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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 33-82208-LA
BAYHAWK ALES, INC.
(Exact name of registrant as specified in charter)
Delaware 33-0606860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
_________________________
2000 Main Street - Suite A
Irvine, California 92714
(714) 442-7565
(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:
2,200,814 shares, $.001 par value
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BAYHAWK 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 . . . . . . . 8
Part II - Other Information
Item 6 -- Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 10
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
BAYHAWK ALES, INC.
(A Development Stage Company)
Balance Sheet
June 30,
1996 December 31,
ASSETS (unaudited) 1995
------------ ------------
Current assets:
Cash and cash equivalents $ 106,785 $ 302,247
Accounts receivable 114,431 26,405
Inventories 58,768 37,620
Other current assets, net 12,072 12,165
------------ ------------
Total current assets 292,056 378,437
Property and equipment, net 785,144 876,213
Other non-current assets, net 7,623 6,998
Advance to affiliate 25,000 -
------------ ------------
Total assets $ 1,109,823 $ 1,261,648
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 62,634 $ 9,249
Accrued liabilities 70,368 36,482
Payable to parent and
affiliated companies, net 44,362 13,995
Current portion of note
payable to parent company 14,417 26,000
------------ ------------
Total current liabilities 191,781 85,726
Note payable to parent company 246,000 321,000
Shareholders' equity:
Common stock, $.001 par value -
10,000,000 shares authorized,
2,200,814 and 2,198,444 shares outstanding 2,200 2,198
Additional paid-in capital 1,419,810 1,424,075
Deficit accumulated during the development stage (749,968) (571,351)
------------ ------------
Total shareholders' equity 672,042 854,922
------------ ------------
Total liabilities and shareholders' equity $ 1,109,823 $ 1,261,648
============ ============
The accompanying notes are an integral part of this financial statement.
BAYHAWK 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 $ 184,178 $ 38,745 $ 240,106 $ 49,790
Less: excise tax 20,333 5,618 25,195 6,118
------------ ------------ ------------ ------------
Net sales 163,845 33,127 214,911 43,672
Cost of sales 113,697 36,263 207,532 56,121
------------ ------------ ------------ ------------
Gross profit (deficit) 50,148 (3,136) 7,379 (12,449)
Selling, general and
administrative expenses 112,281 111,295 178,927 186,025
------------ ------------ ------------ ------------
Loss from operations (62,133) (114,431) (171,548) (198,474)
Interest income 1,318 164 4,364 270
Interest expense (6,806) - (11,433) -
------------ ------------ ------------ ------------
Net income (loss) $ (67,621) $ (114,267) $ (178,617) $ (198,204)
============ ============ ============ ============
Net loss per
common share $ (0.03) $ (0.09) $ (0.08) $ (0.16)
============ ============ ============ ============
Weighted average
number of common
shares outstanding 2,200,814 1,249,811 2,200,681 1,249,811
============ ============ ============ ============
The accompanying notes are an integral part of this financial statement.
BAYHAWK ALES, INC.
(A Development Stage Company)
Statement of Cash Flows
Six Months Ended June 30,
1996 1995
----------- -----------
Cash flows from operating activities:
Net loss $ (178,617) $ (198,204)
Reconciliation of net loss to net cash
provided by operating activities:
Depreciation and amortization 29,027 25,822
Changes in assets and liabilities:
Accounts receivable (88,026) (33,986)
Inventories (21,148) (50,514)
Other current assets 93 (20,705)
Other non-current assets (25,625) 3,087
Accounts payable 53,385 (31,565)
Accrued liabilities 33,886 41,697
Payables to parent and affiliated companies 30,367 460,141
----------- -----------
Net cash used for operating activities (166,658) 195,773
Cash flows from investing activities:
Purchases of property and equipment (12,208) (63,555)
Sale of asset 74,250 -
----------- -----------
Net cash used for investing activities 62,042 (63,555)
Cash flows from financing activities:
Deferred stock offering costs - (144,273)
Stock offering costs (17,067) -
Net proceeds from stock offerings 12,804 739,938
Borrowings from (repayments to)
parent and affiliated company (86,583) -
----------- -----------
Net cash (used) provided by financing activities (90,846) 595,665
----------- -----------
Net increase (decrease) in cash and cash equivalents (195,462) 727,883
Cash and cash equivalents:
Beginning of period 302,247 27,005
----------- -----------
End of period $ 106,785 $ 754,888
=========== ===========
The accompanying notes are an integral part of this financial statement.
BAYHAWK ALES, INC.
NOTES TO FINANCIAL STATEMENTS
DEVELOPMENT STAGE COMPANY
Bayhawk Ales, Inc. ("the Company") was formed on February 14, 1994 to produce
and sell hand-crafted ales in Southern California. The Company operates a
brewery adjacent to McCormick and Schmick's Pilsner Room in Irvine, California.
This "showcase" brewery is capable of producing 10,400 barrels per year. The
Company is a majority owned subsidiary of Willamette Valley, Inc.
Microbreweries across America ("WVI"), a company organized to establish a
series of microbreweries throughout the United States. WVI owns approximately
57% of the Company's Common Stock. The Company is a development stage company
that was organized under the laws of the State of Delaware.
BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited and have been
prepared by Bayhawk 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 on April 1, 1996. 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 $ 9,648 $ 9,081
Work-in-process 20,617 14,835
Finished goods 21,241 12,067
Retail products 7,262 1,637
---------- ----------
$ 58,768 $ 37,620
========== ==========
Property and equipment
Property and equipment consists of the following:
June 30, December 31,
1996 1995
---------- ----------
Leasehold improvements $ 270,267 $ 270,267
Equipment 594,327 664,490
Office furniture and equipment 4,461 3,640
869,055 938,397
Less accumulated depreciation and amortization (83,911) (62,184)
---------- ----------
$ 785,144 $ 876,213
========== ==========
Income Taxes
No benefit for income taxes was recognized for the periods ended June 30, 1996
and 1995 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 benefit could be realized. Accumulated net operating loss
carryforwards which may be used to offset future taxable income were
approximately $788,000 and $610,000, respectively, at June 30, 1996 and
December 31, 1995.
Shareholders' Equity
In January 1996, the Company completed the public offering of its Common Stock
pursuant to Regulation A of the Securities and Exchange Commission. A total of
951,003 shares were sold, generating proceeds of $1,322,011 net of offering
expenses of $253,725.
Related Party Transactions
For the six months ended June 30, 1996, the Company purchased management and
administrative services from WVI at a total cost of $12,825. WVI contracts for
certain of these services under a general services agreement between WVI and
Nor'Wester Brewing Company, Inc., an affiliated company. Additionally, on
April 3, 1996 the Company sold 1,000 of its 1/2 barrel kegs to North Country
Brewery, an affiliated company, at the net book value of $74,250.
In April 1996, the Company commenced brewing of Nor'Wester beer under the
Cooperative Brewing Agreement. Sales to Nor'Wester under this agreement
totaled $39,283 through June 30, 1996.
Net Loss Per Common Share
Net loss per common share is calculated based on the weighted average number of
common shares outstanding. Shares held in escrow are included in the weighted
average number of common shares outstanding
BAYHAWK 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. - Sales for the three months ended June 30, 1996 were $184,178, an
increase of 375% as compared to gross sales of $38,745 for the same period in
1995. This reflects an increase sales volume from 312 barrels in 1995 to 1,605
in 1996. During the second quarter of 1996, the Company started bottling three
styles of its beer and expanded its market to both Northern California and
Arizona.
Excise Taxes. - Excise taxes increased from $5,618 (17% of net sales) for the
three months ended June 30, 1995 to $20,333 (12% of net sales) for the second
quarter of 1996. Excise taxes decreased as a percentage of net sales due to
the cooperative brewing agreement with affiliate Nor'Wester Brewing Company,
where the Company is reimbursed for excise taxes paid that are applicable to
the cooperatively brewed beer.
Cost of Sales. - Cost of sales as a percentage of net revenues for the second
quarters ended 1996 and 1995 was 69% and 110%, respectively, reflecting the
disproportionate cost of production for goods sold during a period when the
facility is operating at less than its maximum designed capacity, as well as
development-stage production costs such as recipe testing.
Selling, General and Administrative Expenses. - Selling, general, and
administrative expenses for the three months ended June 30, 1996 totaled
$112,281 or 69% of net sales as compared to $111,295 or 336% of net sales for
the comparable period in 1995. This is primarily due to higher administrative
costs incurred during the first months of the Company's operations in 1995.
Six Months Ended June 30, 1996
Gross Sales. - Sales for the six months ended June 30, 1996 were $240,106, an
increase of 382% as compared to gross sales of $49,790 for the same period in
1995. This reflects an increase sales volume from 401 barrels in 1995 to 2,123
in 1996.
Excise Taxes. - Excise taxes increased from $6,118 (14% of net sales) for the
six months ended June 30, 1995 to $25,195 (12% of net sales) for the second
quarter of 1996. Excise taxes decreased as a percentage of net sales due to
the cooperative brewing agreement with affiliate Nor'Wester Brewing Company,
where the Company is reimbursed for excise taxes paid that are applicable to
the cooperatively brewed beer.
Cost of Sales. - Cost of sales as a percentage of net revenues for the first
half of 1996 and 1995 was 97% and 129%, respectively, reflecting the
disproportionate cost of production for goods sold during a period when the
facility is operating at less than its maximum designed capacity, as well as
development-stage production costs such as recipe testing.
Selling, General and Administrative Expenses. - Selling, general, and
administrative expenses for the six months ended June 30, 1996 totaled $178,927
or 83% of net sales as compared to $186,025 or 426% of net sales for the
comparable period in 1995. This is primarily due to higher administrative
costs incurred during the first months of the Company's operations in 1995.
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.
BAYHAWK ALES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
For the quarter ended June 30, 1996, cash and cash equivalents decreased
$195,462 primarily due to operating losses of $178,617. Other uses of funds
include an increase in accounts receivable of $88,026, an increase in
inventories of $21,148, an increase in other non-current assets of $25,625, a
decrease in amounts note payable to affiliated companies of $86,583, purchases
of property and equipment of $12,208 and net stock offering costs of $4,263.
Primary sources of funds include an increase in accounts payable of $53,385, an
increase in accrued liabilities of $33,886, and increase in amounts payable to
affiliates of $30,367 and a sale of an asset for $74,250.
The Company issued a note to WVI on November 30, 1995 in order to repay the
balance originally loaned to the Company to construct, equip and operate the
brewery. The note bears interest at 8% per annum, and is secured by all of the
Company's assets. Principal and interest are payable in monthly installments
of $4,600 with a balloon payment of $124,739 due on December 31, 1999 but only
if such payments do not, in the reasonable good faith judgment of the Company's
Board of Directors, materially and negatively impact the Company's cash flow
requirements.
The Company currently anticipates that capital expenditures for the remainder
of 1996 will total approximately $36,000. Said capital expenditures include a
grain silo and mill that will improve the efficiency and reduce the cost of
production of the Company's beer. This equipment will be financed through a
note with the Company's affiliate, Nor'Wester.
In July 1996, Nor'Wester temporarily suspended the Co-Operative Brewing
Agreement with the Company. The Company expects this will have material,
adverse effects on future revenues.
The Company is currently working on obtaining debt 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. No assurance can be given that
alternative methods of financing will be available on terms acceptable to the
Company or at all.
BAYHAWK 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.
BAYHAWK ALES, INC.
Date: August 19, 1996 By /s/Dave Voorhies
----------------
Dave Voorhies
General Manager
13
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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.
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