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, 1999
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 registrant 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
(651) 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 of 1934 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 June 30, 1999 the Company had outstanding 3,462,711 shares of Common
Stock, no par value per share, and 607,745 shares of Class A Convertible
Preferred Stock.
<PAGE>
MINNESOTA BREWING COMPANY
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets as of
June 30, 1999 and December 31, 1998......................3,4
Statements of Operations for the three and six
month periods ended June 30, 1999 and
June 30, 1998..............................................5
Statements of Cash Flow for the six
month periods ended June 30, 1999
and June 30, 1998........................................6,7
Notes to Financial Statements..............................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................................9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk......................................................13
PART II. OTHER INFORMATION......................................................14
Item 4. Submission of Matters to a Vote of Security Holders............14
Item 5. Other Information..............................................14
Signatures.........................................................................16
</TABLE>
2
<PAGE>
MINNESOTA BREWING COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ----------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 49,332 $ 67,366
U.S. Treasury Bill (Note 4) -- 474,961
Trade accounts receivable, less allowance
for doubtful accounts of $280,000 at
June 30, 1999 and $250,000 at
December 31, 1998 1,633,284 1,064,638
Due From related party 215,763 302,143
Other 207,867 101,176
Inventories:
Raw materials 125,681 185,281
Work-in-progress 593,674 334,130
Finished goods 949,052 840,591
Packaging 943,404 753,678
Other 407,211 359,359
---------- ----------
Total Inventories 3,019,022 2,473,039
Total Current Assets 5,125,268 4,483,323
---------- ----------
Investment in unconsolidated subsidiary 1,701,314 --
U.S. Treasury Note (Note 4) 500,000 --
Property and Equipment 1,801,550 6,754,715
Less accumulated depreciation 1,155,860 3,273,066
---------- ----------
Net property and equipment 645,690 3,481,649
---------- ----------
Other Assets
Trademarks, net of accumulated
amortization of $113,000 at
June 30, 1999 and $99,000 at December 31, 1998 253,066 263,189
Other, net of accumulated amortization of
$501,000 at June 30, 1999 and
$445,000 at December 31, 1998 191,949 220,418
---------- ----------
Total Other Assets 445,015 483,607
---------- ----------
$8,417,287 $8,448,579
========== ==========
</TABLE>
Note: The Balance Sheet at December 31, 1998 has been derived from the
audited financial statements at that date. See Notes to Financial
Statements
3
<PAGE>
MINNESOTA BREWING COMPANY
CONDENSED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(unaudited) (note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Total accounts payable 1,625,561 2,002,197
Line of Credit 1,432,863 --
Deferred federal excise tax credit 255,000 --
Current maturities of capital lease obligation -- 265,517
Related party line of credit -- 1,324,961
Accrued expenses 535,790 659,631
------------ ------------
Total Current Liabilities 3,849,214 4,252,306
------------ ------------
Long term debt
Capitalized lease obligations, less current
maturities -- 1,261,921
Related party borrowings (Note 4) 1,515,056 --
------------ ------------
Total Long-term debt 1,515,056 1,261,921
------------ ------------
Deferred gain on capital lease termination (Note 3) 231,612 --
------------ ------------
Shareholders' Equity (Note 2)
Common stock; $.01 par value; 10,000,000 shares
authorized 3,462,711 issued and outstanding at
June 30, 1999 and December 31, 1998, 34,627 34,627
Preferred stock, 700,000 shares authorized, 9%
cumulative dividend, 607,745 and 547,614
shares issued and outstanding at June 30, 1999
and December 31, 1998, respectively 1,519,363 1,369,036
Additional paid-in capital 10,589,245 10,592,217
Accumulated deficit (9,321,830) (9,061,528)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 2,821,405 2,934,352
------------ ------------
$ 8,417,287 $ 8,448,579
============ ============
</TABLE>
Note: The Balance Sheet at December 31, 1998 has been derived from the
audited financial statements at that date. See Notes to Financial
Statements
4
<PAGE>
MINNESOTA BREWING COMPANY
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 4,613,105 $ 4,739,034 $ 8,205,057 $ 8,066,386
Less excise taxes 280,555 387,211 577,365 802,015
----------- ----------- ----------- -----------
Net sales 4,332,550 4,351,823 7,627,692 7,264,371
Cost of goods sold 3,634,969 3,754,524 6,741,151 6,570,091
----------- ----------- ----------- -----------
Gross profit 697,581 597,299 886,541 694,280
----------- ----------- ----------- -----------
Operating expenses:
Advertising 150,904 131,880 261,607 378,128
Sales and marketing 156,129 203,338 290,536 246,519
Administrative 242,244 234,305 500,899 566,720
----------- ----------- ----------- -----------
Total operating expenses 549,277 569,523 1,053,042 1,191,367
----------- ----------- ----------- -----------
Operating income (loss) 148,304 27,776 (166,501) (497,087)
----------- ----------- ----------- -----------
Other income (expenses)
Interest income 3,140 3,029 4,734 7,669
Interest and other expense (20,034) (22,216) (98,535) (98,255)
----------- ----------- ----------- -----------
Net income (loss) 131,410 8,589 (260,302) (587,673)
=========== =========== =========== ===========
Basic net income (loss)
per common share $ .03 $ .00 $ (.09) $ (.18)
Diluted net income (loss)
per common share $ .02 $ .00 $ (.09) $ (.18)
Weighted average common shares
outstanding: (Note 5)
Basic 3,462,711 3,389,211 3,462,711 3,389,211
--------- --------- --------- ---------
Diluted 4,070,456 3,389,211 3,462,711 3,389,211
--------- --------- --------- ---------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
MINNESOTA BREWING COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (260,302) $ (587,673)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and Amortization 245,747 314,076
Provision for doubtful accounts receivable 30,000 --
Provision for obsolete inventory and discontinued
products (93,000) (68,000)
Changes in assets and liabilities:
Trade accounts receivable (598,646) (213,391)
Inventories (452,983) (14,025)
Prepaid expenses and other assets (106,691) 66,300
Accounts payable and accrued expenses (439,358) (594,599)
Deferred excise tax credit 255,000 397,490
----------- -----------
Net cash used in
operating activities (1,420,233) (699,822)
----------- -----------
INVESTING ACTIVITIES
Amount due from related party 86,380 --
Purchases of property and equipment (232,525) (245,316)
Purchase of intangible assets (49,575) (201,730)
----------- -----------
Net cash used in
investing activities (195,720) (447,046)
----------- -----------
FINANCING ACTIVITIES
Net borrowings on related
party obligations 165,056 911,770
Net borrowings on line of credit 1,432,863 --
Principal payments under capital lease
obligations -- (114,112)
----------- -----------
Net cash provided by 1,597,919 797,658
----------- -----------
financing activities
NET DECREASE IN CASH (18,034) (349,210)
CASH AT BEGINNING OF YEAR 67,366 465,984
----------- -----------
CASH AT END OF PERIOD $ 49,332 $ 116,774
=========== ===========
</TABLE>
See Notes to Financial Statements
6
<PAGE>
<TABLE>
Supplemental disclosures of non-cash
investing and financing activities:
<S> <C> <C>
Conversion of debt to preferred stock $ 150,327 $ --
----------- -----------
Contribution of assets in exchange for an
equity interest in unconsolidated subsidiary $ 1,701,314 $ --
----------- -----------
U.S. Treasury Bill financed with note payable
to related party $ (474,961) $ 474,961
----------- -----------
U.S. Treasury Note financed with note payable
to related party $ 500,000 $ --
----------- -----------
Termination of capital lease obligation $ 1,441,202 $ --
----------- -----------
Assets removed from books $(1,192,642) $ --
----------- -----------
Gain on termination $ 248,560 $ --
----------- -----------
Common shares issued in satisfaction
of accrued ESOP payable $ -- $ 157,284
=========== ===========
</TABLE>
7
<PAGE>
MINNESOTA BREWING COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.
The balance sheet as of June 30, 1999, the statements of operations
for the three and six month periods ended June 30, 1999 and 1998 and the
statements of cash flows for the six month periods ended June 30, 1999 and 1998
have been prepared by the Company without audit. In the opinion of management,
all adjustments necessary to present fairly the Company's financial position at
June 30, 1999, 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.
Note 2.
Cumulative Undeclared Dividends
The Company's Class A Convertible Preferred stock has a nine percent
(9%) cumulative dividend rate. If, for any reason, the Company is unable to pay
any dividend when due, the dividend will accumulate without interest until paid
in full. The Company did not declare or pay a dividend on the Class A
Convertible Preferred Stock for the six months ended June 30, 1999. As a result,
at June 30, 1999 there are $64,988 of cumulative undeclared dividends. The
Company applied the provisions of Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE, in the second quarter ended June 30, 1999.
Note 3.
Gain on Termination of Capital Lease
As discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations, on March 29, 1999, the Company terminated
its lease with a related party and entered into a new lease with its
unconsolidated subsidiary, Gopher State Ethanol, LLC ("Gopher State"). As a
result of the termination, there was a $248,560 gain on the transaction that
will be deferred and recognized as income over the remaining term of the
original lease, or through November 2003.
Note 4.
U.S. Treasury Note Financed with a Related Party Note
A U.S. Treasury Bill was pledged for purposes of the Bureau of
Alcohol, Tobacco, and Firearms ("BATF") Brewer's Bond. During the year, the
treasury bill was replaced with a U.S. Treasury Note that was financed with a
related party note payable. This treasury note matures on February 15, 2004.
Accordingly, both the treasury note and the related borrowing have been
classified as long-term for financial statement purposes.
8
<PAGE>
Note 5.
Basic and diluted amounts per share
Basic per share amounts are computed, generally, by dividing the net income or
loss by the weighted average number of common shares outstanding. In computing
the basic net income (loss) per share for the three and six month periods ended
June 30, 1999, the cumulative undeclared dividends earned by the preferred
shareholders ($34,185 and $64,988 for the three and six month periods ended June
30, 1999, respectively) were subtracted from (added to) the net income (loss).
Diluted per share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless the effect is anti-dilutive thereby
reducing the loss or increasing the income per common share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's revenues are derived from the production and sale of
its proprietary Grain Belt, Pig's Eye, Yellow Belly, Landmark and Brewer's Cave
product lines, its contract production of beers and other beverages for other
companies, its production of proprietary beers for sale under different brand
names by private label customers, and sales derived from foreign markets.
RESULTS OF OPERATIONS
The Company's net sales for the three month period ended June 30,
1999 decreased .4% as compared to the three month period ended June 30, 1998.
The Company's net sales for the six month period ended June 30, 1999 increased
5% over the six month period ended June 30, 1998. The increase in net sales was
principally attributable to an increase in export sales due to the improved
economy in the Far East markets.
Sales of proprietary products were down 24.7% in the second quarter
of 1999 compared to 1998 and decreased 18.5% during the six-month period ended
June 30, 1999 as compared to the same period in 1998. The Company experienced
decreases in Grain Belt, Pig's Eye, Landmark, and other products due to turnover
of key sales personnel and the effects of reduced advertising during 1998. The
Company plans to increase sales and marketing efforts of its proprietary
products by utilizing the line of credit obtained in April 1999. Contract sales
decreased 6.0% for the six month period ended June 30, 1999 as compared to the
same period in 1998 primarily due to the tighter credit policies imposed by the
company. The current credit policies require contract customers to prepay for
services, comply with shorter payment terms, undergo credit evaluations, and
issue a letter of credit in favor of the Company. Foreign sales increased
approximately $976,000 due to the improved economy in the Far East. Management
anticipates increased contract sales due to the addition of a significant new
contract customer. Beginning in July, the Company began producing for this new
contract customer, which distributes its products in all 50 states, as well as
internationally.
<TABLE>
<CAPTION>
Segment Data in net sales before
excise taxes (in thousands): Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Proprietary $2,266 $3,008 $4,302 $5,280
Contract 1,113 1,102 1,550 1,649
Foreign 915 487 1,796 820
Other 319 142 557 317
------ ------ ------ ------
Total $4,613 $4,739 $8,205 $8,066
====== ====== ====== ======
</TABLE>
The Company's gross profit increased $192,261 during the first six month
period when compared to the similar period in 1998 and increased $100,282 in the
second quarter of 1999 versus the second quarter of 1998. The Company's gross
profit margin for the second quarter increased from 13.7 % in 1998 to 16.1% in
1999. For the six months ended June 30, 1999, gross profit margin increased from
9.6% in 1998 to 11.6% for the same period in 1998. The increase in gross profit
over 1998 is due to the increased sales to foreign markets that are not subject
to the federal excise tax and as a result of several agreements entered into
with Gopher State. These agreements have created certain synergies due to shared
operating and production expenses.
9
<PAGE>
The excise tax rate as a percentage of sales decreased for the six months
ended June 30, 1999 when compared to 1998 from 9.9% to 7.0% due to the increase
in export sales and an increasing number of contract customers who are
responsible for their own excise tax. For the quarter ended June 30, 1999, the
rate decreased from 8.2% to 6.1% as compared to the same period in 1998.
Operating expenses for the three and six month periods of 1999 were
$20,246 and $138,325 less, respectively than for similar periods in 1998. As a
percentage of net sales, three month operating expenses decreased from 13.1% in
1998 to 12.7% in 1999. The operating expenses as a percentage of net sales also
decreased to 13.8% for the first six months of 1999 as compared to 16.4% in
1998. The decrease in sales and marketing expense was primarily attributable to
a reduction in personnel costs. Administrative expense increased slightly as a
result of the growing contract and foreign business. Advertising expense
decreased from 5.2% in 1998 to 3.4% for the six-month period ended June 30,
1999. For the quarter, advertising increased from 3.0% in 1998 to 3.5% for the
same period in 1999. The increase in the quarter is due to an increase in
promotional activities as compared to 1998.
Interest income was $2,935 less in the second quarter of 1999 versus 1998
because of a reduced level of funds available for investment. For the six-month
period ended June 30, interest expense in the second quarter was $280 greater in
1999 than in 1998.
The Company experienced net income of $131,410 in the second quarter of
1999 compared to net income of $8,589 in the second quarter of 1998. For the
first six months of 1999, the Company experienced a net loss of $260,302 versus
a net loss of $587,673 for the comparable period in 1998. Both the increased net
income and the reduced net loss for the year can be attributed to reduced
production costs and increased pricing in the 1999 period.
During 1998 and through June 1999, the Company operated below its
production capacity. Management is continuing to 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 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. Also, the Company is actively pursuing contract
customers that offer significant volume opportunities.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1999 increased $1.1 million to $1.3 million
from $231,017 at December 31, 1998 . The increase is primarily attributable to
the related party credit facility that was amended at April 15, 1999. This
amendment extended the maturity date to April 15, 2002. As a result, this credit
facility is now classified as a long term liability for financial statement
purposes.
During the six months ended June 30, 1999 the Company utilized $1,420,233
net cash in operating activities, which was due to an operating loss of
$260,302, an increase in accounts receivable of $598,646, an increase in
inventory of $452,983, an increase in prepaid expenses and other assets of
$106,691, and a decrease in accounts payable and accrued expenses of $439,358.
These amounts were partially offset by depreciation and amortization of $245,747
and an increase in the deferred excise tax credit of $255,000.
The Company used $195,720 of cash in investing activities through the
purchase of $282,100 of long-lived assets and amounts due from related party of
$86,380.
10
<PAGE>
The Company had net borrowings of $1,597,919 via related party borrowings
of $165,056 and a bank line of credit of $1,432,863.
In conjunction with Company's initial public offering in November of 1993,
the Company's existing operating leases with Minnesota Brewing Limited
Partnership ("Partnership") were converted to capitalized leases and the
obligations were reflected as property and equipment and long-term debt in the
financial statements. The Company had the option to acquire the property at
eight times the trailing twelve months. As indicated in the Company's 1998
annual report, based upon 1998 lease payments, the purchase price would have
been approximately $4.9 million at December 31, 1998. The Partnership
contributed its interest in the real estate and equipment that had been
previously leased to the Company to Gopher State. The Company and the
Partnership terminated this agreement. As a result of the termination, there was
a $248,560 gain on the transaction that will be deferred and recognized as
income over the remaining term of the original lease. This gain will be offset
against rent paid to Gopher State. On March 29, 1999, the Company and Gopher
State entered into a new lease agreement for the same land, building and
production equipment that the Company had previously leased from the
Partnership. The new lease agreement has been classified as an operating lease
and provides for rent of $25,000 per month with an initial term of 10 years,
which expires in 2009. There are no provisions for production rent in the new
agreement. The Company shall have the option to extend this lease for three
consecutive additional terms of ten (10) years each. The lease gives the Company
the right to purchase the brewing facilities and equipment at any time during
the term of the lease at the fair market price of the assets at the time the
option is exercised. The Company has also entered into a shared facilities and
services agreement, under which it has agreed to share certain office space,
administrative expenses, property taxes, insurance and services with Gopher
State.
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 facilitates the predictability
of cash flows. Amounts from contract brewing production are generally 30 days
after shipment and in many cases are secured by letters of credit.
The BATF assesses brewers of alcoholic beverages an $18 per barrel excise
tax. However, 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. For accounting
purposes, this credit is allocated throughout the year based upon projected
taxable sales for the entire year.
The Company is a party to collective bargaining agreements with five
unions. The unions went on strike in late April for two weeks, however, the new
agreements have been reached which provide, for increased compensation and work
rule changes. These work rule changes allow the Company to schedule the work
force needed for daily production and allow the flexibility to reduce overtime
pay. Compensation has been altered by reducing vacation by two weeks per union
employee. The unions returned to work on May 10, 1999. The Company has lowered
the cost of operations as a result of these new agreements, which expire on
March 31, 2002.
As of March 31, 1999, the Company had net operating loss carryforwards
totaling $8.3 million available. 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 31, 1999, the Company issued 60,131 shares of Class A Convertible
Preferred Stock to the Partnership in satisfaction of $150,327 owed for deferred
rents and accrued interest. The preferred stock has a 9% cumulative dividend
rate, voting rights and is convertible into common stock at the rate of one
share of common stock per share of preferred stock. The holders of preferred
stock are entitled to the number of votes
11
<PAGE>
equal to the number of shares of common stock into which the preferred stock
could be converted. These shares are in addition to the 547,614 shares issued in
satisfaction of $1,369,036 owed for deferred rents and accrued interest at
December 31, 1998. At June 30, 1999, the amount of preferred dividends in
arrears was $64,988. These dividends can be deferred and if they are not paid,
they accumulate without interest. Dividends can only be paid from profits of the
Company and are further subject to limitation under the Company's loan
agreements.
FINANCING
The Company's plans in 1999 include the continued emphasis on promoting
its core proprietary brands and increasing the volume of foreign and contract
sales. In order to achieve its 1999 plans, the Company needed additional debt
financing to meet working capital demands. On April 15, 1999, the Company
obtained a bank line of credit of $3 million, subject to certain borrowing base
restrictions. The line-of-credit agreement, which expires on April 15, 2002,
contains covenants which include limitations on the Company's ability to pay
dividends, and requires the Company to maintain certain financial requirements,
including maintaining a minimum net worth level. Substantially all of the
Company's assets are pledged as collateral under this line of credit.
On April 15, 1999, the Partnership committed to amend their credit
facility with the Company, thereby curing the default that existed at that time.
The amended agreement with the Partnership extended the maturity date to April
15, 2002, reducing the amount available from $2.5 million to $1.5 million. In
addition, the Partnership provided $500,000 for purposes of pledging a U.S.
Treasury Note for the BATF bond. Management believes that the result of
operations and these credit facilities will be sufficient to meet working
capital needs during 1999.
Since 1997, the Company has investigated and begun to develop a business for the
production of ethanol. Ethanol is principally produced from the processing of
corn including its fermentation into fuel grade alcohol. In March 1999, Gopher
State was formed for the purpose of constructing and operating an ethanol
facility. Because of the significant cost of the facility, the Company assisted
Gopher State in obtaining financing by contributing operating assets to Gopher
State and guaranteeing Gopher State's construction/mortgage loan. The Company
obtained a 28% minority interest in Gopher State which began the construction of
the ethanol facilities in April 1999 and is scheduled to begin operations by
April 2000.
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 are 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 expressed in any
forward-looking statement: (i) competition within the brewing industry resulting
from the increased 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, (iv) the Company's
continued ability to sell products for export, and (v) Gopher State Ethanol's
ability to successfully construct and operate an ethanol facility.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
13
<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
The Company's Annual Meeting of Shareholders was held on June 16, 1999.
The shareholders took the following actions:
(i) The shareholders elected five directors to hold office until
the annual meeting of shareholders. The shareholders present
in person or by proxy cast the following numbers of votes in
connection with the election of directors, resulting in the
election of all of the nominees:
Votes For Votes Withheld Non-Votes
--------- ------------- --------------
Bruce E. Hendry 2,034,273 1,205 0
John J. Lee 2,033,368 2,110 0
Richard A. Perrine 2,034,273 1,205 0
Robert A. Awsumb 2,034,273 1,205 0
John T. Elliott 2,034,273 1,205 0
(ii) The shareholders authorized the Company to amend the articles
of incorporation to change the corporate name of the Company
to MBC Holding Company.
For 2,029,558
Against 3,720
Abstain 2,200
Item 5. Other Information
The deadline for submission of shareholder proposals pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, as amended, for inclusion in
the Company's proxy statement for its 2000 Annual Meeting of Shareholders is in
January 25, 2000. Additionally, if the Company receives notice of a shareholder
proposal after April 10, 2000, such proposal will be considered untimely
pursuant to Rules 14a-4 and 14a-5 (e) and the persons named in proxies solicited
by the Board of Directors of the Company for its 2000 Annual Meeting of
Shareholders may exercise discretionary voting power with respect to such
proposal.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MINNESOTA BREWING COMPANY
Dated: /s/Michael C. Hime
Michael C. Hime
Vice President of Finance (Chief Financial Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 49,332
<SECURITIES> 474,961
<RECEIVABLES> 1,849,047
<ALLOWANCES> (280,000)
<INVENTORY> 3,019,022
<CURRENT-ASSETS> 5,125,268
<PP&E> 1,801,550
<DEPRECIATION> 1,155,860
<TOTAL-ASSETS> 8,417,287
<CURRENT-LIABILITIES> 3,849,214
<BONDS> 0
0
1,519,363
<COMMON> 34,627
<OTHER-SE> 1,267,415
<TOTAL-LIABILITY-AND-EQUITY> 8,417,287
<SALES> 4,613,105
<TOTAL-REVENUES> 4,332,550
<CGS> 3,624,969
<TOTAL-COSTS> 4,184,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,966
<INCOME-PRETAX> 131,410
<INCOME-TAX> 0
<INCOME-CONTINUING> 131,410
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,410
<EPS-BASIC> .03
<EPS-DILUTED> .02
</TABLE>
