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, 1998 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 10, 1998 was 3,783,335.
<PAGE>
PERRY'S MAJESTIC BEER, INC.
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INDEX
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Page to Page
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1998 [Unaudited].. 1..... 2
Consolidated Statements of Operations for the three months ended
June 30, 1998 and 1997 [Unaudited].......................... 3.....
Consolidated Statement of Stockholders' Equity for the three months ended
June 30, 1998 [Unaudited]................................... 4.....
Consolidated Statements of Cash Flows for the three months ended
June 30, 1998 and 1997 [Unaudited].......................... 5.....
Notes to Consolidated Financial Statements [Unaudited]...... 6..... 17
Item 2. Managements' Discussion and Analysis of the Financial
Condition and Results of Operations...................18......22
Signature......................................................23......
. . . . . . . . . . . . . . .
<PAGE>
Item 1:
PERRY'S MAJESTIC BEER, INC.
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CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998.
[UNAUDITED]
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<TABLE>
Assets:
Current Assets:
<S> <C>
Cash $ 134,195
Accounts Receivable - Net 61,589
Inventory 111,413
Prepaid Insurance 5,254
Note Receivable 111,668
-----------
Total Current Assets 424,119
Furniture, Fixtures and Equipment - Net 57,104
-----------
Other Assets:
Goodwill - [Net of Accumulated Amortization of $20,587] 71,761
Other Assets 2,600
Note Receivable 58,332
Deposit 63,500
-----------
Total Other Assets 196,193
Total Assets $ 677,416
===========
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
1
<PAGE>
PERRY'S MAJESTIC BEER, INC.
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CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998.
[UNAUDITED]
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<TABLE>
Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C>
Accounts Payable $ 65,442
Accrued Expenses 16,775
Note Payable 3,991
-----------
Total Current Liabilities 86,208
Note Payable 16,670
Commitments and Contingencies [15] --
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 - No Shares Issued [Aggregate Liquidation Preferences
$100,000] 500
Common Stock - $.0001 Par Value, Authorized 25,000,000 Shares,
Issued and Outstanding, 3,783,335 Shares 378
Additional Paid-in Capital 5,323,329
Retained Earnings [Deficit] (3,168,419)
Total 2,155,788
Less: Deferred Compensation 1,581,250
Total Stockholders' Equity 574,538
Total Liabilities and Stockholders' Equity $ 677,416
===========
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
2
<PAGE>
PERRY'S MAJESTIC BEER, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
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<TABLE>
Three months ended
June 30,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Sales - Net $ 42,694 $ 298,325
Cost of Goods Sold 40,346 234,344
---------- -----------
Gross Profit 2,348 63,981
---------- -----------
Selling, General and Administrative Expenses:
Selling, Advertisement and Promotion 36,876 44,314
General and Administrative Expenses 142,253 151,355
Amortization of Deferred Compensation 146,250 146,250
Amortization of Goodwill 4,617 36,614
---------- -----------
Total Selling, General and Administrative Expenses 329,996 378,533
---------- -----------
Loss on Related Party Receivable -- 149,743
---------- -----------
[Loss] from Operations (327,648) (464,295)
---------- -----------
Gain on Sale of Post Road Brand 197,727 --
---------- -----------
Other [Income] Expense:
Interest Income (1,548) (13,077)
Interest Expense 574 --
---------- -----------
Other [Income] Expense (974) (13,077)
---------- -----------
[Loss] Before Income Taxes (128,947) (451,218)
Provision for Income Taxes -- --
---------- -----------
Net [Loss] $ (128,947) $ (451,218)
========== ===========
Weighted Average Number of Shares 3,783,335 3,708,335
========== ===========
Net [Loss] Per Share $ (0.03) $ (0.12)
========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
3
<PAGE>
PERRY'S MAJESTIC BEER, INC.
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
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<TABLE>
Additional Retained Total
Preferred Stock Common Stock Paid-in Earnings Deferred Stockholders'
Shares Amount Shares Amount Capital [Deficit] Compensation Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - April 1, 1998 500,000 $ 500 3,783,335 $ 378 $5,323,329 $(3,039,472) $(1,727,500)$ 557,235
Amortization of Deferred
Compensation -- -- -- -- -- -- 146,250 146,250
Net [Loss] for the three months
ended June 30, 1998 -- -- -- -- -- (128,947) -- (128,947)
-------- -------- --------- -------- ---------- ----------- ----------- ---------
Balance - June 30, 1998 500,000 $ 500 3,783,335 $ 378 $5,323,329 $(3,168,419) $(1,581,250)$ 574,538
======== ======== ========= ======== ========== =========== =========== =========
The Accompanying Note are an Integral Part of These Consolidated Financial Statements.
</TABLE>
4
<PAGE>
PERRY'S MAJESTIC BEER, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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<TABLE>
Three months ended
June 30,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Net Cash - Operating Activities $ (238,400) $ (314,306)
---------- -----------
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)
Deposit for Leroux Creek Acquisition (62,500) --
Other Deposits (1,000) --
Proceeds from Sale of Post Road Assets 160,000 --
---------- -----------
Net Cash - Investing Activities 96,500 (95,149)
---------- -----------
Financing Activities:
Loan Receivable from Bev-Tyme, Inc. -- (100,000)
---------- -----------
Net [Decrease] in Cash (141,900) (509,455)
Cash - Beginning of Periods 276,095 1,521,203
---------- -----------
Cash - End of Periods $ 134,195 $ 1,011,748
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for the periods for:
Interest $ 574 $ --
Income Taxes $ -- $ --
</TABLE>
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
On May 18, 1998, the Company sold the assets, all rights to licenses, permits
and contracts, and all trademarks, tradenames and processes of the Post Road
Beer brand for $330,000. The Company executed a promissory note for $320,000,
and has received $160,000 in cash. As of June 30, 1998, $170,000 remains
outstanding [See Note 19].
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. Bev-Tyme filed for bankruptcy on April 9, 1998. The Series B
Preferred Treasury Stock was canceled March 31, 1998.
In September 1997, the Company issued 50,000 shares of common stock to an
officer of the Company in connection with the acquisition of Orchard Annie [See
Note 10C]. Goodwill of $25,000 was recorded as a result of these transactions,
which represents the fair market value of the stock at time of issuance. Related
amortization of $2,500 was recorded for the year ended March 31, 1998.
In November 1997, the Company issued 25,000 shares of common stock to an
employee of the Company for past services rendered. An expense of $14,060 was
recorded as a result of this transaction, which represents the fair market value
of the stock at time of issuance [See Note 10D].
In June of 1997, the Company issued options for 200,000 shares of common
stock to consultants and recorded compensation expense of $46,000 for services
rendered [See Note 9C].
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
5
<PAGE>
PERRY'S MAJESTIC BEER, INC.
NOTES TO CONSOLIDATED 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. ["Bev- Tyme"] as of March 29, 1996.
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. Bev-Tyme filed for bankruptcy on April 9, 1998.
The Company operates in two business segments, the sale of natural applesauce
and applesauce blends, and the sale of microbrewed beer. The Company's products
are Quigley's Orchard [natural applesauce and applesauce blends] and Perry's
Majestic Beer [beer brewed with organic barley and hops]. Quigley's Orchard is
manufactured by a co-packer and the microbrew beer is contract brewed [See Note
18].
Perry's Majestic Beer is distributed in five states: New York, Ohio, North and
South Carolina and Florida. Quigley's Orchard is available through eleven
distributors that distribute in the following states: New England states,
upstate New York, New Jersey, Pennsylvania, Ohio, Wisconsin, Michigan, Delaware,
Maryland, Virginia, West Virginia, North Carolina and South Carolina.
[2] Summary of Significant Accounting Policies
[A] 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. The results of operations for any interim
period are not necessarily indicative of the results for the full year. These
financial statements should be read in conjunction with the financial statements
and notes, thereto, contained in the annual report on Form 10-KSB for the year
ended March 31, 1998.
[B] Principles of Consolidation - The consolidated financial statements include
the accounts of Perry's and its wholly-owned subsidiary. Material intercompany
transactions and balances have been eliminated in consolidation.
[C] 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.
[D] 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. The Company had no cash equivalents at June 30, 1998.
6
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
- ------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
[E] Goodwill - Amounts paid in excess of the estimated value of net assets
acquired of Riverosa, Old Marlborough and Orchard Annie, Inc. were charged to
goodwill. Goodwill relates to revenues the Company anticipates realizing in
future years. The Company 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 [See Note 17].
[F] Inventories - Inventories are stated at the lower of cost or market. Cost,
which includes purchases, freight and packaging, raw materials, brew fees, and
finished products is determined on the first-in, first-out basis.
[G] Furniture, Fixtures and Equipment - Furniture, fixtures and equipment are
stated at cost and are depreciated over its estimated useful life of 3 to 5
years. Leasehold improvements are amortized over the lessor of the useful life
of the improvements or the lease term. Depreciation and amortization are
calculated using the straight-line method.
[H] Advertising Expense - Advertising costs are expensed as incurred. For the
three months ended June 30, 1998 and 1997, advertising costs were approximately
$15,139 and $11,737, respectively.
[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, 1998, the Company's
uninsured cash balance totaled approximately $28,000.
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, 1998 of $19,472. The
Company believes any credit risk beyond this amount would be negligible.
The Company sells its Quigley's Orchard applesauce through a system of
independent unaffiliated brokers and distributors. Food brokers act as agents
for the Company within designated territories or specific channels of trade. The
Company has 25 brokers and 11 distributors and is continuing to attempt to
expand the brokerage and distribution systems.
[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.
7
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[UNAUDITED]
- ------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
[L] Net [Loss] Per Share -The FASB issued SFAS No. 128, "Earnings Per Share," 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. The Company has adopted SFAS No. 128, prior period EPS data have been
restated. Basic EPS is based on average common shares outstanding and diluted
EPS include the effects of potential common stock, such as, options and
warrants, if dilutive. The Company has potentially dilutive securities that were
not included in the computation of diluted earnings per share because to do so
would have been anti-dilutive for the periods presented. Such securities may
dilute EPS in future years.
[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. During the year ending March 31, 1998, the
Company determined an impairment of goodwill and intangibles existed [See Note
17].
[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] Going Concern
The accompany financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business.
The Company incurred a net loss of $2,341,181 and utilized cash of approximately
$1,085,000 for operations for the year ended March 31, 1998. The inability of
the Company to generate projected cash needed for operations, considering
currently available funds, creates an uncertainty about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern. The Company is considering the sale of the beer business and
various financing options to raise capital to pursue expansion into the natural
applesauce business. In addition, the Company is exploring new marketing
strategies to improve revenues and also plans to implement a program to cut
administrative costs through the reduction of payroll and reduced promotional
expenditures. The continuation of the Company as a going concern is dependent
upon the success of these plans.
8
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
- ------------------------------------------------------------------------------
[3] Going Concern [Continued]
There can be no assurances that management's plans to reduce operating losses
and to obtain additional financing to fund operations will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
[4] Inventories
The Company's inventory consists of raw materials, packaging and finished
products of $111,413.
[5] Furniture, Fixtures and Equipment and Depreciation
Furniture, fixtures and equipment and accumulated depreciation as of June 30,
1998 are as follows:
Furniture and Fixtures $ 18,566
Transportation Equipment 23,425
Kegs 8,395
Storage Equipment 22,810
Leasehold Improvements 3,500
----------
Total - At Cost 76,696
Less: Accumulated Depreciation 19,592
Net $ 57,104
--- ==========
Depreciation expense for the three months ended June 30, 1998 and 1997 was
$3,501 and $3,616, respectively.
[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 was accounted for by the purchase method. Goodwill of $246,000 was
recorded and was to 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. As of March 31, 1998, the unamortized balance of $147,600 was written
off [See Note 17].
[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 was amortized over
five years under the straight-line method. For the three months ended June 30,
1997, amortization of goodwill was approximately $13,203. As of March 31, 1998,
the unamortized balance of goodwill of $184,844 and the unamortized balance of
distribution rights of $60,690 were written-off [See Note 17].
9
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[UNAUDITED]
- ------------------------------------------------------------------------------
[6] Acquisitions [Continued]
[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 and
recorded goodwill for the full value. Additionally, in September of 1997,
Perry's issued 50,000 shares of common stock to the same officer in connection
with the sale. The fair value of these shares of $25,000 is allocated to
goodwill. 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 $.25 for a case of 12
units for the first 500,000 cases and $.125 for a case of 12 units thereafter
for a period of fifteen years. For the three months ended June 30, 1998 and
1997, royalty expense was $542 and $1,097, respectively.
[7] Related Party Transactions
[A] Investment - 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 paid an annual
dividend of $0.50 per share and was convertible at the option of the holder into
1.8 shares of Bev-Tyme, Inc. common stock. On April 9, 1998, Bev-Tyme filed for
bankruptcy and no dividends were received for the year ended March 31, 1998. 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 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.
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.
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 and the unrealized loss and investment
in Bev-Tyme has been eliminated. The Series B Preferred Treasury Stock was
canceled March 31, 1998. 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 was 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.
[B] Loss on Related Party Receivable - In 1997, the Company had a receivable for
$149,742 from it's former parent for beer sales distributed by Mootch and Muck,
Inc. Due to the financial condition of Bev- Tyme this receivable was written
off.
10
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[UNAUDITED]
- ------------------------------------------------------------------------------
[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 8
Federal Statutory Rate (34.0)%
Non-Deductible Expenses (10.4)
Net Operating Loss For Which No Tax Benefit was Received 44.4
Effective Rate -- %
The Company has net operating loss carryforwards of approximately $1,600,000 all
of which will expire in 2012 through 2013.
The major components of deferred income tax assets and liabilities are as
follows:
March 31,
1 9 9 8
Deferred Tax Liabilities
Accelerated Depreciation $ (2,250)
=========
Deferred Tax Assets:
Net Operating Loss $ 720,311
Excess Book Amortization Over Tax 27,910
Reserves 6,750
Book Writedown of Goodwill 201,452
Deferred Compensation 324,900
----------
Total $1,281,323
Net Deferred Tax Asset:
Before Valuation Allowance $1,279,073
Valuation Allowance 1,279,073
Net Deferred Income Tax Asset $ --
----------------------------- ==========
The Company recorded a valuation allowance of $1,279,073, an increase of
$732,059 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.
11
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
[UNAUDITED]
- ------------------------------------------------------------------------------
[9] Stock Options [Continued]
[C] During the year ended March 31, 1998, the Company issued a total of
1,425,000 options to purchase common stock with an exercise price equal to fair
market value at time of issuance to certain officers, directors and employees.
The Company recorded compensation expense of $46,000 for 200,000 common stock
options issued to consultants for services rendered during the year.
There was no stock option activity during the year ended March 31, 1997.
A summary of stock option activity under the plan is as follows:
Weighted Average
Common Exercise Price
Stock Common Stock
Outstanding on April 1, 1998 -- --
Granted 1,625,000 $ 0.48
Exercised -- --
Forfeited/Expired -- --
--------- ---------
Outstanding and Exercisable on March 31 and
June 30, 1998 1,625,000 $ 0.48
------------- ========= =========
The following table summarizes information about stock options outstanding and
exercisable at June 30, 1998. The common stock options issued to officers,
directors and employees do not expire and may be exercised at anytime. The
200,000 common stock options issued to consultants at an exercise price of
$0.875 have a weighted average remaining contractual life of 3.5 years. All
other options expire in 10 years.
Common Stock
Exercise Price Shares
$ 0.16 750,000
$ 0.50 300,000
$ 0.875 575,000
---------
Total 1,625,000
[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.
[C] In September 1997, the Company issued 50,000 shares of common stock to an
officer of the Company in connection with the acquisition of Orchard Annie, Inc.
Goodwill of $25,000 was recorded [See Note 6C].
12
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[UNAUDITED]
- ------------------------------------------------------------------------------
[10] Common Stock [Continued]
[D] In November 1997, the Company issued 25,000 shares of common stock to an
employee of the Company for past services rendered. An expense of $14,060 was
recorded as a result of this transaction, which represents the fair market value
of the stock at time of issuance.
[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 bear interest at the rate of eight percent [8%] per annum.
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] Note Payable
A note payable as of June 30, 1998 of $20,661 is due in October of 2002 with
interest at 10.79% per annum. The note is collateralized by transportation
equipment.
Maturities of the notes payable as of June 30, 1998 are as follows:
June 30,
1999 $ 3,991
2000 4,340
2001 4,838
2002 5,392
2003 2,100
Thereafter --
---------
Total $ 20,661
----- =========
[13] New Authoritative Pronouncements
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
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
[UNAUDITED]
- ------------------------------------------------------------------------------
[13] New Authoritative Pronouncements [Continued]
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pension and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15,1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15,1999. The Company will evaluate the new standard to
determine any required new disclosures or accounting.
[14] Financial Instruments
Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.
For certain instruments, including cash and cash equivalents, accounts
receivable and accounts payable, it was assumed that the carrying amount
approximated fair value because of the short maturities of these instruments.
The fair value of long-term debt is estimated based on rates at which the
Company could borrow funds with similar remaining maturities. The fair value of
the Company's debt approximates its carrying value.
[15] Commitments and Contingencies
[A] Employment Agreements - As of June 30, 1998, the Company has 2 employment
agreements with executives of the Company that expire in the year 2001. The
annual commitments for compensation are approximately$230,000 each year. 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 20,000 common stock options, exercisable
at $6.00 were not issued. On January 16, 1998, the Company issued 100,000 common
stock options exercisable at $0.875 to this same executive. The Company 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. The options relating to this agreement were issued on January 16, 1998 at
fair market value [See Note 9].
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 both of the
three months ended June 30, 1998 and 1997.
[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 both the three months ended June 30, 1998 and 1997.
14
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
[UNAUDITED]
- ------------------------------------------------------------------------------
[15] Commitments and Contingencies [Continued]
[C] 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 valued at
$16,000. In addition, the agreement also calls for a per diem payment of $300,
whenever the consultant's services are requested by the Company.
[D] Royalty Agreements - In connection with the acquisition of Orchard Annie,
Inc., the Company has agreed to pay a royalty payment of $0.25 for a 12 pack
case for each of the first 500,000 cases sold and $0.125 per case thereafter for
a period of fifteen years. Royalty expense of $542 and $1,097was recorded for
the three months ended June 30, 1998 and 1997, respectively.
In addition, the Company has agreed to pay to a graphic design firm a royalty of
$0.0125 for a 12 pack case sold for design services rendered. Royalty expense of
$27 was recorded for the three months ended June 30, 1998 under this agreement.
[E] Loan Guarantee - During the year, the Company recognized a preexisting lien
on the assets of Old Marlborough to guarantee a loan of the previous owner of
Old Marlborough, a current employee of the Company. On May 14, 1998, a lien on
Perry's assets was issued. All the assets of Perry's guarantees the debt of
approximately $74,000 at June 30, 1998. The debt is being paid by the previous
owner of Old Marlborough.
[F] Pledged Inventory - In October of 1996, the Company's former Parent entered
into a loan and pledged all assets, including Perry's finished goods inventory,
as collateral.
[16] Leases
[A] Future minimum payments under non-cancelable operating leases for
transportation equipment, kegs and office space are as follows at June 30, 1998:
1999 $ 18,756
2000 17,289
2001 --
2002 --
2003 --
Thereafter --
---------
Total Minimum Lease Payments $ 36,045
[B] Rent expense for the three months ended June 30, 1998 and 1997 was $3,756
and $1,500, respectively. During the year ended March 31, 1997, 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, when the Company moved its
office to its current address.
[C] Rental Agreement - In May of 1997, the Company entered into a three year
lease for office space with monthly rent of $1,200 for the first year, $1,248
and $1,297 for each of the two years thereafter.
15
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
[UNAUDITED]
- ------------------------------------------------------------------------------
[17] Impairment of Long-Lived Assets
During the fiscal year ending March 31, 1998, the Company recorded an impairment
loss of $545,764 from the write down of goodwill and other intangibles. As a
result of the current year's loss and the necessary revisions to the projected
future undiscounted cash flows, there is no longer justification for the
carrying value of the goodwill and intangibles allocated to Riverosa and Old
Marlborough Brewing Co., Inc., including unamortized distribution rights and the
unamortized balance of intangible assets related to design work done for Perry's
and Post Road beer brands. Fair value of goodwill and intangibles was based on
the present value of estimated expected future cash flows from the related
assets. As of June 30, 1998, goodwill of $92,348 and related accumulated
amortization of $20,587 relates to the purchase of Orchard Annie, Inc. and is
expected to be fully recoverable.
The following table presents the write down of good will and other intangible
assets at March 31, 1998:
Accumulated
Cost Amortization Writedown
Goodwill Riverosa $ 246,000 $ 98,400 $ 147,600
Goodwill Old Marlborough $ 264,062 $ 79,218 184,844
Other Intangible Assets $ 166,264 $ 13,634 152,630
Distribution Rights $ 86,700 $ 26,010 60,690
----------
Total $ 545,764
----- ==========
[18] Letter of Intent
On May 14, 1998, the Company entered into a letter of intent with Village
Cannery of Vermont, Inc. The Company was granted an option to acquire all of the
assets for $2,000,000 in cash. This option is valid through September 1, 1998.
Village Cannery of Vermont, Inc. is a producer of organic and all natural
applesauce under the tradename of Vermont Village and Village Company as well as
a producer of sauces, salsas, jams and other such products. The Company does not
presently have funds available to pay the $2,000,000 and has not identified any
potential source for such funds.
[19] Post Road Sale
On May 18, 1998, the Company sold the assets, all rights to licenses, permits
and contracts, and all trademarks, tradenames and processes of the Post Road
beer brand with a net book value of approximately $131,500 to the Brooklyn
Brewery Corporation ["BBC"] for consideration of $330,000 of which $10,000 is in
cash. The Company executed a secured promissory note for the balance of $320,000
and has received $160,000 on this note. In addition, the purchaser put $35,000
into escrow to satisfy the outstanding tax liability for an executive of Old
Marlborough.
16
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
[UNAUDITED]
- ------------------------------------------------------------------------------
[20] Subsequent Event
Acquisition of Leroux Creek Food Corporation - On July 2, 1998, the Company
acquired the rights, title and interest, customer lists, distribution rights and
related recipes for applesauce and applesauce blends of Leroux Creek applesauce
brand for the sum of $650,000 from the Leroux Creek Food Corporation. On June 2,
1998, the Company paid $62,500 and on July 2, 1998 executed a note with the
seller in the amount of $587,500 with 9% interest payable on or before January
2,1999. The parties agreed that the $62,500 would be liquidated damages in the
event the Company is not able to locate adequate financing. In the event the
Company can not make the payment when due the ownership of the Leroux Creek
brand will revert to the seller. The Company does not presently have funds
available to pay the note in full and has not identified any potential source
for such funds. The Company's ability to pay the note and retain ownership of
the Leroux Creek brand will be dependent upon its success in identifying sources
for such financing, on a timely basis, and on terms acceptable to the Company.
The Company also issued options to purchase 250,000 shares of common stock at
fair market value at the date of the grant.
During July 1998, the Company entered into a consulting agreement with
Edward Tuft, the former owner of the Leroux Creek brand. Mr. Tuff's company will
continue to produce Leroux Creek applesauces for the Company. Mr. Tuft received
an option to acquire 500,000 shares of the Company's common stock, at fair
market value as follows: 200,000 options immediately, and 100,000 options per
year for the following three years.
. . . . . . . . . . . . .
17
<PAGE>
Item 2:
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
For the three months ended June 30, 1998 compared with the three months ended
June 30, 1997.
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.
The Company operates in two business segments, the sale of natural applesauce
and applesauce blends, and the sale of microbrewed beer. The Company's products
are Quigley's Orchard [natural applesauce and applesauce blends] and Perry's
Majestic Beer [beer brewed with organic barley and hops]. Quigley's Orchard is
manufactured by a co-packer and the microbrew beer is contract brewed.
The Riverosa division currently has one style of beer available, Perry's
Majestic organic beer, Ploughman's Pale Ale. All beer styles of Perry's are made
with organic hops and barley. The Company has no plans to add any additional
beer styles.
In September 1996, the Company acquired the Post Road Beer brand and other
assets from the Old Marlborough Brewing Company, Inc. On May 18, 1998, the
Company sold the Post Road brand to the Brooklyn Brewery Corporation for
consideration of $330,000.
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 an independent unaffiliated manufacturer. The Company has entered into
arrangements with twenty-five brokers to sell Quigley's. Additionally, there are
currently eleven distributors of Quigley's. The Company expects to add more
distributors and brokers over the next 6-12 months.
On May 14, 1998, the Company entered into a letter of intent with Village
Cannery of Vermont, Inc. The Company was granted an option to acquire all of the
assets for $2,000,000 in cash. This option is valid through September 1, 1998.
Village Cannery of Vermont, Inc. is a producer of organic and all natural
applesauce under the tradename of Vermont Village and Village Company as well as
a producer of sauces, salsas, jams and other such products. The Company does not
presently have funds available to pay the $2,000,000 and has not identified any
potential source for such funds.
On May 18, 1998, the Company sold the assets, all rights to licenses, permits
and contracts, and all trademarks, tradenames and processes of the Post Road
beer brand with a net book value of approximately $131,500 to the Brooklyn
Brewery Corporation ["BBC"] for consideration of $330,000 of which $10,000 is in
cash. The Company executed a secured promissory note for the balance of
$320,000. In addition, the purchaser put $35,000 into escrow to satisfy the
outstanding tax liability for an executive of Old Marlborough.
18
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
For the three months ended June 30, 1998 compared with the three months ended
June 30, 1997.
OVERVIEW [CONTINUED]
On July 2, 1998, the Company acquired the rights, title and interest, customer
lists, distribution rights and related recipes for applesauce and applesauce
blends of Leroux Creek applesauce brand for the sum of $650,000 from the Leroux
Creek Food Corporation. On June 2, 1998, the Company paid $62,500 and on July 2,
1998 executed a note with the seller in the amount of $587,500 with 9% interest
payable on or before January 2,1999. The parties agreed that the $62,500 would
be liquidated damages in the event the Company is not able to locate adequate
financing. In the event the Company can not make the payment when due the
ownership of the Leroux Creek brand will revert to the seller. The Company does
not presently have funds available to pay the note in full and has not
identified any potential source for such funds. The Company's ability to pay the
note and retain ownership of the Leroux Creek brand will be dependent upon its
success in identifying sources for such financing, on a timely basis, and on
terms acceptable to the Company. The Company also issued options to purchase
250,000 shares of common stock at fair market value at the date of the grant.
During July 1998, the Company entered into a consulting agreement with
Edward Tuft, the former owner of the Leroux Creek brand. Mr. Tuff's company will
continue to produce Leroux Creek applesauces for the Company. Mr. Tuft received
an option to acquire 500,000 shares of the Company's common stock, at fair
market value as follows: $200,000 options immediately, and $100,000 options per
year for the following three years.
RESULTS OF OPERATIONS
The Company had a loss from operations of $327,648 and a net loss of $128,947
for the three months ended June 30, 1998 as compared to a loss from operations
of $464,295 and a net loss of $451,218 for the three months ended June 30, 1997.
The loss from operations for the three months ended June 30,1998 is primarily
due to insufficient gross profit to support selling, general and administrative
expenses of $179,129 and amortization of $150,867.
The net sales for the Company for the three months ended June 30, 1998 were
$42,694 as compared to $298,325 for the three months ended June 30, 1997. This
decrease is due to the consolidation of the beer industry and the fact that the
Company was in the process of selling its Post Road brand. The Company has
changed the focus of its business from a micro brew beer company to an
applesauce and natural food company. Consistent with this change of focus was
the acquisition of the Leroux Creek brand in July 1998.
The Company had a gross profit of $2,348 or 5.5% as compared to a gross profit
of $63,981 or 21.4% for the three months ended June 30, 1998 and 1997,
respectively. The reduction in the gross profit percent is due to the change in
the focus of the business from microbrewed beer to the applesauce and natural
food business and start up costs related to the applesauce and natural food
business.
The Company's selling, general and administrative expenses for the three months
ended June 30, 1998 and 1997 were $329,996 and $378,533, respectively. The
decrease is due primarily to a reduction of goodwill amortization of $31,997 due
to the write off of goodwill related to Riverosa and Old Marlborough Brewing
Company, Inc. during the year ended March 31,1998.
The Company earned interest income of $1,548 and $13,077 for the three months
ended June 30,1998 and 1997, respectively. Interest charges of $574 were
incurred on the note payable related to the purchase of transportation equipment
during the three months ended June 30, 1998.
19
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
For the three months ended June 30, 1998 compared with the three months ended
June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Perry's had working capital at June 30, 1998 of $337,911. For the three months
ended June 30, 1998, the Company utilized $238,400 in cash for operating
activities as compared to $314,306 for the three months ended June 30, 1997. The
decrease is primarily due to the sale of the Post Road Beer brand. The Company
utilized $62,500 in cash for investing activities as a deposit for the Leroux
Creek acquisition and the Company received $160,000 in cash from the sale of
Post Road assets for the three months ended June 30, 1998. The cash balance at
June 30, 1998 was $134,195.
At June 30, 1997, Perry's had working capital of $1,168,492. For the three
months ended June 30, 1997, 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.
As of June 30, 1998, the Company has 2 employment agreements with executives of
the Company that expire in the year 2001. The annual commitments for
compensation are approximately $230,000 each year. 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 20,000 common stock options, exercisable at $6.00 were not issued. On
January 16, 1998, the Company issued 100,000 common stock options exercisable at
$0.875 to this same executive. The Company 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. The options relating to
this agreement were issued on January 16, 1998 at fair market value.
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 both the
three months ended June 30, 1998 and 1997.
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
both the three months ended June 30, 1998 and 1997, respectively.
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 and recorded goodwill for the full
valued. Additionally, in September of 1997, Perry's issued 50,000 shares of
common stock to the same officer in connection with the sale and the fair value
of these shares of $25,000 is allocated to goodwill. 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 $.25 for a case of 12 units for the first 500,000
cases $.125 for a case of 12 units thereafter for a period of fifteen years. For
the three months ended June 30, 1998 and 1997, royalty expense was $542 and
$1,097, respectively.
20
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
For the three months ended June 30, 1998 compared with the three months ended
June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]
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, 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 valued at $16,000. In addition, the agreement also calls for a
per diem payment of $300, whenever the consultant's services are requested by
the Company.
In November 1997, the Company issued 25,000 shares of common stock to an officer
of the Company for past services rendered. An expense of $14,060 was recorded as
a result of this transaction, which represents the fair market value of the
stock at time of issuance.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. In May 1998, the
Company sold the assets of the Post Road Beer brand and is considering various
financing options to raise capital to pursue expansion into the natural
applesauce business. In addition, the Company is exploring new marketing
strategies to improve revenues and continues to explore options to cut
administrative costs. There can be no assurance that management's plans to
reduce operating losses and to obtain additional financing to fund operations
will be successful. The absence of such additional financing on terms favorable
to the Company could have a material adverse effect on the business and
operations of the Company.
Based on a preliminary evaluation of the year 2000 issue, the Company does not
expect the amounts required to be expensed over the next two years to have a
material effect on its financial position or results of operations.
NEW AUTHORITATIVE PRONOUNCEMENTS
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.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pension and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15,1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15,1999. The Company will evaluate the new standard to
determine any required new disclosures or accounting.
21
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
For the three months ended June 30, 1998 compared with the three months ended
June 30, 1997.
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.
22
<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 7, 1998 By:/s/ Robert J. Sipper
--------------------
Robert J. Sipper, President,
Chief Executive Officer,
Chief Financial Officer and Chief
Principal Accounting Officer
23
<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 schedules.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Mar-31-1998
<CASH> 134,195
<SECURITIES> 0
<RECEIVABLES> 81,061
<ALLOWANCES> (19,472)
<INVENTORY> 111,413
<CURRENT-ASSETS> 424,119
<PP&E> 76,696
<DEPRECIATION> (19,592)
<TOTAL-ASSETS> 677,416
<CURRENT-LIABILITIES> 86,208
<BONDS> 0
0
5,323,829
<COMMON> 378
<OTHER-SE> (4,749,669)
<TOTAL-LIABILITY-AND-EQUITY> 677,416
<SALES> 42,694
<TOTAL-REVENUES> 42,694
<CGS> 40,346
<TOTAL-COSTS> 329,996
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 574
<INCOME-PRETAX> (128,947)
<INCOME-TAX> 0
<INCOME-CONTINUING> (128,947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (128,947)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
