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 March 31, 1998
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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 N.W. 31st Avenue, Portland, Oregon 97210
---------------------------------------------
(Address of Principal Executive Offices)
(503)226-7623
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(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 May 12, 1998.
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Transitional Small Business Disclosure Format (check one):
Yes /X/ No / /
1
<PAGE>
PORTLAND BREWING COMPANY
FORM 10-QSB
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
- ------------------------------- ----
Item 1. Financial Statements
Balance Sheets - March 31, 1998
and December 31, 1997 3
Statements of Operations - Three Months
Ended March 31, 1998 and 1997 5
Statements of Cash Flows - Three Months
Ended March 31, 1998 and 1997 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8
PART 11 - OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PORTLAND BREWING COMPANY
Balance Sheet
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
------------ ------------
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 63,565 $ 52,719
Accounts receivable, net of allowance of $15,852 724,440 652,530
Inventories 694,528 683,733
Prepaid assets 252,503 201,541
------------ ------------
Total current assets 1,735,036 1,590,523
Property and equipment, net of accumulated
depreciation of $3,291,453 and $3,047,618 8,488,417 8,694,106
Other assets, net 212,924 241,515
------------ ------------
Total assets $ 10,436,377 $ 10,526,144
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PORTLAND BREWING COMPANY
Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
------------ ------------
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,181,797 $ 1,094,201
Customer deposits held 236,879 165,203
Accrued payroll 117,274 109,979
Other accrued liabilities 37,304 51,867
Line of credit 450,000 203,000
Long-term debt reclassified as current 2,408,057 ---
Current portion of long term debt 562,164 381,947
------------ ------------
Total current liabilities 4,993,475 2,006,197
Long-term debt, less current portion 81,039 2,575,777
Stockholder's loans, long-term 400,000 400,000
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) (375)
Retained earnings (accumulated deficit) (1,753,560) (1,171,253)
------------ ------------
Total stockholders' equity 4,961,863 5,544,170
------------ ------------
Total liabilities and stockholders' equity $ 10,436,377 $ 10,526,144
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PORTLAND BREWING COMPANY
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended
March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 2,244,400 $ 2,782,351
Less-excise tax 95,142 118,197
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Net sales 2,149,258 2,664,154
Cost of sales 1,687,454 1,931,177
------------ ------------
Gross profit 461,804 732,977
General and administrative expenses 309,378 351,777
Sales and marketing expenses 496,117 542,762
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Income (loss) from operations (343,691) (161,562)
Interest expense 83,765 63,936
Other expense, net 154,851 3,413
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Total other expense, net 238,616 67,349
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Net income (loss) before income taxes (582,307) (228,911)
------------ ------------
Net income (loss) $ (582,307) $ (228,911)
============ ============
Net income (loss) per share $ (0.28) $ (0.11)
============ ============
Shares used in per share calculations 2,074,943 2,074,943
Barrels shipped 10,966 13,891
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PORTLAND BREWING COMPANY
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOW RELATING TO OPERATING ACTIVITIES:
Net income (loss) $ (582,309) $ (228,911)
Adjustments to reconcile net (loss) income to
net cash provided by operating activities
Depreciation 259,609 262,038
Amortization 45,302 41,828
Loss (gain) on sale of asset (2,151) ---
(Increase) decrease in:
Accounts receivable (71,910) (83,793)
Inventories (22,252) (72,835)
Prepaid assets (50,962) 50,739
(Decrease) increase in:
Accounts payable 87,596 (55,359)
Customer deposits held 71,676 (34,242)
Accrued payroll and other accrued liabilities (7,268) (6,018)
------------ ------------
Net cash provided by operating activities (272,669) (126,553)
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CASH FLOWS RELATING TO INVESTING ACTIVITIES:
Purchase of property and equipment (54,052) (144,693)
Proceeds from sale of plant and equipment 2,283 ---
Changes in other assets (5,252) (32,725)
------------ ------------
Net cash used in investing activities (57,021) (177,418)
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CASH FLOWS RELATING TO FINANCING ACTIVITIES:
Borrowings under credit line, current 247,000 375,000
Issuance of note payable to distributors 97,698 ---
Repayments of long-term debt (4,162) (54,267)
Changes in stock notes receivable --- 549
------------ ------------
Net cash provided (used in) by financing
activities 340,536 321,282
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NET INCREASE (DECREASE) IN CASH 10,846 17,311
CASH, beginning of period 52,719 49,054
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CASH, end of period $ 63,565 $ 66,365
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 83,765 $ 63,365
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
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, 1997. This quarterly report should be
read in conjunction with such Annual Report.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire fiscal year ending
December 31, 1998, 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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements in the Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements. These
forward-looking statements are based on current expectations and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Such risks and
uncertainties include general business and economic conditions, competitive
products and pricing, fluctuations in demand and availability of financing.
These forward-looking statements include but are not limited to sections under
"Liquidity and Capital Resources" regarding the Company's ability to meet its
cash requirements and under "Overview of Expectations for 1998".
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 COMPARISON
Net sales in the first quarter of 1998 decreased 19% to $2,244,400 from
$2,782,351 for the same period in 1997. Gross profit decreased 37% to $461,804
(21.5% of net sales) in the first quarter of 1998 from $732,977 (28% of net
sales) for the same period in 1997. The decrease in gross profit was a result of
low production volumes in January and February. Shipments for the three months
ended March 31, 1998 were 10,966 barrels, a decrease of 21% from 13,891 barrels
for the three months ended March 31, 1997. The shortfall in shipments was
primarily due to a sharp decline industry-wide in sales for the month of January
and the Company's change in California distribution. The shortfall in January
represented 60% of the decline for the quarter.
General and administrative expenses decreased 12% to $309,378 (14% of
net sales) in the first quarter of 1998 from $351,777 (13% of net sales) for the
same period in 1997. The decrease is due to the continued effect of cost
containment programs. Sales and marketing expenses decreased 9% to $496,117 (23%
of net sales) in the first quarter of 1998 from $542,762 (20% of net sales) for
the same period in 1997. The decrease resulted from lower selling expenses
related to shipments, personnel changes and payroll reductions.
Interest expense increased to $83,765 in the first quarter of 1998 from
$63,936 for the same quarter in 1997. The increase is a result of increased debt
outstanding for the quarter, compared to 1997. Other expenses included $150,510
for the transfer of distribution rights and related inventory costs resulting
from the Company's consolidation of its California distribution.
The net loss for the quarter ended March 31, 1998 was $582,307,
depreciation and amortization totaled $304,911 and capital expenditures totaled
$54,052. This compares to a net loss of $228,911, depreciation and amortization
of $303,866 and capital expenditures of $144,693 for the quarter ended March 31,
1997.
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, borrowings from certain stockholders, and the
private and public sale of its Common Stock.
The Company has a $1,000,000 revolving line of credit with a bank which
was capped at $600,000 through March 31 1998. At March 31, 1998, $450,000 was
outstanding at the bank's reference rate plus 1.5% (10% at March 31, 1998). The
Company also has term loans outstanding with the bank. At March 31, 1998,
$2,895,446 was outstanding under these term loans. The term loans bear interest
at a fixed rate of 7.55% for $435,311 of the loan with the remaining $2,460,135
bearing interest at the bank's reference rate plus 1/2% (9.00% at March 31,
1998).
The Company's operating line matured May 1, 1998. The bank has extended
the Company's credit facilities through June 1 1998. The Company is currently in
negotiations to renew or replace its credit facilities, although there can be no
assurances that the Company will be successful.
Generally accepted accounting principles require that the Company's
term facilities, which are cross-collateralized and cross-default with the
operating line, be classified as a current liability pending the renewal or
8
<PAGE>
replacement of the Company's credit facilities. At March 31, 1998, the Company
was in compliance with the bank's loan covenants.
In December 1997, the Company borrowed a total of $400,000 from two of
its shareholders under 10% Subordinated Notes (the "Notes"). Payment under the
notes are due in thirty-six equal monthly principal payments of $11,111
commencing July 1, 1999. Interest is payable monthly at 10% per annum,
commencing on February 1, 1998. Proceeds under the Notes were applied to
outstanding balance under the Company's line of credit. The Notes are secured by
a second security interest in the Company's accounts receivable and inventory.
Two major shareholders of the Company have expressed their intention to
provide funding, as necessary, to sustain the Company's operations through
December 31, 1998. In management's opinion, the Company's current financial
resources, the funding intentions of the two major stockholders and a new credit
facility will meet its working capital needs through December 31, 1998. To the
extent that such sources are inadequate, the Company will be required to seek
additional financing. There can be no assurance that additional financing will
be available to the Company on satisfactory terms.
OVERVIEW OF EXPECTATIONS FOR 1998
The Company believes that first quarter results are not indicative of
the results for the remainder of 1998 for the following reasons:
(i) The California distribution problem has been resolved and the
distribution system has been strengthened;
(ii) The Company's rapidly expanding contract brewing business is
expected to utilize substantially all of its excess capacity; and
(iii) The Company is experiencing increased authorizations and
placements for its products, especially MacTarnahan's Amber Ale,
its flagship brand in its primary west coast markets.
Although the Company is cautiously optimistic about the remainder of
1998, there is no assurance that the company can meet such expectations.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Notice: Shareholder Proposals for 1998 Annual Meeting
The 1998 Annual Meeting of Shareholders will be held in September 1998.
Shareholder proposals submitted for inclusion in the 1998 proxy materials and
consideration at the Company's 1998 Annual Meeting of Shareholders must be
received by the Company at its principal office no later than June 15, 1998. Any
such proposal should comply with the rules promulgated by the Securities and
Exchange Commission governing shareholder proposals.
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 March 31, 1998.
10
<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
-------------------------------------
(Registrant)
Date May 12, 1998 /s/ CHARLES A. ADAMS
-------------------- -------------------------------------
(Signature)
Charles A. Adams, Chairman of the
Board and President (Principal
Executive Officer)
Date May 12, 1998 /s/ GLENMORE JAMES
-------------------- -------------------------------------
(Signature)
Glenmore James, Chief Financial\
Officer (Principal Financial and
Accounting Officer)
11
PORTLAND BREWING COMPANY
CALCULATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------------
-------------- --------------
1998 1997
-------------- --------------
<S> <C> <C>
Actual weighted average shares
outstanding 2,074,943 2,074,943
Dilutive common stock options
using the treasury stock method --- ---
----------- -----------
Total shares used in per share
calculations 2,074,943 2,074,943
=========== ===========
Net (loss) income $ (582,309) $ (228,911)
=========== ===========
Net (loss) income per share(1) $ (0.28) $ (0.11)
=========== ===========
<FN>
<F1> Fully diluted earning per share is not materially different from primary
earnings per share in the periods presented.
</FN>
</TABLE>
12
<TABLE> <S> <C>
<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 March 31, 1998, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000943658
<NAME> rygkzb*7
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 64
<SECURITIES> 0
<RECEIVABLES> 740
<ALLOWANCES> (16)
<INVENTORY> 695
<CURRENT-ASSETS> 1,735
<PP&E> 11,780
<DEPRECIATION> 3,291
<TOTAL-ASSETS> 8,488
<CURRENT-LIABILITIES> 4,993
<BONDS> 0
0
0
<COMMON> 6,716
<OTHER-SE> (1,754)
<TOTAL-LIABILITY-AND-EQUITY> 10,436
<SALES> 2,244
<TOTAL-REVENUES> 2,149
<CGS> 1,687
<TOTAL-COSTS> 1,687
<OTHER-EXPENSES> 960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> (582)
<INCOME-TAX> 0
<INCOME-CONTINUING> (582)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (582)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
