<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended SEPTEMBER 30, 1997
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
-------------------- --------------------
Commission file number 0 - 25836
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PORTLAND BREWING COMPANY
- -----------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Oregon 93-0865997
- ------------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2730 N.W. 31st Avenue, Portland, Oregon 97210
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(Address of Principal Executive Offices)
(503)226-7623
- -----------------------------------------------------------------------------
(Issuer's Telephone Number)
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
--------- ---------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,074,943 shares of
common stock as of NOVEMBER 7, 1997. ----------------
Transitional Small Business Disclosure Format (check one):
Yes X No
--------- ---------
1
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PORTLAND BREWING COMPANY
FORM 10-QSB
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets - September 30, 1997
and December 31, 1996 3
Statements of Operations - Three Months and Nine Months
Ended September 30, 1997 and 1996 5
Statements of Cash Flows - Three Months and Nine Months
Ended September 30, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8
PART 11 - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PORTLAND BREWING COMPANY
Balance Sheet
ASSETS
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash $ 123,790 $ 49,054
Accounts receivable, net of
allowance of $17,914 and $56,155 689,751 787,930
Inventories 725,360 675,680
Prepaid assets 288,536 331,296
Income tax receivable _ 79,970
Deferred income taxes _ 89,411
------------ ------------
Total current assets 1,827,437 2,013,341
Property and equipment, net of
accumulated depreciation of
$2,785,628 and $1,996,367 8,952,133 9,548,288
Other assets, net 281,598 252,999
------------ ------------
Total assets $ 11,061,168 $ 11,814,628
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements.
3
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PORTLAND BREWING COMPANY
Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1997 1996
-------------- -------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 1,108,948 $ 1,008,634
Customer deposits held 175,213 210,105
Accrued payroll 118,489 100,864
Other accrued liabilities 65,178 50,027
Line of credit 460,000 300,000
Current portion of long term debt 531,000 400,603
------------ ------------
Total current liabilities 2,458,828 2,070,233
Long-term debt, less current portion 2,461,870 2,904,780
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 100,000
shares authorized, no shares issued _ _
Common stock, no par value, 5,000,000
shares authorized, 2,074,943 shares
issued and outstanding 6,715,798 6,715,798
Stock notes receivable (375) (2,524)
Retained earnings (accumulated deficit) (574,953) 126,341
------------ ------------
Total stockholders' equity 6,140,470 6,839,615
------------ ------------
Total liabilities and stockholders'
equity $ 11,061,168 $ 11,814,628
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements.
4
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PORTLAND BREWING COMPANY
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
SALES $ 2,684,067 $ 3,650,047 $ 8,756,413 $10,131,294
EXCISE TAX 113,845 173,013 380,944 574,637
---------- --------- ---------- ---------
Net Sales 2,570,222 3,477,034 8,375,469 9,556,657
COST OF SALES 1,735,269 2,263,791 5,774,541 6,202,691
---------- --------- ---------- ---------
GROSS PROFIT 834,953 1,213,243 2,600,928 3,353,966
GENERAL AND ADMINISTRATIVE EXPENSES 343,400 477,413 1,088,114 1,374,627
SALES AND MARKETING EXPENSES 676,403 749,575 1,857,532 1,875,282
---------- --------- ---------- ---------
OPERATING INCOME (LOSS) (184,850) (13,745) (344,718) 104,057
Interest expense (76,029) (40,274) (217,691) (59,136)
Other expense, net (4,942) (9,947) (62,553) (12,397)
---------- --------- ---------- ---------
Total other expense, net (80,971) (50,221) (280,244) (71,533)
Net income (loss) before income taxes (265,821) (63,966) (624,962) 32,524
PROVISION FOR (BENEFIT FROM) INCOME TAXES 76,332 (29,800) 76,332 8,000
---------- --------- ---------- ---------
Net income (loss) $(342,153) $(34,166) $(701,294) $24,524
---------- --------- ---------- ---------
---------- --------- ---------- ---------
NET INCOME (LOSS) PER SHARE $(0.17) $(0.02) $(0.34) $0.01
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Shares used in per share calculations 2,074,943 2,073,353 2,074,943 2,146,409
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
5
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PORTLAND BREWING COMPANY
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOW RELATING TO OPERATING ACTIVITIES:
Net income (loss) $(701,294) $24,524
Adjustments to reconcile net (loss) income
to net cash provided by operating activities
Depreciation 789,261 598,293
Amortization 116,625 100,113
Change in net deferred income taxes 89,411 (200)
Loss (gain) on sale of asset 33,466 (1,771)
(Increase) decrease in:
Accounts receivable 98,179 (139,085)
Inventories (84,051) (95,904)
Prepaid assets 42,760 (208,222)
Income tax receivable 79,970 _
(Decrease) increase in:
Accounts payable 100, 314 259,600
Customer deposits held (34,892) 46,921
Accrued payroll and other accrued liabilities 32,776 130,173
Income taxes payable _ 450
-------------- --------------
Net cash provided by operating activities 562,525 714,892
-------------- --------------
CASH FLOWS RELATING TO INVESTING ACTIVITIES:
Purchase of property and equipment (453,822) (3,032,779)
Proceeds from sale of plant and equipment 227,250 24,100
Changes in other assets (110,853) (153,793)
-------------- --------------
Net cash used in investing activities (337,425) (3,162,472)
-------------- --------------
CASH FLOWS RELATING TO FINANCING ACTIVITIES:
Borrowings under credit line, current 160,000 819,241
Borrowings under credit facility, long term _ 1,571,057
Repayments of long-term debt (312,513) _
Issuance of common stock, net _ 20,534
Changes in stock notes receivable 2,149 11,998
-------------- --------------
Net cash provided (used in) by financing
activities (150,364) 2,422,830
-------------- --------------
NET INCREASE (DECREASE) IN CASH 74,736 (24,750)
CASH, beginning of period 49,054 156,466
-------------- --------------
CASH, end of period $123,790 $131,716
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest 141,662 59,136
</TABLE>
The accompanying notes are an integral part of these statements.
6
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PORTLAND BREWING COMPANY
Notes to Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying 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 on Form
10-KSB for the fiscal year ended December 31, 1996. This quarterly report
should be read in conjunction with such Annual Report.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending December 31, 1997, or any portion thereof.
2. Impact of Recently Issued Accounting Standards
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.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes
requirements for disclosure of comprehensive income. SFAS 130 is effective
for fiscal years beginning after December 15, 1997. Reclassification of
earlier financial statements for comprehensive purposes is required. The
Company believes the implementation of this Statement will not have a
material effect on its results of operations or financial disclosures.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Shipments for the third quarter ended September 30, 1997 totaled 13,450
barrels a decrease of 27% compared to 18,502 barrels for the same period in
1996. Shipments for nine months ended September 30, 1997 were 43,186
barrels, a decrease of 19% from 53,128 barrels for the same period in 1996.
The decrease in shipments is primarily due to continued competitive pressure
caused by product proliferation, particularly in the California region, the
most saturated market. Gross sales in the third quarter of 1997 were
$2,684,067, a decrease of 26% compared to $3,650,047 for the same period of
1996. Gross sales declined 14% for the first nine months of 1997 to
$8,756,469 from $10,131,294 for the first nine months of 1996. Gross sales
declined at a lesser rate than barrels shipped due to increased sales in 1997
compared to 1996 in the Company's two restaurants.
Gross profit decreased 31% to $834,953 (33% of net sales) in the third
quarter of 1997 from $1,213,243 (35% of net sales) for the same period in
1996. For the nine months ended September 30,1997 gross profit decreased to
$2,600,928 (31% of net sales) from $3,353,966 (35% of net sales) for the same
period in 1996. The decrease in gross profit was a result of lower fixed
overhead cost recovery due to lower production volumes compared to total
capacity. Restaurant sales, as a percentage of net sales, were greater in
the third quarter and first nine months of 1997compared to the same periods
in 1996, and cost of sales as a percentage of net sales is higher for the
Company's restaurant operations than its brewery operations.
General and administrative expenses decreased 28% to $343,400 (13% of net
sales) in the third quarter of 1997 from $477,413 (14% of net sales) for the
same period in 1996. For the nine months ended September 30, 1997 general
and administrative costs decreased 21% to $1,088,114 (13% of net sales) from
$1,374,627 (14% of net sales) for the nine months ended September 30, 1996.
The decrease is due to the effect of downsizing, attrition and cost
containment programs which began in late 1996.
Sales and marketing expenses decreased 10% to $676,403 (26% of net sales)
in the third quarter of 1997 from $749,575 (22% of net sales) for the same
period in 1996. Sales and marketing expenses decreased 1% for the nine
months ended September 30, 1997 to 1,857,532 (22% of net sales) from
1,875,282 (20% of net sales). The decrease is due to the decline in sales
offset by the general tactical sales and marketing expenses attributable to
maintaining sales in a highly competitive market.
Interest expense in the third quarter and nine months ended September 30,
1997 increased to $76,029 and $217,691 respectively compared to $40,274 and
$59,136 for the third quarter and nine months ended September 30, 1996. The
increase is a result of increased debt outstanding in 1997 and capitalization
of interest related to new equipment installed in 1996.
Due to accumulated losses and the adverse market conditions in the current
craft brewing market, the Company recorded a tax asset valuation allowance
against the accumulated deferred tax benefits recorded in 1996. As a result
a tax provision of $76,332 was recorded in the third quarter of 1997.
8
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LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally to fund its working capital needs.
The Company has met its capital requirements through cash flow from
operations, bank borrowings and the private and public sale of its Common
Stock.
The Company has a $1,000,000 revolving line of credit with a bank. At
September 30, 1997, $460,000 was outstanding and bearing interest at the
bank's reference rate (9.00% at September 30, 1997). The Company had a
$2,000,000 non-revolving equipment line of credit with a bank, which
converted to a term loan in June 1997. The amount outstanding under the term
loan of $1,907,177, bears interest at a LIBOR rate (8.12% at September 30,
1997). The Company also has another term loan outstanding with a bank. At
September 30, 1997, $1,085,693 was outstanding under this term loan. The term
loan bears interest at a fixed rate of 7.55% for $456,720 of the loan with
the remaining $628,973 bearing interest at the bank's reference rate plus
1/2% (9.00% at September 30, 1997). In April 1997 the total credit facility
with the company's bank was renewed through April 1998.
The line of credit agreement and term loans contain restrictions relating
to specified ratios and restrictions on dividend payments, as well as the
lender's standard covenants and restrictions. At September 30, 1997, the
Company was in compliance with all such covenants and restrictions with the
exception of the operating income covenant, the current ratio covenant and
the cash flow covenant. The Company has received a waiver from the bank for
violations through September 30, 1997. In November 1997 the loan covenants
were changed to meet the Company's current financial requirements. The new
covenants, measured on a monthly basis, require a minimum tangible net worth
of $5,000,000; a current ratio of .70 to 1.00 through December 31, 1997 and .60
to 1:00 thereafter; liabilities to tangible net worth of equal to or less than
1.0 to 1.0; and, various monthly reporting requirements typical of such a
credit facility.
The entire credit facility is due for its annual review and renewal on April
30, 1998. The Company expects to renegotiate the facility, but at this time
the terms of such renegotiation have not been established.
The Company's working capital requirements over the next year are expected
to be met from cash flow from operations, funds available under the Company's
line of credit facilities and, if appropriate and available, additional equity
offerings and borrowings from other credit facilities.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION
Exhibit 11 Calculation 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, 1997.
10
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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
-----------------------------------
(Registrant)
Date November 10, 1997 /s/ Charles A. Adams
------------------------- -----------------------------------
(Signature)
Charles A. Adams, Chairman of the
Board and President (Principal
Executive Officer)
Date November 10, 1997 /s/ Glenmore James
------------------------- -----------------------------------
(Signature) Glenmore James, Chief Financial
Officer (Principal Financial and
Accounting Officer)
11
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EXHIBIT 11
PORTLAND BREWING COMPANY
CALCULATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended
September 30,
--------------------------- ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actual weighted average shares
outstanding 2,074,943 2,073,353 2,074,943 2,070,716
Dilutive common stock options
using the treasury stock method - - - 75,693
--------- --------- --------- ---------
Total shares used in per share
calculations 2,074,943 2,073,353 2,074,943 2,146,409
--------- --------- --------- ---------
--------- --------- --------- ---------
Net (loss) income ($342,153) ($34,166) ($701,294) $24,524
--------- --------- --------- ---------
--------- --------- --------- ---------
Net (loss) income per share(1) ($0.17) ($0.02) ($0.34) $0.01
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(1) Fully diluted earning per share is not materially different from
primary earnings per share in the periods presented.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S REPORT ON FORM 10-QSB
FOR THE NINE ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 124
<SECURITIES> 0
<RECEIVABLES> 708
<ALLOWANCES> 18
<INVENTORY> 725
<CURRENT-ASSETS> 1,827
<PP&E> 11,738
<DEPRECIATION> 2,786
<TOTAL-ASSETS> 11,061
<CURRENT-LIABILITIES> 2,459
<BONDS> 0
0
0
<COMMON> 6,716
<OTHER-SE> (575)
<TOTAL-LIABILITY-AND-EQUITY> 11,061
<SALES> 8,756
<TOTAL-REVENUES> 8,375
<CGS> 5,775
<TOTAL-COSTS> 5,775
<OTHER-EXPENSES> 3,007
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218
<INCOME-PRETAX> (625)
<INCOME-TAX> 76
<INCOME-CONTINUING> (701)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (701)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
