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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-QSB
_________________________
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996
Commission File Number 33-81536-LA
AVIATOR ALES, INC.
(Exact name of registrant as specified in charter)
Delaware 91-1633491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
_________________________
14316 NE 203rd St.
Woodinville, Washington 98072
(206)-487-0717
(Address, including Zip code, and telephone number,
including area code, of registrant's principal executive offices)
_________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. [X] YES [ ] NO
Transitional Small Business Disclosure Format [ ] YES [X] NO
Number of shares of common stock outstanding as of June 30, 1996:
7,460,086 shares, $.001 par value
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AVIATOR ALES, INC.
INDEX TO FORM 10-Q
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Part I - Financial Information
Item 1 -- Financial Statements
Balance Sheet - June 30, 1996 and December 31, 1995 . . . 3
Statement of Operations -
Three Months and Six Months Ended
June 30, 1996 and June 30, 1995 . . . . . . . . . . . . 4
Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995 . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . 6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations. .. . . . 9
Part II - Other Information
Item 6 -- Exhibits and Reports on Form 8-K . . . . . . . . . . . . 11
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
AVIATOR ALES, INC.
(A Development Stage Company)
Balance Sheet
June 30,
1996 December 31,
ASSETS (unaudited) 1995
------------ ------------
Current assets:
Cash and cash equivalents $ 27,817 $ 226,401
Accounts receivable 225,447 48,870
Inventories 285,484 244,273
Other current assets, net 40,465 57,912
------------ ------------
Total current assets 579,213 577,456
Property and equipment, net 2,247,167 2,153,851
Deferred stock offering costs 68,006 -
Other non-current assets, net 15,296 16,361
------------ ------------
Total assets $ 2,909,682 $ 2,747,668
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 388,668 $ 202,312
Accrued liabilities 65,327 29,552
Payable to parent and affiliated companies, net 387,889 28,111
------------ ------------
Total current liabilities 841,884 259,975
Mortgage note payable 50,000 50,000
Advance from affiliate 275,000 250,000
Deferred rent 64,950 47,951
------------ ------------
1,231,834 607,926
------------ ------------
Commitments
Shareholders' equity:
Common stock, $.001 par value -
10,000,000 shares authorized,
7,460,086 and 7,460,226 shares outstanding 7,461 7,461
Additional paid-in capital 2,577,649 2,577,649
Deficit accumulated during the development stage (907,262) (445,368)
------------ ------------
1,677,848 2,139,742
------------ ------------
Total liabilities and shareholders' equity $ 2,909,682 $ 2,747,668
============ ============
The accompanying notes are an integral part of this financial statement.
AVIATOR ALES, INC.
(A Development Stage Company)
Statement of Operations
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Gross sales 472,136 4,817 746,241 6,772
Less: excise taxes 22,611 - 37,966 -
------------ ------------ ------------ ------------
Net Sales 449,525 4,817 708,275 6,772
Cost of sales 495,225 787 824,865 2,735
------------ ------------ ------------ ------------
Gross profit (deficit) (45,700) 4,030 (116,590) 4,037
Selling, general and 188,327 90,902 345,346 185,875
administrative expenses
------------ ------------ ------------ ------------
Loss from operations (234,027) (86,872) (461,936) (181,838)
Other income (expense)
Interest income 360 33,288 2,292 63,256
Interest expense (1,125) (1,250) (2,250) (2,500)
------------ ------------ ------------ ------------
(765) 32,038 42 60,756
------------ ------------ ------------ ------------
Net loss $ (234,792) $ (54,834) $ (461,894) $ (121,082)
============ ============ ============ ============
Net loss per
common share $ (0.04) $ (0.01) $ (0.08) $ (0.02)
============ ============ ============ ============
Weighted average
number of common
shares outstanding 5,330,275 7,454,546 6,040,259 7,454,546
============ ============ ============ ============
The accompanying notes are an integral part of this financial statement
AVIATOR ALES, INC.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
Six Months Ended June 30,
1996 1995
----------- -----------
Cash flows from operating activities:
Net loss $ (461,894) $ (121,082)
Reconciliation of net loss to net cash used
for operating activities:
Depreciation and amortization 77,458 -
Changes in assets and liabilities:
Accounts receivable (176,577) -
Inventories (41,211) (4,901)
Other current assets 17,447 20,108
Other non-current assets 1,065 (1,000)
Accounts payable 186,356 16,772
Accrued liabilities 35,775 5,311
Payables to parent and affiliated companies 359,778 (19,585)
----------- -----------
Net cash used for operating activities (1,803) (104,377)
Cash flows from investing activities:
Purchases of property and equipment (225,774) (708,127)
Sale of asset 55,000 -
----------- -----------
Net cash used for investing activities (170,774) (708,127)
Cash flows from financing activities:
Cash advances from affiliated company 25,000 -
Deferred rent 16,999 -
Deferred stock offering costs (68,006) -
----------- -----------
Net cash (used for) provided by financing
activities (26,007) -
Net decrease in cash and cash equivalents (198,584) (812,504)
Cash and cash equivalents:
Beginning of period 226,401 2,490,777
End of period $ 27,817 $1,678,273
=========== ===========
AVIATOR ALES, INC.
NOTES TO FINANCIAL STATEMENTS
DEVELOPMENT STAGE COMPANY
Aviator Ales, Inc. (the Company) was formed on February 14, 1994 to produce and
sell hand-crafted ales under its own label "Aviator Ales" in the State of
Washington. To achieve its goal, the Company has built a brewery in an 18,948
square foot leased facility in Woodinville, Washington. The brewery has an
initial production capacity of 11,700 barrels per year with a maximum designed
production capacity of 125,000 barrels per year.
The Company is a development stage company that was organized under the laws of
the State of Delaware. From the date of inception (February 14, 1994) through
June 30, 1996, the Company's efforts have been directed toward organizing and
completing a public offering of shares of its common stock and building,
equipping and operating its brewery. The Company is a majority owned subsidiary
of Willamette Valley, Inc. Microbreweries across America ("WVI"), a company
organized to establish microbreweries throughout the United States. At June
30, 1996, WVI owned approximately 51% of the Company's common stock.
BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited and have been
prepared by Aviator Ales, Inc. pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures typically included in financial statements prepared in accordance
with generally accepted accounting standards have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period presented. The financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995
filed with the Securities and Exchange Commission. The results of operations
for an interim period are not necessarily indicative of the results of
operations for a full year.
Inventories
Inventories consist of the following:
June 30, December 31,
1996 1995
----------- -----------
Raw Materials $ 102,319 $ 48,589
Work-in-process 92,973 30,100
Finished Goods 60,027 147,992
Retail Products 30,165 17,592
----------- -----------
$285,484 $ 244,273
AVIATOR ALES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Property and Equipment
Property and equipment consists of the following:
June 30, December 31,
1996 1995
----------- -----------
Land and improvements $ 98,455 $ 98,455
Leasehold improvements 597,031 543,820
Brewery equipment 1,623,930 1,527,269
Office furniture and equipment 12,586 10,162
Vehicles 19,490 19,490
----------- -----------
2,351,492 2,199,196
Less accumulated depreciation and
amortization (104,325) (45,345)
----------- -----------
$2,247,167 $2,153,851
Income Taxes
No benefit for income taxes was recognized for the periods ended June 30, 1995
and 1996 in the accompanying statement of operations as there can be no
assurance that the Company will generate taxable income in the future against
which such benefits could be realized. Accumulated net operating loss
carryforwards at June 30, 1996 and December 31, 1995 were $1,042,000 and
$580,000, respectively.
Shareholders' Equity
The Company has filed a registration statement with the Securities and Exchange
Commission to sell an additional 820,000 shares of its common stock at a
proposed offering price of $1.85 per share. The amount raised to date is
approximately $400,000 and has been placed into an escrow account. The funds
will be available to the Company once the escrow amount exceeds $650,000.
In March 1996, the board of directors of WVI authorized WVI to contribute
2,129,871 of its 4,845,455 shares in the Company to the Company for no
consideration in contemplation of the stock offering; the Company, in turn,
retired these shares. This transaction reduced WVI's ownership in the Company
from approximately 65% to approximately 51%.
Related Party Transactions
For the three months ended June 30, 1996, the Company purchased management and
administrative services from WVI at a total cost of $8,100. WVI contracts for
certain of these services under a general services agreement between WVI and
Nor'Wester Brewing Company, Inc. (Nor'Wester), an affiliated company. The
Company also purchased stock transfer services from Willamette Valley Vineyard,
Inc. ("WVV"), an affiliated company, for $2,475 for the three months ended June
30, 1996. In conjunction with the Company's stock offering, the Company has
been charged an aggregate of $15,700 by WVI, Nor'Wester, and WVV for stock
offering services.
In 1996, Nor'Wester purchased from the Company $55,000 of 1/2 barrel kegs to be
used for production of Nor'Wester beer under the Cooperative Brewing
Agreement. In addition, the Company has agreed to cooperatively brew and
bottle beer for Bayhawk Ales, Inc. ("Bayhawk"), another majority-owned
subsidiary of WVI. In accordance with this agreement, Bayhawk advanced
$25,000 to the Company in April 1996 for the purchase of raw materials.
Sales of beer by the Company to the affiliates through the second quarter of
1996 totaled $78,908.
AVIATOR ALES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Net Loss Per Share
Net loss per common share is calculated based on the weighted average number of
common shares outstanding. Shares owned by the Company's parent, WVI, are held
in escrow and are included in the weighted average number of common shares
outstanding.
AVIATOR ALES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1996
Gross Sales. The Company began brewing beer in August 1995. Sales from beer
and retail products totaled $472,136 for the three months ended June 30, 1996.
Revenues included an arrangement by the Company with a national beer club,
Beers Across America, whereby the Company sold over 25,000 six-packs of beer
at cost which were then shipped to members throughout the United States.
The Company has also shown positive response on its initial sale of beer to a
specialty store in California, with an initial order of 14,000 cases and a
current re-order of 4,200 cases. The Company introduced its India Pale Ale in
the second quarter of 1996; it is available in both draft and six-packs.
Aviator India Pale Ale is authorized in five major grocery chains throughout
Washington and has garnered enough interest to secure its availability as a
year round product. Revenues, from the comparable period in 1995, totaled
$4,817 and were limited to the sale of retail merchandise such as T-shirts
and hats as the brewery had not yet commenced operations.
Excise Taxes. Excise taxes were $22,611 (5% of net sales) for the three
months ended June 30, 1996. There were no excise taxes during the same
period in 1995, as production and sale of beer did not commence until August
1995.
Cost of Sales. Cost of sales as a percentage of net revenues for the second
quarter ended 1996 was 110%, reflecting the disproportionate cost of production
for goods sold during a period when the facility was operating at less than its
maximum designed capacity, as well as development-stage production costs
such as recipe testing. With the introduction of its product to surrounding
states, the Company has also experienced an increase in shipping costs.
Cost of sales as a percentage of net revenues for the comparable period in
the prior year was 16% reflecting the cost of the retail merchandise sold
during the quarter.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses for the three months ended June 30, 1996 totaled
$188,327 as compared to $90,902 for the comparable period in 1995. This is
primarily due to higher management and administrative support required when
the Company commenced operations.
Six Months Ended June 30, 1996
Gross Sales. Sales from beer and retail products totaled $746,241 for the six
months ended June 30, 1996. Revenues from the comparable period in 1995
totaled $6,772 and were limited to the sale of retail merchandise such as
T-shirts and hats as the brewery had not yet commenced operations.
Excise Taxes. Excise taxes were $37,966 (5% of net sales) for the six months
ended June 30, 1996. There were no excise taxes during the same period in
1995, as production and sale of beer did not commence until August 1995.
AVIATOR ALES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 (cont.)
Cost of Sales. Cost of sales as a percentage of net revenues for the first
half of 1996 was 116%, reflecting the disproportionate cost of production for
goods sold during a period when the facility was operating at less than its
maximum designed capacity, as well as development-stage production costs such
as recipe testing. Cost of sales as a percentage of net revenues for the
comparable period in the prior year was 40% reflecting the cost of the retail
merchandise sold during the quarter.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses for the six months ended June 30, 1996 totaled $345,346
as compared to $185,875 for the comparable period in 1995. This is primarily
due to higher management and administrative support required when the Company
commenced operations. The Company also hired a professional sales manager in
the second quarter of 1996; he was responsible for successful product
placement in four large, multi-state grocery chains.
The following discussion contains forward-looking statements that involve risks
and uncertainties. Actual future results and trends may differ materially
depending on a variety of factors, including, but not limited to, pricing and
availability of raw materials and packaging, successful execution of internal
performance and expansion plans, impact of competition, distributor changes,
availability of financing, legal proceedings, and other risks detailed in the
Company's Securities and Exchange Commission filings, including the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995.
Liquidity and Capital Resources
For the quarter ended June 30, 1996, cash and cash equivalents decreased
$198,584 primarily due to operating losses of $461,894. Other uses of funds
include an increase in accounts receivable of $176,577, an increase in
inventories of $41,211, purchases of property and equipment of $225,774 and an
increase in deferred stock offering costs of $68,006. Primary sources of funds
include an increase in accounts payable of $186,356, and increase in accrued
expenses of $35,775, sale of asset for $55,000, an increase in deferred rent of
$16,999, a decrease in current assets of $17,447, an increase in amounts
payable to affiliated companies of $359,778 and an increase in advance from
affiliates of $25,000.
The Company will be dependent upon proceeds from debt or equity financing as
cash flows from operations are not expected to be sufficient to satisfy the
Company's working capital needs for the next twelve months.
The Company has filed a registration statement with the Securities and Exchange
Commission to sell up to 820,000 shares of its Common Stock at a proposed
offering price of $1.85 per share. This offering, if completed, will generate
net proceeds of approximately $1.3 million, which will provide the Company with
sufficient funds, in order of priority, to: sustain operations for the next
twelve months, purchase equipment to expand production to 39,000 barrels per
year; repay WVI the $240,000 of its loan to the Company; purchase additional
equipment for brewing purposes. The preceding description represents the
Company's best estimate of its expected use of the net offering proceeds based
upon its present plans. However, events may require changes in the use of
proceeds if, in management's opinion, it is in the bests interests of the
Company. If, for any reason, the Company is unable to finance future expansion
and working capital requirements through its planned second self-underwritten
public offering of common stock, alternative methods of financing would have to
be developed. No assurance can be given that the planned offering will be
successful or that alternative methods of financing would be available on terms
acceptable to the Company or at all. Having to develop alternative means of
financing would likely slow expansion and such alternative financing may be
more costly. The Company's inability to obtain additional capital would
result in a material adverse effect on the Company's business and results of
operations.
AVIATOR ALES, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None
(b) No reports were filed on Form 8-K during the quarter for which this report
is filed.
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVIATOR ALES, INC.
Date: By: /s/ Dusty Wyant
---------------
Dusty Wyant
General Manager
17
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<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at June 30, 1996 (Unaudited) and the Statement of Operations for the Six
Months Ended June 30, 1996 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
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