<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1997
--------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ____________
Commission File Number 33-26617A
-----------
CBR BREWING COMPANY, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0145422
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
433 North Camden, Suite 1200
Beverly Hills, California 90210
- ---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 274-5172
--------------
Not applicable
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
As of March 31, 1997, the Company had 5,000,013 shares of Class A Common
Stock and 3,000,000 shares of Class B Common Stock issued and outstanding.
Total sequentially numbered pages in this document: 23.
1
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
-------------------------------------------
INDEX
-----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (unaudited) -
March 31, 1997 and December 31, 1996
Condensed Consolidated Statements of Income (unaudited) -
Three months ended March 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows (unaudited)
- Three months ended March 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
(unaudited) - Three months ended March 31, 1997 and 1996
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------------------- -----------------------
RMB USD RMB USD
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash 34,176,911 4,107,802 39,709,594 4,772,788
Accounts and bills receivable 247,148,732 29,705,376 207,499,153 24,939,802
Inventories (Note 3 ) 95,049,108 11,424,172 87,549,836 10,522,817
Amounts due from related
companies 31,269,033 3,758,297 33,089,333 3,977,083
Prepayments, deposits and other
receivables 25,747,106 3,094,604 17,779,904 2,137,008
----------- ----------- ----------- ----------
Total current assets 433,390,890 52,090,251 385,627,820 46,349,498
Interest in an associated
company (Note 5) 232,014,044 27,886,303 216,984,220 26,079,834
Property, plant and equipment, net 217,618,959 26,156,125 223,890,108 26,909,869
----------- ----------- ----------- ----------
Total assets 883,023,893 106,132,679 826,502,148 99,339,201
=========== =========== =========== ==========
</TABLE>
(continued)
3
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------------------- ------------------------
RMB USD RMB USD
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings 40,500,000 4,867,789 40,500,000 4,867,789
Capital lease obligations 7,204,659 865,945 9,034,742 1,085,907
Accounts payable
and accrued liabilities 117,446,047 14,116,111 104,207,246 12,524,909
Customer deposits 4,560,000 548,077 59,003,600 7,091,779
Amounts due to related companies 32,206,635 3,870,990 21,357,655 2,567,026
Amount due to an associated company 236,975,850 28,482,674 166,501,751 20,012,230
Income taxes payable 260,000 31,250 260,000 31,250
Sales taxes payable 64,256,703 7,723,161 63,904,235 7,680,798
Deferred tax liabilities 6,173,000 741,947 4,413,000 530,409
----------- ----------- ----------- ----------
Total current liabilities 509,582,894 61,247,944 469,182,229 56,392,097
----------- ----------- ----------- ----------
Long term liabilities:
Capital lease obligations 15,862,549 1,906,556 15,862,549 1,906,556
----------- ----------- ----------- ----------
Minority interests 126,997,254 15,264,093 120,073,940 14,431,964
----------- ----------- ----------- ----------
Shareholders' advances and
shareholders' equity:
Advances from shareholders (Note 4) 73,794,948 8,869,585 73,794,948 8,869,585
----------- ----------- ----------- ----------
Common stock
- Class A, US$0.0001 par value,
90,000,000 shares authorized,
5,000,013 shares outstanding 4,265 513 4,265 513
- Class B, US$0.0001 par value,
10,000,000 shares authorized,
3,000,000 shares outstanding 2,559 307 2,559 307
Additional paid-in capital 104,030,194 12,503,629 104,030,194 12,503,629
General reserve and enterprise
development funds 4,823,561 579,754 4,823,561 579,754
Retained earnings 47,925,669 5,760,298 38,727,903 4,654,796
----------- ----------- ----------- ----------
Total shareholders' equity 156,786,248 18,844,501 147,588,482 17,738,999
----------- ----------- ----------- ----------
Total shareholders' advances and
shareholders' equity 230,581,196 27,714,086 221,383,430 26,608,584
----------- ----------- ----------- ----------
Total liabilities and
shareholders' equity 883,023,893 106,132,679 826,502,148 99,339,201
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
---------------------------- -------------------
RMB USD RMB
------------- ------------ -------------------
<S> <C> <C> <C>
Sales, including sales to related
companies of RMB 3,999,762 and nil
in 1997 and 1996, respectively 316,939,176 38,093,651 283,593,693
Sales taxes (6,043,660) (726,401) (6,061,927)
------------ ----------- ------------
Net sales 310,895,516 37,367,250 277,531,766
Cost of sales, including inventory
purchased from related companies of
RMB 176,898,774 (USD 21,261,872) and
RMB 208,359,816 (USD 25,043,247) in
1997 and 1996, respectively; and
royalty fee paid to a related company
of RMB 1,861,485 (USD 223,736) and
RMB 1,776,886 (USD 213,568) in 1997
and 1996, respectively (256,173,915) (30,790,134) (234,024,544)
------------ ----------- ------------
Gross profit 54,721,601 6,577,116 43,507,222
Selling, general and administrative
expenses, including management fee
paid to a related company of RMB 945,000
and RMB 945,000 in 1997 and 1996,
respectively (48,543,678) (5,834,577) (36,553,484)
------------ ----------- ------------
Operating income 6,177,923 742,539 6,953,738
Foreign exchange gains (losses) 78,138 9,392 (10,589)
Other expense:
Interest expense, including interest
paid to related companies of
RMB 1,687,808 (USD 202,862)
and RMB 3,710,288 (USD 444,879)
in 1997 and 1996, respectively (3,404,805) (409,231) (5,820,401)
------------ ----------- ------------
Income before income taxes 2,851,256 342,700 1,122,748
Income taxes (1,760,000) (211,538) (250,000)
------------ ----------- ------------
Income before equity in
earnings of an associated company 1,091,256 131,162 872,748
Equity in earnings
of an associated company 15,029,824 1,806,469 4,011,244
------------ ----------- ------------
Income before minority interests 16,121,080 1,937,631 4,883,992
Minority interests (6,923,314) (832,129) (1,212,155)
------------ ----------- ------------
Net income for the period 9,197,766 1,105,502 3,671,837
============ =========== ============
Net income per common share 1.14 0.13 0.46
============ =========== ============
Weighted average
shares of common stock 8,000,013 8,000,013 8,000,013
============ =========== ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
----------------------- -----------------
RMB USD RMB
----------- ---------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 9,197,766 1,105,502 3,671,837
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Allowance for doubtful accounts 4,110,000 493,990 760,000
Depreciation and amortization 8,499,434 1,021,567 6,015,822
Foreign exchange (gains) losses (78,138) (9,392) 10,589
Minority interests 6,923,314 832,129 1,212,155
Equity in earnings of an associated company (15,029,824) (1,806,469) (4,011,244)
Income taxes payable 1,760,000 211,538 250,000
----------- ---------- -----------
15,382,552 1,848,865 7,909,159
Changes in operating assets and liabilities:
(Increase) decrease in-
Accounts and bills receivable (43,759,579) (5,259,565) (6,289,070)
Inventories (7,499,272) (901,355) (28,963,309)
Amounts due from related companies 1,820,300 218,786 33,597,307
Prepayments, deposits and other receivables (7,967,202) (957,596) (6,791,024)
Increase (decrease) in -
Accounts payable and accrued liabilities 13,238,801 1,591,202 47,989,692
Customer deposits (54,443,600) (6,543,702) (17,809,626)
Amount due to an associated company 70,474,099 8,470,445 (3,475,759)
Sales taxes payable 352,468 42,364 4,615,971
----------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (12,401,433) (1,490,556) 30,783,341
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,150,147) (258,431) (46,710,710)
----------- ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,150,147) (258,431) (46,710,710)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
New bank borrowings - - 2,000,000
Increase in amounts due to related companies 10,848,980 1,303,964 14,607,374
Repayment of capital lease obligations (1,830,083) (219,963) -
----------- ---------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 9,018,897 1,084,001 16,607,374
----------- ---------- -----------
Net increase (decrease) in cash (5,532,683) (664,986) 680,005
Cash at beginning of period 39,709,594 4,772,788 57,448,305
----------- ---------- -----------
Cash at end of period 34,176,911 4,107,802 58,128,310
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Organization - CBR Brewing Company, Inc. (the "Company," which term shall
- ------------
include, when the context so requires, its subsidiaries and affiliates),
formerly known as Natural Fuels, Inc. and National Sweepstakes, Inc., was
originally incorporated as Video Promotions, Inc. on April 20, 1988 under the
laws of the State of Florida. The Company adopted its current name on March 15,
1995.
Reverse Acquisition - For a period of time prior to December 16, 1994, the
- -------------------
business of the Company was devoted to seeking potential acquisition or merger
opportunities. On December 16, 1994, the Company acquired all of the
outstanding shares of capital stock of High Worth Holdings, Ltd., a British
Virgin Islands corporation ("Holdings"), from Oriental Win Holdings Ltd.
("Oriental Win") and Goldchamp Ltd. ("Goldchamp") in exchange for 3,960,000
shares and 240,000 shares of the Company's Class A Common Stock issued to
Oriental Win and Goldchamp, respectively, and 3,000,000 shares of the Company's
Class B Common Stock issued to Oriental Win. Subsequently, on October 14, 1996,
Oriental Win transferred the 3,960,000 shares of Class A Common Stock and the
3,000,000 shares of Class B Common Stock to its shareholders. As a result, West
Coast Star Enterprises Ltd., as the 60% shareholder of Oriental Win, became the
Company's controlling shareholder. The shares of Class B Common Stock carry two
votes per share but are otherwise equivalent to the Class A Common Stock. In
addition, the Company issued an aggregate of 600,000 shares of Class A Common
Stock to various parties for consulting services in connection with the
acquisition. The shares of Class A and Class B Common Stock issued in
conjunction with the acquisition represent approximately 98.1% of the issued and
outstanding shares of the Company, after all shares were issued and a 1-for-22
reverse stock split which was effected on November 22, 1994.
The Company, through its subsidiaries and affiliates, is engaged in the
production and sale of Pabst Blue Ribbon beer in the People's Republic of China
("China" or the "PRC"). Holdings is a holding company that was formed solely to
effect the acquisition of Zhaoqing Blue Ribbon High Worth Brewery, Ltd., a Sino-
foreign joint venture ("High Worth JV"), which was registered in the PRC on July
2, 1994, in which Guangdong Blue Ribbon Group Co. Ltd. ("Guangdong Blue
Ribbon") owns a 40% interest and Holdings owns a 60% interest.
7
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION (continued)
Holdings owns a 60% interest in High Worth JV, a Sino-foreign joint venture.
High Worth JV holds certain licensing rights for Pabst Blue Ribbon beer and also
directly owns 100% of a Pabst Blue Ribbon brewing complex ("Zhaoqing Brewery").
High Worth JV also owns 100% of a PRC holding company ("Zhaoqing Brewery HC").
Zhaoqing Brewery HC owns a 40% interest in Zhaoqing Blue Ribbon Brewery Noble
Ltd., a Sino-foreign joint venture ("Noble Brewery"), which owns a second Pabst
Blue Ribbon brewing complex that is also managed by Zhaoqing Brewery.
Goldjinsheng Holdings Ltd., a wholly-owned subsidiary of Noble China Inc., an
unaffiliated company, owns the other 60% interest in Noble Brewery. In
addition, Zhaoqing Brewery HC owns a 70% interest in Zhaoqing Blue Ribbon Beer
Marketing Company Limited, a PRC company (the "Marketing Company"), which was
formed in February 1995 to conduct the distribution, marketing and promotion
throughout China of the Pabst Blue Ribbon beer produced by Zhaoqing Brewery and
Noble Brewery. Zhaoqing Brewery and Noble Brewery commenced the distribution of
their production of Pabst Blue Ribbon beer through the Marketing Company during
April 1995 and July 1995, respectively. The remaining 30% interest in the
Marketing Company is directly owned by Guangdong Blue Ribbon. Through its
ownership in High Worth JV, Guangdong Blue Ribbon also has a 28% indirect
interest in the Marketing Company, resulting in the Company owning a 42% net
interest in the Marketing Company. The Company owns effective interests of 60%
in Zhaoqing Brewery and 24% in Noble Brewery. The brewery operations are
located in Zhaoqing City, which is situated approximately 100 miles from Hong
Kong in the Guangdong Province of China.
In January 1996, Zhaoqing Brewery HC transferred all of its operating assets and
liabilities to High Worth JV pursuant to the original Joint Venture Agreement,
the Asset Transfer Agreement signed in May 1994, and the relevant government
regulations. Subject to the completion of certain legal procedures and
documentation, the investments in Noble Brewery and the Marketing Company
currently held by Zhaoqing Brewery HC will be transferred to High Worth JV.
Zhaoqing Brewery HC is currently acting as the nominee for High Worth JV with
respect to the investments in Noble Brewery and the Marketing Company.
In the following text, "Zhaoqing Brewery" refers to the brewing complex, which
was transferred to High Worth JV in January 1996, and "Zhaoqing Brewery HC"
refers to the PRC entity that previously owned the brewing complex from November
1994 through December 1995.
The Company conducts a substantial portion of its purchases through related
parties, and has additional significant continuing transactions with such
parties.
8
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION (continued)
Apart from the investment in High Worth JV which was partly financed by a loan
from Oriental Win, Holdings has no other significant assets or liabilities. On
October 31, 1994, prior to the reverse acquisition effective December 16, 1994,
High Worth JV acquired a 100% interest in Zhaoqing Brewery HC, including
Zhaoqing Brewery's 40% interest in Noble Brewery, for approximately
USD20,000,000. Prior to the acquisition of the Zhaoqing Brewery HC by High
Worth JV, Zhaoqing Brewery HC was a wholly-owned subsidiary of Guangdong Blue
Ribbon.
For accounting purposes, the acquisition of Holdings by the Company has been
treated as a recapitalization of Holdings with Holdings as the acquiror (reverse
acquisition). Accordingly, the historical financial statements prior to
December 16, 1994 are those of Holdings.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("US
GAAP"). The acquisition on October 31, 1994 of Zhaoqing Brewery HC, including
Zhaoqing Brewery HC's 40% interest in Noble Brewery, has been accounted for
under the purchase method of accounting. Since High Worth JV had no operations
prior to this acquisition, consolidated financial statements have been prepared
commencing October 31, 1994, to reflect the post-acquisition consolidated
results of the operations of Zhaoqing Brewery and Noble Brewery attributable to
the Company. The consolidated financial statements include the results of
operations of Zhaoqing Brewery on a consolidated basis and Noble Brewery under
the equity method of accounting for investments. All material intercompany
accounts and transactions are eliminated on consolidation. The consolidated
financial statements have been prepared on a going concern basis notwithstanding
that the Company has a net current liability position at December 31, 1996 and
March 31, 1997. The Company believes that its operating cash flow, combined
with cash on hand, bank line of credit and other external credit resources, and
the credit facilities provided by affiliates or related parties are adequate to
satisfy the Company's working capital requirements for the foreseeable future.
Certain prior period amounts have been reclassified to conform with the current
year's presentation.
Foreign Currency Translation - In preparing the consolidated financial
- ----------------------------
statements, the financial statements of the Company are measured using Renminbi
("RMB") as the functional currency. All foreign currency transaction are
translated into RMB using the applicable rates of exchange, quoted by the
People's Bank of China (the "unified exchange rate"). Monetary assets and
liabilities denominated in foreign currencies have been translated into RMB
using the unified exchange rate prevailing at the balance sheet dates. The
resulting exchange gains or losses have been credited or charged to the
statements of income for the periods in which they occur.
9
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION (continued)
The Company's share capital is denominated in United States dollars ("USD") and
the reporting currency is the RMB. For financial reporting purposes, the USD
share capital amounts have been translated into RMB at the applicable rates
prevailing on the transaction dates.
Translation of amounts from RMB into United States dollars ("USD") for the
convenience of the reader has been made at the rate of exchange as quoted by the
People's Bank of China on March 31, 1997, of USD1.00 = RMB8.32. No
representation is made that the RMB amounts could have been, or could be,
converted into USD at that rate or at any other rate.
NOTE 2 -- COMMENTS
The accompanying condensed consolidated financial statements are unaudited but,
in the opinion of the management of the Company, contain all adjustments
necessary to present fairly the financial position at March 31, 1997, the
results of operations for the three months ended March 31, 1997 and 1996, and
the changes in cash flows for the three months ended March 31, 1997 and 1996.
These adjustments are of a normal recurring nature. The consolidated balance
sheet as of December 31, 1996 is derived from the Company's audited financial
statements. Certain information and footnote disclosures normally included in
financial statements that have been prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, although
management of the Company believes that the disclosures contained in these
financial statements are adequate to make the information presented therein not
misleading. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1996, as filed with the Securities and
Exchange Commission.
The results of operations for the three months ended March 31, 1997 are not
necessary indicative of the results of operations to be expected for the full
fiscal year ending December 31, 1997.
The calculation of net income per share is based on the weighted average number
of shares of Class A and Class B Common Stock issued and outstanding during each
respective period.
10
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 3 -- INVENTORIES
Inventories consisted of the following at March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------------------ -----------------------
RMB USD RMB USD
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Raw materials 35,905,526 4,315,568 30,935,530 3,718,213
Work in progress 9,494,402 1,141,154 6,224,036 748,081
Finished goods 49,649,180 5,967,450 50,390,270 6,056,523
---------- ---------- ---------- ----------
95,049,108 11,424,172 87,549,836 10,522,817
========== ========== ========== ==========
</TABLE>
NOTE 4 -- ADVANCES FROM SHAREHOLDERS
In connection with the acquisition of High Worth JV, Oriental Win advanced
US$8,869,585 to Holdings during 1994. The rights to collect US$8,000,000 of the
advance were transferred from Oriental Win to its shareholders in proportion to
their respective shareholder interests in August 1996 (West Coast Star
Enterprises Ltd. - US$4,800,000; Mapesbury Limited - US$1,600,000; Redcliffe
Holdings Ltd. - US$1,600,000). The advances bear no interest and are not
repayable unless the Company obtains additional long term debt or equity
financing. Repayments of the advances are at the discretion of the Company and
the shareholders have no right to demand repayment. The Company has the option
of offsetting or repaying the advance or part thereof by allotment of shares at
par value in Holdings. As of March 31, 1997 and December 31, 1996, advances
from such shareholders, West Coast Star Enterprises Ltd., Mapesbury Limited,
Redcliffe Holdings Ltd. and Oriental Win were approximately RMB39,900,000,
RMB13,300,000, RMB13,300,000 and RMB7,300,000, respectively.
11
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 5 -- INTEREST IN AN ASSOCIATED COMPANY
The unlisted investment consists of the Company's 40% equity interest in Noble
Brewery held by a 60% owned subsidiary as follows :
<TABLE>
<CAPTION>
RMB
------------
<S> <C>
Unlisted investment, at cost,
October 31, 1994 209,361,595
The Company's share of earnings and
dividends of an associated company :
Earnings -
Two months ended December 31, 1994 7,812,392
For the year ended December 31, 1995 34,213,058
For the year ended December 31, 1996 34,039,622
Three months ended March 31, 1997 15,029,824
Dividends -
Declared and paid during 1995 (28,644,569)
Declared and paid during 1996 (39,797,878)
-----------
Unlisted investment, March 31, 1997 232,014,044
===========
</TABLE>
The condensed statements of operations of Noble Brewery for the three months
ended March 31, 1997 and 1996 are as follows :
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
------------------------ ------------------
RMB USD RMB
----------- ---------- ------------------
<S> <C> <C> <C>
Net sales 167,182,547 20,094,056 162,053,518
=========== ========== ===========
Net income 31,668,967 3,806,366 16,762,785
=========== ========== ===========
The Company's share
of net income after
adjustment of unrealized
intercompany profit 15,029,824 1,806,469 4,011,244
=========== ========== ===========
</TABLE>
12
<PAGE>
CBR BREWING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 6 -- PRODUCTION BY GUANGDONG BLUE RIBBON
In late 1996, Guangdong Blue Ribbon established a wholly-owned subsidiary in Le
Shang City, Sichuan Province, PRC, and started converting an existing brewery
with an annual production capacity of 20,000 metric tons into a Pabst Blue
Ribbon brewing complex ("Sichuan Brewery"). Production and sale of Pabst Blue
Ribbon beer commenced in April 1997.
To the extent that total market demand or sales for Pabst Blue Ribbon beer is
less than the aggregate production capacity of Zhaoqing Brewery and Noble
Brewery, the Company would face competition from Guangdong Blue Ribbon in China.
As a result, the value of the Company's sublicense rights and its ability to
expand in provinces outside of Guangdong could be affected if the Company does
not establish additional affiliated breweries in the near future.
The Company currently estimates that the Sichuan Brewery will produce from
16,000 to 18,000 metric tons of Pabst Blue Ribbon beer in 1997. In order to
facilitate the efficient distribution and sale of Pabst Blue Ribbon beer in
China, the Company has agreed with Guangdong Blue Ribbon for the coordination of
the sales of Pabst Blue Ribbon beer in an orderly manner. In April 1997, the
Marketing Company and the Sichuan Brewery entered into a Memorandum of
Understanding. The Memorandum of Understanding requires the Sichuan Brewery to
sell all of its production of Pabst Blue Ribbon beer to the Marketing Company at
mutually agreed ex-factory prices, and grants the Marketing Company the right to
regulate production to reflect market demand.
Since the Marketing Company is only allowed to mark-up the cost of Pabst Blue
Ribbon beer purchased in order to adequately cover the selling, advertising,
promotional, distribution and administrative expenses incurred in selling to
distributors, the sale of the Sichuan Brewery's production by the Marketing
Company is not expected to have a material effect on consolidated results of
operations. However, to the extent that the production of Pabst Blue Ribbon
beer by the Sichuan Brewery causes a commensurate reduction of beer production
and sales by Zhaoqing Brewery and/or Noble Brewery, the Company's consolidated
results of operations could be adversely affected. The Company currently
estimates that the Sichuan Brewery's 1997 production will represent
approximately 6% of the Company's total 1997 sales.
As the Company and Guangdong Blue Ribbon are the only entities that can produce
Pabst Blue Ribbon beer in China outside of Guangdong Province, the Company is
now seeking expansion and cooperation opportunities to extend its brewing
operation into other provinces either with Guangdong Blue Ribbon or with other
local strategic brewers.
13
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview:
Effective December 16, 1994, the Company acquired Holdings, which, through
its subsidiaries and affiliates, is engaged in the production and sale of Pabst
Blue Ribbon beer in China. Holdings is a holding company which was formed
solely to effect the acquisition of a 60% interest in High Worth JV. On October
31, 1994, High Worth JV acquired a 100% interest in Zhaoqing Brewery HC,
including Zhaoqing Brewery HC's 40% interest in Noble Brewery.
The acquisition of Zhaoqing Brewery HC, including Zhaoqing Brewery HC's 40%
interest in Noble Brewery, has been accounted for under the purchase method of
accounting. The consolidated financial statements include the results of
operations of Zhaoqing Brewery on a consolidated basis and Noble Brewery under
the equity method of accounting for investments, commencing October 31, 1994, to
reflect the post-acquisition consolidated results of operations of Zhaoqing
Brewery and Noble Brewery attributable to the Company.
For accounting purposes, the acquisition of Holdings by the Company has
been treated as a recapitalization of Holdings with Holdings as the acquiror
(reverse acquisition). Accordingly, the historical financial statements prior
to December 16, 1994 are those of Holdings.
During February 1995, the Marketing Company was established to conduct the
distribution, marketing and promotion of Pabst Blue Ribbon beer in China. Prior
to November 1996, the Marketing Company also sold mineral water and non-
carbonated soft drinks bearing the Blue Ribbon label produced by Guangdong Blue
Ribbon. Zhaoqing Brewery HC owns a 70% interest and Guangdong Blue Ribbon
directly owns a 30% interest in the Marketing Company. Zhaoqing Brewery and
Noble Brewery commenced the distribution of their production of Pabst Blue
Ribbon beer through the Marketing Company during April 1995 and July 1995,
respectively. Through its ownership in High Worth JV, Guangdong Blue Ribbon
also has a 28% indirect interest in the Marketing Company, resulting in the
Company owning a 42% net interest in the Marketing Company. Commencing April
1997, the Marketing Company also began purchasing the Sichuan Brewery's
production of Pabst Blue Ribbon beer for distribution. The consolidated
financial statements include the results of operations of the Marketing Company
on a consolidated basis.
In January 1996, Zhaoqing Brewery HC transferred all of its operating
assets and liabilities to High Worth JV pursuant to the original Joint Venture
Agreement, the Asset Transfer Agreement signed in May 1994, and the relevant
government regulations. Subject to the completion of certain legal procedures
and documentation, the investments in Noble Brewery and the Marketing Company
currently held by Zhaoqing Brewery HC will be transferred to High Worth JV.
Zhaoqing Brewery HC is currently acting as the nominee for High Worth JV with
respect to the investments in Noble Brewery and the Marketing Company.
Upon the completion of the required procedures and documentation, all of
the assets and liabilities formerly controlled by Zhaoqing Brewery will have
been transferred to High Worth JV. During 1996, the operating activities of
Zhaoqing Brewery were part of High Worth JV. The
14
<PAGE>
consensus and approval from the local tax authority was recently obtained. In
the following text, "Zhaoqing Brewery" refers to the brewing complex, which was
transferred to High Worth JV in January 1996, and "Zhaoqing Brewery HC" refers
to the PRC entity that previously owned the brewing complex from November 1994
through December 1995.
Recent Event:
In late 1996, Guangdong Blue Ribbon established a wholly-owned subsidiary
in Le Shang City, Sichuan Province, PRC, and started converting an existing
brewery with an annual production capacity of 20,000 metric tons into a Pabst
Blue Ribbon brewing complex ("Sichuan Brewery"). Production and sale of Pabst
Blue Ribbon beer commenced in April 1997.
To the extent that total market demand or sales for Pabst Blue Ribbon beer
is less than the aggregate production capacity of Zhaoqing Brewery and Noble
Brewery, the Company would face competition from Guangdong Blue Ribbon in China.
As a result, the value of the Company's sublicense rights and its ability to
expand in provinces outside of Guangdong could be affected if the Company does
not establish additional affiliated breweries in the near future.
The Company currently estimates that the Sichuan Brewery will produce from
16,000 to 18,000 metric tons of Pabst Blue Ribbon beer in 1997. In order to
facilitate the efficient distribution and sale of Pabst Blue Ribbon beer in
China, the Company has agreed with Guangdong Blue Ribbon for the coordination of
the sales of Pabst Blue Ribbon beer in an orderly manner. In April 1997, the
Marketing Company and the Sichuan Brewery entered into a Memorandum of
Understanding. The Memorandum of Understanding requires the Sichuan Brewery to
sell all of its production of Pabst Blue Ribbon beer to the Marketing Company at
mutually agreed ex-factory prices, and grants the Marketing Company the right to
regulate production to reflect market demand.
Since the Marketing Company is only allowed to mark-up the cost of Pabst
Blue Ribbon beer purchased in order to adequately cover the selling,
advertising, promotional, distribution and administrative expenses incurred in
selling to distributors, the sale of the Sichuan Brewery's production by the
Marketing Company is not expected to have a material effect on consolidated
results of operations. However, to the extent that the production of Pabst Blue
Ribbon beer by the Sichuan Brewery causes a commensurate reduction of beer
production and sales by Zhaoqing Brewery and/or Noble Brewery, the Company's
consolidated results of operations could be adversely affected. The Company
currently estimates that the Sichuan Brewery's 1997 production will represent
approximately 6% of the Company's total 1997 sales.
As the Company and Guangdong Blue Ribbon are the only entities that can
produce Pabst Blue Ribbon beer in China outside of Guangdong Province, the
Company is now seeking expansion and cooperation opportunities to extend its
brewing operation into other provinces either with Guangdong Blue Ribbon or with
other local strategic brewers.
Business:
Pabst Blue Ribbon beer is distributed and sold throughout China. In
general, the beer market in China is still undergoing a rapid growth stage.
There is a substantial difference in the price at which local or regional beer
is sold in China as compared to the price of foreign or premium brands
15
<PAGE>
of beer. Generally, a 640 ml. bottle of local or regional beer would typically
sell for 1 - 2 RMB, as compared to a foreign or premium beer which would sell
for 4 - 6 RMB.
The beer industry in China is seasonal, with sales at their lowest in the
months of October and November, and at their highest in the months of March
through September.
The Company's brewing facilities consist of the following :
Zhaoqing Brewery: The original facilities of Zhaoqing Brewery were
----------------
constructed between 1978 and 1980 with annual production capacity based on old
brewing technology of 50,000 metric tons or 425,000 barrels of beer. With the
implementation of the new brewing technology and the purchase of additional
equipment, Zhaoqing Brewery reached an annual production capacity of 100,000
metric tons or 850,000 barrels by the end of 1995. Prior to March 1995,
Zhaoqing Brewery had produced exclusively domestic brands of beer. In mid-
1994, with the assistance of Pabst Brewing Company, Zhaoqing Brewery commenced
the conversion and refinement of its original facilities and adopted a new
brewing technology in order to produce beer under the Pabst Blue Ribbon label.
During March 1995, Zhaoqing Brewery discontinued production of all domestic
brands and commenced exclusive production of Pabst Blue Ribbon beer on a full-
scale basis. However, beer that does not meet Pabst Blue Ribbon quality
standards is generally packaged and distributed as local brand beer.
Noble Brewery: The original facilities of Noble Brewery were constructed
-------------
between 1988 and 1990 with annual production capacity of approximately 80,000
metric tons or 680,000 barrels of beer. During July 1994, a second brewing
facility was completed, which increased annual production capacity by an
additional 120,000 metric tons or 1,020,000 barrels of beer. The second brewing
facility commenced full-scale production during late 1994. Noble Brewery has
produced Pabst Blue beer exclusively since it commenced operations.
Consolidated Results of Operations:
Three Months Ended March 31, 1997 and 1996 -
Sales: During the three months ended March 31, 1997, Zhaoqing Brewery
produced 19,580 metric tons and sold 18,865 metric tons of beer, of which 361
metric tons (1.9%) were local brand beer and 18,504 metric tons (98.1%) were
Pabst Blue Ribbon beer. During the three months ended March 31, 1996, Zhaoqing
Brewery produced 18,631 metric tons and sold 18,569 metric tons, of which 498
metric tons (2.7%) were local brand beer and 18,071 metric tons (97.3%) were
Pabst Blue Ribbon beer. Total beer sold increased by 296 metric tons or 1.6%
from 1996 to 1997.
During the three months ended March 31, 1997, Noble Brewery produced 38,100
metric tons and sold 36,492 metric tons of beer, as compared to 36,744 metric
tons of beer produced and 36,777 metric tons of beer sold for the three months
ended March 31, 1996. Total beer sold decreased by 285 metric tons or 0.8% from
1996 to 1997, as a result of the regulation of sales by the Marketing Company,
which purchases beer from the two breweries in accordance with their respective
production capacities.
16
<PAGE>
For the three months ended March 31, 1997, net sales, all of which were
conducted through the Marketing Company, were RMB 310,895,516, all of which were
attributable to beer sales. During the three months ended March 31, 1997, the
Marketing Company purchased RMB 176,898,774 of beer products from Noble Brewery
for resale. Approximately 99.7% of total beer sales during the three months
ended March 31, 1997 were provided from the sale and distribution of beer
products under the Pabst Blue Ribbon brand name. For the three months ended
March 31, 1996, net sales, all of which were conducted through the Marketing
Company, were RMB 277,531,766, of which RMB 258,104,542 (93.0%) were
attributable to beer sales and RMB 19,427,224 (7.0%) were attributable to the
sales of mineral water and non-carbonated soft drinks.
Gross Profit: For the three months ended March 31, 1997, total gross
profit was RMB 54,721,601 or 17.6% of total net sales, all of which consisted of
gross profit from beer sales. For the three months ended March 31, 1996, total
gross profit was RMB 43,507,222 or 15.7% of total net sales, and consisted of
gross profit from beer sales of RMB 41,981,233 or 16.3% of net sales of beer and
gross profit from sales of mineral water and non-carbonated soft drinks of RMB
1,525,989 or 7.9% of net sales of mineral water and non-carbonated soft drinks.
The Company expects that it will experience pressure on its gross profit
margin during 1997 as a result of the following factors: a general softening of
consumer demand in China, caused in substantial part by the central government
of China's regulatory controls and economic policies; increasing competition
from foreign premium brand beers; an increase in raw material and packaging
costs estimated to be in excess of 8% during 1997, which the Company may not be
able to pass on to its customers in full; and potential competition from the
Sichuan Brewery.
Selling, General and Administrative Expenses: For the three months ended
March 31, 1997, selling, general and administrative expenses were RMB 48,543,678
or 15.6% of net sales, consisting of selling expenses of RMB 31,444,893 and
general and administrative expenses of RMB 17,098,785. Net of an allowance for
doubtful accounts of RMB 4,110,000 in 1997, general and administrative expenses
were RMB 12,988,785.
For the three months ended March 31, 1996, selling, general and
administrative expenses were RMB 36,553,484 or 13.2% of net sales, consisting of
selling expenses of RMB 21,429,778 and general and administrative expenses of
RMB 15,123,706. Net of an allowance for doubtful accounts of RMB 760,000 in
1996, general and administrative expenses were RMB 14,363,706.
Selling expenses include costs relating to the advertising, promotion,
marketing and distribution of Pabst Blue Ribbon beer in China. Selling expenses
increased by RMB 10,015,115 or 46.7% in 1997 as compared to 1996, and as a
percent of net sales, to 10.1% in 1997 from 7.7% in 1996. Selling expenses
increased in 1997 as compared to 1996 as a result of the Company's
implementation of a substantially expanded advertising and promotional program
in 1997 to stimulate consumer demand and maintain the market position of Pabst
Blue Ribbon beer in China. The Company implemented this program as a result of
softening consumer demand and increasing competition from foreign premium brand
beer.
General and administrative expenses include the costs associated with the
operation of the Company's executive offices, and the legal and accounting costs
associated with the operation of a public company. Excluding the allowance for
doubtful accounts, general and administrative expenses
17
<PAGE>
decreased by RMB 1,374,921 or 9.6% in 1997 as compared to 1996, and as a percent
of net sales, to 4.2% in 1997 from 5.2% in 1996.
Operating Income: For the three months ended March 31, 1997, operating
income was RMB 6,177,923 or 2.0% of net sales. For the three months ended March
31, 1996, operating income was RMB 6,953,738 or 2.5% of net sales.
Interest Expense: For the three months ended March 31, 1997, interest
expense decreased by RMB 2,415,596 or 41.5% to RMB 3,404,805, as compared to RMB
5,820,401 for the three months ended March 31, 1996. Interest expense decreased
in 1997 as compared to 1996 as a result of the decrease in customer deposits and
capital lease obligations.
Income Taxes: For the three months ended March 31, 1997, income tax
expense was RMB 1,760,000. Although Zhaoqing Brewery's operations in China were
subject to a 100% tax exemption in 1997, deferred income taxes were recorded for
the three months ended March 31, 1997 primarily as a result of the United States
Federal tax liability resulting from dividends paid by Noble Brewery to Zhaoqing
Brewery HC. For the three months ended March 31, 1996, deferred income tax
expense of RMB 250,000 was recorded.
Net Income: As a result of increased sales, increased earnings of Noble
Brewery, and decreased interest expense, net income increased to RMB 9,197,766
for the three months ended March 31, 1997, as compared to RMB 3,671,837 for the
three months ended March 31, 1996.
Noble Brewery:
- -------------
Three Months Ended March 31, 1997 and 1996 -
Sales: For the three months ended March 31, 1997 and 1996, net sales were
RMB 167,182,547 and RMB 162,053,518, respectively.
Gross Profit: For the three months ended March 31, 1997 and 1996, gross
profit was RMB 48,389,456 or 28.9% of net sales and RMB 36,028,569 or 22.2% of
net sales, respectively.
Selling, General and Administrative Expenses: For the three months ended
March 31, 1997, selling, general and administrative expenses totalled RMB
11,522,876 or 6.9% of net sales, consisting of selling expenses of RMB 1,201,071
and general and administrative expenses of RMB 10,321,805. For the three months
ended March 31, 1996, selling, general and administrative expenses totalled RMB
14,995,811 or 9.3% of net sales, consisting of selling expenses of RMB 4,653,271
and general and administrative expenses of RMB 10,342,540. Selling expenses
consist of warehousing, storage and freight costs.
Operating Income: For the three months ended March 31, 1997 and 1996,
operating income was RMB 36,866,580 or 22.1% of net sales and RMB 21,032,758 or
13.0% of net sales, respectively.
Income Taxes: The two-year income tax holiday for Noble Brewery expired on
December 31, 1995. Commencing in 1996, Noble Brewery was required to pay local
income tax at
18
<PAGE>
half the normal rate of 33% on its profit as determined in accordance with PRC
accounting standards applicable to Noble Brewery. Accordingly, RMB 5,772,026
has been recorded as income tax expense for the three months ended March 31,
1997. For the three months ended March 31, 1996, income tax expense of RMB
4,398,800 was recorded.
Net Income: As a result of increased sales and gross profit margin, and
decreased selling expenses, net income increased to RMB 31,668,967 or 18.9% of
net sales for the three months ended March 31, 1997, as compared to RMB
16,762,785 or 10.3% of net sales for the three months ended March 31, 1996.
Consolidated Financial Condition - March 31, 1997:
Liquidity and Capital Resources - For the three months ended March 31,
1997, the Company's operations utilized cash resources of RMB 12,401,433. The
Company's cash balance decreased by RMB 5,532,683 to RMB 34,176,911 at March 31,
1997, as compared to RMB 39,709,594 at December 31, 1996. The Company's net
working capital deficit decreased by RMB 7,362,405 to RMB 76,192,004 at March
31, 1997, as compared to RMB 83,554,409 at December 31, 1996, and the Company's
current ratio at March 31, 1997 was 0.85:1, as compared to 0.82:1 at December
31, 1996.
Accounts and bills receivable increased by RMB 43,759,579 or 21.2% to RMB
247,148,732 at March 31, 1997, as compared to RMB 207,499,153 at December 31,
1996, as a result of a change in credit policy by the Marketing Company
implemented in 1997. Commencing January 1, 1997, as a result of more intensive
competition from other premium brand beers in China, the Marketing Company
abolished the customer deposit requirement except for certain new customers
which are required to make a cash deposit as security for their purchases.
Customers with material transaction volume are required to issue bills of
exchange from their respective banks to secure part or all of the payment on the
due date. The Marketing Company has also provided extended credit terms to
certain distributors that meet minimum financial criteria. At March 31, 1997,
bills receivable had increased to RMB 67,485,965 or 27.3% of total accounts and
bills receivable, as compared to RMB 38,653,659 or 18.6% of total accounts and
bills receivable at December 31, 1996.
Customer deposits decreased by RMB 54,443,600 or 92.3% to RMB 4,560,000 at
March 31, 1997, as compared to RMB 59,003,600 at December 31, 1996, as a result
of the change in credit policy implemented by the Marketing Company in 1997 in
response to the changing market environment.
The amount due to an associated company increased by RMB 70,474,099 or
42.3% to RMB 236,975,850 at March 31, 1997, as compared to RMB 166,501,751 at
December 31, 1996, and represents the amounts due Noble Brewery from its sales
of Pabst Blue Ribbon beer to the Marketing Company. As a result of the extended
credit terms provided by the Marketing Company to certain distributors, accounts
and bills receivable increased, which caused a commensurate increase in the
amount due to an associated company, reflecting the lengthened collection cycle.
The amounts due to related companies increased by RMB 10,848,980 or 50.8%
to RMB 32,206,635 at March 31, 1997, as compared to RMB 21,357,655 at December
31, 1996, and consist primarily of payable balances resulting from seasonal
increases in purchases of packaging material.
19
<PAGE>
For the three months ended March 31, 1997, additions to property, plant and
equipment aggregated RMB 2,150,147. The Company anticipates that additional
capital expenditures in connection with the continuing expansion of Zhaoqing
Brewery during the remainder of 1997 will be approximately RMB 13,000,000.
Guangdong Blue Ribbon had previously provided and committed to provide
Zhaoqing Brewery with a line of credit, or to otherwise arrange financing,
sufficient to finance the purchase of new machinery and equipment in connection
with the planned expansion of Zhaoqing Brewery to an annual production capacity
of 100,000 metric tons of beer. Because of the previously described activities
of Guangdong Blue Ribbon with respect to the Sichuan Brewery, and since the
expansion of Zhaoqing Brewery was substantially completed during the three
months ended March 31, 1997, the Company does not anticipate that Guangdong Blue
Ribbon will provide or need to provide any additional funds or advances to
finance the continuing development of Zhaoqing Brewery in the near future. The
Company believes that it will be able to fund expected capital expenditures with
respect to the continuing development and any future expansion of Zhaoqing
Brewery through internal cash flow and external borrowings.
In connection with the acquisition of High Worth JV, Oriental Win advanced
US$8,869,585 to Holdings during 1994. The rights to collect US$8,000,000 of the
advance were transferred from Oriental Win to its shareholders in proportion to
their respective shareholder interests in August 1996 (West Coast Star
Enterprises Ltd. - US$4,800,000; Mapesbury Limited - US$1,600,000; Redcliffe
Holdings Ltd. - US$1,600,000). The advances bear no interest and are not
repayable unless the Company obtains additional long term debt or equity
financing. Repayments of the advances are at the discretion of the Company and
the shareholders have no right to demand repayment. The Company has the option
of offsetting or repaying the advance or part thereof by allotment of shares at
par value in Holdings. As of March 31, 1997 and December 31, 1996, advances
from such shareholders, West Coast Star Enterprises Ltd., Mapesbury Limited,
Redcliffe Holdings Ltd. and Oriental Win were approximately RMB39,900,000,
RMB13,300,000, RMB13,300,000 and RMB7,300,000, respectively.
The Company anticipates that its operating cash flow, combined with cash on
hand, bank lines of credit and other external credit sources, and the line of
credit and other credit facilities provided by affiliates or related parties,
are adequate to satisfy the Company's working capital requirements for the
fiscal year ending December 31, 1997. In order to finance the continuing
capital requirements of the Company subsequent to the completion of the Zhaoqing
Brewery expansion, the Company has begun negotiations to arrange for long term
bank or lease financing. In addition, any additional expansion of Zhaoqing
Brewery or the accelerated development or acquisition of additional brewing
facilities or other support facilities may require the use of debt or equity
financings by the Company.
Inflation and Currency Matters - In recent years, the Chinese economy has
experienced periods of rapid economic growth as well as relatively high rates of
inflation, which in turn has resulted in the periodic adoption by the Chinese
government of various corrective measures designed to regulate growth and
contain inflation. Since 1993, the Chinese government has implemented an
economic program designed to control inflation, which has resulted in the
tightening of working capital available to Chinese business enterprises. The
success of the Company depends in substantial part on the continued growth and
development of the Chinese economy.
20
<PAGE>
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, and
fluctuations in the relative value of currencies. Changes in the relative value
of currencies occur periodically and may, in certain instances, materially
affect the Company's results of operations.
Zhaoqing Brewery and Noble Brewery conduct virtually all of their business
in China and, accordingly, the sale of their products are settled primarily in
RMB. As a result, devaluation of the RMB against the USD would adversely affect
their financial performance when measured in USD, and could have material
adverse effects upon the results of operations and financial condition of the
Company. In addition, a significant portion of revenues will need to be
converted into USD on a continuing basis to meet foreign currency obligations.
Although prior to 1994 the RMB experienced significant devaluation against the
USD, the RMB has remained fairly stable from 1994 to present. The unified
exchange rate was US$1.00 to RMB8.65 at December 31, 1993, RMB8.45 at December
31, 1994, RMB8.32 at December 31, 1995, RMB 8.32 at December 31, 1996, and RMB
8.32 at March 31, 1997.
21
<PAGE>
PART II. OTHER INFORMATION
--------------------------------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K -
Three Months Ended March 31, 1997 : None.
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBR BREWING COMPANY, INC.
-------------------------
(Registrant)
Date September 4, 1997 By /s/ ZI-SHOU CHEN
--------------------------
Zi-shou Chen
President and Director
(Duly authorized officer)
Date September 4, 1997 By /s/ GARY C. K. LUI
---------------------------
Gary C. K. Lui
Chief Financial Officer
(Chief Financial Officer)
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,107,802
<SECURITIES> 0
<RECEIVABLES> 29,705,376
<ALLOWANCES> 0
<INVENTORY> 11,424,172
<CURRENT-ASSETS> 52,090,251
<PP&E> 26,156,125
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,132,679
<CURRENT-LIABILITIES> 61,247,944
<BONDS> 1,906,556
0
0
<COMMON> 820
<OTHER-SE> 18,843,681
<TOTAL-LIABILITY-AND-EQUITY> 106,132,679
<SALES> 37,367,250
<TOTAL-REVENUES> 37,367,250
<CGS> 30,790,134
<TOTAL-COSTS> 30,790,134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 493,990
<INTEREST-EXPENSE> 409,231
<INCOME-PRETAX> 342,700
<INCOME-TAX> 211,538
<INCOME-CONTINUING> 1,105,502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,105,502
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
