<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 March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to _________________________
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
- --------------------------------------------------------------------------------
(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 filed 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 ___ No |X|
Indicate the number of shares outstanding of each of the issuer's 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
March 31, 1999 (unaudited) 3
Statements of Operations for the Three Months Ended
March 31, 1999 and 1998 (unaudited) 4
Statements of Changes in Shareholders Equity for the Three
Months Ended March 31, 1999 (unaudited) and the
Year Ended December 31, 1998. 5
Statements of Cash Flows for the Three Months Ended
March 31, 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 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
Independence Brewing Company
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 47,988 $ 35,561
Accounts receivable 13,432 55,416
Inventories 318,337 288,708
----------- -----------
Total current assets 379,757 379,685
----------- -----------
Equipment and leasehold improvements, net 2,010,942 2,047,026
Intangibles 232,293 233,537
Other 41,898 13,904
----------- -----------
Total assets $ 2,664,890 $ 2,674,152
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 582,523 $ 359,181
Accounts payable and accrued expenses 688,422 683,493
Other 20,865 20,865
----------- -----------
Total current liabilities 1,291,810 1,063,539
----------- -----------
Long-term liabilities
Deferred rent 59,764 57,127
Long-term debt 109,139 111,251
----------- -----------
Total liabilities 1,460,713 1,231,917
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, respectively 9,069,748 9,069,748
Accumulated deficit (7,865,571) (7,627,513)
----------- -----------
Total shareholders' equity 1,204,177 1,442,235
----------- -----------
$ 2,664,890 $ 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
March 31,
---------------------------
1999 1998
---------- ----------
(unaudited)
<S> <C> <C>
Sales $ 132,124 $ 171,118
Less excise taxes 5,581 9,385
---------- ----------
Net sales 126,543 162,733
Cost of goods sold 146,306 305,727
---------- ----------
Gross loss (19,763) (143,994)
---------- ----------
Advertising, promotional and selling expenses 73,478 170,036
General and administrative expenses 148,053 187,972
---------- ----------
Operating loss (241,294) (502,002)
---------- ----------
Other income (expense)
Interest expense (1,976) (10,357)
Other income, net 5,212 6,043
---------- ----------
3,236 (4,314)
---------- ----------
Loss before income taxes (238,058) (506,316)
Income taxes - -
---------- ----------
NET LOSS $ (238,058) $ (506,316)
========== ==========
Per share data
Net loss per common share basic and diluted $ (0.07) $ (0.16)
========== ==========
Weighted average shares outstanding 3,357,077 3,208,189
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
Independence Brewing Company
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months ended March 31, 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 three months
ended March 31, 1999 - - (238,058) (238,058)
--------- ----------- ----------- ------------
Balance at March 31, 1999 3,357,077 $ 9,069,748 $(7,865,571) $ 1,085,119
========= =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
Independence Brewing Company
STATEMENT OF CHANGES IN CASH FLOWS
Three Months ended March 31, 1999 (unaudited) and the
year ended December 31, 1998
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
Operating activities
Net loss $ (238,058) $ (506,316)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 36,084 37,840
Write-off of original issue discount and deferred charges 1,244 -
Increase (decrease) in accounts receivable 41,984 13,678
Increase (decrease) in inventories (29,629) (38,117)
Decrease in other (25,357) (17,202)
Increase in accounts payable, accrued expenses and other 4,929 30,620
----------- -----------
Net cash used in operating activities (208,803) (445,093)
----------- -----------
Investing activities
Purchases of property and equipment - (50,691)
----------- -----------
Net cash used in investing activities - (50,691)
----------- -----------
Financing Activities
Proceeds from long-term debt 415,034 -
Repayments of long-term debt (193,804) (26,803)
----------- -----------
Net cash provided by (used in) financing activities 221,230 (26,803)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 12,427 (522,587)
Cash and cash equivalents at beginning of period 35,561 1,229,209
----------- -----------
Cash and cash equivalents at end of period $ 47,988 $ 706,622
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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 March 31, 1999 and for the
three months ended March 31, 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 three
months ended March 31, 1999 are not necessarily indicative of the results
that may be expected for any future period.
NOTE B - INVENTORIES
Inventories consist of the following:
March 31, December 31,
1999 1998
--------- ---------
(unaudited)
Raw materials $ 65,140 $ 59,274
Work in process 75,425 69,410
Finished goods 89,138 80,115
Packaging 113,137 104,413
--------- ---------
342,840 313,212
Less reserve for spillage (24,504) (24,504)
--------- ---------
$ 318,337 $ 288,708
========= =========
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Gross sales for the quarter ended March 31, 1999 were $132,724 as compared
to $171,118 for the comparable year-ago quarter. The decline in gross sales from
the comparable period last year was due to a decrease in sales volume in
comparison to the previous period.
Excise taxes for the quarter ended March 31, 1999 were $5,581 as compared
with $9,385 for the comparable year-ago quarter. Excise taxes as a percentage of
sales for the quarter ended March 31, 1999 were approximately 4.2% as compared
with 5% for the comparable year-ago quarter. 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.
Cost of goods sold for the quarter ended March 31, 1999 were $146,306 or
111% of sales, as compared to $305,727 or 178% of sales for the comparable
year-ago quarter. The decrease in cost of goods sold from the comparable period
last year reflects the decrease in the volume of beer sold. Cost of goods sold
as a percentage of sales declined in comparison the year-ago quarter due to a
decline in repairs and maintenance expense. This was the result of the purchase
of new bottling equipment that cost less to maintain than the old equipment.
Advertising, promotional, and selling expenses for the quarter ended March
31, 1999 were $73,478 or 56% of sales, as compared to $170,036 or 99% of sales
for the comparable year-ago quarter. The decrease in advertising expense from
the comparable period of a year-ago was primarily due to a reduction in sales
representatives. In addition, there were also decreasing costs associated with
merchandising and direct mail campaign.
General and administrative expenses for the three months ended March 31,
1999 were $148,053 or 112% of sales, as compared to $187,972 or 110% of sales
for the comparable year-ago quarter. The decrease in G&A expense from the
comparable period of a year-ago was primarily due to decreases in amortization
and professional fees costs.
Interest expense for the quarter ended March 31, 1999 were $1,976 as
compared to $10,357 for the comparable year-ago quarter. Interest expense was
lower during the first quarter of 1998 in comparison to the same period in 1999
due to interest expense incurred for the first quarter of 1998 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 months ended March 31,1999 was $5,212 as
compared to $6,043 for the comparable year-ago quarter. The decrease in other
income, net from the comparable year-ago period was primarily due to a decline
in interest income as the Company's cash balance declined because of operating
losses.
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 PIDC 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 $5,285,000 of proceeds, net of underwriting discounts and
underwriting expenses (including the purchase of 600,000 redeemable warrants
upon partial exercise of the Underwriter's overallotment option and after
deducting 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 three months ended March 31,
1999 totaled $208,805 as compared to $445,093 for the comparable year-ago
period. The increase in use of cash is primarily due to the Company's operating
loss for the first quarter of 1999.
-8-
<PAGE>
Cash used in investing activities for the quarter ended March 31, 1999
totaled $-0- as compared to $50,691 for the same period last year.
Cash provided by financing activities for the quarter ended March 31, 1999
was $221,320. Cash used in financing activities for the quarter ended March 31,
1998 was $26,803. This increase from the same period of a year ago reflects the
net proceeds of a $500,000 note from a third party which will be used to pay
existing debt and service fees.
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.
Forward Looking Statements
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. 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 brewpub 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.
Inflation and Seasonality
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.
-9-
<PAGE>
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
None
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
-10-
<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 3 months ended
March 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 001009863
<NAME> Independence Brewing Company
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 47,988
<SECURITIES> 0
<RECEIVABLES> 13,432
<ALLOWANCES> 0
<INVENTORY> 318,337
<CURRENT-ASSETS> 379,757
<PP&E> 2,459,942
<DEPRECIATION> 449,000
<TOTAL-ASSETS> 2,664,890
<CURRENT-LIABILITIES> 1,291,810
<BONDS> 0
0
0
<COMMON> 9,069,746
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,664,890
<SALES> 132,124
<TOTAL-REVENUES> 126,543
<CGS> 146,306
<TOTAL-COSTS> 373,418
<OTHER-EXPENSES> (3,236)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,976)
<INCOME-PRETAX> (238,058)
<INCOME-TAX> 0
<INCOME-CONTINUING> (238,058)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (238,058)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
