law or custom and usage in the
jurisdiction in furtherance of Closing hereunder.
11. DEFAULT: In the event all conditions of this Agreement have been satisfied
and in the event Seller refuses to close, Purchaser may seek specific
performance or any other legal or equitable remedies available and recover
reasonable attorney's fees. In the event all conditions of this Agreement have
been satisfied and in the event Purchaser refuses to close, Seller may seek
specific performance or any other legal or equitable remedies available and
recover reasonable attorney's fees.
12. AMENDMENTS: This Agreement once properly signed by both parties can be
changed only by a document of equal dignity, executed by an authorized
representative of the respective parties hereto.
13. NOTICES: All notices, requests, demands or other communications hereunder
shall be in writing and deemed given when delivered personally, when telefaxed,
when sent by nationally known courier or express mail service, or on the day
said communication is deposited in the U.S. mail, by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Seller: Michigan Brewery
550 S. Wisconsin
P.O. Box 1430
Gaylord, MI 49735
<PAGE>
With a copy to: Alan S. Levine, Esq.
Butzel Long
32270 Telegraph Road, Suite 200
Birmingham, MI 48025
If to Purchaser: Michael G. Eyde
6250 W. Michigan Avenue
Lansing, MI 48917
With a copy to: Peter C. Samouris, Esq.
Gaffney Professional Building
530 S. Capitol Avenue
Lansing, MI 48933-2333
or to such other address as the parties may from time-to-time designate by
notice in writing to the other parties.
14. APPLICATION: This Agreement will be binding on the heirs, executors,
administrators, successors and assigns of the parties hereof and shall be deemed
effective for the purpose of each party undertaking its obligation herein as of
the last date of execution as set forth below.
15. OFFER: The offer extended by one party signing this Agreement shall expire
after five (5) business days unless accepted, rejected or revoked prior to such
expiration.
16. SURVIVAL: All representations, warranties and obligations of Seller as set
forth herein shall survive the Closing of this transaction.
17. EFFECTIVE DATE: This Agreement shall become effective when signed by all
parties hereto upon the date of the last party signing or initialing hereunder.
In the event Purchaser shall execute this Agreement first and thereafter Seller
shall execute same and said fully Agreements are not received by Purchaser from
Seller within five (5) business days from the date of the last signing or
initialing thereof, the conditions precedent as herein defined shall be
calculated from the date of receipt of fully executed Agreements by Purchaser.
18. FORCE MAJEURE: Anything contained herein to the contrary notwithstanding,
Seller and/or Purchaser shall be excused for the period of delay in the
performance of any and all of their obligations under this Agreement, and shall
not be considered in default when prevented from so performing by cause or
causes beyond Seller's or Purchaser's control, including, but not limited to,
war, fire or other casualty, government regulations or through act of God.
19. NO BROKER: Purchaser and Seller represent to each other that they have not
utilized the services of any broker in connection with the transaction evidenced
by this Agreement. Accordingly, Seller agrees to indemnify and hold harmless
Purchaser from payment of any brokerage fees or any liability or obligation
therefor to any person or party claiming a fee or commission through Seller and
Purchaser agrees to indemnify and hold harmless Seller from payment of any
brokerage fees or any liability or obligation therefor to any person or party
claiming a fee or commission through Purchaser.
20. MISCELLANEOUS: TIME IS OF THE ESSENCE. The laws of the State of Michigan
shall govern and control the interpretation and enforcement of the terms and
provisions of this Agreement. This Agreement shall not be recorded.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals.
SELLER: PURCHASER:
Michigan Brewery,
a Michigan Corporation
By: /s/ WILLIAM ROLINSKI /s/ MICHAEL G. EYDE
------------------------ ------------------------
William Rolinksi Michael G. Eyde
Its President
Date: August 1, 1997 Date: August 1, 1997
---------------------- ----------------------
<PAGE>
EXHIBIT 11
MICHIGAN BREWERY, INC.
Computation of Net Loss Per Common Share
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of issued
shares outstanding 5,275,000 2,500,000 5,275,000 2,500,000
Effect of:
Common shares issued during
1996 (1) 0 510,714 0 291,325
Shares outstanding used to compute
net income (loss) per share 5,275,000 3,010,714 5,275,000 2,791,325
Net loss ($257,963) ($341,995) ($613,148) ($730,472)
Net loss per common ($0.05) ($0.11) ($0.12) ($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>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 69,428
<SECURITIES> 1,200,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 206,579
<CURRENT-ASSETS> 1,684,054
<PP&E> 14,229,090
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,981,442
<CURRENT-LIABILITIES> 658,539
<BONDS> 3,398,699
0
0
<COMMON> 52,750
<OTHER-SE> 11,871,454
<TOTAL-LIABILITY-AND-EQUITY> 15,981,442
<SALES> 2,892,353
<TOTAL-REVENUES> 2,892,353
<CGS> 979,013
<TOTAL-COSTS> 2,718,067
<OTHER-EXPENSES> 711,674
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150,383
<INCOME-PRETAX> (613,148)
<INCOME-TAX> 0
<INCOME-CONTINUING> (613,148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (613,148)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
