<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 0-28898
INDEPENDENCE BREWING COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2763840
- -------------------------------------------------------------------------------
(State of other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1000 East Comly Street, Philadelphia, PA 19149
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(Address of principal executive offices) (Zip Code)
(215) 537-2337
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(Registrant' Telephone Number, Including Area Code)
Indicate by check mark whether the Issuer (1) filed all reports required to be
filed by section 13 or 15(d) of the 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 No |X|
---
Indicate the number of shares outstanding of each of the issued classes of
common equity, as of the latest practicable date: On October 1, 1999, 3,357,077
shares of the issuer's Common Stock, no par value and 4,600,000 Redeemable
Warrants were outstanding.
<PAGE>
Independence Brewing Company
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at December 31, 1998 and
June 30, 1999 (unaudited) 3
Statements of Operations for the Three Months Ended
and Six Months Ended June 30, 1999 and 1998 (unaudited) 4
Statements of Changes in Shareholders Equity for the Six
Months Ended June 30, 1999 (unaudited) and the
Year Ended December 31, 1998. 5
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 (unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
Independence Brewing Company
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,361 $ 35,561
Accounts receivable 13,228 55,416
Inventory 373,878 288,708
----------- -----------
Total current assets 388,467 379,685
Equipment and leasehold improvements, net 1,977,631 2,047,026
Intangibles 233,010 233,537
Other assets 41,963 13,904
----------- -----------
Total assets $ 2,641,071 $ 2,674,152
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current port of long-term debt $ 698,062 $ 359,181
Accounts payable and accrued expenses 825,327 683,493
Other 27,677 20,865
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Total current liabilities 1,551,066 1,063,539
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Long-term liabilities
Deferred rent 59,764 57,127
Long-term debt 74,495 111,251
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Total liabilities 1,685,325 1,231,917
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Shareholders' equity
Preferred stock, Series A, $10.00 par value - authorized
500,000 shares; none outstanding -- --
Preferred stock, Series B, $10.00 par value - authorized
500,000 shares; none outstanding -- --
Common stock, no par value - authorized, 19,000,000
shares; issued and outstanding, 3,357,077 shares in
1999 and 3,357,077 shares in 1998 9,069,748 9,069,748
----------- -----------
Accumulated deficit (8,114,002) (7,627,513)
----------- -----------
Total shareholders' equity 955,746 1,442,235
----------- -----------
Total liabilities and shareholders' equity $ 2,641,071 $ 2,674,152
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
Independence Brewing Company
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 80,074 $ 291,946 $ 212,198 $ 463,064
Less excise taxes 2,907 11,903 8,488 21,288
----------- ----------- ----------- -----------
Net sales 80,074 280,043 203,710 441,776
Cost of goods sold 108,533 316,977 254,839 662,704
----------- ----------- ----------- -----------
Gross loss (31,366) (36,934) (51,130) (180,928)
Promotional and selling expenses 69,079 104,962 142,557 274,988
General and administrative expenses 115,525 156,613 263,578 344,585
----------- ----------- ----------- -----------
184,604 261,575 406,135 619,583
----------- ----------- ----------- -----------
Operating loss (215,970) (298,509) (457,264) (800,511)
Other income (expense)
Interest (27,194) (9,457) (29,170) (19,814)
Other income (expense), net (5,268) 6,514 (56) 12,957
----------- ----------- ----------- -----------
(32,462) (2,943) (29,226) (7,257)
----------- ----------- ----------- -----------
Loss before income taxes (248,432) (301,452) (486,489) (807,768)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (248,432) $ (301,452) $ (486,489) $ (807,768)
=========== =========== =========== ===========
Per share data
Net loss per common share $ (0.07) $ (0.09) $ (0.14) $ (0.25)
=========== =========== =========== ===========
Weighted average shares outstanding 3,357,077 3,354,281 3,357,077 3,281,235
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
Independence Brewing Company
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Six months ended June 30, 1999 (unaudited) and the
year ended December 31, 1998
<TABLE>
<CAPTION>
Common stock
------------------------------
Number of Total Accumulated Shareholders'
shares amount deficit equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1998 3,207,077 $ 8,976,634 $ 6,110,945 $ 2,865,689
Issuance of common stock 150,000 93,114 -- 93,114
Net loss for the year ended
December 31, 1998 -- -- (1,516,568) (1,516,568)
----------- ----------- ----------- -----------
Balance at December 31, 1998 3,357,077 9,069,748 7,627,513 1,442,235
Issuance of common stock -- -- -- --
Net loss for the six months ended
June 30, 1999 -- -- (486,489) (486,489)
----------- ----------- ----------- -----------
Balance at June 30, 1999 3,357,077 $ 9,069,748 $ 8,114,002 $ 955,746
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
Independence Brewing Company
STATEMENTS OF CASH FLOWS
Six months ended June 30,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (486,489) $ (807,768)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 69,395 75,906
Deferred Charges 527 0
Decrease (increase) in accounts receivable 42,188 (27,014)
Decrease (increase) in inventory (85,170) (45,875)
Decrease (increase) in other assets (28,059) 105,872
Increase in accounts payable, accrued expenses and deferred rent 151,283 38,805
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Net cash used in operating activities (336,325) (660,074)
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Cash flows from investing activities
Purchases (Sale) of property and equipment -- (12,640)
(Purchases) of intangible -- (115,234)
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Net cash used in investing activities -- (127,474)
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Cash flows from financing activities
Proceeds from long-term debt 530,573 --
Payment of outstanding debt (228,448) (47,603)
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Net cash provided by (used in) financing activities 302,125 (47,603)
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Net decrease in cash and cash equivalents (34,200) (835,151)
Cash and cash equivalents balance at beginning of period 35,561 1,229,209
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Cash and cash equivalents at balance end of period $ 1,361 $ 394,058
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<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, 1999 and for the six
months ended June 30, 1999 and 1998 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, 1999
are not necessarily indicative of the results that may be expected for any
future period.
NOTE B - INVENTORIES
Inventories consist of the following:
June 30, December 31,
1999 1998
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(unaudited)
Raw materials $ 75,693 $ 59,274
Work in process 87,644 69,410
Finished goods 103,579 80,115
Packaging 131,466 104,413
---------- ----------
398,382 313,212
Less reserve for spillage (24,504) (24,504)
---------- ----------
$ 373,878 $ 288,708
========== ==========
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales for the quarter ended June 30, 1999 were $80,074 as compared to
$280,043 for the comparable year-ago quarter. Net sales for the six months ended
June 30, 1999 were $206,617 as compared with $441,776 for the comparable
year-ago period. The decrease in net sales from the comparable periods last year
was mainly due to decreased volume.
Excise taxes for the quarter ended June 30, 1999 were $2,907 as compared
with $11,903 for the comparable year-ago quarter. Excise taxes for the six
months ended June 30, 1999 were $8,488 as compared with $21,288 for the
comparable year-ago period. Excise taxes as a percentage of sales for the
quarter ended June 30, 1999 were approximately 4% as compared with 4% for the
comparable year-ago quarter. Excise taxes as a percentage of sales for the
six-month period ended June 30, 1999 was approximately 3% as compared with 5%
for the comparable year-ago period. The company pays federal and certain local
taxes on sales volume. Accordingly, as sales 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.
Costs of goods sold for the quarter ended June 30, 1999 were $108,533 or
136% of sales, as compared to $316,977 or 109% of sales for the comparable
year-ago quarter. Costs of goods sold for the six months ended June 30, 1999
were $245,839 or 120% of sales as compared to $622,704 or 134% of sales for the
comparable year-ago period. The decrease in costs of goods sold from the
comparable periods last year was primarily due to a decrease in the cost of
materials, outside services, and production salaries. The Company obtained
better pricing from vendors and used greater economies-of-scale buying.
Production salary expense decreased compared to net sales due to decreases in
personnel.
Advertising, promotional, and selling expenses for the quarter ended June
30, 1999 were $69,079 or 86% of sales, as compared to $104,962 or 36% of sales
for the comparable year-ago quarter. Advertising, promotional and selling
expenses for the six months ended June 30, 1999 were 142,557 or 67% of sales, as
compared to $274,998 or 60% of sales for the same period last year. Decreases
include general advertising and print, radio, and billboard mediums.
General and administrative expenses for the three months ended June 30, 1999
were $115,525 or 144% of net sales, as compared to $156,613 or 54% of sales for
the comparable year-ago quarter. General and administrative expenses for the six
months ended June 30, 1999 were $263,578 or 124% of sales, as compared to
$344,585 or 74% for the same period last year. The decrease in G&A expense from
the comparable periods of a year ago were primarily due to decreased salary,
amortization, office expense, professional fees costs, and outside services.
Amortization decreased as a result of decreased write-off of financing fees.
Interest expense for the quarter ended June 30, 1999 was $27,194 as compared
to $9,457 for the comparable year-ago quarter. Interest expense for the six
months ended June 30, 1999 was $29,170 as compared to $19,814 for the comparable
year-ago period. Interest expense was substantially higher during the first half
of 1999 when compared to the same period in 1998 due to increased borrowing to
finance operations.
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<PAGE>
Other expense, net for the three and six months ended June 30, 1999 was
$5,268 and $56, respectively, compared to income of $6,514 and $12,557 for the
same periods of a year ago. The decrease in other income, net from comparable
year-ago periods was primarily due to a decline in interest income as the
Company's cash balance declines due to operating losses.
Liquidity and Capital Resources
To date, the company has funded its operations and capital reserve
requirements through the issuance of Common Stock, the SBA loan, the PIDC notes,
and 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 $5,285,000 of proceeds, net of underwriting
discounts and underwriting expenses (including the purchase of 600,000
redeemable warrants upon partial exercise of the Underwriter's discount and
offering expenses) from the initial public offering.
On March 4, 1999, the Company obtained a $500,000 note from a third party
which it used to pay off the SBA loan (NOTE G) service fees and other payables.
The note was a five-month demand note, payable on August 4, 1999. This note was
not repaid subsequent to year-end and the Company is in default of the
arrangements under this agreement. Interest, not less than $2,500 per month, is
due monthly, calculated at 1/15 of 1% of the average daily balance due, and
adjusted monthly for prime rate increases. All the assets of the Company secure
the note.
Cash flows used in operating activities for the six months ended June 30,
1998 totaled $336,325 as compared to $660,074 for the comparable year-ago
period. The decrease in use of cash is primarily due to the company's decreased
operating loss and a decrease in the purchase of other assets.
Cash used in investing activities for the six months ended June 30, 1999
totaled $-0- as compared to $127,474 for the same period last year.
Cash provided by financing activities for the six months ended June 30,
1999 totaled $502,125 as compared to $47,603 for the same period last year.
The Company had cash and cash equivalents at June 30, 1999 and December 31,
1998 of $1,361 and $35,561, respectively.
The Company does not believe cash flows from operations will be sufficient
to meet short-term liquidity needs. The Company may also seek long term
financing. No assurance can be given that such long term financing will be
obtained on commercially reasonable terms or at all.
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
None
-9-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
None
(a) Exhibits
27.1 Financial Data Schedule at March 31, 1999
(b) Reports filed on Form 8-K.
None
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<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
By: /s/ Robert W. Connor, Jr.
--------------------------------
Robert W. Connor, Jr.
Chief Executive Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Independence Brewing Company for the six months ended
June 30, 1999.
</LEGEND>
<CIK> 001009863
<NAME> Independence Brewing Company
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,361
<SECURITIES> 0
<RECEIVABLES> 13,228
<ALLOWANCES> 0
<INVENTORY> 373,878
<CURRENT-ASSETS> 388,467
<PP&E> 2,460,659
<DEPRECIATION> 483,028
<TOTAL-ASSETS> 2,641,701
<CURRENT-LIABILITIES> 1,551,066
<BONDS> 0
0
0
<COMMON> 9,069,748
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,641,071
<SALES> 212,198
<TOTAL-REVENUES> 212,198
<CGS> 254,839
<TOTAL-COSTS> 671,472
<OTHER-EXPENSES> 29,226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,170
<INCOME-PRETAX> (486,489)
<INCOME-TAX> 0
<INCOME-CONTINUING> (486,489)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (486,489)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
