UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1997 Commission File Numbe 0-21079
PERRY'S MAJESTIC BEER, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3314168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
38 West 32nd Street, Suite 801
New York, New York 10001
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 564-2260
----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and 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 issuer's classes of
common stock, as of November 13, 1997 was 3,708,335
<PAGE>
PERRY'S MAJESTIC BEER, INC.
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INDEX
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Page to Page
Item 1. Financial Statements
Balance Sheet as of September 30, 1997 [Unaudited].......... 1.....
Statements of Operations for the three and six months ended
September 30, 1997 and 1996 [Unaudited]..................... 2.....
Statement of Stockholders' Equity for the six months ended
September 30, 1997 [Unaudited].............................. 3.....
Statements of Cash Flows for the six months ended
September 30, 1997 and 1996 [Unaudited]..................... 4.....
Notes to Financial Statements [Unaudited]................... 5..... 12
Item 2. Managements' Discussion and Analysis of the Financial
Condition and Results of Operations...................13......15
Signature......................................................16......
. . . . . . . . . . . . . . .
<PAGE>
Item 1:
PERRY'S MAJESTIC BEER, INC.
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BALANCE SHEET AS OF SEPTEMBER 30, 1997.
[UNAUDITED]
- ------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 843,593
Accounts Receivable - Net 116,825
Inventory 132,908
Prepaid Insurance 9,079
-----------
Total Current Assets 1,102,405
Property and Equipment - Net 90,258
-----------
Other Assets:
Goodwill - [Net of Accumulated Amortization of $128,349] 385,081
Other Intangible Assets - Net 259,320
Other Assets 20,943
-----------
Total Other Assets 665,344
Total Assets $ 1,858,007
===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 127,730
Accrued Expenses 25,137
Payroll Taxes Payable 12,215
-----------
Total Current Liabilities 165,082
Commitments and Contingencies [14] --
Stockholders' Equity:
Preferred Stock, $.001 Par Value Per Share, 15,000,000
Blank Check Shares Authorized, Convertible Class A -
Issued and Outstanding, 500,000 Shares; Non-Convertible
Class B - Issued 7,000,000 Shares [Aggregate Liquidation
Preferences $170,000] 7,500
Common Stock - $.0001 Par Value, Authorized 25,000,000 Shares,
Issued and Outstanding, 3,708,335 Shares 370
Additional Paid-in Capital 7,231,277
Retained Earnings [Deficit] (1,526,222)
Total 5,712,925
Less: Deferred Compensation (2,020,000)
Treasury Stock [7,000,000 Shares of Non-Convertible
Class B Preferred] (2,000,000)
Total Stockholders' Equity 1,692,925
Total Liabilities and Stockholders' Equity $ 1,858,007
===========
The Accompanying Notes are an Integral Part of These Financial Statements.
1
<PAGE>
PERRY'S MAJESTIC BEER, INC.
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STATEMENTS OF OPERATIONS
[UNAUDITED]
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<TABLE>
Three months ended Six months ended
September 30, September 30,
------------- -------------
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales - Net $ 148,726 $ 154,125 $ 447,051 $ 409,418
Cost of Goods Sold 99,214 117,797 333,558 327,138
----------- ----------- ---------- -----------
Gross Profit 49,512 36,328 113,493 82,280
----------- ----------- ---------- -----------
Selling, General and Administrative
Expenses:
Selling, Advertisement and
Promotion 51,057 -- 95,371 --
General and Administrative
Expenses 199,200 75,539 350,555 117,133
Amortization of Deferred
Compensation 146,250 -- 292,500 --
Amortization of Goodwill and
Distribution Rights 41,048 8,200 77,662 8,200
----------- ----------- ---------- -----------
Total Selling, General and
Administrative Expenses 437,555 83,739 816,088 125,333
----------- ----------- ---------- -----------
Loss on Related Party Receivable -- -- 149,743 --
----------- ----------- ---------- -----------
[Loss] Income from Operations (388,043) (47,411) (852,338) (43,053)
----------- ----------- ---------- -----------
Other [Income] Expense:
Interest Expense -- 2,046 -- 6,998
Interest Income (11,330) (1,154) (24,407) (2,338)
----------- ----------- ---------- -----------
Other [Income] Expense - Net (11,330) 892 (24,407) 4,660
----------- ----------- ---------- -----------
[Loss] Income Before Income
Taxes (376,713) (48,303) (827,931) (47,713)
Provision for Income Taxes -- -- -- --
----------- ----------- ---------- -----------
Net [Loss] Income $ (376,713)$ (48,303) $ (827,931) $ (47,713)
=========== =========== ========== ===========
Weighted Average Number of
Shares 3,708,335 2,855,073 3,708,335 2,678,507
=========== =========== ========== ===========
Net [Loss] Income Per Share $ (.10) $ (.02) (.22) (.02)
=========== =========== ========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
2
<PAGE>
PERRY'S MAJESTIC BEER, INC.
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STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
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<TABLE>
Unrealized
Holding
[Loss] on
Additional Retained Available Total
Preferred Stock Common Stock Paid-in Earnings Deferred For Sale Treasury Stockholders'
Shares Amount Shares Amount Capital [Deficit] Compensation Investment Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - April 1, 1997 7,500,000 $7,500 3,708,335 $370 $7,331,277 $(698,291) $(2,312,500) (568,560) -- $3,759,796
Exchange of Promissory Note
Receivable for 7,000,000
Shares of Series B
Preferred of the Company [7] -- -- -- -- (100,000) -- -- 568,560 (2,000,000)(1,531,440)
Amortization of Deferred
Compensation -- -- -- -- -- -- 292,500 -- -- 292,500
Net [Loss] for the six months
ended September 30, 1997 -- -- -- -- -- (827,931) -- -- -- (827,931)
--------- ------ --------- ---- ---------- ----------- ----------- -------- ------------ ---------
Balance - September 30, 1997 7,500,000 $7,500 3,708,335 $370 $7,231,277 $(1,526,222) $(2,020,000) -- $(2,000,000)$1,692,925
========= ====== ========= ==== ========== =========== =========== ======== =========== ==========
</TABLE>
The Accompanying Note are an Integral Part of These Financial Statements.
3
<PAGE>
PERRY'S MAJESTIC BEER, INC.
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STATEMENTS OF CASH FLOWS
[UNAUDITED]
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<TABLE>
Six months ended
September 30,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Net Cash - Operating Activities $ (436,349) $ (202,877)
---------- -----------
Investing Activities:
Purchase of Kegs (41,470) --
Purchase of Furniture and Fixtures (25,835) --
Payments for Label and Packaging Design (70,688) --
Payments for Post Road Brand (3,268) --
Acquisition of Old Marlborough Brewing -- (160,513)
Riverosa Acquisition -- (100,000)
Loan to Bev-Tyme, Inc. -- (75,000)
Repayment of Loan to Bev-Tyme -- 75,000
---------- -----------
Net Cash - Investing Activities (141,261) (260,513)
---------- -----------
Financing Activities:
Proceeds from Sale of Preferred Stock to Bev-Tyme, Inc. -- 75,000
Loan Receivable from Bev-Tyme, Inc. (100,000) --
Proceeds from Sale of Common Stock - Stock Subscription -- 4,800
Proceeds from Bridge Loans -- 60,000
Payment of Bridge Loan Obligation -- (150,000)
Proceeds of Public Offering - Net of Offering Costs -- 2,475,086
---------- -----------
Net Cash - Financing Activities (100,000) 2,464,886
---------- -----------
Net [Decrease] Increase in Cash and Cash Equivalents (677,610) 2,001,496
Cash and Cash Equivalents - Beginning of Periods 1,521,203 60,200
---------- -----------
Cash and Cash Equivalents - End of Periods $ 843,593 $ 2,061,696
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for the periods for:
Interest $ -- $ 6,998
Income Taxes $ -- $ --
</TABLE>
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
On June 13, 1997, the Company converted a promissory note receivable from
Bev-Tyme, Inc. ["Bev- Tyme"] for $100,000, in consideration for 7,000,000 shares
of the Company's Series B Preferred Stock held by Bev-Tyme. Treasury stock of
$2,000,000 was recorded and the unrealized loss and investment in Bev- Tyme
eliminated. As a result of this transaction, Perry's is no longer a subsidiary
of Bev-Tyme effective July 1, 1997 for accounting purposes. As a corporation, it
was a separate legal entity even when it was a subsidiary.
The Accompanying Notes are an Integral Part of These Financial Statements.
4
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS
[UNAUDITED]
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[1] Organization and Nature of Business
Perry's Majestic Beer, Inc., a Delaware corporation [the "Company" or
"Perry's"], was formed in December 1995. The Company's main office is in New
York, New York. There were no revenue or expense activities through March 31,
1996. The Company became a subsidiary of Bev-Tyme, Inc. as of March 29, 1996 and
ceased as a subsidiary on June 13, 1997 [See Note 7]. In March of 1996, the
Company entered into an agreement to acquire Riverosa Company, Inc. which was
formed November 1993, and began marketing and selling throughout the
metropolitan New York City area microbrewed organic beer under the trade name
Perry's Majestic Beer. Perry's Majestic is distributed in New York City, North
Carolina, Ohio and Florida [See Note 6].
During the year ended March 31, 1997, Perry's has continued to expand by
purchasing Old Marlborough Brewing Company, Inc.'s Post Road Microbeer brand and
other assets, and Orchard Annie, Inc., a manufacturer of natural applesauce and
applesauce blends. Post Road brand beer is distributed in Massachusetts, Rhode
Island, Connecticut and Maine [See Note 6].
Perry's is no longer a subsidiary of Bev-Tyme, although the two companies
continued to have some common management through July 17, 1997. However, for
accounting purposes Perry's was treated as a subsidiary of Bev-Tyme through June
30, 1997. As a corporation, it was a separate legal entity even when it was a
subsidiary.
[2] Summary of Significant Accounting Policies
[A] Cash and Cash Equivalents - The Company's policy is to classify all highly
liquid investments with a maturity of three months or less when purchased as
cash equivalents.
[B] Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
[C] Basis of Reporting - The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310(b)of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such statements include all
adjustments which are considered necessary in order to make the interim
financial statements not misleading.
[D] Goodwill - Amounts paid in excess of the estimated value of net assets
acquired of Riverosa and Old Marlborough are charged to goodwill. Goodwill
relates to revenues the Company anticipates realizing in future years. The
Company has decided to amortize its goodwill over a period of up to five years
under the straight-line method. The Company's policy is to evaluate the periods
of goodwill amortization to determine whether later events and circumstances
warrant revised estimates of useful lives. The Company will also evaluate
whether the carrying value of goodwill has become impaired by comparing the
carrying value of goodwill to the value of projected undiscounted cash flows
from acquired assets or businesses. Impairment is recognized if the carrying
value of goodwill is less than the projected undiscounted cash flow from the
acquired assets or business.
[E] Inventories - Inventories are stated at the lower of cost or market. Cost,
which includes purchases, freight and packaging, raw materials, direct labor and
factory overhead, and finished products is determined on the first-in, first-out
basis.
5
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
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[2] Summary of Significant Accounting Policies [Continued]
[F] Property and Equipment - Property and equipment are stated at cost and are
depreciated over its estimated useful life of 3 to 5 years. Depreciation is
calculated using the straight-line method.
[G] Advertising Expense - Advertising costs are expensed as used in promotional
programs with new distributors and customers and adjusted to actual at year end.
For the six months ended September 30, 1997, advertising costs were
approximately $37,450.
[H] Intangibles - The Company has acquired various intangible assets. The
Company amortizes intangible assets over 5 years under the straight-line method
[See Note 5].
[I] Risk Concentrations - Financial instruments that potentially subject the
Company to concentrations of credit risk include cash and cash equivalents and
accounts receivable arising from its normal business activities. The Company
places its cash and cash equivalents with high credit quality financial
institutions located in the New York metropolitan area.
The Company maintains cash and cash equivalent balances at a financial
institution in New York. Accounts at this institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. At September 30, 1997, the
Company's uninsured cash balance totaled approximately $649,000.
The Company performs certain credit evaluation procedures and does not require
collateral. The Company believes that credit risk is limited because the Company
routinely assesses the financial strength of its customers, and based upon
factors surrounding the credit risk of its customers, establishes an allowance
for uncollectible accounts and, as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowances is limited. The Company
established an allowance for doubtful accounts at September 30, 1997 of $4,000.
The Company believes any credit risk beyond this amount would be negligible.
With respect to purchases of inventory for the six months ended September 30,
1997, the Company purchased inventory from one supplier which comprised
approximately 85% of the Company's total cost of sales. The Company believes
there are other suppliers available to meet the Company's needs.
As of September 30, 1997, the Company distributes its products primarily through
fourteen wholesale distributors for resale to retailers. One distributor
accounts for 76% of the Company's sales. Accordingly, the Company is dependent
upon this distributor to sell the Company's products and to assist the Company
in promoting market acceptance of, and creating demand for the Company's
products in its territory. The Company believes there are other distributors
available to meet the Company's needs and the Company is discussing doing
business with these distributors who distribute in territories other than those
currently covered.
[J] Stock Issued to Employees - The Company adopted Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation"
on April 1, 1996 for financial note disclosure purposes and will continue to
apply the intrinsic value method of Accounting Principles Board ["APB"] Opinion
No. 25, "Accounting for Stock Issued to Employees" for financial reporting
purposes.
[K] Revenue Recognition - Revenue is recognized at the time products are shipped
and title passes.
[L] Net [Loss] Per Share - The net loss per share is computed by dividing the
net loss by the weighted average number of shares outstanding during the period.
Shares issuable upon the exercise of stock options granted and the effect of
convertible securities are excluded from the computation because the effect on
the net loss per share would be anti-dilutive.
6
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
[UNAUDITED]
- ------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
[M] Impairment - Certain long-term assets of the Company are reviewed at least
annually as to whether their carrying value has become impaired, pursuant to
guidance established in Statement of Financial Standards ["SFAS"] No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations
[undiscounted and without interest charges]. If impairment is deemed to exist,
the assets will be written down to fair value or projected discounted cash flows
from related operations. Management also re-evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives.
[N] Income Taxes - The Company accounts for income tax expense and liabilities
under the asset and liability method. Deferred income taxes are provided for
temporary differences between financial and income tax reporting, relating
principally to depreciation, deferred compensation and amortization.
[3] Inventories
The Company's inventory consists of raw materials, packaging and finished
products of $132,908.
[4] Plant and Equipment and Depreciation
Plant and equipment and accumulated depreciation are as follows:
Furniture and Fixtures $ 18,566
Warehouse Equipment 10,219
Kegs 49,864
Storage Equipment 19,941
Leasehold Improvements 3,500
----------
Total - At Cost 102,090
Less: Accumulated Depreciation 11,832
Net $ 90,258
--- ==========
Depreciation expense for the six months ended September 30, 1997 was $9,304.
[5] Other Intangible Assets
Other intangible assets and accumulated amortization are as follows:
Accumulated
Cost Amortization Net
Label and Packaging Design $ 138,861 $ 9,514 $ 129,347
Orchard Annie Concept 67,348 6,735 60,613
Distribution Rights 86,700 17,340 69,360
--------- ---------- ----------
Totals $ 292,909 $ 33,589 $ 259,320
------ ========= ========== ==========
Amortization expense for the six months ended September 30, 1997 was $24,909.
7
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
- ------------------------------------------------------------------------------
[6] Acquisitions
[A] Riverosa - On March 29, 1996, the Company entered into an agreement to
acquire all of the stock of Riverosa Company, Inc. for $250,000 of which
$150,000 in cash was put into escrow as of March 31, 1996 and a note payable was
issued for $100,000. The note was payable with interest of 8% and was paid in
August of 1996 with proceeds from the Company's initial public offering. The
combination is accounted for by the purchase method. Goodwill of $246,000 was
recorded and will be amortized over five years under the straight-line method.
Amortization of goodwill of $24,600 was recorded for the six months ended
September 30, 1997.
[B] Old Marlborough Brewing Co., Inc. ["Old Marlborough"] - In September of
1996, the Company acquired Old Marlborough Brewing Co., Inc.'s Post Road
microbeer brand and other assets. The Company paid $172,213, of which $35,513
was for inventory and equipment and $86,700 was to repurchase distribution
rights. In February 1997, the Company issued 25,000 shares of common stock
valued at approximately $214,000 as additional consideration for the acquisition
of Old Marlborough. Goodwill of $264,062 was recorded and will be amortized over
five years under the straight-line method. For the six months ended September
30, 1997, amortization of goodwill was $26,406.
[C] Orchard Annie, Inc. - In March 1997, Perry's entered into an agreement to
acquire all of the stock of Orchard Annie, Inc., an all natural apple sauce
company from an officer of the Company for approximately $67,000 in cash.
Additionally, Perry's agreed to issue 50,000 shares of common stock to the same
officer in connection with the sale. These shares will be issued in the second
quarter of 1997 and the fair value of these shares will be allocated to
intangible assets. The combination is accounted for by the purchase method. In
addition, the Company agreed to pay an officer of the Company, who was also the
sole shareholder of Orchard Annie, Inc., a royalty payment of $0.50 per case for
each of the first 500,000 cases sold and $0.25 per case thereafter for a period
of fifteen years. For the six months ended September 30, 1997, royalty expense
was $1,591.
[7] Investment - Related Party
On March 29, 1996, the Company issued to Bev-Tyme, Inc. [a public corporation]
500,000 shares of convertible Class A Preferred Stock and 7,000,000 shares of
non-convertible Class B Preferred Stock for 400,000 shares of Series C Preferred
Stock of Bev-Tyme, Inc. [valued at $2,000,000 at March 31, 1996] and $150,000.
Each share of Series C Preferred Stock pays an annual dividend of $0.50 per
share and is convertible at the option of the holder into 1.8 shares of
Bev-Tyme, Inc. common stock As of March 31, 1996, $75,000 of cash was collected
and the balance of $75,000 was received on April 4, 1996. Each share of Class A
Preferred Stock may be convertible by the holder into one [1] share of Common
Stock. Each share of Class A Preferred Stock and Class B Preferred Stock has
attached to it the right to vote on all matters submitted to the Company.
In October of 1996, Bev-Tyme, Inc. sold the 500,000 shares of Convertible Class
A Preferred Stock.
On April 19, 1996, the Company lent $75,000 to Bev-Tyme, Inc., which was repaid
September 9, 1996. Interest income for this loan for the year ended March 31,
1997 was $2,338.
In January 1997, Perry's received a dividend of 524,000 shares of Bev-Tyme
common stock on the investment of 400,000 shares of Bev-Tyme Series C Preferred
Stock.
8
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #5
[UNAUDITED]
- ------------------------------------------------------------------------------
[7] Investment - Related Party [Continued]
On April 17, 1997, the Company loaned to Bev-Tyme $100,000 in the form of a
promissory note. Bev- Tyme was required to repay the entire principal plus
interest on or before April 16, 1998. The Company retained the right to convert
the promissory note into the 7,000,000 shares of the Company's Series B
Preferred Stock held by Bev-Tyme. On June 13, 1997, the Company converted the
promissory note receivable from Bev-Tyme, Inc. ["Bev-Tyme"] for $100,000, into
the 7,000,000 shares of the Company's Series B Preferred Stock held by Bev-Tyme.
Treasury stock of $2,000,000 was recorded as the stock has not been canceled and
the unrealized loss and investment in Bev-Tyme has been eliminated. The 400,000
shares of Series C Preferred of Bev-Tyme and the 524,000 shares of Bev-Tyme
common stock received as a dividend on the investment in Bev-Tyme are still held
by Perry's and are accounted for with no value on the financial statements. As a
result of the June 13, 1997 transaction, Perry's is no longer a subsidiary of
Bev-Tyme, although the two companies continued to have some common management
through July 7, 1997. However, for accounting purposes Perry's was treated as a
subsidiary of Bev-Tyme through June 30, 1997.
[8] Income Taxes
Income tax at the federal statutory rate reconciled to the Company's effective
rate is as follows:
March 31,
1 9 9 7
Federal Statutory Rate (34.0)%
Non-Deductible Expenses (7.2)
Net Operating Loss For
Which No Tax Benefit was Received 41.2
--------
Effective Rate --%
The Company has a net operating loss carryforward of approximately $485,000 all
of which will expire in 2012.
The major components of deferred income tax assets and liabilities are as
follows:
March 31,
1 9 9 7
Deferred Tax Liabilities
Accelerated Depreciation $ (1,994)
=========
Deferred Tax Assets:
Net Operating Loss $ 219,248
Excess Book Amortization Over Tax 10,233
Reserves 1,800
Unrealized Holding Loss 255,852
Deferred Compensation 61,875
---------
Total $ 549,008
=========
Net Deferred Tax Asset:
Before Valuation Allowance $ 547,014
Valuation Allowance 547,014
---------
Net Deferred Income Tax Asset $ --
----------------------------- =========
9
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #6
[UNAUDITED]
- ------------------------------------------------------------------------------
[8] Income Taxes [Continued]
The Company recorded a valuation allowance of $547,014, an increase of $547,014
over the preceding year, due to the uncertainty that the Company will generate
income in the future sufficient to fully or partially utilize these
carryforwards.
[9] Stock Options
[A] In March 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of the 1996 Stock Option Plan.
The maximum number of shares of common stock with respect to which awards may be
granted pursuant to the 1996 Plan is initially 2,000,000 shares. No options are
outstanding under this plan.
[B] In connection with the initial public offering, the Company issued to its
underwriter in July 1996 an option to purchase 58,333 shares of common stock at
a purchase price of $7.20 per share exercisable commencing July 1997 and
expiring July 2001.
[C] In June of 1997, the Board of Directors issued 500,000 options for common
stock to certain officers, directors and consultants for future services at an
exercise price of $0.875 per share, which represents fair market value at the
time of issuance.
[D] On September 23, 1997, the Board of Directors issued 300,000 options for
common stock to certain officers and directors at an exercise price of $.50 per
share which represents fair market value at the time of issuance.
[10] Common Stock
[A] In January 1996, the Company issued 2,500,000 shares of common stock to
seven [7] parties for a total consideration of $50,000. At March 31, 1996,
$45,200 was collected and the balance of $4,800 was received April 4, 1996.
[B] The Company's registration statement for 583,335 shares of common stock at
$6.00 per share was declared effective in July of 1996 and net proceeds of
approximately $2,475,000 were received in August of 1996.
[11] Bridge Loan
On March 31, 1996, the Company borrowed an aggregate of $150,000 from seven [7]
unaffiliated lenders [the "Bridge Lenders"]. In exchange for making loans to the
Company, each Bridge Lender received a promissory note [the "Bridge Note"]. Each
of the Bridge Notes bears interest at the rate of eight percent [8%] per annum.
The Bridge Notes were paid at the closing of the initial public offering of the
Company's securities in August of 1996. As of March 31, 1996, $90,000 was
received in cash from the bridge loan and $60,000 was received April 4, 1996.
The principal balance of $150,000 and interest for $4,208 was paid August 5,
1996.
[12] New Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. Earlier application is not
allowed. The provisions of SFAS No. 125 must be applied prospectively;
retroactive application is prohibited. Adoption on January 1, 1997 is not
expected to have a material impact on the Company. The FASB deferred some
provisions of SFAS No. 125, which are not expected to be relevant to the
Company.
10
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #7
[UNAUDITED]
- ------------------------------------------------------------------------------
[12] New Authoritative Pronouncements [Continued]
The FASB issued SFAS No. 128, "Earnings Per Share," and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS No.
128 simplifies the earnings per share ["EPS"] calculations required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented; however, the Company has not sufficiently analyzed SFAS No. 128 to
determine what effect SFAS No. 128 will have on its historically reported EPS
amounts.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. SFAS No. 131 is not expected to have a
material impact on the Company.
[13] Financial Instruments
For certain instruments, including cash and cash equivalents, trade receivables,
related party payables, and trade payables, it was estimated that the carrying
amount approximated fair value for the majority of these instruments because of
their short maturities.
[14] Commitments and Contingencies
[A] Employment Agreements - As of March 31, 1997, the Company has 3 employment
agreements with executives of the Company that expire between the years 2000
through 2001. The annual commitments for compensation aggregate between $285,000
and $250,000, respectively. In addition, the Company has agreed to grant to an
executive 20,000 common stock options each year as a bonus for the next three
years, exercisable at $6.00 per share for a period of four years. The Company
has also agreed to grant to another executive 100,000 common stock options on
each of March 31, 1998 and March 31, 1999, exercisable at fair market value at
date of grant.
During February 1997, Perry's issued a total of 400,000 shares of Perry's common
stock to two officers as consideration for extending their employment agreements
through 2001. As a result of this agreement, deferred compensation of $2,000,000
was recorded and related amortization of $237,500 was expensed for the six
months ended September 30, 1997.
11
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #8
[UNAUDITED]
- ------------------------------------------------------------------------------
[14] Commitments and Contingencies [Continued]
[A] Employment Agreements [Continued] - On July 7, 1997, Robert J. Sipper
resigned as President and Chief Financial Officer of Bev-Tyme, Inc. as well as
resigning as Vice President and Chief Operating Officer of Mootch and Muck, Inc.
Subsequently, Mr. Sipper resigned from the Bev-Tyme Board of Directors.
[B] Consulting Agreements - In February 1997, Perry's issued 200,000 shares of
Perry's common stock to a consultant for services to be performed over the next
three years. On June 4,1997, this agreement was amended extending the period of
service one additional year. This agreement was valued at $450,000 and recorded
as deferred compensation. Amortization of $55,000 was recorded as amortization
expense for the six months ended September 30, 1997.
[C] Royalty Agreements - In connection with the acquisition of Orchard Annie,
Inc., the Company has agreed to pay a royalty payment of $0.50 per case for each
of the first 500,000 cases sold and $0.25 per case thereafter for a period of
fifteen years. Royalty expense of $1,591 was recorded for the six months ended
September 30, 1997.
[D] Consulting Agreement - On May 23, 1997, the Company entered into a
consulting agreement whereby the Consultant agrees to provide the Company with
consulting services in connection with financial management and other general
consulting as required by the Company. In consideration for these services, the
Company issued in June of 1997 an option to purchase 100,000 shares of the
Company's common stock at an exercise price of $0.875 per share. In addition,
the agreement also calls for a per diem payment of $300.
[15] Leases
[A] Future minimum payments under non-cancelable operating leases for
transportation equipment are as follows at March 31, 1997:
1998 $ 3,540
1999 3,540
2000 1,475
2001 --
2002 --
Thereafter --
---------
Total Minimum Lease Payments $ 8,555
[B] Rent expense for the six months ended September 30, 1997 was $3,940. Rent of
$750 was paid on a monthly basis to an officer of the Company for use of office
space. This arrangement was terminated in June of 1997.
[C] Rental Agreement - In May of 1997, the Company entered into a three year
lease for office space with monthly rent of $1,200.
. . . . . . . . . . . . . . . . . . .
12
<PAGE>
Item 2:
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
OVERVIEW
Perry's Majestic Beer, Inc. [the "Company" or "Perry's"] was formed in December
of 1995. There were no operations prior to the formation of Perry's for the
period December 1995 to March 1996 nor any revenue or expense activities for
Perry's through March 31, 1996. The primary activities for Perry's prior to the
proposed acquisition of Riverosa Company, Inc. ["Riverosa"] were investing and
financing activities through March 31, 1996 [See "Liquidity and Capital
Resources"]. In March of 1996, the Company entered into an agreement to acquire
Riverosa, which was formed in November of 1993. Riverosa was engaged in the
manufacture and distribution of microbrewed beers and ales. Management of
Riverosa consisted of Mark Butler and Ron Zagha. Mark Butler is the Vice
President of the Company and Robert J. Sipper is the President of the Company
and will be responsible for the management functions of the Company.
In September 1996, the Company acquired the Post Road Beer brand and other
assets from the Old Marlborough Brewing Company, Inc. The Company redesigned the
labels, six packs, and boxes for the existing beer style: Post Road Pale Ale.
The new packaging was introduced in Massachusetts in January 1997. The Company
introduced Post Road India Pale Ale in January 1997 and its first seasonal beer,
Post Road Summer Brew, in April 1997. A winter seasonal beer, Post Road Snowshoe
ale has been introduced in November 1997. The Post Road brand and all other
Perry's brands will be managed by the existing management, with the addition of
one brand manager in the New England Region. The Company expects to sign-up
additional distributors over the next 6-12 months. Post Road brand beers are
produced at the Catamount Brewing Company, Inc., located in White River Junction
and Windsor, Vermont.
In March 1997, the Company acquired all the outstanding stock of Orchard Annie,
Inc., a manufacturer of natural applesauces. The Company introduced its first
four flavors of applesauce under the brand name Quigleys. Quigleys is produced
by Lereoux Creek Foods, Inc., located in Hotchkiss, Colorado. The Quigleys brand
will be managed by the Company's existing management. As of September 30, 1997,
the Company has entered into arrangements with three brokers to sell Quigley's.
Additionally, there is currently four distributors of Quigley's. The Company
expects to add more distributors and brokers over the next 6-12 months.
RESULTS OF OPERATIONS
The Company had a loss from operations of $852,338 and a net loss of $827,931
for the six months ended September 30, 1997. The Company had a loss from
operations of $43,053 and net loss of $47,713 for the six months ended September
30, 1996. The loss from operations in the six month period ended September 30,
1997 was primarily due to an insufficient gross profit to support the selling,
general and administrative expenses of approximately $446,000 in addition to the
amortization of deferred compensation of $292,500. For the six months ended
September 30, 1996, the Company had just begun its operations and incurred
approximately $117,000 of selling, general and administrative expenses.
13
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS [CONTINUED]
The net sales for the Company for the six months ended September 30, 1997 were
$447,051 as compared to $409,418 for the six months ended September 30, 1996.
Sales decreased for the three months ended September 30, 1997 compared to the
three months ended September 30, 1996 by approximately $150,000 primarily due to
the Company discontinuing sales of brands not produced by the Company. Such
other brands which previously had been sold by Perry's, during which period the
Company was a subsidiary of Bev-Tyme, Inc., are now being sold by a former
affiliate, Mootch & Muck. As of June 13, 1997, the Company only sells products
it produces. The Company believes its distributor base will increase during 1997
and 1998. The Company intends to introduce at least two new style beers within
the next twelve months and launch its newly acquired brand Quigley's all natural
applesauce. The Company began shipping its Quigley's products in June 1997.
Emphasis will be placed on building sales volume in food service and gourmet
shops as well as retail and supermarket outlets. The Company will attempt to
increase its distribution base by adding new distributors throughout the United
States and by designing targeted incentive and price promotions.
The Company had a gross profit of $113,493 as compared to a gross profit of
$82,280 for the six months ended September 30, 1997 and 1996, respectively. The
Company's gross profit for the three months ended September 30, 1997 was
approximately 32% as compared to a three month gross profit at June 30, 1997 of
approximately 21%. This increase is primarily attributable to the Company
selling its proprietary products only.
The Company's selling, general and administrative expenses for the six months
ended September 30, 1997 and 1996 were $816,088 and $125,739, respectively.
Selling, general and administrative expenses for the six months ended September
30, 1997 increased approximately 16% over the prior six months ended.
This increase was primarily due to increased promotional activities.
For the three months ended September 30, 1997 selling, general and
administrative expenses increased approximately $50,000 over the three months
ended June 30, 1997. This was primarily attributable to
LIQUIDITY AND CAPITAL RESOURCES
Perry's had working capital at September 30, 1997 of $937,323. For the six
months ended September 30, 1997, the Company utilized $436,349 in cash for
operating activities as compared to $202,877 for the six months ended September
30, 1996. The use of cash for operations is primarily due to the Company's net
loss of $827,931. The Company utilized $141,261 in cash for investing activities
for the purchase of kegs, furniture and equipment and for label and packaging
design for new beer styles. The Company utilized $100,000 in cash for financing
activities for the six months ended September 30, 1997 for a loan to Bev-Tyme on
April 13, 1997 and the subsequent reacquisition of the Company's 7,000,000
non-convertible Class B Preferred Stock, as settlement in full of the promissory
note, on June 13, 1997.
14
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]
As of March 31, 1997, the Company has 3 employment agreements with executives of
the Company that expire between the years 2000 through 2001. The annual
commitments for compensation aggregate between $285,000 and $250,000,
respectively. In addition, the Company has agreed to grant to an executive
20,000 common stock options each year as a bonus for the next three years,
exercisable at $6.00 per share for a period of four years. The Company has also
agreed to grant to another executive 100,000 common stock options on each of
March 31, 1998 and March 31, 1999, exercisable at fair market value at date of
grant.
During February 1997, Perry's issued a total of 400,000 shares of Perry's common
stock to two officers as consideration for extending their employment agreements
through 2001. As a result of this agreement, deferred compensation of $2,000,000
was recorded and related amortization of $237,500 was expensed for the six
months ended September 30, 1997.
On July 7, 1997, Robert J. Sipper resigned as President and Chief Financial
Officer of Bev-Tyme, Inc. as well as resigning as Vice President and Chief
Operating Officer of Mootch and Muck, Inc. Subsequently, Mr. Sipper resigned
from the Bev-Tyme Board of Directors.
During February 1997, Perry's issued a total of 400,000 shares of Perry's common
stock to two officers as consideration for extending their employment agreements
through 2001. In February 1997, Perry's issued 200,000 shares of Perry's common
stock to a consultant for services to be performed over the next three years. On
June 4,1997, this agreement was amended extending the period of service one
additional year. This agreement was valued at $450,000 and recorded as deferred
compensation. Amortization of $55,000 was recorded as amortization expense for
the six months ended September 30, 1997.
In March 1997, Perry's entered into an agreement to acquire all of the stock of
Orchard Annie, Inc., an all natural apple sauce company from an officer of the
Company for approximately $67,000 in cash. Additionally, Perry's agreed to issue
50,000 shares of common stock to the same officer in connection with the sale.
These shares will be issued in the second quarter of 1997 and the fair value of
these shares will be allocated to intangible assets. The combination is
accounted for by the purchase method. In addition, the Company agreed to pay an
officer of the Company, who was also the sole shareholder of Orchard Annie,
Inc., a royalty payment of $0.50 per case for each of the first 500,000 cases
sold and $0.25 per case thereafter for a period of fifteen years. For the six
months ended September 30, 1997, royalty expense was $1,591.
In May of 1997, the Company entered into a three year lease for office space
with monthly rent of $1,200.
On May 23, 1997, the Company entered into a consulting agreement whereby the
Consultant agrees to provide the Company with consulting services in connection
with financial management and other general consulting as required by the
Company. In consideration for these services, the Company issued in June of 1997
an option to purchase 100,000 shares of the Company's common stock at an
exercise price of $0.875 per share. In addition, the agreement also calls for a
per diem payment of $300.
On September 23, 1997, the Board of Directors issued 300,000 options for common
stock to certain officers and directors at a purchase price of $.50 which
represents fair market value at the time of issuance.
The Company anticipates that its current cash position along with anticipated
cash to be generated from operating activities will be sufficient to satisfy its
cash requirements for at least the twelve months and enable it to market and to
advertise its existing products and to expand its markets for all products
throughout the United States with a primary focus on the East Coast.
15
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. Earlier application is not
allowed. The provisions of SFAS No. 125 must be applied prospectively;
retroactive application is prohibited. Adoption on January 1, 1997 is not
expected to have a material impact on the Company. The FASB deferred some
provisions of SFAS No. 125, which are not expected to be relevant to the
Company.
The FASB issued SFAS No. 128, "Earnings Per Share," and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS No.
128 simplifies the earnings per share ["EPS"] calculations required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented; however, the Company has not sufficiently analyzed SFAS No. 128 to
determine what effect SFAS No. 128 will have on its historically reported EPS
amounts.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. SFAS No. 131 is not expected to have a
material impact on the Company.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material adverse effect on
sales or income during the past periods. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.
16
<PAGE>
SIGNATURE
- ------------------------------------------------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-QSB to be signed on its behalf
by the undersigned thereon duly authorized.
PERRY'S MAJESTIC BEER, INC.
November 13, 1997 By:/s/ Robert J. Sipper
--------------------
Robert J. Sipper, President, Chief Executive
Officer, Chief Financial Officer and Chief
Principal Accounting Officer
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations and is
qualified in its entirety by reference to such statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> mar-31-1997
<PERIOD-END> sep-30-1997
<CASH> 843,593
<SECURITIES> 0
<RECEIVABLES> 116,825
<ALLOWANCES> 0
<INVENTORY> 132,908
<CURRENT-ASSETS> 1,102,405
<PP&E> 90,258
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,858,007
<CURRENT-LIABILITIES> 165,082
<BONDS> 0
0
7,500
<COMMON> 370
<OTHER-SE> 1,685,055
<TOTAL-LIABILITY-AND-EQUITY> 1,858,007
<SALES> 148,726
<TOTAL-REVENUES> 148,726
<CGS> 99,214
<TOTAL-COSTS> 437,555
<OTHER-EXPENSES> (11,330)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (376,713)
<INCOME-TAX> 0
<INCOME-CONTINUING> (376,713)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (376,713)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
