<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/ X / Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996
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/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 0 - 25836
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PORTLAND BREWING COMPANY
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(Exact Name of Small Business Issuer as Specified in Its Charter)
OREGON 93-0865997
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2730 NW 31ST AVENUE, PORTLAND, OREGON 97210
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(Address of Principal Executive Offices)
503/226-7623
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(Issuer's Telephone Number, Including Area Code)
NOT APPLICABLE
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
Yes / X / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,073,897 shares of
common stock as of November 5, 1996.
Transitional Small Business Disclosure Format (check one):
Yes / X / No / /
<PAGE>
PORTLAND BREWING COMPANY
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Balance Sheet - September 30, 1996
and December 31, 1995. . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations - Three Months and Nine Months
Ended September 30, 1996 and 1995. . . . . . . . . . . . . . . . 4
Statements of Cash Flows - Three Months and Nine Months
Ended September 30, 1996 and 1995. . . . . . . . . . . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PORTLAND BREWING COMPANY
BALANCE SHEET
ASSETS
September 30, December 31,
1996 1995
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CURRENT ASSETS
Cash $ 131,720 $ 156,466
Accounts receivable, net 849,230 710,145
Inventories, net 778,512 707,145
Prepaid and other current assets 644,504 436,282
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Total current assets 2,403,966 2,010,038
PLANT AND EQUIPMENT, NET 9,161,720 6,751,334
OTHER ASSETS, NET 224,683 144,699
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Total assets $11,790,369 $8,906,071
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 842,350 $ 582,750
Accrued liabilities 527,541 349,997
Notes payable and current portion of
long-term debt 880,974 61,733
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Total current liabilities 2,250,865 994,480
DEFERRED INCOME TAXES 189,252 189,452
LONG-TERM DEBT, net of current portion 2,108,769 537,712
STOCKHOLDERS' EQUITY:
Common Stock, no par value, 5,000,000
shares authorized, 2,073,897 and
2,069,397 shares issued and outstanding
at September 30, 1996 and December 31,
1995, respectively 6,716,730 6,696,196
Stock notes receivable (6,262) (18,260)
Retained earnings 531,015 506,491
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Total stockholders' equity 7,241,483 7,184,427
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Total liabilities and stockholders'
equity $11,790,369 $8,906,071
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The accompanying notes are an integral part of these statements.
<PAGE>
PORTLAND BREWING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
SALES $3,650,047 $3,904,302 $10,131,294 $8,687,047
EXCISE TAX 173,013 188,929 574,637 428,043
---------- ---------- ----------- ----------
Net Sales 3,477,034 3,715,373 9,556,657 8,259,004
COST OF SALES 2,263,791 2,269,537 6,202,691 5,111,688
---------- ---------- ----------- ----------
GROSS PROFIT 1,213,243 1,445,836 3,353,966 3,147,316
GENERAL AND ADMINISTRATIVE EXPENSES 477,413 282,090 1,374,627 898,075
SELLING AND MARKETING EXPENSES 749,575 676,395 1,875,282 1,771,147
---------- ---------- ----------- ----------
OPERATING (LOSS) INCOME (13,745) 487,351 104,057 478,094
OTHER EXPENSE, NET (50,221) (99,580) (71,533) (181,005)
---------- ---------- ----------- ----------
Net (loss) income before (benefit
from) provision for income taxes (63,966) 387,771 32,524 297,089
(BENEFIT FROM) PROVISION FOR
INCOME TAXES (29,800) 153,295 8,000 118,836
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Net (loss) income $(34,166) $234,476 $24,524 $178,253
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---------- ---------- ----------- ----------
NET (LOSS) INCOME PER SHARE ($0.02) $0.13 $0.01 $0.10
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Shares used in per share calculations 2,073,353 1,835,482 2,146,409 1,722,089
---------- ---------- ----------- ----------
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</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PORTLAND BREWING COMPANY
STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
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1996 1995
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Cash flows from operating activities $714,892 $145,092
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Net cash used in investing activities (3,162,468) (2,943,486)
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Net cash provided by financing activities 2,422,830 2,784,089
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(Decrease) Increase in cash (24,746) (14,305)
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Cash, beginning of period 156,466 566,464
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Cash, end of period $131,720 $552,159
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The accompanying notes are an integral part of these statements.
<PAGE>
PORTLAND BREWING COMPANY
Notes to Financial Statements
Note 1. Basis of Presentation
The accompanying condensed interim financial data is unaudited; however, in
the opinion of management, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the results for the interim periods presented. The financial
statements included herein have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included
herein are adequate to make the information presented not misleading.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Company's
financial statements filed as part of the Company's Annual Report to
Shareholders incorporated by reference in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995. This quarterly report
should be read in conjunction with such annual report.
Operating results for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the entire
fiscal year ending December 31, 1996, or any portion thereof.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
Shipments for the three months ended September 30, 1996 were 18,502 barrels,
a decrease of 10% over the same period in 1995. This is primarily due to the
increasingly competitive nature of the specialty beer category, including a
proliferation of new products - notably contract brewed beers.
Correspondingly, gross sales and net sales were each down 7%. Gross margins
decreased to 35% compared to 39% in the three months ended September 30, 1996
and 1995 respectively, as the company incurred pre-operating costs in its
Midwest contract brewing project, costs in adding capacity at the Portland
plant, and start-up costs in the expansion of its Flanders St. restaurant.
Restaurant sales, measured as a percentage of total revenues, were greater
than in the prior year, and the cost of sales as a percentage of net revenues
is considerably higher for the restaurant operations than the brewery
operations. The remodeled and expanded Flanders St. restaurant was reopened
in July 1996.
G&A expenses were 69% higher for the three months ended September 30, 1996
compared to the same period in 1995, due to continued infrastructure
improvements and organizational development, including the additional
development of management and systems for the expanded Flanders St.
Restaurant, and the administration of the Midwest contract brewing project.
Selling and marketing expenses were 11% higher for the three months ending
September 30, 1996 compared to the same period in 1995. This was largely due
to the sales organization expansion in the upper Midwest.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
Shipments for the nine months ended September 30, 1996 were 53,128 barrels,
up 14% over the same period in 1995. Correspondingly, gross sales were up 17%
and net sales up 16%. Gross margins decreased to 35% in the first nine months
of 1996, compared to 38% in the same period in 1995, due to increased
depreciation expense as a result of recent capital improvements, price
increases in ingredients, changes in product sales mix to higher cost
products
<PAGE>
and increased freight expenses. In addition, restaurant sales, measured as a
percentage of total revenues, were greater than in the prior year. Restaurant
cost of sales as a percentage of net revenues are considerably higher than
brewery operations.
G&A expenses were 53% higher for the first nine months of 1996 compared to
the same period in 1995, due to continued infrastructure improvements and
organizational development. At September 30, 1996 the Company employed 152
persons, of which 76 were in restaurant operations. Compared to a total of
106 employees including 42 restaurant employees, as of the same date in 1995.
There were also substantial compliance, annual meeting and reporting expenses
in the period as a result of the Company becoming subject to the reporting
requirements under the Securities and Exchange Act of 1934 as amended.
Selling and marketing expenses were 6% higher for the nine months ending
September 30, 1996 compared to the same period in 1995.
Depreciation and amortization expenses for the nine months ended September
30, 1996 totaled $698,406 compared to $513,269 in the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally to expand its production capacity,
expand its sales and marketing to the Central and Eastern states, increase
the productivity of its manufacturing operations and fund its working capital
needs. To date, the Company has met its capital requirements through cash
flow from operations, bank borrowings, advances from certain stockholders and
the private and public sale of its Common Stock.
During the nine months ended September 30, 1996 the Company invested over $3
million in additional brewing equipment and tanks and restaurant expansion.
These expenditures, together with working capital requirements, were funded
by bank borrowings of $2.8 million and cash flow from operations. The Company
has budgeted approximately an additional $500,000 for capital expenditures
for the remainder of 1996 and into 1997. The total $3.6 million investment
is principally to improve product and process quality, implement production
efficiencies, provide cost savings and increase capacity. The additional
expenditures, will be funded through cash flow from operations, funds
available under the Company's line of credit facilities, equity offerings or
a combination thereof. On completion of the current expansion project the
annual capacity will be at 135,000 barrels, based on the current product mix.
Presently the Company does not intend to add additional capacity.
The Company has arranged with Bank of America Oregon term debt of $1.4
million, a $1 million operating line and a $2 million equipment line to
support its capital expenditure and working capital needs. As of October 31,
1996 the balance outstanding in term debt was $1,324,000; on the operating
line, $600,000; and, $1,470,000 on the equipment line.
The Company's working capital requirements over the next year are expected to
be met from existing cash and marketable securities balances, cash flow from
operations, funds available under the Company's line of credit facilities
and, if more desirable, additional equity offerings.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
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Exhibit 11 Calculations of Net (Loss) Income per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PORTLAND BREWING COMPANY
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(Registrant)
Date 11/8/96
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/s/ CHARLES A. ADAMS
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(Signature)
Charles A. Adams, President and
Chief Executive Officer
(Principal Executive Officer)
Date 11/8/96
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/s/ GLENMORE JAMES
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(Signature)
Glenmore James, Chief Financial
Officer (Principal Financial Officer)
<PAGE>
Exhibit 11
PORTLAND BREWING COMPANY
Calculations of Net (Loss) Income Per Share
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
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1996 1995 1996 1995
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Fully Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted Primary Diluted
----------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average shares
outstanding for the period 2,073,353 2,073,353 1,768,914 1,768,914 2,070,716 2,070,716 1,660,720 1,660,720
Dilutive common stock
options using the treasury
stock method - - 66,568 66,568 75,693 75,693 61,369 61,369
----------------------- ----------------------- ---------------------- ----------------------
Total shares used in per
share calculations 2,073,353 2,073,353 1,835,482 1,835,482 2,146,409 2,146,409 1,722,089 1,722,089
Net (loss) income $ (34,166) $ (34,166) $ 234,476 $ 234,476 $ 24,524 $ 24,524 $ 178,253 $ 178,253
----------------------- ----------------------- ---------------------- ----------------------
----------------------- ----------------------- ---------------------- ----------------------
Net (loss) income per share $ (0.02) $ (0.02) $ 0.13 $ 0.13 $ 0.01 $ 0.01 $ 0.10 $ 0.10
----------------------- ----------------------- ---------------------- ----------------------
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 131,716
<SECURITIES> 0
<RECEIVABLES> 905,385
<ALLOWANCES> 56,155
<INVENTORY> 778,512
<CURRENT-ASSETS> 2,403,966
<PP&E> 10,921,959
<DEPRECIATION> 1,760,239
<TOTAL-ASSETS> 11,790,369
<CURRENT-LIABILITIES> 2,250,865
<BONDS> 880,974
0
0
<COMMON> 6,716,730
<OTHER-SE> 524,753
<TOTAL-LIABILITY-AND-EQUITY> 11,790,369
<SALES> 3,477,034
<TOTAL-REVENUES> 3,477,034
<CGS> 2,263,791
<TOTAL-COSTS> 3,490,779
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,136
<INCOME-PRETAX> (63,966)
<INCOME-TAX> (29,800)
<INCOME-CONTINUING> (34,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,166)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
