UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended July 31, 1997
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 1-12119
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED
--------------------------------------------
(Exact name of registrant as specified in its charter)
Bermuda 72-1323940
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
One Galleria Boulevard, Suite 1714,
Metairie, Louisiana 70001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 849-2739
Indicate by a 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
--------- ---------
Number of shares of common stock outstanding
At September 12, 1997: 3,696,876
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED
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FORM 10-Q
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PART I FINANCIAL INFORMATION
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ITEM 1. Financial Statements (unaudited):
Consolidated Balance Sheets-
July 31, 1997 and October 31, 1996
Consolidated Statements of Operations-
Three and nine months ended July 31, 1997 and 1996
Consolidated Statements of Cash Flows-
Nine months ended July 31, 1997 and 1996
Notes to Consolidated Financial Statements (unaudited)
ITEM 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
PART II OTHER INFORMATION
- -------- -----------------
ITEM 6. Exhibits and Reports on Form 8-K
2
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts expressed in United States Dollars)
July 31, October 31,
1997 1996
----------- -----------
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 50,306 $5,780,672
Accounts receivable, net of
allowance for doubtful accounts
of $37,500 and $1,500 176,388 73,581
Inventories 299,776 35,508
Prepaids and other current assets 276,899 126,465
----------- ----------
Total current assets 803,369 6,016,226
Equipment and capital leases, net 3,333,412 663,830
Other assets 1,341,744 235,749
Notes receivable from
officer/shareholder 35,000 ---
Deferred tax assets 109,538 85,501
----------- ----------
Total assets $ 5,623,063 $7,001,306
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 642,571 $ 242,014
Capital lease obligations, current
portion 17,549 12,858
----------- ----------
Total current liabilities 660,120 254,872
Capital lease obligations, net of
current portion 16,637 17,364
----------- ----------
Total liabilities 676,757 272,236
Minority Interests 393,824 ---
Commitments and Contingencies
Shareholders' equity:
Preferred stock, $0.01 par,
500,000 shares authorized, none
issued --- ---
Common stock, $0.01 par, 10,000,000
shares authorized, 3,696,876 shares
issued and outstanding 36,969 36,969
Common stock warrants, 2,090,876
outstanding 181,906 181,906
Additional paid-in capital 7,388,205 7,388,205
Cumulative translation adjustment (46,525) ---
Accumulated deficit (3,008,073) (878,010)
----------- ----------
Total shareholders' equity 4,552,482 6,729,070
----------- ----------
Total liabilities and
shareholders' equity $ 5,623,063 $7,001,306
=========== ==========
The accompanying notes are an integral part of these financial statements.
3
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts expressed in United States Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31, July 31, July 31,
1997 1996 1997 1996
------------- ------------- ------------ ------------
Sales $ 546,012 $ 110,954 $ 879,413 $ 355,707
Cost of sales 428,111 31,692 645,891 74,747
------------ ---------- ------------ ----------
Gross profit 117,901 79,262 233,522 280,960
Selling, general and administrative
expenses 1,261,185 153,932 2,405,971 361,026
Interest (income) expense, net (9,180) 11,178 (41,273) 36,086
Other (income) expense, net (2,181) 146 66,368 1,034
------------ ---------- ------------ ----------
Total expenses 1,249,824 165,256 2,431,066 398,146
Loss before income taxes (1,131,923) (85,994) (2,197,544) (117,186)
Income tax benefit --- 7,682 24,037 12,829
------------ ---------- ------------ ----------
Loss after income taxes (1,131,923) ( 78,312) (2,173,507) (104,357)
Minority interests 24,215 --- 43,444 ---
------------ ---------- ------------ ----------
Net loss ($1,107,708) ($78,312) ($2,130,063) ($104,357)
============ ========== ============ ==========
Net loss per common share ($0.30) ($0.04) ($0.58) ($0.05)
============ ========== ============ ==========
Weighted average number of shares
outstanding 3,696,876 2,071,422 3,696,876 2,071,422
============ ========== ============ ==========
The accompanying notes are an integral part of these financial statements.
4
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts expressed in United States Dollars)
(Unaudited)
Nine Months Ended
July 31, July 31,
1997 1996
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,130,063) ($104,357)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 118,220 48,335
Deferred income taxes (24,037) (12,829)
Minority interests (43,444) ---
Increase in operating assets,
net of assets acquired:
Accounts receivable, net (101,066) (61,040)
Inventories (244,397) (8,346)
Prepaids and other
current assets (156,806) (23,971)
Other assets (1,034,467) (575)
Notes receivable from
officer/shareholder (35,000) ---
Increase in operating
liabilities, net of
liabilities acquired:
Accounts payable and
accrued liabilities 403,760 41,287
------------ ----------
Net cash used in operating
activities (3,247,300) (121,496)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (2,849,133) (69,953)
Investment in AmBrew USA, net of
cash received (90,502) ---
------------ ----------
Net cash used in investing
activities (2,939,635) (69,953)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution from joint venture
partner 470,749 ---
Payment of capital lease
obligations (10,953) (9,424)
Proceeds from issuance of stock --- 117,231
Proceeds from bridge notes --- 370,000
Stock issuance costs paid --- (254,035)
Repayment of bank loan --- (56,500)
Repayment of shareholders' loans --- (20,638)
------------ ----------
Net cash provided by financing
activities 459,796 146,634
------------ ----------
Effect of exchange rate changes on cash
and cash equivalents (3,227) ---
------------ ----------
Decrease in cash and cash equivalents (5,730,366) (44,815)
Cash and cash equivalents at beginning
of period 5,780,672 102,248
------------ ----------
Cash and cash equivalents at end of
period $ 50,306 $ 57,433
============ ==========
SUPPLEMENTAL DISCLOSURE TO STATEMENTS
OF CASH FLOWS:
Cash interest paid $ 2,329 $ 36,421
The accompanying notes are an integral part of these financial statements.
5
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts expressed in United States Dollars)
(Unaudited)
1. Basis for Preparation of the Consolidated Financial Statements
The consolidated financial statements have been prepared by American Craft
Brewing International Limited ("AmBrew International") and its subsidiaries
(collectively, the "Company"), without audit, with the exception of the October
31, 1996 consolidated balance sheet. The financial statements include
consolidated balance sheets, consolidated statements of operations and
consolidated statements of cash flows. In the opinion of management, all
adjustments, which consist of normal recurring adjustments, necessary to present
fairly the financial position, results of operations and cash flows for all
periods have been made.
These financial statements should be read in conjunction with the
consolidated financial statements as of and for the fiscal year ended October
31, 1996, and the footnotes thereto included in the Company's Annual Report on
Form 10-K (the "Form 10-K").
As discussed in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the Company is actively seeking additional sources of
working capital in both the debt and equity markets. The Company presently has
no major short or long term debt other than trade payables. Should the Company
be unable to obtain financing it may not be able to pay its trade creditors on a
timely basis or meet its various commitments related to future equipment
purchases.
2. Basis of Presentation
The consolidated financial statements include the accounts of AmBrew
International and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
3. Net Loss per Common Share
Net loss per common share is computed by dividing net loss by the weighted
average common shares outstanding during the periods, on the basis that the
Share Exchange, the Share Split and the Merger (as defined in the Form 10-K) had
been consummated prior to the periods presented. Average common equivalent
shares for common stock warrants and options have not been included, as the
computation would not be dilutive.
4. Inventories
Inventories are composed of the following:
July 31, October 31,
1997 1996
-------- -----------
Raw materials $144,175 $31,451
Work-in-process and finished goods 155,601 4,057
-------- -------
$299,776 $35,508
======== =======
6
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts expressed in United States Dollars)
(Unaudited)
5. Related Party Transactions
In January 1997, the Company obtained the U.S. distribution rights for the
Cerveza Mexicali brand from a shareholder/director. A $250,000 deposit was
placed with the shareholder/director as a down payment on the final purchase
price to be determined by independent appraisal in June 1998. The deposit is
recorded as an other asset in the accompanying balance sheet. The existing
inventory was purchased from the shareholder/director for $114,667, and a
royalty will be paid to this individual on all sales through June 1998. To date,
sales of the Cerveza Mexicali brand have been invoiced and collected by the
shareholder/director on behalf of AmBrew USA. Certain expenses incurred by the
shareholder/director related to these sales are reimbursed using the cash
receipts collected by the shareholder/director. The same shareholder/director
holds the lease on the Cerveceria Rio Bravo facility.
During fiscal 1997, AmBrew International entered a joint venture with Aidan
McGuinness to operate Celtic Brew LLC ("Celtic Brew"), a brewery located in
Enfield, county Meath, Ireland. AmBrew International has a 60% interest in the
venture. Aidan McGuinness is also a partner in Twin Meadows, another joint
venture that produces beer. The Celtic Brew and Twin Meadows breweries are both
located in a building that is leased from Aidan and Mark McGuinness. Various
operating costs are shared by Celtic Brew and Twin Meadows and are allocated
between the companies. At July 31, 1997 accounts receivable includes $20,017 and
accounts payable and accrued liabilities includes $25,245 due from/ to Twin
Meadows.
6. Commitments
In May 1997, the Company entered an agreement to market and distribute the
products of Dixie Brewing Company ("Dixie"). As part of this agreement, the
Company has committed to certain monthly minimum case purchases that accelerate
over the three year term of the agreement. At July 31, 1997, $147,099 was
recorded as other assets to reflect minimum payments made through that date,
that can be applied to future purchases under the agreement. In connection with
the agreement, the Company has made a $192,000 deposit and has provided Dixie a
$100,000 advance to be repaid through future per case price reductions. At July
31, 1997 these amounts are recorded as other assets in the accompanying balance
sheet. The Company has also agreed to purchase kegging equipment to be
installed at Dixie, which will be repaid by Dixie through per keg price
reductions beginning in the second year of the agreement.
7. Subsequent Events
Subsequent to July 31, 1997, the following events took place:
a. The Company has signed a Test Brewing Agreement with Anheuser-Busch,
Incorporated that contains a provision for possible future contract
brewing operations, at its Tecate, Mexico facility.
b. AmBrew International reached a settlement with a non-related party
arising from a previous claim, which was approved by the board of
directors. The Company made a provision for the settlement of $153,700
during the period ended July 31, 1997.
c. In August 1997, AmBrew International entered two 30-day promissory
notes totaling $85,000, which bear interest at 12% per annum. Both
notes are with shareholders, one of which is a director of the
Company. In September 1997, AmBrew International entered a 30-day
promissory note totaling $15,000, which bears interest at 12% per
annum. The note is with the same non-director shareholder. The due
date for the note maturing September 14, 1997, has been extended 30
days.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion addresses the Company's consolidated financial
condition and results of operations as of and for the three months and nine
months ended July 31, 1997, which includes the operations of AmBrew
International, AmBrew USA, the Company's U.S. beer distributor acquired in
December 1996, Cerveceria Rio Bravo, S.A. de C.V. ("Cerveceria Rio Bravo") which
commenced operations in May 1997 but had no sales as of July 31, 1997, Celtic
Brew which commenced operations in May 1997 and had minimal sales beginning in
June 1997, and the South China Brewery ("South China") which commenced
operations in June 1995 and sales in November 1995. Expenses relating to the
construction and startup of these operations at Cerveceria Rio Bravo and Celtic
Brew are included in the results of operations for the three months and nine
months ended July 31, 1997. In addition, the period-to-period presentation set
forth under "Results of Operations" will not necessarily be indicative of future
results. Future net losses can be expected as increased expenses are incurred in
connection with the start up phase of the expansion breweries that the Company
has established and operates.
With the exception of historical information, the matters discussed herein
are "forward looking statements" within the meaning of the Private Litigation
Reform Act of 1995. Such forward looking statements are subject to risks,
uncertainties and other factors which could differ materially from future
results implied by such forward looking statements. Potential risks and
uncertainties include, but are not limited to, the Company's ability to operate
the existing breweries on a profitable basis, the Company's ability to establish
and operate additional breweries on a timely basis, increased acceptance by
consumers of the Company's brands and development by the Company of new brands
of beer and the Company's ability to obtain additional financing for its
operations and working capital requirements.
In an effort to address initial start up costs and the need for working
capital the Company has taken steps to: 1) implement more focused marketing and
sales designed to increase sales of Cerveza Mexicali and Dixie products; 2) hire
and retain highly qualified employees; 3) use bridge loans from
shareholder/directors and others to fund operations until permanent financing
can be obtained; and 4) reduce operating expenses. While management believes
that these steps will be sufficient to sustain operations until permanent
financing can be secured, no assurance can be given that permanent financing
will be obtained. See Liquidity and Capital Resources below for a further
discussion of the Company's current activities to address its cash position and
its need for working capital.
RESULTS OF OPERATIONS
Sales. For the three months ended July 31, 1997 and 1996 the Company had
sales of $546,012 and $110,954, respectively, which represents an increase in
sales of $435,058. For the nine months ended July 31, 1997 and 1996 the Company
had sales of $879,413 and $355,707, an increase in sales of $523,706. The
increase in sales for the three month and nine month periods ended July 31, 1997
is primarily due to the addition of AmBrew USA. Though the combined sales for
the three months and nine months ended July 31, 1997 increased compared to the
same periods in 1996, the Company's subsidiaries had varying sales results as
described below.
For the three months ended July 31, 1997 the South China Brewery
experienced a decline in sales of $23,582 compared to the same period in 1996.
One factor that resulted in lower sales during the current third quarter was the
retrofitting of the brewery. During the retrofit, the South China Brewery was
equipped with new electrical and other utility connections, and the floor, walls
and ceiling were upgraded to comply with health standards. Additionally, the
flash pasteurization unit arrived on site. These projects necessitated the
suspension of brewery operations for an extended period of time during the
current third quarter.
Despite the retrofit, the South China Brewery was able to slightly increase
sales compared to the second quarter of fiscal 1997. The South China Brewery
experienced an increase in sales of $6,917 for the three months ended July 31,
1997 compared to the three months ended April 30, 1997. The increase in sales
was partly due to the continued acceptance of the South China Brewery's
proprietary brands and the introduction of its new commemorative ale, Red Dawn
Ale.
8
For the nine months ended July 31, 1997 the South China Brewery experienced
a decrease in sales of $120,705 compared to the same period in 1996. This
decrease in sales resulted from a variety of factors including: 1) significant
competition from import beer products in the Hong Kong market; 2) reduced
production of the brewery for an extended period of time for upgrades and
installation of new equipment; 3) consolidation by a significant customer of its
operations and purchases; and 4) change in brewery management including the
general manager, head brewer and sales personnel.
The proprietary brands of South China Brewery accounted for 13% of the
Company's sales and contract brewing accounted for 3% of the Company's sales for
the three months ended July 31, 1997. The South China Brewery's recent
introduction of Red Dawn Ale, an ale created to commemorate the historic
"Handover" of Hong Kong to China, had a positive impact on sales. For the
three months ended July 31, 1997 Red Dawn Ale accounted for 6% of the Company's
sales and 35% of the South China Brewery's sales.
The South China Brewery is a party to custom brewing contracts with
Delaney's (Wanchai) Limited, owner of Delaney's Irish Pub ("Delaney's"), and
Iconic America ("Iconic"). The custom brewing contract with Delaney's expires
in September 1997 and the contract with Iconic expired in August 1997.
Discussions are underway to renew the contracts. The South China Brewery is
also seeking other contract brewing relationships in Hong Kong.
During the quarter ended July 31, 1997 aggregate sales of Celtic Brew were
$3,332. The sales of Celtic Brew accounted for less than 1% of the Company's
total sales for the quarter. Celtic Brew experienced the normal delays and
start-up issues associated with any new venture. Subsequent to test brewing and
recipe development the actual operational production and sales of beers did not
begin until late June 1997. During the rest of the current third quarter,
customers in Ireland were fitted with draft equipment and the Celtic Brew
products began their introduction into the Irish pubs.
Another factor affecting Celtic Brew's sales was the delay experienced in
obtaining the bottling equipment and labeling equipment, which delayed sales of
bottled products and the start date of export sales. The pasteurizer was
installed during the third quarter and the bottling equipment has been delivered
during the fourth quarter. Technicians from the labeler supplier are involved
in fitting and starting the entire line. Bottled products for both domestic and
export markets are expected to be available prior to the end of the current
fiscal year.
Customers have also been obtained in the United Kingdom for export by
Celtic Brew of the Finian's brand. Exports to these locations will begin with
the installation of the draft equipment at the establishments. The United
Kingdom market is expected to be a significant portion of the Finian's brand
sales. Export shipments to the United States will also have a significant
impact on sales of the Finian's Brand.
Operations at Cerveceria Rio Bravo began in late May 1997. Cerveceria Rio
Bravo also experienced the normal start-up issues associated with any new
venture. Since then Cerveceria Rio Bravo has been instrumental in the
development of two test beers for the Company and for Anheuser-Busch. The first
shipment of Mexican produced Cerveza Mexicali was made in September 1997. The
Company believes that the advent of Mexican produced Cerveza Mexicali will have
a significant positive impact on the sales and revenues of the Company.
The sales of AmBrew USA accounted for $455,308 or approximately 84% of the
Company's sales for the three months ended July 31, 1997. For the nine months
ended July 31, 1997, the sales of AmBrew USA accounted for $641,078 or 73% of
the Company's sales. The increased sales for the current quarter are primarily
attributed to AmBrew USA's distribution of products brewed by Dixie Brewing
Company. There were very little sales of the Cerveza Mexicali brand as the
Company continued to purge the existing product in wholesalers' and retailers'
inventory, in preparation for the Cerveceria Rio Bravo production of Cerveza
Mexicali.
With the introduction of Mexican produced Cerveza Mexicali, new branding
for Charles Wells, and Dixie Brewing Company's products in the portfolio, the
Company expects its sales to increase during the fourth quarter, and beyond.
In an effort to increase sales of Charles Wells products, AmBrew USA is
currently working towards improving the package design.
AmBrew USA is also actively seeking new products, both alcohol and non-
alcohol based, to add to its sales mix. As part of that effort, AmBrew USA
recently announced that it will handle the distribution of Tizer and Irn
9
Bru soft drinks in the United States, both of which are A.G. Barr PLC products.
It is anticipated that distribution of these products will have a positive
impact on the sales of the Company.
As part of its developing national distribution network, AmBrew USA has
added three field salespeople to its employee base to increase sales of existing
AmBrew USA products as well as the introduction of all new products. AmBrew USA
plans to add two additional field salespeople by the end of the next quarter.
The combination of field sales personnel, quality products, and marketing ideas
have been highly instrumental in securing distribution partners. AmBrew USA
believes that this infrastructure will allow it to increase sales volume for its
products.
While the Company expected to begin importing its products into the United
States and other markets by the end of the third quarter, due to equipment
delays beyond the Company's control, that goal was not achieved. The Company is
proceeding with its efforts to import into the United States and other markets
the products from all its breweries. Barring any further delays with ordered
equipment, the Company believes it will be importing products from all its
breweries during the fourth quarter of the current calendar year. The Company
believes that the anticipated international distribution of its products will
have a significant positive impact on sales.
Cost of Sales. Cost of sales increased as a percentage of sales to 78%
for the three months ended July 31, 1997 from 29% in the corresponding period in
1996. The increase is primarily the result of the operations of AmBrew USA,
which was acquired in December 1996. AmBrew USA's cost of sales is higher than
that of the South China Brewery as it functions solely as a distributor. AmBrew
USA's cost of sales for the three months ended July 31, 1997 was $394,471 or 87%
of its sales.
The South China Brewery's cost of sales for the three months ended July 31,
1997 increased to 36% of sales from 29% in the three months ended July 31, 1996
as a result of underutilized capacity. The underutilized capacity was a result
of many contributing factors, including but not limited to the retrofit and
intense competition from import beer products.
For the nine months ended July 31, 1997, cost of sales increased as a
percentage of sales to 73% from 21% in the corresponding period in 1996. This
increase is primarily due to the addition of the operations of AmBrew USA and
the less efficient use of equipment at the South China Brewery as described
above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended July 31, 1997 and 1996 were
$1,261,185 and $153,932, respectively. The increase is primarily attributable
to the addition of the operations of AmBrew International, with expenses of
$665,721 (including the settlement of a claim with a non-related party in the
amount of $153,700), AmBrew USA, with expenses of $77,951, Cerveceria Rio Bravo,
with expenses of $253,817 and Celtic Brew, with expenses of $59,371. The
selling, general and administrative expenses for both Cerveceria Rio Bravo and
Celtic Brew were mainly associated with the start up and grand openings for the
respective facilities. The remainder of the increase, $50,393, relates to
additional salaries and marketing costs at the South China Brewery. Selling,
general and administrative expenses for the nine months ended July 31, 1997 and
1996 were $2,405,971 and $361,026, respectively. The increase is due to the
addition of AmBrew International, AmBrew USA, Celtic Brew and Cerveceria Rio
bravo and their corresponding selling, general and administrative expenses,
which included depreciation and amortization of $60,554.
The Company experienced the high general and administrative expenses
associated with being a publicly traded company. Such expenses include, but are
not limited to salaries, director's fees, legal fees, audit fees and the
preparation of required quarterly and annual reports. During the quarter ended
July 31, 1997, AmBrew International also awarded salary increases to certain key
personnel. Additional costs were also incurred as AmBrew International
continued to aggressively identify suitable joint venture partners, future
brewery sites and sources of additional financing.
The increase in the selling, general and administrative expenses for the
Company was also caused in part by the addition of two field salespersons and
one clerk to the AmBrew USA organization. During the quarter ended July 31,
1997, AmBrew USA has company salespersons located in the Los Angeles and Chicago
areas. A third field salesperson was added in August in the New York / New
Jersey area.
10
Net Interest (Income) Expense. Net interest (income) expense for the three
months ended July 31, 1997 and 1996 was ($9,180) and $11,178, respectively, and
for the nine months ended July 31, 1997 and 1996 was ($41,273) and $36,086,
respectively. The increased income relates to the investment of the proceeds
from the Company's initial public offering. Additionally, loans payable were
eliminated with proceeds from the Company's initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company's material commitments for future capital expenditures relate
primarily to the financing of the proposed expansion breweries. The Company
previously placed an order for twenty micro-brewery systems with JV Northwest
and made a $200,000 non-refundable deposit on the equipment. During the period
ended July 31, 1997, the Company made down payments of $15,895 and $16,945 to
VBW Brewing Services for the labeling machines for Celtic Brew and South China,
respectively. During the period ended July 31, 1997, the Company paid the
balance due of $285,630 on the completed brew system; $1,594 to Beverage
Machinery Service for kegging equipment; $59,861 to SMB Technik for the bottling
and labeling equipment; and $44,980 to Aeroglide for a tunnel pasteurizer for
Cerveceria Rio Bravo. The Company made an additional payment of $33,255 for
the bottling equipment shipped to Celtic Brew, a ten percent balance remains
due. In addition, the Company made a final payment of $127,635 to JV Northwest
for flash pasteurizing equipment for all three breweries. The Company is
required to pay the remaining balances of $32,840 for the equipment in
production, as it is completed and ready for shipment.
In addition to the deposits and down payments placed for brewery equipment,
the Company has also placed deposits totaling $350,000 in connection with the
distribution rights of the Cerveza Mexicali label.
In connection with the marketing and distribution of the Dixie Brewing
Company products the Company has placed a $192,000 security deposit, has
extended a $100,000 advance and has made advance product purchases in the amount
of $147,099. The Company has also committed to certain monthly minimum case
purchases that accelerate over the three year term of the agreement.
At July 31, 1997, the South China Brewery had fixed capital lease
obligations of $2,897, $17,172 and $6,885 respectively, for each of the three
years in the period ending October 31, 1999. At July 31, 1997, the South China
Brewery had $21,535 in operating lease commitments over the period ending
October 31, 1998 relating to its warehouse and brewery facility.
At July 31, 1997, AmBrew International had an operating lease obligation of
$203,384 over the period ending June 14, 2002 relating to the lease of its
corporate office. AmBrew International also had operating lease obligations of
$43,175 for the period ending February 28, 2000 relating to company vehicles.
Additionally, the Company has fixed annual salary expenses of $748,259 related
to various employment agreements with its employees.
At July 31, 1997, Cerveceria Rio Bravo had obligations of $348,000 for the
period ending September 10, 2001 in connection with a related party operating
lease for its brewery site.
At July 31, 1997, Celtic Brew had obligations of $62,498 for the period
ending March 30, 2002 in connection with a related party operating lease for its
brewery site.
At July 31, 1997, approximately $30,649 of the proceeds from the initial
public offering remained invested in tax-exempt interest-bearing accounts and
$2,467 was invested in interest bearing accounts. In August 1997, the Company
borrowed $35,000 from a shareholder and $50,000 from a shareholder/director of
the Company so that the Company could meet its short-term cash requirements.
The loan from the shareholder originally matured on September 14, 1997, but the
maturity date was recently extended to October 14, 1997. The loan from the
shareholder/director will initially mature on September 27, 1997. The Company
borrowed an additional $15,000 from the same shareholder during September 1997
due on October 8, 1997.
The Company's projections indicate that it needs approximately one million
dollars to fund operations through the middle of the first quarter of calendar
1998, at which time the Company projects it will achieve positive cash flow. In
order for the Company to continue its operations and to address the current cash
position and the need for working capital, the Company is pursuing both
immediate and long term financial assistance in both the debt and
11
equity markets. Specifically, the Company is 1) currently having discussions
with domestic and foreign banks for debt financing (it should be noted that the
Company has no long term debt), 2) utilizing the resources of its individual
members of its Board of Directors and shareholders, 3) having discussions with
investors about both debt and equity investments, and 4) looking for joint
venture partners for the South China Brewery and for Cerveceria Rio Bravo to
purchase minority shareholdings from the Company in each location. There can be
no assurance that such debt financing or capital will be available or, if
available, under terms and conditions acceptable to the Company. The Company's
inability to obtain additional capital would result in a material adverse effect
on the Company's ability to pay creditors on a timely basis or meet its various
commitments related to future equipment purchases and operations.
The Company believed it would be able to finance up to six expansion
breweries in 1997 or its equivalent capacity. The Company currently has the
equivalent capacity of three prototype expansion breweries at its Tecate site
and the equivalent of one prototype brewery at each of its Hong Kong and Ireland
sites. In total the Company has the equivalent capacity of five prototype
breweries. If the Company is able to obtain additional financing, the Company
intends to expand its capacity at the Tecate, Mexico facility to 30,000 barrels,
which is the equivalent capacity of six prototype expansion breweries, bringing
the Company's total equivalent capacity to 8 prototype breweries by the end of
its 1997 fiscal year. The Company has postponed any further expansion until 1998
and until it can obtain additional working capital.
12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
3.1 - Memorandum of Amalgamation of the Company (incorporated by reference
to Exhibit 3.1 of the Company's registration statement on Form S-1
(file no. 333-6033) (the "Registration Statement").
3.2 - By-Laws of the Company (incorporated by reference to Exhibit 3.2 of
the Registration Statement).
10.21- Amended and Restated Stock Option Plan of the Company (previously
filed as Exhibit Number 10.1 to the Company's Form 10-Q for the
fiscal quarter ended April 30, 1997 and hereby renumbered as Exhibit
No. 10.21).
10.22- Brewmaster Employment Agreement between South China Brewing Company
Limited and Cory O'Neel, effective March 20, 1997 (previously filed
as Exhibit Number 10.2 to the Company's Form 10-Q for the fiscal
quarter ended April 30, 1997 and hereby renumbered as Exhibit No.
10.22).
10.23- General Manager Employment Agreement between South China Brewing
Company Limited and Scott Ashen, effective February 1, 1997
(previously filed as Exhibit Number 10.3 to the Company's Form 10-Q
for the fiscal quarter ended April 30, 1997 and hereby renumbered as
Exhibit No. 10.23).
10.24- Employment and Non-Competition Agreement between the Company and
Peter W. H. Bordeaux (previously filed as Exhibit Number 10.4 to the
Company's Form 10-Q for the fiscal quarter ended April 30, 1997 and
hereby renumbered as Exhibit No. 10.24).
10.25- Contract Brewing and Packaging Agreement between Anheuser-Busch,
Incorporated and the Company, dated April 29, 1997 (previously filed
as Exhibit Number 10.5 to the Company's Form 10-Q for the fiscal
quarter ended April 30, 1997 and hereby renumbered as Exhibit No.
10.25).
10.26- Consulting Agreement among the Company, the South China Brewing
Company Limited, David K. Haines and Lunar Holdings, Limited, dated
February 14, 1997 (previously filed as Exhibit Number 10.6 to the
Company's Form 10-Q for the fiscal quarter ended April 30, 1997 and
hereby renumbered as Exhibit No. 10.26).
10.27- Employment Agreement between the Company and C. Brooks Hamaker,
effective March 10, 1997 (previously filed as Exhibit Number 10.7 to
the Company's Form 10-Q for the fiscal quarter ended April 30, 1997
and hereby renumbered as Exhibit No. 10.27).
10.28- Employment Agreement between the Company and William R. Jenkins,
effective March 24, 1997 (previously filed as Exhibit Number 10.8 to
the Company's Form 10-Q for the fiscal quarter ended April 30, 1997
and hereby renumbered as Exhibit No. 10.28).
10.29- General Manager/Brewmaster Employment Agreement dated July 18, 1997
between Cerveceria Rio Bravo and Clint D. Stromberg.*
10.30- Exclusive Agency Agreement dated as of May 2, 1997 between AmBrew
U.S.A., Inc. and Dixie Brewing Company, Inc.*
10.31- Franchise Agreement dated June 30, 1997 between American Craft
Brewing International Limited and A. G. Barr p.l.c.*
10.32- Franchise Agreement dated June 30, 1997 between American Craft
Brewing International Limited and A. G. Barr p.l.c.*
13
10.33- Operating lease dated May 1, 1997 between Celtic Brew LLC and Aidan
McGuinness and Mark McGuinness.*
27 - Financial Data Schedule.*
*filed herewith
(b) Reports on Form 8-K. None
14
SIGNATURE
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.
AMERICAN CRAFT BREWING
INTERNATIONAL LIMITED
Date: September 15, 1997 /S/ James L. Ake
-------------------------------------
James L. Ake
Executive Vice President,
Chief Operating Officer and Secretary
/s/ Nancy R. Hernandez
-------------------------------------
Nancy R. Hernandez
Controller
15
INDEX TO EXHIBITS
NUMBER EXHIBIT
- ------ -------
10.29 General Manager/Brewmaster Employment Agreement
dated July 18, 1997 between Cerveceria Rio Bravo and
Clint D. Stromberg
10.30 Exclusive Agency Agreement dated as of May 2, 1997
between AmBrew U.S.A., Inc. and Dixie Brewing Company, Inc.
10.31 Franchise Agreement dated June 30, 1997 between
American Craft Brewing International Limited and A. G. Barr p.l.c.
10.32 Franchise Agreement dated June 30, 1997 between
American Craft Brewing International Limited and A. G. Barr p.l.c.
10.33 Operating lease dated May 1, 1997 between Celtic Brew LLC and Aidan
McGuinness and Mark McGuinness.
27 Financial Data Schedule
16