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, 1998
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, 1998 the Company had 3,389,211 shares of Common Stock, no par value
per share, outstanding.
<PAGE>
MINNESOTA BREWING COMPANY
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of
March 31, 1998 and December 31, 1997.......................3,4
Statements of Operations for the three
month periods ended March 31, 1998 and
March 31, 1997...............................................5
Statements of Cash Flow for the three month
periods ended March 31, 1998 and
March 31, 1997...............................................6
Notes to Financial Statements................................7
Item 2. Management's Discussion and Analysis
Financial Condition and Results of Operations................7
PART II. OTHER INFORMATION...................................................13
SIGNATURES ............................................................13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MINNESOTA BREWING COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited) (note)
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 130,035 $ 465,984
U.S. Treasury Bill (pledged for BATF Bond) 474,961 --
Trade accounts receivable, less allowance
for doubtful accounts of $323,000 at
March 31, 1998 and $306,000 at
December 31, 1997 635,466 759,350
Inventories:
Raw Materials 117,878 134,908
Work-in-progress 492,986 357,151
Finished goods 751,646 660,635
Packaging 1,332,446 1,243,705
Other 363,065 368,719
---------- ----------
Total Inventories 3,058,021 2,765,118
Other current assets 184,320 150,921
---------- ----------
Total Current Assets 4,482,803 4,141,373
---------- ----------
Property and Equipment 6,120,056 6,087,477
Less allowance for depreciation 2,671,134 2,466,210
---------- ----------
Net property and equipment 3,448,922 3,621,267
---------- ----------
Other Assets
Trademarks, net of accumulated
amortization of $83,000 at March 3l,
1998 and $73,000 at December 31, 1997 238,816 221,577
Other, net of accumulated amortization
of $398,000 at March 31, 1998 and
$315,000 at December 31, 1997 293,843 291,209
---------- ----------
Total Other Assets 532,659 512,786
---------- ----------
$8,464,384 $8,275,426
========== ==========
</TABLE>
Note: The Balance Sheet at December 31, 1997 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements
<PAGE>
MINNESOTA BREWING COMPANY
CONDENSED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited) (note)
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Total accounts payable $ 2,257,135 2,197,100
Accrued expenses 814,670 899,335
Deferred federal excise tax credit 253,930 --
Note Payable to related party 782,488
------------ ------------
Total Current Liabilities 4,108,223 3,096,435
------------ ------------
Long term debt
Due to related party -- 263,036
Capitalized lease obligations, less current
maturities 2,164,513 2,128,045
------------ ------------
Total long term debt 2,164,513 2,391,081
------------ ------------
Shareholders' Equity
Common stock; $.01 par value; 10,000,000 shares authorized 3,389,211
issued and outstanding at March 31, 1998 and
December 31, 1997 33,892 33,892
Additional paid-in capital 10,435,668 10,435,668
Accumulated deficit (8,277,912) (7,681,650)
------------ ------------
TOTAL SHAREHOLDERS'
EQUITY 2,191,648 2,787,910
------------ ------------
$ 8,464,384 $ 8,275,426
============ ============
</TABLE>
Note: The Balance Sheet at December 31, 1997 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements
<PAGE>
MINNESOTA BREWING COMPANY
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIODS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1998 1997
----------- -----------
<S> <C> <C>
Sales $ 3,327,352 $ 4,178,200
Less excise taxes 414,805 535,684
----------- -----------
Net sales 2,912,547 3,642,516
Cost of goods sold 2,815,567 3,512,977
----------- -----------
Gross profit 96,980 129,539
----------- -----------
Operating expenses:
Advertising 202,769 210,807
Sales and marketing 174,791 143,017
Administrative 244,285 189,890
----------- -----------
Total operating expenses 621,845 543,714
----------- -----------
Operating income (loss) (524,865) (414,175)
----------- -----------
Other income (expenses)
Interest income 4,640 6,767
Interest and other expense (76,037) (38,052)
----------- -----------
Net income (loss) (596,262) (445,460)
Basic and diluted net loss per share ($ .18) ($ .13)
=========== ===========
Basic and diluted weighted average
shares outstanding 3,389,211 3,389,211
</TABLE>
See Notes to Financial Statements
<PAGE>
MINNESOTA BREWING COMPANY
STATEMENTS OF CASH FLOW (UNAUDITED)
FOR THE PERIODS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)
Adjustments to Reconcile net income (loss) ($596,262) ($445,460)
To net cash used in operating activities;
Depreciation and Amortization 297,924 177,949
Changes in assets and liabilities:
(Increase) decrease in trade accounts
receivable 123,884 (158,599)
(Increase) decrease in other receivables -0- 75,958
(Increase) decrease in inventories (292,903) (518,699)
(Increase) decrease in prepaid expenses
and other assets (33,399) (119,836)
Increase (decrease) in accounts payable
and accrued expenses (24,630) 896,994
Increase in deferred excise tax credit 253,930 280,758
--------- ---------
Net cash provided by (used in)
operating activities (271,456) 189,065
--------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment (32,579) (84,656)
Purchase of intangible assets (112,873) (9,192)
--------- ---------
Net cash provided by (used in)
investing activities (145,452) (93,848)
--------- ---------
FINANCING ACTIVITIES
Net borrowings (repayments) on related
party obligations 80,959 142,062
Principal payments under capital lease
Obligations -0- (55,597)
--------- ---------
Net cash provided by (used in)
financing activities 80,959 86,465
--------- ---------
NET INCREASE (DECREASE) IN CASH (335,949) 181,682
CASH AT BEGINNING OF YEAR 465,984 386,325
--------- ---------
CASH AT END OF PERIOD $ 130,035 $ 568,007
========= =========
Supplemental Disclosure of non cash investing
and financing activities:
U.S. Treasury Bill financed with note
payable to related party 474,961 0
========= =========
</TABLE>
See Notes to Financial Statements
<PAGE>
MINNESOTA BREWING COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Item 1. Financial Statements
The balance sheet as of March 31, 1998, the statements of operations
for the three month periods ended March 31, 1998 and 1997 and the statements of
cash flows for the three month periods ended March 31,1998 and 1997 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, 1998, 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. These condensed financial statements should
be read in conjunction with the Company's annual report on Form 10-K for the
year ended December 31, 1997, filed by the Company with the Securities and
Exchange Commission.
<PAGE>
Item 2. Management Discussion and Analysis of Financial Conditions and Results
of Operations
The Company's revenues are derived from the production and sale of
its proprietary Grain Belt, Pig's Eye, Landmark, Yellow Belly, and Brewers Cave
beers, its contract production of beers and other beverages for other companies
and its production of proprietary beers for sale under different brand names by
private label customers.
RESULTS OF OPERATIONS
The Company's net sales for the three month period ended March 31,
1998 were 20.0% less than the net sales for the three months ended March 31,
1997. The decrease in net sales was principally attributable to a decrease in
export sales.
Barrelage sales for the first three months of 1998 were 10.1% less
than in the first quarter of 1997. Barrelage sales of proprietary products were
down 11.6% reflecting softer industry beer sales in the first quarter of 1998
compared to 1997. Grain Belt Premium increased on a quarter to quarter
comparison while Pig's Eye and Landmark experienced decreases. The first quarter
is the Company's lightest quarter for beer sales and the Company expects sales
in succeeding quarters to surpass last year's levels with the inclusion of the
new Yellow Belly products. Contract barrelage sales were up 12.3% primarily due
to the increased sale of bulk mash. The Company anticipates that contract sales
in 1998 will exceed 1997 sales levels on a year to year basis. Export barrelage
sales were off 50.2% principally because of the significant number of customers
in the Far East have not yet placed their projected orders. It is anticipated
that these customers will place such orders. The Company expects export sales to
be at the 1997 level by the end of 1998.
Operating Data (in barrels sold):
THREE MONTHS ENDED MARCH 31
1998 1997
------------- -------------
Proprietary 25,431 28,766
Contract 31,935 29,315
Export 5,869 12,223
------------- -------------
Totals 63,235 70,304
============= =============
The Company's gross profit was $32,559 less in the first quarter of
1998 than in the first quarter of 1997. The Company's gross profit margin
decreased from 3.5% in 1997 to 3.3% in the first quarter of 1998. The decline
was attributable to an increase in cost of goods sold due to lower net sales
which led to under absorption of overhead costs.
<PAGE>
Operating expenses were $78,131 greater in the first quarter of 1998
than in the first quarter of 1997. As a percentage of sales they increased from
14.9% in 1997 to 21.3% in 1998 primarily as a result of the lower sales volume
in the 1998 period. The decrease in advertising expense was attributable to the
timing of lower levels of expenditures in the first quarter of 1998. The Company
anticipates that total advertising expense will approximate 1997 levels for the
year. Sales and marketing expenses for the first quarter of 1998 were above 1997
levels primarily because of an increase in sales personnel and the related
expenses. Administrative expense increases were primarily associated with
increases in professional fees. The Company continues to operate with a minimal
level of administrative expense.
Interest income was $2,127 less in the first quarter of 1998 versus
1997 because of a reduced level of funds available for investment. Interest
expense was $20,316 greater in 1998 than in 1997 primarily due to the amounts
owed on the capitalized lease for the plant and equipment and related deferred
payment arrangements.
The Company experienced a net loss of $596,261 in the first quarter
of 1998 compared to a net loss of $455,460 in the first quarter of 1997. The
increase in the loss was related to an under absorption of overhead costs
related to the decline in sales. The loss was consistent with the seasonality of
the business where typically the first quarter is the weakest quarter, the
second and third quarters are the strongest and the fourth quarter falls in
between.
No 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 $6.7 million in loss carryforwards
available to offset future taxable income.
During 1997 and through March 1998, the Company operated
significantly below its production capacity. Therefore, in order to attain a
profitable level of operations the Company will continue to seek to increase its
sales and production volume. Management will pursue opportunities to increase
sales volume at profitable margins. Management believes that the growth of its
proprietary labels offers the best opportunity for achieving operating profits
in the long term and has focused its efforts on the growth of its proprietary
products. An emphasis has been placed on the promotion of these proprietary
labels and the generation of additional sales in the Company's core geographic
market areas.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1998 decreased $670,358 to $374,580
from $1.0 million at December 31, 1997. The decrease is primarily attributable
to the loss for the quarter coupled with the investment of funds into additional
equipment and intangible assets.
During the three months ended March 31, 1998 the Company used net
cash for operating activities of $271,456 which was due to the net loss of
$596,262, a decrease of accounts payable and accrued expenses of $24,630, an
increase in inventories of $292,903 and decrease in prepaid expenses and other
assets of $33,399. These
<PAGE>
amounts were partially offset by depreciation and amortization of $297,924, a
decrease in trade accounts receivable of $123,884 and an increase in deferred
excise tax credit of $253,930.
The Company used $145,452 of cash in investing activities through
the purchase of $32,579 of property and equipment and the purchase of $112,873
of intangible assets.
The Company generated $80,959 of cash through financing activities
via borrowings from a related party.
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 were reflected as property and equipment
and long-term debt in the financial statements. The Company has the option to
acquire the property at eight times the trailing twelve months. As indicated in
the Company's 1997 annual report, based upon 1997 lease payments, the purchase
price would be approximately $4.9 million at December 31, 1997. Should the
Company decide to exercise its option 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 and the availability of financing.
The Company's credit terms to its distributors are generally 10 days
and substantially all customers, except contract brewing accounts, are on
automatic debit to their bank account through electronic funds transfer ("EFT").
This program substantially reduces the credit risk and facilities the
predictability of cash flows. Amounts from contract brewing production are
generally due 30 days after shipment and in many cases are secured by letters of
credit.
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.
The Company is a party to collective bargaining agreements with five
unions, all of which expire on March 31, 1999. The Company believes its employee
relationship to be good.
As of March 31, 1998, the Company had net operating loss
carryforwards totaling $6.7 million available. To the extent the Company
generates taxable income during the periods in which this net operating loss
carryfoward is available, the Company's cash requirements for payment of income
tax will be reduced.
The Company's plans in 1998 include the continued emphasis on
promoting its core proprietary brands. In order to achieve its 1998 plans, the
Company will require additional funds from equity or debt to meet its working
capital and capital resource
<PAGE>
needs. During 1997, the Minnesota Brewing Limited Partnership ("Partnership"), a
related party, deferred required lease payments on the production facility and
equipment and has agreed to defer past due 1997 payments and 1998 lease payments
through at least January 1, 1999, which will provide a portion of the Company's
working capital needs. Due to the seasonal nature of its business, the Company's
1997 year end and March 31, 1998 working capital position is not indicative of
its needs during its peak selling and production season. The Company does not
currently have a credit facility, but is working to establish a line of credit
with a bank to supplement its short-term working capital needs. The Company
anticipates that any line of credit would be secured by certain of its assets.
At present, except for leases of its production facility and certain of its
production equipment with the Partnership, the Company's assets are unsecured.
In connection with the $475,000 advance by the Partnership discussed below, the
Company agreed to grant the Partnership a security interest in certain of its
assets, including its trademarks. If the Company is unable to obtain a working
line of credit with a bank, the Company will be required to seek another source
of working capital. In that event, the Partnership has agreed to make available
to the Company a line of credit of up to $2,500,000 to meet its working capital
needs during 1998. This availability is in addition to $475,000 the Partnership
advanced the Company in March 1998 to secure the purchase of a Treasury Bond
required by the Bureau of Alcohol Tobacco and Firearms. The Company believes
that the Partnership's funding commitment, along with a possible bank line of
credit and funds from operations will be sufficient to meet its working capital
and capital resource needs during 1998.
The Company has applied and received permits from the State of
Minnesota to convert a portion of its facilities into the production of ethanol.
It is the Company's intention to pursue the production of ethanol if it
determines that it is possible to do so on a commercially reasonable basis.
FORWARD-LOOKING STATEMENTS
Statements included in this Form 10-Q that are not historical or
current facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and are
subject to certain risks and uncertainties that could cause actual results to
differ materially. Among these risks and uncertainties and information included
in this Quarterly Report on 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 terminology 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 expresses in any
forward-looking statement: 9i) competition within the brewing industry resulting
from the increased
<PAGE>
number of brewers and available beers, (ii) the Company's ability to continue to
achieve and maintain contract brewing arrangements; (iii) the continued success
of the Company's proprietary brands, including its reliance upon distributors,
and (iv) the Company's continued ability to sell products for export.
<PAGE>
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
Exhibit 1. Agreement dated, February 27, 1998, between
Minnesota Brewing Limited Partnership and the Company.
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
Dated: May 15, 1998 /s/ Michael C. Hime
Michael C. Hime
Vice President of Finance (Chief Financial Officer)
EXHIBIT 10.1
AGREEMENT
This Agreement (the "Agreement") dated as of February 27, 1998 by
and between Minnesota Brewing Limited Partnership, a Minnesota limited
partnership (the "Partnership") and Minnesota Brewing Company, a Minnesota
corporation (the "Company").
RECITALS
1. The Company operates a brewery (the "Brewery") in Saint Paul,
Minnesota, at which it produces beer and other beverages and, in the operation
of the brewery, leases equipment ("Equipment") and premises from the Partnership
pursuant to that certain Amended and Restated Equipment Lease (the "Equipment
Lease") and that certain Amended and Restated Lease (the "Premises Lease")
(collectively, the "Leases") both dated November 2, 1993;
2. The Equipment Lease requires the Company to pay the Partnership
as rent for the equipment $1.00 per barrel or barrel equivalent for each barrel
of beer or other beverage produced using all or any of the Equipment in any
given year;
3. The Premises Lease covers the real estate, buildings and site
improvements situated thereon, all of which are located at 882 West Seventh
Street, Saint Paul, Minnesota 55106 (the "Premises") and requires the Company to
pay as rent for the Premises $25,000 per month;
4. Under the Equipment Lease, the Company is required to submit to
the Partnership by the 10th day of each month a written report with respect to
the total barrelage produced in the prior month together with payment covering
such month's rent. In the event any amount is not paid when due, such amount
shall bear interest at the rate of interest from time to time published or
announced by Norwest Bank Minnesota, N.A., plus 400 basis points, from the due
date thereof until paid in full. There is no stated penalty for past due amounts
under the Premises Lease. The Company has been in continuous arrears in paying
the Partnership the rent due under the Leases during 1997 and at December 31,
1997, owned the Partnership approximately $620,000.
5. Pursuant to Section 24 of the Equipment Lease and Section 21 of
the Premises Lease, failure to pay rent when due, after notice, constitutes a
default under the Leases for which the Partnership may foreclose its interests
in the Equipment and Premises;
6. The Premises Lease and the Equipment Lease were entered into
between the Company and the Partnership in connection with the Company's initial
public offering. Craig Hallum, Inc., acted as managing underwriter
("Underwriter") in connection with the public offering and as a condition to the
underwriting required that the Company and Partnership enter into the Premises
Lease and the Equipment Lease to provide the Company with an option to purchase
the equipment and premises covered by the Equipment Lease and Premises Lease.
<PAGE>
7. The terms that the Company, Partnership and underwriters agreed
to provided that the Company would have the option to purchase the Equipment and
Premises for a purchase price equal to eight times the trailing twelve months
rent for the Equipment and Premises. The Company has consistently disclosed to
the public in its Securities and Exchange Commission filings and otherwise that
the formula for purchase of the Equipment and the Premises was as described in
this paragraph.
8. In connection with preparing the documentation for this
Agreement, the Company and the Partnership have determined that the Equipment
Lease and the Premises Lease improperly stated the agreed-upon formula for the
exercise of the option and wish to amend and restate the formula to reflect the
original intent of the parties.
9. The Company is required to post a bond on or about February 24,
1998 with the United States Bureau of Alcohol, Tobacco and Firearms in an amount
up to $500,000 (the "BATF Bond") to secure payment of excise taxes on beer
produced and must post such BATF Bond to continue its domestic production and
sale of alcoholic beverages;
10. The Company has working capital constraints and has had
difficulty acquiring funds on a commercially reasonable terms to enable its cure
its arrearage under the Leases or post the BATF Bond and has requested that the
Partnership loan it sufficient funds to enable it to purchase a Treasury Bill;
11. The Partnership is willing (i) to waive defaults resulting from
past due amounts under the Leases and to not foreclose its interests as allowed
under the Leases based upon such past due amounts, (ii) to waive all interest
due or past due amounts through December 31, 1997, (iii) to lower the interest
rate on the Equipment Lease and (iv) to lend the Company up to $500,000 for the
Company to use to purchase a Treasury Bill that will subsequently be pledged for
the BATF Bond in exchange for (x) the Company's agreements contained herein,
including the Company's agreement to amend the terms of the Leases to reflect
the original intent of the parties in agreeing to the option price, and (y) the
Company's agreement to accrue and pay interest, in the future, on past due
amounts due to the Partnership under the Equipment Lease and Premises Lease; and
12. The Company has filed permits with the State of Minnesota to
convert a portion of the Brewery to enable the Company to produce ethanol at the
Brewery and Section 4 of the Premises Lease prohibits the use of the premises
for any use other than as a brewery and the parties wish to take whatever steps
are necessary to enable the Company to produce ethanol at the Brewery.
13. The Company believes that it is in its best interests to receive
additional working capital to continue its business and secure funds for the
BATF Bond and desires to restate the option and other applicable provisions of
the Equipment Lease and Premises Lease, as stated herein, in exchange for such
assistance.
<PAGE>
NOW, THEREFORE, in consideration of the mutual interests set forth herein and
other good and valuable consideration, the parties hereto agree to:
1. Option Price. Section 16(iii) of the Equipment Lease and Section 7
of the Premises Lease are to be amended to reflect the original
intent of the parties and confirm that the Company has the right to
purchase the Equipment subject to the Equipment Lease and Premises
subject to the Premises Leases for payment of eight times trailing
twelve month lease payments under the Equipment Lease and the
Premises Lease.
2. Loan Agreement and Security Agreement.
Concurrently with the execution of this Agreement, the Partnerships
shall loan the Company up to $500,000 and the Company shall execute
the Promissory Note attached as Exhibit A. To secure the
indebtedness, the Company hereby agrees to grant the Partnership a
security interest in the Company's trademarks and, to the extent
possible, in the Treasury Bill.
3. Waiver of Defaults.
In connection with entering into this Agreement, the Partnership
agrees to waive its remedies for all Events of Default, as defined
in the Leases, with respect to obligations past due as of the date
hereof and waives all interest due on the Leases through December
31, 1997 and agrees that the interest rate on Equipment Lease will
be decreased to 100 basis points over the base rate established by
Norwest Bank Minnesota, N.A., but no less than nine percent.
4. Interest on Past Due Rent.
The Company hereby agrees that it shall, effective January 1, 1998,
be obligated to accrue and pay interest to the Partnership at a rate
equal to the 100 basis points over the base rate established by
Norwest Bank Minnesota, N.A. from time to time, but no less than
nine percent, for all past due amounts under the Equipment Lease and
Premises Lease.
5. Amendment of Leases to Permit Production of Ethanol
The parties agree to take such steps as necessary to convert the
Leases to enable the Company to produce ethanol at the Brewery and
in connection with such conversion to negotiate commercially
reasonable leases or lease amendments that establish rent based on
the production of ethanol.
6. Payment of Expenses
The Company agrees to pay the reasonable costs and expenses of the
Partnership, including attorneys' fees, incurred in connection with
the preparation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands as of
the date first written above.
The Partnership:
MINNESOTA BREWING LIMITED
PARTNERSHIP
By: Minnesota Brewing Management
Company, its General Partner
By:
Its:
The Company:
MINNESOTA BREWING COMPANY
By:
Its:
<PAGE>
SCHEDULE A
PROMISSORY NOTE
$500,000 Minneapolis, Minnesota
February, 1998
FOR VALUE RECEIVED, the undersigned, Minnesota Brewing Company (the "Maker"),
hereby promises to pay Minnesota Brewing Limited Partnership, a Minnesota
limited partnership (the "Holder"), at its offices located at Suite 500, 900
Second Avenue South, Minneapolis, Minnesota 55402 or at such other place as may
be designated from time to time by the Holder, in lawful money of the United
States of America, the principal sum of Five Hundred Thousand Dollars ($500,000)
the ("Principal Amount") together with interest on the outstanding Principal
Amount from the date hereof until paid in full, at the interest rate provided
below.
Interest shall accrue at the rate equal to the base rate established by Norwest
Bank Minnesota, N.A., from time to time, plus 100 basis points, but not less
than nine percent per year. Maker shall pay the accrued interest on the first
day of each month beginning April 1, 1998, and continuing until June 1, 1998,
when the entire balance of principal and accrued interest shall be due and
payable upon demand of the Holder. The accrued interest shall be computed on the
basis of a 365-day year for the actual number of days in the accrual period.
Maker may prepay all or any portion of the principal or accrued interest at any
time without penalty. A prepayment shall not eliminate Maker's obligation to
make subsequent payments on their scheduled due dates. All payments shall be
applied first to accrued interest and the balance, if any, to principal.
No delay or omission on the part of the Company in exercising any right or
remedy hereunder shall operate as a waiver of such right or remedy and no waiver
of such right or remedy hereunder on any one occasion shall be construed as a
waiver of any such right or remedy on any other occasion. None of the terms or
provisions hereof may be waived, altered, modified or amended except as Company
may consent thereto in writing. Maker hereby waives demand, presentment for
payment, notice of dishonor, protest and notice of protest.
Should Maker fail to make payment when due of any amounts owing under this Note,
Maker shall pay to the Holder (or any subsequent holder of this Note), in
addition to any and all other amounts payable, all costs of collection,
including reasonable attorneys' fees.
This Note shall be governed by and construed in accordance with the laws of the
State of Minnesota.
Minnesota Brewing Company
------------------------------------
By:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 130,035
<SECURITIES> 474,961
<RECEIVABLES> 635,466
<ALLOWANCES> (323,000)
<INVENTORY> 3,058,021
<CURRENT-ASSETS> 4,482,803
<PP&E> 6,120,056
<DEPRECIATION> 2,671,134
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<CURRENT-LIABILITIES> 4,108,223
<BONDS> 0
0
0
<COMMON> 33,892
<OTHER-SE> 2,157,756
<TOTAL-LIABILITY-AND-EQUITY> 8,464,384
<SALES> 2,912,577
<TOTAL-REVENUES> 2,912,577
<CGS> 2,815,567
<TOTAL-COSTS> 377,560
<OTHER-EXPENSES> 244,285
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (596,262)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (596,262)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
