SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED June 30, 1997 .
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____ TO ____.
Commission file number 0-28898
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Independence Brewing Company
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2763840
------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 East Comly Street, Philadelphia, Pennsylvania 19149
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 537-2337
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be failed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
---
Indicate the number of shares outstanding of each of the issued classes of
common equity, as of the latest practicable date: On August 14, 1997,
3,207,078 shares of the issuer's Common Stock, no par value, and 4,600,000
Redeemable Warrants were outstanding.
<PAGE>
Independence Brewing Company
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Balance Sheet at December 31, 1997 and
June 30, 1996 (unaudited) 3
Statements of Operations for the Three Months Ended
June 30, 1997 and 1996 (unaudited) 4
Statements of Changes in Shareholders Equity for the Three
Months Ended June 30, 1997 (unaudited) and the Year
Ended December 31, 1996 5
Statements of Cash Flows for the Three Months Ended
June 30, 1997 and 1996 (unaudited) 6
Notes to Financial Statements 7
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES
</TABLE>
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<PAGE>
Independence Brewing Company
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, Dec. 31,
ASSETS 1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,474,651 $ 363,484
Accounts receivable 42,083 17,126
Inventories 139,108 134,816
Advances to officer -- 10,000
----------- -----------
Total current assets 2,655,842 525,426
Equipment and leasehold improvements, net 1,998,499 1,395,875
Deferred charges -- 2,981,931
Deferred stock issuance costs -- 338,910
Other 109,283 25,902
----------- -----------
$ 4,763,624 $ 5,268,044
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 108,000 $ 100,264
Current portion of capital lease obligations 1,434 4,026
Accounts payable and accrued expenses 325,294 753,749
----------- -----------
Total current liabilities 434,728 858,039
Long-term liabilities
Deferred rent 40,501 35,436
Convertible debentures -- 800,000
Long-term debt 460,056 517,497
----------- -----------
Total liabilities 935,285 2,210,972
----------- -----------
Series A preferred stock, $10.00 par value - authorized, 500,000 shares;
no shares issued and outstanding -- --
----------- -----------
Series B preferred stock, $10.00 par value - authorized, 500,000 shares;
issued and outstanding, 70,000 shares -- 700,000
----------- -----------
Shareholders' equity
Common stock, no par value - authorized, 19,000,000 shares; issued and
outstanding, 3,207,078 and 2,307,078 shares in 1997 and
1996, respectively 8,976,634 3,691,428
Accumulated deficit (5,148,295) (1,334,356)
----------- -----------
Total shareholders' equity 3,828,339 2,357,072
----------- -----------
$ 4,763,624 $ 5,268,044
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
Independence Brewing Company
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ----------------------------
1997 1996 1997 1996
---------- ---------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 151,177 $ 186,704 $ 252,727 $ 277,326
Less excise taxes 7,320 7,107 14,616 11,193
---------- ---------- ----------- ----------
Net sales 143,857 179,597 238,111 266,133
Cost of goods sold 227,140 180,093 487,036 388,685
---------- ---------- ----------- ----------
Gross loss (83,283) (496) (248,925) (122,552)
---------- ---------- ----------- ----------
Advertising, promotional and selling expenses 128,894 62,101 171,190 74,926
General and administrative expenses 250,858 126,657 482,171 191,756
---------- ---------- ----------- ----------
379,752 188,758 653,361 266,682
---------- ---------- ----------- ----------
Operating loss (463,035) (189,254) (902,286) (389,234)
---------- ---------- ----------- ----------
Other income (expense)
Interest expense (12,660) (35,404) (2,970,474) (51,453)
Other income, net 51,552 7,711 58,821 21,684
---------- ---------- ----------- ----------
38,892 (27,693) (2,911,653) (29,769)
---------- ---------- ----------- ----------
Loss before income taxes (424,143) (216,947) (3,813,939) (419,003)
Income taxes -- -- -- --
---------- ---------- ----------- ----------
NET LOSS $ (424,143) $ (216,947) $(3,813,939) $ (419,003)
========== ========== =========== ==========
Per share data
Net loss per common share $ (0.13) $ (0.18) $ (1.28) $ (0.36)
========== ========== =========== ==========
Weighted average shares outstanding 3,207,077 1,173,834 2,984,550 1,173,945
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
Independence Brewing Company
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months ended June 30, 1997 (unaudited) and the
year ended December 31, 1996
<TABLE>
<CAPTION>
Common stock
--------------------------- Total
Number of Accumulated shareholders'
shares Amount deficit equity
--------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 1,166,538 266,768 (111,229) 115,539
Issuance of common stock 1,140,540 3,424,660 -- 3,424,660
Net loss for the year ended
December 31, 1996 -- -- (1,223,127) (1,223,127)
----------- ----------- ----------- -----------
Balance at December 31, 1996 2,307,078 3,691,428 (1,334,356) 2,357,072
Issuance of common stock (unaudited) 900,000 5,285,206 -- 5,285,206
Net loss for the six months ended
June 30, 1997 (unaudited) -- -- (3,813,939) (3,813,939)
----------- ----------- ----------- -----------
Balance at June 30, 1997 (unaudited) $ 3,207,078 $ 8,976,634 $(5,148,295) $ 3,828,339
=========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
Independence Brewing Company
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months ended
June 30,
------------------------------
1997 1996
------------ ----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (3,813,939) $ (419,003)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 59,689 33,610
Amortization of original issue discount 2,981,931 --
Increase (decrease) in accounts receivable (24,957) (46,921)
Increase (decrease) in inventories (4,292) 3,808
Decrease (increase) in other 335,840 12,095
Increase in accounts payable,
accrued expenses and other (423,390) 168,493
------------ ----------
Net cash used in operating
activities (889,118) (247,918)
------------ ----------
Cash flows from investing activities
Purchases of property and equipment (652,624) (40,143)
Other (90,000) --
------------ ----------
Net cash used in investing
activities (742,624) (40,143)
------------ ----------
Cash flows from financing activities
Proceeds from subordinated convertible notes -- 188,300
Repayments of long-term debt (52,297) (14,145)
Redemption of preferred stock (700,000) --
Proceeds from issuance of common stock 5,285,206 6,996
Proceeds from notes payable -- 100,000
Advances from (repayments to) officers, net 10,000 8,890
Repayments of convertible debentures (800,000) --
------------ ----------
Net cash provided by financing
activities 3,742,909 290,041
------------ ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,111,167 1,980
Cash and cash equivalents at
beginning of period 363,484 2,782
------------ ----------
Cash and cash equivalents at
end of period $ 2,474,651 $ 4,762
------------ ----------
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Independence Brewing Company (the Company) is a regional producer of fresh,
high-quality, preservative-free, craft brewed ales, lagers, porters and
seasonal beers. The Company competes with other beer and beverage companies
not only for consumer acceptance and loyalty but also for shelf and tap
space in retail establishments and for marketing focus by the Company's
third-party wholesale distributors and their customers, all of which also
distribute and sell other beers and alcoholic beverage products.
The manufacture and sale of alcoholic beverages is a business that is highly
regulated and taxed at the federal, state and local levels. The Company's
operations may be subject to more restrictive regulations and increased
taxation by federal, state and governmental agencies than are those of
non-alcohol related businesses.
1. Interim Financial Information
The financial statements of the Company as of June 30, 1997 and for the six
months ended June 30, 1997 and 1996 and related footnote information are
unaudited. All adjustments (consisting only of normal recurring adjustments)
have been made which, in the opinion of management, are necessary for a fair
presentation. Results of operations for the six months ended June 30, 1997
are not necessarily indicative of the results that may be expected for any
future period.
2. Loss Per Common Share
Loss per common share was computed based on the weighted average number of
common shares and common share equivalents outstanding during the year, as
restated for the 100% stock dividend, effected in the form of a stock split,
issued on January 5, 1996 for shareholders of record on December 6, 1995.
Warrants were not considered because they are antidilutive. In connection
with certain Private Placements, 1,038,188 shares issued have been treated
as outstanding for all periods in calculating loss per common share because
such shares were issued for consideration below the Public Offering price of
$5.00 per share. Fully dilutive loss per common share has not been presented
because it was antidilutive.
The FASB has issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," which is effective for financial statements issued
after December 15, 1997. Early adoption of the new standard eliminates
primary and fully diluted earnings per share and requires presentation of
basic and diluted earnings per share together with disclosure of how the per
share amounts were computed. The adoption of this new standard is not
expected to have a material impact on the disclosures of earnings per share
in the financial statements.
NOTE B - INVENTORIES
Inventories consist of the following:
June 30, December 31,
1997 1996
(unaudited)
Raw materials $ 25,348 $ 11,513
Work in process 22,569 21,703
Finished goods 22,745 30,410
Packaging 68,446 71,190
--------- --------
$139,108 $134,816
========= ========
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<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS
NOTE C - SHAREHOLDERS' EQUITY
The Company received approximately $5,285,000 of proceeds, net of
underwriting discounts and underwriting expenses from the sale 900,000
shares of Common Stock, no par value per share and 4,000,000 Redeemable
Common Stock Purchase Warrants (Redeemable Warrants). The initial public
offering prices of the Common Stock and the Redeemable Warrants was $5.00
and $0.50, respectively. Additionally, the Company sold 600,000 Redeemable
Warrants on the same terms and conditions as set forth above solely to cover
overallotments.
The Company has also agreed to sell to the underwriter, for nominal
consideration, warrants to purchase 90,000 shares of Common Stock and
400,000 Redeemable Warrants. The Underwriter's Warrants are initially
exercisable at a price of $6.00 per share of Common Stock and $0.60 per
Redeemable Warrant for a period of four years commencing one year from the
date of this Prospectus. The Redeemable Warrants underlying the
Underwriter's Warrants are exercisable at a price of $7.50 per share of
Common Stock.
-8-
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1997 were $143,857 as compared
to $179,597 for the comparable year-ago quarter. Net sales for the six months
ended June 30, 1997 were $238,111 as compared with $266,133 for the comparable
year-ago period. The decrease in net sales from the comparable periods last year
was due to a decline of unit sales by the case in comparison to previous
periods. Management attributes this decline to the fact that in 1996, during the
second quarter, the company participated in a national promotion which produced
a one-time order of approximately 15,000 cases. The company did not participate
in that event in 1997.
Excise taxes for the quarter ended June 30, 1997 were $7,320 as
compared with $7,107 for the comparable year ago quarter. Excise taxes for the
six months ended June 30, 1997 were $14,616 as compared with $11,193 for the
comparable year-ago period. Excise taxes as a percentage of sales for the six
month period ended June 30, 1997 was approximately 6% as compared with 4% for
the comparable year-ago period. The company pays federal and certain local taxes
on sales volume. Accordingly, as sales in certain jurisdictions increase, excise
taxes paid by the Company will increase unless the Company increases shipments
to jurisdictions where local excise taxes are paid by the third party wholesale
distributor rather than the brewer, as is the case in Maryland and the District
of Columbia.
Cost of goods sold for the quarter ended June 30, 1997 was $227,140 or
150% of sales, as compared to $180,093 or 96% of sales for the comparable
year-ago quarter. Cost of goods sold for the six months ended June 30, 1997 were
$487,036 or 193% of sales as compared to $388,685 or 140% of sales for the
comparable year-ago period. The increase in cost of goods sold from the
comparable periods last year was primarily due to increases in depreciation,
production salaries, and production supplies expense. The installation of new
bottling equipment during the second quarter resulted in increased depreciation
costs for the Company. The increase in production salaries reflects an increase
in brewery personnel from previous comparable periods. The increase in
production supplies is due to costs associated with the operation of the
Company's new bottling equipment.
Advertising, promotional, and selling expenses for the quarter ended
June 30, 1997 were $128,894 or 85% of sales, as compared to $62,101 or 33% of
sales for the comparable year-ago quarter. Advertising, promotional and selling
expenses for the six months ended June 30, 1997 were $171,190 or 68% of sales,
as compared to $74,926 or 27% of sales for the same period last year. The
increase in advertising expense from the comparable periods of a year ago was
primarily due to the launching of a major advertising campaign which included
billboard, magazine and radio advertisements. In addition, there were also
increasing costs associated with merchandising and direct mail campaigns.
General and administrative expenses for the three months ended June 30,
1997 were $250,858 or 166% of net sales, as compared to $126,657 or 68% of sales
for the comparable year-ago quarter. General and administrative expenses for the
six months ended June 30, 1997 were $482,171 or 191% of sales, as compared to
$191,756 or 69% for same period last year. The increase in general and
administrative expense from the comparable periods of a year-ago were primarily
due to increased salary, amortization, insurance and professional fees. Salary
expenses increased in connection with the addition of a Chief Operating Officer
and additional management personnel. Amortization increased as a result of a
$60,000 direct write-off of financing fees.
-9-
<PAGE>
Interest expense for the quarter ended June 30, 1997 was $12,660 as
compared to $35,404 for the comparable year-ago quarter. Interest expense for
the six months ended June 30, 1997 was $2,970,474 as compared to $51,543 for the
comparable year-ago period. Interest expense increased substantially during the
first half of 1997 when compared to the same period in 1996 due to the write-off
of unamortized original issue discount and financing costs aggregating
approximately $2,900,000 (or $0.97 per share) in connection with the repayment
of the Company's convertible debentures and Series B preferred stock from the
net proceeds of the Company's initial public offering in the first quarter of
1997. The interest incurred for the first six months of 1997 is also associated
with the Company's promissory note in favor of CoreStates Bank, N.A. in
connection with a Small Business Administration loan (the "SBA Loan") and
Philadelphia Industrial Development Corporation notes ("PIDC Notes").
Other income, net for the three and six months ended June 30, 1997 were
$51,552 and $58,821 respectively, an increase of $43,841 and $37,137 when
compared to comparable periods of a year-ago. The increase in other income, net
form comparable year-ago periods was primarily due interest earned on excess
funds resulting from the Company's initial public offering in the first quarter
of 1997
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations and capital requirements
through the issuance of Common Stock, the SBA Loan, the PEDC Notes, the issuance
of certain subordinated convertible, notes in 1995 and during 1996. In February
1997, the Company completed its initial public offering. The Company received
approximately $5,289,000 of proceeds, net of underwriting discounts and
underwriting expenses (including the purchase of 600,000 redeemable warrants
upon partial exercise of the Underwriters overallotment option and after
deducting the Underwriter's discount and offering expenses) from the initial
public offering. Net cash used in operating activities in 1996 and 1997 during
the three months ended March 31 was $121,080 and $411,483 respectively. The
increase was primarily due to a significant increase of net operating loss and
decline in accounts payable which was only partially offset by the total
write-off of the original issue discount discussed above.
Cash flows used in operating activities for the six months ended June
30, 1997 totaled $889,118 as compared to $247,918 for the comparable year-ago
period. The increase use of cash is primarily due to the Company's operating
loss for the first six months of 1997 and a significant paydown of its accounts
payable.
Cash used in investing activities for the six months ended June 30,
1997 totaled $742,624 as compared to $40,143 for the same period last year. The
increase in the use of cash was the result of the purchase of new bottling
equipment and the cost of acquiring a trademark.
Cash provided by financing activities for the six months ended June 30,
1997 totaled $3,742,909 as compared to $290,041 for the same period last year.
This increase was due to net proceeds of $5,285,206 as a result of the Company's
initial public offering which was partially offset by the repayment of $800,000
of convertible debentures, $700,000 of preferred stock and $52,297 of other long
term debt.
The matters discussed in this Form 10-QSB that are forward looking
statements, relate to future events or the future financial performance of the
Company are based on current management expectations that involve risks and
uncertainties. Such statements are only predictions and actual events or
performance may differ materially from the events or performance expressed in
any such forward looking statements.
-10-
<PAGE>
Potential risks and uncertainties include, without limitation: the impact of
economic conditions generally and in the industry for microbreweries; the
potential decline in the level of demand for the Company's products; the
commencement of brewery/pub operations by the Company and the inherent risks
associated therewith; risk of third party claims concerning the Company's
intellectual property; loss of key personnel, distributors or suppliers; limited
product line; sales fluctuations due to seasonality; continued competitive and
pricing pressures in the industry; product supply shortages; legal proceedings;
and capital and financing availability.
Although the Company has not attempted to calculate the effect of
inflation, management does not believe inflation has had a material effect to
date on its results of operations. However, production and raw material costs
are expected to increase over time as a result of general economic inflation,
and there can be no assurance that the Company will be able to offset the
resulting negative effects on its business through increasing the sale prices of
its product.
-11-
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports filed on Form 8-K.
None
-12-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Independence Brewing Company
/s/ Robert W. Connor, Jr.
----------------------------------------
Robert W. Connor, Jr.
President, Chief Executive Officer
(and principal accounting officer)
Date: August 14, 1997
-13-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,474,651
<SECURITIES> 0
<RECEIVABLES> 42,083
<ALLOWANCES> 0
<INVENTORY> 139,108
<CURRENT-ASSETS> 2,655,842
<PP&E> 1,998,499
<DEPRECIATION> 225,344
<TOTAL-ASSETS> 4,763,624
<CURRENT-LIABILITIES> 434,728
<BONDS> 460,056
0
0
<COMMON> 8,976,634
<OTHER-SE> (5,148,295)
<TOTAL-LIABILITY-AND-EQUITY> 4,763,624
<SALES> 252,727
<TOTAL-REVENUES> 238,111
<CGS> 487,036
<TOTAL-COSTS> 653,361
<OTHER-EXPENSES> 58,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,970,474
<INCOME-PRETAX> (3,813,939)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,813,939)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,813,939)
<EPS-PRIMARY> (1.28)
<EPS-DILUTED> 0
</TABLE>
