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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 33-95606
MILE HIGH BREWING COMPANY
(Exact name of registrant as specified in charter)
Delaware 93-1145738
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
_________________________
2401 Blake Street
Denver, Colorado 80205
(303) 299-0147
(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:
4,692,707 shares, $.001 par value
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MILE HIGH BREWING COMPANY
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 1995.......................................4
Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995......................5
Notes to Financial Statements..................................6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations................9
Part II - Other Information
Item 6 -- Exhibits and Reports on Form 8-K..............................12
Signatures...................................................................13
MILE HIGH BREWING COMPANY
(A Development Stage Company)
Balance Sheet
June 30,
1996 December 31,
ASSETS (unaudited) 1995
------------ ------------
Current assets:
Cash and cash equivalents $ 37,989 $ 379,691
Accounts receivable 165,124 44,118
Inventories 313,092 86,763
Other current assets, net 58,892 67,837
------------ ------------
Total current assets 575,097 578,409
Property and equipment, net 2,631,262 2,178,732
Deferred stock offering costs 132,476 -
Receivable from affiliates 2,948 -
Other non-current assets, net 139,121 131,950
------------ ------------
Total assets $ 3,480,904 $ 2,889,091
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease $ 65,873 $ 24,029
Accounts payable 392,481 143,750
Accrued liabilities 255,060 79,526
Payable to parent and affiliated companies, net 300,922 20,614
Current portion of advances from affiliates 431,800 400,000
------------ ------------
Total current liabilities 1,446,136 667,919
Capital lease 278,038 5,868
Advances from affiliates 693,200 650,000
Deferred rent 50,401 43,377
------------ ------------
2,467,775 1,367,164
------------ ------------
Commitments
Shareholders' equity:
Common stock, $.001 par value -
10,000,000 shares authorized,
4,692,707 and 4,690,167 shares outstanding 4,693 4,690
Additional paid-in capital 2,245,578 2,245,581
Deficit accumulated during
the development stage (1,237,142) (728,344)
------------ ------------
1,013,129 1,521,927
------------ ------------
Total liabilities and shareholders' equity $ 3,480,904 $ 2,889,091
============ ============
The accompanying notes are an integral part of this financial statement.
MILE HIGH BREWING COMPANY
(A Development Stage Company)
Statement of Operations
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Gross sales 462,537 2,447 567,151 5,800
Less: excise taxes 45,150 - 49,556 -
------------ ------------ ------------ ------------
Net sales 417,387 2,447 517,595 5,800
Cost of sales 513,881 1,351 687,550 2,226
------------ ------------ ------------ ------------
Gross profit (deficit) (96,494) 1,096 (169,955) 3,574
Selling, general and
administrative expenses 164,738 123,224 324,809 223,409
------------ ------------ ------------ ------------
Loss from operations (261,232) (122,128) (494,764) (219,835)
Other income (expense)
Interest income 441 27,293 3,378 56,506
Interest expense (13,700) - (17,412) -
------------ ------------ ------------ ------------
(13,259) 27,293 (14,034) 56,506
------------ ------------ ------------ ------------
Net loss $ (274,491) $ (94,835) $ (508,798) $ (163,329)
============ ============ ============ ============
Net loss per
common share $ (0.06) $ (0.02) $ (0.11) $ (0.03)
============ ============ ============ ============
Weighted average
number of common
shares outstanding 4,691,860 4,690,167 4,691,013 4,681,131
============ ============ ============ ============
The accompanying notes are an integral part of this financial statement
MILE HIGH BREWING COMPANY
(A Development Stage Company)
Statement of Cash Flows
(unaudited)
Six Months Ended June 30,
1996 1995
------------ ------------
Cash flows from operating activities:
Net loss $ (508,798) $ (163,329)
Reconciliation of net loss to net
cash used for operating activities:
Depreciation and amortization 85,215 -
Increase in deferred rent 7,024 -
Changes in assets and liabilities:
Accounts receivable (121,006) -
Inventories (226,329) (746)
Receivable from affiliates (2,948) -
Other current assets 8,945 (7,616)
Other non-current assets (7,171) (3,403)
Accounts payable 248,852 52,287
Accrued liabilities 175,534 10,742
Payables to parent and
affiliated companies 280,308 (97,917)
------------ ------------
Net cash used for operating activities (60,374) (209,982)
Cash flows from investing activities:
Purchases of property and equipment (217,176) (889,987)
Sale of asset 25,000 -
------------ ------------
Net cash used for investing activities (192,176) (889,987)
Cash flows from financing activities:
Cash advances from affiliated companies 75,000 -
Deferred stock offering costs (132,476) -
Net proceeds from stock offering - 43,109
Principal payments on capital lease (31,676) -
------------ ------------
Net cash (used for)
provided by financing activities (89,152) 43,109
------------ ------------
Net decrease in cash and cash equivalents (341,702) (1,056,860)
Cash and cash equivalents:
Beginning of period 379,691 2,252,087
------------ ------------
End of period $ 37,989 $ 1,195,227
============ ============
The accompanying notes are an integral part of this financial statement.
MILE HIGH BREWING COMPANY
NOTES TO FINANCIAL STATEMENTS
DEVELOPMENT STAGE COMPANY
Mile High Brewing Company (the "Company") was formed on June 8, 1994 for the
purpose of developing and operating one or more breweries in Colorado for the
production of high quality, hand-crafted ales for sale in bottle and draft.
The Company has built a brewery in a leased commercial building in the historic
LoDo District of downtown Denver, Colorado. The brewery is situated two blocks
north of Coors Field, home of the Colorado Rockies major league baseball team.
The brewery has an initial production capacity of 11,700 barrels per year with
a maximum designed production capacity of 60,000 barrels per year.
The Company is a development stage company that was organized under the laws of
the State of Delaware. From the date of inception (June 8, 1994) through June
30, 1996, the Company's efforts have been directed toward: 1) organizing and
completing a public offering of shares of its Common Stock, 2) building and
equipping its brewery, 3) developing and beginning production of six distinct
styles of hand-crafted ales, and 4) establishing a network of 19 independent
distributors. The Company is a majority-owned subsidiary of Willamette Valley,
Inc. Microbreweries across America ("WVI"), a company organized to establish
microbreweries throughout the United States. At June 30, 1996, WVI owned
approximately 51% of the Company's Common Stock.
BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited and have been
prepared by Mile High Brewing Company 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 Registration Statement on Form SB-2 for the year ended December
31, 1995 filed with the Securities and Exchange Commission. The results of
operations for an interim period are not necessarily indicative of the results
of operations for a full year.
Statement of Cash Flows
During 1996, the Company obtained approximately $346,000 of assets under a
capital lease obligation. This non-cash transaction has been excluded from the
accompanying statement of cash flows.
Inventories
Inventories consist of the following:
June 30, December 31,
1996 1995
------------ ------------
Raw materials $ 122,457 $ 18,372
Work-in-process 82,250 26,332
Finished goods 97,764 25,915
Retail products 10,621 16,144
------------ ------------
$313,092 $ 86,763
============ ============
Property and Equipment
Property and equipment consists of the following:
June 30, December 31,
1996 1995
------------ ------------
Building and improvements $ 1,447,839 $ 1,277,484
Brewery equipment 1,230,141 893,798
Office furniture and equipment 28,474 23,034
Vehicles 21,250 21,250
Construction in progress 32,626 14,000
------------ ------------
2,760,330 2,229,566
Less accumulated depreciation and amortization (129,068) (50,834)
------------ ------------
$ 2,631,262 $ 2,178,732
============ ============
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 benefits could be realized. Accumulated net operating loss
carryforwards at June 30, 1996 and December 31, 1995 were $1,281,000 and
$785,000, respectively.
Shareholders' Equity
The Company has commenced a second public offering of common stock. The
Company has registered an offering with the SEC in an effort to sell an
additional 1,053,000 shares of its Common Stock at an offering price of $1.85
per share. The amount raised to date is approximately $450,000 which has been
placed in an escrow account and will be available to MHBC when the escrow
amount exceeds $750,000.
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 $16,725. WVI contracts for
certain of these services under a general services agreement between WVI and
Nor'Wester Brewing Company, Inc. ("Nor'Wester"), an affiliated company. The
Company also purchased stock transfer services from Willamette Valley
Vineyards, Inc. ("WVV"), an affiliated company, for $5,300 for the same
period. In conjunction with the Company's proposed stock offering, the
Company has been charged an aggregate of $16,900 by WVI, Nor'Wester and WVV for
stock offering services.
In April 1996, the Company commenced cooperative brewing of Nor'Wester beer
under the Cooperative Brewing Agreement. Sales to Nor'Wester under this
agreement totaled $324,117 through June 30, 1996. In April, the Company sold
$25,000 of 1/2 barrel kegs to Nor'Wester for use in the packaging of Nor'Wester
beer.
To further promote and support its brand presence of Nor'Wester's hand-crafted
ales and lagers in Denver, Colorado, the Board of Directors of Nor'Wester
authorized a loan to the Company for the construction of a Public Brew House
adjacent to the Company's brewing facility totaling $194,000. The Company is
currently in the process of raising additional capital through a common stock
offering. If the offering is successful, the Company will use $100,000 to
reduce the amount owed to Nor'Wester for the construction of the pub and the
remaining balance will become a note payable between the companies.
Net Loss Per Share
Net loss per common share is calculated based on the weighted average number of
common shares outstanding. Shares owned by the Company's parent, WVI, and held
in escrow are included in the weighted average number of common shares
outstanding.
MILE HIGH BREWING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1996
Gross Sales. The Company began brewing beer in August 1995. Sales from beer
and retail products totaled $462,537 for the three months ended June 30, 1996.
The Company expects that the opening of its Public Brewing House in June, 1996,
which is located adjacent to its brewing facility and three blocks from the
Colorado Rockies Stadium, will generate additional beer and retail sales and
facilitate local brand presence and loyalty for its ales and lagers. The pub,
which is constructed in a log cabin setting, including an applewood-wood-
burning stove, serves both Nor'Wester and Mile High ales and lagers and seats
135 people. Revenues from the comparable period in 1995 totaling $2,447 were
limited to the sale of retail merchandise such as T-shirts and hats as the
brewery had not yet commenced operations.
Excise Taxes. Excise taxes were $45,150 (10% of net sales) for the three
months ended June 30, 1996. There were no excise taxes during the same period
in 1995, as production and sale of beer did not commence until August 1995.
Cost of Sales. Cost of sales as a percentage of net revenues for the second
quarter ended 1996 was 123%, 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. Cost of sales as a percentage of net revenues for the
comparable period in the prior year was 55%, reflecting the cost of the retail
merchandise sold during the quarter.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses for the three months ended June 30, 1996 totaled
$164,617 as compared to $123,224 for the comparable period in 1995. This was
primarily due to higher management and administrative support required when the
Company commenced operations as well as the current restructuring of the sales
staff. During the second quarter of 1996, the Company hired a Sales Manager
and extended its sales force to more aggressively introduce its product in
Colorado and fifteen additional states.
Six Months Ended June 30, 1996
Gross Sales. Sales from beer and retail products totaled $567,151 for the six
months ended June 30, 1996. Revenues from the comparable period in 1995
totaled $5,800 and were limited to the sale of retail merchandise such as T-
shirts and hats as the brewery had not yet commenced operations.
Excise Taxes. Excise taxes were $49,556 (9.6% of net sales) for the six
months ended June 30, 1996. There were no excise taxes during the same period
in 1995, as production and sale of beer did not commence until August 1995.
Cost of Sales. Cost of sales as a percentage of net revenues for the first
half of 1996 was 133%, 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. During 1996, the Company has been successful in creating
three new styles of beer. The Company anticipates its new Stout, Apricot and
White Forest Ales will expand its market further. Cost of sales as a
percentage of net revenues for the comparable period in the prior year was 38%,
reflecting the cost of the retail merchandise sold during the quarter.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses for the six months ended June 30, 1996 totaled $324,688
as compared to $223,409 for the comparable period in 1995. This was primarily
due to costlier management and administrative support required when the Company
commenced operations.
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, effectiveness
of new Management, pricing and availability of raw materials and packaging,
successful execution of internal performance and expansion plans, impact of
competition, distributor changes, availability of financing, and other risks
inherent in the brewing industry.
In March of 1996 the Company hired Dr. Thompson Mambe, formally of Guiness.
His specialties include brewing lagers and Guiness-style stouts. Dr. Mambe is
a member of the institute of Brewing in London and has attended the Guiness
Brewing School in London. Dr. Mambe developed the new Stout beer.
Recently, John Carter, Regional Sales Manager for California was promoted to
Vice President and General Manager of the Company. He has earned the
reputation of being the most aggressive brand builder in the Alliance of craft
breweries. He is expected to help promote the brand presence of the Company's
products throughout its selling region.
The Company recently changed its primary Colorado distributor, an entity owned
by Coors. The Company felt that the distributor was focusing on the Coors'
Blue Moon line of industrially brewed beers and not its own. The Company
expects that the change in distributor will have a positive impact on the
Company's beer sales in the region.
Liquidity and Capital Resources
For the quarter ended June 30, 1996, cash and cash equivalents decreased
$341,702 primarily due to operating losses of $508,677. Other uses of funds
include an increase in accounts receivable of $121,006, an increase in
inventories of $226,329, an increase in other non-current assets of $7,171, an
increase in deferred stock offering costs of $132,476, purchases of property
and equipment of $217,176, principal debt payments of $31,676. Primary sources
of funds include a decrease in other current assets of $8,945, an increase in
accounts payable of $248,852, an increase in accrued liabilities of $175,534,
an increase in payables to affiliates of $280,308, sale of asset for $25,000
capital lease proceeds of $345,690 and an increase in advances from affiliated
companies of $75,000.
The Company invoked several strategies to improve results of operations and the
related cash flows. The Company has identified the need and has restructured
its sales force to include a Sales Manager. The Company has also strengthened
its sales staff to improve sales in existing and promote sales in new markets.
To that end, the Company has secured licenses to sell its product in fifteen
other states.
The Company will be dependent upon proceeds from debt or equity financing as
cash flows from operations are not expected to be sufficient to satisfy the
Company's working capital needs for the next twelve months.
The Company has commenced a second public offering of its common stock. The
Company has registered an offering with the SEC in an effort to sell up to
1,053,000 shares of its Common Stock at a proposed offering price of $1.85 per
share. This offering, if successfully completed, will generate net proceeds of
approximately $458,000 at a minimum or $1.7 million at a maximum, which will
provide the Company with sufficient funds, in order of priority, to: sustain
operations for at least the next twelve months; purchase equipment to expand
production to 39,000 barrels per year; purchase additional kegs; repay WVI the
first $400,000 of its loan to the Company; and repay Nor'Wester the first
$100,00 of its loan to the Company. The preceding description represents the
Company's best estimate of its expected use of the net offering proceeds based
upon its present plans. However, events may require changes in the use of
proceeds if, in management's opinion, it is in the best interests of the
Company. If, for any reason, the Company is unable to finance future expansion
and working capital requirements through its second self-underwritten public
offering of common stock, alternative methods of financing would have to be
developed. No assurance can be given that the offering will be successful or
that alternative methods of financing would be available on terms acceptable to
the Company or at all. Having to develop alternative means of financing would
likely slow expansion and such alternative financing may be more costly. The
Company's inability to obtain additional capital would result in a material
adverse effect on the Company's business and results of operations.
MILE HIGH BREWING COMPANY
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.
MILE HIGH BREWING COMPANY
Date: August 19, 1996 By /s/ James W. Bernau
-------------------
James W. Bernau
President
12
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This schedule contians financial information extracted from the
Balance Sheet at June 30, 1996 (Unaudited) and the Statement of Operations for
the Six Months Ended June 30, 1996 (Unaudited) and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
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