Mail Stop 3561
July 7, 2005
Mr. Yashpal Singh
Chief Executive Officer
Mendocino Brewing Company, Inc.
1601 Airport Road
Ukiah, CA 95482
RE: Mendocino Brewing Company, Inc.
Form 10-K for Fiscal Year Ended
December 31, 2004
Filed May 13, 2005
Form 10-Q for Fiscal Quarter Ended
March 31, 2005
File No. 001-13636
Dear Mr. Singh:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and do not intend to expand our review to
other
portions of your documents. Where indicated, we think you should
revise your filings in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with information so we may better understand
your
disclosure. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for Fiscal Year Ended December 31, 2004
Consolidated Balance Sheets, page F-2
1. Please tell us your basis in GAAP for classifying as non-
current
the subordinated notes due to related party that mature in August
2005. We note your disclosure that the notes are classified as
long-term because they are subordinated in right to other long-
term
debt outstanding; however, we do not believe that this alone is
sufficient justification for classifying as non-current notes that
become payable within one year of the balance sheet date. Please
advise.
Consolidated Statements of Operations and Comprehensive Income,
page
F-3
2. Please tell us your basis for classifying your legal dispute
settlement as a non-operating expense. In this regard, we note
that
unless Rule 5-03.9 of Regulation S-X expressly permits
classification
of an item as non-operating, the presumption is that the item
should
be classified as an operating item. Thus, absent compelling
evidence
that your legal dispute was unrelated to transactions made during
the
ordinary course of your operations, we believe the settlement
expense
should be classified in operating income. If you continue to
believe
that your current income statement classification is appropriate,
please advise us in detail as to the basis for your position.
Otherwise please tell us how you intend to revise your filing
accordingly.
Notes to Consolidated Financial Statements, page F-6
Note 1 - Description of Operations and Summary of Significant
Accounting Policies, page F-6
Concentration of Credit Risks, page F-6
3. You indicate that certain of your cash is restricted for use as
collateral for a note payable. Please tell us where this
restricted
cash is presented on your balance sheet and in your statement of
cash
flows. In this connection, please note that restricted cash
should
be presented apart from cash and cash equivalents on the face of
the
balance sheet and likewise should not be included in the cash and
cash equivalents total in the statement of cash flows. If you now
believe that your financial statement presentation of restricted
cash
is inappropriate, please tell us how you plan to revise your
financial statements accordingly.
Revenue Recognition, page F-7
4. Please disclose whether you offer sales incentives or rebates,
pay
slotting fees, engage in cooperative advertising programs, have
buydown programs, or make other payments to resellers or
customers.
Also disclose your accounting policy for each of these types of
arrangements, as applicable, including the statement of operations
line item that each type of arrangement is included in. For each
type of arrangement treated as an expense rather than as a
reduction
of revenues, please tell us how this type of arrangement meets the
requirements in EITF 01-9. Please also discuss in MD&A any
significant estimates resulting from these arrangements.
Item 9A. Controls and Procedures, page 28
5. Please revise your disclosures regarding your principal
executive
and financial officers` conclusion as to the effectiveness of your
disclosure controls and procedures to ensure it encompasses the
entire definition of disclosure controls and procedures in
Exchange
Act Rules 13a-15(e) and 15d-15(e). Your current disclosure does
not
achieve this objective. Also confirm to us that your disclosures
regarding the effectiveness of your disclosure controls and
procedures are still accurate considering the entire definition of
disclosure controls and procedures, or otherwise amend this Form
10-K
and/or your March 31, 2005 Form 10-Q accordingly.
6. You state that there were no "significant changes" in your
"internal controls" or in other factors that could "significantly
affect" these controls "subsequent to the date of the evaluation
thereof." However, Item 308(c) of Regulation S-K requires that
you
disclose any change in your "internal control over financial
reporting" identified in connection with the evaluation required
by
paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred
during the most recent fiscal quarter that has "materially
affected,
or is reasonably likely to materially affect, the registrant`s
internal control over financial reporting." Please revise your
disclosure accordingly. Please also confirm to us that there were
no
changes in your internal control over financial reporting during
the
quarters ended December 31, 2004 and March 31, 2005, or otherwise
amend your filings to disclose the changes.
Form 10-Q for Fiscal Quarter Ended March 31, 2005
Item 4. Controls and Procedures, page 21
7. We note that your certifying officers disclose their
conclusions
as to the effectiveness of your disclosure controls and procedures
"during the period of time covered by this report." However, Item
307 of Regulation S-K requires that your certifying officers
disclose
their conclusions regarding the effectiveness of your disclosure
controls and procedures "as of the end of the period covered by
the
report." See also paragraph 4(b) of Exhibits 31.1 and 31.2.
Please
revise your filings accordingly. Also confirm to us that your
certifying officers concluded that your disclosure controls and
procedures were effective as of the end of the period covered by
the
report, or otherwise amend your Form 10-Q accordingly.
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a letter that keys your responses to our comments
and
provides any requested information. Detailed response letters
greatly facilitate our review. Please understand that we may have
additional comments after reviewing your responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed decision. Since the company and
its management are in possession of all facts relating to a
company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filings; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filings or
in
response to our comments on your filings.
You may contact David DiGiacomo at (202) 551-3319, or in his
absence, Robyn Manuel at (202) 551-3823 if you have questions
regarding comments on the financial
statements and related matters. Please contact me at (202) 551-
3843
with any other questions.
Sincerely,
George F. Ohsiek, Jr.
Branch Chief
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Mr. Yashpal Singh
Mendocino Brewing Company, Inc.
July 7, 2005
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