PART II 27 form1k.htm Microsoft Word - BrewDog Form 1-K December 31 2016 - 13.06.17 - CAM.docx

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 1-K ANNUAL REPORT

 

ANNUAL REPORT PURSUANT TO REGULATION A

 

For the Annual Period Ended December 31, 2019

 

 

BREWDOG USA INC.

(Exact name of registrant as specified in its charter)

 

 

Commission File Number: 024-10532

 

 

Delaware

(State or other jurisdiction of incorporation or organization)

 

 

47-4320975

(I.R.S. Employer Identification No.)

 

 

65 E State St, Suite 1800

Columbus, Oh 43215

(Address of principal executive offices)

 

 

614-400-3051

Issuer’s telephone number, including area code

 

 

Common Stock

(Title of each class of securities issued pursuant to Regulation A)




Item 1.Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

BrewDog USA Inc. ("BrewDog" or the "Company" "Us" or "We") and its subsidiaries were formed for the general purpose of brewing and retailing craft beer in the United States. BrewDog has constructed a brewing facility in Columbus, Ohio that has been operational since April 2017. A taproom and a craft beer themed hotel were opened at the brewing facility in Columbus in February 2017 and August 2018, respectfully. BrewDog has also opened four bars-- two in Columbus, Ohio in 2018; Indianapolis, Indiana in 2019; and Cincinnati, Ohio in 2019. BrewDog has 197 full time employees and 81 part-time employees as of December 31, 2019.

 

BrewDog’s mission is the first element of the BrewDog charter:

Our mission is to make other people as passionate about great craft beer as we are. 

We make things that we love. Ourselves. From scratch. 

We are community owned and fiercely independent. 

We are committed to being a great employer. 

We want to show that business can be a force for good. 

 

Management’s discussion and analysis of financial condition and results of operations as of December 31, 2018 is available for review here and incorporated by reference.

 

https://www.sec.gov/Archives/edgar/data/1646269/000170373219000002/brewdogonek.htm

 

A.Operating Results Overview  

BrewDog USA Inc. (“BrewDog” or the “Company” “Us” or “We”) was formed on April 22, 2015, as a Delaware Corporation, for the general purpose of brewing and distributing craft beer in the United States. BrewDog is majority owned by BrewDog Plc, a United Kingdom company. BrewDog has built a brewery in Columbus, Ohio to manufacture its craft beer for national distribution across the U.S., as well as wholesale and retail sales and also to operate local retail bar/restaurant establishments, which may have small brewing facilities on site that will operate under the name “BrewDog” and will sell BrewDog beer, along with food items.

 

Results of Operations

 

The year ended December 31, 2019

 

Revenue. Total revenue for the year ended December 31, 2019 was $27,027,935 primarily in wholesale craft beer sales and drink and food sales from our bars.

 

Cost of Sales. Cost of sales for the year ended December 31, 2019 were $16,121,822. Cost of sales for the period comprised of Brewery raw material costs, packaging costs, manufacturing labor and overhead as well as Bar drink and food purchases and labor for preparing and serving.

 

Administrative Expenses. Operating expenses for the year ended December 31, 2019 were $9,707,465. Operating expenses for the period were comprised of advertising, marketing, payroll, real estate taxes, insurance, and other administrative expenses.




Net Loss. Net loss for the year ended December 31, 2019 was $(1,729,507). This net loss was the result of operating expenses exceeding early stage operating revenues.

 

B.Liquidity and Capital Resources 

 

We had net cash of $1,460,374 at December 31, 2019.

 

During the year ended December 31, 2019, operating activities used $(479,867) primarily due to net working capital losses.

 

Cash used by investing activities relating to capital expenditures during the year ended December 31, 2019 was $(3,215,366).  Cash provided by financing activities during the twelve months ending December 31, 2019 was $4,430,644 related to advances from BrewDog Plc and proceeds of the sale of stock. Since inception, our capital needs have primarily been met by BrewDog Plc.

 

C.Plan of Operations 

 

Our plan of operation for the 12 months ended December 31, 2019 is as follows:

 

In 2019, we have expanded the distribution of our craft beer to 13 states, Washington D.C. and Canada.  We plan to continue state expansion throughout 2020.  We continue to experiment and development new varieties of beer. In 2019 we brewed over 100 different styles of brews and introduced cider under the Hawkes brand.  Beginning in February 2018, the company entered into a contract brewing arrangement with a regional craft brewery whereby we produce and package their beer brands. We plan to continue to contract brew throughout 2020. We continue to operate the taproom and hotel at the Columbus brewery and the two BrewDog Bars in Columbus, Ohio. In 2019, we have opened two bars in Indianapolis, IN and Cincinnati, OH.  We plan to open a new bar in 2020. We have hired and plan to hire staff to run our business and to help us follow through on our business plans.

 

D.Trend Information 

 

Based on the results since inception, BrewDog believes there is a market for its products in North America. However, it is difficult to predict changing consumer preferences in craft beer. If we are unable to react to changing consumer preferences, our sales could decrease. Additionally, BrewDog sells its beer within a three-tier system consisting of manufacturers, distributors and retailers. BrewDog competes for a share of the distributor's attention, time and selling efforts. In retail establishments, BrewDog competes for shelf space and tap handle placement. Failure to maintain distributor's attention or retail space could cause sales to decrease. If the market price for hops, malt, barley or other brewing ingredients rises, BrewDog's product cost will rise and potentially threaten the Company's ability to meet profitability and/ or demand.  It is important for BrewDog to continue to secure funding in order to grow the business and expand its offerings to meet consumer preferences.  

 

In early March 2020, the Company began seeing the impact of the coronavirus disease 2019 (COVID-19) on its business. On March 16, 2020, in compliance with State and Local laws we began closing all bars and the hotel with the exception of carry-out and delivery. The company has also




seen a reduction in demand for keg from the on-premise channel. As the COVID-19 pandemic is on-going, the Company does not currently know when it will be able to resume operations without restrictions or when its results of operations will return to pre-COVID-19 levels, however the Company expects to have all of its bars reopened by June 15, 2020.

 

E.Off-Balance Sheet Arrangements 

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

F.Critical Accounting Policies 

 

We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management's judgment in their application. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. Note that our preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

 

Income taxes are one such critical accounting policy. Income taxes are recorded on an accrual basis of accounting based on tax positions taken or expected to be taken in a tax return. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized. Should they occur, our policy is to classify interest and penalties related to tax positions as income tax expense. Since our inception, no such interest or penalties have been incurred.

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. On January 1, 2018, we adopted the requirements of ASC Topic 606 and all the




related amendments to all of our contracts using the modified retrospective method. Additional disclosures required by ASC Topic 606 are presented within the aforementioned Revenue Recognition policy disclosure. We recognize revenue on Brewery product sales to distributors or through self-distribution at the time when the product is shipped and control of the product is transferred to the customer according to the shipping terms. Revenue from the Brewery Taproom and two bars are recognized as revenue at the point of the delivery of meals and services. Revenue from room sales at our hotel is recognized on a daily basis, as the room are occupied and we have rendered the services.  Company sales are presented net of sales tax.

 

G.Additional Company Matters 

 

The Company has not filed for bankruptcy protection nor has it ever been involved in receivership or similar proceedings. The Company is not presently involved in any legal proceedings material to the business or financial condition of the Company. The Company does not anticipate any material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business, in the next 12 months.

 

Item 2.Directors and Officers 

 

As of December 31, 2018, BrewDog USA Inc.’s officers and directors information is available for review here. Please see pages 49-50.

 

https://www.sec.gov/Archives/edgar/data/1646269/000164626916000019/brewdogcpartiiandpartiii.htm

 

As of December 31, 2019, BrewDog USA Inc. had 197 full-time employees, none of which is an executive officer of the Company.

 

The directors, executive officers and significant employees of the Company as of December 31, 2019 are available to review here at page 47:

https://www.sec.gov/Archives/edgar/data/1646269/000164626920000006/brewdog253g251320.htm

 

Executive Compensation

 

From its inception in April 2015 to February 6, 2020, BrewDog USA Inc. paid the following annualized salaries to its executive officers:

 

Name

Capacity in which compensation was received

Cash Compensation

Other Compensation

Total Compensation

Jason Block

Chief Executive Officer

$20,274.00

$24,658.00

$44,932.00

James Watt

President

$0.00

$0.00

$0.00

Alan Martin Dickie

Chief Operations Officer

$0.00

$0.00

$0.00

Neil Simpson

Chief Financial Officer

$0.00

$0.00

$0.00

Allison Green

Former Chief Executive Officer

$0.00

$0.00

$0.00

 

Employment Agreements




We have entered into an employment agreement with Jason Block, our Chief Executive Officer. The employment agreement calls for a base salary of $200,000 with other incentives and bonuses, in addition to stock in BrewDog plc. None of the other officers or directors have an employment agreement with us. We may enter into employment agreements with those or others in the future. A stock incentive program for our directors, executive officers, employees and key consultants may be established in the future.

 

Board of Directors

 

Our board of directors currently consists of three directors. None of our directors are “independent” as defined in Rule 4200 of FINRA’s listing standards. We may appoint additional independent directors to our board of directors in the future, particularly to serve on committees should they be established.

 

Committees of the Board of Directors

 

We may establish an audit committee, compensation committee, a nominating and governance committee and other committees to our Board of Directors in the future, but have not done so to date. Until such committees are established, matters that would otherwise be addressed by such committees will be acted upon by the Board of Directors.

 

Director Compensation

 

We currently do not pay our directors any compensation for their services as board members, with the exception of reimbursing for board related expenses. In the future, we may compensate directors, particularly those who are not also employees and who act as independent board members, on either a per meeting or fixed compensation basis.

 

Limitation of Liability and Indemnification of Officers and Directors

 

Our Bylaws limit the liability of directors and officers of the Company to the maximum extent permitted by Delaware law. The Bylaws state that the Company shall indemnify and hold harmless each person who was or is a party or is threatened to be made a party to, or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or an officer of the Company or such director or officer is or was serving at the request of the Company as a director, officer, partner, member, manager, trustee, employee or agent of another company or of a partnership, limited liability company, joint venture, trust or other enterprise.

 

The Company believes that indemnification under our Bylaws covers at least negligence and gross negligence on the part of indemnified parties. The Company also may secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to us, regardless of whether our Bylaws permit such indemnification.

 

The Company may also enter into separate indemnification agreements with its directors and officers, in addition to the indemnification provided for in our Bylaws. These agreements, among other things, may provide that we will indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by a director or




executive officer in any action or proceeding arising out of such person’s services as one of our directors or officers, or rendering services at our request, to any of its subsidiaries or any other company or enterprise. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers.

 

There is no pending litigation or proceeding involving any of our directors or officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

 

For additional information on indemnification and limitations on liability of our directors and officers, please review the Company’s Bylaws, which are attached to the Offering Circular and available for review here and incorporated by reference:

 

https://www.sec.gov/Archives/edgar/data/1646269/000164626916000019/brewdogbylaws.htm

 

Item 3.Security Ownership of Management and Certain Securityholders 

 

Information regarding security ownership of management and certain shareholders as of December 31, 2018 is available for review here and incorporated by reference.

 

https://www.sec.gov/Archives/edgar/data/1646269/000170373219000002/brewdogonek.htm

 

The following table sets forth information regarding beneficial ownership of our Common Stock as of December 31, 2019. There is no beneficial ownership of our Common Stock by any of our directors or executive officers or by all of our directors and executive officers as a group.

 

Beneficial ownership and percentage ownership are determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to Shares of stock. This information does not necessarily indicate beneficial ownership for any other purpose.

 

Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each Shareholder named in the following table possesses sole voting and investment power over their Shares of Common Stock. Percentage of beneficial ownership before the offering is based on 6,508,246 Shares of Common Stock outstanding as of April 27, 2020. 

 

 

 

 

 

 

 

Name of Beneficial Owner

Common Stock

Shares Beneficially Owned

Prior to Offering

Shares Beneficially Owned

After Offering

QTY

%

QTY

%

BrewDog plc1

6,315,789

97.043%

6,315,789

88.231%

Shares in previous Offerings

192,457

2.957%

192,457

2.689%

New Shares in Offering

N/A

N/A

650,000

9.080%

Total Shares in Class

6,508,246

100.0%

7,158,246

100.0%

Total Overall Shares

6,508,246

100.0%

7,158,246

100.0%




1James Watt and Martin Dickie own voting stock of BrewDog Plc and are authorized by BrewDog Plc to vote on behalf of its shares of BrewDog USA, Inc.

Item 4.Interest of Management and Others in Certain Transactions 

 

Information regarding interest of management and others in certain transactions as of December 31, 2018 is available for review here and incorporated by reference.

 

https://www.sec.gov/Archives/edgar/data/1646269/000170373219000002/brewdogonek.htm

 

BrewDog plc, the Company’s parent, has built a successful operation in the United Kingdom, with the same lines of business as BrewDog USA wishes to establish in the United States. As part of BrewDog plc’s business, it previously established relationships with local beer and spirits distributors of BrewDog craft

51

beers in the United States. BrewDog USA will therefore be able to draw upon such distribution relationships and BrewDog plc’s expertise in launching the U.S. business.

 

In addition, BrewDog plc plans to enter into a license with BrewDog USA permitting the Company to use the intellectual property of BrewDog plc (including any trademarks) and any new marks created by BrewDog plc. It is anticipated that any new intellectual property will be owned by BrewDog plc, who will pay for the cost of clearing, registering and protecting any new intellectual property, and will be licensed to BrewDog USA.

 

The material terms of the relationship between BrewDog USA and BrewDog plc related to cash management and intercompany cash transfers is as follows: BrewDog plc has provided and continues to provide certain services to BrewDog USA Inc. including, but not limited to, executive services, accounting and legal services, and other selling, general and administrative expenses. The allocation method utilized by management of BrewDog Plc was an annual management charge recorded against the intercompany loan balance. The amount of the annual management charge included in the attached financial statements of comprehensive loss for the year ended December 31, 2018 is $270,005 ($260,000 in 2017). Costs incurred by BrewDog Plc but directly attributable to BrewDog USA Inc are recorded against the intercompany loan balance at cost with no-markup. These arrangements are not in writing.

 

During the last fiscal year, the Company was a participant in transactions with BrewDog plc, its parent company, in which the amounts involved exceed the lesser of $120,000 and one percent of the average of the Company’s total assets at year-end for the last completed fiscal year. In these transactions, from April 22, 2015 to December 31, 2018, BrewDog plc made advances of $38,592,154 to the Company.

 

James Watt and Martin Dickie own a significant amount of the stock of, and are executive officers and directors of BrewDog plc. As of May 13, 2019, Watt owned 18,004,237 Ordinary A Shares of BrewDog plc constituting approximately 24.74% of the total outstanding stock of BrewDog plc. As of May 13, 2019, Dickie owned 15,744,233 Ordinary A Shares of BrewDog plc constituting approximately 21.64% of the total outstanding stock of BrewDog plc. As a result, they both have an indirect interest in the above-referenced transactions, as well as any other transactions involving the Company and BrewDog plc. James Watt and Martin Dickie will also have an indirect interest in any future transactions between BrewDog plc and the Company due to their status as significant




shareholders, executive officers and directors. There have been no transactions between BrewDog plc and the Company in which either James Watt or Martin Dickie received any extra or special benefit not shared on a pro-rata basis by all of the holders of securities of the class of stock owned by them as shareholders of BrewDog plc.

 

One of the BrewDog bars opened in 2018 in the Franklinton section of Columbus is situated on real property owned by BrewDog Franklinton LLC. BrewDog Franklinton LLC is wholly owned by Ten Tonne Mouse LLC, a company wholly owned by James Watt. Neither BrewDog Franklinton LLC nor Ten Tonne Mouse LLC is owned, in whole or in part, BrewDog USA Inc. BrewDog Brewing Company LLC, a wholly owned subsidiary of BrewDog USA Inc., has entered into a 5-year lease agreement with BrewDog Franklinton LLC for the Franklinton site with an anticipated the combined annual rent expense of $150,000.

 

Item 5.Other Information None. 

Item 6.Financial Statements 

(See Following Pages)




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




 




Auditor’s Consent:

 

Acknowledgement of Report of Independent Auditors

We agree to the inclusion in this Form 1-K of our report dated June 11, 2020, with respect to the consolidated financial statements of BrewDog USA Inc.

EY

Grandview Heights, Ohio

June 11, 2020




Item 7.Exhibits 

 

Charters, including amendments, Bylaws, and material contracts previously filed with Form 1-A and available for review at:

 

Charters:

https://www.sec.gov/Archives/edgar/data/1646269/000164626916000019/brewdogcharter.htm

 

Bylaws:

https://www.sec.gov/Archives/edgar/data/1646269/000164626916000019/brewdogbylaws.htm




SIGNATURES

 

Pursuant to the requirements of Regulation A, the issuer has duly caused this annual report on Form 1-K to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio on June 11, 2020.

 

BREWDOG USA, INC.

 

By: /s/ Neil Simpson Chief Financial Officer

 

Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer in the capacities and on the dates indicated.

 

SignatureTitle 

 

By:    /s/ James WattChief Executive Officer & Director BrewDog USA Inc. 

June 11, 2020 

 

By:    /s/ Neil SimpsonChief Financial Officer & Director BrewDog USA Inc. 

June 11, 2020