UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13636
Mendocino Brewing Company, Inc.
(Exact name of Registrant as Specified in its Charter)
California (State or Other Jurisdiction of Incorporation or Organization) | 68-0318293 (IRS Employer Identification No.) |
1601 Airport Road, Ukiah, CA 95482
(Address of principal executive offices)
(707) 463-2627
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer see definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check one)
Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X ]
The number of shares of the issuer's common stock outstanding as of November 13, 2007 is 11,991,686.
PART I
Item 1. Financial Statements.
MENDOCINO BREWING COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | ||||||
2007 | 2006 | ||||||
Assets | (unaudited) | (audited) | |||||
Current Assets | |||||||
Cash | $ | 484,400 | $ | 345,900 | |||
Accounts receivable, net of allowance for doubtful | |||||||
accounts of $256,500 and $60,500, respectively | 8,365,400 | 7,903,100 | |||||
Inventories | 1,199,500 | 1,329,500 | |||||
Prepaid expenses | 605,500 | 671,400 | |||||
Total Current Assets | 10,654,800 | 10,249,900 | |||||
Property and Equipment (Net of Accumulated Depreciation) | 13,265,200 | 13,446,000 | |||||
Other Assets | |||||||
Deposits and other assets | 419,700 | 302,300 | |||||
Intangibles (net of amortization) | 49,200 | 53,900 | |||||
Total Other Assets | 468,900 | 356,200 | |||||
Total Assets | $ | 24,388,900 | $ | 24,052,100 | |||
Liabilities and Stockholders' Equity | |||||||
Secured lines of credit | $ | 4,125,100 | $ | 3,934,300 | |||
Accounts payable | 7,205,300 | 7,164,300 | |||||
Accrued liabilities | 1,599,600 | 1,397,600 | |||||
Current maturities of notes to related parties | 122,300 | 117,500 | |||||
Current maturities of obligations under long-term debt | 245,700 | 236,500 | |||||
Current maturities of obligations under capital leases | 86,300 | 83,100 | |||||
Total Current Liabilities | 13,384,300 | 12,933,300 | |||||
Long-Term Liabilities | |||||||
Notes to related parties including accrued | |||||||
interest of $957,400 and $818,000, respectively | 3,362,100 | 3,321,000 | |||||
Long term debt, less current maturities | 4,040,900 | 4,226,700 | |||||
61,000 | 65,600 | ||||||
Total Long-Term Liabilities | 7,464,000 | 7,613,300 | |||||
Total Liabilities | 20,848,300 | 20,546,600 | |||||
Stockholders' Equity | |||||||
Preferred stock, Series A, no par value, with aggregate liquidation | |||||||
preference of $227,600;10,000,000 shares authorized, | |||||||
227,600 shares issued and outstanding | 227,600 | 227,600 | |||||
Common stock, no par value: 30,000,000 shares authorized, | |||||||
11,991,686 and 11,628,174 shares issued and outstanding | 14,902,300 | 14,815,300 | |||||
Accumulated comprehensive income | 44,100 | 124,400 | |||||
Accumulated deficit | (11,633,400 | ) | (11,661,800 | ) | |||
Total Stockholders' Equity | 3,540,600 | 3,505,500 | |||||
Total Liabilities and Stockholders' Equity | $ | 24,388,900 | $ | 24,052,100 |
See accompanying notes to these condensed financial statements.
1
MENDOCINO BREWING COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED September 30 | NINE MONTHS ENDED September 30 | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Sales | $ | 10,268,600 | $ | 8,398,400 | $ | 28,353,700 | $ | 24,330,700 | |||||
Excise taxes | 242,800 | 176,700 | 604,800 | 508,300 | |||||||||
Net sales | 10,025,800 | 8,221,700 | 27,748,900 | 23,822,400 | |||||||||
Cost of goods sold | 7,220,200 | 5,736,700 | 19,682,500 | 16,596,900 | |||||||||
Gross profit | 2,805,600 | 2,485,000 | 8,066,400 | 7,225,500 | |||||||||
Operating expenses | |||||||||||||
Marketing and distribution | 1,452,000 | 1,259,100 | 4,050,400 | 3,622,300 | |||||||||
General and administrative | 1,109,200 | 1,015,300 | 3,186,600 | 3,553,500 | |||||||||
Total operating expenses | 2,561,200 | 2,274,400 | 7,237,000 | 7,175,800 | |||||||||
Income (loss) from operations | 244,400 | 210,600 | 829,400 | 49,700 |
Other income (expense) | |||||||||||||
Other income | 12,200 | 9,900 | 34,300 | 26,500 | |||||||||
Profit (Loss) on sale of equipment | (22,400 | ) | 6,800 | (26,700 | ) | 5,700 | |||||||
Interest expense | (271,000 | ) | (275,200 | ) | (801,600 | ) | (814,800 | ) | |||||
Total other expenses | (281,200 | ) | (258,500 | ) | (794,000 | ) | (782,600 | ) | |||||
Income (loss) before income taxes | (36,800 | ) | (47,900 | ) | 35,400 | (732,900 | ) | ||||||
Provision for income taxes | 600 | 2,100 | 7,000 | 2,500 | |||||||||
Net income (loss) | $ | (37,400 | ) | $ | (50,000 | ) | $ | 28,400 | $ | (735,400 | ) | ||
Other comprehensive (loss), net of tax Foreign Currency Translation Adjustment | (31,500 | ) | (14,300 | ) | (80,300 | ) | (57,700 | ) | |||||
Comprehensive (loss) | $ | (68,900 | ) | $ | (64,300 | ) | $ | (51,900 | ) | $ | (793,100 | ) | |
Net income (loss) per common share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | 0.00 | $ | (0.06 | ) | ||
Weighted average common shares outstanding basic and diluted | 11,991,686 | 11,473,914 | 11,809,930 | 11,473,914 |
See accompanying notes to these condensed financial statements.
2
MENDOCINO BREWING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30 | |||||||
2007 | 2006 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income (Loss) | $ | 28,400 | $ | (735,400 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Depreciation and amortization | 807,500 | 732,800 | |||||
Allowance for doubtful accounts | 188,900 | 664,200 | |||||
Loss on sale of assets | 26,700 | (5,700 | ) | ||||
Interest accrued on related party notes | 139,300 | 134,100 | |||||
Stock issued for services | 55,000 | -- | |||||
Changes in: | |||||||
Accounts receivable | (414,900 | ) | (788,300 | ) | |||
Inventories | 130,000 | (193,400 | ) | ||||
Prepaid expenses | 81,600 | (163,700 | ) | ||||
Deposits and other assets | (142,600 | ) | (166,200 | ) | |||
Accounts payable | (193,200 | ) | 907,800 | ||||
Accrued liabilities | 200,300 | (132,300 | ) | ||||
Net cash provided by operating activities: | 907,000 | 253,900 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Purchases of property, equipment, and leasehold improvements | (451,200 | ) | (567,300 | ) | |||
Proceeds from sale of fixed assets | 21,800 | 17,400 | |||||
Net cash provided by (used in) investing activities: | (429,400 | ) | (549,900 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Net borrowing on line of credit | 76,100 | 437,500 | |||||
Borrowing on short term note payable | 350,000 | ||||||
Repayment of short term note payable | (576,200 | ) | |||||
Borrowing on long term debt | 3,000,000 | ||||||
Repayment on long-term debt | (295,900 | ) | (2,712,900 | ) | |||
Payments on obligation under capital leases | (107,500 | ) | (169,600 | ) | |||
Net cash provided by (used in) financing activities: | (327,300 | ) | 328,800 | ||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (11,800 | ) | (9,900 | ) | |||
NET CHANGE IN CASH | 138,500 | 22,900 | |||||
CASH, beginning of period | 345,900 | 247,700 | |||||
CASH, end of period | $ | 484,400 | $ | _270,600 | |||
SUPPLEMENTAL CASH FLOW INFORMATION | |||||||
Cash paid during the period for: | |||||||
Interest | $ | 662,300 | $ | 680,700 | |||
Income taxes | $ | 7,000 | $ | 2,500 | |||
Non-cash investing and financing activity | |||||||
Seller Financed equipment | $ | 100,600 | $ | 170,700 |
See accompanying notes to these condensed financial statements.
3
MENDOCINO BREWING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(Unaudited)
1. Description of Operations and Summary of Significant Accounting Policies
Description of Operations
Mendocino Brewing Company, Inc., ("the Company" or "MBC"), has two operating subsidiaries: Releta Brewing Company, LLC ("Releta"), and United Breweries International, Limited (UK), ("UBI"). In the United States, MBC and Releta, operate two breweries that produce beer for the specialty "craft" segment of the beer market. The breweries are located in Ukiah, California and Saratoga Springs, New York. The Company also owns and operates a brewpub and gift store located in Hopland, California. The majority of sales for Mendocino Brewing Company are in California. The Company brews several brands, of which Red Tail Ale is the flagship brand. In addition, the Company performs contract brewing for several other brands. MBC holds a non-exclusive license to distribute Kingfisher Lager in the United States.
The Company's UK subsidiary, UBI, is a holding company for UBSN Limited (UBSN). UBSN is a distributor of alcoholic beverages, mainly Kingfisher Lager, in the United Kingdom and Europe. The distributorship is located in Faversham, Kent in the United Kingdom.
Principles of Consolidation
The consolidated financial statements present the accounts of Mendocino Brewing Company, Inc., and its wholly-owned subsidiaries, Releta and UBI. All inter-company balances, profits and transactions have been eliminated.
Basis of Presentation and Organization
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The financial statements and notes are representations of the management and the Board of Directors, who are responsible for their integrity and objectivity.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, except as otherwise indicated, considered necessary for a fair presentation of the financial condition, results of operations and cash flows for the periods presented. These condensed financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, which contains additional financial and operating information and information concerning the significant accounting policies followed by the Company.
Operating results for the nine months ended September 30, 2007, are not necessarily indicative of the results that may be expected for the year ending December 31, 2007 or any future period.
SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes in the Company's accounting policies during the nine months ended September 30, 2007 compared to what was previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2006, except for the adoption of FIN 48, “Accounting for Uncertainty in Income Taxes”.
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The Company has adopted EITF - 01-09 "Accounting for Consideration Given by a Vendor to a Customer (including a Reseller of the Vendor's Products)". This EITF requires that certain cash consideration paid to customers for services or placement fees are to be reported as a reduction in revenue rather than as an expense. The Company has reclassified these items on the income statement as a reduction in revenue and as a corresponding reduction in marketing and selling expenses. This reclassification has no impact on net income.
Cash and Cash Equivalents, Short and Long-Term Investments
For purposes of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Other investments with maturities less than twelve months from the balance sheet date are considered short-term investments, and those with maturities greater than twelve months from the balance sheet date are considered long-term investments.
Deferred Financing Costs
Costs relating to obtaining financing are capitalized and amortized over the term of the related debt. Deferred financing costs were $311,300, and the related accumulated amortization at September 30, 2007 was $66,300. Amortization of deferred financing costs charged to operations was $38,500 and $25,100 for the nine months ended September 30, 2007 and 2006, respectively. The Company will continue to amortize these fees until 2011. When a loan is paid in full, any unamortized financing costs are removed from the related accounts and charged to operations.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to credit risk consist principally of trade receivables, cash deposits in excess of FDIC limits, and assets located in the United Kingdom. Substantially all of the Company's cash deposits are deposited with commercial banks in the US and the UK.
Wholesale distributors account for substantially all accounts receivable; therefore, this risk concentration is limited due to the number of distributors and the laws regulating the financial affairs of distributors of alcoholic beverages. The Company has approximately $118,400 in cash deposits and $6,346,500 of accounts receivable due from customers located in the United Kingdom as of September 30, 2007.
Income Taxes
The Company accounts for its income taxes using the Financial Accounting Standards Board Statements of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the establishment of a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit carryforwards. Deferred tax expense or benefit is recognized as a result of timing differences between the recognition of assets and liabilities for book and tax purposes during the year.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognized for deductible temporary differences and operating loss, and tax credit carryforwards. A valuation allowance is established to reduce the deferred tax asset if it is "more likely than not" that the related tax benefits will not be realized. Management believes that sufficient uncertainty exists regarding the future realization of deferred tax assets and, accordingly, a full valuation allowance has been provided against net deferred tax assets. Tax expense has taken into account any change in the valuation allowance for deferred tax assets where the realization of various deferred tax assets is subject to uncertainty.
5
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company had no changes in the carrying value of its tax assets or liabilities for any unrecognized tax benefits.
Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS 123(R) which requires the measurement and recognition of compensation expense for all share-based awards made to employees and directors, including employee stock options and employee stock purchases, based on estimated fair values. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
During the nine months ended September 30, 2007 and 2006, respectively, the Company did not grant any options or warrants. Additionally, as of January 1, 2006, all outstanding stock options were fully vested.
Basic and Diluted Earnings (Loss) per Share
In accordance with SFAS No. 128, "Earnings Per Share," the basic net income (loss) per share is computed by dividing the income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares outstanding during the period.
The following is a reconciliation of the number of shares used in the calculation of basic earnings per share for the three and nine month periods ended September 30, 2007 and 2006, respectively:
Three months ended | Nine months ended | |||||||||||||||
9/30/2007 | 9/30/2006 | 9/30/2007 | 9/30/2006 | |||||||||||||
Net income (loss) | $ | (37,400 | ) | (50,000 | ) | $ | 28,400 | (735,400 | ) | |||||||
Weighted average common shares outstanding | 11,991,686 | 11,473,914 | 11,809,930 | 11,473,914 | ||||||||||||
Incremental shares from assumed exercise of dilutive securities | - | - | - | - | ||||||||||||
Dilutive potential common shares | 11,991,686 | 11,473,914 | 11,809,930 | 11,473,914 | ||||||||||||
Net earnings per share Basic Diluted | $ $ | (0.00 (0.00 | ) ) | (0.00 (0.00 | ) ) | $ $ | 0.00 0.00 | (0.06 (0.06 | ) ) |
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The following securities were not included in the computation of diluted net earnings per share as their effect would have been anti-dilutive:
Three months ended | Nine months ended | ||||||||||||
9/30/2007 | 9/30/2006 | 9/30/2007 | 9/30/2006 | ||||||||||
Option to purchase common stock | - | 240,385 | - | 240,385 | |||||||||
Subordinated convertible notes | 1,915,153 | 1,790,881 | 1,915,153 | 1,790,881 |
Foreign Currency Translation
The assets and liabilities of UBIUK were translated at the United Kingdom pound sterling - U.S. dollar exchange rates in effect at September 30, 2007 and December 31, 2006, respectively and the statements of operations were translated at the average exchange rates for each of the nine months ended September 30, 2007 and 2006, respectively. Gains and losses resulting from the translations were deferred and recorded as a separate component of consolidated stockholders' equity. Cash at UBIUK was translated at exchange rates in effect at September 30, 2007 and December 31, 2006, respectively and its cash flows were translated at the average exchange rates for each of the nine months ended September 30, 2007 and 2006, respectively. Changes in cash resulting from the translations are presented as a separate item in the statements of cash flows.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America includes having the Company make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The amounts estimated could differ from actual results. Significant estimates include the allowance for bad debts, depreciation and amortization periods, and the future utilization of deferred tax assets. The Company has determined that deferred tax assets associated with net operating loss carryforwards in the US may expire prior to utilization. The Company has placed a valuation allowance on these assets in the US.
Comprehensive Income (Loss)
Comprehensive income (loss) is composed of the Company's net income (loss) and changes in equity from non-stockholder sources. The accumulated balances of these non-stockholder sources are reflected as a separate item in the equity section of the balance sheet.
7
The components of other comprehensive income for the three months and nine months ended September 30, 2007 and 2006, respectively are reflected as a separate item in the statements of operations.
Reportable Segments
The Company manages its operations through three business segments: brewing operations, tavern and tasting room operations (domestic) and distributor operations (international). The international business segment sells the Company's products outside the United States.
The Company evaluates performance based on net operating profit. Where applicable, portions of the administrative function expenses are allocated between the operating segments. The operating segments do not share manufacturing or distribution facilities. In the event any materials and/or services are provided to one operating segment by the other, the transaction is valued according to the company's transfer policy, which approximates market price. The costs of operating the manufacturing plants are captured discretely within each segment. The Company's property, plant and equipment, inventory, and accounts receivable are captured and reported discretely within each operating segment.
Reclassifications
Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net losses or accumulated deficit.
Recent Accounting Pronouncements
In June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards." EITF 06-11 provides for the recognition and classification of deferred taxes associated with dividends or dividend equivalents on nonvested equity shares or nonvested equity share units (including restricted stock units (RSUs)) that are paid to employees and charged to retained earnings. This issue is effective for annual periods beginning after September 15, 2007. Also in June 2007, the EITF ratified EITF Issue No. 07-3, "Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities." EITF 07-3 provides that nonrefundable advance payments made for goods or services to be used in future research and development activities should be deferred and capitalized until such time as the related goods or services are delivered or are performed, at which point the amounts would be recognized as an expense. This issue is effective for fiscal years beginning after December 15, 2007. The Company has evaluated the potential impact of these issues and anticipates that they will not have a material impact on its financial position and results of operations.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force ("EITF")), the American Institute of Certified Public Accountants ("AICPA"), and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.
2. Liquidity and Management Plans
At September 30, 2007, the Company had cash and cash equivalents of $484,400, a working capital deficit of $2,729,500 and an accumulated deficit of $11,633,400. Additionally, the Company has a history of past losses as infrastructure costs were incurred in advance of obtaining customer revenues.
Management has taken several actions to ensure that the Company will have sufficient cash for its working capital needs through September 30, 2008, including obtaining a secured line of credit, reducing discretionary expenditures, and obtaining additional debt financing. In 2006, the Company obtained additional debt financing and repaid certain outstanding indebtedness. Management believes that these actions combined with increased sales will enable the Company to meet its working capital needs through September 30, 2008.
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3. Inventories
Inventories are stated at the lower of average cost or market and consist of the following:
30-Sep-07 | 31-Dec-06 | ||||||
Raw Materials | $ | 543,600 | $ | 481,900 | |||
Beer-in-process | 221,900 | 199,600 | |||||
Finished Goods | 410,000 | 630,000 | |||||
Merchandise | 24,000 | 18,000 | |||||
TOTAL | $ | 1,199,500 | $ | 1,329,500 |
4. Line of Credit and Note Payable
In November 2006, Marquette Business Credit, Inc. ("Marquette") provided a line of credit drawable up to 85% of eligible receivables and 60% of eligible inventory for a period up to June 2011. The borrowings were collateralized, with recourse, by certain eligible trade receivables up to a maximum percentage of 85% of the qualified net amounts of such receivables of each of MBC and Releta and 60% of MBC's and Relata's eligible inventory located in the US. This facility carries interest at a rate of one-month LIBOR plus 4.25% and is secured by substantially all of the assets, excluding real property, of Releta and MBC. The amount outstanding on this line of credit as of September 30, 2007 was approximately $1,076,000.
The Company retains the right to recall any of the collateralized receivables under the line of credit, and the receivables are subject to recourse. Therefore, the transaction does not qualify as a sale under the terms of Financial Accounting Standards Board Statement No. 125 (Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). Included in the Company's Balance Sheets as accounts receivable at September 30, 2007, are account balances totaling $2,036,800 of uncollected accounts receivables collateralized to Marquette under this facility.
On April 26, 2005, Royal Bank of Scotland Commercial Services Limited ("RBS") provided an invoice discounting facility to UBSN Limited for a maximum amount of £1,750,000 based on 80% prepayment against qualified accounts receivable related to UBSN's United Kingdom customers. The initial term of the facility was for a one year period after which time the facility could be terminated by either party by providing the other party with six months prior notice. The facility carries an interest rate of 1.38% above the RBS base rate and a service charge of 0.10% of each invoice discounted. The amount outstanding on this line of credit as of September 30, 2007 was approximately $3,049,100.
5. Long-Term Debt
Maturities of long-term debt for succeeding years are as follows:
9
September 30, 2007 | December 31, 2006 | ||||||
Note to a financial institution, payable in monthly installments of $18,200, plus interest at one month LIBOR plus 5.25% with a balloon payment of $544,600 in June 2011; secured by substantially all assets of Releta Brewing Company and Mendocino Brewing Company, excluding real property at Ukiah. | $ | 1,343,500 | $ | 1,506,900 | |||
Note to a financial institution, payable in monthly installments of $27,300 including interest at prime plus 1.75% with a balloon payment of approximately $2,867,900 in June 2011 (net of discount of $27,700 and $35,100). | 2,943,100 | 2,956,300 | |||||
4,286,600 | 4,463,200 | ||||||
Less current maturities | 245,700 | 236,500 | |||||
$ | 4,040,900 | $ | 4,226,700 |
6. Notes to A Related Party
Subordinated Convertible Notes Payable
Notes payable to a related party consist of unsecured convertible notes to United Breweries of America ("UBA") with a total value of $1,915,400, with interest at the prime rate plus 1.5%, but not to exceed 10% per year. The UBA notes have accrued interest of $957,400 and $818,000 as at September 30, 2007 and December 31, 2006, respectively. The UBA notes are convertible into common stock at $1.50 per share. The UBA notes were extended until June 2008. UBA may demand payment within 60 days of the end of the extension period but is precluded from doing so because the notes are subordinated to long-term debt agreements with Grand Pacific Financing Corporation and Marquette Business Credit, Inc. both maturing in June 2011. Therefore, the Company will not require the use of working capital to repay any of the UBA notes until the above-mentioned facilities are repaid. Accordingly, the entire amount due under the UBA notes is classified as a long term liability.
5% Notes Payable
Notes payable also includes an unsecured loan from Shepherd Neame Limited to UBSN Limited payable in annual installments of approximately $122,300 with interest at 5% per year beginning June 2003 and maturing June 2013. The amounts outstanding under this loan as of September 30, 2007 and December 31, 2006 were $611,700 and $705,100, respectively, including current maturities of $122,300 and $117,500 on those dates.
7. Commitments and Contingencies
Legal
The Company is periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The Company is not currently aware of any legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company's financial position or results of operations.
Operating Leases
The Company leases many of its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2009 and provide for renewal options ranging from month-to-month to five year terms. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties. The leases provide for increases in future minimum annual rental payments based on defined increases which are generally meant to correlate with the Consumer Price Index, subject to certain minimum increases. Also, the agreements generally require the Company to pay executory costs (real estate taxes, insurance and repairs).
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The Company and its subsidiaries have various lease agreements for the brewpub and gift store in Hopland, California; a sales office in Petaluma, California; land at its Saratoga Springs, New York, facility; a building in the United Kingdom; and certain personal property. The land lease includes a renewal option for two additional five-year periods, which the Company intends to exercise, and some leases are adjusted annually for changes in the consumer price index. The leases begin expiring in 2007.
Keg Management Agreement
In September 2004, the Company renewed the keg management agreement with MicroStar Keg Management, LLC ("MicroStar"). Under this arrangement, MicroStar is the exclusive keg provider for the Company and for such service pays a service fee ranging between $5 and $15, depending on the territory. The agreement is effective for five years ending in September 2009. If the agreement is terminated, the Company is required to purchase three times the average monthly keg usage for the preceding six-month period from MicroStar at purchase prices ranging from $54 to $84 per keg. The Company expects to continue this relationship.
8. Related-Party Transactions
MBC and its subsidiaries have entered into or amended several agreements with affiliated and related entities. Such agreements include a Market Development Agreement, a Distribution Agreement, and a Brewing License Agreement between MBC and UBSN; a Distribution Agreement between UBI and UBSN; a Trademark Licensing Agreement between MBC and Kingfisher of America, Inc.; and a License Agreement between UBI and UB Limited. UBSN is a party to a brewing agreement and a loan agreement with Shepherd Neame Limited ("Shepherd Neame"). Additional information about these transactions may be found in the Company's annual report on Form 10-K for the year ended December 31, 2006.
The following table reflects the value of the transactions for the nine months ended September 30, 2007 and 2006, respectively and the balances outstanding as of September 30, 2007 and 2006, respectively.
2007 | 2006 | ||||||
Sales to Shepherd Neame | $ | 3,142,700 | $ | 2,292,000 | |||
Purchases from Shepherd Neame | $ | 12,046,500 | $ | 12,328,100 | |||
Expense reimbursement to Shepherd Neame | $ | 936,300 | $ | 827,300 | |||
Interest expense associated with UBA convertible notes payable | $ | 139,300 | $ | 134,100 | |||
Accounts payable to Shepherd Neame | $ | 5,474,600 | $ | 4,729,300 | |||
Accounts receivable from Shepherd Neame | $ | 789,500 | $ | 598,500 |
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9. Stockholders' Equity
The following table summarizes equity transactions during the nine months ended September 30, 2007.
Series A Preferred Stock | Common Stock | Other Comprehensive Income / (Loss) | Accumulated Deficit | Total Equity | ||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||
Balance, December 31, 2006 | 227,600 | $ | 227,600 | 11,628,174 | $ | 14,815,300 | $ | 124,400 | $ | (11,661,800 | ) | $ | 3,505,500 | |||||||||
Stock issued for accrued compensation | 113,512 | 32,000 | 32,000 | |||||||||||||||||||
Stock issued for services | 250,000 | 55,000 | 55,000 | |||||||||||||||||||
Net Income | - | - | - | - | - | 28,400 | 28,400 | |||||||||||||||
Currency Translation Adjustment | - | - | - | - | (80,300 | ) | - | (80,300 | ) | |||||||||||||
Balance, September 30, 2007 | 227,600 | $ | 227,600 | 11,991,686 | $ | 14,902,300 | $ | 44,100 | $ | (11,633,400 | ) | $ | 3,540,600 |
The following table summarizes equity transactions during the nine months ended September 30, 2006.
Series A Preferred Stock | Common Stock | Other Comprehensive | Accumulated | Total | ||||||||||||||||||
Shares | Amount | Shares | Amount | Income / (Loss) | Deficit | Equity | ||||||||||||||||
Balance, December 31, 2005 | 227,600 | $ | 227,600 | 11,473,914 | $ | 14,747,300 | $ | 130,400 | $ | (10,231,200 | ) | $ | 4,874,100 | |||||||||
Net Loss | - | - | - | - | - | (735,400 | ) | (735,400 | ) | |||||||||||||
Currency Translation Adjustment | - | - | - | - | (57,700 | ) | - | (57,700 | ) | |||||||||||||
Balance, September 30, 2006 | 227,600 | $ | 227,600 | 11,473,914 | $ | 14,747,300 | $ | 72,700 | $ | (10,966,600 | ) | $ | 4,081,000 |
Independent outside members of the Board of Directors are compensated for attending Board of Directors and committee meetings.
Preferred Stock
Ten million shares of preferred stock have been authorized, of which 227,600 are designated as Series A preferred stock. Series A shareholders are entitled to receive cash dividends and/or liquidation proceeds equal, in the aggregate, to $1.00 per share before any cash dividends are paid on the common stock or any other series of preferred stock. When the entire Series A dividend/liquidation proceeds have been paid, the Series A shares are automatically canceled and will cease to be outstanding. Only a complete corporate dissolution will cause a liquidation preference to be paid.
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10. Stock Option Plan
Under the 1994 Stock Option Plan, which expired during 2004, the Company could issue options to purchase up to 1,000,000 shares of common stock. The Plan provided for both incentive stock options, as defined in Section 422 of the Internal Revenue Code, and options that did not qualify as incentive stock options.
The exercise price of incentive options was no less than the fair-market value of the Company's stock at the date the option was granted, while the exercise price of non-statutory options was no less than 85% of the fair-market value per share on the date of grant. Options granted to a person possessing more than 10% of the combined voting power of all classes of the Company's stock had an exercise price of no less than 110% of the fair-market value of the Company's stock at the date of grant. During 2002, 240,385 non-statutory stock options with a five-year term were issued to the independent members of the Board of Directors at the market price on the date of grant. All options were exercisable at the date of grant and expired on January 3, 2007.
General Option Information
The following is a summary of changes to outstanding stock options during the nine months ended September 30, 2007:
Number of | Weighted Average | ||||||
Options | Share Options | Exercise Price | |||||
Outstanding at December 31, 2006 | 240,385 | $ | 0.52 | ||||
Granted | - | - | |||||
Exercised | - | - | |||||
Expired | (240,385 | ) | $ | 0.52 | |||
Outstanding at September 30, 2007 | - | - | |||||
All the options outstanding at the beginning of the 2007 fiscal year expired on January 3, 2007.
Valuation and Expense Information under SFAS 123(R)
On May 14, 2007, the Company issued 113,512 shares valued at $0.28 per share for a total value of $32,000 against accrued compensation for the year 2006. The Company also issued 250,000 shares to directors valued at $0.22 per share for a total value of $55,000 as compensation for the year 2007 and included the amount as a component of general and administrative expenses. The trading price of the Company’s stock as of the date of issue was $0.22.
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The Company's business presently consists of three segments. The first is brewing for wholesale to distributors and other retailers. The second consists of distributing alcoholic beverages to retail establishments and restaurants in the United Kingdom and Europe. The third segment consists of beer for sale along with merchandise at the Company's brewpub and retail merchandise store located at the Hopland brewery and at the Saratoga Springs brewery. A summary of each segment is as follows:
Nine months ended September 30, 2007 | ||||||||||||||||
Domestic Operations | European Territory | Retail Operations | Corporate & Others | Total | ||||||||||||
Sales | $ | 11,122,000 | $ | 17,013,200 | $ | 218,500 | $ | - | $ | 28,353,700 | ||||||
Operating Profit | $ | 739,200 | $ | 36,600 | $ | 53,600 | $ | - | $ | 829,400 | ||||||
Identifiable Assets | $ | 12,331,900 | $ | 9,164,300 | $ | 67,600 | $ | 2,825,100 | $ | 24,388,900 | ||||||
Depreciation & Amortization | $ | 369,600 | $ | 419,200 | $ | 3,100 | $ | 15,600 | $ | 807,500 | ||||||
Capital Expenditures | $ | 33,500 | $ | 518,300 | $ | - | $ | - | $ | 551,800 |
Nine months ended September 30, 2006 | ||||||||||||||||
Domestic Operations | European Territory | Retail Operations | Corporate & Others | Total | ||||||||||||
Sales | $ | 9,575,200 | $ | 14,597,200 | $ | 158,300 | $ | - | $ | 24,330,700 | ||||||
Operating Profit/(Loss) | $ | 865,400 | $ | (844,100 | ) | $ | 28,400 | $ | - | $ | 49,700 | |||||
Identifiable Assets | $ | 12,845,900 | $ | 8,467,400 | $ | 58,900 | $ | 2,524,700 | $ | 23,896,900 | ||||||
Depreciation & Amortization | $ | 238,200 | $ | 353,000 | $ | 3,500 | $ | 21,100 | $ | 615,800 | ||||||
Capital Expenditures | $ | 248,500 | $ | 489,500 | $ | - | $ | - | $ | 738,000 |
12. Unrestricted Net Assets
The Company's wholly-owned subsidiary, UBI, has undistributed losses of approximately $345,000 as of September 30, 2007. Under UBSN's line of credit agreement with RBS, distributions and other payments to the Company from its subsidiary are not permitted if the retained earnings drop below approximately $2,000,000. Condensed financial information of the parent company, Mendocino Brewing Company, Inc. together with its other subsidiary, Releta Brewing Company is as follows:
September 30, 2007 (unaudited) | December 31, 2006 (audited) | ||||||
Assets | |||||||
Cash | $ | 53,500 | $ | 55,700 | |||
Accounts receivable | 2,036,800 | 1,812,300 | |||||
Inventories | 1,199,500 | 1,329,500 | |||||
Other current assets | 257,000 | 209,100 | |||||
Total current assets | 3,546,800 | 3,406,600 | |||||
Investment in UBI | 1,225,000 | 1,225,000 | |||||
Property and equipment | 11,210,500 | 11,526,800 | |||||
Other assets | 467,300 | 349,900 | |||||
Total assets | $ | 16,449,600 | $ | 16,508,300 | |||
Liabilities and Stockholders' Equity | |||||||
Line of credit and note payable | $ | 1,076,000 | $ | 1,363,600 | |||
Accounts payable | 1,332,000 | 1,333,000 | |||||
Accrued liabilities | 743,000 | 579,700 | |||||
Current maturities of debt and leases | 255,100 | 246,200 | |||||
Total current liabilities | 3,406,100 | 3,522,500 | |||||
Inter-company payable to UBI | 856,200 | 1,079,800 | |||||
Long-term debt and capital leases | 4,040,900 | 4,233,700 | |||||
Notes payable to related party | 2,872,700 | 2,733,400 | |||||
Total liabilities | 11,175,900 | 11,569,400 | |||||
Stockholders' equity | |||||||
Common stock | 14,902,300 | 14,815,300 | |||||
Preferred stock | 227,600 | 227,600 | |||||
Accumulated deficit | (9,856,200 | ) | (10,104,000 | ) | |||
Total stockholders' equity | 5,273,700 | 4,938,900 | |||||
Total liabilities and stockholders' equity | $ | 16,449,600 | $ | 16,508,300 |
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12. Unrestricted Net Assets (continued)
Statements of Operations | Quarter ended September 30 | Nine months ended September 30 | |||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||
Net sales | $ | 3,883,200 | $ | 3,215,800 | $ | 10,735,700 | $ | 9,225,200 | |||||
Cost of goods sold | 2,855,600 | 2,162,900 | 7,709,300 | 6,305,800 | |||||||||
Selling, marketing, and retail expenses | 332,500 | 320,600 | 961,100 | 928,700 | |||||||||
General and administrative expenses | 418,500 | 342,700 | 1,345,800 | 1,171,600 | |||||||||
Income from operations | 276,600 | 389,600 | 719,500 | 819,100 | |||||||||
Other (income) | (40,700 | ) | (50,700 | ) | (123,000 | ) | (128,500 | ) | |||||
Interest expense | 189,100 | 215,800 | 587,700 | 620,600 | |||||||||
Provision for taxes | 600 | 2,100 | 7,000 | 2,500 | |||||||||
$ | 127,600 | $ | 222,400 | $ | 247,800 | $ | 324,500 |
Statements of Cash Flows | Nine months ended September 30 | ||||||
2007 | 2006 | ||||||
(unaudited) | (unaudited) | ||||||
Cash flows from operating activities | $ | 723,700 | $ | 311,700 | |||
Purchase of property and equipment | (33,500 | ) | (181,200 | ) | |||
Proceeds from sale of fixed assets | 2,700 | 11,000 | |||||
Net borrowing (repayment) on line of credit | (287,600 | ) | (191,700 | ) | |||
Borrowing on long term debt | -- | 3,000,000 | |||||
Repayment on long term debt | (176,600 | ) | (2,603,800 | ) | |||
Payment on obligation under capital lease | (7,300 | ) | (98,000 | ) | |||
Net change in payable to UBI | (223,600 | ) | (235,600 | ) | |||
Increase (decrease) in cash | (2,200 | ) | 12,400 | ||||
Cash, beginning of period | 55,700 | 11,500 | |||||
Cash, end of period | $ | 53,500 | $ | 23,900 |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion summarizes the significant factors affecting the consolidated operating results for the nine months and three months ended September 30, 2007, compared to the nine months and three months ended September 30, 2006, and the financial condition and liquidity/cash flows of the Company for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.
In this Report, the term "the Company" and its variants is generally used to refer to Mendocino Brewing Company, Inc. and its subsidiaries, while the term "MBC" is used to refer to Mendocino Brewing Company, Inc. as an individual entity standing alone.
Forward Looking Statements
Various portions of this Quarterly Report, including but not limited to the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain forward-looking information. Such information involves risks and uncertainties that are based on current expectations, estimates and projections about the Company's business, Management's beliefs, and assumptions made by Management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and variations of those and similar words are intended to identify such forward-looking information. Any forward-looking statements made by the Company are intended to provide investors with additional information with which they may assess the Company's future potential. All forward-looking statements are based on assumptions about an uncertain future and are based on information available at the date such statements are issued. 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: changes in the pricing environment for the Company's products; changes in demand for malt beverage products in different Company markets; changes in distributor relationships or performance; changes in customer preference for the Company's malt beverage products; regulatory or legislative changes; the impact of competition; changes in raw materials prices; availability of financing for operations; changes in interest rates; changes in the company's European beer and/or restaurant business, and other risks discussed elsewhere in this Quarterly Report and from time to time in the Company's Securities and Exchange Commission (the "Commission") filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and in general domestic and European economic and political conditions. The Company undertakes no obligation to update these forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made or to publicly release the results of any revision to these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.
Critical Accounting Policies
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results. The Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate. Historically, actual results have not significantly deviated from those determined using the necessary estimates inherent in the preparation of financial statements. Estimates and assumptions include, but are not limited to, customer receivables, inventories, assets held for sale, fixed asset lives, contingencies and litigation. The Company has also chosen certain accounting policies when options were available, including the following:
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· | The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company's evaluation is based on an estimate of the future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. Long-lived assets are written down to their estimated net fair value calculated using a discounted future cash flow analysis in the event of an impairment. If circumstances related to the Company's long-lived assets change, the Company's valuation of the long-lived assets could materially change. |
· | The Company evaluates the realizability of its deferred tax assets quarterly by assessing the need for and amount of the valuation allowance. This evaluation is based on an assessment of the Company's ability to generate future U.S. taxable income. Results of operations in recent years are considered in the assessment. The Company records a valuation allowance for the portion of its deferred tax assets that do not meet the recognition criteria of SFAS No. 109, "Accounting for Income Taxes." If circumstances related to the Company's ability to generate future U.S. taxable income change, the Company's evaluation of its deferred tax assets could materially change. |
· | The Company has adopted EITF - 01-09 "Accounting for Consideration Given by a Vendor to a Customer (including a Reseller of the Vendor's Products)". This EITF requires that certain cash consideration paid to customers for services or placement fees are to be reported as a reduction in revenue rather than as an expense. The Company has reclassified these items on the income statement as a reduction in revenue and as a corresponding reduction in marketing and selling expenses. This reclassification has no impact on net income. |
These accounting policies are applied consistently for all periods presented. The Company's operating results would be affected if other alternatives were used. Information about the impact on operating results is included in the footnotes to the Company's consolidated financial statements.
Segment Information
Prior to 2001, the Company's business operations were exclusively located in the United States, where it was divided into two segments, manufacturing and distribution of beer, which accounted for the majority of the Company's gross sales, and retail sales (primarily at the Company's Hopland, California, tavern and merchandise store) which generally accounted for less than 5% of gross sales (by revenue). With the Company's acquisition of United Breweries International (UK), Ltd. ("UBI") in August 2001, however, the Company gained a new business segment, distribution of beer outside the United States, primarily in the U.K. and Ireland, continental Europe, and Canada (the "European Territory"). This segment accounted for 60% of the Company's gross sales during the first nine months of the years 2007 and 2006, respectively, with the Company's United States operations, including manufacturing and distribution of beer as well as retail sales (the "Domestic Territory") accounting for the remaining 40% during the first nine months of the years 2007 and 2006, respectively. With expanded wholesale distribution of beer and the closure of the restaurant at the Hopland facility, Management expects that retail sales, as a percentage of total sales, will decrease proportionally to the expected increase in the Company's wholesale sales.
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Seasonality
Sales of the Company's products are somewhat seasonal. Historically, sales volumes in all geographic areas have been comparatively low during the first quarter of the calendar year in both the Company's Domestic Territory and European Territory. In the Domestic Territory, sales volumes have been stronger during the second and third quarters and slower again during the fourth quarter, while in the European Territory the fourth quarter has generated the highest sales volume. The volume of sales in any given area may also be affected by local weather conditions. Because of the seasonality of the Company's business, results for any one quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Summary of Financial Results
The Company ended the first nine months of 2007 with a net profit of $28,400, as compared to a net loss of $735,400 for the same period in 2006. As set forth more fully under "Results of Operations," below, during the first nine months of 2007 the Company experienced an increase in net sales of $3,926,500 as compared to the same period in 2006. Costs of goods sold increased by $3,085,600, marketing costs increased by $428,100, general and administrative costs decreased by $366,900, and interest expenses decreased by $13,200, all of which contributed to the Company's results for the period.
Results of Operations
The following tables set forth certain items included in the Company's Statements of Operations, as a percentage of net sales, and certain items included in the Company's Balance Sheet. See the accompanying Financial Statements and Notes thereto.
Statements of Operations Data: | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
% | % | % | % | ||||||||||
Sales | 102.4 | 102.2 | 102.2 | 102.1 | |||||||||
Less Excise taxes | 2.4 | 2.2 | 2.2 | 2.1 | |||||||||
Net Sales | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||
Costs of Sales | 72.0 | 69.8 | 70.3 | 70.9 | |||||||||
Gross Profit | 28.0 | 30.2 | 29.7 | 29.1 | |||||||||
Marketing | 14.5 | 15.3 | 14.7 | 14.6 | |||||||||
General and Administrative Expense | 11.1 | 12.4 | 11.7 | 11.5 | |||||||||
Profit (Loss) from Operations | 2.4 | 2.5 | 3.3 | 3.0 | |||||||||
Other Income / (Expense) | (0.1 | ) | 0.2 | 0.1 | 0.0 | ||||||||
Interest Expense | (2.7 | ) | (3.3 | ) | (3.0 | ) | (2.9 | ) | |||||
Income/(Loss) before income taxes | (0.4 | ) | (0.6 | ) | 0.4 | 0.1 | |||||||
Provision for income taxes | 0.0 | 0.0 | 0.00 | 0.00 | |||||||||
Net income / (Loss) | (0.4 | ) | (0.6 | ) | 0.4 | 0.1 | |||||||
Other Comprehensive Income / (loss) | (0.3 | ) | (0.2 | ) | (0.3 | ) | 0.0 | ||||||
Comprehensive income / (Loss) | (0.7 | ) | (0.8 | ) | 0.1 | 0.1 |
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Nine Months Ended September 30, | |||||||
2007 | 2006 | ||||||
Balance Sheet Data: | $ | $ | |||||
Cash and Cash Equivalents | 484,400 | 270,600 | |||||
Working Capital | (2,729,500 | ) | (3,353,100 | ) | |||
Property and Equipment | 13,265,200 | 13,339,800 | |||||
Deposits and Other Assets | 468,900 | 444,600 | |||||
Total Assets | 24,388,900 | 23,896,900 | |||||
Long-term Debt (less current maturities) | 4,040,900 | 2,968,900 | |||||
Capital Lease (less current maturities) | 61,000 | 133,600 | |||||
Note payable to related parties (less current maturities) | 3,362,100 | 3,247,800 | |||||
Total Liabilities | 20,848,300 | 19,815,900 | |||||
Accumulated Deficit | (11,633,400 | ) | (10,966,600 | ) | |||
Stockholder's equity | 3,540,600 | 4,081,000 |
Three Months Ended September 30, 2007 Compared To
Three Months Ended September 30, 2006
Net Sales
Overall net sales for the third quarter of 2007 were $10,025,800, an increase of $1,804,100, or 21.9%, compared to $8,221,700 for the third quarter of 2006. The increase was mainly due to higher sales volume and increased prices, partly offset by increased discounts.
Domestic Operations: Net sales for the third quarter of 2007 were $3,883,200 compared to $3,215,800 for the same period in 2006, an increase of $667,400, or 20.8% mainly due to higher sales volume. The sales volume increased to 22,701 barrels in the third quarter of 2007 from 17,453 barrels in third quarter of 2006; a net increase of 5,248 barrels, or 30.1%. Of the increase, sales of the Company’s own brands increased by 676 barrels or 5.7%, sales of the Kingfisher brand increased by 202 barrels or 8.9% and sales of contract brands increased by 4,370 barrels or 129.3%.
European Territory: Net sales for the third quarter of 2007 were $6,142,600 (Pounds Sterling £ 3,043,300) compared to $5,005,900 (Pounds Sterling £ 2,671,200) during the corresponding period of 2006, an increase of $1,136,700, or 22.7%. During the third quarter of 2007, UBSN sold 17,799 barrels, compared to 16,705 barrels during the third quarter of 2006, representing an increase of 1,094 barrels, or 6.5%. When measured from period to period exclusively in Pounds Sterling (which is the basic currency of account for the European Territory), the Company’s net sales in its European Territory increased by 13.9%.
Cost of Goods Sold
Cost of goods sold as a percentage of net sales during the third quarter of 2007 was 72%, as compared to 69.8% during the corresponding period of 2006, mainly due to increased costs in the European Territory.
Domestic Operations: Cost of goods sold as a percentage of net sales in the United States during the third quarter of 2007 was 73.5%, as compared to 67.3% during the corresponding period of 2006. This increase is mainly due to significant increases in the sale of contract brands which have higher cost of goods as a percentage of net sales, and increases in costs of raw materials, packaging materials, and wages.
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European Territory: Cost of goods sold as a percentage of net sales in the United Kingdom during the third quarter of 2007 was 71.5%, as compared to 71.9% during the corresponding period of 2006 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation).
Gross Profit
Gross profit for the third quarter of 2007 increased to $2,805,600, from $2,485,000 during the corresponding period of 2006, representing an increase of $320,600 or 12.9%. As a percentage of net sales, the gross profit during the third quarter of 2007 decreased to 28% from 30.2% for the third quarter of 2006.
Operating Expenses
Operating expenses for the third quarter of the year 2007 were $2,561,200, an increase of $286,800, or 12.6%, as compared to $2,274,400 for the corresponding period of the year 2006. Operating expenses consist of marketing, distribution and general and administrative expenses.
Marketing and Distribution Expenses: The Company’s marketing and distribution expenses for the third quarter of 2007 were $1,452,000, as compared to $1,259,100 for the third quarter of 2006, representing an increase of $192,900 or 15.3%. These expenses decreased to 14.5% of net sales for the third quarter of the year 2007, as compared to 15.3% for the corresponding period in 2006.
Domestic Operations: Expenses for the third quarter of 2007 were $332,500 compared to $320,600 during the corresponding period of 2006, representing an increase of $11,900 or 3.7%. As a percentage of net sales in the United States, the expenses decreased to 8.6% during the third quarter of 2007, compared to 9.97% during the corresponding period of 2006. The increase in expenses resulted mainly from higher salary and travel costs due to increases in headcount.
European Territory: Expenses for the third quarter of 2007 were $1,119,500 compared to $938,500 during the corresponding period of 2006, representing an increase of $181,000 or 19.3% mainly due to increase in sales commission and salary. As a percentage of net sales in the United Kingdom, the expenses decreased to 18.2% during the third quarter of 2007 compared to 18.8% during the corresponding period of 2006 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation).
General And Administrative Expenses: The Company’s general and administrative expenses were $1,109,200 for the third quarter of the year 2007, representing an increase of $93,900 or 9.2%, over $1,015,300 for the corresponding period in 2006. General and administrative expenses decreased to 11.1% of net sales for the third quarter of the year 2007, as compared to 12.4% for the corresponding period in 2006.
Domestic Operations. Domestic general and administrative expenses were $418,500 for the third quarter of the year 2007, representing an increase of $75,800, or 22.1%, from $342,700 for the third quarter of the year 2006. The increase was primarily due to increases in salaries and consulting fees associated with the evaluation and documentation of the Company’s internal control systems.
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European Territory. General and administrative expenses related to the European Territory were $690,700 for the third quarter of the year 2007, representing an increase of $18,100, or 2.7%, compared to $672,600 for the third quarter of the year 2006 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation).
Other Expenses
Other expenses for the third quarter of 2007 totaled $281,200, representing an increase of $22,700, or 8.8%, when compared to the third quarter of 2006 mainly due to increased losses on the sale of assets.
Income Taxes
The Company’s provision for income taxes for the third quarter of 2007 was $600. The provision for taxes relates to the estimated amount of taxes that will be imposed against the Company by taxing authorities in the United States.
Net Loss
The Company’s net loss for the third quarter of 2007 was $37,400, as compared to a net loss of $50,000 for the third quarter of 2006. After providing for a negative foreign currency translation adjustment of $31,500 during the third quarter of 2007 (as compared to a negative adjustment of $14,300 for the same period in 2006), the comprehensive loss for the third quarter of 2007 was $68,900, compared to a loss of $64,300 for the same period in 2006.
Nine Months Ended September 30, 2007 Compared To
Nine Months Ended September 30, 2006
Net Sales
Overall net sales for the first nine months of the year 2007 were $27,748,900, an increase of $3,926,500, or 18.6%, compared to $23,822,400 for the same period in 2006. The increase was mainly due to a combination of increased sales volume and increased sales prices for the Company’s products.
Domestic Operations: Domestic net sales for the first nine months of the year 2007 were $10,735,700 compared to $9,225,200 for the same period in 2006, an increase of $1,510,500 or 16.4%. Domestic sales volume increased to 59,201 barrels during the first nine months of the year 2007 representing an increase of 9,687 barrels or 19.6% compared to domestic sales of 49,514 barrels in the first nine months of the year 2006. Sales of the Company’s brands increased by 794 barrels or 2.3%, sales of the Kingfisher brand decreased by 154 barrels or 2.3% and sales of contract brands increased by 9,047 barrels or 112.6%.
European Territory: Net sales for the first nine months of the year 2007 were $17,013,200 (Pounds Sterling £8,559,700) compared to $14,597,200 (Pounds Sterling £8,028,800) during the corresponding period of 2006, an increase of $2,416,000 or 16.6%. During the first nine months of the year 2007, UBSN sold 50,066 barrels compared to 49,260 barrels during the first nine months of the year 2006, an increase of 806 barrels, or 1.6%. Due to exchange rate fluctuations, net sales (when compared in Pounds Sterling) increased 6.6%.
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Cost of Goods Sold
Cost of goods sold as a percentage of net sales during the first nine months of the year 2007 was 70.9%, as compared to 69.7% during the corresponding period of 2006.
Domestic Operations: Cost of goods sold as a percentage of net sales in the United States during the first nine months of the year 2007 was 71.8%, as compared to 68.4%, during the corresponding period of 2006. This increase is mainly due to significant increases in the sale of contract brands which have higher cost of goods as a percentage of net sales, and increases in costs of raw materials, packaging materials, and wages.
European Territory: Cost of goods sold as a percentage of net sales in the United Kingdom during the first nine months of the year 2007 was 70.8%, as compared to 71% during the corresponding period in 2006 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation).
Gross Profit
As a result of the higher sales described above, gross profit for the first nine months of the year 2007 increased to $8,066,400, from $7,225,500 during the corresponding period of 2006, representing an increase of $840,900 or 11.6%. As a percentage of net sales, the gross profit during the first nine months of 2007 decreased to 29.1% from 30.3% during the corresponding period in 2006.
Operating Expenses
Operating expenses for the first nine months of the year 2007 were $7,237,000, an increase of $61,200, or 0.9%, as compared to $7,175,800 for the corresponding period of the year 2006. Operating expenses consist of marketing and distribution expenses and general and administrative expenses.
Marketing and Distribution Expenses: The Company’s marketing and distribution expenses for the first nine months of the year 2007 were $4,050,400, as compared to $3,622,300 for the same period in 2006, representing an increase of $428,100 or 11.7%. These expenses were equal to 14.6% of net sales for first nine months of the year 2007, as compared to 15.2% for the corresponding period in 2006.
Domestic Operations: Expenses for the first nine months of the year 2007 were $961,100 compared to $928,700 during the corresponding period of 2006, representing an increase of $32,400 or 3.5%. As a percentage of net sales in the United States, these expenses decreased to 9% during the first nine months of the year 2007, compared to 10.1% during the corresponding period of 2006. The increase in expenses resulted mainly from higher salary and travel costs due to increases in headcount.
European Territory: Expenses for the first nine months of the year 2007 were $3,089,300 compared to $2,693,600 during the corresponding period of 2006, representing an increase of $395,700 or 14.7% mainly due to increase in sales commission and salary. As a percentage of net sales in the United Kingdom, the expenses decreased to 18.2% during the first nine months of the year 2007 compared to 18.5% during the corresponding period of 2006 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation).
General And Administrative Expenses: The Company’s general and administrative expenses were $3,186,600 for the first nine months of the year 2007, representing a decrease of $366,900 or 10.3%, compared to $3,553,500 for the corresponding period in 2006. These expenses were equal to 11.5% of net sales for the first nine months of the year 2007, as compared to 14.9% for the corresponding period in 2006.
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Domestic Operations. Domestic general and administrative expenses were $1,345,800 for the first nine months of the year 2007, representing an increase of $174,200, or 14.9%, from $1,171,600 for the same period in 2006. The increase was primarily due to the increase in salaries and directors remuneration.
European Territory. General and administrative expenses related to the European Territory were $1,840,800 for the first nine months of the year 2007, representing a decrease of $541,100 or 22.7%, as compared to $2,381,900 for the same period in 2006 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation). These decreases were mainly due to decreases in the provision against bad debts and temporary reductions in headcount.
Other Expenses
Other expenses for the first nine months of the year 2007 totaled $794,000 representing an increase of $11,400 or 1.5% when compared to the same period in 2006 mainly due to increased losses on the sale of assets.
Income Taxes
The Company has a provision for income taxes of $7,000 for the first nine months of the year 2007, compared to $2,500 for the same period in 2006. The provision for taxes is mainly related to the estimated amount of taxes that will be imposed by taxing authorities in the United States.
Net Income
The Company’s net income for the first nine months of the year 2007 was $28,400, as compared to a net loss of $735,400 for the corresponding period of the year 2006. After providing for a negative foreign currency translation adjustment of $80,300 during the first nine months of 2007 (as compared to an adjustment of $57,700 for the corresponding period in 2006), the comprehensive loss for the first nine months of the year 2007 was $51,900, compared to a comprehensive loss of $793,100 for the corresponding period of 2006.
LIQUIDITY AND CAPITAL RESOURCES
Unused capacity at the Ukiah and Saratoga Springs facilities and higher uncollectible accounts receivable in the United Kingdom has continued to place demands on the Company's working capital. Beginning approximately in the second quarter of 1997, the time at which the Ukiah brewery commenced operations, proceeds from operations have not been able to provide sufficient working capital. The Company is a party to several loans, lines of credit, other credit facilities, and lease agreements. The Company is currently making timely payments of its debt and lease commitments as they fall due. Any breach of a loan or lease which actually leads to default, or to an attempt by a creditor to exercise its rights in the Company's tangible or intangible assets, could potentially make it difficult, at least in the short term, for the Company to continue its operations.
MASTER LINE OF CREDIT. On August 31, 1999, MBC and United Breweries of America, Inc. ("UBA"), one of the Company's principal shareholders, entered into a Master Line of Credit Agreement, which was subsequently amended in April 2000 and February 2001 (the "Credit Agreement"). The terms of the Credit Agreement provide the Company with a line of credit with a principal amount of up to $1,600,000. The Company and UBA have executed an Extension of Term of Notes under Master Line of Credit Agreement (the "Extension Agreement"). The Extension Agreement confirms the Company's and UBA's extension of the terms of the UBA Notes until June 30, 2008.
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As of the date of this filing, UBA has made thirteen (13) separate advances to the Company under the Credit Agreement and one additional advance on substantially the same terms as those under the Credit Agreement, pursuant to a series of individual eighteen-month promissory notes issued by the Company to UBA (the "UBA Notes"). The aggregate outstanding principal amount of the UBA Notes as of September 30, 2007 was $1,915,400, and the accrued but unpaid interest thereon was equal to approximately $957,400, for a total of $2,872,700.
The outstanding principal amount of the notes and the unpaid interest thereon may be converted, at UBA's discretion, into shares of the Company's unregistered Common Stock at a conversion rate of $1.50 per share. As of September 30, 2007, the outstanding principal and interest on the notes was convertible into approximately 1,915,200 shares of the Company's Common Stock. On December 28, 2001, the Company and UBA entered into a Confirmation of Waiver which confirms that as of August 13, 2001, UBA waived its rights with regard to all conversion rate protection as set forth in the UBA Notes.
The UBA Notes require the Company to make quarterly interest payments to UBA on the first day of April, July, October, and January. To date, UBA has permitted the Company to capitalize all accrued interest; therefore, the Company has borrowed the maximum amount available under the facility. Upon maturity of any of the UBA Notes, unless UBA has given the Company prior instructions to commence repayment of the outstanding principal balance, the outstanding principal and accrued but unpaid interest on such Note may be converted, at the option of UBA, into shares of the Company's common stock. If UBA does not elect to so convert any UBA Notes upon maturity, it has the option to extend the term of such notes for any period of time mutually agreed upon by UBA and the Company. During the extended term of any note, UBA has the right to require the Company to repay the outstanding principal balance, along with the accrued and unpaid interest thereon, to UBA within sixty (60) days.
The UBA Notes are subordinated to credit facilities extended to the Company by Grand Pacific Financing Corporation and Marquette Business Credit, Inc. under subordination agreements executed by UBA. As per the terms of the subordination agreements, UBA is precluded from demanding repayment of the UBA Notes unless the Grand Pacific Financing Corporation and Marquette Business Credit facilities are settled in full. Hence the Company does not expect to make payments on any of the UBA Notes within the next year.
GRAND PACIFIC FINANCING CORPORATION LOAN: On July 3, 2006, MBC obtained a $3.0 million loan from Grand Pacific, secured by a first priority deed of trust on the Ukiah land, fixtures attached to the land, and improvements. The loan is payable in partially amortizing monthly installments of $27,300 including interest at the rate of 1.75% over the prime rate published by The Wall Street Journal, maturing June 28, 2011 with a balloon payment. The amount of the balloon payment will vary depending on the change in interest rates over the term of the loan. MBC used the proceeds of the loan to repay in full all the then outstanding loans owed to Savings Bank of Mendocino County. The amount outstanding under the Grand Pacific facility as of September 30, 2007 was $2,970,900. Grand Pacific also collects on a monthly basis an amount of approximately $10,554 towards property taxes payable on the Ukiah property and pays such taxes to the applicable taxing authority when they become due.
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MARQUETTE BUSINESS CREDIT INC. FACILITY: On November 21, 2006, Marquette Business Credit Inc. ("MBCI") extended a total facility of $4,925,000 with a maturity date of June 27, 2011 consisting of a $2,750,000 revolving facility, a $1,525,000 term loan and a $650,000 capital expenditure loan. The rate of interest on the term loan and capital expenditure loan is the one-month LIBOR rate published in the Wall Street Journal plus a margin of 5.25% and on the revolving facility is one-month LIBOR rate published in the Wall Street Journal plus a margin of 4.25%. The facility is subject to certain financial covenants including prescribed minimum fixed charges coverage, maintaining prescribed minimum tangible net worth and minimum earning before interest, depreciation and taxes. The facility also has a prepayment penalty if settled prior to the maturity date. The facility is secured by substantially all of the Company's assets located in the United States excluding real property and fixtures located at the Company's property in Ukiah, California. The total amount outstanding under this facility as of September 30, 2007 was $2,419,500.
OTHER LOANS AND CREDIT FACILITIES.
ROYAL BANK OF SCOTLAND FACILITY: Royal Bank of Scotland ("RBS") provided UBSN with a £1,750,000 maximum revolving line of credit with an advance rate based on 80% of UBSN's qualified accounts receivable. UBSN utilized the proceeds of this facility to settle a credit facility with Nedbank Limited, a South African registered company, on April 26, 2005. This facility has a minimum maturity of twelve months, but will be automatically extended unless terminated by either party upon six months' written notice. The amount outstanding under this facility as of September 30, 2007 was £1,495,500.
SHEPHERD NEAME LOAN: Shepherd Neame has a contract with UBSN to brew Kingfisher Premium Lager for the Company's European and Canadian markets. As consideration for extending the brewing contract, Shepherd Neame advanced a loan of £600,000 (Pounds Sterling) to UBSN, repayable in annual installments of £60,000 (Pounds Sterling) per year, commencing in June 2003. The loan carries a fixed interest rate of 5% per year. The amount outstanding under this facility as of September 30, 2007 was £300,000.
WEIGHTED AVERAGE INTEREST: The weighted average interest rates paid on the Company's U.S. debts was 10.2% for the first nine months of 2007 and 11.4% for the corresponding period in 2007. For loans primarily associated with the Company's European territory, the weighted average rate paid was 6.8% for the first nine months of 2007 and 6.04% for the corresponding period in 2006.
KEG MANAGEMENT ARRANGEMENT: The Company entered into a five-year keg management agreement with MicroStar Keg Management LLC ("MicroStar") as of September 1, 2004. Under this arrangement, MicroStar provides the Company with half-barrel kegs for which the Company pays a filling and use fee. Distributors return the kegs to MicroStar instead of the Company. MicroStar then supplies the Company with additional kegs. If, on any given month, the agreement is not extended and terminates, the Company is required to purchase a certain number of kegs from MicroStar. The Company anticipates, if necessary, that it would finance the purchase through debt or lease financing, if available. However, there can be no assurance that the Company will be able to finance the purchase of kegs. Failure to purchase the necessary kegs from MicroStar on termination of the agreement is likely to have a material adverse effect on the Company.
CURRENT RATIO: The Company's ratio of current assets to current liabilities on September 30, 2007 was 0.80 to 1.0 and its ratio of total assets to total liabilities was 1.17 to 1.0. On September 30, 2006, the Company’s ratio of current assets to current liabilities was 0.75 to 1.0 and its ratio of total assets to total liabilities was 1.2 to 1.0.
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RESTRICTED NET ASSETS: The Company's wholly-owned subsidiary, UBI, has undistributed losses of approximately $345,000 as of September 30, 2007. Under UBSN's line of credit agreement with RBS, distributions and other payments to the Company from its subsidiary are not permitted if retained earnings drop below approximately $2,000,000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2007, the Company did not hold derivative instruments, or engage in hedging activities, of any material value or in any material amount, whether for trading or for hedging purposes. The Company has some interest-related market risk due to floating interest rate debt totaling $10,378,300 as of September 30, 2007.
Interest Rate Risk
The Company had total debt as of September 30, 2007 of $10,966,500 of which $10,354,800 was subject to variable rates of interest (either prime or LIBOR plus 1.5% or prime plus 1.75% or LIBOR plus 4.25% or LIBOR plus 5.25%). The Company's long-term debt (including current portion) as of September 30, 2007 totaled $6,841,400, of which $611,700 had fixed rates of interest and the balance of $6,229,700 were subject to variable rates. $4,125,100 of the Company's short term debt is subject to variable rates. At current borrowing levels, variation in prime and LIBOR rates of 1% would result in an annual variation of $103,500 in interest expense on the Company's variable rate loans.
Foreign Currency Rate Fluctuations
The Company's earnings and cash flows at its subsidiary UBI and at UBI's subsidiary UBSN are subject to fluctuations due to changes in foreign currency rates. The Company believes that changes in the foreign currency exchange rate would not have a material adverse effect on its results of operations as the majority of its foreign transactions are delineated in UBI's functional currency, the Pound Sterling.
Item 4. Controls and Procedures
The Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") has evaluated the effectiveness of the design, maintenance, and operation of the Company's "disclosure controls and procedures" as of the end of the period covered by this report. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Company in its reports under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures are also designed to ensure that information that the Company is required to disclose in its reports under the Exchange Act is accumulated and communicated to the Company's management, including its CEO and CFO, as appropriate to allow timely decisions regarding the required disclosure.
Certain aspects of the Company's internal control over financial reporting are included in the Company's disclosure controls and procedures, and are therefore included in management's evaluation. Management evaluates internal control over financial reporting on a quarterly basis to determine whether any changes have occurred. Internal control over financial reporting is also evaluated on an annual basis in connection with the preparation of the Company's Annual Report on Form 10-K.
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Management's review of the disclosure controls and procedures includes a review of their objectives, design, implementation, and results. Based on this evaluation, the CEO and CFO believe that, subject to the limitations set forth below, the Company's disclosure controls and procedures were effective in providing reasonable assurance that the information required to be disclosed in the Company's reports under the Exchange Act is recorded, processed, summarized, and reported within the time specified by the Commission, and that material information pertaining to the Company is timely communicated to the Company's management (including the CEO and CFO). Management is not aware of any changes in the Company's internal or other controls over financial reporting identified in connection with that evaluation that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Please refer to the certifications of the Company's Chief Executive Officer and Chief Financial Officer (which are attached to this report as Exhibits 31.1 and 31.2) for additional information regarding the Company's controls and procedures.
Limitations on Controls
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving the Company's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in such controls and procedures, including the fact that human judgment in decision making can be faulty and that breakdown in internal controls can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.
PART II OTHER INFORMATION
None
Item 6. Exhibits
Exhibit Number | Description of Document |
3.1 | Articles of Incorporation of the Company, as amended, (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-KSB for the period ended December 31, 2001). |
3.2 | Bylaws of the Company, as amended, (incorporated by reference to Exhibit 3.2 to the Company's Annual report on Form 10-KSB for the period ended December 31, 2001). |
31.1 | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a). |
31.2 | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a). |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350. |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350. |
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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.
MENDOCINO BREWING COMPANY, INC. | ||
| | |
Dated: November 14, 2007 | By: | /s/ Yashpal Singh |
Yashpal Singh | ||
President and Chief Executive Officer |
| | |
Dated: November 14, 2007 | By: | /s/ N. Mahadevan |
N. Mahadevan | ||
Chief Financial Officer |