<PAGE>
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 September 30, 1997
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, or 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 Form [_] YES [X] NO
Number of shares of common stock outstanding as of September 30, 1997:
2,200,814 shares, $.001 par value
===============================================================================
<PAGE>
BAYHAWK ALES, INC.
INDEX TO FORM 10-QSB
================================================================================
Part I- FINANCIAL INFORMATION
The information included herein is unaudited. However, such information
reflects all adjustments (consisting solely of normal, recurring adjustments)
which are, in the opinion of the Company's management, necessary for a fair
presentation of the results of operations for the interim periods. The interim
financial information and notes thereto should be read in conjunction with the
Company's latest annual report on Form 10-KSB/A. The results of operations for
the nine months ended September 30, 1997 are not necessarily indicative of
results to be expected for the entire year.
<TABLE>
<S> <C>
Item 1 - Financial Statements
Balance Sheet - September 30, 1997 and December 31, 1996........ 3
Statement of Operations - Three Months Ended and Nine Months
Ended September 30, 1997 and 1996.......................... 4
Statement of Cash Flows - Three Months Ended and Nine Months
Ended September 30, 1997 and 1996.......................... 5
Notes to Financial Statements................................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 11
Part II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders............. 15
Item 6 - Exhibits and Reports on Form 8-K................................ 15
Signatures................................................................ 16
</TABLE>
2
<PAGE>
Item 1
BAYHAWK ALES, INC.
(A Development Stage Company)
Balance Sheet
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(unaudited) 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,427 $ 40,954
Accounts receivable 80,644 64,349
Inventories 23,288 23,692
Other current assets, net 20,205 -
---------- ----------
Total current assets 140,564 128,995
Property and equipment, net 770,251 802,798
---------- ----------
Total assets $ 910,815 $ 931,793
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,065 $ 36,798
Accrued liabilities 22,630 16,780
Container deposits 65,047 19,339
Payable to parent and affiliated companies, net 336,195 291,586
---------- ----------
Total current liabilities 473,937 364,503
Note payable to parent company
Shareholders' equity:
Common stock, $.001 par value - 10,000,000 shares
authorized, 2,200,814 and 2,200,814 shares outstanding 2,201 2,201
Additional paid-in capital 1,427,982 1,427,982
Deficit accumulated during the development stage (993,305) (862,893)
---------- ----------
Total shareholders' equity 436,878 567,290
---------- ----------
Total liabilities and shareholders' equity $ 910,815 $ 931,793
========== ==========
</TABLE>
3
<PAGE>
BAYHAWK ALES, INC.
(A Development Stage Company)
Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- -------------------------------
1997 1996 1997 1996
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Gross revenues $ 93,332 $ 145,497 $ 288,282 $ 385,603
Less: excise tax 8,364 10,849 28,966 36,043
---------- ---------- ---------- ----------
Net revenues 84,968 134,648 259,316 349,560
Cost of sales 77,237 106,531 223,404 314,064
---------- ---------- ---------- ----------
Gross profit (deficit) 7,731 28,117 35,912 35,496
Selling, general and
administrative expenses 50,740 108,822 166,770 287,749
---------- ---------- ---------- ----------
Loss from operations (43,009) (80,705) (130,858) (252,253)
Interest income 112 922 440 5,286
Interest expense - (6,516) - (17,948)
---------- ---------- ---------- ----------
Net income (loss) $ (42,897) $ (86,299) $ (130,418) $ (264,915)
========== ========== ========== ==========
Net loss per common share $ (0.02) $ (0.04) $ (0.06) $ (0.12)
========== ========== ========== ==========
Weighted average shares of
common shares outstanding 2,200,814 2,200,814 2,200,814 2,200,725
---------- ---------- ---------- ----------
</TABLE>
4
<PAGE>
BAYHAWK ALES, INC.
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(130,418) $(264,915)
Reconciliation of net loss to net cash provided
by operating activities:
Depreciation and amortization 32,547 35,500
Changes in assets and liabilities:
Accounts receivable (16,295) (47,479)
Inventories 404 (1,066)
Other current assets (20,205) 1,478
Other non-current assets - (25,899)
Accounts payable 13,267 10,883
Accrued liabilities and container deposits 51,564 46,494
Payable to parent and affiliated companies - 43,235
--------- ---------
Net cash used for operating activities (69,136) (201,769)
Cash flows from investing activities:
Purchases of property and equipment - (12,847)
Sale of asset - 74,250
--------- ---------
Net cash used for investing activities - 61,403
Cash flows from financing activities:
Stock offering costs - -
Net proceeds from stock offerings - (4,263)
Borrowings from (repayments to) parent and
affiliated company 44,609 (91,374)
--------- ---------
Net cash (used) provided by financing activities 44,609 (95,637)
--------- ---------
Net increase (decrease) in cash and cash equivalents (24,527) (236,003)
Cash and cash equivalents:
Beginning of period 40,954 302,247
--------- ---------
End of period $ 16,427 $ 66,244
========= =========
</TABLE>
5
<PAGE>
BAYHAWK ALES, INC.
NOTES TO FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The Company's financial statements enclosed herein are unaudited and, because of
the seasonal nature of the business and the varying schedule of its special
sales efforts, these results are not necessarily indicative of the results to be
expected for the entire year. In the opinion of management, the interim
financial statements reflect all adjustments, consisting of only normal
recurring items which are necessary for a fair presentation of the results for
the periods presented. The accompanying financial statements have been prepared
in accordance with GAAP and SEC guidelines applicable to interim financial
information which require management to make certain estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities as of the date
of the financial statements, and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates. The
accompanying financial statements and related notes should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB/A.
The company is a development stage company established to produce and sell
handcrafted ales in the State of California. From the date of inception
(February 14, 1994) through March 31, 1997, the Company's efforts have been
directed primarily toward organizing and issue a public offering of shares of
its common stock, building and equipping its brewery, and developing a
marketable beer.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company is a development stage company
which has a limited and unprofitable operating history, has negative working
capital of $333,373 and has limited access to capital to fund future operations.
There can be no assurance that the Company will produce and sell its products on
a profitable basis to sustain operations. Such factors, among others, raise
substantial double as to the Company's ability to continue as a going concern.
In light of significant losses and negative working capital the Company has
developed and is implementing plans for the continuation of the business. In
particular, the Company has taken steps to: (I) reduce or eliminate cooperative
brewing arrangements which proved to be inefficient and costly; (ii) eliminate
national roll-out programs in favor of stepped-up regional sales and marketing
efforts; (iii) negotiate with past due creditors which could involve extended
terms and payment plans; (iv) hire and retain high-quality employees familiar
with the brewing industry and; (v) use available bridge loans from potential
investors to fund operations until new strategies result in positive cash flows
and improved profitability. Management believes these plans will result in the
Company sustaining operations as a going concern for the next 12 months.
6
<PAGE>
BAYHAWK ALES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw Materials $ 10,528 $ 9,969
Work-in-process 6,300 3,484
Finished goods 2,725 4,672
Retail inventory 3,735 5,567
--------- ---------
$ 23,288 $ 23,692
========= =========
Property and Equipment
Property and Equipment consists of the following:
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Leasehold improvements $ 277,546 $ 277,546
Equipment 634,040 634,040
Office furniture and equipment 4,644 4,644
--------- ---------
$ 916,230 $ 916,230
Less accumulated depreciation (145,979) $(113,432)
--------- ---------
$ 770,251 $ 802,798
========= =========
</TABLE>
Shareholders' Equity
The Company is authorized to issue 10 million shares of its common stock. Each
share of common stock entitles the holder to one vote. At its discretion, the
Board of Directors may declare dividends on share of common stock, although the
Board does not anticipate paying dividends in the foreseeable future. In
February 1994, the Company received $100,000 from WVI in exchange for 1,249,811
shares of unregistered common stock.
During 1995, the Company sold 948,633 shares of its common stock at $1.65 per
share, pursuant to a Regulation A public offering filed with the Securities and
Exchange Commission. Cash proceeds from this offering, net of offering expenses
of approximately $235,000, aggregated $1,326,273.
7
<PAGE>
BAYHAWK 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 and common share equivalents outstanding. Outstanding options to
purchase shares of the Company's common shares have not been included in the
calculations as their effect would be anti-dilutive.
Stock Incentive and Stock Grant Plans
During 1994, the Board of Directors established a pool of 250,000 share of the
Company's common stock for a stock incentive plan for issuance to employees,
directors and consultants of the Company pursuant to the exercise of stock
options granted under the plan or stock grants or stock sales. Administration
of the plan, including determination of the number of shares to be issued, the
term of exercise of any option, the option exercise price, and type of options
to be granted, lies with the Board of Directors or a duly authorized committee
of the Board of Directors.
As of September 30, 1997, options for a total of 75,000 shares have been
awarded, net of cancellations. Options have vesting periods ranging from five
years to ten years and were re-priced during the second quarter of 1997 to $1.75
per share. As of September 30, 1997 no options had been exercised.
No compensation expense has been recorded as a result of granting any of the
options as all such options were granted with an exercise price equal to the
market price on the date of grant.
Income Taxes
No benefit for income taxes was recognized for the nine months or three months
ended September 30, 1997 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.
At September 30, 1997, the Company had a net operating loss carryforward
aggregating approximately $993,305 for federal income tax purposes, which may be
used to offset future taxable income, if any. The annual utilization of this
carryforward may be limited if the Company fails to meet continuity of business
requirements defined by the Internal Revenue Code. The Company's net operating
loss carryforwards begin expiring in 2010.
8
<PAGE>
BAYHAWK ALES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Related Parties
Nature of related parties
The Company's president, Jim Bernau, partially owns and controls Willamettte
Valley Vineyards (WVV), a winery in Oregon, Willamette Valley, Inc. (WVI) and
Nor'Wester Brewing Company, Inc. (Nor'Wester), a microbrewery in Oregon.
Additionally, Mr. Bernau is the president of each of the following subsidiaries
of WVI: Aviator Ales, Inc. (AAI); Mile High Brewing Company (MHBC); and North
Country Brewing Company, Inc. (NCBCI); development stage companies located in
Washington, Colorado and California, respectively. Mr Bernau was president of
Bayhawk Ales, Inc. (BAI) until he resigned on September 12, 1997. As a result
of certain arrangements between the Company and its affiliates, as well as Mr.
Bernau's positions with and/or ownership interests in each of these companies,
inherent conflicts of interest exist with respect to the pricing of services,
the sharing of resources and allocation of Mr. Bernau's time.
Related Party Transactions
The Company purchased management and administrative services from WVI at a total
cost of $7,039 and $12,825 for the six months ended June 30, 1997 and 1996,
respectively. WVI contracts for certain of these services under a general
services agreement between WVI and Nor'Wester. Due to the cessation or
operations of these companies, Bayhawk will not be obtaining these services as
of October 1, 1997.
Strategic Alliance and Cooperative Brewing Agreements. The Company had entered
into Strategic Alliance (the "Alliance") with AAI, Nor'wester, MHBC, NCBCI, and
WVI. Nor'wester, AAI, MHBC, and BAI are individually referred to as a
"Cooperative Brewer." The purpose of this Alliance was to promote and support
the growth of all of the Alliance members by increasing production at each
Cooperative Brewer's facility and supporting the entry of Nor'wester products
into new markets. To achieve this goal, each Cooperative Brewer had agreed to
cooperatively brew Nor'wester's products, and to support the entry of these
products into new markets by facilitating Nor'wester's access to the Cooperative
Brewer's network of distributors. The Alliance ended on or about September 12,
1997 with the cessation of operations of Nor'wester.
As a result of the administrative services purchased and loans provided by WVI
and the loan received from Nor'Wester, the company has advances and loans
payable to affiliates of $336,195 at September 30, 1997. Because management
expected these advances and loan would have eventually been eliminated when the
proposed merger occurred, as discussed in the Proposed Merger note, these
advances have been classified as current payables to affiliates at September 30,
1997. As of September 12, 1997, the afore mentioned companies ceased to be
going concerns. The management of Bayhawk Ales, Inc., is presently seeking
verification of the validity of this balance.
Commitments
The Company has entered into a fifteen-year operating lease agreement with two
five-year optional renewal terms for its production facility in Irvine,
California. Annual payments under the lease are $36,000 (totaling approximately
$468,000 over the term of the lease), plus common area charges.
9
<PAGE>
BAYHAWK ALES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Proposed Merger and Investment by UBA
In light of lower than anticipated 1996 operating results, lower than
anticipated first quarter 1997 sales and other operating results and adverse
conditions within the craft beer industry in general, representatives of UBA and
management and the investment bankers of the affiliated companies re-negotiated
the terms of the original UBA investment discussed in Form 10-KSB/A for the year
ended 1996 and Form 10-QSB/A for the quarter ended March 31, 1997. A re-
negotiation reflected a significantly lower valuation for the affiliate
companies, a reduction in the total amount of cash that was to be invested by
UBA. A reduction of UBA's percentage ownership position in UCB to 40% following
consolidation. The Company and its affiliates (Nor'Wester, WVI, AAI and MHB)
had entered into an investment agreement with United Breweries of America, Inc.
(UBA), an entity controlled by the UB Group of Bangalore, India. The agreement
provided for Nor'Wester, WVI, AAI, MHBC and BAI to merge into a company to be
known as United Craft Brewers (UCB). This proposed merger was not consummated
as of September 12, 1997.
Impact of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards. No. 128 "Earnings Per Share"
("SFAS 128") and Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129") which are
effective for fiscal years ending after December 15, 1997. The Company believes
the implementation of these statements will not have a material effect on its
results of operations or financial statement disclosures.
Subsequent Events
Final adoption of the Proposed Merger and Investment was subject to approval by
shareholder vote scheduled to take place at the Company's annual shareholder
meeting on August 25, 1997, shareholder approval by vote for each of the
Company's affiliates (Nor'Wester, WVI, AAI and MHB) also was scheduled to be
held on August 25, 1997 and other closing conditions contained within the
Investment Agreement.
Said merger was voted on and approved by the shareholders of Bayhawk Ales, Inc.,
and the Company's affiliates. Completion of the merger failed to materialize
when the UB Group of Bangalore, India withdrew its support on September 12,
1997. The affiliate companies ceased doing business as of that date. Daily
operations of Bayhawk Ales, Inc., remained unaffected.
10
<PAGE>
ITEM 2
BAYHAWK ALES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-QSB contains forward-looking
information within the meaning of the Private Securities Litigation Reform Act
of 1995. This 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 relationship or
performance, successful completion of the planned consolidation of the
Affiliated Companies, and other risks detailed below as well as those discussed
elsewhere in this Form 10-QSB. In addition, such statements could be affected
by general industry and market conditions and growth rates, and general domestic
economic conditions.
Results of Operations
Three Months Ended September 30, 1997 Compared to Three Months Ended September
- ------------------------------------------------------------------------------
30, 1996
- --------
Gross Revenues. Gross revenues from beer and retail products totaled $93,332
for the quarter ended September 30, 1997 compared to gross revenues of $145,497
during the same quarter in 1996, resulting in a 36% decline in gross revenues.
The drop in gross revenues is primarily due to the elimination of brewing
activity under the cooperative brewing agreement between the Company and
Nor'Wester and fewer sales of its own products in the Southern and Northern
California beer markets. The overall sales performance during the quarter ended
September 1997 gives question to Bayhawk's ability to become self-sustaining in
the near term.
Excise Taxes. Excise taxes were $8,364 (9% of gross revenues) for the three
months ended September 30, 1997 compared to $10,849 (8% of gross revenues) for
the same period in 1996.
Cost of Revenues. Cost of goods sold totaled $77,237 (90% of net revenues) for
the three months ended September 30, 1997 compared to $106,531 (79% of net
revenues) for the three months ended September 30, 1996. The cost of goods sold
percentage continues to reflect the disproportionate cost of production for
goods sold during a period when the facility was operating at less than its
maximum designed capacity.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses decreased to $50,740 (59% of net revenues) for the three
months ended September 30, 1997 from $108,822 (80% of net revenues) for the
three months ended September 30, 1996. SG&A expenses reflect operating
management and administrative services provided by Bayhawk's parent, WVI, as
well as direct charges such as the general manager's salary and advertising
expenses. The decrease in SG&A expenses is primarily attributable to
implementation of expense controls and reduction of staff in an effort to
minimize SG&A expenses.
11
<PAGE>
BAYHAWK ALES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Nine Months Ended September 30, 1997 compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
1996
- ----
Gross Revenues. Gross revenues from beer and retail products totaled $288,282
for the year ended September 30, 1997 compared to gross revenues of $385,603 for
the year ended September 30, 1996, resulting in a 25% decline in gross revenues.
The drop in gross revenues is primarily due to the elimination of brewing
activity under the cooperative brewing agreement between the Company and
Nor'Wester and fewer sales of its own products in the Southern and Northern
California beer markets. The overall sales performance for the year ended
September 1997 give question to Bayhawk's ability to become self-sustaining in
the near term.
Excise Taxes. Excise taxes were $28,966 (10% of gross revenues) for the nine
months ended September 30, 1997 compared to $36,043 (9% of gross revenues) for
the same period in 1996.
Cost of Revenues. Cost of goods sold totaled $223,404 (86% of net revenues) for
the nine months ended September 30, 1997 compared to $314,064 (90% of net
revenues) for the nine months ended September 30, 1996. The cost of goods sold
percentage continues to reflect the disproportionate cost of production for
goods sold during a period when the facility was operating at less than its
maximum designed capacity.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses decreased to $166,770 (64% of net revenues) for
the nine months ended September 30, 1997 from $287,749 (82% of net revenues) for
the nine months ended September 30, 1996. SG&A expenses reflect operating
management and administrative services provided by Bayhawk's parent, WVI, as
well as direct charges such as the general manager's salary and advertising
expenses. The decrease in SG&A expenses is primarily attributable to
implementation of expense controls and reduction of staff in an effort to
minimize SG&A expenses.
Net Loss. Net loss was $130,418 for the nine months ended September 30, 1997, a
decline from a net loss of $264,915 for the nine months ended September 30,
1996. This is a result of the individual line items discussed above.
12
<PAGE>
BAYHAWK ALES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
Bayhawk had cash and cash equivalents at September 30, 1997, and September 30,
1996 of $16,427 and $66,244, respectively. Changes in cash and cash equivalents
for the nine months ended September 30, 1997, primarily consisted of cash used
in operating activities of $73,156 offset by borrowings from affiliates of
$23,339.
Bayhawk's working capital deficit at September 30, 1997 and September 30, 1996
was $333,373 and $878 respectively. At September 30, 1997, the current ratio
was .29:1 and .99:1, respectively.
Accounts payable at September 30, 1997 and September 30, 1996 were $50,065 and
$20,132, respectively.
At September 30, 1997, Bayhawk had payables to WVI and to other affiliated
companies of $336,195 which accounts for 70% of Bayhawk's current liabilities.
The payables to affiliates consist primarily of advances by WVI to construct
Bayhawk's brewery.
On November 30, 1995, Bayhawk issued a note to WVI for the balance of funds
loaned by WVI to construct, equip and operate Bayhawk's brewery. The note had a
principal balance of $250,188 at September 30, 1997. Per the terms of the loan
agreement and the direction of James Bernau payments were suspended.
Bayhawk requires significant capital to continue its operations. However,
Bayhawk has very little capital resources, has insufficient operating results to
obtain a bank line of credit and WVI, Bayhawk's parent, does not currently have
adequate resources to support Bayhawk's operations. Bayhawk's management
believes that current working capital together with projected income from
operations is not sufficient to meet the cash needs of Bayhawk's operating
subsidiaries through the end of 1997. Bayhawk's independent accountants
expressed substantial doubt as to Bayhawk's ability to continue as a going
concern in their report on Bayhawk's 1996 consolidated financial statements.
To address recent losses and the need for working capital, Bayhawk is in the
process of developing plans designed to sustain operations until profitability
is reached. In particular, Bayhawk has taken steps to: (i) implement a more
focused marketing and sales plan designed to increase sales on a regional basis;
(ii) significantly reduce or eliminate cooperative brewing arrangements with
affiliates which proved to be inefficient and costly; (iii) negotiate with past-
due creditors for extended terms and payment plans and to allow for the
possibility of obtaining debt financing; (iv) hire and retain highly qualified
employees familiar with the brewing industry.
13
<PAGE>
BAYHAWK ALES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
While management believes these plans will sustain Bayhawk's operations through
September 30, 1998, no assurance can be given that these plans will provide the
necessary revenue and profits to sustain Bayhawk's operations through that
period. Alternative sources of debt financing and/or equity capital may have to
be developed. There can be no assurance that such debt financing or capital
will be available or, if available, under terms and conditions acceptable to
Bayhawk. Bayhawk's inability to obtain additional capital would result in a
material adverse effect on Bayhawk's business and results of operations.
Furthermore, no assurance can be given that additional debt or equity financing
will be available on acceptable terms. Failure to obtain additional financing
would have a material adverse effect on the operations and financial condition
of the Company.
14
<PAGE>
BAYHAWK ALES, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On August 25, 1997, the annual meeting of Bayhawk Ales, Inc., was
held. Through proxy and a vote of all shareholders present, the Board of
Directors was re-elected. Those members were James Bernau, David Voorhies, Karl
Zappa, Roy Roberson, Jim Moreland, and Peter Wachob. This board was to serve
for a term of one year or until such time as the merger with the UB Group and
consolidation of affiliate companies was completed.
The acceptance of the proposed merger with the UB Group and consolidation of
affiliate companies was voted on and passed.
All votes were tabulated from proxy balloting, and all voting was unanimous.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter which this
report is filed.
15
<PAGE>
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: November 12, 1997 By /s/ KARL J. ZAPPA
-----------------------------------
Karl J. Zappa
General Manager/Member of the Board
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,427
<SECURITIES> 0
<RECEIVABLES> 80,644
<ALLOWANCES> 0
<INVENTORY> 23,288
<CURRENT-ASSETS> 20,205
<PP&E> 916,230
<DEPRECIATION> 145,979
<TOTAL-ASSETS> 910,815
<CURRENT-LIABILITIES> 473,937
<BONDS> 0
0
0
<COMMON> 2,201
<OTHER-SE> 434,677
<TOTAL-LIABILITY-AND-EQUITY> 910,815
<SALES> 259,316
<TOTAL-REVENUES> 259,756
<CGS> 223,404
<TOTAL-COSTS> 166,770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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</TABLE>
