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
JUNE 30, 1996
____ TRANSITION REPORT UNDER SECTION 13 OR (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 of (I.R.S. Employer
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 August 1, 1996 the Company had (3,389,211) shares of Common Stock, no par
value per share, outstanding.
MINNESOTA BREWING COMPANY
INDEX
Page
PART 1. Financial Statements
Item 1. Condensed Balance Sheets as of
June 30, 1996 and December 31, 1995 ......................3
Statements of Operations for the three and six month
periods ended June 30, 1996 and June 30, 1995 ............5
Statements of Cash Flow for the six
month periods ended June 30, 1996
and June 30, 1995 ........................................6
Notes to Financial Statements ............................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...............................................8
PART II. OTHER INFORMATION ..............................................13
Signatures ..............................................................14
<TABLE>
<CAPTION>
Minnesota Brewing Company
Condensed Balance Sheets
June 30, December 31,
1996 1995
----------- ------------
(unaudited) (Note)
<S> <C> <C>
Assets
Current Assets:
Cash $ 200,936 $ --
Securities being held-to-maturity 490,765 997,719
Trade accounts receivable, less allowance
for doubtful accounts of $34,000 at
both dates 3,673,405 1,247,445
Transition Agreement receivable 250,000 500,000
Vendor rebates and other receivables 63,812 359,845
Inventories:
Raw materials 310,225 247,347
Work-in-progress 1,061,854 750,926
Finished goods 1,509,195 776,415
Packaging 1,763,981 2,378,599
Other 679,430 278,058
----------- -----------
Total Inventories 5,324,685 4,431,345
Other Current Assets 270,365 211,150
----------- -----------
Total Current Assets 10,273,968 7,747,504
----------- -----------
Property and Equipment 5,071,068 4,902,248
Less allowance for depreciation 1,371,944 1,094,693
----------- -----------
Net Property and Equipment 3,699,124 3,807,555
----------- -----------
Other Assets
Trademarks, net of accumulated
amortization of $31,000 at
June 30, 1996 and $26,000 at December 31, 1995 220,218 209,200
Deferred income taxes 143,000 143,000
Other, net of accumulated amortization of
$180,000 at June 30, 1996 and
$137,000 at December 31, 1995 283,437 282,244
----------- -----------
Total Other Assets 646,655 634,444
----------- -----------
$14,619,747 $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
June 30, 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 94,410 21,749
Trade Accounts Payable 2,326,419 471,205
Accrued Expenses 1,022,930 714,684
Deferred Federal Excise Tax Credit 362,539
------------ ------------
Total Current Liabilities 4,018,251 1,419,591
------------ ------------
Capitalized Lease Obligation, less Current Maturities 1,878,498 1,982,428
------------ ------------
Shareholders' Equity:
Common Stock; $.01 par value; 10,000,000 shares
authorized 3,389,211 issued and outstanding
at June 30, 1996 and 3,351,611 at
December 31, 1995 33,892 33,516
Additional paid-in capital 10,435,667 10,263,094
Accumulated Deficit (1,746,561) (1,509,126)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 8,722,998 8,787,484
------------ ------------
$ 14,619,747 $ 12,189,503
============ ============
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>
<TABLE>
<CAPTION>
MINNESOTA BREWING COMPANY
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIODS ENDED JUNE 30, 1996 AND 1995
Three Months Six Months
Ended June 30 Ended June 30
--------------------------- ----------------------------
1996 1995 1996 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Sales $8,903,401 $10,164,313 $14,675,439 $17,572,303
Less: Excise Taxes 933,636 687,638 1,606,190 1,157,598
---------- ----------- ----------- -----------
Net Sales 7,969,765 9,476,675 13,069,249 16,414,705
Cost of Goods Sold 7,008,036 8,480,054 11,987,686 15,072,736
---------- ----------- ----------- -----------
Gross Profit 961,729 996,621 1,081,563 1,341,969
---------- ----------- ----------- -----------
Operating Expenses:
Advertising 294,740 346,425 512,824 699,179
Sales and Marketing 178,834 200,642 346,232 356,045
Administrative 224,954 184,947 401,939 342,817
---------- ----------- ----------- -----------
Total Operating Expenses 698,528 732,014 1,260,995 1,398,041
---------- ----------- ----------- -----------
Operating Income (Loss) 263,201 264,607 (179,432) (56,072)
Interest Income 13,956 14,564 27,864 43,787
Interest Expense (41,182) (51,961) (83,367) (100,133)
Provision for Income Taxes (2,500) (2,500) (2,500) (2,500)
---------- ----------- ----------- -----------
Net Income (Loss) $ 233,475 $ 224,710 $ (237,435) $ (114,918)
========== =========== =========== ===========
Net Income (Loss)
per Common Share $ .07 $ .07 $ (.07) $ (.03)
Weighted Average Shares
Outstanding 3,368,601 3,346,611 3,359,618 3,340,771
</TABLE>
<TABLE>
<CAPTION>
Minnesota Brewing Company
Statements of Cash Flow (Unaudited)
For the Periods Ended June 30, 1996 and 1995
Six Months Ended June
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ (237,435) $ (114,918)
Adjustments to Reconcile Net Income (loss)
to net cash provided by (used by) operating activities:
Depreciation and Amortization 325,251 272,206
Changes in assets and liabilities:
(Increase) decrease in trade accounts
receivable (2,425,960) (370,221)
(Increase) decrease in other receivables 546,033
(Increase) decrease in inventories (893,340) (811,189)
(Increase) decrease in prepaid expenses
and other assets (59,215) (152,572)
Increase (decrease) in accounts payable
and accrued expenses 2,163,460 1,002,390
Increase in deferred excise tax credit 362,539 356,543
----------- -----------
Net cash provided by (used in)
operating activities (218,667) 182,239
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (168,820) (898,240)
Purchases of Treasury Bills (1,493,046) (1,456,115)
Purchase of intangible assets (60,211) (138,174)
Sale of Treasury Bills 2,000,000 2,276,243
----------- -----------
Net cash provided by (used in)
investing activities 277,923 (216,286)
----------- -----------
FINANCING ACTIVITIES
Excercise of stock options 172,949 81,000
Net borrowings (repayments) on related
party obligations 72,661 (847)
Principal payments under capital lease
obligations (103,930) (96,203)
----------- -----------
Net cash provided by (used in)
financing activities 141,680 (16,050)
----------- -----------
NET INCREASE (DECREASE) IN CASH 200,936 (50,097)
CASH AT BEGINNING OF YEAR -- 131,097
----------- -----------
CASH AT END OF PERIOD $ 200,936 $ 81,000
=========== ===========
See Notes to Financial Statements
</TABLE>
MINNESOTA BREWING COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) Financial Statements
The balance sheet as of June 30, 1996, the statements of operation for
the three and six month periods ended June 30, 1996 and the statements of cash
flow for the six month periods ended June 30, 1996 and June 30, 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 June 30, 1996, and the results of
operations and cash flows for the periods then ended have been included. Results
of operations for the interim periods are not necessarily indicative of the
results that may be expected for the full fiscal year.
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
Information included in this Form 10-Q which can be identified by the
use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "estimate," or "continue" or the negative thereof or other
variations thereon or comparable termination constitutes forward-looking
information. The following important factors, among others, in some cases have
affected and in the future could affect the Company's actual results and could
cause the Company's actual financial performance to differ materially from that
expressed in any forward-looking statement: (i) competition within the brewing
industry, (ii) the Company's ability to continue to achieve and maintain
contract brewing arrangements; (iii) the continued success of the Company's
proprietary brands and (iv) the Company's continued ability to sell products
for export.
The Company's net sales for the three and six months ended June 30,
1996, decreased 15.9% and 20.7% respectively compared with net sales for the
three and six month periods ended June 30, 1995. The decrease in net sales for
the second quarter and for the first six months 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.
Second quarter sales without Pete's contract sales included, reflected increases
in contract sales to other third parties, increases in export sales and a slight
decrease in sales of the Company's proprietary brands which were affected by the
colder weather in May and June of 1996 compared to 1995. For the six month
period ended June 30, 1996, sales increases were experienced in all areas when
compared to 1995 after excluding Pete's sales.
Barrelage sales for the second quarter of 1996 were 19.1% less than in
the second quarter of 1995 and 23.6% less for the first six months of 1996
versus 1995. Barrelage sales of proprietary products during the second quarter
were down 1.1% compared to 1995 and were adversely affected by colder weather in
May and June of 1996 in the Company's major markets then that experienced in
1995; barrelage sales of proprietary products for the first six months of 1996
were 15.2% ahead of 1995. Contract barrelage sales were down 37.4% for the
second quarter and 46.5% for the six month period. After removing the effect of
Pete's sales however, contract sales to other third parties reflected an
increase of 169.6% for the second quarter of 1996 and 111.5% increase for the
first six months of 1996 when compared to similar periods in 1995. Export
barrelage sales were up 12.6% and 5.3% respectively for the second quarter of
1996 and the first six month period of 1996 when compared to the same periods in
1995.
Operating Date (in barrels sold)
Three Months Six Months
Ended June 30 Ended June 30
-------------------- --------------------
1996 1995 1996 1995
------- ------- ------- -------
Proprietary 43,534 44,020 77,718 67,477
Contracts, other 64,130 23,785 101,293 47,889
Contract, Pete's - 0 - 78,641 226 141,776
Export 38,245 33,951 62,784 59,639
------- ------- ------- -------
Totals 145,909 180,397 242,021 316,781
======= ======= ======= =======
The Company's gross profit was $260,406 less during the 1996 six month
period than in the similar period of 1995 and $34,892 less during the second
quarter of 1996 than 1995. The Company's gross profit improved in the second
quarter from 10.5% to 12.1% in 1996, while year to date the gross margin was
relatively constant at 8.3% in 1996 compared to 8.2% in 1995. The improvement in
gross profit in the second quarter was attributable to an improvement in the
costs of some materials and in the blend of sales mix during the quarter
compared to 1995.
Operating expenses were $137,046 less in the first six months of 1996
compared to 1995, while as a percentage of sales they increased from 8.5% in
1995 to 9.6% in 1996. During the second quarter of 1996 operating expenses
decreased $34,892 compared to 1995, while as a percentage of sales they
increased from 7.7% in 1995 to 8.8% in 1996 primarily because of the reduced
level of sales activity. The decrease in advertising expenses in both reported
periods was attributable to a lower level of advertising occurring in 1996 than
in 1995. Sales and marketing expenses were also less in both reported periods
for 1996 than those incurred in 1995. Administrative expenses were greater for
the first six months and the first quarter of 1996 than the same periods in 1995
primarily because certain production employees' duties were expanded to included
administrative matters and reallocated accordingly.
Interest income was $27,864 for the first six months of 1996 versus
$43,787 in 1995 because of a reduced level of investable funds after an
increased investment in production equipment in 1995. The impact in the second
quarter of 1996 was a decrease of $608 from the second quarter of 1995.
Interest expense, which is associated with the capitalized lease for
the plant and equipment was $16,766 less for the six month period of 1996 and
$10,779 less for the second quarter of 1996 than that which was incurred for the
similar periods of 1995.
For the second quarter of 1996, the Company experienced a net profit of
$233,475 versus a net profit of $224,710 for the second quarter of 1995. The
increase of $8,765 in 1996 was primarily attributable to a reduction in interest
expense of $10,779, while operating expenses declined and the gross profit
improved to offset the impact of the sales reduction that occurred for the first
six months of 1996. The Company experienced a net loss of $237,435 versus a net
loss of $114,918 for the first six months of 1995. The increase in the loss
arose principally from a decrease in sales due to the loss of the Pete's
contract.
Since the Company has approximately $1.3 million in loss carryforwards
available, no income tax provision is provided in the financial statements other
than the Minnesota minimum filing fee. The loss for the first six months of 1996
will serve to offset anticipated profits in the third quarter.
FINANCIAL CONDITION
Working capital at June 30, 1996 was $6,255,717 representing a decrease
of $72,196 from $6,327,913 at December 31, 1995. The decrease is attributable to
the investment of funds into additional equipment and intangible assets.
During the six month period ended June 30, 1996, the Company utilized
net cash from operating activities of $218,667, which was due to an increase in
accounts receivable of $2,425,960, an increase in inventories of $893,340 and an
increase in prepaid expenses and other assets of $59,215. These amounts were
partially offset by the net loss of $237,435 reduced by depreciation and
amortization of $325,251, and by a decrease in other receivables of $546,033, an
increase in accounts payable and accrued expenses of $2,163,460 and an increase
in deferred excise tax credit of $362,539.
The Company provided cash of $277,923 from investing activities
primarily from the net sale of Treasury Bills totaling $506,954, which was
transferred to bank savings accounts. This amount was partially offset by the
purchase of property and equipment of $168,820 and the purchase of $60,211 of
intangible assets.
Financing activities provided cash of $141,680 primarily from the
advancement of funds from a related party of $72,661 and the exercise of stock
options of $172,949, which were reduced by $103,930 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 to 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 June 30, 1996. The Company continues to be
obligated on the debt which had an outstanding balance of $605,010 at June 30,
1996, 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 June 30, 1996 the Company had
recognized $297,461 of this credit and deferred $362,539 of the credit to future
quarters. At June 30, 1995 the Company had recognized $303,457 of this credit
and deferred $356,543 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 third or fourth quarter of 1996 may be
necessary.
(11)
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
The Company held its annual meeting of shareholders on May 14,
1996. At the meeting, the following person were elected as
directors to serve for a term ending at the Company's annual
meeting of shareholders in 1997 or until their successors are
elected:
Bruce E. Hendry
Richard A. McMahon
Dennis P. Barrett
John C. Brzezinski
Robert E. Evans
Subramanian Krishnan
Stephen C. Leuthold
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(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: August 14, 1996 _____________________________________
Dennis P. Barrett
Vice President of Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 200,936
<SECURITIES> 490,765
<RECEIVABLES> 3,957,405
<ALLOWANCES> 34,000
<INVENTORY> 5,324,685
<CURRENT-ASSETS> 10,273,968
<PP&E> 5,071,068
<DEPRECIATION> 1,371,944
<TOTAL-ASSETS> 14,619,747
<CURRENT-LIABILITIES> 4,018,251
<BONDS> 1,878,498
0
0
<COMMON> 33,892
<OTHER-SE> 8,689,106
<TOTAL-LIABILITY-AND-EQUITY> 14,619,747
<SALES> 13,069,249
<TOTAL-REVENUES> 13,069,249
<CGS> 11,987,686
<TOTAL-COSTS> 11,987,686
<OTHER-EXPENSES> 1,260,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,367
<INCOME-PRETAX> (234,935)
<INCOME-TAX> (237,435)
<INCOME-CONTINUING> (237,435)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (237,435)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
