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 March 31, 2010 |
OR
¨ | 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 | 68-0318293 |
(State or Other Jurisdiction of | (IRS Employer |
Incorporation or Organization) | Identification No.) |
1601 Airport Road, Ukiah, CA 95482
(Address of principal executive offices)
(707) 463-2087
(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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(check one)
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: The number of shares of the issuer's common stock outstanding as of May 11, 2010 is 12,427,262.
PART I
Item 1. Financial Statements.
MENDOCINO BREWING COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,2010 (Unaudited) | December 31, 2009 (Audited) | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 167,600 | $ | 140,900 | ||||
Accounts receivable, net of allowance for | ||||||||
doubtful accounts of $485,000 and $504,900, respectively | 5,242,000 | 11,267,700 | ||||||
Inventories | 1,869,300 | 1,862,600 | ||||||
Prepaid expenses | 199,000 | 543,300 | ||||||
Total Current Assets | 7,477,900 | 13,814,500 | ||||||
Property and Equipment (net of accumulated depreciation) | ||||||||
12,238,400 | 12,474,200 | |||||||
Other Assets | ||||||||
Deposits and other assets | 292,200 | 288,200 | ||||||
Intangibles, (net of amortization) | 47,600 | 47,600 | ||||||
Total Other Assets | 339,800 | 335,800 | ||||||
Total Assets | $ | 20,056,100 | $ | 26,624,500 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Secured lines of credit | $ | 2,466,800 | $ | 3,126,200 | ||||
Accounts payable | 6,888,400 | 12,088,200 | ||||||
Accrued liabilities | 1,213,200 | 1,504,100 | ||||||
Current maturities of notes to related parties | 91,100 | 97,000 | ||||||
Current maturities of obligation under long-term debt | 320,700 | 319,800 | ||||||
Current maturities of obligation under capital lease | 134,100 | 142,700 | ||||||
Total Current Liabilities | 11,114,300 | 17,278,000 | ||||||
Long-Term Liabilities | ||||||||
Notes to related parties including accrued | ||||||||
interest of $1,240,800 and $1,218,400, respectively | 3,338,400 | 3,327,800 | ||||||
Long term debt, less current maturities | 3,430,500 | 3,509,500 | ||||||
Obligations under capital leases, less current maturities | 124,700 | 161,500 | ||||||
Total Long-Term Liabilities | 6,893,600 | 6,998,800 | ||||||
Total Liabilities | 18,007,900 | 24,276,800 | ||||||
Stockholders' Equity | ||||||||
Preferred stock, Series A, no par value, with | ||||||||
liquidation preference of $1 per share; 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, | ||||||||
12,427,262 shares issued and outstanding | 15,043,300 | 15,043,300 | ||||||
Accumulated comprehensive income | 554,600 | 436,800 | ||||||
Accumulated deficit | (13,777,300 | ) | (13,360,000 | ) | ||||
Total Stockholders' Equity | 2,048,200 | 2,347,700 | ||||||
Total Liabilities and Stockholders' Equity | $ | 20,056,100 | $ | 26,624,500 |
See accompanying notes to these condensed financial statements.
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MENDOCINO BREWING COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Sales | $ | 8,603,300 | $ | 7,292,500 | ||||
Less excise taxes | 168,200 | 155,400 | ||||||
Net Sales | 8,435,100 | 7,137,100 | ||||||
Cost of goods sold | 6,290,000 | 5,373,800 | ||||||
Gross Profit | 2,145,100 | 1,763,300 | ||||||
Operating Expense | ||||||||
Marketing | 1,405,300 | 984,200 | ||||||
General and administrative | 1,028,900 | 961,700 | ||||||
Total Operating Expense | 2,434,200 | 1,945,900 | ||||||
Income (loss) from operations | (289,100 | ) | (182,600 | ) | ||||
Other income (expense) | ||||||||
Miscellaneous income | 7,100 | 6,600 | ||||||
Profit on sale of assets | -- | 6,500 | ||||||
Interest expense | (132,700 | ) | (122,800 | ) | ||||
Total Other Expense | (125,600 | ) | (109,700 | ) | ||||
Income (loss) before income taxes | (414,700 | ) | (292,300 | ) | ||||
Provision for income taxes | 2,600 | -- | ||||||
Net Income (loss) | (417,300 | ) | (292,300 | ) | ||||
Foreign currency translation gain (loss) | 117,800 | 11,700 | ||||||
Comprehensive Loss | (299,500 | ) | (280,600 | ) | ||||
Net Income (loss) per common share (basic and diluted) | $ | ( 0.03 | ) | $ | ( 0.02 | ) | ||
Weighted average common shares outstanding | ||||||||
Basic and diluted | 12,427,262 | 12,198,666 |
See accompanying notes to these condensed financial statements.
2
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Income (Loss) | $ | (417,300 | ) | $ | (292,300 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
Depreciation and amortization | 269,300 | 254,600 | ||||||
Allowance for doubtful accounts | 9,400 | 14,600 | ||||||
Interest accrued on related party debt | 22,400 | 22,400 | ||||||
Non cash compensation | -- | 80,000 | ||||||
(Profit) on sale of assets | -- | (6,500 | ) | |||||
Changes in: | ||||||||
Accounts receivable | 5,556,400 | 938,200 | ||||||
Inventories | (6,700 | ) | (240,200 | ) | ||||
Prepaid expenses | 329,900 | (60,900 | ) | |||||
Deposits and other assets | 11,200 | 32,000 | ||||||
Accounts payable | (4,690,700 | ) | (257,700 | ) | ||||
Accrued liabilities | (257,800 | ) | (110,200 | ) | ||||
Net cash provided by (used in) operating activities | 826,100 | 374,000 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property, equipment, and leasehold improvements | (112,700 | ) | (80,000 | ) | ||||
Proceeds from sale of fixed assets | -- | 9,300 | ||||||
Net cash used in investing activities | (112,700 | ) | (70,700 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net repayment on line of credit | (582,000 | ) | (204,100 | ) | ||||
Repayment on long-term debt | (78,100 | ) | (76,300 | ) | ||||
Payments on obligations under long term leases | (36,500 | ) | (35,800 | ) | ||||
Net cash provided by (used in) financing activities | (696,600 | ) | (316,200 | ) | ||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 9,900 | (12,700 | ) | |||||
NET CHANGE IN CASH | 26,700 | (25,600 | ) | |||||
CASH, beginning of period | 140,900 | 273,700 | ||||||
CASH, end of period | $ | 167,600 | $ | 248,100 | ||||
SUPPLEMENTARY CASH FLOW INFORMATION | ||||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | 2,600 | -- | |||||
Interest | $ | 110,300 | $ | 100,400 |
See accompanying notes to these condensed financial statements.
3
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
1. Description of Operations and Summary of Significant Accounting Policies
Description of Operations
Mendocino Brewing Company, Inc., (the "Company", “we” or "MBC"), has operating subsidiaries, Releta Brewing Company, ("Releta"), and United Breweries International, Limited (UK), ("UBIUK"). In the United States, MBC and its subsidiary, 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. We also own and operate a brewpub and gift store located in Hopland, California. The majority of sales for MBC are in California. We brew several brands, of which Red Tail Ale is the flagship brand. In addition, we perform contract brewing for several other brands, and we hold the license to distribute Kingfisher Premium Lager Beer in the United States.
Our UK subsidiary, United Breweries International (UK) Limited (“UBIUK”), 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 UBIUK. All inter-company balances, profits and transactions have been eliminated.
Basis of Presentation and Organization
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US generally accepted accounting principles for complete annual financial statements. 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. The financial statements and notes are representations of the management and the Board of Directors, who are responsible for their integrity and objectivity.
Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010 or any future period.
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SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes in our significant accounting policies during the three months ended March 31, 2010 compared to what was previously disclosed in the our Annual Report on 10-K for the year ended December 31, 2009.
Cash and Cash Equivalents, Short and Long-Term Investments
For purposes of cash flows, we consider 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.
Fair Value of Financial Instruments.
The levels of the fair value hierarchy established by ASC 820 are:
Level 1: inputs are quoted prices, unadjusted, in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2: inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. A Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3: inputs are unobservable and reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.
At March 31, 2010 and December 31, 2009 the Company does not have any assets or liabilities which are recorded at fair value on a recurring basis.
The Company considers the recorded value of certain of its financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses, to approximate the fair value of the respective assets and liabilities at March 31, 2010 and December 31, 2009 based upon the short-term nature of the assets and liabilities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of short and long term notes payable approximate fair value.
The carrying value of certain of the financial instruments, of other current assets and accrued expenses, approximate fair value due to their short maturities.
5
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 March 31, 2010 was $229,600. Amortization of deferred financing costs charged to operations was $16,300 for the quarters ended March 31, 2010 and 2009. We 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 us 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 $114,700 in cash deposits and $3,545,400 of accounts receivable due from customers located in the United Kingdom as of March 31, 2010.
Income Taxes
We account for our income taxes using the Financial Accounting Standards Board Statements of Financial Accounting Standards No. 109, "Accounting for Income Taxes," codified within ASC 272, 740, 805, 830, 942, 958 and 995 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.
There are no changes in the carrying value of our tax assets or liabilities for any unrecognized tax benefits.
Basic and Diluted Earnings (Loss) per Share
In accordance with SFAS No. 128, "Earnings Per Share," (ASC 260) the basic earnings (loss) per share is computed by dividing the earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic net earnings (loss) per share exclude the dilutive effect of stock options or warrants and convertible notes. If our operations result in net loss for any period, Diluted net loss per share would be the same as basic net loss per share, since the effect of any potentially dilutive securities is excluded, as they are anti-dilutive due to the net loss. The computation of the dilutive effect of the Company's convertible notes for the three month period ended March 31, 2010 and 2009 is shown in the table below.
6
Three months ended | ||||||||
March 31,2010 | March 31, 2009 | |||||||
Net income (loss) | $ | (417,300 | ) | $ | (292,300 | ) | ||
Weighted average common shares outstanding | 12,427,262 | 12,198,666 | ||||||
Basic net income (loss) per share | $ | (0.03 | ) | $ | (0.02 | ) |
Foreign Currency Translation
The assets and liabilities of UBIUK were translated at the United Kingdom pound sterling - US dollar exchange rates in effect at March 31, 2010 and December 31, 2009, and the statements of operations were translated at the average exchange rates for each of the three months ended March 31, 2010 and 2009. 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 March 31, 2010 and December 31, 2009, and its cash flows were translated at the average exchange rates for each of the three months ended March 31, 2010 and 2009. 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 our 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.
The components of other comprehensive income for the three months ended March 31, 2010 and 2009 are reflected as a separate item in the statement of operations.
Reportable Segments
We manage our operations through two business segments: brewing operations, including tavern and tasting room operations (domestic) and distributor operations (international). The international business segment sells our products outside the United States.
7
We evaluate 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 our transfer policy, which approximates market price. The costs of operating the manufacturing plants are captured discretely within each segment. Our 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.
2. Liquidity and Management Plans
At March 31, 2010, we had cash and cash equivalents of $167,600 a working capital deficit of $3,636,400 and an accumulated deficit of $13,777,300. Additionally, we have a history of past losses as infrastructure costs were incurred in advance of obtaining customers. At March 31, 2010, we were in default on two of the financial covenants in our secured credit facility. This violation has resulted in a higher rate of interest until the violation is cured.
Management has taken several actions to ensure that the Company will have sufficient cash for its working capital needs through March 31, 2011, including reductions in discretionary expenditures, optimizing prices and discounts to increase margin, introduction of new products, new packaging and securing additional brewing contracts. In addition, our majority shareholder issued a letter of support to provide financial assistance when required. We may also seek additional capital infusions to support operations. Management believes that these actions will enable us to meet our working capital needs through March 31, 2011.
3. Inventories
Inventories are stated at the lower of average cost or market and consist of the following:
March 31,2010 | December 31, 2009 | |||||||
Raw Materials | $ | 737,900 | $ | 591,600 | ||||
Beer-in-process | 275,100 | 241,300 | ||||||
Finished Goods | 817,300 | 988,800 | ||||||
Merchandise | 39,000 | 40,900 | ||||||
TOTAL | $ | 1,869,300 | $ | 1,862,600 |
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 are 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 Releta'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 March 31, 2010 was approximately $1,623,100. At March 31, 2010, we were in default on two of the financial covenants.
8
We retain 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 (ASC 860). Included in our Balance Sheet as Accounts receivable at March 31, 2010, are account balances totaling $1,696,600 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 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 March 31, 2010 was approximately $843,700.
5. Long-Term Debt
Maturities of long-term debt for succeeding years are as follows:
March 31, 2010 | December 31, 2009 | |||||||
Notes to a financial institution, payable in monthly installments of $20,500, plus interest at one month LIBOR plus 5.25% with a balloon payment of $622,400 in June 2011; secured by substantially all assets of Releta Brewing Company and Mendocino Brewing Company, excluding real property at Ukiah. | $ | 929,900 | $ | 991,400 | ||||
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 $2,737,000 in June 2011. | 2,821,300 | 2,837,900 | ||||||
3,751,200 | 3,829,300 | |||||||
Less current maturities | 320,700 | 319,800 | ||||||
$ | 3,430,500 | $ | 3,509,500 |
Principal maturities of long-term debt as of March 31, 2010 are as follows:
Nine months ending December 31, 2010 | $ | 240,500 | ||
Year 2010 | $ | 3,510,700 | ||
Total | $ | 3,751,200 |
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6. Notes to Related Party
Subordinated Convertible Notes Payable
Notes payable to a related party consist of unsecured convertible notes to United Breweries of America ("UBA") for a total value of $3,156,200 as of March 31, 2010, including interest at the prime rate plus 1.5%, but not to exceed 10% per year. The UBA notes are convertible into common stock at $1.50 per share. The UBA notes have been extended until June 2010. 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, 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. The UBA notes include $1,240,800 and $1,218,400 of accrued interest at March 31, 2010 and December 31, 2009, respectively.
5% Notes Payable
Notes payable also include an unsecured loan from Shepherd Neame Limited to UBSN payable in annual installments of $76,100 with interest at 5% per year maturing in June 2013. The amounts outstanding under this loan as of March 31, 2010 and December 31, 2009 were $273,300 and $291,000 respectively, including current maturities of $91,100 and $97,000 on those dates.
Capital Lease Obligations
The Company leases certain brewing equipment, vehicles and office equipment under agreements that are classified as capital leases. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of March 31, 2010, are as follows:
Nine months ending December 31, 2010 | $ | 116,700 | ||
Year ending December 31, 2011 | 110,600 | |||
Year ending December 31, 2012 | 63,600 | |||
290,900 | ||||
Less amounts representing interest | (32,100 | ) | ||
Present value of minimum lease payments | 258,800 | |||
Less current maturities | (134,100 | ) | ||
Non-current leases payable | $ | 124,700 |
7. Commitments and Contingencies
Legal
We are periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. We are not currently aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our financial position or results of operations.
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Operating Leases
We lease many of our operating and office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2015 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 us to pay executory costs (real estate taxes, insurance and repairs).
We and our 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 we intend to exercise, and some leases are adjusted annually for changes in the consumer price index. The leases begin expiring in 2010.
Nine Months ended December 31, 2010 | $ | 192,200 | ||
Year 2011 | 228,000 | |||
Year 2012 | 214,300 | |||
Year 2013 | 207,300 | |||
Year 2014 | 119,500 | |||
Thereafter | 7,800 | |||
$ | 969,100 |
Keg Management Agreement
In September 2009, we renewed the keg management agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar provides all kegs for which we pay a service fee depending on the applicable territory. The agreement is effective for five years ending in September 2014. If the agreement is terminated, we are required to purchase four times the average monthly keg usage for the preceding six-month period from MicroStar. We expect to continue this relationship.
8. Related-Party Transactions
We and our subsidiaries have entered into or amended several agreements with affiliated and related entities. Among these were 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, 2009.
The following table reflects the value of the transactions for the quarters ended March 31, 2010 and 2009 and the balances outstanding as of March 31, 2010 and 2009.
2010 | 2009 | |||||||
Sales to Shepherd Neame | $ | 1,786,400 | $ | 998,000 | ||||
Purchases from Shepherd Neame | $ | 3,759,900 | $ | 2,946,700 | ||||
Expense reimbursement to Shepherd Neame | $ | 200,100 | $ | 253,500 | ||||
Interest expense related to UBA convertible notes | $ | 22,400 | $ | 22,400 | ||||
Accounts payable to Shepherd Neame | $ | 4,938,000 | $ | 3,679,000 | ||||
Accounts receivable from Shepherd Neame | $ | 753,600 | $ | 859,300 |
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9. Stockholders' Equity
The following table summarizes equity transactions during the three months ended March 31, 2010.
Series A Preferred Stock | Common Stock | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Other Comprehensive Income / (Loss) | Accumulated Deficit | Total Equity | ||||||||||||||||||||||
Balance, December 31, 2009 | 227,600 | $ | 227,600 | 12,427,262 | $ | 15,043,300 | $ | 436,800 | $ | (13,360,000 | ) | $ | 2,347,700 | |||||||||||||||
Net loss | - | - | - | - | - | (417,300 | ) | (417,300 | ) | |||||||||||||||||||
Currency Translation Adjustment | - | - | - | - | 117,800 | - | 117,800 | |||||||||||||||||||||
Balance, March 31, 2010 | 227,600 | $ | 227,600 | 12,427,262 | $ | 15,043,300 | $ | 554,600 | $ | (13,777,300 | ) | $ | 2.048,200 |
Preferred Stock
Ten million shares of preferred stock have been authorized, of which 227,600 are designated as Series A. 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.
10. Equity Issuances
Valuation and Expense Information under SFAS 123(R)
There was no stock based compensation related to employee stock options for the three months ended March 31, 2010. During the three months ended March 31, 2009, the Company issued stock valued at $80,000 as directors' compensation. During the three months ended March 31, 2010 and 2009, the Company did not issue any stock options.
Our business presently consists of two segments. The first is brewing for wholesale to distributors and other retailers including beer for sale along with merchandise at the brewpub and retail merchandise store located at the Hopland brewery and at the Saratoga Springs brewery. The second consists of distributing alcoholic beverages to retail establishments and restaurants in the United Kingdom, Europe and Canada. A summary of each segment is as follows:
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Three months ended March 31, 2010 | ||||||||||||||||
Domestic Operations | Foreign Territory | Corporate & Others | Total | |||||||||||||
Net Sales | $ | 3,247,400 | $ | 5,187,700 | $ | - | $ | 8,435,100 | ||||||||
Operating Loss | $ | (58,700 | ) | $ | (230,400 | ) | $ | - | $ | (289,100 | ) | |||||
Identifiable Assets | $ | 12,640,300 | $ | 5,173,000 | $ | 2,242,800 | $ | 20,056,100 | ||||||||
Depreciation & Amortization | $ | 150,400 | $ | 118,900 | $ | - | $ | 269,300 | ||||||||
Capital Expenditures | $ | 15,500 | $ | 97,200 | $ | - | $ | 112,700 |
Three months ended March 31, 2009 | ||||||||||||||||
Domestic Operations | Foreign Territory | Corporate & Others | Total | |||||||||||||
Net Sales | $ | 3,171,800 | $ | 3,965,300 | $ | - | $ | 7,137,100 | ||||||||
Operating Loss | $ | (148,100 | ) | $ | (34,500 | ) | $ | - | $ | (182,600 | ) | |||||
Identifiable Assets | $ | 13,266,100 | $ | 5,720,700 | $ | 2,470,400 | $ | 21,457,200 | ||||||||
Depreciation & Amortization | $ | 147,500 | $ | 107,100 | $ | - | $ | 254,600 | ||||||||
Capital Expenditures | $ | 14,200 | $ | 65,800 | $ | - | $ | 80,000 |
12. Unrestricted Net Assets
Our wholly-owned subsidiary, UBIUK, has undistributed losses of approximately $1,595,900 as of March 31, 2010. Under UBSN's line of credit agreement with RBS, distributions and other payments to us from our subsidiary are not permitted if retained earnings drop below approximately $1,519,000. Condensed financial information of the parent company, Mendocino Brewing Company, Inc. together with its other subsidiary, Releta Brewing Company is as follows:
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March 31, 2010 | December 31, 2009 | |||||||
(unaudited) | (audited) | |||||||
Assets | ||||||||
Cash | $ | 52,900 | $ | 46,700 | ||||
Accounts receivable | 1,696,600 | 1,695,500 | ||||||
Inventories | 1,869,300 | 1,862,600 | ||||||
Other current assets | 153,500 | 161,400 | ||||||
Total current assets | 3,772,300 | 3,766,200 | ||||||
Investment in UBIUK | 1,225,000 | 1,225,000 | ||||||
Property and equipment | 10,771,000 | 10,889,600 | ||||||
Other assets | 339,800 | 335,800 | ||||||
Total assets | $ | 16,108,100 | $ | 16,216,600 | ||||
Liabilities and Stockholders' Equity | ||||||||
Line of credit | $ | 1,623,100 | $ | 1,562,900 | ||||
Accounts payable | 1,653,400 | 1,546,900 | ||||||
Accrued liabilities | 856,800 | 831,400 | ||||||
Current maturities of debt and leases | 378,700 | 381,500 | ||||||
Total current liabilities | 4,512,000 | 4,322,700 | ||||||
Intercompany payable to UBIUK | 209,800 | 275,100 | ||||||
Long-term debt and capital leases | 3,504,200 | 3,594,800 | ||||||
Notes payable to related party | 3,156,200 | 3,133,800 | ||||||
Total long-term liabilities | 6,870,200 | 7,003,700 | ||||||
Total liabilities | $ | 11,382,200 | $ | 11,326,400 | ||||
Stockholders' equity | ||||||||
Preferred stock | 227,600 | 227,600 | ||||||
Common stock | 15,043,300 | 15,043,300 | ||||||
Accumulated deficit | (10,545,000 | ) | (10,380,700 | ) | ||||
Total stockholders' equity | 4,725,900 | 4,890,200 | ||||||
Total liabilities and stockholders' equity | $ | 16,108,100 | $ | 16,216,600 |
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12. Unrestricted Net Assets (continued)
Statements of Operations | Quarter ended March 31 | |||||||
2010 | 2009 | |||||||
(unaudited) | (unaudited) | |||||||
Net sales | $ | 3,247,400 | $ | 3,171,800 | ||||
Cost of goods sold | 2,553,900 | 2,452,000 | ||||||
Selling, marketing, and retail expenses | 319,700 | 304,600 | ||||||
General and administrative expenses | 460,700 | 588,200 | ||||||
Income (loss) from operations | (86,900 | ) | (173,000 | ) | ||||
Other (income) and expense | (38,400 | ) | (45,300 | ) | ||||
Interest expense | 113,200 | 101,800 | ||||||
Provision for taxes | 2,600 | -- | ||||||
Net profit(loss) | $ | (164,300 | ) | $ | (229,500 | ) |
Statements of Cash Flows | Quarter ended March 31 | |||||||
2010 | 2009 | |||||||
(unaudited) | (unaudited) | |||||||
Cash flows from operating activities | $ | 120,200 | $ | 281,900 | ||||
Purchase of property and equipment | (15,500 | ) | (14,200 | ) | ||||
Proceeds from sale of fixed assets | -- | 9,300 | ||||||
Net borrowing (repayment) on line of credit | 60,200 | (66,900 | ) | |||||
Repayment on long term debt | (78,100 | ) | (76,300 | ) | ||||
Payment on obligation under capital lease | (15,300 | ) | (19,600 | ) | ||||
Net change in payable to UBI | (65,300 | ) | (68,600 | ) | ||||
Increase (decrease) in cash | 6,200 | 45,600 | ||||||
Cash, beginning of period | 46,700 | 105,400 | ||||||
Cash, end of period | $ | 52,900 | $ | 151,000 |
13. Income Taxes
In the three months ending March 31, 2010 and 2009, we only recorded tax expense related to state franchise taxes. We did not report any income tax expense due to the availability of deferred tax assets available to offset any taxable income in the United States and the United Kingdom. We have established a full valuation allowance against our deferred tax assets based on its assessment that it does not yet meet the criteria that deferred tax assets will more likely than not be realized. During the three months ending March 31, 2010 and 2009, our effective tax rates were de minimus. The difference between our effective tax rates and the 35% United States federal statutory tax rate and the United Kingdom's statutory tax rate resulted primarily from a tax benefit related to a reduction in the federal and state deferred tax asset valuation allowance.
Our major tax jurisdictions are (i) United States (federal), (ii) California (state), (iii) New York (state) and (iv) United Kingdom. Tax returns remain open to examination by the applicable governmental authorities for tax years 2005 through 2009. The federal and state taxing authorities may choose to audit tax returns for prior years due to significant tax attribute carryforwards for those prior years. However, such audits will be limited to adjustments to such carryforward tax attributes. We are not currently being audited in any major tax jurisdiction.
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14. Subsequent Events
The Company has evaluated and disclosed subsequent events through the date of this filing and is not aware of any other subsequent event that would have a material impact on the accompanying unaudited Condensed Consolidated Financial Statements.
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, financial condition and liquidity/cash flows of the Company for the three months ended March 31, 2010, compared to the three months ended March 31, 2009. 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, 2009.
In this Report, the terms "we", "us", "our", and "the Company" and its variants are 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.
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Critical Accounting Policies
There have been no significant changes in the Company's accounting policies during the three months ended March 31, 2010 compared to what was previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2009.
The process of preparing financial statements, in accordance with generally accepted accounting principles in the United States requires our management to make estimates and judgments regarding certain items and transactions. These judgments are based on historical experience, current economic and industry trends, information provided by outside sources, and management estimates. It is possible that materially different amounts could be recorded if these estimates and judgments change or if our actual results differ from these estimates and judgments. We consider the following to be our most significant critical accounting policies which involve the judgment of our management.
Revenue Recognition
We recognize revenue from sales upon the transfer of title for the goods. We classify amounts billed to customers for shipping and handling as revenues, with the related shipping and handling costs included in cost of goods sold.
We account for cash consideration paid to customers for services or product placement fees as a reduction in revenue rather than as an expense.
Inventories
Consolidated inventories are stated at the lower of cost or market. On a quarterly basis, we evaluate the carrying costs of our inventory to ensure that it is stated at the lower of cost or market. Our products are typically not subject to obsolescence and consequently our reserves for slow moving and obsolete inventory have historically been zero. Cash flows from the sale of inventory are reported in cash flows from operations in our consolidated statement of cash flows.
Income Taxes
We conduct operations in separate legal entities which are located in different tax jurisdictions; as a result, income tax amounts are reflected in our consolidated financial statements for each of such tax jurisdictions.
We record net operating losses and credit carryforwards in the event we expect such benefits to be realized. Deferred taxes result from differences between the financial and tax bases of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. We record valuation allowances to reduce our deferred tax assets when it is more likely than not that a tax benefit will not be realized.
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making our assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of our existing valuation allowances.
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Segment Information
Prior to 2001, the Company's business operations were exclusively located in the United States, and were 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 "Foreign Territory"). This segment accounted for 54% and 60% of the Company's gross sales during the first quarter of 2010 and 2009 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 46% and 40% during the first quarter of 2010 and 2009, 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.
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 Foreign 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 Foreign Territory the fourth quarter has generated stronger 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 quarter of 2010 with a net loss of $417,300, as compared to a net loss of $292,300 for the same period in 2009. As set forth more fully under "Results of Operations," below, during the first quarter of 2010 the Company experienced an increase in net sales of $1,298,000 as compared to the first quarter of 2009. Costs of goods sold increased by $916,200, operating expenses increased by $488,300, and interest expenses increased by $9,900, all of which contributed to the Company's results for the period.
Results of Operations
Net Sales
Overall net sales for the first quarter of 2010 were $8,435,100, an increase of $1,298,000, or 18%, compared to $7,137,100 for the first quarter of 2009.
Domestic Operations. Domestic net sales for first quarter of 2010 were $3,247,400 compared to $3,171,800 for the same period in 2009, an increase of $75,600, or 2%. The sales volume increased to 16,100 barrels in the first quarter of 2010 from 15,700 barrels in the first quarter of 2009, representing an increase of 400 barrels, or 3%. Of the numerical barrel increase, sales of our brands increased by 1,000 barrels, Kingfisher sales increased by 300 barrels and sales of contract brands decreased by 900 barrels.
Foreign Territory: Net sales for the first quarter of 2010 were $5,187,700 (£ 3,323,100) compared to $3,965,300 (£ 2,763,100) during the corresponding period of 2009, an increase of $1,222,400, or 31% due to increase in sales volume and the impact of the currency exchange rate. During the first quarter of 2010, UBSN sold 17,400 barrels compared to 14,700 barrels during the first quarter of 2009, an increase of 2,700 barrels or 18%. If measured on a constant exchange rate basis, net sales for the first quarter of 2010 would have increased 20% from the first quarter of 2009.
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Cost of Goods Sold
Cost of goods sold as a percentage of net sales during the first quarter of both 2010 and 2009 was 75%.
Domestic Operations: Cost of goods sold as a percentage of net sales in the Domestic Territory during the first quarter of 2010 was 78%, as compared to 77%, during the corresponding period of 2009.
Foreign Territory: Cost of goods sold as a percentage of net sales in the Foreign Territory during the first quarter of 2010 was 73%, as compared to 74% during the corresponding period of 2009 (in each case as calculated in US dollars, after taking into account the effects of the exchange rate calculation).
Gross Profit
As a result of increase in net sales described above, gross profit for the first quarter of 2010 increased to $2,145,100 compared to $1,763,300 during the corresponding period of 2009. As a percentage of net sales, gross profit during the first quarter of both 2010 and 2009 remained at 25%.
Operating Expenses
Operating expenses for the first quarter of 2010 were $2,434,200, an increase of $488,300, or 25%, as compared to $1,945,900 for the corresponding period of the year 2009. 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 quarter of 2010 were $1,405,300, as compared to $984,200 for the first quarter of 2009, representing an increase of $421,100 or 43%. These expenses were 17% and 14% of net sales for the first quarter of the years 2010 and 2009, respectively.
Domestic Operations: Expenses for the first quarter of 2010 were $319,700 compared to $304,600 during the corresponding period of 2009, representing an increase of $15,100 or 5%. As a percentage of net sales in the Domestic Territory, the expenses were 10% during the first quarter of 2010 compared to 9% during the first quarter of 2009.
Foreign Territory: Expenses for the first quarter of 2010 were $1,085,600 compared to $679,600 during the corresponding period of 2009, representing an increase of $406,000 or 60%. The increases were mainly due to increased manpower, increased commission on sales associated with increased sales to supermarkets and convenience stores and onetime cost related to a media campaign in London and the surrounding commuter environs. As a percentage of net sales in the United Kingdom, the expenses were 21% and 17% during the first quarter of 2010 and 2009 respectively (in each case as calculated in US dollars, after taking into account the effects of the exchange rate calculation).
General and Administrative Expenses: The Company's general and administrative expenses were $1,028,900 for the first quarter of 2010 compared to $961,700 for the corresponding period in 2009. As a percentage of net sales, these expenses decreased to 12% during the first quarter of the year 2010 compared to 14% for the first quarter of the year 2009.
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Domestic Operations. Domestic general and administrative expenses increased to $460,700 for the first quarter of 2010 representing a decrease of $127,500 or 22% compared to $588,200 for the first quarter of 2009. In the first quarter of the year 2009, there was a onetime issuance of common stock as compensation to the outside members of the Board of Directors for their services and legal and professional costs related to our capital raising efforts. As a percentage of net sales in the Domestic Territory, expenses decreased to 14% during the first quarter of 2010 compared to 19% during the first quarter of 2009.
Foreign Territory. General and administrative expenses related to the Foreign Territory were $568,200 for the first quarter of 2010, representing an increase of $194,700, or 52%, as compared to $373,500 for the first quarter of 2009 (in each case as calculated in US dollars, after taking into account the effects of the exchange rate calculation). The increases were mainly due to the salary of the Chief Executive Officer appointed during the fourth quarter of 2009 and onetime professional costs associated with the strategic review that was carried out on the pricing, staffing and market research of the business. As a percentage of net sales in the Foreign Territory, the expenses were 11% during the first quarter of 2010 compared to 10% during the first quarter of 2009.
Other Expenses
Other expenses for the first quarter of 2010 totaled $125,600, representing an increase of $15,900 or 15% when compared to other expenses of $109,700 for the first quarter of the year 2009 mainly due to increase in interest expenses as a result of an increased interest rate of our domestic debts.
Income Taxes
The Company recorded a provision of $2,600 for income taxes associated with its domestic operations during the first quarter of 2010.
Net Loss
The Company's net loss for the first quarter of 2010 was $417,300, as compared to a net loss of $292,300 for the first quarter of 2009. After providing for a positive foreign currency translation adjustment of $117,800 during the first quarter of 2010 (as compared to $11,700 for the same period in 2009), the comprehensive loss for the first quarter of 2010 was $299,500, compared to $280,600 for the same period in 2009.
LIQUIDITY AND CAPITAL RESOURCES
Unused capacity at our Ukiah and Saratoga Springs facilities has continued to place demands on our 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 us with sufficient working capital.
We are a party to several loans, lines of credit, other credit facilities and lease agreements (collectively, "Indebtedness"). Certain of the agreements governing our Indebtedness contain cross-default provisions which may cause an event of default under one agreement to result in an event of default under a separate agreement. In addition, certain of the agreements governing our Indebtedness contain provisions pursuant to which a material adverse change in our financial condition may result in an event of default under such agreements. In case of an event of default, the agreements provide the lenders with several rights and remedies, including, but not limited to, acceleration and termination of the facility, implementation of default interest rates, and secured party rights with respect to the collateral (including the power to sell such collateral). Substantially all of our assets, including the real property in Ukiah, are pledged as collateral pursuant to the terms of the agreements governing our Indebtedness. (The agreements relating to our Indebtedness are described in more detail below under "Description of Our Indebtedness", "Long-Term Debt" and "Other Loans and Credit Facilities".)
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On May 8, 2009, we received written notice (the "Notice") from Marquette Business Credit, Inc. ("Marquette") that as of March 31, 2009 an event of default had occurred and was continuing under the loan and security agreement by and among Marquette (as lender) and MBC and Releta (as borrowers) dated November 16, 2006 (the "Loan Agreement") which covers our revolving line of credit, term loan and capex loan with Marquette. As of the date of this filing, Marquette has elected to implement the default interest rates provided for under the Loan Agreement which impacts the applicable interest rates on the revolving line of credit, term loan and capex loan with retroactive effect from and after April 1, 2009. Although Marquette indicated in the Notice that it would not be asserting its additional rights and remedies as of the date of the Notice, it reserved the right to exercise its additional rights and remedies at any time in the future. (For additional information relating to the event of default under the Marquette Loan Agreement see "Description of Our Indebtedness Marquette Business Credit, Inc. Facility" below.)
As of the date of this filing, we have not received notice from any of our other lenders of the occurrence of an event of default under the agreements governing our remaining Indebtedness, and to the knowledge of our Management no additional events of default currently exist under any other agreements relating to our Indebtedness. We are currently making timely payments of principal and interest relating to our Indebtedness as such Indebtedness becomes due and anticipate that we will continue to make such timely payments in the immediate future. However, if we fail to maintain any of the financial covenants under the various agreements governing our Indebtedness, fail to make timely payments of amounts due under our Indebtedness, or commit any other breach resulting in an event of default under the agreements governing our Indebtedness, such events of default (including cross-defaults) could have a material adverse effect on our financial condition. In case of the acceleration and termination of our existing Indebtedness, we may need to obtain replacement financing. If we are unable to obtain such replacement financing, it may result in a material adverse effect on our financial condition and our ability to continue operations. In addition, actions available to secured parties relating to our assets that have been pledged as collateral could have a material adverse effect on our financial conditions and operations.
Management has taken several actions to ensure that the Company will have sufficient cash for its working capital needs through March 31, 2011, including reductions in discretionary expenditures, optimizing prices and discounts to increase margin, introduction of new products, new packaging and securing additional brewing contracts. In addition, our majority shareholder issued a letter of support to provide financial assistance when required. We may also seek additional capital infusions to support operations. Management believes that these actions will enable us to meet our working capital needs through March 31, 2011.
As of March 31, 2010, we had cash and cash equivalents of $167,600, a working capital deficit of $3,636,400 and an accumulated deficit of $13,777,300. Additionally, we have a history of past losses as infrastructure costs were incurred in advance of obtaining customers. As discussed above, on March 31, 2010, we were in default on two of the financial covenants in our secured credit facility with Marquette. This violation has resulted in a higher rate of interest until the violation is cured.
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Net cash provided by operating activities for the three months ended March 31, 2010 was $826,100, compared to $374,000 for the three months ended March 31, 2009. We generally do not require significant cash on hand to meet our operating needs.
Net cash used in investing activities totaled approximately $112,700 for the three months ended March 31, 2010 compared to $70,700 for the corresponding period of 2009. Net cash used for investing activities consists of purchases of capital assets.
Net cash used in financing activities totaled approximately $696,600 during the three months ended March 31, 2010, compared to $316,200 during the corresponding period of 2009. For the three months ended March 31, 2010, net cash used in financing activities principally consisted of temporary reduction in use of revolving line of credit, debt payments and lease installments.
DESCRIPTION OF OUR INDEBTEDNESS:
Marquette Business Credit Line of Credit
In November 2006, Marquette provided a line of credit drawable up to 85% of eligible receivables and 60% of eligible inventory which terminates in 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 Releta's eligible inventory located in the US. This facility accrues interest at a rate of one-month LIBOR plus 4.25% and is secured by substantially all of the assets, excluding the real property of Releta and MBC. On May 8, 2009, we received notification from Marquette of an event of default under the Loan Agreement, as a result of which Marquette has increased the interest rate under the facility to the default rate with retroactive effect from and after April 1, 2009. (For additional information see "Marquette Business Credit Inc. Facility".)
Master Line of Credit. On August 31, 1999, MBC and United Breweries of America, Inc. ("UBA"), one of our 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 us with a line of credit with a principal amount of up to $1,600,000. As of the date of this filing, UBA has made thirteen (13) separate advances to us 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 us to UBA (the "UBA Notes"). UBA has executed an Extension of Term of Notes under Master Line of Credit Agreement (the "Extension Agreement"). The Extension Agreement confirms UBA's extension of the terms of the UBA Notes for a period ending on June 30, 2010. The aggregate outstanding principal amount of the UBA Notes as of March 31, 2010 was $1,915,400, and the accrued but unpaid interest thereon was equal to approximately $1,240,800, for a total amount outstanding of $3,156,200.
The outstanding principal amount of the notes and the unpaid interest thereon may be converted, at UBA's discretion, into shares of our unregistered Common Stock at a conversion rate of $1.50 per share. As of March 31, 2010, the outstanding principal and interest on the notes was convertible into approximately 2,104,100 shares of our Common Stock. On December 28, 2001, we entered into a Confirmation of Waiver with UBA which confirmed 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 us to make quarterly interest payments to UBA on the first day of April, July, October, and January. To date, UBA has permitted us to capitalize all accrued interest; therefore, we have borrowed the maximum amount available under the facility. Upon maturity of any of the UBA Notes, unless UBA has given us 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 our common stock. If UBA does not elect to so convert any UBA Notes upon maturity, it has the option to extend the terms of the UBA Notes for any period of time mutually agreed upon by UBA and us. During the extended term of the UBA Notes, UBA has the right to require us to repay the outstanding principal balance, along with the accrued and unpaid interest thereon, to UBA within sixty (60) days.
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The UBA Notes are subordinated to credit facilities extended to us by Grand Pacific Financing Corporation and Marquette Business Credit 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 facilities are repaid in full. Therefore, we do not expect to make payments on any of the UBA Notes within the next year.
LONG TERM DEBT:
Grand Pacific Financing Corporation Loan: On July 3, 2006, we obtained a $3.0 million loan from Grand Pacific Financing Corporation ("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 $27,261 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. We used the proceeds of the loan to repay in full all the then outstanding loans owed to Savings Bank of Mendocino County. 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 when they become due.
Marquette Business Credit Inc. Facility: In November, 2006, Marquette 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 the rate of interest 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 our property in Ukiah, California.
On May 8, 2009, we received written notice (the "Notice") from Marquette that an event of default had occurred and was continuing under that certain Loan and Security Agreement, dated as of November 16, 2006 by and among us and our subsidiary Releta Brewing Company, LLC (as borrowers) and Marquette (as lender) (the "Loan Agreement") relating to a revolving loan, a term loan and a capex loan provided by Marquette to us.
Specifically, the event of default was triggered by our failure to remain in compliance with a financial covenant in the Loan Agreement relating to the maintenance of a fixed charge coverage ratio of at least 1.05 to 1.0 for the period of twelve consecutive calendar months ending on March 31, 2009.
In addition, the Company has failed to maintain the net worth required by a covenant in the Loan Agreement.
As of May 14, 2009, Marquette has elected to assess the default interest rates under the Loan Agreement; these rates are as follows: (i) for the revolving loan, LIBOR plus 7.125% per annum and (ii) for the capex loan, the term loan and any other obligations owed by us to Marquette, LIBOR plus 8.125% per annum. The default interest rates will apply to the outstanding balances under the respective loans with retroactive effect from and after April 1, 2009.
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Pursuant to the terms of the Loan Agreement, in case of an event of default, Marquette is also entitled in its sole and absolute discretion to (i) terminate its commitment to us to make loans under the Loan Agreement, (ii) to declare all outstanding amounts due under the Loan Agreement immediately due and payable and/or (iii) exercise any or all other rights and remedies available to it under the Loan Agreement or applicable law. To date, Marquette has not exercised such additional rights. However, Marquette has not waived its rights to pursue such remedies in the future. Notwithstanding the failure to maintain the fixed charge coverage ratio, we have to date made every scheduled payment of principal and interest under the Loan Agreement.
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 on April 26, 2005. This facility originally had a maturity of twelve months, but has been automatically extended and will continue in place unless terminated by either party upon six months' written notice.
Shepherd Neame Loan: Shepherd Neame has a contract with UBSN to brew Kingfisher Premium Lager for the our European and Canadian markets. As consideration for extending the brewing contract, Shepherd Neame advanced a loan of £600,000 to UBSN, repayable in annual installments of £60,000 per year, commencing in June 2003. The loan carries a fixed interest rate of 5% per year.
Weighted Average Interest: The weighted average interest rates paid on our US debts was 6% for the first quarter of 2010 and 5.6% for the corresponding period in 2009. For loans primarily associated with our Foreign territory, the weighted average rate paid was 2.8% for the first quarter of 2010 and 5.0% for the corresponding period in 2009.
Keg Management Arrangement: Effective September 1, 2009, we entered into a five-year keg management agreement with MicroStar Keg Management, LLC ("MicoStar"). Under this arrangement, MicroStar provides us with half-barrel kegs for which we pay filling and usage fees. Distributors return the kegs directly to MicroStar. MicroStar then supplies us with additional kegs. If the agreement is not extended and terminates, we are required to purchase a certain number of kegs from MicroStar. We anticipate that we would finance such purchase through debt or lease financing, if available. However, there can be no assurance that we will be able to finance the purchase of the required kegs. Our failure to purchase the required kegs from MicroStar upon termination of the agreement would likely have a material adverse effect on our operations.
Current Ratio: Our ratio of current assets to current liabilities on March 31, 2010 was 0.7 to 1.0 and its ratio of total assets to total liabilities was 1.1 to 1.0. Our ratio of current assets to current liabilities on March 31, 2009 was 0.8 to 1.0 and its ratio of total assets to total liabilities was 1.2 to 1.0.
Restricted Net Assets: The Company's wholly-owned subsidiary, UBIUK, has undistributed losses of approximately $1,595,900 as of March 31, 2010.
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 $1,519,000.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting company.
Item 4. Controls and Procedures
Evaluation Of Disclosure Controls And Procedures
Our Management team, under the supervision and with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the last day of the quarter ended March 31, 2010. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our chief executive officer and our chief financial officer concluded that, our disclosure controls and procedures were effective as of March 31, 2010.
Changes In Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter (the three months ending March 31, 2010) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II
OTHER INFORMATION
Item 3. Default Upon Senior Securities
An event of default has occurred and is continuing under the Loan and Security Agreement by and among Marquette Business Credit, Inc., MBC and Releta. Marquette is currently charging a default interest rate. All scheduled payments of principal and interest have been made. For additional information, see Item 2 of Part I.
Item 6. | Exhibits |
Exhibit Number | Description of Document | |
3.1 | (T) | Articles of Incorporation of the Company, as amended. |
3.2 | (T) | Bylaws of the Company, as amended. |
10.1 | [Intentionally omitted] | |
10.2 | [Intentionally omitted] | |
10.3 | (A) | Wholesale Distribution Agreement between the Company and Bay Area Distributing. |
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Exhibit Number | Description of Document | |
10.4 | [Intentionally omitted] | |
10.5 | (B) | Liquid Sediment Removal Services Agreement with Cold Creek Compost, Inc. |
10.6 | [Intentionally omitted] | |
10.7 | (C) | Commercial Real Estate Purchase Contract and Receipt for Deposit (previously filed as Exhibit 19.2). |
10.8 | (D) | [Intentionally omitted] |
10.9 | [Intentionally omitted] | |
10.10 | [Intentionally omitted] | |
10.11 | (G) | Agreement to Implement Condition of Approval No. 37 of the Site Development Permit 95-19 with the City of Ukiah, California (previously filed as Exhibit 19.6). |
10.12 | [Intentionally omitted] | |
10.13 | [Intentionally omitted] | |
10.14 | [Intentionally omitted] | |
10.15 | [Intentionally omitted] | |
10.16 | [Intentionally omitted] | |
10.17 | [Intentionally omitted] | |
10.18 | [Intentionally omitted] | |
10.19 | (K) | Investment Agreement with United Breweries of America, Inc. |
10.20 | [Intentionally omitted] | |
10.21 | [Intentionally omitted] | |
10.22 | (L) | Indemnification Agreement with Vijay Mallya. |
10.23 | (L) | Indemnification Agreement with Michael Laybourn. |
10.24 | (L) | Indemnification Agreement with Jerome Merchant. |
10.25 | (L) | Indemnification Agreement with Yashpal Singh. |
10.27 | (L) | Indemnification Agreement with Robert Neame. |
10.28 | (L) | Indemnification Agreement with Sury Rao Palamand. |
10.29 | (L) | Indemnification Agreement with Kent Price. |
10.30 | [Intentionally omitted] | |
10.31 | [Intentionally omitted] | |
10.32 | [Intentionally omitted] | |
10.33 | [Intentionally omitted] | |
10.35 | (O) | Master Line of Credit Agreement between the Company and United Breweries of America Inc. dated August 31, 1999. |
10.36 | (O) | Convertible Note in favor of United Breweries of America Inc. dated September 7, 1999. |
10.37 | (P) | Convertible Note in favor of United Breweries of America Inc. dated October 21, 1999. |
10.38 | (P) | Convertible Note in favor of United Breweries of America Inc. dated November 12, 1999. |
10.39 | (P) | Convertible Note in favor of United Breweries of America Inc. dated December 17, 1999. |
10.40 | (P) | Convertible Note in favor of United Breweries of America Inc. dated December 31, 1999. |
10.41 | (P) | Convertible Note in favor of United Breweries of America Inc. dated February 16, 2000. |
10.42 | (P) | Convertible Note in favor of United Breweries of America Inc. dated February 17, 2000. |
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Exhibit Number | Description of Document | |
10.43 | (P) | Convertible Note in favor of United Breweries of America Inc. dated April 28, 2000. |
10.44 | (P) | First Amendment to Master Line of Credit Agreement between the Company and United Breweries of America Inc. dated April 28, 2000. |
10.45 | (Q) | Convertible Note in favor of United Breweries of America Inc. dated September 11, 2000. |
10.46 | (Q) | Convertible Note in favor of United Breweries of America Inc. dated September 30, 2000. |
10.47 | (Q) | Convertible Note in favor of United Breweries of America Inc. dated December 31, 2000. |
10.48 | (Q) | Convertible Note in favor of United Breweries of America Inc. dated February 12, 2001. |
10.49 | (R) | Convertible Note in favor of United Breweries of America Inc. dated July 1, 2001. |
10.50 | (S) | Confirmation of Waiver Between Mendocino Brewing Company, Inc. and United Breweries of America Inc. dated as of December 28, 2001. |
10.51 | (S) | Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America Inc., dated February 14, 2002. |
10.52 | (T) | License Agreement between United Breweries Limited and United Breweries International (U.K.), Limited. |
10.53 | (T) | Supplemental Agreement to License Agreement between United Breweries Limited and United Breweries International (U.K.), Limited. |
10.54 | (T) | Distribution Agreement between United Breweries International (U.K.), Limited and UBSN, Ltd. |
10.55 | (T) | Supplemental Agreement to Distribution Agreement between United Breweries International (U.K.), Limited and UBSN, Ltd. |
10.56 | (T) | Market Development, General and Administrative Services Agreement between Mendocino Brewing Company, Inc. and UBSN, Ltd. |
10.57 | (T) | Contract to Brew and Supply Kingfisher Products among Shepherd Neame, Limited, United Breweries International (U.K.), Limited and UBSN, Ltd. |
10.58 | (T) | Supplemental Agreement to Contract to Brew and Supply Kingfisher Products among Shepherd Neame, Limited, United Breweries International (U.K.), Limited. and UBSN, Ltd. |
10.59 | (T) | Loan Agreement between Shepherd Neame, Limited and UBSN, Ltd. |
10.60 | (T) | Brewing License Agreement between UBSN, Ltd. and Mendocino Brewing Company, Inc. |
10.61 | (T) | Kingfisher Trade Mark and Trade Name License Agreement between Kingfisher of America, Inc. and Mendocino Brewing Company, Inc. |
10.62 | (U) | First Amendment to Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America Inc. dated November 13, 2002. |
10.63 | (U) | Second Amendment to Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America Inc. dated March 31, 2003. |
10.64 | [Intentionally omitted] | |
10.65 | [Intentionally omitted] | |
10.66 | (W) | Third Amendment to Extension of Term of Notes under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America Inc. dated August 14, 2003. |
10.67 | [Intentionally omitted] |
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Exhibit Number | Description of Document | |
10.68 | (X) | Fourth Amendment to Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America Inc. dated as of August 14, 2004. |
10.69 | [Intentionally omitted] | |
10.70 | (Z) | Second Agreement dated October 9, 1998 between UBSN, Ltd. and Shepherd Neame, Ltd. |
10.71 | [Intentionally omitted] | |
10.72 | [Intentionally omitted] | |
10.73 | [Intentionally omitted] | |
10.74 | (BB) | Convertible Promissory Note of Mendocino Brewing Company, Inc. in favor of United Breweries of America Inc. dated March 2, 2005. |
10.75 | [Intentionally omitted] | |
10.76 | (DD) | Invoice Discounting Agreement between The Royal Bank of Scotland Commercial Services Limited and UBSN Limited, dated April 26, 2005. |
10.77 | [Intentionally omitted] | |
10.78 | [Intentionally omitted] | |
10.79 | (EE) | Loan Agreement by and between Mendocino Brewing Company, Inc. and Grand Pacific Financing Corporation dated June 28, 2006. |
10.80 | (EE) | Promissory Note of Mendocino Brewing Company, Inc. in favor of Grand Pacific Financing Corporation, dated June 28, 2006. |
10.81 | [Intentionally omitted] | |
10.82 | (FF) | Loan and Security Agreement by and among Marquette Business Credit Inc. and Mendocino Brewing Company, Inc. and Releta Brewing Company, LLC, dated November 16, 2006. |
10.83 | (FF) | Revolving Note of Mendocino Brewing Company, Inc. and Releta Brewing Company, LLC in favor of Marquette Business Credit Inc., dated November 16, 2006. |
10.84 | (FF) | Term Note of Mendocino Brewing Company, Inc. and Releta Brewing Company, LLC in favor of Marquette Business Credit Inc., dated November 16, 2006. |
10.85 | (FF) | CAPEX Note of Mendocino Brewing Company, Inc. and Releta Brewing Company, LLC in favor of Marquette Business Credit Inc., dated November 16, 2006. |
10.86 | (FF) | Fifth Amendment to Extension of Term of Notes Under Master Line of Credit Agreement, effective August 31, 2005. |
10.87 | (FF) | Sixth Amendment to Extension of Term of Notes under Master Line of Credit Agreement, effective December 31, 2006. |
10.88 | (FF) | Second Amendment to Convertible Promissory Note, effective December 31, 2006. |
10.89 | (GG) | Seventh Amendment to Extension of Term of Notes under Master Line of Credit Agreement, effective June 30, 2007 |
10.90 | (GG) | Third Amendment to Convertible Promissory Note, effective June 30, 2007 |
10.91 | (HH) | Employment Agreement of Yashpal Singh (Management Contract) |
10.92 | [II] | Eighth Amendment to Extension of Term of Notes under Master Line of Credit Agreement, effective June 30, 2008. |
10.93 | (II) | Fourth Amendment to Convertible Promissory Note, effective June 30, 2008. |
10.94 | (JJ) | Directors' Compensation Plan, as amended (Management Contract) |
10.95 | (KK) | Ninth Amendment to Extension of Term Notes under Master Line of Credit Agreement, effective June 30, 2009. |
10.96 | (KK) | Fifth Amendment to Convertible Promissory Notes, effective June 30, 2009. |
10.97 | (LL) | Separation and Severance Agreement by and between the Company and Yashpal Singh, effective August 27, 2009 (Management Contract). |
10.98† | (MM) | Keg Management Agreement by and between MicroStar Keg Management, LLC and the Company effective September 1, 2009. |
14.1 | (V) | Code of Ethics |
† Certain portions have been omitted and have been filed separately with the SEC pursuant to a request for confidential treatment under Rule 24b-2 as promulgated under the Securities Exchange Act of 1934.
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NOTES: Each Exhibit listed above that is annotated with one or more of the following letters is incorporated by reference from the following sources:
(A) | The Company's Registration Statement dated June 15, 1994, as amended, previously filed with the Commission, Registration No. 33-78390-LA. |
(B) | The Company's Annual Report on Form 10-KSB for the period ended December 31, 1995. |
(C) | The Company's Quarterly Report on Form 10-QSB for the period ended March 31, 1995. |
(D) | The Company's Quarterly Report on Form 10-QSB/A No. 1 for the period ended September 30, 1997. |
(F) | The Company's Annual Report on Form 10-KSB for the period ended December 31, 1996. |
(G) | The Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1995. |
(I) | The Company's Annual Report on Form 10-KSB for the period ended December 31, 1997. |
(K) | Schedule 13D filed November 3, 1997, by United Breweries of America, Inc. and Vijay Mallya. |
(L) | The Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1998. |
(N) | The Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1999. |
(O) | Amendment No. 5 to Schedule 13D filed September 15, 1999, by United Breweries of America, Inc. and Vijay Mallya. |
(P) | Amendment No. 6 to Schedule 13D filed May 12, 2000, by United Breweries of America, Inc. and Vijay Mallya. |
(Q) | Amendment No. 7 to Schedule 13D filed February 22, 2001, by United Breweries of America, Inc. and Vijay Mallya. |
(R) | Amendment No. 8 to Schedule 13D filed August 22, 2001, by United Breweries of America, Inc and Vijay Mallya. |
(S) | The Company's Current Report on Form 8-K filed as of February 19, 2002. |
(T) | The Company's Annual Report on Form 10-KSB for the period ended December 31, 2001. |
(U) | Amendment No. 9 to Schedule 13D filed March 31, 2003, by United Breweries of America, Inc. and Vijay Mallya. |
(V) | The Company's Annual Report on Form 10-KSB for the year ended December 31, 2003. |
(W) | Amendment No. 10 to Schedule 13D filed August 18, 2003 by United Breweries of America, Inc. and Dr. Vijay Mallya. |
(X) | Amendment No. 11 to Schedule 13D, jointly filed by United Breweries of America, Inc. and Dr. Vijay Mallya on August 16, 2004. |
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(Z) | The Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004. |
(BB) | The Company's Current Report on Form 8-K filed as of March 8, 2005. |
(DD) | The Company's Quarterly Report on Form 10-Q for the period ended June 30, 2005. |
(EE) | The Company's Quarterly Report on Form 10-Q for the period ended June 30, 2006. |
(FF) | The Company's Annual Report on Form 10-K for the year ended December 31, 2006. |
(GG) | The Company's Quarterly Report on Form 10Q for the period ended June 30, 2007. |
(HH) | The Company's Annual Report on Form 10-QK/A for the period ended December 31, 2007. |
(II) | The Company's Quarterly Report on Form 10-Q for the period ended September 30, 2008. |
(JJ) | The Company's Annual Report on Form 10-K for the year ended December 31, 2008. |
(KK) | The Company's Quarterly Report on Form 10-Q for the period ended June 30, 2009. |
(LL) | The Company's Current Report on Form 8-K filed as of August 31, 2009. |
(MM) | The Company's Quarterly Report on Form 10-Q for the period ended September 30, 2009. |
(NN) | The Company's Annual Report on Form 10-K for the year ended December 31, 2009. |
(b) | Exhibits Attached The following Exhibits are attached to this Quarterly Report on Form 10-Q: |
10.99 | Commercial Lease between Stewart's Shop Corporation and Releta Brewing Company LLC. |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |
32.1 | Certification of Chief Executive Officer Pursuant to U.S.C. 1350. |
32.2 | Certification of Chief Financial Officer Pursuant to U.S.C. 1350. |
(c) Excluded Financial Statements. None.
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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: May 14, 2010 | By: | /s/ Yashpal Singh | |
Yashpal Singh | |||
President and Chief Executive Officer | |||
Company Name | |||
Dated: May 14, 2010 | By: | /s/ Mahadevan Narayanan | |
Mahadevan Narayanan | |||
Chief Financial Officer and Secretary | |||
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