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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-QSB
Amendment #2
_________________________
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarter Ended March 31, 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, 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
March 31, 1997:
2,200,814 shares, $.001 par value
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BAYHAWK ALES, INC.
INDEX TO FORM 10-QSB
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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 three
months ended March 31, 1997 are not necessarily indicative of
results to be expected for the entire year.
Item 1 -- Financial Statements
Balance Sheet - March 31, 1997 and December 31, 1996. . .
Statement of Operations - Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . .
Statement of Cash Flows - Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . .
Notes to Financial Statements. . . . . . . . . . . . . . .
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . .
Part II - OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . .
Item 1 -- Financial Statements
BAYHAWK ALES, INC.
Balance Sheet
March 31,
1997 December 31,
ASSETS (unaudited) 1996
----------- -----------
Current assets:
Cash $20,843 $40,954
Accounts receivable 56,739 64,349
Inventories 31,705 23,692
Other current assets, net 2,707 -
--------- ---------
Total current assets 111,994 128,995
Property and equipment, net 789,985 802,798
---------- ----------
Total assets $901,979 $931,793
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $39,844 $36,798
Accrued liabilities 22,329 16,780
Container deposits 29,623 19,339
Payable to parent and
affiliated companies, net 304,193 291,586
--------- ---------
Total current liabilities 395,989 364,503
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
Accumulated deficit (924,193) (862,893)
--------- ---------
Total shareholders' equity 505,990 567,290
Total liabilities and
shareholders' equity $901,979 $931,793
========= =========
BAYHAWK ALES, INC.
Statement of Operations
(unaudited)
Three Months Ended March 31,
1997 1996
-------- --------
Gross revenues $92,652 $55,928
Less: excise taxes (5,451) (4,862)
-------- --------
Net revenues 87,201 51,066
Cost of revenues 88,110 93,834
-------- --------
Gross deficit (909) (42,768)
Selling, general and
administrative expenses 60,598 66,646
-------- ---------
Loss from operations (61,507) (109,414)
Interest income 207 3,046
Interest expense - 4,628
--------- ----------
Net loss $(61,300) $(110,996)
========= ==========
Net loss per common share $(0.03) $(0.05)
========= ==========
Weighted average number of
common shares outstanding 2,200,814 2,200,814
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BAYHAWK ALES, INC.
Statement of Cash Flows
Three Months Ended March 31,
1997 1996
--------- ----------
Cash flows from operating
activities:
Net loss $(61,300) $(110,996)
Reconciliation of net loss
to net cash provided by
operating activities:
Depreciation and amortization 12,813 15,253
Changes in assets and liabilities:
Accounts receivable 7,610 (27,538)
Inventories (8,013) 4,943
Other current assets (2,707) (7,074)
Accounts payable 3,046 8,555
Accrued liabilities and
container deposits 15,833 1,123
--------- ----------
Net cash used for operating
activities (32,718) (115,734)
Cash flows from investing activities:
Purchases of property and equipment - (3,584)
--------- ----------
Net cash used for investing activities - (3,584)
Cash flows from financing activities:
Payables to parent and
affiliated companies 12,607 13,985
Increase in stock offering costs - (4,263)
--------- ----------
Net cash used for financing
activities 12,607 9,722
--------- ----------
Net decrease in cash and cash
equivalents (20,111) (109,596)
Cash and cash equivalents:
Beginning of period 40,954 302,247
--------- ----------
End of period $20,843 $192,651
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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 hand-crafted ales in the State of California. From the date
inception (February 14, 1994) trough 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 statement 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 $283,995 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 other, raise substantial doubt
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, (v) use available bridge loans from a proposed
investor (see Proposed Merger note) to fund operations until new
strategies result in positive cash flows and improved profitability,
and; (vi) use proceeds from the disposition of duplicative and/or
unutilized assets created by the proposed merger. Management believes
these plans will result in the Company sustaining operations as a going
concern for the next 12 months.
As part of the plan, the Company entered into an investment agreement to
be merged with other affiliated companies and convert its stock into
shares of a new publicly traded entity as discussed in the Proposed
Merger note.
BAYHAWK ALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Inventories consist of the following:
March 31, December 31,
1997 1996
------------- ------------
Raw materials $ 24,921 9,969
Work-in-process 3,500 3,484
Finished goods 3,284 10,239
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$ 31,705 23,692
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Property and Equipment
Property and Equipment consists of the following:
March 31, December 31,
1997 1996
------------- ------------
Leasehold improvements $ 277,546 $ 277,546
Equipment 634,523 634,040
Office furniture and equipment 4,161 4,644
------------- ------------
916,230 916,230
Less accumulated depreciation (126,245) (113,432)
-------------- -------------
$ 789,985 $ 802,798
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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.
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 during the three month periods ended
March 31, 1997 and 1996. 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 shares of the Company's common stock for a stock
incentive plan for issuance to employees, consultants,
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 March 31, 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.
Exercise prices range from $1.20 per share to $1.73 per
share with a weighted average exercise price per share of
$1.37. No options have been exercised through March 31,
1997. Subsequent to March 31, 1997 all options were repriced
to $1.75 per share.
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.
Options granted by the Company are expected to be converted
to options of the new company expected to be formed in the
consolidation of the Company and its affiliates at the same
conversion rate as the conversion of common stock
discussed in the Pending Consolidation note.
Income Taxes
No benefit for income taxes was recognized for the quarters
ended March 31, 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 March 31, 1997, the Company had a net operating loss
carryforward aggregating approximately $900,000 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 undergoes the
ownership change anticipated by management (see Pending
Consolidation note ) or fails to meet continuity of business
requirements defined by the Internal Revenue Code. The
Company's net operating loss carryforwards beginning
expiring in 2010.
Related Parties
Nature of related parties
The Company's president, Jim Bernau, partially owns and
controls Willamette Valley Vineyards (WVV), a winery in Oregon,
and Willamette Valley Inc., and Nor'Wester Brewing Company,
Inc.(Nor'Wester), a microbrewery in Oregon; as well as WVI.
Additionally, Mr. Bernau is the president of each of the following
subsidiaries of WVI: Aviator Ales, Inc. (AAI); Mile High Brewing
Company (MHBC); Bayhawk Ales, Inc. (BAI); and North Country Brewing
Company, Inc. (NCBCI); development stage companies located in
Washington, Colorado and California, respectively. As a result of
certain arrangements between the Company and its affiliates, as well
as the 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 the Company president's time.
Related Party Transactions
The Company purchased management and administrative services
from WVI at a total cost of $9,609 and $7,275 for the three
months ended March 31, 1997 and 1996, respectively. WVI
contracts for certain of these services under a general
services agreement between WVI and Nor'Wester.
Strategic Alliance and Cooperative Brewing Agreements
The Company has entered into a 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 the Alliance is
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 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. During
January, 1997, AAI and MHBC ceased cooperative brewing of
Nor'Wester beers.
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 $304,193 at
March 31, 1997. Because management expects these advances and
loan will eventually be eliminated when the proposed merger occurs,
as discussed in the Pending Consolidation note, these advances have
been classified as current payables to affiliates at March 31, 1997.
BAYHAWK ALES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Commitments
The Company has entered into a fifteen-year operating lease
arrangement 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.
Proposed Merger and Investment by UBA
During the quarter ended March 31, 1997, the Company, along
with its affiliates (Nor'Wester, WVI, MHBC and BAI) entered
into an investment agreement with United Breweries of
America, Inc. (UBA), an entity controlled by the UB Group of
Bangalore, India. The agreement provides for Nor'Wester,
WVI, AAI, MHBC and BAI to merge into a company to be known
as United Craft Brewers (UCB). This proposed merger will
result in the issuance of newly registered shares of UCB
common stock in exchange for shares of Nor'Wester, WVI and
its subsidiaries. The merger and share exchange will
require approval by the Boards of Directors and shareholders
of each of the entities. Following the merger, all
shareholders in the Nor'Wester /WVI alliance will hold
shares in UCB, a company which is intended to be listed for
trading on the Nasdaq National Market system under the
symbol ALES. Proposed exchange ratios for each of the
entities are as follows, based on an average closing price
of $2.63 for Nor'Wester's common stock for the 20 trading
days immediately preceding execution of the merger:
Company Exchange
Ratio
Nor'Wester 1.00000:1
WVI 1.99159:1
AAI 2.98739:1
BAI 1.99159:1
MHBC 2.98739:1
Following the proposed merger, UBA has proposed to invest
$8.63 million in exchange for a 45% equity interest in the
new entity, UCB. Of the $8.63 million proposed investment
by UBA, $2.75 million is in the form of bridge loans
conditionally available to Nor'Wester during the
consolidation phase. As of March 31, 1997, $1.5 million has
already been loaned to Nor'Wester, the majority of which has
been advanced to North Country. At closing, it is
anticipated that the bridge loans will be converted into
shares of UCB and the remaining $5.88 million cash
investment will be made directly in shares of UCB.
All principal and interest related to the bridge loans is
secured by the assets of North Country Joint Venture, the
Company's wholly-owned subsidiary, and by the Company's
ownership interest in North Country Joint Venture.
Repayment of all principal and interest is guaranteed
personally by the Company's president.
The closing of the proposed investment remains subject to
(i) approval by the shareholders of each of the companies,
(ii) achievement of certain operating results at each of the
breweries, (iii) maintenance of certain operating conditions
and covenants, including that there shall be no material
adverse change in the businesses of the affiliated breweries
taken as a whole, (iv) approval by federal and state liquor
control agencies, (v) registration with the U.S. Securities
and Exchange Commission of UCB shares to be exchanged in the
merger, (vi) extension of Nor'Wester's $1 million revolving
line of credit through September 30, 1997 and the lender
shall have waived any defaults under the line of credit
agreement and the line of credit shall have been converted
to a term loan and (vii) such other customary conditions for
transactions of this type.
Immediately following the proposed investment by UBA, UBA
would own 45% and the Company's president would own 10% of
UCB. The public shareholders of Nor'Wester, WVI, and
subsidiaries would own the remaining 45% of UCB.
Impact of Recent Accounting Prounouncements
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.
Renegotiation of 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 with the craft beer industry in general,
representatives of UBA and management and the investment
bankers of the affiliated companies are in the process of
renegotiating the terms of the UBA investment discussed in
the Proposed Merger note. The renegotiating will reflect a
significantly lower valuation for the affiliate companies, a
reduction in the total amount of cash to be invested by UBA
to $5.5 million and a reduction of UBA's percentage
ownership position in UCB to 40% following consolidation.
It is anticipated that the $2.75 million bridge loan will
not be reduced. The existing shareholders in the affiliated
companies would retain a 60% interest in UCB. The exact
distribution of ownership interests among shareholders of
the affiliated companies has not yet been determined.
Management will soon seek Board approval by each of the
affiliated companies of any renegotiated terms. Failure of
the parties to reach a mutually agreeable renegotiated
investment agreement could lead to a loss of the bridge
loans and the remainder of the UBA investment which would
materially and adversely affect the Company's financial
condition and results of operations. There can be no
assurance that the proposed merger will be completed or that
the Company will obtain the capital needed to sustain
operations.
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 March 31, 1997
Gross Revenues
Gross revenues from beer and retail products totaled $92,652
for the quarter ended March 31, 1997 and $55,928 for the
quarter ended March 31, 1996, an increase of 66%. The
increase in revenues is primarily a result of increased
share in Southern and Northern California beer markets. This
increase in sales, however, is not sufficient for the Company to
become self-sustaining in the near term.
The Company's brewery currently has an annual production
capacity of 10,000 barrels. The Company sold 745
barrels and 602 barrels during the quarter ended March
31, 1997 and 1996 respectively.
Excise Taxes
Excise taxes were $5,451 (5.9% of gross revenues) for the three
months ended March 31, 1997 compared to $4,862 (8.7% of gross
revenues) for the same period in 1996.
Cost of Revenues
Cost of goods revenues totaled $88,110 (101% of net revenues)
for the quarter ended March 31, 1997 compared to $93,834 (184%
of net revenues) for the quarter ended March 31, 1996. The
high cost of goods sold as a percentage of net revenues for each
of the respective quarters is due primarily to the disproportionate
cost of production for goods sold during periods 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 $60,598 (69% of net revenues) for the quarter
ended March 31, 1997 from $66,646 (130% of net revenues) for
the quarter ended March 31, 1996. The decrease in SG&A
expenses is primarily attributable to cost cutting measures designed
to lower selling, general and administrative expenses in light of
continued operating losses.
Liquidity and Capital Resources
Cash and cash equivalents decreased $20,111 to $20,843 at
March 31, 1997 from December 31, 1996. The decrease is
primarily a result of operating losses incurred during the
quarter.
The Company's working capital deficit was $283,995 at March
31, 1997 and $235,508 at December 31, 1996. The decrease in
working capital reflects the use of funds to support the Company's
operations, including efforts to expand its markets. The Company's
cash and cash equivalents have decreased by 49% ($20,111) from December
31, 1996 to March 31, 1997 primarily as a result of payments to trade
creditors and payment of payroll related expenses. At March 31, 1997
the Company had payables to affiliates of $304,193 which comprise 77%
of the Company's current liabilities. The payables are classified as
current because management expects to pay these in cash or eliminate them
in consolidation upon the anticipated closing of the investment
transaction with UBA discussed below.
The Company made no capital investments during the quarter
ended March 31, 1997.
The Company's management believes that projected income from
operations is not sufficient to meet the Company's cash
needs over the next twelve months. The Company's
independent accountants expressed substantial doubt as to
the Company's ability to continue as a going concern in
their report on the Company's 1996 financial statements.
In September 1996, to address the liquidity and capital
resources concerns of the Company and certain of its
affiliated breweries, the Company's parent WVI and its
affiliate Nor'Wester,entered into a non-binding letter of intent
with The UB Group of Bangalore, India setting forth the proposed
terms of The UB Group's possible investment of $9.0 million in
cash and certain intangible consideration including the
grant of an exclusive right to manufacture The UB Group's
Kingfisher brand beer for sale in North America and The UB
Group's provision of certain management and technical
services to the alliance of craft breweries controlled by
WVI and the Company. Under the terms of the letter of
intent, The UB Group's investment would be made in the
resulting entity following a proposed consolidation of the
Craft Brewing Alliance comprised of Nor'Wester and
Nor'Wester's subsidiary, North Country Joint Venture,
located in Saratoga Springs, New York.; WVI and WVI's
subsidiaries-- Mile High Brewing Company, Inc., located in
Denver Colorado, Bayhawk Ales, Inc., located in Irvine,
California, and Aviator Ales, Inc. located in Woodinville,
Washington.
The closing of the possible investment remains subject to
(i) The UB Group's completion of satisfactory due diligence,
(ii) negotiation and execution of a definitive investment
agreement between the parties, (iii) approval by the boards
of directors and shareholders of each of the Company, WVI,
Nor'Wester and their respective subsidiaries, (iv)
registration with the U.S. Securities and Exchange
Commission of shares in the resulting entity following
consolidation which will be exchanged in the merger, and (v)
such other customary conditions for transactions of this
type.
Following execution of the letter of intent, The UB Group
has provided the WVI/Nor'Wester alliance of craft breweries
with bridge loans in the amount of $1,900,000 through May 15,
1997 to sustain and grow their brewing operations. The UB
Group has also indicated it may, at its discretion to provide
additional bridge loans or guarantees on bank loans in such
amounts and at such times as are necessary to sustain the breweries'
operations until completion of the planned consolidation and
2closing of the investment. There can be no assurances that
additional bridge loans will be made by The UB Group, that
an equity investment by The UB Group will ultimately be made
or, if made, the final terms of such investment.
Subsequent to March 31, 1997, in light of lower than
anticipated 1996 operating results, lower than anticipated
first quarter 1997 sales and other operating results and
adverse conditions with the craft beer industry in general,
representatives of UBA and management and the investment
bankers of the affiliated companies are in the process of
renegotiating the terms of the UBA investment discussed
above. The renegotiation will reflect a significantly lower
valuation for the affiliate companies, a reduction in the
total amount of cash to be invested by UBA to $5.5 million
and a reduction of UBA's percentage ownership position in
UCB to 40% following consolidation. It is anticipated that
the $2.75 million bridge loan will not be reduced. The
existing shareholders in the affiliated companies would
retain a 60% interest in UCB. The exact distribution of
ownership interests among shareholders of the affiliated
companies has not yet been determined. Management will soon
seek Board approval by each of the affiliated companies of
any renegotiated terms. Failure of the parties to reach a
mutually agreeable renegotiated investment agreement could
lead to a loss of the bridge loans and the remainder of the
UBA investment which would materially and adversely affect
the Company's financial condition and results of operations.
There can be no assurance that the proposed merger will be
completed or that the Company will obtain the capital needed
to sustain operations.
If, for any reason, the proposed consolidation and
investment does not occur, alternative sources of debt
financing and/or equity capital would 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 the Company. The Company's
inability to obtain additional capital would result in a
material adverse effect on the Company's business and
results of operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 1 - Definitive Investment Agreement press
release dated January 30, 1997.
(b) Reports on Form 8-K:
On January 30, 1997, the Company filed a Form 8-K in connection
with its execution of a definitive investment agreement with
United Breweries of America, Inc., an affiliate of the UB
Group of Bangalore, India. Under terms of the agreement,
UBA will invest approximately $9 million in cash in exchange
for a 45% equity interest in a new entity comprised of the
consolidated businesses of Nor'Wester, North Country Brewing
Company, LLC., Willamette Valley, Inc., Microbreweries
across America and its affiliates - Aviator Ales, Inc.,
Bayhawk Ales, Inc., Mile High Brewing Company, Inc. The
Form 8-K set forth the terms and conditions of the proposed
investment as outlined in the letter of intent ,and included
as exhibits copies of the letter of intent dated September 26,
1996 and a January 30, 1997 press release relating to the matter.
Exhibit 1
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: May 20, 1997 By _____________________
Dave Voorhies
General Manager
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: May 20, 1997 By /s/ Dave Voorhies
Dave Voorhies
General Manager
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
January 30, 1997
Date of Report (Date of earliest event reported)
Bayhawk Ales, Inc.
(Exact name of registrant as specified in its charter)
Delaware 33-82208-LA 33-0606860
(State or other (Commission (IRS Employer
jurisdiction of ) File No.) Identification No.)
of incorporation
200 Main St - Suite A Irvine, CA 92714
(Address of principal executive offices)
(714) 442-7565
(Registrant's telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
Item 5. Other Events.
On January 30, 1997, Nor'Wester Brewing Company, Inc.
("Nor'Wester") and Willamette Valley, Inc. Microbreweries Across
America ("WVI"), a public holding company comprised of three
partially-owned public subsidiaries, Aviator Ales, Inc. ("AAI"), Bayhawk
Ales, Inc. ("BAI"), and Mile High Brewing of Denver ("MHB"), Colorado,
announced the signing of a definitive investment agreement with United
Breweries of America, Inc. ("UBA"), an affiliate of The UB Group
of Bangalore, India.
Under the terms of the agreement, UBA will invest $8.63
million in cash in exchange for a 45% equity interest in a new
entity comprised of the consolidated businesses of Nor'Wester
(which includes Nor'Wester Brewing of Portland, Oregon and North
Country Brewing of Saratoga Springs, New York), WVI and WVI's
partially-owned public subsidiaries. The consolidation is
expected to occur by the end of the second quarter of 1997,
pending approval by the various companies' shareholders. The new
entity will be a holding company for five craft breweries being
consolidated and will operate under the name, United Craft
Brewers, Inc.
Of the $8.63 million investment by UBA, $2.75 million is in
the form of bridge loans conditionally available to Nor'Wester
during the consolidation phase to cover any shortfalls in
operating cash or payments required to be made to existing
creditors. Of this amount, $1,000,000 has previously been
loaned. In addition to obtaining a perfected security interest
in all the assets of North Country Brewing, among other
conditions, all advances under the bridge loan are conditioned
upon there being no material adverse change in the business of
the various brewing companies taken as a whole. At closing, the
$2.75 million in loans and the remaining $5.88 million cash
investment will be converted into shares of United Craft Brewers.
Jim Bernau, President of Nor'Wester and WVI, is transferring
to UBA part of his existing equity stake in the regional
breweries. He will receive no cash consideration in this
transaction, and as a result of the transfer, UBA will own 45% of
United Craft Brewers, with Bernau owning 10% of the new company.
The public shareholders of Nor'Wester and WVI, Aviator Ales,
Bayhawk Ales and Mile High Brewing will own the remaining 45% of
United Craft Brewers. The terms of UBA's investment as set forth
in the definitive investment agreement differ from and supersede
the terms of a Letter of Intent between the parties dated
September 18, 1996, previously disclosed by the Company.
Mr. Bernau will serve as President of United Craft Brewers
and will be a member of the Board of Directors. Vijay Mallya,
Chairman of The UB Group, will serve as Chairman of the Board of
United Craft Brewers.
United Craft Brewers intends to acquire other craft brewers
in the U.S. to expand its alliance of breweries. Furthermore,
United Craft Brewers intends to utilize The UB Group's experience
and resources to pursue international opportunities for its craft
beer alliance.
The UBA investment is subject to several closing conditions
including (i) registration with the Securities and Exchange
Commission of the United Craft Brewers shares to be issued to the
public shareholders of Nor'Wester, WVI and WVI's subsidiary
breweries in the consolidation as well as to UBA in its
investment, (ii) successful completion of the consolidation of
the regional breweries including approval by the shareholders of
Nor'Wester, WVI and each of WVI's subsidiary breweries, and (iii)
the achievement of certain designated or agreed operating results
by the breweries. The investment is expected to close on or
about June 1997.
The consolidation is expected to be accomplished through a
series of stock-for-stock mergers whereby shareholders of
Nor'Wester, WVI and its subsidiaries-Aviator, Mile High and
Bayhawk-will each exchange their respective shares for shares of
United Craft Brewers according to the following exchange ratios
(based on an average closing price for Nor'Wester's common stock
of $2.63 for the 20 trading days immediately preceding execution
of the definitive investment): Nor'Wester-1:1, WVI-1.99159:1;
Aviator-2.98739:1; Mile High-2.98739:1; and Bayhawk-1.99159:1.
Following consolidation and UBA's investment, the combined entity
will have approximately 13 million shares outstanding.
The Company believes that the information set forth in this
Form 8-K and the Press Release dated January 30, 1997, and
attached as an exhibit hereto include "forward looking
statements" within the meaning of Section 27A of the Securities
Act and are subject to the safe harbor created by that Section.
In particular, there can be no assurance that the consolidation
will be approved by the shareholders of the various companies,
that each of the other closing conditions to the definitive
investment agreement will be met in time to close or that the
investment will ultimately close. Furthermore, even if the UBA
investment closes, there can be no assurance that UCB will have
adequate capital to pursue acquisitions of, or alliances with,
other craft brewers in the U.S. and internationally, nor can
there be any assurance of continued or additional market
acceptance in the U.S. or internationally of UCBs' beers and
ales. Finally, during the consolidation phase, there can be no
assurance that BAI will meet each of the conditions
required to receive a bridge loan advance from UBA at the time
such advance is needed. There are additional risks and
uncertainties that could cause the actual results to differ
materially from the forward-looking statements including, but not
limited to, the factors discussed in AAI's Securities and
Exchange Commission filings.
BAI's press release regarding UBA's investment in
BAI is incorporated herein by reference and filed as an
exhibit to this Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
Exhibits
Number Description
99.1 Press Release dated as of
January 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly
authorized.
BAYHAWK ALES, INC.
Date: January 30, 1997 By:/s/ James W. Bernau
James W. Bernau
President
EXHIBIT INDEX
Exhibit No. Description Page
99.1 Press Release dated as of January 30, 1997
UB GROUP SIGNS DEFINITIVE INVESTMENT AGREEMENT
WITH FIVE U.S. MICROBREWERIES
U.S. Craft Breweries to be Subsidiaries of New Holding Company;
UB to Hold 45% Stake in Consolidated Entity
Portland, OR January 30, 1997 -- Nor`Wester Brewing Company
(Nasdaq: ALES) and Willamette Valley, Inc./Microbreweries Across
America, a non-listed public holding company comprised of three
partially-owned public subsidiaries -- Aviator Ales, Inc. of
Woodinville, WA; Bayhawk Ales, Inc. of Irvine, CA; and Mile High
Brewing of Denver, CO. -- today announced the signing of a
definitive investment agreement with United Breweries of America,
Inc. ("UBA"), an affiliate of The UB Group of Bangalore, India.
Under the terms of the agreement, UBA will invest $8.63
million in cash in exchange for a 45% equity interest in a new
entity comprised of the consolidated businesses of Nor`Wester
Brewing Company -- including Nor`Wester Brewing of Portland, OR
and North Country Brewing of Saratoga Springs, NY -- and
WVI/Microbreweries Across America. The consolidation is
currently expected to occur by the end of the second quarter of
1997, pending approval of the various companies' shareholders.
The new entity will be a holding company for the five craft
breweries being consolidated and will operate under the new name,
United Craft Brewers, Inc.. The company will be traded on the
Nasdaq National Market System under the symbol ALES.
Of the $8.63 million investment by UBA, $2.75 million is in
the form of bridge loans conditionally available to Nor`Wester
during the consolidation phase ($1,000,000 has already been
loaned). At closing, the $2.75 million in loans and the
remaining $5.88 million cash investment will be converted into
shares of United Craft Brewers.
Jim Bernau, founder and president of both Nor`Wester Brewing
and WVI-Microbreweries Across America, is transferring to UBA
part of his existing equity stake in the regional microbreweries.
He will receive no cash consideration in this transaction, and as
a result of the transfer, UBA will own 45% of United Craft
Brewers, with Bernau owning 10% of the new company. The public
shareholders of Nor`Wester Brewing and WVI-Microbreweries Across
America will own the remaining 45% of United Craft Brewers. The
terms of UBA's investment as set forth in the definitive
investment agreement differ from and supersede the terms of a
Letter of Intent between the parties dated September 18, 1996.
Bernau will serve as President of United Craft Brewers and
will be a member of the Board of Directors. Vijay Mallya,
Chairman of The UB Group, will serve as Chairman of the Board of
the new company.
"The signing of this agreement puts our goal of creating a
national craft brewing alliance one large step closer to
realization," said Bernau. "And because we will be benefiting
from the experience and resources of The UB Group, I firmly
believe that the alliance is also a very large step closer to
success."
Bernau noted that The UB Group and Vijay Mallya have pursued
an operating philosophy similar to that of the microbreweries in
the alliance. "The UB Group is India's largest beer producer,
but it is comprised of twelve smaller, individual breweries that
each pursues a craft beer approach to producing lagers and ales,"
he explained. "This emphasis on smaller scale brewing will be at
the heart of United Craft Brewers. We couldn't have found a
better partner to join us as we build this national alliance of
leading microbreweries."
Mallya agreed that the investment will significantly
strengthen -- and potentially expand -- the craft brewing
alliance.
"Nor`Wester and the other breweries being consolidated in
the new company make some of the best ales and lagers in
America," Mallya said. "Our goal now is twofold: first, to
enhance the financial, marketing and operating strength of these
breweries, and second, to bring other like-minded U.S. craft
brewers under the UCB umbrella. In addition, UCB intends to
leverage the UB Group's strengths to pursue international
opportunities for the craft beer market.
"By expanding the size of this unique microbrewery alliance,
we will gain important economies of scale in manufacturing,
marketing and distribution -- all while maintaining and enhancing
the unique character and individual excellence that have made
craft brewed beer increasingly popular in America and elsewhere."
Successful consolidation of the regional breweries is a
precondition for closing of the investment by UBA, as is the
achievement of certain operating results by the five breweries.
The investment is expected to close shortly after the
consolidation is completed.
The consolidation is expected to be accomplished through a
series of stock-for-stock mergers whereby shareholders of
Nor'Wester, WVI/Microbreweries Across America and its
subsidiaries -- Aviator, Mile High and Bayhawk -- will each
exchange their respective shares for shares of United Craft
Brewers according to the following exchange ratios which are
based on an average closing price of $2.63 for Nor'Wester's
common stock for the 20 trading days immediately preceding
execution of the definitive investment : Nor'Wester -- 1:1; WVI
- -- 1.99159:1; Aviator -- 2.98739:1; Mile High -- 2.98739:1; and
Bayhawk -- 1.99159:1. Following consolidation and UBA's
investment, the combined entity will have approximately 13
million shares outstanding.
The Nor`Wester Brewing Company and WVI--Microbreweries
Across America were founded by Jim Bernau with his first
microbrewery, Nor`Wester in Portland, Oregon in 1993. Bernau is
also founder and president of Willamette Valley Vineyards in
Salem, Oregon (Nasdaq: WVVI).
The UB Group is a global beer and spirits company operating
in 20 countries on four continents.
[Note: this press release contains forward-looking
statements that are made pursuant to the safe harbor provisions
of The Private Securities Litigation Reform Act of 1995. The
forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from the forward-
looking statements, including, but not limited to, the factors
detailed in the Securities and Exchange Commission filings of
Nor'Wester, Willamette Valley, Inc. Microbreweries across America,
Aviator Ales, Inc., Mile High Brewing Company, Inc. and
Bayhawk Ales, Inc. The forward-looking statements should be
considered in light of these risks and uncertainties.]
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This schedule contains summary financial information extracted from the
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