<PAGE>
U.S. 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 June 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
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 Identification No.)
Incorporation or Organization)
2730 N.W. 31st Avenue, Portland, Oregon 97210
(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 August 6, 1997.
Transitional Small Business Disclosure Format (check one):
Yes X No
----- -----
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PORTLAND BREWING COMPANY
FORM 10-QSB
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1. Financial Statements
Balance Sheets - June 30, 1997
and December 31, 1996 2
Statements of Operations - Three Months and Six Months
Ended June 30, 1997 and 1996 3
Condensed Statements of Cash Flows - Six Months
Ended June 30, 1997 and 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART 11 - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
1
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PORTLAND BREWING COMPANY
BALANCE SHEETS
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
CURRENT ASSETS:
Cash $ 251,628 $ 49,054
Accounts receivable, net 1,000,028 787,930
Inventories 699,364 675,680
Prepaid assets 345,585 331,296
Income tax receivable 52,623 79,970
Deferred income taxes 89,411 89,411
----------- -----------
Total current assets 2,438,639 2,013,341
Property and equipment, net 9,148,373 9,548,288
Other assets, net 254,738 252,999
----------- -----------
Total assets $11,841,750 $11,814,628
----------- -----------
----------- -----------
CURRENT LIABILITIES:
Accounts payable $ 1,265,233 $ 1,008,634
Customer deposits held 199,497 210,105
Accrued payroll 105,790 100,864
Other accrued liabilities 45,558 50,027
Line of credit 570,000 300,000
Current portion of long term debt 531,000 400,603
----------- -----------
Total current liabilities 2,717,078 2,070,233
Long-term debt, less current portion 2,642,049 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 (deficit) (232,800) 126,341
----------- -----------
Total stockholders' equity 6,482,623 6,839,615
----------- -----------
Total liabilities and stockholders'
equity $11,841,750 $11,814,628
----------- -----------
----------- -----------
The accompanying notes are an integral part of these statements.
2
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PORTLAND BREWING COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
SALES $3,289,995 $3,326,811 $6,072,346 $6,481,247
EXCISE TAX 148,902 178,234 267,099 401,624
---------- ---------- ---------- ----------
Net Sales 3,141,093 3,148,577 5,805,247 6,079,623
COST OF SALES 2,108,095 1,985,235 4,039,272 3,938,900
---------- ---------- ---------- ----------
GROSS PROFIT 1,032,998 1,163,342 1,765,975 2,140,723
GENERAL AND ADMINISTRATIVE
EXPENSES 392,937 470,606 744,714 897,214
SELLING EXPENSES 638,367 631,776 1,181,129 1,125,707
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 1,694 60,960 (159,868) 117,802
Interest Expense (77,726) (4,504) (141,662) (18,862)
Other Expense, net (54,198) 1,109 (57,611) (2,450)
---------- ---------- ---------- ----------
Total other expense, net (131,924) (3,395) (199,273) (21,312)
Net income (loss) before
provision for income taxes (130,230) 57,565 (359,141) 96,490
PROVISION FOR INCOME TAXES - 22,000 - 37,800
---------- ---------- ---------- ----------
Net income (loss) $ (130,230) $ 35,565 $ (359,141) $ 58,690
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME (LOSS) PER SHARE $ (0.06) $ 0.02 $ (0.17) $ 0.03
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares
outstanding 2,074,943 2,145,631 2,074,943 2,145,549
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these statements.
3
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PORTLAND BREWING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
-----------------------------
1997 1996
---------- -----------
Net cash provided by operating
activities $ 228,309 $ 445,584
---------- -----------
Net cash used in investing activities (165,550) (2,091,523)
---------- -----------
Net cash provided by financing
activities 139,815 1,581,905
---------- -----------
Increase (decrease) in cash 202,574 (64,034)
---------- -----------
Cash, beginning of period 49,054 156,466
---------- -----------
Cash, end of period $ 251,628 $ 92,432
---------- -----------
---------- -----------
The accompanying notes are an integral part of these statements.
4
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PORTLAND BREWING COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 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 six months ended June 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 comparative purposes is required. The
Company believes the implementation of this statement will not have a
material effect on its results of operations or financial statement
disclosures.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996 COMPARISON
Shipments for the three months ended June 30, 1997 totaled 15,845 barrels, a
decrease of 9% compared to 17,426 barrels for the same quarter in 1996. The
decrease in shipments is due to continued competitive pressure caused by
product proliferation, particularly in the specialty segment of the beer
market. Net sales in the second quarter of 1997 were $3,141,093 compared to
$3,148,577 in the same period of 1996. Net revenues declined at a lesser rate
than barrels shipped due to increased restaurant sales resulting from the
expansion of the Flanders Street Restaurant. Gross profit decreased to
$1,032,998 (32% of net sales) in the second quarter of 1997 from $1,163,342
(36% 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
total sales, were greater in the second quarter of 1997 than in 1996, and
cost of sales as a percentage of net sales is higher for the Company's
restaurant operations than its brewery operations. Additionally, in
preparation for adjustments to its product line and new packaging, the
Company incurred a one time cost of $43,000 in the second quarter of 1997.
General and administrative expenses decreased 17% to $392,937 (13% of net
sales) in the second quarter of 1997 from $470,606 (15% of net sales) for the
same period in 1996. The decrease is due to the effect of downsizing,
attrition and cost containment programs which began in late 1996.
Sales and marketing expenses increased 1% to $638,367 (20% of net sales) in
the second quarter of 1997 from $631,776 (20% of net sales) for the same
period in 1996. The slight increase resulted from further sales organization
development and new product releases.
Interest expense increased to $77,726 in the second quarter of 1997 compared
to $4,504 for the same quarter of 1996. The increase is a result of
increased debt outstanding in 1997.
The net loss for the quarter ended June 30, 1997 was $130,230, depreciation
and amortization totaled $282,974 and capital assets sold (net of capital
expenditures) totaled $23,812. This compares to net income of $35,565
depreciation and amortization of $213,452 and capital expenditures of
$1,372,000 for the quarter ended June 30, 1996.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 COMPARISON
Shipments for the first six months of 1997 totaled 29,736 barrels, a decrease
of 14% compared to 34,626 barrels for the same period in 1996. The decrease
in shipments is due the continued competition in the specialty segment of the
beer market. Net sales for the six months ended June 30, 1997 were
$5,805,247 compared to $6,079,623, a 6% decrease. Net revenues declined at a
lessor rate than barrels shipped due to increased sales at the expanded
Flanders Street Restaurant. Gross profit decreased to $1,765,975 (29% of
sales) from 2,140,723 (33% of sales). The decrease in gross profit was the
result of lower overhead cost recovery due to lower production volumes.
Restaurant sales, as a percentage of total revenues were greater in the six
months ending June 30, 1997 than in the six months ending June 30, 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 for the six months ended June 30, 1997
decreased 17% to $744,714 (13% of sales) from $897,214 (15% of sales) the
previous year. The decrease is a result of downsizing, attrition, and cost
saving programs that were initiated in late 1996.
Sales and marketing expenses for the period increased 5% to $1,181,129 (20%
of sales) from $1,125,707 (19% of sales) for the six months ended June 30,
1996. The increase is due to a restructuring of the sales and marketing
departments and new product introductions.
6
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Interest expense increased to $141,662 in first six months of 1997 from
$18,862 in the first six months of 1996. The increase resulted from
increased debt outstanding in 1997.
The net loss for the six months ended June 30, 1997 was $359,141.
Depreciation and amortization for the period totaled $586,640, net of capital
assets sold totaled $165,550. This compares to a net income of $58,690,
depreciation and amortization of $426,338, and capital expenditures of
$1,959,000 for the six months ended June 30, 1996.
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 June
30, 1997, $570,000 was outstanding and bearing interest at the bank's
reference rate (9.00% at June 30, 1997). The Company had a $2,000,000
non-revolving equipment line of credit with a bank, which converted to a term
loan on June 2, 1997. The amount outstanding under the equipment term loan
of $1,975,149, bears interest at a LIBOR rate (8.18% at June 30, 1997). The
Company has another term loan outstanding with a bank, under which $1,197,700
was outstanding at June 30, 1997. The term loan bears interest at a fixed
rate of 7.55% for $478,129 of the loan and the remaining $719,571 bears
interest at the bank's reference rate plus 1/2% (9.50% at June 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 June 30, 1997, the Company
was in compliance with all such covenants and restrictions with the exception
of the operating income covenant. This operating income covenant requires
that the Company maintain an operating loss, year to date at June 30 1997, of
no greater than $50,000, as described in the loan agreement The Company's
actual operating loss year to date at June 30, 1997 was $159,868. The Company
has received a waiver from the bank for this violation through June 30, 1997.
There is no assurance that the Company will meet the operating income
covenant in the future.
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
borrowing facilities and, if appropriate and available, additional equity
offerings and borrowings under other credit facilities.
7
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on June 21, 1997. The
following matters were submitted to shareholders for their consideration:
1. With respect to the six nominees for director identified in the Company's
Proxy Statement:
Nominee Votes For Nominee Votes Withheld
------- ----------------- --------------
Charles A. (Tony) Adams 1,089,610 104,457
Edwin Hunt 1,090,185 103,882
Robert M. MacTarnahan 1,088,860 105,207
R. Scott MacTarnahan 1,088,850 105,217
Simon Ostler 1,088,560 105,507
Howard M. Wall 1,088,985 105,082
2. The appointment of Arthur Anderson LLP as the Company's independent
accountants for the year ending December 31, 1997 was ratified as follows:
1,169,755 shares voted in favor, 10,950 shares voted in opposition, 13,362
shares abstained, and there were no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
Exhibit Number Description
- -------------- -----------
Exhibit 11 Calculation of net income (loss) 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 June 30, 1997.
8
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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 August 8, 1997 /s/ CHARLES A. ADAMS
--------------------------------------------
Charles A. Adams
Chairman of the Board and President
(Principal Executive Officer)
Date August 8, 1997 /s/ GLENMORE JAMES
--------------------------------------------
Glenmore James
Chief Financial Officer
(Principal Financial and Accounting Officer)
9
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EXHIBIT 11
PORTLAND BREWING COMPANY
CALCULATION OF NET INCOME (LOSS) PER SHARE
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Actual weighted average
shares outstanding 2,074,943 2,069,397 2,074,943 2,069,397
Dilutive common stock
options using the
treasury stock method -- 76,234 -- 76,152
---------- ---------- ---------- ----------
Total shares used in
per share calculations 2,074,943 2,145,631 2,074,943 2,145,549
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net (loss) income $ (130,230) $ 35,565 $ (359,141) $ 58,690
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net (loss) income
per share (1) $ (0.06) $ 0.02 $ (0.17) $ .03
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(1) Fully diluted earning per share is not materially different from primary
earnings per share in the periods presented.
<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 QUARTER ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 250
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<RECEIVABLES> 1,000
<ALLOWANCES> 15
<INVENTORY> 699
<CURRENT-ASSETS> 2,439
<PP&E> 11,666
<DEPRECIATION> 2,517
<TOTAL-ASSETS> 11,842
<CURRENT-LIABILITIES> 2,717
<BONDS> 0
0
0
<COMMON> 6,716
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<TOTAL-LIABILITY-AND-EQUITY> 11,842
<SALES> 6,072
<TOTAL-REVENUES> 5,805
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</TABLE>
