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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-QSB
__________________________________
Quarterly Report Pursuant to Section 13 or
15 (d) of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1997
Commission File Number 33-81536-LA
AVIATOR ALES, INC.
(Exact name of registrant as specified in charter)
Delaware 91-1633491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
__________________________________
14316 NE 203rd St.
Woodinville, Washington 98072
(206)-487-0717
(Address, including Zip code, and telephone number,
including area code, of registrant's principal
executive offices)
__________________________________
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.
[X] YES [ ] NO
Transitional Small Business Disclosure Format
[ ] YES [X] NO
Number of shares of common stock outstanding as of
March 31, 1997 5,331,775 shares, $.001 par value
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AVIATOR ALES, INC.
INDEX TO FORM 10-QSB
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Part I - FINANCIAL INFORMATION
The information included herein is unaudited. However, such
information reflects all adjustments (consisting solely of
normal, recurring adjustments) which are, in the opinion of
the Company's management, necessary for a fair presentation
of the results of operations for the interim periods. The
interim financial information and notes thereto should be
read in conjunction with the Company's latest annual report
on Form 10-KSB/A. The results of operations for the three
months ended March 31, 1997 are not necessarily indicative of
results to be expected for the entire year.
Item 1 - Financial Statements
Balance Sheet - March 31, 1997 and December 1996. . . . . .
Statement of Operations - Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . .
Statement of Cash Flows - Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . . . .
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 . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . .
Item 1 - Financial Statements
AVIATOR ALES, INC.
Balance Sheet
March 31,
1997 December 31,
ASSETS (unaudited) 1996
---------- ---------
Current Assets:
Cash and cash equivalents $ - $19,218
Accounts receivable 190,544 61,529
Inventories 292,392 326,178
Marketing supplies 25,746 -
--------- ---------
Total current assets 508,682 406,925
Property and equipment, net 2,222,645 2,258,392
--------- ---------
Total assets $2,731,327 $2,665,317
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital
lease obligation $4,154 $4,058
Accounts payable 729,867 607,570
Accrued liabilities 35,182 44,516
Container deposits 24,609 15,583
Payable to parent and
affiliated companies, net 942,251 881,012
--------- ---------
Total current liabilities 1,736,063 1,552,739
Mortgage note payable and
capital lease obligation 56,262 57,664
Deferred rent 78,602 70,103
--------- ---------
1,870,927 1,680,506
--------- ---------
Commitments
Shareholders' equity:
Common stock, $.001 par
value - 10,000,000 shares
authorized, 5,331,775
shares outstanding 5,332 5,332
Additional paid-in capital 2,582,553 2,582,553
Accumulated deficit (1,727,485) (1,603,074)
----------- -----------
860,400 984,811
----------- -----------
Total liabilities and
shareholders' equity $2,731,327 $2,665,317
=========== ===========
AVIATOR ALES, INC.
Statement of Operations
(Unaudited)
Three Months Ended March 31,
1997 1996
---------- ----------
Gross revenues 298,632 274,105
Less: excise taxes (15,486) (15,355)
--------- ---------
Net revenues 283,146 258,750
Cost of revenues 294,825 329,640
--------- ---------
Gross deficit (11,679) (70,890)
Selling, general and
administrative expenses 110,637 157,019
--------- ---------
Loss from operations (122,316) (227,909)
Other income (expense):
Interest income - 1,932
Interest expense (2,095) (1,125)
--------- ---------
(2,095) 807
--------- ---------
Net loss $(124,411) $(227,102)
========= =========
Net loss per common share $(0.02) $(0.03)
========= =========
Weighted average number of
common shares outstanding 5,331,775 6,864,533
========= =========
AVIATOR ALES, INC.
Statement of Cash Flows
(Unaudited)
Three Months Ended March 31,
1997 1996
Cash flows from operating ---------- ----------
activities:
Net loss $(124,411) $(227,102)
Reconciliation of net loss
to net cash used for
operating activities:
Depreciation and
amortization 39,314 39,100
Increase in deferred rent 8,499 8,501
Changes in assets and liabilities:
Accounts receivable (129,015) (71,982)
Inventories 33,786 (8,585)
Marketing supplies (25,746) -
Accounts payable 122,297 (108,952)
Accrued liabilities and
other liabilities (308) 18,526
Payables to parent and
affiliated companies 61,239 243,724
-------- --------
Net cash used for operating
activities (14,345) (106,770)
Cash flows from investing activities:
Purchases of property and
equipment (3,567) (113,973)
-------- --------
Net cash used for investing
activities (3,567) (113,973)
Cash flows from financing activities:
Payments on capital lease
obligations (1,306) -
Increase in deferred stock
offering costs - (10,513)
-------- --------
Net cash used for financing
activities (1,306) (10,513)
-------- --------
Net decrease in cash and cash
equivalents (19,218) (231,256)
Cash and cash equivalents:
Beginning of period 19,218 226,401
-------- --------
End of period $ - (4,855)
======== ========
AVIATOR ALES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Aviator Ales, Inc. ("AAI" or the "Company") was formed on
February 14, 1994 to produce and sell hand-crafted ales
under its own label "Aviator Ales" in the State of Washington.
To achieve its goal, the Company has built a brewery in an
18,948 square foot leased facility in Woodinville, Washington.
The brewery has an initial production capacity of 11,700
barrels per year with a maximum designed production capacity
of 125,000 barrels per year.
The Company was organized under the laws of the State of Delaware.
The Company is a majority owned subsidiary of Willamette Valley,
Inc. Microbreweries across America ("WVI"), a company organized
to establish microbreweries throughout the United States. At March
31,1997, WVI owned approximately 51% of the Company's common
stock.
BASIS OF PRESENTATION
The Company's financial statements enclosed herein are
unaudited and, because of the seasonal nature of the
business and the varying schedule of its special sales
efforts, these results are not necessarily indicative of the
results to be expected for the entire year. In the opinion
of management, the interim financial statements reflect all
adjustments, consisting of only normal recurring items which
are necessary for a fair presentation of the results for the
periods presented. The accompanying financial statements
have been prepared in accordance with GAAP and SEC
guidelines applicable to interim financial information which
require management to make certain estimates and
assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues
and expenses during the period. Actual results could differ
from those estimates. The accompanying financial statements
and related notes should be read in conjunction with the
financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB/A for the year ended
December 31, 1996.
The Company has recorded significant losses in the quarter
ended March 31, 1997 and during the prior year, has negative
working capital of $1.227 million, and has limited access to
capital with which to fund future operations. There can be no
assurance that the Company will produce and sell its
products on a profitable basis to sustain operations. Such
factors, among others, raise substantial doubt as to its
ability to continue as a going concern. During the quarter
ended March 31, 1997 the Company entered into an investment
agreement to be merged with other affiliated companies and
convert its stock into shares of a new publicly traded
entity as discussed in the Proposed Merger note below.
Inventories
Inventories consist of the following:
March 31, December 31,
1997 1996
------------- ------------
Raw materials $ 166,441 $ 180,145
Work-in-process 53,721 35,414
Finished goods 32,036 72,186
Retail products 40,194 38,433
------------- ------------
$ 292,392 $ 326,178
============= ============
AVIATOR ALES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Property and Equipment
Property and equipment consists of the following:
March 31, December 31,
1997 1996
------------- ------------
Land and improvements $ 695,486 $ 695,486
Brewery equipment 1,712,565 1,708,998
Office furniture and equipment 16,910 16,910
Vehicles 19,490 19,490
------------- ------------
2,444,451 2,440,884
Less accumulated depreciation
and amortization (221,806) (182,492)
-------------- -------------
$ 2,222,645 $ 2,258,392
============== =============
Shareholders' Equity
The Company is authorized to issue 10 million shares of its
common stock. Each share of common stock entitles the
holder to one vote. At its discretion, the Board of
Directors may declare dividends on share of common stock,
although the Board does not anticipate paying dividends in
the foreseeable future. In February 1994, the Company
received $100,000 cash from WVI in exchange for 4,845,455
shares of unregistered stock. In March 1996, 2,129,871 of
those shares were contributed back to the Company for no
consideration and subsequently retired.
Net Loss Per Share
Net loss per common share is calculated based on the
weighted average number of common shares and common share
equivalents outstanding during the three month periods ended
March 31, 1997 and 1996. Shares owned by the Company's
parent, WVI, are held in escrow and are included in the
weighted average number of common shares outstanding.
Outstanding options to purchase shares of the Company's
common shares have not been included in the calculations as
their affect would be anti-dilutive.
Stock Incentive and Stock Grant Plans
During 1994, the Board of Directors established a pool of
250,000 shares of the Company's common stock for a stock
incentive plan for issuance to employees, consultants,
directors, and consultants of the Company pursuant to the
exercise of stock options granted under the plan or stock
grants or stock sales. Administration of the plan,
including determination of the number of shares to be
issued, the term of exercise of any option, the option
exercise price, and type of options to be granted, lies with
the Board of Directors or a duly authorized committee of the
Board of Directors.
As of March 31, 1997, options for a total of 138,000 shares
have been awarded, net of cancellations. Options have
vesting periods ranging from five years to ten years.
No compensation expense has been recorded as a result of
granting any of the options as all such options were granted
with an exercise price equal to the market price on the date
of grant.
Options granted by the Company are expected to be converted
to options of the new company expected to be formed in the
consolidation of the Company and its affiliates at the same
conversion rate as the conversion of common stock
discussed in the Pending Consolidation note.
Income Taxes
No benefit for income taxes was recognized for the quarters
ended March 31, 1997 and 1996 in the accompanying statement
of operations as there can be no assurance that the Company
will generate taxable income in the future against which
such benefits could be realized.
At March 31, 1997, the Company had a net operating loss
carryforward aggregating approximately $2 million for federal
income tax purposes, which may be used to offset future
taxable income, if any. The annual utilization of this
carryforward may be limited if the Company undergoes the
ownership change anticipated by management (see Proposed
Merger note ) or fails to meet continuity of business
requirements defined by the Internal Revenue Code. The
Company's net operating loss carryforward expires in 2013.
Related Parties
Nature of related parties
The Company's president, Jim Bernau, partially owns and controls
Willamette Valley Vineyards (WVV), a winery in Oregon, and
Willamette Valley Inc., and Nor'Wester Brewing Company,
Inc.(Nor'Wester), a microbrewery in Oregon; as well as WVI.
Additionally, the Company's president is the president of
each of the following subsidiaries of WVI: Aviator Ales,
Inc. (AAI); Mile High Brewing Company (MHBC); Bayhawk Ales,
Inc. (BAI); and North Country Brewing Company, Inc. (NCBCI);
development stage companies located in Washington, Colorado and
California, respectively. As a result of certain arrangements
between the Company and its affiliates, as well as the Mr. Bernau
positions with and/or ownership interests in each of these
companies, inherent conflicts of interest exist with respect to
the pricing of services, the sharing of resources and allocation
of the Company president's time.
Related Party Transactions
The Company purchased management and administrative services
from WVI at a total cost of $13,842 and $24,630 for the three
months ended March 31, 1997 and 1996, respectively. WVI
contracts for certain of these services under a general
services agreement between WVI and Nor'Wester.
Strategic Alliance and Cooperative Brewing Agreements
The Company has entered into a Strategic Alliance (the "Alliance")
with AAI, MHBC, BAI, NCBCI, and WVI. The Company, AAI, MHBC, and
BAI are individually referred to as a "Cooperative Brewer." The
purpose of the Alliance is to promote and support the growth of all
of the Alliance members by increasing production at each Cooperative
Brewer's facility and supporting the entry of Nor'Wester products
into new markets. To achieve this goal, each Cooperative Brewer
agreed to cooperatively brew Nor'Wester's products, and to support the
entry of these products into new markets by facilitating Nor'Wester's
access to the Cooperative Brewer's network of distributors. However,
due to the fact that Nor'Wester's Portland Brewery is not currently
operating at full capacity and the fact that attempting to develop
other regional markets for its products has not yielded significant
results, the Cooperative Brewing Agreements are not being utilized.
Should the consolidation occur as planned (see Pending Consolidation
note), the Strategic Alliance and agreements thereunder will terminate.
In connection with the Cooperative Brewing Agreement
described above, the Company received an advance from
Nor'Wester of $250,000 during 1995 for the purchase of
ingredients and packaging materials for the cooperative
brewer's initial production of Nor'Wester's products. In
1996, the Company received an advance of $100,000 from
Nor'Wester for cooperative brewing purchases and operating
expenses. These advances remain outstanding although the
cooperative brewing agreement has been terminated. As a
result of the administrative services purchased from WVI and
the advances received from Nor'Wester, the Company has
advances and loans payable to affiliates of $942,251 at
March 31, 1997. Because management expects these advances
will eventually be eliminated when the proposed merger
occurs, as discussed in the Proposed Merger and Investment by
UBA, these advances have been classified as current payables
to affiliates at March 31, 1997.
Commitments
The Company has entered into a twenty-year operating lease
arrangement with optional renewal terms for its production
facility in Woodinville, Washington. Annual payments under
the lease are approximately $117,000 , plus common area charges,
and escalate over the term of the lease beginning in 2000
(totaling approximately $2,665,000 over the term of the
lease).
Proposed Merger and Investment by UBA
During the quarter ended March 31, 1997, the Company, along
with its affiliates (Nor'Wester, WVI, MHBC and BAI) entered
into an investment agreement with United Breweries of
America, Inc. (UBA), an entity controlled by the UB Group of
Bangalore, India. The agreement provides for Nor'Wester,
WVI, AAI, MHBC and BAI to merge into a company to be known
as United Craft Brewers (UCB). This proposed merger will
result in the issuance of newly registered shares of UCB
common stock in exchange for shares of Nor'Wester, WVI and
its subsidiaries. The merger and share exchange will
require approval by the Boards of Directors and shareholders
of each of the entities. Following the merger, all
shareholders in the Nor'Wester /WVI alliance will hold
shares in UCB, a company which is intended to be listed for
trading on the Nasdaq National Market system under the
symbol ALES. Proposed exchange ratios for each of the
entities are as follows, based on an average closing price
of $2.63 for Nor'Wester's common stock for the 20 trading
days immediately preceding execution of the merger:
Company Exchange
Ratio
Nor'Wester 1.00000:1
WVI 1.99159:1
AAI 2.98739:1
BAI 1.99159:1
MHBC 2.98739:1
Following the proposed merger, UBA has proposed to invest
$8.63 million in exchange for a 45% equity interest in the
new entity, UCB. Of the $8.63 million proposed investment
by UBA, $2.75 million is in the form of bridge loans
conditionally available to Nor'Wester during the
consolidation phase. As of March 31, 1997, $1.5 million has
already been loaned to Nor'Wester, the majority of which has
been advanced to North Country. At closing, it is
anticipated that the bridge loans will be converted into
shares of UCB and the remaining $5.88 million cash
investment will be made directly in shares of UCB.
All principal and interest related to the bridge loans is
secured by the assets of North Country Joint Venture, Nor'Wester's
wholly-owned subsidiary, and by Nor'Wester's
ownership interest in North Country Joint Venture.
Repayment of all principal and interest is guaranteed
personally by the Company's president.
The closing of the proposed investment remains subject to
(i) approval by the shareholders of each of the companies,
(ii) achievement of certain operating results at each of the
breweries, (iii) maintenance of certain operating conditions
and covenants, including that there shall be no material
adverse change in the businesses of the affiliated breweries
taken as a whole, (iv) approval by federal and state liquor
control agencies, (v) registration with the U.S. Securities
and Exchange Commission of UCB shares to be exchanged in the
merger, (vi) extension of Nor'Wester's $1 million revolving
line of credit through September 30, 1997 and the lender
shall have waived any defaults under the line of credit
agreement and the line of credit shall have been converted
to a term loan and (vii) such other customary conditions for
transactions of this type.
Immediately following the proposed investment by UBA, UBA
would own 45% and the Company's president would own 10% of
UCB. The public shareholders of Nor'Wester, WVI, and
subsidiaries would own the remaining 45% of UCB.
Impact of Recent Accounting Prounouncements
In February 1997, the Financial Accounting Standards Boad
("FASB") issued Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" ("SFAS 128") and Statement of
Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129")which are
effective for fiscal years ending after December 15, 1997.
The Company believes the implementation of these statements
will not have a material effect on its results of operations
or financial statement disclosures.
Subsequent Events
Subsequent to March 31, 1997, in light of lower than
anticipated 1996 operating results, lower than anticipated
first quarter 1997 sales and other operating results and
adverse conditions with the craft beer industry in general,
representatives of UBA and management and the investment
bankers of the affiliated companies are in the process of
renegotiating the terms of the UBA investment discussed in
the Proposed Merger note. The renegotiation will reflect a
significantly lower valuation for the affiliated companies, a
reduction in the total amount of cash to be invested by UBA
to $5.5 million and a reduction of UBA's percentage
ownership position in UCB to 40% following consolidation.
It is anticipated that the $2.75 million bridge loan will
not be reduced. The existing shareholders in the affiliated
Companies would retain a 60% interest in UCB. The exact
distribution of ownership interests among shareholders of
the affiliated companies has not yet been determined.
Management will soon seek Board approval by each of the
affiliated companies of any renegotiated terms. Failure of
the parties to reach a mutually agreeable renegotiated
investment agreement could lead to a loss of the bridge
loans and the remainder of the UBA investment which would
materially and adversely affect the Company's financial
condition and results of operations. There can be no
assurance that the proposed merger will be completed or that
the Company will obtain the capital needed to sustain
operations.
Item 2 -- Management's Discussion and Analysis of Financial
Condition and results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of
this Form 10-QSB contains forward-looking information within
the meaning of the Private Securities Litigation Reform Act
of 1995. This forward-looking 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 such
words and similar expressions are intended to identify such
forward-looking information. Therefore, 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,
availability of financing for operations, successful
performance of internal operations, impact of competition,
changes in distributor relationship or performance,
successful completion of the planned consolidation of the
Affiliated Companies, and other risks detailed below as well
as those discussed elsewhere in this Form 10-QSB. In
addition, such statements could be affected by general
industry and market conditions and growth rates, and general
domestic economic conditions.
Results of Operations
Gross Revenues
Gross revenues from beer and retail products totaled
$298,632 for the quarter ended March 31, 1997 and $274,105
for the quarter ended March 31, 1996, an increase of 9%.
The increase in revenues is primarily a result of the
Company's efforts to build its distribution channel, enhance
its awareness of its line of ales, develop a growing
contingency of loyal customers and an increase in sales of
products to affiliated companies.
The Company's brewery currently has an annual production
capacity of 41,000 barrels. The Company sold 2,024
barrels and 1,270 barrels during the quarter ended March
31, 1997 and 1996 respectively.
Excise Taxes
Excise taxes were $15,486 (5% of gross sales) for the three
months ended March 31, 1997 compared to $15,355 (6% of gross
sales) for the same period in 1996.
Cost of Revenues
Cost of revenues totaled $94,825 (104 percent of net
revenues) for the quarter ended March 31, 1997 compared to
$329,640 (127 percent of net revenues) for the quarter ended
March 31, 1996. Although cost of revenues declined as a
percentage of net revenues for the quarter ended March 31,
1997 from the same period in 1996, the high cost of revenues in
1997 is the result of the disproportionate cost of production
for products sold while the facility was operating at less than
designed capacity and the high percentage of sales (about 45%
of total barrels sold) made to affiliated companies for which the
company realizes lower margins.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses
decreased to $110,637 (39 percent of net revenues) for the
quarter ended March 31, 1997 from $157,019 (61 percent of
net revenues) for the quarter ended March 31, 1996. The
decrease in SG&A expenses is primarily attributable to
higher advertising costs in 1996 as the Company expanded
its sales efforts in order to quickly penetrate target
markets. The level of these expenses was not sustained into
1997.
Net Income (Loss).
As a result of the individual line items discussed above,
net loss was $124,411 for the quarter ended March 31, 1997
compared to net loss of $227,102 for the quarter ended March
31, 1996.
Liquidity and Capital Resources
Cash and cash equivalents decreased $19,128 to $0 at March 31,
1997. The decrease is primarily a result of operating expenses
and increases to accounts receivable and inventories, offset by
increases to accounts payable and payables to affiliates.
The Company's working capital deficit was approximately $1.2
million at March 31, 1997 and $1.1 million at December 31, 1996.
The decrease in working capital reflects the increase in accounts
receivable related to the increase in operations. The Company's cash
and cash equivalents have decreased by 100% ($19,218) from December 31,
1996 to March 31, 1997 primarily as a result of payments to trade creditors
and payment of payroll related expenses. At March 31, 1997 the Company
had payables to affiliates of $942,251 which comprise 54% of the Company's
current liabilities. The payables are classified as current because
management expects to eliminate or pay these payables in cash or have the
payables eliminated upon consolidation with affiliated companies (see
discussion of investment below).
The Company purchased $3,567 of capital equipment during the
quarter ended March 31, 1997.
Accounts payable at March 31, 1997 totaled $729,867 compared
to $607,570 at December 31, 1996. Of the total outstanding at
March 31, 1997 $583,652 was past due.
The Company's management believes that current working
capital together with projected income from operations are
not sufficient to meet the Company's cash needs over the
next twelve months. The Company's independent accountants
expressed substantial doubt as to the Company's ability to
continue as a going concern in their report on the Company's
1996 financial statements.
In September 1996, to address the liquidity and capital
resources concerns of the Company and certain of its
affiliated breweries, the Company's parent WVI and its
affiliate Nor'Wester,entered into a non-binding letter of intent
with The UB Group of Bangalore, India setting forth the proposed
terms of The UB Group's possible investment of $9.0 million in
cash and certain intangible consideration including the
grant of an exclusive right to manufacture The UB Group's
Kingfisher brand beer for sale in North America and The UB
Group's provision of certain management and technical
services to the alliance of craft breweries controlled by
WVI and the Company. Under the terms of the letter of
intent, The UB Group's investment would be made in the
resulting entity following a proposed consolidation of the
Craft Brewing Alliance comprised of Nor'Wester and
Nor'Wester's subsidiary, North Country Joint Venture,
located in Saratoga Springs, New York.; WVI and WVI's
subsidiaries-- Mile High Brewing Company, Inc., located in
Denver Colorado, Bayhawk Ales, Inc., located in Irvine,
California, and Aviator Ales, Inc. located in Woodinville,
Washington.
The closing of the possible investment remains subject to
(i) The UB Group's completion of satisfactory due diligence,
(ii) negotiation and execution of a definitive investment
agreement between the parties, (iii) approval by the boards
of directors and shareholders of each of the Company, WVI,
Nor'Wester and their respective subsidiaries, (iv)
registration with the U.S. Securities and Exchange
Commission of shares in the resulting entity following
consolidation which will be exchanged in the merger, and (v)
such other customary conditions for transactions of this
type.
Following execution of the letter of intent, The UB Group
has provided the WVI/Nor'Wester alliance of craft breweries
with bridge loans in the amount of $1,900,000 through May 15,
1997 to sustain and grow their brewing operations. The UB
Group has also indicated it may, at its discretion to provide
additional bridge loans or guarantees on bank loans in such
amounts and at such times as are necessary to sustain the breweries'
operations until completion of the planned consolidation and
closing of the investment. There can be no assurances that
additional bridge loans will be made by The UB Group, that
an equity investment by The UB Group will ultimately be made
or, if made, the final terms of such investment.
Subsequent to March 31, 1997, in light of lower than
anticipated 1996 operating results, lower than anticipated
first quarter 1997 sales and other operating results and
adverse conditions with the craft beer industry in general,
representatives of UBA and management and the investment
bankers of the affiliated companies are in the process of
renegotiating the terms of the UBA investment discussed
above. The renegotiation will reflect a significantly lower
valuation for the affiliate companies, a reduction in the
total amount of cash to be invested by UBA to $5.5 million
and a reduction of UBA's percentage ownership position in
UCB to 40% following consolidation. It is anticipated that
the $2.75 million bridge loan will not be reduced. The
existing shareholders in the affiliated companies would
retain a 60% interest in UCB. The exact distribution of
ownership interests among shareholders of the affiliated
companies has not yet been determined. Management will soon
seek Board approval by each of the affiliated companies of
any renegotiated terms. Failure of the parties to reach a
mutually agreeable renegotiated investment agreement could
lead to a loss of the bridge loans and the remainder of the
UBA investment which would materially and adversely affect
the Company's financial condition and results of operations.
There can be no assurance that the proposed merger will be
completed or that the Company will obtain the capital needed
to sustain operations.
If, for any reason, the proposed consolidation and
investment does not occur, alternative sources of debt
financing and/or equity capital would have to be developed.
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 business and
results of operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 1 - Definitive Investment Agreement press
release dated January 30, 1997.
(b) Reports on Form 8-K:
On January 30, 1997, the Company filed a Form 8-K in connection
with its execution of a definitive investment agreement with
United Breweries of America, Inc., an affiliate of the UB
Group of Bangalore, India. Under terms of the agreement,
UBA will invest approximately $9 million in cash in exchange
for a 45% equity interest in a new entity comprised of the
consolidated businesses of Nor'Wester, North Country Joint
Venture., Willamette Valley, Inc., Microbreweries
across America and its subsidiaries - Aviator Ales, Inc.,
Bayhawk Ales, Inc., Mile High Brewing Company. The
Form 8-K set forth the terms and conditions of the proposed
investment as outlined in the letter of intent ,and included
as exhibits copies of the letter of intent dated September 26,
1996 and a January 30, 1997 press release relating to the matter.
Exhibit 1
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of
1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
AVIATOR ALES, INC.
Date: May 20, 1997 By _________________________
Dusty Wyant
General Manager
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of
1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
AVIATOR ALES, INC.
Date: May 20, 1997 By /s/ Dusty Wyant
Dusty Wyant
General Manager