_________________________
FORM 10-QSB
_________________________
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 33-95606
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
March 31, 1997: 4,693,787 shares, $.001 par value
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MILE HIGH BREWING COMPANY
INDEX TO FORM 10-QSB
============================================================
Part I - FINANCIAL INFORMATION
The information included herein is unaudited. However, such information
reflectsall 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.
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
MILE HIGH BREWING COMPANY
Balance Sheet
March 31
1997 December 31,
ASSETS (unaudited) 1996
Current assets:
Cash and cash equivalents $ 3,726 $ 30,320
Accounts receivable 22,396 85,200
Other current assets, net 8,564 8,170
---------- -----------
Total current assets 34,686 123,690
---------- -----------
Property and equipment, net 1,966,667 2,000,000
Other non-current assets 8,169 -
---------- -----------
Total assets $2,009,522 $2,123,690
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 863,359 816,664
Reserve for impairment loss 50,000 50,000
Other accrued liabilities 24,533 15,633
Payables to parent and affiliated
companies 1,843,915 1,834,547
Current portion of capital lease
obligation 71,218 69,270
---------- -----------
Total current liabilities 2,853,025 2,786,114
Capital lease 217,446 241,224
---------- -----------
3,070,471 3,027,338
Commitments
Shareholders' equity:
Common stock, $.001 par value
- 10,000,000 shares authorized,
4,693,787 shares outstanding 4,694 4,694
Additional paid-in capital 2,252,274 2,252,274
Accumulated deficit (3,317,917) (3,160,616)
----------- -----------
(1,060,949) (903,648)
----------- -----------
Total liabilities and shareholders'
equity $2,009,522 $2,123,690
=========== ===========
MILE HIGH BREWING COMPANY
Statement of Operations
(unaudited)
Three Months Ended March 31,
1997 1996
Gross revenues $ 16,770 $ 104,614
Less: excise taxes (1,701) (4,407)
----------- -----------
Net revenues 15,069 100,207
Cost of revenues 80,947 173,669
----------- -----------
Gross deficit (65,878) (73,462)
Selling, general and administrative
expenses 91,423 160,070
----------- -----------
Loss from operations (157,301) (233,532)
Other income (expense)
Other expense - -
Interest income - 2,937
Interest expense - (3,712)
- (775)
----------- -----------
Net loss $ (157,301) $ (234,307)
=========== ===========
Net loss per common share $ (0.03) $ (0.05)
=========== ===========
Weighted average number of common shares
outstanding 4,693,787 4,690,167
----------- -----------
MILE HIGH BREWING COMPANY
Statement of Cash Flows
(Unaudited)
Three Months Ended March 31,
1997 1996
Cash flows from operating activities:
Net loss $ (157,301) $ (234,307)
Reconciliation of net loss to net cash
used for operating activities:
Depreciation and amortization 33,333 42,500
Increase in deferred rent - 4,683
Changes in assets and liabilities:
Accounts receivable 62,804 (9,717)
Inventories - (63,837)
Other current assets (394) 26,037
Accounts payable 46,695 (21,339)
Accrued liabilities 8,900 (385)
Payables to parent and affiliated
companies 9,368 33,407
------------ -------------
Net cash provided by
(used for) operating activities 3,405 (222,958)
Cash flows from investing activities:
Purchases of property and equipment - (435,317)
Increase in other non-current assets (8,169) (22,338)
------------ -------------
Net cash used for investing activities (8,169) (457,655)
Cash flows from financing activities:
Increase in deferred stock offering
costs - (19,284)
Proceeds from capital lease - 345,690
Principal payments on capital lease (21,830) (13,013)
------------ -------------
Net cash (used for) provided by financing
activities (21,830) 313,393
------------ -------------
Net decrease in cash and cash equivalents (26,594) (367,220)
Cash and cash equivalents:
Beginning of period 30,320 379,691
------------ -------------
End of period $ 3,726 $ 12,471
============ =============
MILE HIGH BREWING COMPANY
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 for the year ended December
31, 1996.
The Company has recorded significant losses in the quarter ended March 31,
1997 and during the prior year, has negative working capital of $2.8 million,
and has limited access to capital with which to fund future operations. In
November 1996 the Company ceased all operations with the exception of a small
contract brewing arrangement with a third party brewer, and, as such, there
exists substantial doubt as to its ability to continue as a going concern.
The Company is currently researching various options for obtaining additional
contract brewing arrangements, however, there can be no assurance that the
Company will find adequate contracts with which to sustain ongoing operations.
Management has recorded a partial write-down of brewery assets to their
estimated fair market value. The Company based its analysis on Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of," which establishes standards
to identify and measure impairment of long-lived assets. Management's best
estimate of this write-down, based on the present value offer is $969,000.
In addition, management estimates the cost to dispose of the assets to be
$50,000, and this amount was recorded in the financial statements as of
December 31, 1996, as part of the reserve for impairment loss. During the
quarter ended March 31, 1997 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 Pending Consolidation
note below.
MILE HIGH BREWING COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
Property and Equipment
Property and equipment consists of the following:
March 31, December 31,
1997 1996
------------- ------------
Building and improvements $ 1,558,070 $ 1,558,070
Brewery equipment 1,495,074 1,495,074
Office furniture and equipment 25,274 25,274
Vehicles 21,250 21,250
------------- ------------
3,099,668 3,099,668
Less accumulated depreciation (300,760) (267,427)
Write down to fair value (832,241) (832,241)
------------- ------------
1,966,667 $ 2,000,000
============= ============
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 2,391,985
shares of registered common stock.
In connection with the Company's initial stock offering under Oregon securities
laws, WVI agreed to place in escrow its 2,391,985 shares of the Company's
unregistered common stock. These shares were to be released from escrow to WVI
when the Company satisfied one or more certain earnings requirements or
established a bona fide over-the-counter trading market for its common stock and
maintained a bid price equal to or greater than a stipulated benchmark price
for 26 or more consecutive weeks. Unless released pursuant to these
conditions, the 2,391,985 shares were to remain in escrow until unconditionally
released in 25% increments on July 31, 2001, 2002, 2003 and 2004. Based on the
ownership change anticipated by management described in the Pending
Consolidation note, the shares will not be released from escrow, and all shares
will be converted to shares of the new Company. The shares, while in escrow,
entitle WVI to the same rights and privileges as all other shareholders of
common stock, except for certain rights relating to transferability and
liquidation.
During 1994 and 1995, the Company sold 2,298,182 shares of its common stock
at $1.10per share pursuant to a From SB-2 public offering filed with the U.S.
Securities Exchange and Commission (SEC). Cash proceeds from this offering,
net of offering expenses of $377,729, aggregated $2,150,271.
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.
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 $3 million 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 begin 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); 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
Company president'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
totalcost of $14,757 and $26,280 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, BAI, 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 operative brewing of Nor'Wester
beers.
During 1995, WVI loaned $800,000 to the Company to fund operations and purchase
capital assets. This loan was not repaid in accordance with its original terms
and the full amount became due and payable during 1996. As a result of the
administrative services purchased from WVI and the loans received from WVI, the
Company has advances and loans payable to affiliates of $1,843,915 at March 31,
1997. Because management expects these advances 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.
Pending Consolidation, Bridge Loan, Subsequent Investment By UBA
The Company, WVI, Aviator Ales, Mile High Brewing and Bayhawk Ales (together
the "Affiliated Companies") have entered into an Investment Agreement with
United Breweries of America, Inc. ("UBA") dated January 30, 1997 and amended
May 14, 1997 (the "Investment Agreement"). Under the terms of the Investment
Agreement, UBA has agreed to invest $5.5 million in exchange for a 40% equity
interest in the consolidated businesses of the Affiliated Companies. UBA, an
affiliate of The UB Group of Bangalore, India, was formed for the purpose of
investing in the U.S. craft beer industry. The UB Group is a diversified multi-
national corporation whose major operations consist of the production and sale
of beer and spirits through affiliated companies which operate in 20 countries
on four continents.
Under the terms of the Investment Agreement, the Affiliated Companies have each
agreed to consolidate under the ownership of a new entity, United Craft Brewers,
Inc. ("UCB"). UCB will serve as a holding company for companies which operate
each of the five affiliated breweries--the Portland Brewery, the Saratoga
Springs Brewery, the Seattle Brewery, the Denver Brewery and the Southern
California Brewery. The proposed consolidation is a condition to receipt of
UBA's investment which will be made directly in UCB.
Consolidation. Under the proposed consolidation each of the Affiliated
Companies will become a wholly-owned subsidiary of UCB pursuant to a merger
and share exchange by which newly registered shares of UCB will be issued in
exchange for outstanding shares of the Affiliated Companies based on the share
exchange rates described below. The merger and share exchange has been
unanimously approved by the Boards of Directors of each of the Affiliated
Companies but remains subject to approval by shareholders of each Affiliated
Company. Following completion of the consolidation, shareholders of each
Affiliated Company will hold shares in UCB, which is intended to be listed for
trading on the Nasdaq SmallCap Market under the symbol "ALES." The
consolidation is primarily an administrative step designed to simplify the
ownership structure of the Affiliated Companies, increase the operating
efficiencies of each brewery, decrease the production, marketing and
distribution costs of each brewery, increase the ability of the combined
breweries to finance operations and possible growth and provide all
shareholders with a liquid market for their shares.
The outstanding shares of each of the Affiliated Companies will be exchanged
for shares in UCB according to the following exchange ratios which are based on
a negotiated price of $1.75 per share for Nor'Wester's Common Stock:
Company Exchange Ratio
Nor'Wester 1:0.3333333
WVI 1:0.0785714
Aviator Ales 1:0.0523809
Bayhawk Ales 1.0.0785714
Mile High Brewing 1:0.0523809
Implicit in the exchange ratios is a 3-for-1 reverse split of the outstanding
shares of each of the Affiliated Companies.
Bridge Loans. Under the Investment Agreement, UBA is obligated to provide
Nor'Wester with up to $2.75 million in bridge loans as interim financing during
the consolidation phase. Advances under the bridge loan are expected to be used
by Nor'Wester to help cover operating expenses and pay existing creditors of the
Affiliated Companies until closing of the investment, at which time the balance
of UBA's $5.5 million investment is expected to be made. Of the $2.75 million,
$1.9 million has already been advanced and spent as of the date of this
report. All bridge loans are made pursuant to a Credit Agreement between
Nor'Wester and UBA, the principal terms of which are as follows:
(1) The bridge loans will be made at times and in amounts mutually
determined by UBA and Nor'Wester based on a periodic review of the
cash flow needs and creditor demands of the Affiliated Companies.
(2) Interest on the bridge loan accrues at 11.25% per annum and is payable
to UBA in cash at closing of UBA's investment.
(3) All principal and interest is secured by the assets of North Country
Joint Venture, LLC (owner and operator of the Saratoga Springs
Brewery) and by Nor'Wester's ownership interest in the joint
venture LLC. Repayment of all principal and interest is guaranteed
personally by Jim Bernau.
(4) As a condition to each advance under the bridge loan, neither Jim
Bernau nor any of the Affiliated Companies shall be in breach of
any representation, warranty or covenant under the credit documents
or the Investment Agreement and there shall not be any "material
adverse effect" in the businesses of the Affiliated Companies as a
whole.
(5) Unless converted at closing, all advances under the bridge loan
mature 60 days after termination of the Investment Agreement or the
occurrence of certain events of default under the credit documents
(including the breach by an Affiliated Company or Mr. Bernau of any
representation, warranty or covenant under the Investment Agreement),
except that the bridge loan becomes due immediately if a "material
adverse effect" occurs in the businesses of the Affiliated Companies
as a whole or there is a breach by any Affiliated Company or Mr.
Bernau of any representation, warranty or covenant under the credit
documents.
Following completion of the consolidation and assuming all closing conditions
have been met as required under the Investment Agreement, UBA will invest an
additional $2.75 million in cash combined with the anticipated conversion of the
$2.75 million bridge loan in exchange for a 40% equity interest in UCB. UBA's
investment in UCB will be made at a price of $5.25 per share of UCB Common Stock
($1.75 per share before application of the 3-for-1 reverse stock split implicit
in the exchange ratios to be used in the consolidation).
Closing of the proposed investment remains subject to (i)approval by the
shareholders of each of the Affiliated Companies, (ii)maintenance of certain
operating conditions and covenants, including that there shall be no "material
adverse change" in the businesses of the Affiliated Companies taken as a whole,
(iii)approval by the U.S. Bureau of Alcohol, Tobacco and Fire Arms and
applicable state liquor control commissions, (iv)registration with the U.S.
Securities and Exchange Commission of the UCB shares to be exchanged in the
consolidation; (v)extension of Nor'Wester's $1.0 million line of credit through
September 30, 1997, the bank 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 (vi) such other customary conditions for transactions of this type.
As a further condition to UBA's investment, Jim Bernau has agreed to transfer a
portion of the shares of UCB Common Stock he receives in the consolidation as
follows: 83,109 UCB shares to UBA and 174,912 UCB shares to UCB for
cancellation. This represents approximately 48% of the total number of UCB
shares he will receive in the consolidation. This transfer, for which Mr.
Bernau will receive no cash consideration, is being done principally to provide
UBA withthe necessary equity interest in UCB (40%) to cause UBA to make the
investment.
Following completion of the consolidation and closing of UBA's investment, the
approximate ownership interests in UCB will be as follows: (i) UBA -- 40.0%,
(ii) Jim Bernau -- 10%, and (iii) the public shareholders of each Affiliated
Company will own the following interests: Nor'Wester-33.1%, WVI-5.1%,
Aviator Ales-4.8%, Mile High Brewing-4.3%, and Bayhawk Ales-2.7%. The initial
Board of Directors of UCB will be composed of 7 members consisting of (i) one
person appointed by Jim Bernau, (ii) four persons appointed by UBA (one of whom
shall be Vijay Mallya, Chairman of The UB Group, who shall be chairman) and
(iii) two outside Directors who shall be mutually satisfactory to Jim Bernau
and UBA. The initial Board will serve until the next regular meeting of
shareholders. At that time, UBA, with its 40% interest, will be in a position
to effectively elect all members of the Board of Directors and thereby control
UCB and in turn its subsidiary breweries.
Subject to completion or waiver of all closing conditions, closing of UBA's
investment will occur as soon as practicable following approval of the
consolidation by the shareholders of each of the Affiliated Companies which is
currently expected to occur in or about mid-August 1997. In the event that the
investment is not closed by August 31, 1997, either party may terminate the
transaction and repayment of any outstanding bridge loan is due 60 days
thereafter.
While the Company is dependent upon the receipt of further loans under the
credit facility and closing of the UBA investment, the Company does not control
the business or operations of the other Affiliated Companies and can not assure
that it or another Affiliated Company will not violate one or more covenants in
the Investment Agreement or that a closing condition will not be met.
Accordingly, there can be no assurance that the Company will receive further
bridge loan amounts or that the investment will ultimately close or will close
on the terms set forth in the Investment Agreement.
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 aboutthe 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 financingfor 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
Gross Revenues and Cost of Sales
During the quarter ended March 31, 1997, the Company's management
established a planto sell the operating assets of the Company. Based on
this plan, management has recorded a partial write-down of operating brewery
assets to their estimated fair market value. The Company based its analysis
on Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of,"
which establishes standards to identify and measure impairment of long-lived
assets. Management's best estimate of this write-down, based on the present
value offer is $969,000. In addition, management estimates the cost to dispose
of the assets to be $50,000, and this amount was recorded in the financial
statements as of December 31, 1996, as part of the reserve for impairment loss.
While management searches for potential buyers, the Company intends to
operate on a limited basis as a contract brewer for a local brewery. Net
revenues from contract brewing during the quarter ended March 31, 1997 were
$15.069. No definitive agreement has been reachedregarding the sale or lease
of the facility, but management has received an offer of approximately $2
million in exchange forall of MHB's property and equipment and assumption of
the facility lease.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses decreased to $91,423
for the quarter ended March 31, 1997 from $160,070 for the quarter ended March
31, 1996. The decrease in SG&A expenses is primarily attributable to
management's decision to limit operations to thrid-party brewing contracts..
Net Income (Loss).
As a result of the individual line items discussed above, net loss was $135,000
for the quarter ended March 31, 1997 compared to net loss of $234,000 for the
quarter ended March 31, 1996.
Liquidity and Capital Resources
Cash and cash equivalents decreased $26,564 to $3,726 at March 31, 1997
from December 31, 1996. The decrease is primarily a result of operating losses
during the period.
The Company's working capital deficit was $2.8 million at March 31, 1997
compared to$2.7 million at December 31, 1996. The Company has used cash
receipts from accounts receivable collections for the payment of payroll and
related expenses, however the Company has only been able to make limited
payments to trade creditors due to the limited operations during the quarter.
At March 31, 1997 the Company had payables to affiliates of $1.8 million
which comprised 66% of the Company's current liabilities. The payables are
classified as current as management expects to eliminate these payables
through the investment transaction with UBA as discussed below.
The Company made no capital investments during the quarter ended March 31,
1997.
Accounts payable at March 31, 1997 totaled $863,359 compared to $816,664
at December 31, 1996. Of the $863,359 outstanding at March 31, 1997
$827,318 was past due.
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.
The Company, WVI, AAI, MHB and BAI (together the "Affiliated Companies")
have entered into an Investment Agreement with United Breweries of America,
Inc. ("UBA") dated January 30, 1997 and amended May 14, 1997 (the
"Investment Agreement"). Under the terms of theInvestment Agreement, UBA
has agreed toinvest $5.5 million in exchange for a 40% equity interest in the
consolidated businesses of the Affiliated Companies. UBA, an affiliate of The
UB Group of Bangalore, India, was formed for the purpose of investing in the
U.S. craft beer industry. The UB Group is a diversified multi-national
corporation whose major operations consist of the production and sale of beer
and spirits through affiliatedcompanies which operate in 20 countries on four
continents.
Under the terms of the Investment Agreement, the Affiliated Companies have
each agreed to consolidate under the ownership of a new entity, United Craft
Brewers, Inc. ("UCB"). UCB will serve as a holding company for companies
which operate each of the five affiliated breweries--the Portland Brewery, the
Saratoga Springs Brewery, the Seattle Brewery, the Denver Brewery and the
Southern California Brewery. Under the proposed consolidation each of the
Affiliated Companies will become a wholly-owned subsidiary of UCB pursuant
to a merger and share exchange by which newly registered shares of UCB will
be issued in exchange for outstanding shares of the Affiliated Companies based
on the share exchange rates described below. The merger and share exchange
has been unanimously approved by the Boards of Directors of each of the
Affiliated Companies but remains subject to approval by shareholders of each of
the Affiliated Companies.
The outstanding shares of each of the Affiliated Companies will be exchanged
for shares in UCB according to the following exchange ratios which are based
on a negotiated price of $1.75 per share for Nor'Wester's Common Stock:
Company Exchange Ratio
Nor'Wester 1:0.3333333
WVI 1:0.0785714
Aviator Ales 1:0.0523809
Bayhawk Ales 1.0.0785714
Mile High Brewing 1:0.0523809
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, Nor'Wester's
wholly-owned subsidiary, and by Nor'Wester'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 Boad
("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
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 in
the Proposed Merger note. The renegotiation will reflect a
significantly lower valuation for the affiliated 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.
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.
MILE HIGH BREWING COMPANY
Date: May 20, 1997 By _____________________
Jim Bernau
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: May 20, 1997 By /s/ Jim Bernau
Jim Bernau
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)
Mile High Brewing Company
(Exact name of registrant as specified in its charter)
Delaware 33-95606 93-1145738
(State or other (Commission (IRS Employer
jurisdiction of ) File No.) Identification No.)
of incorporation
2401 Blake Street, Denver, Colorado 80205
(Address of principal executive offices)
(303) 299-0148
(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.
MHB's press release regarding UBA's investment in
MHB 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.
Mile High Brewing Company
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
consolidated balance sheet and the consolidated statment of operations filed as
part of the quarterly report on form 10-QSB and is qualified in its entirity by
reference to such report on form 10-QSB
</LEGEND>
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