UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-QSB
-----------------------------------
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities
Exchange Act of 1934
For the Quarter Ended September 30, 1996
Commission File Number 0-27458
NOR'WESTER BREWING COMPANY, INC.
(Exact name of registrant as specified in charter)
Oregon 93-1099661
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification Number)
66 S.E. Morrison Street
Portland, Oregon 97214
(503) 232-9771
(Address, including Zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. [X] YES [ ] NO
Transitional Small Business Disclosure Format [ ] YES [X] NO
Number of shares of common stock outstanding as of September 30, 1996:
3,711,102 shares, no par value.
NOR'WESTER BREWING COMPANY, INC.
INDEX TO FORM 10-Q
Part I - Financial Information
Item 1 -- Consolidated Financial Statements
Consolidated Balance Sheet
September 30, 1996 and December 31, 19953 3
Consolidated Statement of Operations
Three Months and Nine Months Ended September 30, 1996 and 1995 4
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II - Other Information
Item 6 -- Exhibits and Reports on Form 8-K 13
Signatures. 16
Nor'Wester Brewing Company, Inc.
Consolidated Balance Sheet
<TABLE>
<S> <C> <C>
September 30,
1996 December 31,
ASSETS (unaudited) 1995
-------------- ---------------
Current assets:
Cash and cash equivalents $ 233,596 $ 276,807
Accounts receivable 645,445 582,584
Inventories 1,305,747 663,058
Receivable from affiliated companies 932,828 -
Other current assets, net 797,765 966,193
--------------- ---------------
Total current assets 3,915,381 2,488,642
Property and equipment, net 11,343,153 4,117,558
Advances to affiliates 500,000 500,000
Other non-current assets, net 260,203 267,244
--------------- ---------------
Total assets $ 16,018,737 $ 7,373,444
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,035,611 $ 870,731
Accrued liabilities 572,915 473,125
Payables to affiliates 1,834 -
Line of credit 1,000,000 500,000
Current portion of long-term debt 282,707 41,182
--------------- ---------------
Total current liabilities 3,893,067 1,885,038
Long-term debt and capital lease 1,697,065 1,474,339
Deferred rent 24,000 -
Deferred tax liability 189,964 189,964
--------------- ---------------
Total liabilities 5,804,096 3,549,341
Minority interest in consolidated
joint venture 2,327,053 -
Shareholders' equity:
Common stock, no par value -
10,000,000 shares authorized,
3,711,102 and 2,421,554 shares
outstanding 11,050,404 3,356,488
Initial capital receivable (2,550,000) -
Retained earnings (612,816) 467,615
--------------- ---------------
Total shareholders' equity 7,887,588 3,824,103
--------------- ---------------
Total liabilities and
shareholders' equity $ 16,018,737 $ 7,373,444
=============== ===============
</TABLE>
NOR'WESTER BREWING COMPANY, INC.
Consolidated Statement of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
<TABLE>
<S> <C> <C> <C> <C>
1996 1995 1996 1995
----------- ---------- ----------- ----------
Gross sales 1,777,871 1,710,219 5,363,809 4,505,705
Less: excise taxes 69,775 85,817 193,273 218,935
Net sales 1,708,096 1,624,402 5,170,536 4,286,770
----------- ---------- ----------- ----------
Cost of sales 1,588,230 1,027,801 4,097,201 2,565,409
----------- ---------- ----------- ----------
Gross profit 119,866 596,601 1,073,335 1,721,361
Selling, general and
administrative expenses 1,124,467 374,458 2,473,925 1,051,802
----------- ---------- ----------- ----------
Income from operations (1,004,601) 222,143 (1,400,590) 669,559
----------- ---------- ----------- ----------
Interest and other income, net 7,587 (605) 97,159 5,860
----------- ---------- ----------- ----------
Income before income taxes
and minority interest (997,014) 221,538 (1,303,431) 675,419
----------- ---------- ----------- ----------
Provision for income taxes (84,004) (270,097)
----------- ---------- ----------- ----------
Income before minority interest (997,014) 137,534 (1,303,431) 405,322
----------- ---------- ----------- ----------
Minority interest 127,193 - 222,947 -
----------- ---------- ----------- ----------
Net income (869,821) 137,534 (1,080,484) 405,322
=========== ========== ========== ===========
Net income per common share (0.23) 0.06 (0.29) 0.17
=========== ========== ========== ===========
Weighted average number of
common shares outstanding 3,710,419 2,420,239 3,691,025 2,420,239
=========== ========== ========== ===========
</TABLE>
NOR'WESTER BREWING COMPANY, INC.
Consolidated Statement of Cash Flows
Nine Months Ended September 30,
1996 1995
<TABLE>
<S> <C> <C>
-------------- ------------
Cash flows from operating activities:
Net income (loss) $ (1,080,484) $ 405,322
Minority interest in loss from joint venture (222,947) -
Increase in deferred rent 24,000 -
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 200,987 138,737
Changes in assets and liabilities:
Accounts receivable (62,861) (245,047)
Inventories (642,689) (240,414)
Other current assets 168,428 (72,675)
Other non-current assets 7,041 11,257
Accounts payable 1,164,880 104,888
Accrued liabilities 99,790 66,169
Payables to parent and affiliated companies 1,834 51,870
------------- ------------
Net cash (used for) provided by operating
activities (342,021) 220,107
Cash flows from investing activities
Receivable from affiliated companies (932,828) -
Purchases of property and equipment (7,426,529) (1,428,210)
------------- ------------
Net cash used for investing activities (8,359,357) (1,428,210)
Cash flows from financing activities:
Increase of line of credit 500,000 -
Increase in long-term borrowings 464,251 620,000
Increase in deferred stock offering costs - (26,745)
Net proceeds from stock offering 7,693,916 -
------------- -----------
Net cash provided by financing activities 8,658,167 593,255
------------- -----------
Net increase (decrease) in cash and cash
equivalents (43,211) (614,848)
Cash and cash equivalents:
Beginning of period 276,807 649,877
------------- -------------
End of period $ 233,596 $ 35,029
============= =============
NOR'WESTER BREWING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The Company's consolidated financial statements enclosed herein are
unaudited with the exception of the Balance Sheet at December 31, 1995 and,
because of the seasonal nature of the business and the varying schedule of
its special sales efforts, these results are not necessarily indicative of
the results to be expected for the entire year. In the opinion of
management, the interim financial statements reflect all adjustments,
consisting of only normal recurring items which are necessary for a fair
presentation of the results for the periods presented. The accompanying
financial statements have been prepared in accordance with GAAP and SEC
guidelines applicable to interim financial information. The accompanying
financial statements and related notes should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K, and, additionally, the Company's Registration Statement
on Form SB-2 effective January 18, 1996.
Statement of Cash Flows
The Company considers short-term investments which are highly liquid, have
maturities of fewer than three months and are readily convertible to cash to
be cash equivalents.
Actual depreciation and amortization expense for the nine month period
ending September 30, 1996 was $235,109, however, $29,144 of depreciation
expense was charged-back to its affiliates, Mile High Brewing Company, Inc.
("MHB") and Aviator Ales, Inc. ("AAI"). The amount of the charge-back
equals the depreciation on the Company's equipment placed in the affiliates'
breweries and used by the affiliates for cooperative brewing purposes.
During the nine months ended September 30, 1996, the North Country Brewing
Company, Inc. ("NCBCI") entered into a joint venture agreement with the
Company and financed its minority interest with a short-term note payable,
in the amount of $2,550,000, to the joint venture. This non-cash
transaction has been excluded from the accompanying statement of cash flows.
Inventories
Inventories consist of the following:
September 30, December 31,
1996 1995
Raw materials $ 318,076 $ 378,384
Work-in-process 53,462 68,101
Finished goods 934,209 216,573
------------- ------------
$ 1,305,747 $ 663,058
NOR'WESTER BREWING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Property and Equipment
Property and Equipment consists of the following:
September 30, December 31,
1996 1995
-------------- -------------
Land and improvements $ 239,572 $ 237,072
Leasehold improvements 1,439,959 487,200
Equipment 9,137,804 3,034,972
Construction in progress 1,106,181 705,568
-------------- -------------
11,923,516 4,462,812
Less accumulated depreciation
and amortization (580,363) (345,254)
-------------- --------------
$ 11,343,153 $ 4,117,558
============== ===============
Shareholders' Equity
On January 18, 1996, the Company completed a public offering of 1,115,000
shares of common stock at $7.00 per share. On February 7, 1996, the
underwriters for the offering exercised an over-allotment option for an
additional 172,500 shares of common stock at $7.00 per share. Net proceeds
to the Company totaled approximately $7,690,000, net of selling commissions
and offering expenses of approximately $1,320,000.
Related Party Transactions
For the three months ended September 30, 1996, the Company purchased human
resources and other administrative services from affiliated companies,
Willamette Valley, Inc., Microbreweries across America ("WVI") and
Willamette Valley Vineyards ("WVV"), under a general services agreement at a
total cost of $9,552. Under the general services agreement, the Company
provided services such as accounting, sales management and executive
oversight to WVI and it's subsidiaries and WVV. The Company recognized
$74,646 of income for such services for the third quarter of 1996.
In 1996, the Company purchased $55,000 of 1/2 barrel kegs from its
affiliate, AAI, and an additional $25,000 in 1/2 barrel kegs from its
affiliate, MHB. The kegs were utilized in the production of Nor'Wester beer
under the Company's Cooperative Brewing Agreements with these companies.
Purchases of beer by the Company from the affiliates for the third quarter
of 1996 totaled $814,923.
The Company provided a loan of $35,000 to Bayhawk Ales, Inc. ("BAI") for the
purchase of a grain silo and milling system to reduce cooperative brewing
costs.
On May 28, 1996, the Board of Directors for the Company approved an advance
of $250,000 to MHB. During the third quarter MHB used these funds for the
construction of a pub adjacent to its brewing facility in order that it
might showcase and promote both the Company's and MHB's products in the
Denver area.
Joint Venture Agreement
The accompanying financial statements include the accounts of the Company
and the newly formed joint venture, North Country Brewery, Joint Venture LLC
("NCB"). All significant intercompany accounts and transactions have been
eliminated in the consolidation. The minority interest represents NCBCI's
interest in the joint venture's equity and net losses.
Net Income Per Share
Net income per common share is calculated based on the weighted average
number of common shares and common share equivalents outstanding. Founder's
shares held in escrow are included in the weighted average number of common
shares outstanding.
Contingencies
In September 1996, the Company entered into a non-binding letter of intent
with the UB Group of Bangalore, India setting forth the proposed terms of
The UB Group's possible investment of $9.0 million in cash and certain
intangible consideration in exchange for an equity interest in the resulting
entity following the proposed consolidation of the Company, WVI, AAI, MHB,
BAI and NCB. Although the parties are proceeding toward signing a
definitive agreement setting forth the terms and conditions of the proposed
investment, there can be no assurance that an equity investment by The UB
Group will be made or, if made, the ultimate terms of such investment.
Subsequent Events
Subsequent to September 30, 1996, the following event took place:
Per the terms of the joint venture agreement between NCBCI and the Company,
NCBCI financed its minority interest in the joint venture with a short-term
note payable to the joint venture, on the earlier of October 1, 1996, or
upon completion of a self-underwritten offering of NCBI's common stock. In
November 1996, when it was determined that the proposed NCBCI self under-
written offering would not continue, NCBCI relinquished its minority share
ownership in the joint venture, thus making the joint venture a wholly-owned
subsidiary of the Company.
NOR'WESTER BREWING COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion contains forward-looking statements that involve
risks and uncertainties. Actual future results and trends may differ
materially depending on a variety of factors, including, but not limited
to, pricing and availability of raw materials and packaging, successful
execution of internal performance and expansion plans, impact of
competition, distributor changes, availability of financing, and other
risks detailed below and in the Company's Securities and Exchange
Commission filings, including the Company's Registration Statement on Form
SB-2 effective January 18, 1996 and its Annual Report on Form 10-KSB for
the year ended December 31, 1995.
Three Months Ended September 30, 1996
Gross Sales. Sales increased 4% from $1,710,219 for the three months ended
September 30, 1995 to $1,777,871 for the same period ended September 30,
1996. This reflects an increase in sales volume from 8,926 barrels shipped
in 1995 to 9,159 in 1996. The relatively flat change in sales dollars
characterizes the challenges the Company faced both in its Pacific
Northwest home markets, with increased competition and changing consumer
tastes, and in other markets, where the company struggled to establish and
maintain relationships with new distributors.
Excise Taxes. Excise taxes decreased from $85,817 (5.2% of net sales) for
the three months ended September 30, 1995 to $69,775 (4.1% of net sales)
for the same period ended September 30, 1995. Excise taxes decreased as a
percentage of net sales due to an increase in shipments to other states in
which no state excise tax is paid.
Gross Profit. Gross profit decreased 398% from $596,601 for the three
months ended September 30, 1995 to $119,866 for the same period ended
September 30, 1996. The decrease in gross profit as a percentage of sales
is due primarily to the following factors: 1) The Company's product mix
continued to trend toward a greater proportion of bottled products and
fruit beers. These products cost more to produce due to higher packaging
costs relative to kegged beer and the increased expense of additional
ingredients necessary to brew fruit beers. 2) Increased sales of lower
margin cooperatively brewed beer produced by the Company's affiliates sold
to the Company at Nor'Wester's cost plus 10%, per terms contained in a
Cooperative Brewing Agreement. 3) Additional storage costs resulting from
the build-up of finished goods inventory produced to meet projected sales
that did not materialized. 4) The $109,000 write-down of excess finished
goods inventory that was moved through an alternate distribution channel.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $374,458 for the three month period
ended September 30, 1995 to $1,124,467 for the comparable period in 1996,
and increased as a percentage of net sales from 23% to 65% for the three
month period ended September 30, 1995 and 1996, respectively. The 200%
increase in selling, general and administrative costs for the three month
ended September 30, 1996 over the same period in 1995 is due to the
following: 1) Increased selling expenses incurred primarily from the
addition of salaried sales personnel to establish and oversee the Company's
sales growth in new markets; 2) Increased shipping costs associated with
bringing beer to markets located significant distances away from the
brewing facility; 3) Increased advertising costs as the Company expanded its
sales efforts in order to quickly penetrate target markets and; 4) Pre-
operating start-up costs of $202,000, after elimination of minority interest,
associated with the construction of the NCB joint venture's new brewery in
Saratoga Springs, New York, which include salaries for the general manager,
the lead brewer and packaging manager, a regional sales manager and certain
other sales and marketing costs incurred to promote the Company's products
in the northeastern United States prior to commencement of the joint
venture's operations.
Net Loss. The Company incurred a consolidated net loss of $869,821 or $.23
per share for the three months ended September 30, 1996 as compared to net
income of $137,534 or $.06 per share for the third quarter of 1995. This
decline in profitability in 1996 is due to lower gross profits as a
percentage of net sales and an overall increase in selling, general and
administrative costs including the pre-operating losses of the NCB joint
venture in Saratoga Springs, New York.
Nine Months Ended September 30, 1996
Gross Sales. Sales increased 19% from $4,505,705 for the nine months ended
September 30, 1995 to $5,363,809 for the same period ended September 30,
1996. This reflects an increase in sales volume from 23,639 barrels
shipped in 1995 to 27,922 in 1996. The majority of the sales increase is
the result of a relatively strong first quarter followed by two quarters in
which sales were relatively flat. The leveling of sales to 1995 levels for
the second and third quarters characterizes the challenges the Company
faced both in its Pacific Northwest home markets, with increased
competition and changing consumer tastes, and in other markets, where the
company struggled to establish and maintain relationships with new
distributors.
Excise Taxes. Excise taxes decreased from $218,935 (5.1% of net sales) for
the nine months ended September 30, 1995 to $193,273 (3.7% of net sales)
for the same period ended September 30, 1996.
Gross Profit. Gross profit decreased 38% from $1,721,361 for the nine
months ended September 30, 1995 to $1,073,335 for the same period ended
September 30, 1996. The decrease in gross profit as a percentage of sales
is due primarily to the following factors: 1) The Company's product mix
continued to trend toward a greater proportion of bottled products and
fruit beers. These products cost more to produce due to higher packaging
costs relative to kegged beer and the increased expense of additional
ingredients necessary to brew fruit beers. 2) Increased sales of lower
margin cooperatively brewed beer produced by the Company's affiliates and
sold to the Company at the Company's cost plus 10%, per terms contained in
a Cooperative Brewing Agreement. 3) Additional storage costs resulting
from the build-up of finished goods inventory produced to meet projected
sales that did not materialized. 4) The $109,000 write-down of excess
finished goods inventory that was moved through an alternate distribution
channel.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $1,051,802 for the nine month period
ended September 30, 1995 to $2,473,925 for the comparable period in 1996,
and increased as a percentage of net sales from 41% to 48% for the nine
month period ended September 30, 1995 and 1996, respectively. The 135%
increase in selling, general and administrative costs for the nine month
ended September 30, 1996 over the same period in 1995 is due to the
following: 1) Increased selling expenses incurred primarily from the
addition of salaried sales personnel to establish and oversee the Company's
sales growth in new markets; 2) Increased shipping costs associated with
bringing beer to markets located a significant distance away from the
brewing facility; 3) Increased advertising costs as the Company expanded
its sales efforts in order to quickly penetrate target markets and; 4) Pre-
operating start-up costs of $348,576, after elimination of minority
interest, associated with the construction of the NCB joint venture's new
brewery in Saratoga Springs, New York, which costs include salaries for the
general manager, the lead brewer and packaging manager, a regional sales
manager and certain other sales and marketing costs incurred to promote the
Company's products in the northeastern United States prior to commencement
of the joint venture's operations.
Net Loss. The Company incurred a consolidated net loss of $1,080,484 or
$.29 per share for the nine months ended September 30, 1996 as compared to
net income of $405,322 or $.17 per share for the third quarter of 1995.
This decline in profitability in 1996 is due to lower gross profits as a
percentage of net sales and an overall increase in selling, general and administrative costs
including the pre-operating losses of the NCB joint venture in Saratoga
Springs, New York
Liquidity and Capital Resources
For the nine-month period ended September 30, 1996, cash and cash
equivalents increased $13,600. The Company had $233,596 and $276,807 of
cash and cash equivalents at September 30, 1996 and December 31, 1995,
respectively. At September 30, 1996 the Company had working capital of
$22,314. The Company's long-term debt as a percentage of total
capitalization (long-term debt and total shareholders' equity) was 18% and
28% at September 30, 1996 and December 31, 1995, respectively.
During the third quarter the Company continued to support the NCB Joint
Venture as unexpected construction problems delayed the start-up of
production at NCB, which created a significant strain on the Company's cash
position. In addition, a loss of sales in the Company's primary market due
to increased competition for the Company's flagship products, Hefe Weizen
and Raspberry Weizen; increased selling and shipping costs to support the
Company's national expansion; and costs associated with the build up of
inventories to support increased sales that did materialize also contributed
to reducing the Company's liquidity position.
In September 1996, to address the liquidity and capital resources concerns
of the Company and certain of its affiliated breweries, the Company and its
affiliate WVI, entered into a non-binding letter of intent with The UB
Group of Bangalore, India setting forth the proposed terms of The UB
Group's possible investment of $9.0 million in cash and certain intangible
consideration including the grant of an exclusive right to manufacture The
UB Group's Kingfisher brand beer for sale in North America and The UB
Group's provision of certain management and technical services to the
alliance of craft breweries controlled by WVI and the Company. Under the
terms of the letter of intent, The UB Group's investment would be made in
the resulting entity following a proposed consolidation of the Craft
Brewing Alliance comprised of Nor'Wester and Nor'Wester's subsidiary, North
Country Brewing Company, located in Saratoga Springs, New York.; WVI and
WVI's subsidiaries-- Mile High Brewing Company, Inc., located in Denver
Colorado, Bayhawk Ales, Inc., located in Irvine, California, and Aviator
Ales, Inc. located in Woodinville, Washington.
The closing of the possible investment remains subject to (i) The UB
Group's completion of satisfactory due diligence, (ii) negotiation and
execution of a definitive investment agreement between the parties, (iii)
approval by the boards of directors and shareholders of each of the
Company, WVI, Nor'Wester and their respective subsidiaries, (iv)
registration with the U.S. Securities and Exchange Commission of shares in
the resulting entity following consolidation which will be exchanged in the
merger, and (v) such other customary conditions for transactions of this
type.
Following execution of the letter of intent, The UB Group has provided the
WVI/Nor'Wester alliance of craft breweries with bridge loans in the amount
of $650,000 to sustain and grow their brewing operations. The UB Group has
also indicated it may, at its discretion to provide additional bridge loans
or guarantees on bank loans in such amounts and at such times as are
necessary to sustain the breweries' operations until completion of the
planned consolidation and closing of the investment. There can be no
assurances that additional bridge loans will be made by The UB Group, that
an equity investment by The UB Group will ultimately be made or, if made,
the final terms of such investment.
If, for any reason, the proposed consolidation and investment does not
occur, alternative sources of debt financing and/or equity capital would
have to be developed. There can be no assurance that such debt financing or
capital will be available or, if available, under terms and conditions
acceptable to the Company. The Company's inability to obtain additional
capital would result in a material adverse effect on the Company's business
and results of operations.
PART II. OTHER INFORMATION
Item 5. Other Information
On November 19, 1996, the MHB announced that it will be unable to sustain
operations at current levels and is taking aggressive steps to reduce its
expenses. The inability to penetrate the highly competitive craft beer
market in Colorado was cited as the primary reason that the MHB was unable
to achieve acceptable operating results.
To protect and/or recover the value invested in the brewing facility, MHB
officials have chosen to minimize operations and to explore other options
including leasing or selling the brewery. Options are also being explored
to continue production of the MHB's Timberline Ales for sale where
distribution has been established.
The MHB has been consistently losing money as it struggles to establish its
brand in Colorado and nearby states. To address its cash needs, the MHB
commenced a registered public stock offering in June 1996 to raise up to
$1.95 million. Although approximately $548,000 had been raised and held in
an interest-bearing escrow account, the MHB elected to terminate the
offering because of its inability to penetrate the Colorado craft beer
market to an acceptable level and the proposed consolidation and investment
of The UB Group. The offering escrow agent is in the process of returning
all funds plus interest to prospective investors.
Willamette Valley, Inc. Microbreweries Across America, the MHB's parent and
51% shareholder, was no longer able to provide the MHB with interim
financing due to its own cash limitations. WVI has been seeking a financial
partner to support its efforts in building the Craft Brewing Alliance.
It is not expected that the MHB's decision to minimize its brewing
operations will affect the proposed consolidation and investment by The UB
Group in the Craft Brewing Alliance. Under the consolidation, shareholders
of each alliance member, including Mile High, will receive shares in the
resulting entity. These shares will be listed for trading on NASDAQ under
the symbol ALES and thus provide and increased level of liquidity to
investors.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 1 - Mile High Brewing release dated November 19, 1996.
(b) Reports on Form 8-K:
On September 26, 1996, the Company filed a Form 8-K in connection with its
execution of a non-binding letter of intent with The UB Group of Bangalore,
India relating to The UB Group's proposed investment of $9.0 million in
cash along with certain other non-cash intangible consideration into the
entity resulting from the proposed consolidation of the Company with its
affiliate and North Country Brewing Company, LLC., Willamette Valley, Inc.
Microbreweries across America and its affiliates-- Aviator Ales, Inc.,
Bayhawk Ales, Inc., Mile High Brewing Company, Inc. The Form 8-K set forth
the terms and conditions of the proposed investment as outlined in the
letter of intent, and included as exhibits copies of the letter of intent
dated September 18, 1996, a September 26, 1996 press release relating to the
matter, and a September 26, 1996 letter to the Company's shareholders
describing the matter.
Exhibit 1
MILE HIGH BREWING COMPANY REDUCES OPERATIONS
For Immediate Release :Dated November 19, 1996
For more information contact: James W. Bernau
Mile High Brewing Company, producer of Timberline Ales (TM), announced today
that it will be unable to sustain operations at current levels and is taking
aggressive steps to reduce its expenses.
To address its cash needs, MHB had commenced a registered public stock
offering in May 1996 to raise up to $1.95 million. Although approximately
$548,000 had been raised and held in an interest-bearing escrow account, the
Company has elected to terminate the offering. The offering escrow agent is
in the process of returning all funds plus interest to prospective
investors.
"The craft beer market in Colorado is very competitive and Mile High simply
hasn't built sufficient market share or achieved acceptable operating
results since initiating operations in August, 1995," said James W. Bernau,
Mile High President and Chief Executive Officer. "While Timberline Ales has
proven their quality--our stout recently won a silver medal at the Great
American Beer Festival--they have not proven to be an adequate commercial
success in the current market."
To protect and/or recover the value invested in the brewing facility,
Company officials have chosen to minimize operations and explore other
options including leasing or selling the brewery. The facility, located two
blocks north of Coors Field on Denver's Blake Street, houses a 50-barrel
brewhouse and has a current annual production capacity of 12,000 barrels and
a potential production capacity of 60,000 barrels if additional tanks are
installed. "We are also exploring ways to continue producing our Timberline
Ales in markets where distribution has been established," Bernau added.
In September 1996, Willamette Valley, Inc. Microbreweries Across America,
the Company's parent and 51% shareholder, and Nor'Wester Brewing Company,
its affiliated brewery in Portland, announced the signing of a non-binding
letter of intent with The UB Group, an international brewer headquartered in
Bangalore, India. Under the terms of the letter of intent, a new entity
would be formed from the proposed consolidation of Nor'Wester, Nor'Wester's
subsidiary, North Country Brewing Company in Saratoga Springs, New York, and
each of the three regional craft breweries owned by Willamette Valley, Inc.
Microbreweries Across America--Aviator Ales in Woodinville, Washington; Mile
High Brewing in Denver; and Bayhawk Ales in Irvine, California. The new
consolidated entity would receive $9.0 million in cash along with other
consideration from The UB Group.
Under the consolidation, shareholders of each alliance member, including
Mile High, would receive shares in the resulting entity. These shares will
be listed for trading on Nasdaq under the symbol ALES thus providing an
increased level of liquidity to investors. The transaction is conditioned
upon the negotiation and execution of mutually satisfactory investment
documents, The UB Group's completion of a satisfactory due diligence review,
and completion of the proposed consolidation.
Pursuant to the requirements of the Security Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILE HIGH BREWING COMPANY
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOR'WESTER BREWING COMPANY, INC.
Date: July 31, 1996 By /s/ James W. Bernau
James W. Bernau
President
</TABLE>
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] SEP-30-1996
[CASH] 233596
[SECURITIES] 0
[RECEIVABLES] 645445
[ALLOWANCES] 0
[INVENTORY] 1305747
[CURRENT-ASSETS] 3915381
[PP&E] 11923516
[DEPRECIATION] 580363
[TOTAL-ASSETS] 16018737
[CURRENT-LIABILITIES] 3893067
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 8500404
[OTHER-SE] (612826)
[TOTAL-LIABILITY-AND-EQUITY] 16018737
[SALES] 5363809
[TOTAL-REVENUES] 5170536
[CGS] 4097201
[TOTAL-COSTS] 6571126
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (1303431)
[INCOME-TAX] 0
[INCOME-CONTINUING] (1080484)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1080484)
[EPS-PRIMARY] (.29)
[EPS-DILUTED] (.29)
</TABLE>
