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, 2006
| | 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) 463-6610
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer (see definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act) (check one)
Large Accelerated Filer |_| Accelerated Filer Yes |_| Non-Accelerated Filer |X|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The number of shares of the issuer's
common stock outstanding as of May 19, 2006 is 11,473,914.
PART I
ITEM 1. FINANCIAL STATEMENTS.
MENDOCINO BREWING COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31,
2006 2005
-------------------- --------------------
ASSETS (unaudited) (audited)
CURRENT ASSETS
Cash $ 246,600 $ 247,700
Accounts receivable, allowance for doubtful
accounts of $40,600 and $54,900, respectively 7,610,500 7,051,500
Inventories 1,258,800 1,151,400
Prepaid expenses 228,300 548,500
-------------------- --------------------
Total Current Assets 9,344,200 8,999,100
-------------------- --------------------
PROPERTY AND EQUIPMENT 13,138,900 13,185,600
-------------------- --------------------
OTHER ASSETS
Deferred income taxes 117,400 116,000
Deposits and other assets 163,700 179,200
Intangibles net of amortization 75,500 77,500
-------------------- --------------------
Total Other Assets 356,600 372,700
-------------------- --------------------
-------------------- --------------------
Total Assets $ 22,839,700 $ 22,557,400
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit $ 3,881,800 $ 3,774,000
Note payable 576,200 576,200
Accounts payable 5,883,200 5,491,800
Accrued liabilities 1,719,500 1,714,800
Current maturities of notes to related parties 104,400 103,100
Current maturities of obligations under long-term debt 287,000 284,400
Current maturities of obligations under capital leases 105,700 131,600
-------------------- --------------------
Total Current Liabilities 12,557,800 12,075,900
LONG-TERM LIABILITIES
Notes to related party 3,220,500 3,171,000
Long term debt, less current maturities 2,278,000 2,314,900
Obligations under capital lease less current maturities 144,500 121,500
-------------------- --------------------
Total Long-Term Liabilities 5,643,000 5,607,400
Total Liabilities 18,200,800 17,683,300
-------------------- --------------------
STOCKHOLDERS' EQUITY
Preferred stock, Series A, no par value, with aggregate liquidation
preference of $227,600;10,000,000 shares authorized,
227,600 shares issued and outstanding 227,600 227,600
Common stock, no par value:30,000,000 shares authorized,
11,473,914 shares issued and outstanding 14,747,300 14,747,300
Accumulated comprehensive income 124,100 130,400
Accumulated deficit (10,460,100) (10,231,200)
-------------------- --------------------
Total Stockholders' Equity 4,638,900 4,874,100
-------------------- --------------------
Total Liabilities and Stockholders' Equity $ 22,839,700 $ 22,557,400
==================== ====================
See accompanying notes to these condensed financial statements.
-1-
MENDOCINO BREWING COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------
Three Months Ended
March 31,
-------------------------------------------------
2006 2005
----------------------- -----------------------
(unaudited) (unaudited)
Sales $ 7,428,100 $ 7,406,100
Less excise taxes 156,000 149,200
----------------------- -----------------------
Net Sales 7,272,100 7,256,900
Cost of goods sold 5,013,300 4,986,400
----------------------- -----------------------
Gross Profit 2,258,800 2,270,500
----------------------- -----------------------
Operating Expense
Marketing 1,258,500 1,316,200
General and administrative 976,100 903,200
----------------------- -----------------------
Total Operating Expense 2,234,600 2,219,400
----------------------- -----------------------
Income from operations 24,200 51,100
----------------------- -----------------------
Other income (expense)
Miscellaneous income 2,400 4,600
Loss on sale of assets (1,100) (3,300)
Interest expense (254,400) (220,600)
----------------------- -----------------------
Total Other Expense (253,100) (219,300)
----------------------- -----------------------
Loss before income taxes (228,900) (168,200)
Provision for income taxes - 30,200
----------------------- -----------------------
Net Loss (228,900) (198,400)
Foreign currency translation loss (6,300) (9,300)
----------------------- -----------------------
Comprehensive Loss $ (235,200) $ (207,700)
======================= =======================
Net Loss per Share (0.02) (0.02)
======================= =======================
Weighted average common
shares outstanding, basic and diluted 11,473,914 11,439,407
======================= =======================
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,
----------------------------------------
2006 2005
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited) (unaudited)
Net Loss $ (228,900) $ (198,400)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization 233,300 223,700
Allowance for doubtful accounts (5,300) 5,700
Interest accrued on related party debt 42,200 28,200
Loss on sale of assets 1,100 3,300
Changes in:
Accounts receivable (504,800) 528,700
Inventories (107,400) 170,900
Prepaid expenses 326,100 158,100
Deposits and other assets 32,500 26,400
Accounts payable 343,400 (904,400)
Accrued liabilities (4,000) (327,700)
Income taxes payable - 28,400
------------------ ------------------
Net cash from operating activities 128,200 (257,100)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment, and leasehold improvements (129,700) (191,700)
Proceeds from sale of fixed assets 3,500 8,300
------------------ ------------------
Net cash from investing activities (126,200) (183,400)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing on line of credit 82,300 822,700
Repayment on long-term debt (34,300) (42,600)
Borrowings on related party debt - 400,000
Payments on obligation under long term lease (46,500) (20,100)
------------------ ------------------
Net cash from financing activities 1,500 1,160,000
------------------ ------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH: (4,600) 3,200
------------------ ------------------
NET CHANGE IN CASH (1,100) 722,700
CASH, beginning of period 247,700 526,600
------------------ ------------------
CASH, end of period $ 246,600 $ 1,249,300
================== ==================
SUPPLEMENTARY CASH FLOW INFORMATION Cash paid during the period for:
Interest $ 212,000 $ 192,400
================== ==================
Non-cash investing activity:
Seller Financed equipment $ 41,800 $ 29,500
================== ==================
See accompanying notes to these condensed financial statements.
-3-
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2006
(UNAUDITED)
1. DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF OPERATIONS
Mendocino Brewing Company, Inc., ("the Company" 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 and malt beverages
for the specialty "craft" segment of the beer market. The breweries are located
in Ukiah, California and Saratoga Springs, New York. The Company also owns and
operates a brewpub and gift store located in Hopland, California. The majority
of sales for Mendocino Brewing Company are in California. The Company brews
several brands, of which Red Tail Ale is the flagship brand. In addition, the
Company performs contract brewing for several other brands, and MBC holds the
license to distribute Kingfisher Lager in the US.
The Company's UK subsidiary, UBIUK, is a holding company for UBSN
Limited. 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 Brewing
Company, LLC, and UBIUK. All material inter-company balances, profits and
transactions have been eliminated.
BASIS OF PRESENTATION AND ORGANIZATION
The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The financial
statements and notes are representations of the management and the Board of
Directors, who are responsible for their integrity and objectivity.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, except as otherwise indicated, considered
-4-
necessary for a fair presentation of the financial condition, results of
operations and cash flows for the periods presented. These condensed financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Company's most recent Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission, which contains additional
financial and operating information and information concerning the significant
accounting policies followed by the Company.
Operating results for the three months ended March 31, 2006, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2006 or any future period.
SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes in the Company's significant
accounting policies during the three months ended March 31, 2006 as compared to
what was previously disclosed in the Company's Annual Report on 10-K for the
year ended December 31, 2005, except for the adoption of SFAS No. 123 (revised
2004).
CASH AND CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS
For purposes of cash flows, the Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents, those with original maturities not greater than three months and
current 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.
Financial instruments that potentially subject the Company to
significant concentration of credit risk consist primarily of cash and cash
equivalents. Substantially all of the Company's cash and cash equivalents are
deposited with large commercial banks in the US and the UK.
DEFERRED FINANCING COSTS
Costs relating to obtaining financing are capitalized and amortized
over the term of the related debt using the straight-line method. Deferred
financing costs were $40,500, and the related accumulated amortization at March
31, 2006 was $22,300. Amortization of deferred financing costs charged to
operations was $675 for the quarter ended March 31, 2006, and 2005. The Company
will continue to amortize these fees until 2012 at the same rate. When a loan is
paid in full, any unamortized financing costs are removed from the related
accounts and charged to operations.
-5-
CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially subject the Company to credit
risk consist principally of trade receivables, cash deposits in excess of FDIC
limits, and assets located in the United Kingdom. The Company's cash deposits
are placed with major financial institutions.
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 $237,700 in cash deposits and
$5,827,000 of accounts receivable due from customers located in the United
Kingdom.
INCOME TAXES
The Company accounts for its income taxes using the Financial
Accounting Standards Board Statements of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the establishment of a deferred
tax asset or liability for the recognition of future deductible or taxable
amounts and operating loss and tax credit carryforwards. Deferred tax expense or
benefit is recognized as a result of timing differences between the recognition
of assets and liabilities for book and tax purposes during the year.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
recognized for deductible temporary differences and operating loss, and tax
credit carryforwards. A valuation allowance is established to reduce that
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.
STOCK-BASED COMPENSATION
Prior to the adoption of Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123(R)"), the Company
accounted for stock-based awards to employees and directors using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Under the intrinsic value
method that was used to account for stock-based awards prior
-6-
to January 1, 2006, which had been allowed under the original provisions of
Statement 123, no stock compensation expense had been recognized in the
Company's statement of operations as the exercise price of the Company's stock
options granted to employees and directors equaled the fair market value of the
underlying stock at the date of grant.
On January 1, 2006, the Company adopted SFAS 123(R) which requires the
measurement and recognition of compensation expense for all share-based awards
made to employees and directors, including employee stock options and employee
stock purchases, based on estimated fair values. SFAS 123(R) supersedes the
Company's previous accounting for share-based awards under APB 25 for periods
beginning in 2006. In March 2005, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The
Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
The Company adopted SFAS 123(R) using the modified prospective transition
method, which requires the application of the accounting standard as of the
beginning of the Company's current year. The Company's financial statements as
of and for the three months ended March 31, 2006 reflect the impact of SFAS
123(R). In accordance with the modified prospective transition method, the
Company's financial statements for prior periods have not been restated to
reflect, and do not include, the impact of SFAS 123(R).
Stock compensation expense recognized during the period is based on the
value of share-based awards that are expected to vest during the period. Stock
compensation expense recognized in the Company's statement of operations for
2006 includes compensation expense related to share-based awards granted prior
to January 1, 2006 that vested during the current period based on the grant date
fair value estimated in accordance with the pro forma provisions of SFAS 123.
Stock compensation expense during the current period also includes compensation
expense for the share-based awards granted subsequent to January 1, 2006 based
on the grant date fair value estimated in accordance with the provisions of SFAS
123(R). As stock compensation expense recognized in the statement of operations
is based on awards ultimately expected to vest, it has been reduced for
estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. In the Company's pro forma information
required under SFAS 123 for the periods prior to 2006, forfeitures were
estimated and factored into the expected term of the options.
The Company's determination of estimated fair value of share-based
awards utilizes the Black-Scholes option-pricing model. The Black-Scholes model
is affected by The Company's stock price as well as assumptions
-7-
regarding a number of highly complex and subjective variables. These variables
include, but are not limited to, the Company's expected stock price volatility
over the term of the awards, and actual and projected employee stock option
exercise behaviors.
SFAS 123(R) requires the calculation of the beginning balance of the
pool of excess tax benefits (additional paid in capital pool or "APIC pool")
available to absorb tax deficiencies recognized subsequent to its adoption. SFAS
123(R) states that this beginning APIC pool shall include the net excess tax
benefits that would have arisen had the company adopted the original Statement
123. FASB Staff Position ("FSP") 123(R)-3 provides a simplified method for
determining this APIC pool, which the Company may elect to adopt up to one year
from its initial adoption of SFAS 123(R). The Company has not yet determined
whether to elect the simplified method for determining its APIC pool as provided
in FSP No. 123(R)-3.
STOCK-BASED COMPENSATION NON-EMPLOYEES
The company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No 123(R) and Emerging Issues Task Force
("EITF") No 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.
In 2006 and 2005, the Company did not grant any options or warrants.
Additionally, as of January 1, 2005, all outstanding stock options were fully
vested.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share," the basic
earnings (loss) per share is computed by dividing the loss attributable to
common stockholders by the weighted average number of common shares outstanding
during the period. Basic net loss per share excludes the dilutive effect of
stock options or warrants and convertible notes. Diluted net loss per share was
the same as basic net loss per share for 2006 and 2005, since the effect of any
potentially dilutive securities is excluded, as they are anti-dilutive due to
the Company's net losses. In 2006, all potentially dilutive securities were
non-dilutive.
Three months ended
-----------------------------------------------
3/31/2006 3/31/2005
---------------------- ---------------------
Net (loss) $ (228,900) $ (198,400)
====================== === =================
Weighted average common shares outstanding 11,473,914 11,439,407
====================== =====================
Basic net income (loss) per share $ (0.02) $ (0.02)
====================== =====================
-8-
The potential shares, which are excluded from the determination of
basic and diluted net loss per share as their effect is anti-dilutive, are as
follows:
-----------------------------------------------------
March 31, 2006 March 31, 2005
------------------------- ------------------------
Options to purchase common stock 240,385 340,385
Convertible debentures 1,276,933 1,276,933
------------------------- ------------------------
Potential equivalent shares excluded 1,517,318 1,617,318
========================= ========================
Diluted net loss per share for the three months ended March 31, 2006
does not include the effect of 240,385 common shares related to options (none of
which were in-the-money with a weighted average exercise price of $0.52) because
their effect is anti-dilutive. Diluted net loss per share for the three months
ended March 31, 2006 also does not include the effect of 1,276,933 common shares
related to the 10% Convertible Notes with an average conversion price of $1.50
per share. Diluted net income per share for the three months ended March 31,
2005 does not include the effect of 340,385 common shares related to options
(none of which were in-the-money with a weighted average exercise price of
$0.73) because their effect is anti-dilutive. Diluted net loss per share for the
three months ended March 31, 2005 also does not include the effect of 1,276,933
common shares related to the 10% Convertible Notes with an average conversion
price of $1.50 per share.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of UBIUK were translated at the United
Kingdom pound sterling - U.S. dollar exchange rates in effect at March 31, 2006
and December 31, 2005, and the statements of operations were translated at the
average exchange rates for the quarters ended March 31, 2006 and 2005. 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, 2006 and December 31, 2005, and its cash
flows were translated at the average exchange rates for the quarters ended March
31, 2006 and 2005. 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 to make estimates and assumptions affecting the reported amounts of
assets, liabilities, revenues and expenses, and disclosure of
-9-
contingent assets and liabilities. The amounts estimated could differ from
actual results. Significant estimates include the allowance for bad debts,
depreciation and amortization periods, and the future utilization of deferred
tax assets. The Company has determined that deferred tax assets associated with
net operating loss carryforwards in the US may expire prior to utilization. The
Company has placed a valuation allowance on these assets in the US.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is composed of the Company's net income
(loss) and changes in equity from non-stockholder sources. The accumulated
balances of these non-stockholder sources are reflected as a separate item in
the equity section of the balance sheet.
The components of other comprehensive income for the three months ended
March 31, 2006 and 2005 are as follows:
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------
2006 2005
-------------------------- -----------------------
Net (loss) $ (228,900) $ (198,400)
Foreign currency translation (loss) (6,300) (9,300)
-------------------------- -----------------------
Comprehensive (loss) $ (235,200) $ (207,700)
========================== =======================
REPORTABLE SEGMENTS
The Company manages its operations through three business segments:
brewing operations, tavern and tasting room operations (domestic) and
distributor operations (international). The international business segment sells
the Company's products outside the U.S.
The Company evaluates performance based on net operating profit. Where
applicable, portions of the administrative function expenses are allocated
between the operating segments. The operating segments do not share
manufacturing or distribution facilities. In the event any materials and/or
services are provided to one operating segment by the other, the transaction is
valued according to the company's transfer policy, which approximates market
price. The costs of operating the manufacturing plants are captured discretely
within each segment. The Company's property, plant and equipment, inventory, and
accounts receivable are captured and reported discretely within each operating
segment.
-10-
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 loss.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133, establishes a
requirement to evaluate interest in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. This statement is effective for all financial instruments acquired
or issued after the beginning of the Company's first fiscal year that begins
after September 15, 2006. The Company does not believe adoption of SFAS No. 155
will have any material effect on its unaudited condensed consolidated financial
position, results of operations or cash flows.
In March 2006, the FASB issued SFAS No. 156, ACCOUNTING FOR SERVICING
OF FINANCIAL ASSETS--AN AMENDMENT OF FASB STATEMENT NO. 140. Companies are
required to apply SFAS No. 156 as of the first annual reporting period that
begins after September 15, 2006. The Company does not believe adoption of SFAS
No. 156 will have a material effect on its unaudited condensed consolidated
financial position, results of operations or cash flows.
2. LIQUIDITY AND MANAGEMENT PLANS
At March 31, 2006, the Company had cash and cash equivalents of
$246,600, a working capital deficit of $ 3,213,600 and an accumulated deficit of
$10,460,100. Additionally, the Company has a history of past losses as
infrastructure costs were incurred in advance of obtaining customers.
Management has taken several actions to ensure that the Company will
have sufficient cash for its working capital needs through December 31, 2006,
-11-
including obtaining a secured line of credit, and reductions in discretionary
expenditures, and additional debt financing. Management believes that these
actions will enable the Company to meet its working capital needs through
December 31, 2006. The Company is pursuing other refinancing opportunities to
augment working capital.
Additionally, one of the Company's majority stockholders has guaranteed
to provide financial support to avoid any possible default action by Savings
Bank of Mendocino County. In 2006, the Company obtained additional debt
financing of $289,938.
3. INVENTORIES
Inventories are stated at the lower of average cost or market and
consist of the following:
31-MAR-06 31-DEC-05
-------------------- ---------------------
Raw Materials $ 488,800 $ 447,900
Beer-in-process 199,600 143,900
Finished Goods 552,300 539,800
Merchandise 18,100 19,800
-------------------- ---------------------
TOTAL $ 1,258,800 $ 1,151,400
==================== =====================
4. LINE OF CREDIT AND NOTE PAYABLE
On May 5, 2005, the Company entered into a receivables and
inventory-based line of credit transaction with BFI Business Finance ("BFI"),
pursuant to which BFI has provided the Company with a $2,000,000 maximum
revolving line of credit with an advance rate based on 80% of MBC's qualified
accounts receivable, 70% of Releta's qualified accounts receivable, and 50% of
the eligible inventory carried by both MBC and Releta (the "BFI Line of
Credit").
The BFI Line of Credit has an initial term of twelve months, but it can
be automatically extended, at the Company's option, for an unlimited number of
additional twelve-month periods. However, BFI also retains the right to
terminate the BFI Line of Credit at any time, upon 30 days' notice. The minimum
monthly interest payment under the BFI Line of Credit is approximately $6,000.
The BFI Facility carries an interest rate equal to the greater of 9.5%, or the
prime rate announced in the Western edition of the Wall Street Journal plus 3.75
%, payable monthly. The facility is also subject to a monthly administrative fee
of 0.40%.
-12-
On May 6, 2005, the Company used the entire immediately available
amount drawable under the BFI Facility to pay off the balance remaining
outstanding under the CIT Group Line of Credit discussed below.
BFI advanced the Company $200,000 under a promissory note on December
31, 2005 payable in weekly installments of $6,665 commencing in January 2006.
BFI also advanced the Company an additional amount of $289,938 under
another promissory note on April 5, 2006. This note is payable commencing in
April 2006 in 18 weekly installments of $3,335 and 22 weekly installments of
$10,000. A final installment of $9,908 is due on the maturity date, January 19,
2007. This note is secured by the collateral set forth in the Loan and Security
agreement.
The CIT Group/Credit Finance, Inc. provided MBC a $3,000,000 maximum
line of credit secured by all accounts, general intangibles, inventory, and
equipment of MBC except for the specific equipment and fixtures of the Company
leased from Finova Capital Corporation, as well as by a second deed of trust on
the Company's Ukiah land improvements. $1,484,000 of the line of credit was
advanced to MBC as an initial term loan, which was repaid in full in consecutive
monthly installments of $24,700. The Company used the proceeds from the BFI
Facility to pay off the entire amount outstanding on May 6, 2005.
On December 31, 2003, Savings Bank of Mendocino County ("SBMC")
extended a temporary loan in the principal amount of $576,200 to MBC in order to
finance a buy-out of equipment leased through Finova Capital Corporation. The
lender has extended the loan until May 31, 2006. The rate of interest on the
loan is prime plus 3%.
Nedbank Limited, a South African registered company, provided a credit
facility of GBP 1,250,000 to UBSN Ltd. ("UBSN"), a wholly-owned subsidiary of
United Breweries International (UK) Ltd. ("UBI"), which is in turn wholly-owned
by the Company. This facility included a revolving short-term loan, overdraft
protection, and foreign exchange services. It was secured by all of the assets
of UBSN. On April 26, 2005, the balance remaining outstanding on the Nedbank
facility was settled in full using the proceeds from the RBS facility (discussed
below).
On April 26, 2005, Royal Bank of Scotland ("RBS") provided an invoice
discounting facility for a maximum amount of GBP 1,750,000 based on 80%
prepayment against qualified accounts receivable related to UBSN's United
Kingdom customers. The initial term of the facility is for a period of one year
after which the facility can be terminated by either party by providing the
other party a notice of six months. The facility carries an interest rate of
1.38% above
-13-
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, 2006 was approximately
$2,242,200. The Company's credit agreement with RBS contains certain financial
covenants that require, among other things, maintenance of minimum amounts and
ratios of working capital; minimum amounts of tangible net worth; and maximum
ratio of indebtedness to tangible net worth. As of March 31, 2006, certain
financial covenants have not been met, and the bank has agreed in writing to
continue RBS's lending relationship with UBSN.
5. LONG-TERM DEBT
Maturities of long-term debt for succeeding years are as follows:
March 31, 2006 December 31, 2005
-------------------------- ---------------------
Note to a bank; payable in monthly installments of $24,400, including
interest at the Treasury Constant Maturity Index, plus 4.17% (currently
7.24%); maturing December 2012, with a balloon payment; secured by
substantially all of the assets of Mendocino Brewing Company $ 2,134,100 $ 2,168,400
Payable to the County of Mendocino in three annual installments of $143,600,
plus interest at 18%, beginning April 2006; maturing April 2008 430,900 430,900
-------------------------- ---------------------
2,565,000 2,599,300
Less current maturities 287,000 284,400
-------------------------- ---------------------
$ 2,278,000 $ 2,314,900
========================== =====================
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), with interest at the prime rate plus 1.5%,
but not to exceed 10% per year. The notes are convertible into common stock at
$1.50 per share. The notes were extended until August 2005. UBA may demand
payment within 60 days of the end of the extension period but is
-14-
precluded from doing so because the notes are subordinated to long-term debt
agreements with Savings Bank of Mendocino County and BFI line of credit. The BFI
Line of Credit matures in May 2007 and the SBMC facility matures in the year
2012. Therefore, the Company will not require the use of working capital to
repay any of the UBA notes until the BFI and SBMC facilities are repaid.
Accordingly, the entire amount due under the Notes is classified as a long term
liability. The notes include $679,000 and $636,800 of accrued interest at March
31, 2006 and December 31, 2005.
5% NOTES PAYABLE
Note payable also include an unsecured loan from Shepherd Neame Limited
payable in annual installments of $104,400 with interest at 5% per year
beginning June 2003 and maturing December 2012.
7. COMMITMENTS AND CONTINGENCIES
LEGAL
The Company is periodically involved in legal actions and claims that
arise as a result of events that occur in the normal course of operations. The
Company is not currently aware of any legal proceedings or claims that the
Company believes will have, individually or in the aggregate, a material adverse
effect on the Company's financial position or results of operations.
OPERATING LEASES
The Company leases many of its operating and office facilities for
various terms under long-term, non-cancelable operating lease agreements. The
leases expire at various dates through 2009 and provide for renewal options
ranging from month-to-month to five years. In the normal course of business, it
is expected that these leases will be renewed or replaced by leases on other
properties. The leases provide for increases in future minimum annual rental
payments based on defined increases which are generally meant to correlate with
the Consumer Price Index, subject to certain minimum increases. Also, the
agreements generally require the Company to pay executory costs (real estate
taxes, insurance and repairs).
The Company and its subsidiaries have various lease agreements for the
brewpub and gift store in Hopland, California; a sales office in Petaluma,
California; land at its Saratoga Springs, New York, facility; a building in the
United Kingdom; and certain personal property. The land lease includes a renewal
option for two additional five-year periods, which the Company intends to
exercise, and some leases are adjusted annually for changes in the consumer
price index. The leases begin expiring in 2007.
-15-
KEG MANAGEMENT AGREEMENT
In September 2004, the Company renewed the keg management agreement
with MicroStar Keg Management LLC. Under this arrangement, MicroStar provides
all kegs for which the Company pays a service fee between $5 and $15, depending
on territory. The agreement is effective for five years ending in September
2009. If the agreement is terminated, the Company is required to purchase three
times the average monthly keg usage for the preceding six-month period from
MicroStar at purchase prices ranging from $54 to $84 per keg. The Company
expects to continue this relationship.
8. RELATED-PARTY TRANSACTIONS
MBC and its subsidiaries have entered into or amended several
agreements with affiliated and related entities. 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, 2005.
The following table reflects the value of the transactions for the
quarter ended March 31, 2006 and 2005 and the balances outstanding as of March
31, 2006 and 2005.
2006 2005
------------------ ------------------
Sales to Shepherd Neame $ 740,000 $ 568,400
Purchases from Shepherd Neame $ 3,273,100 $ 3,309,600
Expense reimbursement to Shepherd Neame $ 264,100 $ 241,900
Interest expense associated with UBA convertible notes payable $ 42,200 $ 28,200
Accounts payable to Shepherd Neame $ 3,766,100 $ 2,843,200
Accounts receivable from Shepherd Neame $ 742,800 $ 435,900
9. STOCKHOLDERS' EQUITY
The following table summarizes equity transactions during the three
months ended March 31, 2006.
SERIES A
PREFERRED STOCK COMMON STOCK OTHER
-------------------- --------------------------- COMPREHENSIVE ACCUMULATED TOTAL
SHARES AMOUNT SHARES AMOUNT INCOME / (LOSS) DEFICIT EQUITY
-------- ---------- -------- ---------- ---------------- -------------- --------------
Balance, December 31, 2005 227,600 $ 227,600 11,473,914 $ 14,747,300 $ 130,400 $ (10,231,200) $ 4,874,100
Net Loss - - - - - (228,900) (228,900)
Currency Translation
Adjustment - - - - (6,300) - (6,300)
------- ---------- ---------- ------------- --------------- --------------- --------------
Balance, March 31, 2006 227,600 $ 227,600 11,473,914 $ 14,747,300 $ 124,100 $ (10,460,100) $ 4,638,900
======== ========== ========== ============= =============== ================ ==============
-16-
The following table summarizes equity transactions during the three
months ended March 31, 2005.
SERIES A
PREFERRED STOCK COMMON STOCK OTHER
-------------------- --------------------------- COMPREHENSIVE ACCUMULATED TOTAL
SHARES AMOUNT SHARES AMOUNT INCOME / (LOSS) DEFICIT EQUITY
-------- ---------- -------- ---------- ---------------- -------------- --------------
Balance, December 31, 2004 227,600 $ 227,600 11,266,874 $ 14,648,600 $ 194,300 $ (8,916,500) $ 6,154,000
Common stock issued for
conversion of debt - - 207,040 98,700 - - 98,700
Net Loss - - - - (198,400) (198,400)
Currency Translation
Adjustment - - - - (9,300) - (9,300)
------- ---------- ---------- ------------- --------------- --------------- --------------
Balance, March 31, 2005 227,600 $ 227,600 11,473,914 $ 14,747,300 $ 185,000 $ (9,114,900) $ 6,045,000
======== ========== ========== ============= =============== ================ ==============
Independent outside members of the Board of Directors are compensated
for attending Board of Directors and committee meetings.
PREFERRED STOCK
Ten million shares of preferred stock have been authorized, of which
227,600 are designated as Series A. 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. STOCK OPTION PLAN
Under the 1994 Stock Option Plan, which expired during 2004, the
Company could issue options to purchase up to 1,000,000 shares of common stock.
The Plan provided for both incentive stock options, as defined in Section 422 of
the Internal Revenue Code, and options that did not qualify as incentive stock
options.
The exercise price of incentive options was no less than the
fair-market value of the Company's stock at the date the option was granted,
while the exercise price of non-statutory options was no less than 85% of the
fair-market value per share on the date of grant. Options granted to a person
possessing more than 10% of the combined voting power of all classes of the
Company's stock had an exercise price of no less than 110% of the fair-market
value of the Company's stock at the date of grant. During 2002, 240,385
non-statutory stock options with a five-year term were issued to the independent
members of the Board of Directors at the market price on the date of grant. All
options were exercisable at the date of grant and expire in 2007.
-17-
GENERAL OPTION INFORMATION
The following is a summary of changes to outstanding stock options
during the three months ended March 31, 2006:
WEIGHTED AVERAGE AGGREGATE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) NUMBER OF WEIGHTED AVERAGE REMAINING INTRINSIC
OPTIONS SHARE OPTIONS EXERCISE PRICE CONTRACTUAL TERM VALUE
-------------- ------------------ ------------------ -------------
Outstanding at December 31, 2005 240,385 $ 0.52 1.00 $ -
Granted - - - -
Exercised - - - -
Forfeited or expired - - - -
-------------- ------------------ ------------------ -------------
Outstanding at March 31, 2006 240,385 0.52 0.75 -
-------------- ------------------ ------------------ -------------
Vested and expected to vest at March 31, 2006 240,385 0.52 0.75 -
-------------- ------------------ ------------------ -------------
Options exercisable at March 31, 2006 240,385 $ 0.52 0.75 $ -
============== ================== ================== =============
The aggregate intrinsic value is nil as of March 31, 2006, based on the
Company's closing stock price of $0.16 on that date, and accordingly there is no
pretax intrinsic value, which would have been received by the option holders had
all option holders exercised their options as of that date. The total number of
in-the-money options exercisable as of March 31, 2006 was none.
As of March 31, 2006, there was no unrecognized compensation cost.
VALUATION AND EXPENSE INFORMATION UNDER SFAS 123(R)
There was no stock compensation related to employee stock options under
SFAS 123(R) for the three months ended March 31, 2006. In 2006, the Company has
not issued any stock based compensation.
PRO FORMA INFORMATION UNDER SFAS 123 FOR PERIOD PRIOR TO 2006
The following table illustrates the effect on net loss and loss per
share for the three months ended March 31, 2005 if the Company had applied the
fair value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
2005
--------------------
Net income (loss) - as reported $ (198,400)
Compensation expense -
--------------------
Net income (loss) - pro forma $ (198,400)
====================
Income (loss) per share - pro forma $ (0.02)
====================
-18-
11. SEGMENT INFORMATION
The Company's business presently consists of three segments. The first
is brewing for wholesale to distributors and other retailers. The second
consists of distributing alcoholic beverages to retail establishments and
restaurants in the United Kingdom and Europe. The third segment consists of beer
for sale along with merchandise at the Company's brewpub and retail merchandise
store located at the Hopland Brewery and at Saratoga Springs brewery. A summary
of each segment is as follows:
Three months ended March 31, 2006
-----------------------------------------------------------------------------------------------
Domestic European Retail Corporate &
Operations Territory Operations Others Total
---------------- ---------------- -------------- --------------- ------------------
Net Sales $ 2,813,900 $ 4,420,500 37,700 $ - $ 7,272,100
Operating Profit/(Loss) $ 225,000 $ (202,700) 1,900 $ - $ 24,200
Identifiable Assets $ 12,759,000 $ 7,961,000 61,700 $ 2,058,000 $ 22,839,700
Depreciation &amortization $ 111,400 $ 112,600 1,200 $ 8,100 $ 233,300
Capital Expenditures $ 9,500 $ 120,200 - $ - $ 129,700
Three months ended March 31, 2005
------------------------------------------------------------------------------------------------
Domestic European Retail Corporate & Total
Operations Territory Operations Others
---------------- --------------- ---------------- --------------- ------------------
Net Sales $ 2,475,600 $ 4,740,100 $ 41,200 $ - $ 7,256,900
Operating Profit/(Loss) $ (71,600) $ 123,200 $ (500) $ - $ 51,100
Identifiable Assets $ 12,898,000 $ 8,850,500 $ 105,300 $ 2,178,500 $ 24,032,300
Depreciation & amortization $ 117,700 $ 96,700 $ 1,200 $ 8,100 $ 223,700
Capital Expenditures $ 34,200 $ 157,500 $ - $ - $ 191,700
-19-
12. UNRESTRICTED NET ASSETS
The Company's wholly-owned subsidiary, UBI, has undistributed earnings
of approximately $1,043,100 as of March 31, 2006. Under UBSN's line of credit
agreement with RBS, distributions and other payments to the Company from its
subsidiary are not permitted if the retained earning drops below approximately
$1,750,000. Condensed financial information of the parent company, Mendocino
Brewing Company, Inc. together with its other subsidiary, Releta Brewing Company
is as follows:
March 31, 2006 December 31, 2005
-------------------------- -------------------------------
(unaudited) (audited)
Assets
Cash $ 8,900 $ 11,500
Accounts receivable 1,683,600 1,388,500
Inventories 1,258,800 1,151,400
Other current assets 125,500 212,600
-------------------------- -------------------------------
Total current assets 3,076,800 2,764,000
Investment in UBI 1,225,000 1,225,000
Property and equipment 11,572,400 11,682,900
Other assets 229,500 245,700
-------------------------- -------------------------------
Total assets $ 16,103,700 $ 15,917,600
========================== ===============================
Liabilities and Stockholders' Equity
Line of credit and note payable $ 2,215,800 $ 2,181,000
Accounts payable 1,851,200 1,486,000
Accrued liabilities 749,600 892,900
Current maturities of debt and leases 329,500 352,800
-------------------------- -------------------------------
Total current liabilities 5,146,100 4,912,700
Intercompany payable to UBI 1,232,900 1,319,500
Long-term debt and capital leases 2,292,900 2,332,700
Notes payable to related party 2,594,400 2,552,300
-------------------------- -------------------------------
Total liabilities 11,266,300 11,117,200
-------------------------- -------------------------------
Stockholders' equity
Common stock 14,747,300 14,747,300
Preferred stock 227,600 227,600
Accumulated deficit (10,137,500) (10,174,500)
-------------------------- -------------------------------
Total stockholders' equity 4,837,400 4,800,400
-------------------------- -------------------------------
Total liabilities and stockholders' equity $ 16,103,700 $ 15,917,600
========================== ===============================
-20-
12. UNRESTRICTED NET ASSETS (CONTINUED)
STATEMENTS OF OPERATIONS QUARTER ENDED MARCH 31
--------------------------------------------------
2006 2005
---------------------- ------------------------
(unaudited) (unaudited)
Net sales $ 2,851,600 $ 2,516,800
Cost of goods sold 1,964,200 1,785,300
Selling, marketing, and retail expenses 314,000 353,500
General and administrative expenses 372,100 469,900
---------------------- ------------------------
Income (loss) from operations 201,300 (91,900)
Other income and (expense) 33,600 34,500
Interest expense 197,900 185,800
Provision for taxes - 1,800
---------------------- ------------------------
Net profit (loss) $ 37,000 $ (245,000)
====================== ========================
Statements of Cash Flows QUARTER ENDED MARCH 31
------------------------------------------------------
2006 2005
------------------------- -------------------------
(unaudited) (unaudited)
Cash flows from operating activities $ 121,900 $ (167,300)
Purchase of property and equipment (9,500) (34,200)
Net borrowing (repayment) on line of credit 34,800 (243,100)
Repayment on long term debt (34,300) (42,600)
Payment on obligation under capital lease (28,800) (20,100)
Borrowing on related party note - 400,000
Net change in payable to UBI (86,700) (11,500)
------------------------- -------------------------
Increase (decrease) in cash (2,600) (118,800)
Cash, beginning of period 11,500 286,000
------------------------- -------------------------
Cash, end of period $ 8,900 $ 167,200
========================= =========================
13. SUBSEQUENT EVENTS
On April 5, 2006 BFI advanced the Company $289,900 under another
promissory note repayable in 39 weekly installments. The note bears interest of
3.75% over the prime rate per annum. The proceeds from the financing were used
to pay property taxes in California.
-21-
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, 2006, compared to the three
months ended March 31, 2005. 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, 2005.
In this Report, the term "the Company" and its variants is generally
used to refer to Mendocino Brewing Company, Inc. and its subsidiaries, while the
term "MBC" is used to refer to Mendocino Brewing Company, Inc. as an individual
entity standing alone.
FORWARD LOOKING STATEMENTS
Various portions of this Quarterly Report, including but not limited to
the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contain forward-looking information. Such
information involves risks and uncertainties that are based on current
expectations, estimates and projections about the Company's business,
Management's beliefs, and assumptions made by Management. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
and variations of those and similar words are intended to identify such
forward-looking information. Any forward-looking statements made by the Company
are intended to provide investors with additional information with which they
may assess the Company's future potential. All forward-looking statements are
based on assumptions about an uncertain future and are based on information
available at the date such statements are issued. Actual outcomes and results
may differ materially from what is expressed or forecasted in such
forward-looking information due to numerous factors, including but not limited
to: changes in the pricing environment for the Company's products; changes in
demand for malt beverage products in different Company markets; changes in
distributor relationships or performance, changes in customer preference for the
Company's malt beverage products; regulatory or legislative changes; the impact
of competition, changes in raw materials prices; availability of financing for
operations, changes in interest rates; changes in the company's European beer
and/or restaurant business, and other risks discussed elsewhere in this
Quarterly Report and from time to time in the Company's Securities and Exchange
Commission (the "Commission") filings and reports. In addition, such statements
could be affected by general industry and market conditions and growth rates,
and in general domestic and European economic and political
-22-
conditions. The Company undertakes no obligation to update these forward-looking
statements to reflect facts, circumstances, assumptions or events that occur
after the date the forward-looking statements are made or to publicly release
the results of any revision to these forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements.
CRITICAL ACCOUNTING POLICIES
In the ordinary course of business, the Company has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates under different
assumptions and conditions. The Company believes that the following discussion
addresses the Company's most critical accounting policies, which are those that
are most important to the portrayal of the Company's financial condition and
results. The Company constantly re-evaluates these significant factors and makes
adjustments where facts and circumstances dictate. Historically, actual results
have not significantly deviated from those determined using the necessary
estimates inherent in the preparation of financial statements. Estimates and
assumptions include, but are not limited to, customer receivables, inventories,
assets held for sale, fixed asset lives, contingencies and litigation. The
Company has also chosen certain accounting policies when options were available,
including:
o The first-in, first-out (FIFO) method to value the majority of
the Company's inventories.
o The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. The Company's
evaluation is based on an estimate of the future undiscounted
cash flows of the related asset or asset grouping over the
remaining life in measuring whether the assets are recoverable.
Long-lived assets are written down to their estimated net fair
value calculated using a discounted future cash flow analysis in
the event of an impairment. If circumstances related to the
Company's long-lived assets change, the Company's valuation of
the long-lived assets could materially change.
o The Company evaluates the realizability of its deferred tax
assets quarterly by assessing the need for and amount of the
valuation allowance. This evaluation is based on an assessment of
the Company's ability to generate future U.S. taxable income.
Results
-23-
of operations in recent years are considered in the assessment.
The Company records a valuation allowance for the portion of its
deferred tax assets that do not meet the recognition criteria of
SFAS No. 109, "Accounting for Income Taxes." If circumstances
related to the Company's ability to generate future U.S. taxable
income change, the Company's evaluation of its deferred tax
assets could materially change.
o The Company has adopted EITF - 01-09 "Accounting for
Consideration Given by a Vendor to a Customer (including a
Reseller of the Vendor's Products)". This EITF requires that
certain cash consideration paid to customers for services or
placement fees are to be reported as a reduction in revenue
rather than as an expense. The Company has reclassified these
items on the income statement as a reduction in revenue and as a
corresponding reduction in marketing and selling expenses. This
reclassification has no impact on net income.
CHANGES IN 2006
On January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS
123(R)") which requires the measurement and recognition of compensation expense
for all share-based awards made to employees and directors, including employee
stock options and employee stock purchases, based on estimated fair values.
Prior to the adoption of SFAS 123(R), the Company accounted for stock-based
awards to employees and directors using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the intrinsic value method, which had been allowed under the
original provisions of Statement 123, no stock compensation expense had been
recognized in the Company's statement of operations as the exercise price of the
Company's stock options granted to employees and directors equaled the fair
market value of the underlying stock at the date of grant.
These accounting policies are applied consistently for all periods
presented. The Company's operating results would be affected if other
alternatives were used. Information about the impact on operating results is
included in the footnotes to the Company's consolidated financial statements.
SEGMENT INFORMATION
Prior to 2001, the Company's business operations were exclusively
located in the United States, where it was divided into two segments,
manufacturing and distribution of beer, which accounted for the majority of
-24-
the Company's gross sales, and retail sales (primarily at the Company's Hopland,
California, tavern and merchandise store) which generally accounted for less
than 5% of gross sales (by revenue). With the Company's acquisition of United
Breweries International(UK), Ltd. ("UBI") in August 2001, however, the Company
gained a new business segment, distribution of beer outside the United States,
primarily in the U.K. and Ireland, continental Europe, and Canada (the "European
Territory"). This segment accounted for 60% and 64% of the Company's gross sales
during the first quarter of 2006 and 2005 respectively, with the Company's
United States operations, including manufacturing and distribution of beer as
well as retail sales (the "Domestic Territory") accounting for the remaining 40%
and 36% during the first quarter of 2006 and 2005, respectively. With expanded
wholesale distribution of beer and the closure of the restaurant at Hopland
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 US market and the Company's
European Territory. In the US, sales volumes have been stronger during the
second and third quarters and slower again during the fourth quarter, while in
the Company's European Territory the fourth quarter has generated the highest
sales volume. The volume of sales in any given area may also be affected by
local weather conditions. Because of the seasonality of the Company's business,
results for any one quarter are not necessarily indicative of the results that
may be achieved for the full fiscal year.
SUMMARY OF FINANCIAL RESULTS
The Company ended the first quarter of 2006 with a net loss of
$228,900, as compared to a net loss of $198,400 for the same period in 2005. As
set forth more fully under "Results of Operations," below, during the first
quarter of 2006 the Company experienced an increase in gross sales of $22,000 as
compared to the first quarter of 2005. Costs of goods sold increased by $26,900,
marketing costs decreased by $57,700, general and administrative costs increased
by $72,900, and interest expenses increased by $33,800, all of which contributed
to the net loss for the period.
RESULTS OF OPERATIONS
The following tables set forth, as a percentage of net sales, certain
items included in the Company's Statements of Operations. See the accompanying
Financial Statements and Notes thereto.
-25-
--------------------------------------
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
2006 2005
STATEMENTS OF OPERATIONS DATA:
Sales 102.15% 102.06%
Less Excise taxes 2.15% 2.06%
------ ------
NET SALES 100.00% 100.00%
Costs of Sales 68.94% 68.71%
------ ------
GROSS PROFIT 31.06% 31.29%
------ ------
Marketing 17.31% 18.14%
General and Administrative Expense 13.42% 12.45%
PROFIT / (LOSS) FROM OPERATIONS 0.33% 0.70%
Other (Income) / Expense 0.02% (0.02)%
Interest Expense 3.50% 3.04%
------ ------
Loss before income taxes (3.15)% (2.32)%
Provision for income taxes -- 0.42%
(3.15)% (0.03)%
NET LOSS ------ ------
(0.09)% (0.13)%
Other Comprehensive Loss ------ ------
(3.24)% (0.03)%
COMPREHENSIVE LOSS ====== ======
--------------------------------------------
MARCH 31,
--------------------------------------------
2006 2005
BALANCE SHEET DATA:
Cash and Cash Equivalents $ 246,600 $ 1,249,300
Working Capital $ (3,213,600) $ (1,877,400)
Property and Equipment $ 13,138,900 $ 13,472,700
Deposits and Other Assets $ 356,600 $ 278,200
Total Assets $ 22,839,700 $ 24,032,300
Long-term Debt (less current maturities) $ 2,278,000 $ 2,565,000
Capital Lease (less current maturities) $ 144,500 $ 52,500
Total Liabilities $ 18,200,800 $ 17,987,300
Accumulated Deficit $ (10,460,100) $ (9,114,900)
Stockholder's equity $ 4,638,900 $ 6,045,000
-26-
NET SALES
Overall net sales for the first quarter of 2006 were $7,272,100, an
increase of $15,200, or 0.2%, compared to $7,256,900 for the first quarter of
2005.
DOMESTIC OPERATIONS. Domestic net sales for first quarter of 2006 were
$2,851,600 compared to $2,516,800 for the same period in 2005, an increase of
$334,800, or 13.3%. The sales volume increased to 15,306 barrels in the first
quarter of 2006 from 13,370 barrels in the first quarter of 2005, representing
an increase of 1,936 barrels, or 14.48%. Of the numerical barrel increase, sales
of the Company's brands increased by 452 barrels; Kingfisher sales increased by
758 barrels and contract brands sales increased by 726 barrels.
EUROPEAN TERRITORY: Net sales for the first quarter of 2006 were
$4,420,500 (GBP 2,520,800) compared to $4,740,100 (GBP 2,507,400) during the
corresponding period of 2005, a decrease of $319,600, or 6.74% mainly due to
exchange rate fluctuations. During the first quarter of 2006, UBSN sold 15,401
barrels compared to 15,292 barrels (including 719 barrels of Sun Lik beer)
during the first quarter of 2005. As of April 1, 2005, Shepherd Neame terminated
the distribution arrangements entered with UBSN for the distribution of Sun Lik
beer; as a result the Company no longer distributes Sun Lik beer. If measured on
a constant exchange rate basis, net sales for the first quarter of 2006 would
have increased 0.53% from the first quarter of 2005.
COST OF GOODS SOLD
Cost of goods sold as a percentage of net sales during the first
quarter of 2006 was 68.94%, as compared to 68.71% during the corresponding
period of 2005.
DOMESTIC OPERATIONS: Cost of goods sold as a percentage of net sales in
the United States during the first quarter of 2006 was 68.88%, as compared to
70.94%, during the corresponding period of 2005, representing a decrease of
2.06% mainly due to higher volume and improved efficiencies at the Saratoga
Springs brewery.
EUROPEAN TERRITORY: Cost of goods sold as a percentage of net sales in
the United Kingdom during the first quarter of 2006 was 69.56%, as compared to
67.95% during the corresponding period of 2005 (in each case as calculated in
U.S. dollars, after taking into account the effects of the exchange rate
calculation), mainly due to increases in the purchase price of the products
purchased from Shepherd Neame which were not able to be fully offset by
increases in the price of our products.
-27-
GROSS PROFIT
As a result of the higher cost of goods sold described above, gross
profit for the first quarter of 2006 decreased to $2,258,800, from $2,270,500
during the corresponding period of 2005, representing a decrease of 0.52%. As a
percentage of net sales, gross profit during the first quarter of 2006 decreased
to 31.06% as compared to 31.29% for the first quarter of 2005.
OPERATING EXPENSES
Operating expenses for the first quarter of 2006 were $2,234,600, an
increase of $15,200, or 0.68%, as compared to $2,219,400 for the corresponding
period of the year 2005. Operating expenses consist of marketing and
distribution expenses and general and administrative expenses.
MARKETING AND DISTRIBUTION EXPENSES: The Company's marketing and
distribution expenses consist of salesmen's salaries and commissions,
advertising costs, product and sales promotion costs, travel expenses and
related costs and the Company's tavern and tasting room expenses. Such expenses
for the first quarter of 2006 were $1,258,500, as compared to $1,316,200 for the
first quarter of 2005, representing a decrease of $57,700 or 4.38%. These
expenses were equal to 17.31% of net sales for the first quarter of the year
2006, as compared to 18.14% in the first quarter of 2005.
DOMESTIC OPERATIONS: Expenses for the first quarter of 2006 were
$314,000 compared to $353,500 during the corresponding period of 2005,
representing a decrease of $39,500. As a percentage of net sales in the United
States, the expenses decreased to 11.01% during the first quarter of 2006,
compared to 14.05% during the corresponding period of 2005. The reduction was
due to temporarily reduced salary expenses due to a reduction in personnel and
reduced advertising and promotional expenses.
EUROPEAN TERRITORY: Expenses for the first quarter of 2006 were
$944,500 compared to $962,700 during the corresponding period of 2005,
representing a marginal decrease of $18,200 mainly due to exchange rate
fluctuation. As a percentage of net sales in the United Kingdom, the expenses
increased to 21.37% during the first quarter of 2006 compared to 20.31% during
the corresponding period of 2005 (in each case as calculated in U.S. dollars,
after taking into account the effects of the exchange rate calculation).
GENERAL AND ADMINISTRATIVE EXPENSES: The Company's general and
administrative expenses were $976,100 for the first quarter of 2006,
representing an increase of $72,900, or 8.07%, over $903,200 for the
corresponding period in 2005. These expenses were equal to 13.42% of net
-28-
sales for the first quarter of the year 2006, as compared to 12.45% in the first
quarter of 2005.
DOMESTIC OPERATIONS. Domestic general and administrative expenses were
$426,100 for the first quarter of 2006, representing a decrease of $43,800, or
9.32%, over $469,900 for the first quarter of 2005. The decrease was primarily
due to decreased legal expenses associated with the settlement of a legal
dispute with a distributor in 2004 which expenses were incurred in 2005.
EUROPEAN TERRITORY. General and administrative expenses related to the
European Territory were $550,000 for the first quarter of 2006, representing an
increase of $116,700, or 26.93%, as compared to $433,300 for the first quarter
of 2005 (in each case as calculated in U.S. dollars, after taking into account
the effects of the exchange rate calculation). The increases were mainly due to
increases in salary due to additional personnel, audit fees and depreciation.
OTHER EXPENSES
Other expenses for the first quarter of 2006 totaled $253,100,
representing an increase of $33,800 when compared to the first quarter of 2005
mainly due to an increase in interest expenses as a result of increased
borrowings and increased interest rates under the Company's lines of credit.
INCOME TAXES
The Company has not made any provision for income taxes for the first
quarter of 2006, compared to $30,200 for the first quarter of 2005.
NET LOSS
The Company's net loss for the first quarter of 2006 was $228,900, as
compared to a net loss of $198,400 for the first quarter of 2005. After
providing for a negative foreign currency translation adjustment of $6,300
during the first quarter of 2006 (as compared to a negative adjustment of $9,300
for the same period in 2005), the comprehensive loss for the first quarter of
2006 was $235,200, compared to a loss of $207,700 for the same period in 2005.
LIQUIDITY AND CAPITAL RESOURCES
Unused capacity at the Ukiah and Saratoga Springs facilities has
continued to place demands on the Company's working capital. Beginning
approximately in the second quarter of 1997, the time at which the Ukiah brewery
commenced operations, proceeds from operations have not been able to provide
sufficient working capital. The Company has entered into a
-29-
substantial number of loans, lines of credit, other credit facilities, and lease
agreements over the last several years. In order to continue its operations, the
Company will have to make timely payments of its debt and lease commitments as
they fall due. Any breach of a loan or lease which actually leads to default, or
to an attempt by a creditor to exercise its rights in the Company's tangible or
intangible assets, could potentially make it difficult, at least in the short
term, for the Company to continue its operations.
The Company does not currently have sufficient funds available to repay
certain loans as they become due. So far, the lenders have extended their loans
to facilitate refinancing.
BFI LOAN AND LINE OF CREDIT
On May 5, 2005, the Company entered into a receivables and
inventory-based line of credit transaction with BFI Business Finance ("BFI"),
pursuant to which BFI has provided the Company with a $2,000,000 maximum
revolving line of credit with an advance rate based on 80% of MBC's qualified
accounts receivable, 70% of Releta's qualified accounts receivable, and 50% of
the eligible inventory carried by both MBC and Releta (the "BFI Line of
Credit").
The BFI Line of Credit had an initial term of twelve months, and has
been extended for an additional twelve-month period, and may automatically
extend for an unlimited number of additional twelve-month periods. However, BFI
retains the right to terminate the BFI Line of Credit at any time, upon 30 days'
notice. The minimum monthly interest payment under the BFI Line of Credit is
approximately $6,000. The BFI Facility carries an interest rate equal to the
greater of 9.5%, or the prime rate announced in the Western edition of the Wall
Street Journal plus 3.75 %, payable monthly. The facility is also subject to a
monthly administrative fee of 0.40%.
On May 6, 2005, the Company used the entire immediately available
amount drawable under the BFI Facility to pay off the balance remaining
outstanding under a CIT Group Line of Credit.
BFI advanced the Company $200,000 under a promissory note on December
31, 2005. The BFI Note is payable in weekly installments of $6,665, and the
Company began paying such installments in January 2006.
BFI also advanced the Company an additional amount of $289,937.70 under
another promissory note on April 5, 2006. This note is payable in 17 weekly
installments of $3,335.00 and 22 weekly installments of $10,000. The Company
began paying such weekly installments in April 2006. A final installment of
$9,908 is due on the maturity date, January 19, 2007. This note is secured by
the collateral set forth in the Loan and Security agreement.
-30-
MASTER LINE OF CREDIT. On August 31, 1999, MBC and United Breweries of
America, Inc. ("UBA"), one of the Company's principal shareholders, entered into
a Master Line of Credit Agreement, which was subsequently amended in April 2000
and February 2001 (the "Credit Agreement"). The terms of the Credit Agreement
provide the Company with a line of credit in the principal amount of up to
$1,600,000. The Company and UBA have executed an Extension of Term of Notes
under Master Line of Credit Agreement (the "Extension Agreement"). The Extension
Agreement confirms the Company's and UBA's extension of the terms of the UBA
Notes for a period ending on August 31, 2005. Although this date has passed, the
Company has had discussions with UBA and anticipates that the terms of the UBA
Notes will be extended again.
As of the date of this filing, UBA has made thirteen (13) separate
advances to the Company under the Credit Agreement and one additional advance on
substantially the same terms as those under the Credit Agreement, pursuant to a
series of individual eighteen-month promissory notes issued by the Company to
UBA (the "UBA Notes"). The aggregate outstanding principal amount of the UBA
Notes as of March 31, 2006 was $1,915,400, and the accrued but unpaid interest
thereon was equal to approximately $679,000, for a total of $2,594,400.
The outstanding principal amount of the notes and the unpaid interest
thereon may be converted, at UBA's discretion, into shares of the Company's
unregistered Common Stock at a conversion rate of $1.50 per share. As of March
31, 2006, the outstanding principal and interest on the notes was convertible
into 1,729,580 shares of the Company's Common Stock. On December 28, 2001, the
Company and UBA entered into a Confirmation of Waiver which confirms that as of
August 13, 2001, UBA waived its rights with regard to all conversion rate
protection as set forth in the UBA Notes.
The UBA Notes require the Company to make quarterly interest payments
to UBA on the first day of April, July, October, and January. To date, UBA has
permitted the Company to capitalize all accrued interest; therefore, the Company
has borrowed the maximum amount available under the facility. Upon maturity of
any UBA Notes, unless UBA has given the Company prior instructions to commence
repayment of the outstanding principal balance, the outstanding principal and
accrued but unpaid interest on such Note may be converted, at the option of UBA,
into shares of the Company's common stock. If UBA does not elect to so convert
any UBA Notes upon maturity, it has the option to extend the term of such notes
for any period of time mutually agreed upon by UBA and the Company. During the
extended term of any note, UBA has the right to require the Company to repay the
outstanding principal
-31-
balance, along with the accrued and unpaid interest thereon, to UBA within sixty
(60) days.
These UBA Notes are subordinated to credit facilities extended to the
Company by BFI and SBMC under a subordination agreement executed by UBA. As per
the terms of the subordination agreement, UBA is precluded from demanding
repayment of the notes due unless the BFI and SBMC facilities are settled in
full. Hence the Company does not expect to make payments on any of these UBA
Notes within the next year.
LONG TERM DEBT: MBC has obtained a $2.7 million loan from Savings Bank
of Mendocino County ("SBMC"), secured by a first priority deed of trust on the
Ukiah land, fixtures, and improvements. The loan is payable in partially
amortizing monthly installments of $24,443 including interest at the rate of
7.24%, maturing December 2012 with a balloon payment in the amount of $932,600.
The interest rate is adjusted on every five year anniversary of the agreement to
the Treasury Constant Maturity Rate plus 4.17%. The amount of the balloon
payment will vary depending on the change in interest rates over the years. In
addition to the Ukiah land and facility, this loan is secured by some of the
other assets of the Company (other than the Releta facility), including, without
limitation, most of the Company's equipment. The amount outstanding as of March
31, 2006 on this facility was $2,134,100.
OTHER LOANS AND CREDIT FACILITIES.
SAVINGS BANK OF MENDOCINO TEMPORARY LOAN: On December 31, 2003, Savings
Bank of Mendocino County ("SBMC") extended a temporary loan in the principal
amount of $576,200 to MBC in order to finance a buy-out of equipment leased
through Finova Capital Corporation. The lender has extended the loan until May
31, 2006. The rate of interest on the loan is prime plus 3%. The Company
currently is engaged in negotiations to extend the loan; if the Company is not
able to extend the loan, there may be a material adverse effect on the Company.
ROYAL BANK OF SCOTLAND FACILITY: Royal Bank of Scotland ("RBS")
provided UBSN with a GBP 1,750,000 maximum revolving line of credit with an
advance rate based on 80% of UBSN's qualified accounts receivable. UBSN utilized
the proceeds of this facility to settle a credit facility with Nedbank Limited,
a South African registered company, on April 26, 2005. This facility has a
minimum maturity of twelve months, but will be automatically extended unless
terminated by either party upon six months' written notice.
SHEPHERD NEAME LOAN: Shepherd Neame has a contract with UBSN to brew
Kingfisher Premium Lager for the Company's European and Canadian markets. As
consideration for extending the brewing contract, Shepherd Neame
-32-
advanced a loan of (pound)600,000 (Pounds Sterling) to UBSN, repayable in annual
installments of (pound)60,000 (Pounds Sterling) 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
the Company's U.S. debts was 10.58% for the first quarter of 2006 and 8.53% for
the corresponding period in 2005. For loans primarily associated with the
Company's European territory, the weighted average rate paid was 6.1% for the
first quarter of 2006 and the corresponding period in 2005.
KEG MANAGEMENT ARRANGEMENT: The Company entered into a five-year keg
management agreement with MicroStar Keg Management LLC as of September 1, 2004.
Under this arrangement, MicroStar provides the Company with half-barrel kegs for
which the Company pays a filling and use fee. Distributors return the kegs to
MicroStar instead of the Company. MicroStar then supplies the Company with
additional kegs. If, on any given month, the agreement is not extended and
terminates, the Company is required to purchase a certain number of kegs from
MicroStar. The Company would probably finance the purchase through debt or lease
financing, if available. However, there can be no assurance that the Company
will be able to finance the purchase of kegs. Failure to purchase the necessary
kegs from MicroStar on termination of the agreement is likely to have a material
adverse effect on the Company.
CURRENT RATIO: The Company's ratio of current assets to current
liabilities on March 31, 2006 was 0.74 to 1.0 and its ratio of total assets to
total liabilities was 1.25 to 1.0. On March 31, 2005, the Company's ratio of
current assets to current liabilities was 0.85 to 1.0 and its ratio of total
assets to total liabilities was 1.34 to 1.0.
OVERDUE PROPERTY TAXES: As of June 30, 2003, the delinquent property
taxes due on the Company's Ukiah property, including penalties and interest,
totaled $718,100, representing overdue taxes for the period from April 1999 to
June 2003. On July 31, 2003, the Company entered into a payment plan to settle
these issues, pursuant to which it made an initial payment to the County of
$143,600. In April 2006, the Company made payment of the 2006 installment, plus
interest, for a total payment of $221,200. The remaining balance of the overdue
taxes will be paid in two annual installments, due on or before April 10, 2007
and 2008, respectively, each representing 20% or more of the original overdue
balance, along with accrued interest calculated at 18% per year.
Failure to timely pay any installment or any current property taxes may result
in the County selling the Company's Ukiah property to satisfy this outstanding
debt.
-33-
RESTRICTED NET ASSETS: The Company's wholly-owned subsidiary, UBI, has
undistributed earnings of approximately $1,043,100 as of March 31, 2006. Under
UBSN's line of credit agreement with RBS, distributions and other payments to
the Company from its subsidiary are not permitted if UBSN's retained earnings
drop below approximately $1,750,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2006, the Company did not hold derivative instruments,
or engage in hedging activities, of any material value or in any material
amount, whether for trading or for hedging purposes. The Company has some
interest-related market risk due to floating interest rate debt totaling
$6,373,400 as of March 31, 2006.
INTEREST RATE RISK
The Company had total debt as of March 31, 2006 of $9,668,900 of which
$6,373,400 was subject to variable rates of interest (either prime or LIBOR plus
1.5% or prime plus 3% or prime plus 3.75%). Its long-term debt (including
current portion) as of March 31, 2006 totaled $5,210,900, of which $3,295,500
had fixed rates of interest and of which the balance of $1,915,400 were subject
to variable rates. Short term debts amounted to $4,458,000 which were subject to
variable rates. At current borrowing levels, an increase in prime and LIBOR
rates of 1% would result in an annual increase of $63,700 in interest expense on
the Company's variable rate loans.
FOREIGN CURRENCY RATE FLUCTUATIONS
The Company's earnings and cash flows at its subsidiaries UBI and UBSN
are subject to fluctuations due to changes in foreign currency rates. The
Company believes that changes in the foreign currency exchange rate would not
have a material adverse effect on its results of operations as the majority of
its foreign transactions are delineated in UBI's functional currency, the
British Pound.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO") has evaluated the effectiveness of the
design, maintenance, and operation of the Company's "disclosure controls and
procedures" as of the end of the period covered by this report. Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by the Company in its reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is
recorded, processed, summarized, and reported within the time periods
-34-
specified in the Commission's rules and forms. Disclosure controls and
procedures are also designed to ensure that information that the Company is
required to disclose in its reports under the Exchange Act is accumulated and
communicated to the Company's management, including its CEO and CFO, as
appropriate to allow timely decisions regarding the required disclosure.
Certain aspects of the Company's internal control over financial
reporting are included in the Company's disclosure controls and procedures, and
are therefore included in management's evaluation. Management evaluates internal
control over financial reporting on a quarterly basis to determine whether any
changes have occurred. Internal control over financial reporting is also
evaluated on an annual basis in connection with the preparation of the Company's
Form 10-K.
Management's review of the disclosure controls and procedures includes
a review of their objectives, design, implementation, and results. Based on this
evaluation, the CEO and CFO believe that, subject to the limitations set forth
below, the Company's disclosure controls and procedures were effective in
providing reasonable assurance that the information required to be disclosed in
the Company's reports under the Exchange Act is recorded, processed, summarized,
and reported within the time specified by the Commission, and that material
information pertaining to the Company is timely communicated to the Company's
management (including the CEO and CFO). Management is not aware of any changes
in the Company's internal or other controls over financial reporting identified
in connection with that evaluation that occurred during the most recent fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
Please refer to the certifications of the Company's Chief Executive
Officer and Chief Financial Officer (which are attached to this report as
Exhibits 31.1 and 31.2) for additional information regarding the Company's
controls and procedures.
LIMITATIONS ON CONTROLS
Disclosure controls and procedures, no matter how well designed and
implemented, can provide only reasonable assurance of achieving the Company's
disclosure objectives. The likelihood of achieving such objectives is affected
by limitations inherent in such controls and procedures, including the fact that
human judgment in decision making can be faulty and that breakdowns in internal
controls can occur because of human failures such as simple errors or mistakes
or intentional circumvention of the established process.
-35-
PART II
OTHER INFORMATION
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 (A) Mendocino Brewing Company Profit Sharing Plan.
10.2 (T) Amended 1994 Stock Option Plan
10.3 (A) Wholesale Distribution Agreement between the Company and Bay Area Distributing.
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) Commercial Lease between Stewart's Ice Cream Company, Inc. and Releta Brewing Company
LLC.
10.9 (E) Agreement between United Breweries of America Inc. and Releta Brewing Company LLC
regarding payment of certain liens.
10.10 (F) Keg Management Agreement with MicroStar Keg Management LLC.
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 (H) Manufacturing Business Expansion and Relocation Agreement with the City of Ukiah.
10.13 (H) Manufacturing Business Expansion and Relocation Agreement with the Ukiah Redevelopment
Agency.
10.14 (I) $2,700,000 Note in favor of the Savings Bank of Mendocino County.
10.15 (I) Hazardous Substances Certificate and Indemnity with the Savings Bank of Mendocino
County.
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 (K) Registration Rights Agreement Among the Company, United Breweries of America, Inc., H.
Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley.
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.
-36-
EXHIBIT
NUMBER
DESCRIPTION OF DOCUMENT
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 (N) Employment Agreement with Yashpal Singh.
10.35 (O) Master Loan Agreement between the Company and the United Breweries of America Inc.
10.36 (O) Convertible Note in favor of the United Breweries of America Inc. dated Sept. 7, 1999
10.37 (P) Convertible Note in favor of the United Breweries of America Inc. dated October 21, 1999
10.38 (P) Convertible Note in favor of the United Breweries of America Inc. dated November 12,
1999
10.39 (P) Convertible Note in favor of the United Breweries of America Inc. dated December 17,
1999
10.40 (P) Convertible Note in favor of the United Breweries of America Inc. dated December 31,
1999
10.41 (P) Convertible Note in favor of the United Breweries of America Inc. dated February 16,
2000
10.42 (P) Convertible Note in favor of the United Breweries of America Inc. dated February 17,
2000
10.43 (P) Convertible Note in favor of the United Breweries of America Inc. dated April 28, 2000
10.44 (P) First Amendment to Master Loan Agreement between the Company and United Breweries of
America, Inc., dated April 28, 2000
10.45 (Q) Convertible Note in favor of the United Breweries of America Inc. dated September 11,
2000
10.46 (Q) Convertible Note in favor of the United Breweries of America Inc. dated September 30,
2000
10.47 (Q) Convertible Note in favor of the United Breweries of America Inc. dated December 31,
2000
10.48 (Q) Convertible Note in favor of the United Breweries of America Inc. dated February 12,
2001
10.49 (R) Convertible Note in favor of the 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
-37-
EXHIBIT
NUMBER
DESCRIPTION OF DOCUMENT
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, 2003.
10.64 [Intentionally omitted]
10.65 (V) Commitment Letter from United Breweries of America, Inc. dated March 31, 2004.
10.66 [Intentionally omitted]
10.67 (W) Revised Promissory Note in favor of Savings Bank of Mendocino County, dated as of July
20, 2004
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 (Y) Settlement Agreement and Release between the Company and House of Daniels, Inc., dba
Golden Gate Distributing Company, dated as of November 1, 2004
10.70 (Z) Second Agreement dated October 9, 1998 between UBSN, Ltd. and Shepherd Neame, Ltd.
10.71 [Intentionally omitted]
10.72 (Z) Revised Promissory Note in favor of Savings Bank of Mendocino County, dated as of
November 1, 2004
10.73 (AA) Settlement Agreement and Release, effective as of December 9, 2004
-38-
EXHIBIT
NUMBER
DESCRIPTION OF DOCUMENT
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 (CC) Loan and Security Agreement (Accounts Receivable and Inventory Line of Credit) dated
May 5, 2005 between the Company and BFI Business Finance
10.76 (DD) Invoice Discounting Agreement between The Royal Bank of Scotland Commercial Services
Limited and UBSN Limited, dated April 26, 2005
10.77 (FF) Secured Promissory Note in favor of BFI Business Finance, dated December 27, 2005
10.78 (FF) Secured Promissory Note in favor of BFI Business Finance, dated April 5, 2006
14.1 (V) Code of Ethics
31.1 * Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2 * Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32.1 * Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 * Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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.
(E) The Company's Quarterly Report on Form 10-QSB for the quarterly 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
(H) The Company's Quarterly Report on Form 10-QSB for the period ended June 30,
1996
(I) The Company's Annual Report on Form 10-KSB for the period ended December 31,
1997
-39-
(J) The Company's Registration Statement dated February 6, 1997, as amended,
Registration No. 33-15673
(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
(M) The Company's Quarterly Report on Form 10-QSB for the period ended September
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) The Company's Quarterly Report on Form 10-Q for the period ended June 30,
2004
(X) Amendment No. 11 to Schedule 13D, jointly filed by United Breweries of
America, Inc. and Dr. Vijay Mallya on August 16, 2004
(Y) The Company's Current Report on Form 8-K filed as of November 1, 2004
(Z) The Company's Quarterly Report on Form 10-Q for the period ended September
30, 2004
(AA) The Company's Current Report on Form 8-K filed as of November 25, 2004
(BB) The Company's Current Report on Form 8-K filed as of March 2, 2005
(CC) The Company's Annual Report on Form 10-K/A for the period ended December
31, 2004
(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 September
30, 2005
-40-
(FF) The Company's Annual Report on Form 10-K for the period ended December 31,
2005
* filed herewith
-41-
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 22, 2006 By: /S/ YASHPAL SINGH
-----------------
Yashpal Singh
President, Director and Chief
Executive Officer
Dated: May 22, 2006 By: /S/ N.MAHADEVAN
---------------
N. Mahadevan
Chief Financial Officer and
Secretary
-42-
EXHIBIT INDEX
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 (A) Mendocino Brewing Company Profit Sharing Plan.
10.2 (T) Amended 1994 Stock Option Plan
10.3 (A) Wholesale Distribution Agreement between the Company and Bay Area Distributing.
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) Commercial Lease between Stewart's Ice Cream Company, Inc. and Releta Brewing Company
LLC.
10.9 (E) Agreement between United Breweries of America Inc. and Releta Brewing Company LLC
regarding payment of certain liens.
10.10 (F) Keg Management Agreement with MicroStar Keg Management LLC.
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 (H) Manufacturing Business Expansion and Relocation Agreement with the City of Ukiah.
10.13 (H) Manufacturing Business Expansion and Relocation Agreement with the Ukiah Redevelopment
Agency.
10.14 (I) $2,700,000 Note in favor of the Savings Bank of Mendocino County.
10.15 (I) Hazardous Substances Certificate and Indemnity with the Savings Bank of Mendocino
County.
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 (K) Registration Rights Agreement Among the Company, United Breweries of America, Inc., H.
Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley.
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]
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
10.31 [Intentionally omitted]
10.32 [Intentionally omitted]
10.33 (N) Employment Agreement with Yashpal Singh.
10.35 (O) Master Loan Agreement between the Company and the United Breweries of America Inc.
10.36 (O) Convertible Note in favor of the United Breweries of America Inc. dated Sept. 7, 1999
10.37 (P) Convertible Note in favor of the United Breweries of America Inc. dated October 21, 1999
10.38 (P) Convertible Note in favor of the United Breweries of America Inc. dated November 12,
1999
10.39 (P) Convertible Note in favor of the United Breweries of America Inc. dated December 17,
1999
10.40 (P) Convertible Note in favor of the United Breweries of America Inc. dated December 31,
1999
10.41 (P) Convertible Note in favor of the United Breweries of America Inc. dated February 16,
2000
10.42 (P) Convertible Note in favor of the United Breweries of America Inc. dated February 17,
2000
10.43 (P) Convertible Note in favor of the United Breweries of America Inc. dated April 28, 2000
10.44 (P) First Amendment to Master Loan Agreement between the Company and United Breweries of
America, Inc., dated April 28, 2000
10.45 (Q) Convertible Note in favor of the United Breweries of America Inc. dated September 11,
2000
10.46 (Q) Convertible Note in favor of the United Breweries of America Inc. dated September 30,
2000
10.47 (Q) Convertible Note in favor of the United Breweries of America Inc. dated December 31,
2000
10.48 (Q) Convertible Note in favor of the United Breweries of America Inc. dated February 12,
2001
10.49 (R) Convertible Note in favor of the 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.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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, 2003.
10.64 [Intentionally omitted]
10.65 (V) Commitment Letter from United Breweries of America, Inc. dated March 31, 2004.
10.66 [Intentionally omitted]
10.67 (W) Revised Promissory Note in favor of Savings Bank of Mendocino County, dated as of July
20, 2004
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 (Y) Settlement Agreement and Release between the Company and House of Daniels, Inc., dba
Golden Gate Distributing Company, dated as of November 1, 2004
10.70 (Z) Second Agreement dated October 9, 1998 between UBSN, Ltd. and Shepherd Neame, Ltd.
10.71 [Intentionally omitted]
10.72 (Z) Revised Promissory Note in favor of Savings Bank of Mendocino County, dated as of
November 1, 2004
10.73 (AA) Settlement Agreement and Release, effective as of December 9, 2004
10.74 (BB) Convertible Promissory Note of Mendocino Brewing Company, Inc. in favor of United
Breweries of America, Inc., dated March 2, 2005
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
10.75 (CC) Loan and Security Agreement (Accounts Receivable and Inventory Line of Credit) dated
May 5, 2005 between the Company and BFI Business Finance
10.76 (DD) Invoice Discounting Agreement between The Royal Bank of Scotland Commercial Services
Limited and UBSN Limited, dated April 26, 2005
10.77 (FF) Secured Promissory Note in favor of BFI Business Finance, dated December 27, 2005
10.78 (FF) Secured Promissory Note in favor of BFI Business Finance, dated April 5, 2006
14.1 (V) Code of Ethics
31.1 * 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2 * Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32.1 * Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 * Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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.
(E) The Company's Quarterly Report on Form 10-QSB for the quarterly 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
(H) The Company's Quarterly Report on Form 10-QSB for the period ended June 30,
1996
(I) The Company's Annual Report on Form 10-KSB for the period ended December 31,
1997
(J) The Company's Registration Statement dated February 6, 1997, as amended,
Registration No. 33-15673
(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
(M) The Company's Quarterly Report on Form 10-QSB for the period ended September
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) The Company's Quarterly Report on Form 10-Q for the period ended June 30,
2004
(X) Amendment No. 11 to Schedule 13D, jointly filed by United Breweries of
America, Inc. and Dr. Vijay Mallya on August 16, 2004
(Y) The Company's Current Report on Form 8-K filed as of November 1, 2004
(Z) The Company's Quarterly Report on Form 10-Q for the period ended September
30, 2004
(AA) The Company's Current Report on Form 8-K filed as of November 25, 2004
(BB) The Company's Current Report on Form 8-K filed as of March 2, 2005
(CC) The Company's Annual Report on Form 10-K/A for the period ended December
31, 2004
(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 September
30, 2005
(FF) The Company's Annual Report on Form 10-K for the period ended December 31,
2005
* filed herewith