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 June 30, 1997 Commission File Number 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 August 4, 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 June 30, 1997 [Unaudited]............... 1.....
Statements of Operations for the three months ended
June 30, 1997 and 1996 [Unaudited].......................... 2.....
Statement of Stockholders' Equity for the three months ended
June 30, 1997 [Unaudited]................................... 3.....
Statements of Cash Flows for the three months ended
June 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 JUNE 30, 1997.
[UNAUDITED]
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Assets:
Current Assets:
Cash and Cash Equivalents $ 1,011,748
Accounts Receivable - Net 214,128
Accounts Receivable - Related Party 5,072
Inventory 88,264
Prepaid Rent 1,220
-----------
Total Current Assets 1,320,432
Property and Equipment - Net 90,151
-----------
Other Assets:
Goodwill - [Net of Accumulated Amortization of $101,109] 412,221
Other Intangible Assets - Net 232,814
Other Assets 19,710
-----------
Total Other Assets 664,745
Total Assets $ 2,075,328
===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 97,383
Accrued Expenses 37,364
Payroll Taxes Payable 17,193
-----------
Total Current Liabilities 151,940
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] (1,149,509)
Total 6,089,638
Less: Deferred Compensation (2,166,250)
Treasury Stock [7,000,000 Shares of Non-Convertible
Class B Preferred] (2,000,000)
-----------
Total Stockholders' Equity 1,923,388
-----------
Total Liabilities and Stockholders' Equity $ 2,075,328
===========
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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Three months ended
June 30,
1 9 9 7 1 9 9 6
------- -------
Sales - Net $ 298,325 $ 255,293
Cost of Goods Sold 234,344 209,341
---------- -----------
Gross Profit 63,981 45,952
---------- -----------
Selling, General and Administrative Expenses:
Selling, Advertisement and Promotion 44,314 --
General and Administrative Expenses 151,355 41,594
Amortization of Deferred Compensation 146,250 --
Amortization of Goodwill and Distribution Rights 36,614 --
---------- -----------
Total Selling, General and Administrative Expenses 378,533 41,594
---------- -----------
Loss on Related Party Receivable 149,743 --
---------- -----------
[Loss] Income from Operations (464,295) 4,358
---------- -----------
Other [Income] Expense:
Interest Expense -- 4,952
Interest Income (13,077) (1,184)
---------- -----------
Other [Income] Expense - Net (13,077) 3,768
---------- -----------
[Loss] Income Before Income Taxes (451,218) 590
Provision for Income Taxes -- --
---------- -----------
Net [Loss] Income $ (451,218) $ 590
========== ===========
Weighted Average Number of Shares 3,708,335 3,000,000
========== ===========
Net [Loss] Income Per Share $ (0.12) $ --
========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements.
2
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PERRY'S MAJESTIC BEER, INC.
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STATEMENTS 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] Compensatio 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 Pfd
of the Company [7] -- -- -- -- (100,000) -- -- 568,560 (2,000,000) (1,531,440)
Amortization of Deferred
Compensation -- -- -- -- -- -- 146,250 -- -- 146,250
Net [Loss] for the three
months ended June 30, 1997 -- -- -- -- -- (451,218) -- -- -- (451,218)
--------- ------ -------- ---- -------- --------- --------- ----- --------- ---------
Balance - June 30, 1997 7,500,000 $ 7,500 3,708,33 $370 $7,231,27 $(1,149,509) $(2,166,250) --$ (2,000,000) 1,923,388
========= ====== ======== ==== ======== ========== ========== ===== ========= =========
</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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Three months ended
June 30,
1 9 9 7 1 9 9 6
------- -------
Net Cash - Operating Activities $ (314,306) $ (86,184)
---------- -----------
Investing Activities:
Purchase of Kegs (41,438) --
Purchase of Furniture and Fixtures (20,070) --
Payments for Label and Packaging Design (30,373) --
Payments for Post Road Brand (3,268) --
Loan to Bev-Tyme, Inc. -- (75,000)
---------- -----------
Net Cash - Investing Activities (95,149) (75,000)
---------- -----------
Financing Activities:
Proceeds from Sale of Preferred Stock to Bev-Tyme, In -- 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
---------- -----------
Net Cash - Financing Activities (100,000) 139,800
---------- -----------
Net [Decrease] in Cash and Cash Equivalents (509,455) (21,384)
Cash and Cash Equivalents - Beginning of Periods 1,521,203 60,200
---------- -----------
Cash and Cash Equivalents - End of Periods $1,011,748 $ 38,816
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for the periods for:
Interest $ -- $ --
Income Taxes $ -- $ --
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.
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 [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.
Post Road brand beer is distributed in Massachusetts and Rhode Island [See Note
6].
[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, raw materials, direct labor and factory
overhead, is determined on the first-in, first-out basis.
[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 three months ended June 30, 1997 advertising costs were approximately
$11,737.
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]
[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 June 30, 1997, the Company's
uninsured cash balance totaled approximately $820,000.
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 June 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 three months ended June 30, 1997,
the Company purchased inventory from two suppliers which comprised approximately
83% of the Company's total cost of sales. The Company believes there are other
suppliers available to meet the Company's needs.
As of June 30, 1997, the Company distributes its products primarily through five
wholesale distributors for resale to retailers. One distributor accounts for 75%
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.
There are other distributors available to meet the Company's needs and the
Company is discussing doing business with these distributors.
[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]
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[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 packaging and raw materials of $88,264.
[4] Plant and Equipment and Depreciation
Plant and equipment and accumulated depreciation are as follows:
Furniture and Fixtures $ 15,670
Warehouse Equipment 7,350
Kegs 49,832
Storage Equipment 19,941
Leasehold Improvements 3,500
----------
Total - At Cost 96,293
Less: Accumulated Depreciation 6,142
Net $ 90,151
--- ==========
Depreciation expense for the three months ended June 30, 1997 was $3,616.
[5] Other Intangible Assets
Other intangible assets and accumulated amortization are as follows:
Accumulated
Cost Amortization Net
Label and Packaging Design $ 98,546 $ 3,408 $ 95,138
Orchard Annie Concept 67,348 3,367 63,981
Distribution Rights 86,700 13,005 73,695
--------- ---------- ----------
Totals $ 252,594 $ 19,780 $ 232,814
------ ========= ========== ==========
Amortization expense for the three months ended June 30, 1997 was $11,110.
7
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
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[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 $12,300 was recorded for the three months ended June
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 three months ended June 30,
1997, amortization of goodwill was $13,203.
[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 three months ended June 30, 1997, royalty expense was
$1,097.
[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
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PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #5
[UNAUDITED]
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[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 June 30, 1997 [See Note 16]. 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]
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[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] 1996 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 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 $118,750 was expensed for the three
months ended June 30, 1997.
11
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #8
[UNAUDITED]
- ------------------------------------------------------------------------------
[14] Commitments and Contingencies [Continued]
[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 $27,500 was recorded as amortization
expense for the three months ended June 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 $1,097 was recorded for the three months ended
June 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 three months ended June 30, 1997 was $1,500. 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.
[16] Subsequent Events
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.
. . . . . . . . . . . . . . . . . . .
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. 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, Vermont.
In March 1997, the Company acquired all the outstanding stock of Orchard Annie,
Inc., a manufacturer of natural applesauces. The Company expects to introduce
its first four flavors of applesauce during the third quarter under the brand
name Quigleys. Quigleys will be produced by Lereoux Creek Foods, Inc., located
in Hotchkiss, Colorado. The Quigleys brand will be managed by the Company's
existing management.
Bev-Tyme, Inc. ["Bev-Tyme"], the Company's former controlling shareholder and
parent, through its wholly owned subsidiary, is the distributor for Perry's in
New York City. Besides Robert J. Sipper, who is the President and Chief
Executive Officer of Bev-Tyme, Inc. it is not anticipated that any other
employees of Bev-Tyme or its subsidiaries will be involved with the Company's
operations. It is anticipated that the two companies will be run independently
of each other. As of July 7, 1997, Robert J. Sipper resigned as President,
Chief Financial Officer and a member of the Board of Directors of Bev-Tyme, Inc.
and also resigned as Vice President and Chief Operating Officer of Mootch and
Muck, Inc.
The Board of Directors of Perry's consist of three people, two of whom have no
interest [not an employee, officer or director] in Bev-Tyme. Accordingly, all
potential conflicts of interest shall be decided by an impartial Board.
RESULTS OF OPERATIONS
The Company had a loss from operations of $464,295 and a net loss of $451,218
for the three months ended June 30, 1997. The Company had income from operations
of $4,358 and net income of $590 for the three months ended June 30, 1996. The
loss from operations in the three month period ended June 30, 10997 was
primarily due to the general and administrative expenses and amortization of
deferred compensation. For the three months ended June 30, 1996, the Company had
just begun its operations and incurred minimal 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 three months ended June 30, 1997 were
$298,325 as compared to $255,293 for the three months ended June 30, 1996. 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 bars and restaurants 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 $63,981 as compared to a gross profit of
$45,952 for the three months ended June 30, 1997 and 1996, respectively.
The Company's selling, general and administrative expenses for the three months
ended June 30, 1997 and 1996 were $378,533 and $41,594, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Perry's had working capital at June 30, 1997 of $1,168,492. For the three months
ended June 30, 1997, the Company utilized $314,306 in cash for operating
activities as compared to $86,184 for the three months ended June 30, 1996. The
increase is primarily due to the Company's net loss of $451,218. The Company
utilized $95,149 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 three
months ended June 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.
In April of 1996 and as amended in March 1997, the Company entered into a five
[5] year employment agreement with Mark Butler pursuant to which Mr. Butler
serves as the Company's Vice President of Sales. The agreement provides for Mr.
Butler to receive a salary of $25,000 per annum until the closing of the initial
public offering and thereafter $50,000 per annum until November 1, 1996 and
thereafter $75,000 per annum until March 1997, and thereafter $110,000 per
annum. In addition, on each of March 31, 1998, and March 31, 1999, the Company
has agreed to grant Mr. Butler an option to purchase 100,000 shares of common
stock exercisable at fair market value on the date of issuance.
Also in April of 1996 and as amended in March 1997, the Company entered into a
five [5] year employment agreement with Robert Sipper pursuant to which Mr.
Sipper serves as the Company's President and Chief Executive Officer. The
agreement provides for Mr. Sipper to receive a salary of $52,000 per annum. In
October of 1996, Mr. Sipper exercised his option pursuant to his agreement, to
transfer his Bev-Tyme salary of $106,650 to Perry's and subsequently voluntarily
reduced his salary to $120,000 until Mr. Sipper gives notice that his full
salary should be reinstated.
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 $27,500 was recorded as amortization expense for
the three months ended June 30, 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]
In August of 1996, the Company entered into a letter of intent to acquire a
brewery for $50,000. In September 1996, the Company finalized its acquisition of
the assets of Old Marlborough Brewing Company, Inc. The total purchase price was
$85,531 of which $35,513 was for inventory and equipment. In addition, the
Company paid $86,700 to repurchase distribution Rights for Post Road. 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.
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 $27,500 was recorded as amortization expense for
the three months ended June 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 three
months ended June 30, 1997, royalty expense was $1,097.
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.
The Company anticipates that the net proceeds of $2,475,086 from the initial
public offering in August of 1996 along with anticipated cash to be generated
from operating activities will be sufficient to satisfy its cash requirements
for at least the next twelve [12] 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.
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.
15
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
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.
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.
August 14, 1997 By:/s/ Robert J. Sipper
--------------------
Robert J. Sipper, President, Chief Executive
Officer, Chief Financial Officer and Chief
Principal Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the consolidated
balance sheet and the consolidated statement of operations and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,011,748
<SECURITIES> 0
<RECEIVABLES> 214,128
<ALLOWANCES> 0
<INVENTORY> 88,264
<CURRENT-ASSETS> 1,320,432
<PP&E> 90,151
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,075,328
<CURRENT-LIABILITIES> 151,940
<BONDS> 0
0
7,500
<COMMON> 370
<OTHER-SE> 1,915,518
<TOTAL-LIABILITY-AND-EQUITY> 2,075,328
<SALES> 298,325
<TOTAL-REVENUES> 298,325
<CGS> 234,344
<TOTAL-COSTS> 378,533
<OTHER-EXPENSES> 13,077
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (451,218)
<INCOME-TAX> 0
<INCOME-CONTINUING> (451,218)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (451,218)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
