U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
_XXX_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1996
_____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
Commission File Number 0-23846
Minnesota Brewing Company
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1702599
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
882 West Seventh Street, St. Paul, Minnesota 55102
(Address of principal executive offices) Zip Code
(612) 228-9173
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days. YES _X_ NO ___
As of May 1, 1996 the Company had 3,355,611 shares of Common Stock, no par value
per share, outstanding.
PART I. FINANCIAL INFORMATION
MINNESOTA BREWING COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 860,779 $ --
Securities being held-to-maturity 497,349 997,719
Trade accounts receivable, less allowance
for doubtful accounts of $34,000 at
both dates 1,612,324 1,247,445
Transition Agreement receivable 250,000 500,000
Vendor rebates and other receivables 65,694 359,845
Inventories:
Raw materials 171,481 247,347
Work-in-progress 807,748 750,926
Finished goods 1,183,120 776,415
Packaging & other 1,978,216 2,378,599
Other 621,785 278,058
----------- -----------
Total Inventories 4,762,350 4,431,345
Other current Assets 285,301 211,150
----------- -----------
Total Current Assets 8,333,797 7,747,504
----------- -----------
Property and Equipment 4,988,679 4,902,248
Less allowance for depreciation 1,230,150 1,094,693
----------- -----------
Net property and equipment 3,758,529 3,807,555
----------- -----------
Other Assets
Trademarks, net of accumulated
amortization $27.00 at
March 31, 1996 and $26,000 at December 31, 1995 208,897 209,200
Deferred income taxes 143,000 143,000
Other, net of accumulated amortization of
$160,000 at March 31, 1996 and
$137,000 at December 31, 1995 268,176 282,244
----------- -----------
Total Other Assets 620,073 634,444
----------- -----------
$12,712,399 $12,189,503
=========== ===========
</TABLE>
Note: The Balance Sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements
<TABLE>
<CAPTION>
MINNESOTA BREWING COMPANY
CONDENSED BALANCE SHEETS - CONTINUED
March 31, December 31,
1996 1995
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligation $ 211,953 $ 211,953
Noninterest-bearing advances from
related party 64,043 21,749
Trade accounts payable 1,012,182 471,205
Accrued expenses 754,321 714,684
Deferred federal excise tax credit 404,362 --
------------ ------------
Total Current Liabilities 2,446,861 1,419,591
------------ ------------
Capitalized lease obligations, less current maturities 1,930,965 1,982,428
------------ ------------
Shareholders' Equity:
Common stock; $.01 par value; 10,000,000 shares
authorized, 3,355,611 issued and outstanding at
March 31, 1995 and 3,351,611 at
December 31, 1995 33,556 33,516
Additional paid-in capital 10,281,053 10,263,094
Accumulated deficit (1,980,036) (1,509,126)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 8,334,573 8,787,484
------------ ------------
$ 12,712,399 $ 12,189,503
============ ============
</TABLE>
Note: The Balance Sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements
MINNESOTA BREWING COMPANY
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995
THREE MONTHS ENDED MARCH 31
1996 1995
----------- -----------
Sales $ 5,772,038 $ 7,407,990
Less excise taxes 672,554 469,960
----------- -----------
Net sales 5,099,484 6,938,030
Cost of goods sold 4,979,650 6,592,682
----------- -----------
Gross profit 119,834 345,348
----------- -----------
Operating expenses:
Advertising 167,398 352,754
Sales and marketing 218,084 155,403
Administrative 176,985 157,870
----------- -----------
Total operating expenses 562,467 666,027
----------- -----------
Operating income (loss) (442,633) (320,679)
----------- -----------
Other income (expense):
Interest income 13,908 29,223
Interest expense (42,185) (48,172)
----------- -----------
Net income (loss) $ (470,910 $ (339,628)
=========== ===========
Net income (loss) per common share ($ .14) ($ .10)
Weighted average shares outstanding 3,355,277 3,334,567
MINNESOTA BREWING COMPANY
STATEMENTS OF CASH FLOW (UNAUDITED)
FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995
THREE MONTHS ENDED MARCH 31
1996 1994
----------- -----------
OPERATING ACTIVITIES
Net income (loss) ($ 470,910) ($ 339,628)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization 159,457 159,058
Changes in assets and liabilities:
(Increase) decrease in trade accounts
receivable (364,879) (747,508)
(Increase) decrease in other receivables 544,151 (18,243)
(Increase) decrease in inventories (331,005) (266,150)
(Increase) decrease in prepaid expenses
and other assets (74,151) (193,985)
Increase (decrease) in accounts payable
and accrued expenses 580,614 1,523,850
Increase in deferred excise tax credit 404,362 241,100
----------- -----------
Net cash provided by (used in)
operating activities 447,639 358,494
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (86,431) (403,913)
Purchases of Treasury Bills (999,630) (465,320)
Purchase of intangible assets (9,629) (51,680)
Sale of Treasury Bills 1,500,000 450,000
----------- -----------
Net cash provided by (used in)
investing activities 404,310 (470,913)
----------- -----------
FINANCING ACTIVITIES
Exercise of stock options 18,000 81,000
Net borrowings (repayments) on related
party obligations 42,293 (12,154)
Principal payments under capital lease
obligations (51,463) (47,636)
----------- -----------
Net cash provided by (used in)
financing activities 8,830 21,210
----------- -----------
NET INCREASE (DECREASE) IN CASH 860,779 (91,209)
CASH AT BEGINNING OF YEAR -0- 131,097
CASH AT END OF PERIOD $ 860,779 $ 39,888
=========== ===========
See Notes to Financial Statements
MINNESOTA BREWING COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) Financial Statements
The balance sheet as of March 31, 1996, the statements of operations
for the three month periods ended March 31, 1996 and 1995 and the statements of
cash flows for the three month periods ended March 31, 1996 and 1995 have been
prepared by the Company without audit. In the opinion of management, all
adjustments (all of which are normal and recurring in nature) necessary to
present fairly the financial position at March 31, 1996, and results of
operations and cash flows have been included. Results of operations for the
interim period are not necessarily indicative of the results that may be
expected for the full fiscal year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company's revenues are derived from the production and sale of its
proprietary Grain Belt, Pig's Eye and Landmark beers, its contract production of
beers and other beverages for other companies and its production of proprietary
beers for sale under different brand names of private label customers.
Results of Operations
The Company's net sales for the three month period ended March 31, 1996
were 26.5% less than the net sales for the three months ended March 31, 1995.
The decrease in net sales for the first quarter of 1996 was attributable to the
absence of sales to Pete's Brewing Company (Pete's), which was the Company's
largest contract customer in 1995. The Pete's contract was concluded in 1995.
First quarter sales, without Pete's contract sales included, reflected increases
in contract sales to third parties, increases in sales of proprietary products
and a slight decrease in sales of export products.
Barrelage sales for the first three months of 1996 were 29.5% less than
in the first quarter of 1995. Barrelage sales of proprietary products were up
45.7% reflecting the increasing popularity of Grain Belt Premium and the Pig's
Eye brand of beers and were also impacted by a 1994 distributor incentive
program whereby qualifying distributors advance purchased in December of 1994
some of their normal sales that would have occurred in the first quarter of
1995. Contract barrelage sales were down 57.1%, but after removing the effect of
Pete's contract they reflect a 64.9% increase from 24,104 barrels in 1995 to
37,163 barrels in 1996. Export barrelage sales were off 4.5% primarily due to
timing of various shipments.
Operating Data (in barrels sold)
Three Months Ended
March 31
-------------------------
1996 1995
------- -------
Proprietary 34,184 23,457
Contracts, other 37,163 24,104
Contract, Pete's 226 63,135
Export 24,539 25,688
------- -------
Totals 96,112 136,384
======= =======
The Company's gross profit was $225,514 less in the first quarter of
1996 than in the first quarter of 1995. The Company's gross profit margin
decreased from 5.0% in 1995 to 2.4% in the first quarter of 1996. The decrease
was attributable to the decrease in sales and the related impact of our fixed
plant overhead levels.
Operating expenses were $103,560 less in the first quarter of 1996 than
in the first quarter of 1995, but as a percentage of sales they increased from
9.6% in 1995 to 11.0% in 1996. The decrease in advertising expense was
attributable to a lower level of advertising occurring in the first quarter of
1996 versus 1995. Sales and marketing expenses were greater in 1996, reflecting
our expanded sales staff level in 1996. Administrative expenses increased
primarily because certain production employees' duties were expanded to include
administrative matters and reallocated accordingly.
Interest income was 13,908 in 1996 versus 29,223 in 1995, because of a
reduced level of investable funds after an increased investment in production
equipment in 1995. Interest expense was $5,987 less in 1996 than in 1995 and was
associated with a lower principal balance on the capitalized lease for the plant
and equipment.
The Company experienced a net loss of $470,910 in the first quarter of
1996 compared to a net loss of $339,628 in the first quarter of 1995. The
increase in the loss arose principally from a decrease in sales due to the loss
of the Pete's contract and a related decline in gross profit as previously
noted. The loss was also occasioned by the seasonality of the business where
typically the first quarter is the weakest quarter, the second and third
quarters are the strongest quarters and the fourth quarter falls in between.
No income tax benefit was recorded for the first quarter. The first
quarter loss will serve to offset anticipated profits in the second quarter,
however. In addition, the Company has approximately $1.3 million in loss
carryforwards available to offset future taxable income.
Financial Condition
Working capital at March 31, 1996 was $5,886,936 representing a
decrease of $440,977 from $6,327,913 at December 31, 1995. The decrease is
principally attributable to the net cash loss from operations of $311,453 along
with an investment of $86,431 in property and equipment.
During the three month period ended March 31, 1996, the Company
generated net cash from operating activities of $447,639, which was due to a
decrease in receivables of $179,272, an increase in accounts payable and accrued
expenses of $580,614 and an increase in deferred excise tax credit of $404,362.
These amounts were partially offset by the net loss of $470,910 reduced by
depreciation and amortization of $159,457 and by an increase in inventories of
$331,005 and an increase in prepaid expenses and other assets of $74,151.
The Company provided cash of $404,310 from investing activities
primarily from the net sale of Treasury Bills totaling $500,370, which was
transferred to bank savings accounts. This amount was partially offset by the
purchase of property and equipment of $86,431 and the purchase of $9,629 of
intangible assets.
Financing activities provided cash of $8,830 primarily from the
advancement of funds from a related party of $42,293 and the exercise of stock
options of $18,000, which were reduced by $51,463 of principal payments under
capital lease obligations.
The Company believes that it will be able to meet its working capital
and capital resource needs for the next twelve months through cash flow from
operations plus its existing cash and treasury securities.
In conjunction with the Company's initial public offering in November
of 1993, the Company's existing operating leases were converted to capitalized
leases and the obligations are now reflected as long-term debt on the financial
statements. The debt is being amortized over 10 years at a 7.75% interest rate.
The Company has the option to acquire the property at eight times the trailing
twelve months rent anytime after December 1, 1995. As indicated in the Company's
1995 annual report, based upon 1995 lease payments, the purchase price would be
approximately $7.2 million at December 31, 1995. Should the Company decide to
exercise its option at that date or any succeeding date it would propose to
finance the acquisition with debt or equity financing or some combination
thereof. The Company will monitor the exercise price going forward and will
select the most beneficial time to exercise the option based upon existing facts
and circumstances.
Also in conjunction with the Company's initial public offering in
November of 1993, the Company received a capital contribution of $825,140 from
the Minnesota Brewing Limited Partnership ("Partnership"). This occurred through
the Partnership's assumption of certain long-term debt payable in the Housing
and Redevelopment Authority of the City of St. Paul. The Partnership effectively
extinguished this long-term debt by placing a sufficient amount of cash in an
irrevocable escrow account to pay off the debt in full. The property and
equipment which were originally pledged by the Company as collateral under the
debt agreements remain pledged as of December 31, 1995. The Company continues to
be obligated on the debt which had an outstanding balance of $644,246 at
December 31, 1995, however, the possibility that the Company would ever have to
pay anything on the debt is remote.
As a small brewer producing less than 2,000,000 barrels per year, the
Company presently receives an $11.00 per barrel credit against federal exercise
taxes on the first 60,000 barrels of taxable production. The cash benefit of
this $660,000 credit is primarily received in the first quarter of the year. For
accounting purposes, however, this credit is allocated throughout the year based
upon projected taxable sales per quarter. At March 31, 1996 the Company had
recognized $95,973 of this credit and deferred $404,362 of the credit to future
quarters. At March 31, 1995 the Company had recognized $103,326 of this credit
and deferred $241,100 for recognition in future quarters of 1995.
The Company is a party to collective bargaining agreements with five
union organizations which run for a three year term ending June 30, 1997.
Increases over the remaining terms are tied to increased production levels.
As of December 31, 1995, the Company had net operating loss
carryforwards totaling $1.3 million available to reduce future taxable income,
subject to an annual limitation of $575,000. To the extent the Company generates
taxable income during the periods in which this net operating loss carryforward
is available, the Company's cash requirements for payment of income tax will be
reduced.
On March 11, 1996, the Company announced that one of its principal
customers, Winterbrook Corporation filed a Chapter 11 petition for bankruptcy.
The Company produces LaCroix water products for Winterbrook.
At the time of filing, the Company had outstanding receivables totaling
approximately $725,000 and was holding inventory of approximately $410,000
against this outstanding balance. The Company entered a post-petition
arrangement with Winterbrook to ship inventory on a cash in advance basis on a
shipping schedule covering all the inventory. In addition, the Company agreed to
continue to produce new product for Winterbrook at current production prices
upon the prior payment for each week's production. The approximate
uncollateralized balance due of $315,000 will be included with the other
unsecured claims and settled in the bankruptcy proceedings. The receivable
balance includes 1996 Company sales of product which was produced from certain
inventory reflected on the Company's December 31, 1995 balance sheet.
Accordingly, the Company recorded a charge to 1995 cost of goods sold of
$160,000 which was the Company's estimate of the inventory valuation reserve
necessary as of December 31, 1995, to properly reduce inventory for the
realizability issued raised by this subsequent event. The Company continues to
work with Winterbrook in an effort to reaffirm their existing contract and to
explore methods in which to reduce the impact of the bankruptcy. If those
efforts are not successful, the Company anticipates that a charge to operations
of approximately $100,000 in the second or third quarter of 1996 may be
necessary.
On March 18, 1996, the Company entered into an interim arrangement with
Winterbrook which was approved by the Bankruptcy Court. Under provisions of the
agreement, Winterbrook agreed to deposit weekly in advance sufficient monies to
cover the scheduled shipments of the majority of the finished goods over the six
weeks ending April 26, 1996. The Company has received scheduled payments
totaling approximately $410,000. The Company will also continue to produce
product for Winterbrook based upon a weekly production schedule with a deposit
paid in advance.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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.
MINNESOTA BREWING COMPANY
(Registrant)
Dated: May 14, 1996 /s/ Dennis P. Barrett
---------------------
Dennis P. Barrett
Vice President of Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 860,779
<SECURITIES> 497,349
<RECEIVABLES> 1,646,324
<ALLOWANCES> 34,000
<INVENTORY> 4,762,350
<CURRENT-ASSETS> 8,333,797
<PP&E> 4,988,679
<DEPRECIATION> 1,230,150
<TOTAL-ASSETS> 12,712,399
<CURRENT-LIABILITIES> 2,446,861
<BONDS> 1,930,965
0
0
<COMMON> 33,556
<OTHER-SE> 8,301,071
<TOTAL-LIABILITY-AND-EQUITY> 12,712,399
<SALES> 5,099,484
<TOTAL-REVENUES> 5,099,484
<CGS> 4,979,650
<TOTAL-COSTS> 4,979,650
<OTHER-EXPENSES> 562,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,185
<INCOME-PRETAX> (470,910)
<INCOME-TAX> 0
<INCOME-CONTINUING> (470,910)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (470,910)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
