UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] 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 EXCHANGE ACT
For the transition period from ________________ to ____________________
Commission file number 1-13636
Mendocino Brewing Company, Inc.
(Exact name of small business issuer as specified in its charter)
California 68-0318293
(State or other jurisdiction of incorporation or organization) (IRS Employer
Identification No.)
13351 South Highway 101, Hopland, California 95449
(Address of principal executive offices)
(707) 744-1015
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the issuer's common stock outstanding as of June 30,
1999 is 4,497,059.
<PAGE>
PART I
Item 1. Financial Statements.
<TABLE>
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1999
(Unaudited)
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Accounts receivable $1,261,000
Inventories 933,200
Prepaid expenses 70,200
Deferred income taxes 138,300
-----------
Total Current Assets: 2,402,700
-----------
PROPERTY AND EQUIPMENT 15,026,500
-----------
OTHER ASSETS
Deferred Taxes 2,016,000
Other Assets 150,700
-----------
Total Other Assets: 2,166,700
-----------
Total Assets: $19,595,900
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $1,431,500
Accrued liabilities 210,900
Accrued wages and related expense 198,800
Current maturities of notes payable to related party 994,000
Current maturities of obligation under capital lease 256,500
Current maturities of obligation under long-term debt 337,700
-----------
Total Current Liabilities: 3,429,400
LINE OF CREDIT 1,402,400
LONG TERM DEBT, less current maturities 3,739,000
OBLIGATIONS under capital lease - less current maturities 1,485,600
-----------
Total Liabilities: 10,056,400
-----------
STOCKHOLDERS' EQUITY
Common stock, no par value: 20,000,000 shares authorized, 4,497,059 shares issued and
outstanding 12,413,000
Preferred stock, Series A, no par value, with aggregate liquidation preference of
$227,600; 227,600 shares authorized, issued and outstanding 227,600
Accumulated deficit (3,101,100)
-----------
Total Stockholders' Equity 9,539,500
-----------
Total Liabilities and Stockholders' Equity: $19,595,900
===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
----------------------------- -------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, 1999 June 30, 1999
----------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 2,485,200 $ 1,690,200 $ 4,334,500 $ 3,000,300
LESS EXCISE TAXES 148,100 100,900 258,900 169,400
----------- ----------- ----------- -----------
NET SALES 2,337,100 1,589,300 4,075,600 2,830,900
COST OF GOODS SOLD 1,504,600 1,235,300 2,909,900 2,357,800
----------- ----------- ----------- -----------
GROSS PROFIT 832,500 354,000 1,165,700 473,100
----------- ----------- ----------- -----------
OPERATING EXPENSES
Retail operating 104,600 120,500 194,600 232,400
Marketing 392,600 320,400 737,200 488,500
General and administrative 395,800 476,200 746,300 905,000
----------- ----------- ----------- -----------
893,000 917,100 1,678,100 1,625,900
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (60,500) (563,100) (512,400) (1,152,800)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 2,700 (400) 8,600 (2,400)
Other income (expense) (78,400) -- (78,400) --
Interest expense (213,800) (129,800) (420,400) (251,600)
----------- ----------- ----------- -----------
(289,500) (130,200) (490,200) (254,000)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (350,000) (693,300) (1,002,600) (1,406,800)
Benefit From Income Taxes (140,200) (255,300) (400,300) (540,500)
----------- ----------- ----------- -----------
NET LOSS $ (209,800) $ (438,000) $ (602,300) $ (866,300)
=========== =========== =========== ===========
LOSS PER SHARE $ (0.05) $ (0.10) $ (0.13) $ (0.19)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
4,497,059 4,496,719 4,497,059 4,496,719
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
---------------------------- -----------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
June 30 June 30
---------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Loss $ (209,800) $ (438,000) $ (602,300) $ (866,300)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 215,200 166,800 417,700 332,200
Deferred income taxes (140,700) (255,300) (401,800) (540,500)
Changes in:
Accounts receivable (365,600) (225,300) (581,100) (358,700)
Inventories (76,500) (167,700) 44,800 (145,400)
Prepaid expenses 45,100 (94,400) (36,700) (259,000)
Accounts payable 272,300 318,100 624,800 332,100
Accrued wages and related expenses (26,100) 91,400 (12,000) 55,400
Accrued liabilities 99,500 41,400 119,900 96,200
----------- ----------- ----------- -----------
Net cash used by operating activities: $ (186,600) $ (563,000) $ (426,700) $(1,354,000)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment, and leasehold (32,000) (88,400) (51,200) (166,100)
improvements
Deposits and other assets (2,900) -- (5,000) --
----------- ----------- ----------- -----------
Net cash used by investing activities: (34,900) (88,400) (56,200) (166,100)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit 358,500 -- 664,400 --
Principal payments on long-term debt (84,000) (5,900) (117,100) (5,900)
Borrowings on long-term debt -- 677,400 -- 983,100
Payments on obligation under long-term lease (53,000) (41,500) (106,400) (82,800)
----------- ----------- ----------- -----------
Net cash provided by financing activities: 221,500 630,000 440,900 894,400
----------- ----------- ----------- -----------
DECREASE IN CASH -- (21,400) (42,000) (625,700)
----------- ----------- ----------- -----------
CASH, beginning of period -- 102,000 42,000 706,300
----------- ----------- ----------- -----------
CASH, end of period $ -- $ 80,600 $ -- $ 80,600
=========== =========== =========== ===========
Supplemental cash flow information includes the
following:
Cash paid during the period for:
Interest $ 101,400 $ 129,700 $ 353,300 $ 251,600
----------- ----------- ----------- -----------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1998. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1999, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.
Note 2 - Line of Credit
The Company has available a $3,000,000 line of credit from a financial
institution with interest at the prime rate plus 2.25%. Approximately $1,484,000
was advanced to the Company in the form a term loan. The term loan is repayable
in monthly installments of $24,700 over sixty months commencing March 1999. The
amount of the term loan outstanding as of June 30, 1999 is $1,385,100. The
bank's commitment under the line of credit matures September 2000. The agreement
is secured by substantially all of the assets of the Releta Brewing Company,
LLC, and all of the accounts receivable, inventory, general intangibles of the
Company, a second position on the assets of the Company, and certain securities
pledged by a stockholder.
Note 3 - Notes Payable
In March 1998, the Company refinanced its short-term construction note that
matured on January 1, 1998, to a $2,700,000 note, with interest at Treasury
Constant Maturity Index for five year treasuries plus 4.17%, currently 9.84%.
The note requires monthly payments of principal and interest of $24,400. The
note matures on December 1, 2012 with a balloon payment and is secured by real
property located in Ukiah, California.
The Company has a notes payable which consists of convertible notes to United
Breweries of America, Inc., a related party, in the amount of $994,000 as of
June 30, 1999. The notes bear interest at the prime rate plus 1.5%, mature 18
months after the advances, and are unsecured and subordinated to bank and
financial institution debt. The convertible notes mature through June 2000 and
are convertible at the option of United Breweries of America, Inc., to common
stock at $1.50 per share upon maturity. Interest accrued on the above notes for
the six months ending June 30, 1999 is $44,900.
The company has a note in the amount of $24,600 payable in monthly installments
of $1,200, including interest at 5.65%, maturing March 2001, secured by an
automobile.
4
<PAGE>
Note 4 - Income Taxes
As of June 30, 1999, the Company had available net operating loss carryovers of
approximately $5,500,000, $2,150,000 and $615,000 of federal, California and New
York net operating losses, respectively. The federal and New York operating
losses expire through 2019. California operating losses expire through 2004. The
benefit from these loss carryforwards has been recorded, resulting in a deferred
tax asset. A valuation allowance is not provided since the Company believes it
is more likely than not that the loss carryforwards will be fully utilized.
Note 5 - Payments to Related Parties
As of June 30, 1999, the Company had accrued payment obligations to one of its
directors, Jerome Merchant, in the amount of $16,200 for consulting services
performed for the Company. Of this amount, the Company has paid $10,800 through
June 30, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion and analysis should be read in conjunction with the
Financial Statements and the Notes thereto included as Item 1 of this Report.
The discussion of results and trends does not necessarily imply that these
results or trends will continue.
Forward-Looking Information
The Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-QSB contain forward-looking
information. The forward-looking information involves risks and uncertainties
that are based on current expectations, estimates and projections about the
Company's business, Management's beliefs and assumptions made by Management.
Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," and variations of such words and similar expressions are intended
to identify such forward-looking information. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking information due to numerous factors, including, but not limited
to, availability of financing for operations, successful performance of internal
operations, impact of competition, changes in distributor relationships or
performance and other risks detailed below as well as those discussed elsewhere
in this Form 10-QSB and from time to time in the Company's Securities and
Exchange Commission filings and reports. In addition, such statements could be
affected by general industry and market conditions and growth rates, and general
domestic economic conditions. Readers are cautioned not to place undue reliance
on these forward-looking statements, which are valid as of the date of this
filing.
5
<PAGE>
Overview
The results of the first six months of 1999 showed a substantial growth in sales
volume both out of the facility located in Ukiah, California, and the facility
located in Saratoga Springs, New York. Sales (measured in barrels) during the
first six months of 1999 increased to 22,999 barrels from 15,210 barrels in the
first six months of 1998. This represents an increase of 51% over the first six
months of 1998. Of the total sales of 22,999 barrels, the sales out of the Ukiah
facility amounted to 17,385 barrels and the sales out of the Saratoga Springs
facility amounted to 5,614 barrels.
The increases in net sales during the six-month period ending June 30, 1999 were
achieved in significant part through increased and improved marketing efforts.
The high costs associated with the new brewery located at Ukiah, the fixed costs
of the Ten Springs Brewery (neither of which are being used at full capacity)
and the interest expenses contributed to a net loss of $602,300 for the first
six months of 1999. The loss from operations as a percentage of net sales
decreased from 30.60% for the first six months of 1998 to 14.78% for the first
six months of 1999.
Results of Operations
The following discussion sets forth information for the six-month periods ending
June 30, 1999 and 1998. This information has been derived from unaudited interim
financial statements of the Company contained elsewhere herein and reflects, in
Management's opinion, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations for
these periods. Results of operations for any interim period are not necessarily
indicative of results to be expected for the full fiscal year.
The following table sets forth, as a percentage of sales, certain items included
in the Company's Statements of Operations, as set forth above under "Financial
Statements," for the periods indicated:
6
<PAGE>
----------------------------
Six Months Ended
June 30
----------------------------
1999 1998
Statements of Income Data:
Sales 106.35% 105.98%
Excise taxes 6.35 5.98
Net Sales 100.00 100.00
Cost of Goods Sold 71.40 83.29
Gross Profit 28.60 16.71
Retail Operating Expense 4.77 8.20
Marketing Expense 18.09 17.25
General and Administrative Expenses 18.31 31.97
Total Operating Expenses 41.17 57.42
Loss from Operations (12.57) (40.71)
Other Income 0.21 (0.08)
Other Expense (1.92) 0.00
Interest income (expense) (10.32) (8.90)
Loss before income taxes (24.60) (49.69)
Benefit from income taxes 9.82 19.09
Net Profit (Loss) (14.78) (30.60)
Balance Sheet Data:
Cash $ 0 $ 42,000
Working Capital (1,026,700) (525,100)
Property and Equipment 15,026,500 15,259,800
Deposits and Other Assets 2,166,700 177,500
Total Assets 19,595,900 18,923,200
Long-term Debt 5,141,400 4,120,800
Obligation under Capital Lease 1,485,600 1,525,800
Total Liabilities 10,056,400 8,781,400
Shareholder's equity 9,539,500 10,141,800
Net Sales. Net sales for the first six months of 1999 were $4,075,600 compared
with $2,830,900 for the first six months of 1998, representing an increase of
43.97%. The sales volume increased to 22,999 barrels during the first six months
of 1999, from 15,210 barrels during the first six months of 1998, representing
an increase of 51.21%. Management attributes the increased sales
7
<PAGE>
to improved marketing strategies, including new point of sale materials. The
increase in overall net sales during the first six months of 1999 was achieved
solely by higher wholesale shipments, which represented an increase of
$1,320,900 over the wholesale shipments during the first six months of 1998. In
view of management's focus on wholesale beer sales, retail sales for the first
six months of 1999 were $76,100 less than retail sales during the first six
months of 1998.
Cost of Goods Sold. Cost of goods sold as a percentage of net sales during the
first six months of 1999 was 71.40%, as compared to 83.29% during the first six
months of 1998, representing a decrease of 11.89%. As a percentage of net sales,
during the first six months of 1999, labor costs increased from 12.1% in 1998,
to 13.61% in 1999, depreciation decreased from 10.72% in 1998 to 8.37% in 1999,
utilities decreased from 4.87% in 1998 to 3.64% in 1999, property taxes
decreased from 2.49% in 1998 to 1.53% in 1999, insurance costs decreased from
1.80% in 1998 to 1.53% in 1999, wastewater decreased from 0.97% in 1998 to 0.31%
in 1999, repair and maintenance decreased from 1.18% in 1998 to 0.83% in 1999.
These factors contributed to a decrease of 11.89% in the cost of goods sold as a
percentage of net sales, as compared to the first six months of 1998. Management
attributes the balance of the decrease to higher sales volumes thereby lowering
per barrel production costs at both the Ukiah and Ten Springs breweries.
Gross Profit. As a result of the higher net sales as explained above, gross
profit for the first six months of 1999 increased to $1,165,700, from $473,100
for the comparable period of 1998, representing an increase of 146%. As a
percentage of net sales, the gross profit during the first six months of 1999
increased to 28.6% from 16.71% for the corresponding period of 1998.
Operating Expenses. Operating expenses for the first six months of 1999 were
$1,678,100, as compared to $1,625,900 for the first six months of 1998,
representing an increase of 3.21%. Operating expenses consist of retail
operating expenses, marketing and distribution expenses, and general and
administrative expenses.
Retail operating expenses for the first six months of 1999 were $194,600,
representing a decrease of $37,800, or 16.27%, from the first six months of
1998. As a percentage of net sales, retail operating expenses decreased to 4.77%
as compared to 8.2% for the first six months of 1998. The decrease in retail
operating expenses consisted of a decrease in labor costs of $38,300 and an
increase in other expenses by $500.
Marketing and distribution expenses for the first six months of 1999 were
$737,200, representing an increase of $248,700, or 51%, from the first six
months of 1998. As a percentage of net sales, marketing and distribution
expenses represented 18.09% as compared to 17.25% during the first six months of
1998. Compared to the first six months of 1998: marketing and sales labor
increased by $122,700; telephone expenses increased by $14,300; sales promotion
expenses increased by $67,300; point-of-sale expenses increased by $51,600;
trade sampling expenses increased by $15,000; website development and media
expenses increased by $7,200; newsletter expenses decreased by $5,100; freight
decreased by $13,200; travel and entertainment decreased by $11,300; and all
other marketing and distribution expenses increased by $200.
General and administrative expenses were $746,300, representing a decrease of
$158,700 from the first six months of 1998. As a percentage of net sales, the
general and administrative
8
<PAGE>
expenses were 18.31% for the first six months of 1999, as compared to 31.97% for
the first six months of 1998. As compared to the first six months of 1998,
professional and legal fees decreased by $79,500, depreciation increased by
$10,000, travel and entertainment decreased by $74,500, telephone expenses
decreased by $4,500, automobile expenses decreased by $7,200, and all other
general and administrative expenses decreased by $3,000.
Other Income (Expense). Other expenses for the first six months of 1999 were
$490,200, representing an increase of $236,200 when compared to the first six
months of 1998. The increase is due to an increase in interest expenses for the
first six months of 1999 of $168,800, and increase of $78,400 in other expenses
relative to potential acquisitions that were not consummated and an increase in
miscellaneous income of $11,000.
Benefit From Income Taxes. The benefit from income taxes for the first six
months of 1999 was $400,300, as compared to $540,500 for the first six months of
1998. The benefit from income taxes is due to the expected future benefit of
carrying forward net operating losses.
Net Loss. The net loss for the first six months of 1999 was $602,300, as
compared to a net loss of $866,300 for the first six months of 1998. As a
percentage of net sales, net loss for the first six months of 1999 decreased to
14.78%, as compared to 30.6% for the first six months of 1998.
Segment Information
Mendocino Brewing Company, Inc.'s business presently consists of two segments.
The first is brewing for wholesale to distributors and other retailers. This
segment accounted for 94% of the Company's gross sales for the first six months
of 1999. The second segment consists of brewing beer for sale along with food
and merchandise at the Company's brewpub and retail merchandise store located at
the Hopland Brewery. This segment accounted for 6% of the Company's total gross
sales during the first six months of 1999.
With expanded wholesale beer production in both Ukiah and Saratoga Springs,
management expects that retail sales, as a percentage of total sales, will
decrease proportionally to the expected increase in the Company's wholesale
sales.
<TABLE>
The Company's business segments are brewing operations and a retail
establishment known as the Hopland Brewery. A summary of each segment is as
follows:
<CAPTION>
Six Months Ended June 30, 1999
----------------------------------------------------------------------------
Brewing Hopland Corporate
Operations Brewery and Other Total
---------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Sales $ 4,084,600 $ 249,900 $ -- $ 4,334,500
Operating Loss (478,100) (34,300) -- (512,400)
Identifiable Assets 14,827,800 52,000 4,716,100 19,595,900
Depreciation and amortization 389,400 3,400 24,900 417,700
Capital Expenditures 121,700 -- 30,900 152,600
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
-----------------------------------------------------------------------------
Brewing Hopland Corporate
Operations Brewery and Other Total
---------------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Sales $ 2,674,300 $ 326,000 $ -- $ 3,000,300
Operating Loss (1,098,200) (54,500) -- (1,152,700)
Identifiable Assets 16,005,200 94,500 2,438,500 18,538,200
Depreciation and amortization 304,200 3,600 24,400 332,200
Capital Expenditures 134,800 -- 31,300 166,100
</TABLE>
Seasonality
Beer consumption nationwide has historically been approximately 20% higher
during the summer months as compared to the other months of the year. It is not
clear to what extent seasonality will affect the Company as it expands its
capacity and its geographic markets.
Capital Demands
The Company has yet to complete the build-out of its administrative space and
the exterior landscaping of the Ukiah facility. The Ukiah brewery is presently
operating under a temporary certificate of occupancy from the City of Ukiah.
Completion of construction is a condition to the issuance of a final certificate
of occupancy. Failure to complete construction and obtain a final certificate of
occupancy could have a material adverse effect on the Company's business,
financial condition and results of operations.
Liquidity and Capital Resources
Long Term Debt. The Company has in place a $2,700,000 term loan from the Savings
Bank of Mendocino County. The loan is payable in monthly installments of
$24,400, including interest at the Treasury Constant Maturity Index plus 4.17%,
currently 9.84%, maturing on December 1, 2012 with a balloon payment. The loan
is secured by some of the assets of the Company (other than the Ten Springs
brewery), including without limitation, a first priority deed of trust on the
Ukiah land and improvements, fixtures and most of the equipment of the Company.
Credit Facility. The CIT Group/Credit Finance, Inc., located in Chicago,
Illinois, has provided the Company with a $3,000,000 maximum line of credit with
an advance rate of 80% of the qualified accounts receivable and 60% of the
inventory at an interest rate of the prime rate of Chase Manhattan Bank of New
York plus 2.25% payable monthly, maturing September 23, 2000. The line of credit
is secured by all accounts, general intangibles, inventory, and equipment of the
Company except for the specific equipment and fixtures of the Company leased
from FINOVA Capital Corporation, as well as by a second deed of trust on the
Company's Ukiah land improvements. $1,484,000 of the line of credit was advanced
to the Company as an initial term loan, which is repayable in sixty consecutive
monthly installments of principal, each in the amount of $24,700. The Company
commenced repayment of the term loan in March 1999 and approximately $1,385,000
of the term loan was outstanding as of June 30, 1999. Of the initial term loan,
$600,000 was used to repay all amounts outstanding on a loan from WestAmerica
Bank. Based on the Company's current level of accounts receivable and inventory,
the Company
10
<PAGE>
has drawn the maximum amount permitted under the line of credit. As of June 30,
1999, the total amount outstanding on the line of credit was $2,724,700.
Equipment Lease. The Company has leased from FINOVA Capital Corporation
("Finova") brewing equipment at a total cost of approximately $1,780,000 to the
Company for a term of 7 years (commencing December 1996) with monthly rental
payments of approximately $27,100 each. At expiration of the initial term of the
lease, the Company may purchase the equipment at its then current fair market
value but not less than 25% nor more than 30% of the original cost of the
equipment, or at the Company's option, may extend the term of the lease for an
additional year at monthly rental payments of approximately $39,000 with an
option to purchase the equipment at the end of the year at then current fair
market value. The lease is not pre-payable.
Shareholder Commitment. In early 1998, the Company's largest shareholder, United
Breweries of America, Inc. ("UBA"), agreed to provide the Company with a credit
facility of up to $2 million to fund the operations of the Company. The credit
facility was to be secured by the assets of Releta Brewing Company, LLC ("RBC").
Advances on the credit facility bear interest at the prime rate of the Bank of
America in San Francisco plus 1.5%, up to a maximum of 10%, due and payable
quarterly. The principal amount of each advance, together with any accrued but
unpaid interest on such advance, is due 18 months after the date of such
advance. The advances also include a conversion feature whereby UBA could, at
its option, convert the principal and any accrued but unpaid interest into
unregistered shares of the Company's common stock on or after the maturity date,
at a rate of one share of common stock for each $1.50 of principal and unpaid
interest. In the course of facilitating the loan from The CIT Group/Credit
Finance, Inc. ("CIT"), UBA and the Company materially amended the terms of the
credit facility. Specifically, UBA was obligated to forego its security interest
in the assets of RBC and subordinate the payment of any interest or principal on
the advances from the credit facility to the obligations owed to CIT and Savings
Bank of Mendocino County. In addition, UBA pledged shares of stock of an
affiliate of UBA to CIT. UBA has advanced a total of $994,000 as of June 30,
1999; accrued but unpaid interest on the advances totals $44,900 as of June 30,
1999.
Subsequently, due to the material amendments to the terms of the credit
facility, UBA advised the Company that UBA has terminated the current credit
facility. In addition, UBA has offered the Company a new credit facility in the
maximum amount of $800,000. The termination of the current credit facility and
the establishment of a new credit facility is not expected to affect the status
of the advances which UBA has made to date.
UBA's new $800,000 credit facility is on similar terms, including the conversion
price, as the old credit facility. However, provided that the Company meets
certain requirements under the terms of its existing obligations to CIT, Finova,
and Savings Bank of Mendocino County, under the new credit facility the Company
is required to make quarterly payments of interest in cash. Further, under the
new credit facility, if UBA elects not to convert the principal and any unpaid
interest into common stock of the Company at maturity, then the Company shall
pay any such amounts over a period of five years in equal monthly installments.
Under the old credit facility, the Company made interest payments by issuing
additional convertible notes to UBA and the full principal amount was due upon
maturity. The Company has obtained the agreement of CIT, Finova, and Savings
Bank of Mendocino County to permit the Company to make such payments
11
<PAGE>
of principal and interest provided that certain conditions are met. As of June
30, 1999, the Company has not borrowed any funds from UBA under the new credit
facility.
Keg Management Arrangement. The Company has entered into a keg management
agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar
provides the Company with half-barrel kegs for which the Company pays a filling
fee. Distributors return the kegs to MicroStar instead of the Company. MicroStar
then supplies the Company with additional kegs. If the agreement terminates, the
Company is required to purchase a certain number of kegs from MicroStar. The
Company would probably finance the purchase through debt or lease financing, if
available. However, there can be no assurances that the Company will be able to
finance the purchase of kegs and the failure to purchase the necessary kegs from
MicroStar is likely to have a material adverse affect on the on the Company.
The Company's ratio of current assets to current liabilities on June 30, 1999,
was 0.70 to 1.0 and its ratio of assets to liabilities was 1.95 to 1.0.
Year 2000 Readiness
Many currently-installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries in order to
distinguish 21st century dates from 20th century dates. On January 1, 2000, many
computer, and embedded systems, may recognize the year "00" as the year 1900
rather than the year 2000. Because many computer functions are date-sensitive,
this error may cause systems to process data inaccurately or shut down if they
do not recognize the date. If not corrected, this could result in a system
failure or miscalculations causing disruptions of operations.
The Company is taking steps to ensure its operations will not be adversely
impacted by potential year 2000 computer failures. The Company is assessing all
systems for year 2000 impacts and costs of upgrading or replacing systems that
are not year 2000 ready, and testing and monitoring systems for year 2000
readiness.
The Company does not expect the year 2000 project costs to have a material
effect on its financial position or results of operations.
The Company believes that its most significant internal risk posed by the year
2000 problem is the possibility of a failure of equipment involved in its
brewing processes. If the brewing processes equipment were to fail, the Company
would have to implement manual processes, which may slow production levels that
would affect the Company's sales volume. The programmable logic controller
connected to the brewing equipment and the processes are not date sensitive. A
testing of the brewing house facility computer operations indicated that all of
the computer systems are year 2000 compliant. However, there can be no assurance
that problems may not arise relevant to year 2000.
The third parties whose year 2000 problems could have the greatest effect on the
Company are believed by the Company to be the banks that maintain the Company's
depository accounts, the
12
<PAGE>
company that processes the Company's payroll, and the Company's suppliers and
distributors. The Company is in process of confirming the state of year 2000
readiness of these parties.
Impact of Expansion on Cash Flow
The Company must make timely payment of its debt and lease commitments to
continue its operations. Unused capacity at the Ukiah facility and the Saratoga
Springs facility has placed additional demands on the Company's working capital.
Historically, working capital for the day to day business operations was
provided primarily through operations. Beginning approximately with the second
quarter of 1997, the time at which the Ukiah brewery commenced operations,
proceeds from operations have not been able to provide sufficient working
capital for the day to day operations of the Company. To fund its operating
deficits, the Company has relied upon lines of credit and other credit
facilities. However, there can be no assurances that the Company will have
access to any such sources of funds in the future, and the inability to secure
sufficient funds will have a materially adverse effect on the Company.
Compensation to Directors
The Board of Directors of the Company has formed a committee consisting of Dr.
Vijay Mallya, H. Michael Laybourn, and Yashpal Singh to determine the
compensation of the independent directors, namely R.H.B. (Bobby) Neame, Sury Rao
Palamand, and Kent Price. Currently, the Company does not have in place any
arrangements for compensating its directors for their services. It is
anticipated that the independent directors will receive shares of common stock
of the Company, options to purchase additional shares of common stock as well as
monetary compensation. All options to purchase shares of the Company's common
stock would be granted pursuant to the terms of the Company's 1994 Stock Option
Plan. It is further anticipated that the Company will grant options to purchase
common stock to Jerome Merchant, who is both a member of the Board of Directors
and a consultant to the Company. By virtue of being appointed to the
compensation committee, Dr. Mallya, Mr. Laybourn and Mr. Singh will not be
eligible to receive grants of stock or options for their services as directors.
It is expected that the amount of compensation to be paid to the directors will
be established at the next meeting of the Board of Directors.
PART II
Item 1. Legal Proceedings.
The Company is engaged in ordinary and routine litigation incidental to its
business. Management does not anticipate that any amounts, which it may be
required to pay by reason thereof, will have a material effect on the Company's
financial position.
Item 2. Changes in Securities.
None.
13
<PAGE>
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders in Ukiah, California, on
April 30, 1999. Votes were cast for the election of directors to serve until
their successors are elected at the next annual meeting of the Company as
follows:
Candidate Votes For Votes Withheld
--------- --------- --------------
Vijay Mallya 3,774,799 45,530
H. Michael Laybourn 3,774,285 46,044
R.H.B (Bobby) Neame 3,786,049 34,280
Kent Price 3,786,049 34,280
Sury Rao Palamand, Ph.D. 3,775,399 44,930
Jerome Merchant 3,786,449 33,880
Yashpal Singh 3,784,999 35,330
The shareholders also ratified the appointment of Moss Adams as the Company's
independent auditors for 1999 by a vote of 3,808,846 for, 3,201 against, and
8,282 abstain.
<TABLE>
Item 6. Exhibits and Reports on Form 8-K.
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C> <C>
3.1 (A) Articles of Incorporation, as amended, of the Company.
3.2 (B) Bylaws of the Company
4.1 Articles 5 and 6 of the Articles of Incorporation, as amended, of the Company (Reference is made to
Exhibit 3.1).
4.2 Article 10 of the Restated Articles of Incorporation, as amended, of the Company (Reference is made
to Exhibit 3.2).
10.1 (A) Mendocino Brewing Company Profit Sharing Plan.
10.2 (A) 1994 Stock Option Plan (previously filed as Exhibit 99.6).
10.3 (M) Employment Agreement with H. Michael Laybourn.
10.4 (A) Wholesale Distribution Agreement between the Company and Bay Area Distributing.
10.5 (A) Wholesale Distribution Agreement between the Company and Golden Gate Distributing.
10.6 (A) Sales Contract between the Company and John I. Hass, Inc.
10.7 (F) Liquid Sediment Removal Services Agreement with Cold Creek Compost, Inc.
10.8 (A) Lease Agreement between the Company and Kohn Properties.
10.9 (C) Commercial Real Estate Purchase Contract and Receipt for Deposit (previously filed as Exhibit 19.2).
10.15 (N) Commercial Lease between Stewart's Ice Cream Company, Inc. and Releta Brewing Company, LLC.
14
<PAGE>
10.16 (M) Agreement between United Breweries of America, Inc. and Releta Brewing Company, LLC regarding
payment of certain liens.
10.17 (K)+ Keg Management Agreement with MicroStar Keg Management LLC.
10.18 (E) Agreement to Implement Condition of Approval No. 37
of the Site Development Permit 95-19 with the City of
Ukiah, California (previously filed as Exhibit 19.6).
10.19 (G) Manufacturing Business Expansion and Relocation Agreement with the City of Ukiah.
10.20 (G) Manufacturing Business Expansion and Relocation Agreement with the Ukiah Redevelopment Agency.
10.21 (O) $2,700,000 Note in favor of the Savings Bank of Mendocino County.
10.22 (O) Hazardous Substances Certificate and Indemnity with the Savings Bank of Mendocino County.
10.23 (J) Equipment Lease with FINOVA Capital Corporation.
10.24 (J) Tri-Election Rider to Equipment Lease with FINOVA Capital Corporation.
10.25 (J) Master Lease Schedule with FINOVA Capital Corporation.
10.26 (L) Investment Agreement with United Breweries of America, Inc.
10.27 (L) Shareholders' Agreement Among the Company, United Breweries of America, Inc., H. Michael Laybourn,
Norman Franks, Michael Lovett, John Scahill, and Don Barkley.
10.28 (L) Registration Rights Agreement Among the Company,
United Breweries of America, Inc., H. Michael Laybourn,
Norman Franks, Michael Lovett, John Scahill, and Don Barkley.
10.29 (P) Indemnification Agreement with Vijay Mallya.
10.30 (P) Indemnification Agreement with Michael Laybourn.
10.31 (P) Indemnification Agreement with Jerome Merchant.
10.32 (P) Indemnification Agreement with Yashpal Singh.
10.33 (P) Indemnification Agreement with P.A. Murali.
10.34 (P) Indemnification Agreement with Robert Neame.
10.35 (P) Indemnification Agreement with Sury Rao Palamand.
10.36 (P) Indemnification Agreement with Kent Price.
10.37 (R) Loan and Security Agreement between the Company, Releta Brewing Company LLC and The CIT
Group/Credit Finance, Inc. regarding a $3,000,000 maximum line of credit.
10.38 (R) Patent, Trademark and License Mortgage by the Company in favor of The CIT Group/Credit Finance, Inc.
10.39 (R) Patent, Trademark and License Mortgage by Releta Brewing Company LLC in favor of The CIT
Group/Credit Finance, Inc.
10.40 (S) Promissory Notes in favor of United Breweries of America, Inc.
10.41 Employment Agreement with Yashpal Singh.
10.42 Employment Agreement with P.A. Murali.
27 Financial Data Schedule.
<FN>
- --------------- -------
(A) Incorporated by reference from the Company's
Registration Statement dated June 15, 1994, as amended,
previously filed with the Commission, Registration No.
33-78390-LA.
(B) Incorporated by reference from the Company's Report on
Form 10-KSB for the annual period ended December 31,
1994, previously filed with the Commission.
15
<PAGE>
(C) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended March 31,
1995, previously filed with the Commission.
(E) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended September 30,
1995, previously filed with the Commission.
(F) Incorporated by reference from the Company's Report on
Form 10-KSB for the annual period ended December 31,
1995, previously filed with the Commission.
(G) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended June 30,
1996, previously filed with the Commission.
(H) Incorporated by reference from the Company's Report on
Form 10-QSB/A No. 1 for the quarterly period ended June
30, 1996, previously filed with the Commission.
(J) Incorporated by reference from the Company's
Registration Statement dated February 6, 1997, as
amended, previously filed with the Commission,
Registration No. 33-15673.
(K) Incorporated by reference from the Company's Report on
Form 10-KSB for the annual period ended December 31,
1996, previously filed with the Commission.
(L) Incorporated by reference from the Schedule 13D filed
with the Commission on November 3, 1997, by United
Breweries of America, Inc. and Vijay Mallya.
(M) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended September 30,
1997.
(N) Incorporated by reference from the Company's Report on
Form 10-QSB/A No. 1 for the quarterly period ended
September 30, 1997.
(O) Incorporated by reference from the Company's Report on
Form 10-KSB for the annual period ended December 31,
1997, previously filed with the Commission.
(Q) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended June 30,
1998.
(R) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended September 30,
1998.
(s) Incorporated by reference from the Amendment No. 4 to
Schedule 13D filed with the Commission on February 18,
1999, by United Breweries of America, Inc. and Vijay
Mallya.
(t) Incorporated by reference from the Company's Report on
Form 10-KSB for the annual period ended December 31,
1998, previously filed with the Commission.
+ Portions of this Exhibit were omitted pursuant to an
application for an order declaring confidential
treatment filed with the Securities and Exchange
Commission.
</FN>
</TABLE>
No reports on Form 8-K were filed during the quarter for which this report is
filed.
16
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REGISTRANT:
MENDOCINO BREWING COMPANY, INC.
Dated: August 12, 1999 By: /s/ H. Michael Laybourn
------------------------------------------
H. Michael Laybourn
President
Dated: August 12, 1999 By: /s/ P.A. Murali
------------------------------------------
P.A. Murali
Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
Exhibit
Number
------
10.41 Employment Agreement with Yashpal Singh.
10.42 Employment Agreement with P.A. Murali.
27 Financial Data Schedule.
10.41
Executive Employment Agreement
EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is effective as of 1st day of
April, 1998, between Mendocino Brewing Company, Inc., 13351 South Highway 101,
Hopland, CA, 95449 ("Company") and Mr. Yashpal Singh ("Executive").
WITNESSETH
WHEREAS, Executive possesses professional qualifications, experience
and detailed knowledge of the company's business;
WHEREAS, company recognizes Executive's importance to the growth and
success of Company and desires to assure Executives contributions and to
compensate him in a manner which it has determined will reinforce and encourage
his continued attention and dedication;
WHEREAS Executive is desirous of committing himself to serve company on
the terms herein provided;
NOW, THEREFORE, in consideration of forgoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
hereby agree as follows:
1) EMPLOYMENT
a) Company hereby employs Executive for the period commencing on April1,
1998 for a period of three years, unless such employment is sooner
terminated as provided in this Agreement.
b) Executive hereby accepts employment under this Agreement and agrees to
devote all his best efforts and his full time and attention exclusively
to the business and affairs of Company. During the term of this
Agreement, Executive shall report to, and shall perform such duties and
responsibilities as may be assigned to him by, the Chief Executive
Officer or such other person as the Chief Executive Officer or Chairman
may designate. Company shall retain full direction and control of the
manner, means and methods by which Executive performs the services for
which he is employed hereunder and of the places at which such services
shall be rendered.
c) Executive shall observe and comply with Company's rules and
regulations.
2) DESIGNATION AND COMPENSATION
a) Designation and Base Salary
The Board of Directors of the company in their meeting held on October
6, 1998 unanimously passed a resolution designating the executive as
Executive Vice President & Chief Operating Officer and for his
employment hereunder, finalizing the executive's base salary at the
annual rate of $100,000 with effect from May 1, 1998.The salary is
payable in
<PAGE>
accordance with the Company's standard payoff practices as in effect
from time to time, prorated in any partial year of employment.
Executive shall be entitled for an annual salary increase, based on a
review of performance and such increases will be determined by the
Board of Directors of the company in its sole discretion.
b) Reimbursement
Executive shall be entitled to reimbursement for reasonable travel and
other business expenses incurred in the performance of his duties under
this Agreement in accordance with the general policy of Company, as it
may change from time to time, provided the Executive provides an
itemized account together with supporting receipts for such
expenditures in accordance with the requirements set forth in the
Internal Revenue Code of 1986, as amended, and related regulations,
subject to the right of Company at any time to place reasonable
limitations on such expenses thereafter to be incurred or reimbursed.
c) Withholding
Company shall be entitled to withhold from any compensation paid or
payable hereunder such amounts on account of payroll taxes, income
taxes and other similar matters as are required to be withheld by
applicable law.
d) Medical
Executive and his immediate dependent family members in USA will be
provided full Insurance coverage for medical, dental and vision.
e) Key Executive Life Insurance
Executive shall be insured for life for $250,000 being the face amount
of the Basic policy out of which the beneficiaries shall be the company
for $50,000 and the Executive or his nominees for $200,000.
f) Vacation
Executive shall be entitled to one month paid vacation in each calendar
year to visit India, along with his family. Executive shall also be
entitled to 5 days each of Sick and Personal leave. Vacation leave is
to receive prior formal approval of concerned officers of the company.
g) Bonus
Executive shall be entitled up to 30% Bonus, paid quarterly based on
performance review.
h) Benefit Plans
Subject to any limitations imposed by applicable law Executive shall be
eligible to participate in all Company employee benefit programs in
substantially the same manner and to substantially the same extent as
other company employees. Executive will be provided with company cars.
<PAGE>
i) Company Assets
All furniture / furnishings, appliances / equipment etc. provided by
the Company to help the Executive settle down will be a part of the
Assets of the Company at the completion of the term of the Agreement.
3) TERMINATION / EXTENSION OF EMPLOYMENT BY THE COMPANY
a) Company may terminate this agreement with or without cause at any time
giving six months notice or compensation lieu thereof in lumpsum
b) Executive may terminate this Agreement after giving notice of six
months.
c) Company may extend the term of Agreement with the written consent of
the Executive four months prior to expiration of this agreement for a
minimum period of one year.
d) Company shall provide business class airfare for the Executive and his
family to return to India, in addition to transportation of his
belongings from the place of his residence in USA to the place of his
residence in India in event of completion of term of this Agreement or
termination of this agreement on account of Clause 3(a) or 3(b).
4) DEATH OF EXECUTIVE
In the event of the death of Executive during the period of his
employment herewith, Executive's salary herewith shall be paid up
through the end of next month in which the date of death occurs. In
such an event, the Company will pay for transportation of Executive's
belongings and business class airfare for his family to India.
5) MISCELLANEOUS
a) Governing Law
This Agreement shall be governed by and constructed according to the
laws of the State of California without regard to the principles
thereof regarding conflict of laws.
b) Amendment
This Agreement may be amended only by a writing signed by Executive and
by Company's Chairman.
c) Construction
The headings and captions of this Agreement are provided for
convenience only and are intended to have no effect in construing or
interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning
and strictly for or against Company or Executive.
d) Attorneys' Fees
Should either party hereto, or any heir, personal representative,
successor or assign of either party hereto, resort to litigation or
arbitration to enforce this Agreement, the party or parties prevailing
in such litigation or arbitration to addition to such other relief as
may be granted, to recover its or their reasonable attorneys fees and
costs in such litigation from the party or parties against whom
enforcement was sought.
<PAGE>
e) Notices
Any notice, request, consent or approval required or permitted to be
given under this Agreement or pursuant to law shall be sufficient if in
writing, and if and when delivered personally, by facsimile or sent by
certified or registered mail, with postage prepaid, to Executive's
residence (as noted in Company's records), or to Company's principal
executive office, as the case may be.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
Thirteenth Day of May 1999.
EXECUTIVE MENDOCINO BREWING CO., INC
/s/ Yashpal Singh /s/ Michael Laybourn
----------------- --------------------
(YASHPAL SINGH) (MICHAEL LAYBOURN)
PRESIDENT
10.42
Executive Employment Agreement
EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is effective as of 1st day of
April, 1998, between Mendocino Brewing Company, Inc., 13351 South Highway 101,
Hopland, CA, 95449 ("Company") and Mr. P.A. Murali ("Executive").
WITNESSETH
WHEREAS, Executive possesses professional qualifications, experience
and detailed knowledge of the company's business;
WHEREAS, company recognizes Executive's importance to the growth and
success of Company and desires to assure Executives contributions and to
compensate him in a manner which it has determined will reinforce and encourage
his continued attention and dedication;
WHEREAS Executive is desirous of committing himself to serve company on
the terms herein provided;
NOW, THEREFORE, in consideration of forgoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
hereby agree as follows:
1) EMPLOYMENT
a) Company hereby employs Executive for the period commencing on April 1,
1998 for a period of three years, unless such employment is sooner
terminated as provided in this Agreement.
b) Executive hereby accepts employment under this Agreement and agrees to
devote all his best efforts and his full time and attention exclusively
to the business and affairs of Company. During the term of this
Agreement, Executive shall report to, and shall perform such duties and
responsibilities as may be assigned to him by, the Chief Executive
Officer or such other person as the Chief Executive Officer or Chairman
may designate. Company shall retain full direction and control of the
manner, means and methods by which Executive performs the services for
which he is employed hereunder and of the places at which such services
shall be rendered.
c) Executive shall observe and comply with Company's rules and
regulations.
2) DESIGNATION AND COMPENSATION
a) Designation and Base Salary
The Board of Directors of the company in their meeting held on October
6, 1998 unanimously passed a resolution designating the executive as
Chief Financial Officer And Corporate Secretary and for his employment
hereunder, finalizing the executive's base salary at the annual rate of
$75,000 with effect from October 15, 1998.The salary is payable in
<PAGE>
accordance with the Company's standard payoff practices as in effect
from time to time, prorated in any partial year of employment.
Executive shall be entitled for an annual salary increase, based on a
review of performance and such increases will be determined by the
Board of Directors of the company in its sole discretion.
b) Reimbursement
Executive shall be entitled to reimbursement for reasonable travel and
other business expenses incurred in the performance of his duties under
this Agreement in accordance with the general policy of Company, as it
may change from time to time, provided the Executive provides an
itemized account together with supporting receipts for such
expenditures in accordance with the requirements set forth in the
Internal Revenue Code of 1986, as amended, and related regulations,
subject to the right of Company at any time to place reasonable
limitations on such expenses thereafter to be incurred or reimbursed.
c) Withholding
Company shall be entitled to withhold from any compensation paid or
payable hereunder such amounts on account of payroll taxes, income
taxes and other similar matters as are required to be withheld by
applicable law.
d) Medical
Executive and his immediate dependent family members in USA will be
provided full Insurance coverage for medical, dental and vision.
e) Key Executive Life Insurance
Executive shall be insured for life for $250,000 being the face amount
of the Basic policy out of which the beneficiaries shall be the company
for $50,000 and the Executive or his nominees for $200,000.
f) Vacation
Executive shall be entitled to one month paid vacation in each calendar
year to visit India, along with his family. Executive shall also be
entitled to 5 days each of Sick and Personal leave. Vacation leave is
to receive prior formal approval of concerned officers of the company.
g) Bonus
Executive shall be entitled up to 30% Bonus, paid quarterly based on
performance review.
h) Benefit Plans
Subject to any limitations imposed by applicable law Executive shall be
eligible to participate in all Company employee benefit programs in
substantially the same manner and to substantially the same extent as
other company employees. Executive will be provided with company cars.
<PAGE>
i) Company Assets
All furniture / furnishings, appliances / equipment etc. provided by
the Company to help the Executive settle down will be a part of the
Assets of the Company at the completion of the term of the Agreement.
3) TERMINATION / EXTENSION OF EMPLOYMENT BY THE COMPANY
a) Company may terminate this agreement with or without cause at any time
giving six months notice or compensation lieu thereof in lumpsum
b) Executive may terminate this Agreement after giving notice of six
months.
c) Company may extend the term of Agreement with the written consent of
the Executive four months prior to expiration of this agreement for a
minimum period of one year.
d) Company shall provide business class airfare for the Executive and his
family to return to India, in addition to transportation of his
belongings from the place of his residence in USA to the place of his
residence in India in event of completion of term of this Agreement or
termination of this agreement on account of Clause 3(a) or 3(b).
4) DEATH OF EXECUTIVE
In the event of the death of Executive during the period of his
employment herewith, Executive's salary herewith shall be paid up
through the end of next month in which the date of death occurs. In
such an event, the Company will pay for transportation of Executive's
belongings and business class airfare for his family to India.
5) MISCELLANEOUS
a) Governing Law
This Agreement shall be governed by and constructed according to the
laws of the State of California without regard to the principles
thereof regarding conflict of laws.
b) Amendment
This Agreement may be amended only by a writing signed by Executive and
by Company's Chairman.
c) Construction
The headings and captions of this Agreement are provided for
convenience only and are intended to have no effect in construing or
interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning
and strictly for or against Company or Executive.
d) Attorneys' Fees
Should either party hereto, or any heir, personal representative,
successor or assign of either party hereto, resort to litigation or
arbitration to enforce this Agreement, the party or parties prevailing
in such litigation or arbitration to addition to such other relief as
may be granted, to recover its or their reasonable attorneys fees and
costs in such litigation from the party or parties against whom
enforcement was sought.
<PAGE>
e) Notices
Any notice, request, consent or approval required or permitted to be
given under this Agreement or pursuant to law shall be sufficient if in
writing, and if and when delivered personally, by facsimile or sent by
certified or registered mail, with postage prepaid, to Executive's
residence ( as noted in Company's records ), or to Company's principal
executive office, as the case may be.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
Thirteenth Day of May 1999.
EXECUTIVE MENDOCINO BREWING CO., INC.
/s/ P.A. Murali /s/ Michael Laybourn
--------------- --------------------
(P.A. MURALI) (MICHAEL LAYBOURN)
PRESIDENT
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,261,000
<ALLOWANCES> 0
<INVENTORY> 933,200
<CURRENT-ASSETS> 2,402,700
<PP&E> 17,066,100
<DEPRECIATION> (2,039,600)
<TOTAL-ASSETS> 19,595,900
<CURRENT-LIABILITIES> 3,429,400
<BONDS> 0
12,413,000
0
<COMMON> 227,600
<OTHER-SE> (3,101,100)
<TOTAL-LIABILITY-AND-EQUITY> 19,595,900
<SALES> 4,075,600
<TOTAL-REVENUES> 4,075,600
<CGS> 2,909,900
<TOTAL-COSTS> 4,588,000
<OTHER-EXPENSES> 78,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 420,400
<INCOME-PRETAX> (1,002,600)
<INCOME-TAX> 400,300
<INCOME-CONTINUING> (602,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (602,300)
<EPS-BASIC> (0.13)
<EPS-DILUTED> 0
</TABLE>
