-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RB58xvz9VLZNO+D9CjMxB0uvQFfkIUksXxaoMK142fFhJhTEmcNFAlvyCYmlwFUM 1FXtoREgZvlwBs4gkat9gA== 0000898430-96-005321.txt : 19961118 0000898430-96-005321.hdr.sgml : 19961118 ACCESSION NUMBER: 0000898430-96-005321 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBR BREWING CO INC CENTRAL INDEX KEY: 0000846012 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 650145422 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-26617-A FILM NUMBER: 96663045 BUSINESS ADDRESS: STREET 1: 433 N CAMDEN STREET 2: SUITE 1200 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3102745172 MAIL ADDRESS: STREET 1: 433 N CAMDEN STREET 2: SUITE 1200 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL SWEEPSTAKES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PETROVEST INC DATE OF NAME CHANGE: 19910925 FORMER COMPANY: FORMER CONFORMED NAME: VIDEO PROMOTIONS INC DATE OF NAME CHANGE: 19891213 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1996 [ ] 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 33-26617A ---------- CBR BREWING COMPANY, INC. --------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 65-0145422 - ------------------------------ --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 433 North Camden Drive, Suite 1200 Beverly Hills, California 90210 - ---------------------------------------- -------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 274-5172 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 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Common shares outstanding at September 30, 1996 Class A 5,000,013 Class B 3,000,000 Total sequentially numbered pages in this document : 22 CBR BREWING COMPANY, INC. AND SUBSIDIARIES ------------------------------------------- INDEX ----- PART I FINANCIAL INFORMATION Item 1 Financial Statements Condensed Consolidated Balance Sheets (unaudited) - September 30, 1996 and December 31, 1995 Condensed Consolidated Statements of Income (unaudited) - Three months and nine months ended September 30, 1996 and 1995 Condensed Consolidated Statements of Cash Flows (unaudited) - Nine months ended September 30, 1996 and 1995 Notes to Condensed Consolidated Financial Statements (unaudited) - Three months and nine months ended September 30, 1996 and 1995 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K SIGNATURES 2 CBR BREWING COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 1996 December 31, 1995 ------------------------- ------------------------- RMB USD RMB USD ----------- ----------- ----------- ---------- ASSETS Current assets: Cash 71,958,510 8,708,521 57,448,305 6,952,475 Accounts receivable 157,288,888 19,035,325 158,677,644 19,203,394 Inventories (Note 3) 128,771,379 15,584,095 56,838,801 6,878,712 Prepayments, deposits and other receivables 8,825,360 1,068,058 7,423,161 898,361 Due from related companies 20,823,149 2,520,047 46,411,779 5,616,819 ----------- ----------- ----------- ---------- Total current assets 387,667,286 46,916,046 326,799,690 39,549,761 Deferred tax assets - - 48,444 5,863 Property, plant and equipment, net 245,080,276 29,659,963 197,308,264 23,878,527 Interest in an associated company (Note 5) 198,003,452 23,962,659 222,742,476 26,956,611 ----------- ----------- ----------- ---------- Total assets 830,751,014 100,538,668 746,898,874 90,390,762 =========== =========== =========== ==========
(continued) 3 CBR BREWING COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
September 30, 1996 December 31, 1995 ------------------------- ------------------------ RMB USD RMB USD ----------- ----------- ----------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank loans 46,074,400 5,575,989 32,574,400 3,942,200 Obligation under capital lease 2,799,965 338,856 5,634,848 681,937 Deposits received from customers 69,048,813 8,356,385 123,817,626 14,984,585 Accounts payable and accrued liabilities 121,096,471 14,655,266 56,279,181 6,810,986 Due to related companies 26,168,812 3,166,987 18,629,685 2,254,591 Due to an associated company 164,518,178 19,910,224 154,185,606 18,659,761 Sales taxes payable 52,636,713 6,370,171 33,233,897 4,022,013 ----------- ----------- ----------- ---------- Total current liabilities 482,343,352 58,373,878 424,355,243 51,356,073 Long term liabilities: Deferred tax liabilities 701,555 84,903 - - Shareholder's loan (Note 4) 73,794,948 8,930,769 73,794,948 8,930,769 Obligation under capital lease 24,897,291 3,013,106 24,897,291 3,013,106 ----------- ----------- ----------- ---------- Total long term liabilities 99,393,794 12,028,778 98,692,239 11,943,875 Minority interests 108,975,597 13,188,382 96,474,719 11,675,508 Shareholders' equity : Capital stock - common stock Class A par value US$0.0001 each, 90,000,000 shares authorized, 5,000,013 shares outstanding 4,265 516 4,265 516 Class B par value US$0.0001 each, 10,000,000 shares authorized, 3,000,000 shares outstanding 2,559 310 2,559 310 Additional paid-in capital 104,030,194 12,589,882 104,030,194 12,589,882 Statutory surplus and collective welfare funds 2,159,610 261,359 2,159,613 261,359 Retained earnings 33,841,643 4,095,563 21,180,042 2,563,239 ----------- ----------- ----------- ---------- Total shareholders' equity 140,038,271 16,947,630 127,376,673 15,415,306 ----------- ----------- ----------- ---------- Total liabilities and shareholders' equity 830,751,014 100,538,668 746,898,874 90,390,762 =========== =========== =========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 CBR BREWING COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Nine Months Ended Ended Three Months Ended Nine Months Ended September 30, September 30, September 30, 1996 September 30, 1996 1995 1995 ----------------------------- ----------------------------- ------------ ------------ RMB USD RMB USD RMB RMB ------------ ----------- ------------ ----------- ------------ ------------ (As adjusted (As adjusted - Note 2) - Note 2) Sales 306,718,479 37,119,506 950,289,048 115,005,331 252,096,131 387,045,169 Sales taxes (5,812,980) (703,495) (18,192,910) (2,201,732) (2,055,743) (9,629,445) ------------ ----------- ------------ ----------- ------------ ------------ Sales, net of sales taxes 300,905,499 36,416,011 932,096,138 112,803,599 250,040,388 377,415,724 Cost of sales, including inventory purchased from related companies of RMB 202,392,696; RMB 605,179,405; RMB 230,583,887 and RMB 257,401,545, respectively; and royalty fee paid to related company of RMB 2,261,653; RMB 6,395,214; RMB 1,006,342 and RMB 2,531,863, respectively (255,919,347) (30,971,723) (787,903,498) (95,353,201) (219,288,307) (325,726,815) ------------ ----------- ------------ ----------- ------------ ------------ Gross profit 44,986,152 5,444,288 144,192,640 17,450,398 30,752,081 51,688,909 Selling and administrative expenses, including advertising expenses paid or payable to related company of RMB 14,900,000; RMB 48,306,488; RMB 4,380,000 and RMB 4,380,000, respectively (37,320,069) (4,516,528) (119,096,142) (14,413,184) (26,298,804) (45,780,787) ------------ ----------- ------------ ----------- ------------ ------------ Operating income 7,666,083 927,760 25,096,498 3,037,214 4,453,277 5,908,122 Foreign exchange gains 374,708 45,348 534,459 64,681 - 1,552,106 Other income (expense): Sales tax refund - - - - - 1,375,000 Sales of scrap - - - - - 736,494 Interest expense, including interest expense paid or payable to related companies of RMB 2,778,908; RMB 9,378,620; nil and nil, respectively (4,728,093) (572,201) (17,553,745) (2,124,379) (1,625,123) (5,986,858) ------------ ----------- ------------ ----------- ------------ ------------ Income before income taxes 3,312,698 400,907 8,077,212 977,516 2,828,154 3,584,864 Income taxes (473,587) (57,315) (973,587) (117,825) (2,000,000) (2,000,000) ------------ ----------- ------------ ----------- ------------ ------------ Income before equity in earnings of an associated company 2,839,111 343,592 7,103,625 859,691 828,154 1,584,864 Equity in earnings of an associated company 6,567,324 794,787 15,058,854 1,822,444 10,387,862 30,164,340 ------------ ----------- ------------ ----------- ------------ ------------ Net income before minority interests 9,406,435 1,138,379 22,162,479 2,682,135 11,216,016 31,749,204 Minority interests (5,417,228) (655,601) (9,500,878) (1,149,810) (6,372,559) (16,696,385) ------------ ----------- ------------ ----------- ------------ ------------ Net income for the period 3,989,207 482,778 12,661,601 1,532,325 4,843,457 15,052,819 ============ =========== ============ =========== ============ ============ Net income per common share 0.50 0.06 1.58 0.19 0.61 1.88 ============ =========== ============ =========== ============ ============ Weighted average shares of common stock 8,000,013 8,000,013 8,000,013 8,000,013 8,000,013 8,000,013 ============ =========== ============ =========== ============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 CBR BREWING COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended Nine Months Ended September 30, 1996 September 30, 1995 -------------------------- ------------------- RMB USD RMB ----------- ---------- ------------------- (As adjusted-Note 2) CASH FLOWS FROM OPERATING ACTIVITIES: Net income 12,661,601 1,532,325 15,052,819 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interests 9,500,878 1,149,810 16,696,385 Equity in earnings of an associated company (15,058,854) (1,822,444) (30,164,340) Depreciation and amortization 20,582,444 2,490,917 9,323,888 Allowance for doubtful accounts 2,131,251 257,927 - Income taxes 3,910,971 473,311 - Foreign exchange gains (534,459) (64,681) (1,552,106) ----------- ---------- ----------- 33,193,832 4,017,165 9,356,646 Changes in working capital: (Increase) Decrease in - Accounts receivable 1,388,756 168,069 (113,063,426) Inventories (71,932,578) (8,705,383) (36,832,603) Prepayments, deposits and other receivables (1,402,199) (169,696) (25,486,973) Increase (Decrease) in - Accounts payable and accrued liabilities 64,817,290 7,844,280 36,322,823 Deposits received from customers (54,768,813) (6,628,200) 30,271,130 Due to an associated company 10,332,572 1,250,463 - Sales taxes payable 19,402,816 2,348,157 10,391,492 ----------- ---------- ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,031,676 124,855 (89,040,911) ----------- ---------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (70,112,223) (8,485,080) (41,404,613) Due from related companies 25,588,630 3,096,772 - Dividend from an associated company 39,797,878 4,816,396 28,644,569 ----------- ---------- ------------ NET CASH USED IN INVESTING ACTIVITIES: (4,725,715) (571,912) (12,760,044) ----------- ---------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of other loans - - (8,000,000) New other loans - - 3,000,000 Increase in shareholder's loan - - 4,391,204 New bank loans 13,500,000 1,633,789 6,000,000 Due to related companies 7,539,127 912,396 208,047,851 Repayment of obligation under capital lease (2,834,883) (343,082) (4,730,443) ----------- ---------- ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 18,204,244 2,203,103 208,708,612 ----------- ---------- ------------ Net increase in cash 14,510,205 1,756,046 106,907,657 Cash at beginning of period 57,448,305 6,952,475 7,397,927 ----------- ---------- ------------ Cash at end of period 71,958,510 8,708,521 114,305,584 =========== ========== ============
The accompanying notes are an integral part of the condensed consolidated financial statements. 6 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION Organization - CBR Brewing Company, Inc. (the "Company," which term shall - ------------ include, when the context so requires, its subsidiaries and affiliates), formerly known as Natural Fuels, Inc. and National Sweepstakes, Inc., was originally incorporated as Video Promotions, Inc. on April 20, 1988 under the laws of the State of Florida. The Company adopted its current name on March 15, 1995. Reverse Acquisition - For a period of time prior to December 16, 1994, the - ------------------- business of the Company was devoted to seeking potential acquisition or merger opportunities. On December 16, 1994, the Company acquired all of the outstanding shares of capital stock of High Worth Holdings, Ltd., a British Virgin Islands corporation ("Holdings"), from Oriental Win Holdings Ltd. ("Oriental Win") and Goldchamp Ltd. ('Goldchamp") in exchange for 3,960,000 shares and 240,000 shares of the Company's Class A Common Stock issued to Oriental Win and Goldchamp, respectively, and 3,000,000 shares of the Company's Class B Common Stock issued to Oriental Win. Subsequently, on October 14, 1996, Oriental Win transferred the 3,960,000 shares of Class A common stock and the 3,000,000 shares of Class B common stock to its shareholders. As a result, West Coast Star Enterprises Limited, as the 60% shareholder of Oriental Win, became the Company's controlling shareholder. The shares of Class B Common Stock carry two votes per share but are otherwise equivalent to the Class A Common Stock. In addition, the Company issued an aggregate of 600,000 shares of Class A Common Stock to various parties for consulting services in connection with the acquisition. The shares of Class A and Class B Common Stock issued in conjunction with the acquisition represent approximately 98.1% of the issued and outstanding shares of the Company, after all shares were issued and a 1-for-22 reverse stock split which was effected on November 22, 1994. The Company's subsidiaries and affiliates manage and control the production and sale of domestically-brewed Pabst Blue Ribbon beer in the People's Republic of China ("China" or the "PRC"). Holdings is a holding company that was formed solely to effect the acquisition of Zhaoqing Blue Ribbon High Worth Brewery, Ltd., a Sino-foreign joint venture ("High Worth JV"), which was registered in the PRC on July 2, 1994, in which Guangdong Blue Ribbon Group Co. Ltd. ("Guangdong Blue Ribbon") owns a 40% interest and Holdings owns a 60% interest. High Worth JV owns a 100% interest in Zhaoqing Brewery, a PRC company, which is engaged in the brewery business in China. Zhaoqing Brewery also owns a 40% interest in Zhaoqing Blue Ribbon Brewery Noble, Ltd., a Sino-foreign joint venture ("Noble Brewery"), which is also engaged in the brewery business in China. Noble Brewery is a Sino-foreign equity joint venture enterprise registered in the PRC on October 8, 1993, in which Goldjinsheng Holding Ltd., an unrelated party, and Zhaoqing Brewery hold 60% and 40% interests, respectively. Accordingly, the Company owns effective interests of 60% in Zhaoqing Brewery and 24% in Noble Brewery. The brewery operations are located in Zhaoqing City, which is situated approximately 100 miles from Hong Kong in the Guangdong Province of China. Substantially all of the beer currently sold by the Company is now marketed under the Pabst Blue Ribbon label. During 1995, Zhaoqing Blue Ribbon Marketing Company, a PRC company (the "Marketing Company"), was established to conduct the distribution, marketing and promotion of Pabst Blue Ribbon beer in China. Zhaoqing Brewery owns a 70% interest and Guangdong Blue Ribbon owns a 30% interest in the Marketing Company. Zhaoqing Brewery and Noble Brewery commenced the distribution of their production of Pabst Blue Ribbon beer through the Marketing Company during April 1995 and July 1995, respectively. Apart from the investment in High Worth JV which was partly financed by a loan from Oriental Win, Holdings has no other significant assets or liabilities. On October 31, 1994, prior to the reverse acquisition effective December 16, 1994, High Worth JV acquired a 100% interest in Zhaoqing Brewery, including Zhaoqing Brewery's 40% interest in Noble Brewery, for approximately USD20,000,000. Prior to the acquisition of the Zhaoqing Brewery by High Worth JV, Zhaoqing Brewery was a wholly-owned subsidiary of Guangdong Blue Ribbon. For accounting purposes, the acquisition of Holdings by the Company has been treated as a recapitalization of Holdings with Holdings as the acquiror (reverse acquisition). Accordingly, the historical financial statements prior to December 16, 1994 are those of Holdings. 7 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued) THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION (continued) The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The acquisition on October 31, 1994 of Zhaoqing Brewery, including Zhaoqing Brewery's 40% interest in Noble Brewery, has been accounted for under the purchase method of accounting. Since High Worth JV had no operations prior to this acquisition, consolidated financial statements have been prepared commencing October 31, 1994, to reflect the post-acquisition consolidated results of the operations of Zhaoqing Brewery and Noble Brewery attributable to the Company. The consolidated financial statements include the results of operations of Zhaoqing Brewery on a consolidated basis and Noble Brewery under the equity method of accounting for investments. All material intercompany accounts and transactions are eliminated on consolidation. The consolidated financial statements have been prepared on a going concern basis notwithstanding that the Company has a net current liability position at December 31, 1995 and September 30, 1996, as Oriental Win, the Company's former principal shareholder, and Guangdong Blue Ribbon, a related party, have undertaken to provide continuing financial support. Foreign Currency Translation - In preparing the consolidated financial - ---------------------------- statements, the financial statements of the Company are measured using Renminbi ("RMB") as the functional currency. All foreign currency transaction are translated into RMB using the applicable rates of exchange, quoted by the People's Bank of China (the "unified exchange rate"). Monetary assets and liabilities denominated in foreign currencies have been translated into RMB using the unified exchange rate prevailing at the balance sheet dates. The resulting exchange gains or losses have been credited or charged to the statements of income for the periods in which they occur. The Company's share capital is denominated in United States dollars ("USD") and the reporting currency is the RMB. For financial reporting purposes, the USD share capital amounts have been translated into RMB at the applicable rates prevailing on the transaction dates. Translation of amounts from RMB into United States dollars ("USD") for the convenience of the reader has been made at the rate of exchange as quoted by the People's Bank of China on September 30, 1996, of USD1.00 = RMB8.263. No representation is made that the RMB amounts could have been, or could be, converted into USD at that rate or at any other rate. NOTE 2 -- COMMENTS The accompanying condensed consolidated financial statements are unaudited but, in the opinion of the management of the Company, contain all adjustments necessary to present fairly the financial position at September 30, 1996, the results of operations for the three months and nine months ended September 30, 1996 and 1995, and the changes in cash flows for the nine months ended September 30, 1996 and 1995. These adjustments are of a normal recurring nature. The consolidated balance sheet as of December 31, 1995 is derived from the Company's audited financial statements. Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented therein not misleading. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Securities and Exchange Commission. The results of operations for the three months and nine months ended September 30, 1996 are not necessary indicative of the results of operations to be expected for the full fiscal year ending December 31, 1996. The calculation of net income per share is based on the weighted average number of shares of Class A and Class B Common Stock issued and outstanding during each respective period. In conjunction with the audit of the Company's consolidated financial statements as of and for the year ended December 31, 1995, the Company identified certain year-end adjustments properly allocable to prior 1995 interim periods, including additional charges by Zhaoqing Brewery for the staff welfare fund and by the Marketing Company for the provision for doubtful accounts, accrued liability for sales commissions and unrecorded renovation expenses. 8 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued) THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NOTE 2 -- COMMENTS (continued) With respect to Noble Brewery, an unconsolidated subsidiary, additional charges due to improper cut-offs, unrecorded expenses and account misclassifications resulted in an understatement of cost of sales and of selling, general and administrative expenses. Accordingly, the Company has restated the accompanying statements of income and cash flows for the three months amd nine months ended September 30, 1995 to reflect these adjustments.
As Previously Reported As Adjusted ---------------------- ----------- RMB RMB ----------- ----------- Three Months Ended September 30, 1995: - ------------------------------------- Sales, net of sales taxes 250,040,388 250,040,388 Gross profit 30,752,081 30,752,081 Operating income 6,709,893 4,453,277 Net income 6,811,619 4,843,457 Net income per common share 0.85 0.61 As Previously Reported As Adjusted ---------------------- ----------- RMB RMB ----------- ----------- Nine Months Ended September 30, 1995: - ------------------------------------- Sales, net of sales taxes 377,845,714 377,415,724 Gross profit 51,870,004 51,688,909 Operating income 10,703,709 5,908,122 Net income 21,853,725 15,052,819 Net income per common share 2.73 1.88
NOTE 3 -- INVENTORIES Inventories consisted of the following at September 30, 1996 and December 31, 1995:
September 30, 1996 December 31, 1995 ------------------------ ---------------------- RMB USD RMB USD ----------- ---------- ---------- --------- Raw materials 23,670,127 2,864,592 14,154,395 1,712,985 Work in progress 6,091,372 737,186 3,713,686 449,436 Finished goods 99,009,880 11,982,317 38,970,720 4,716,291 128,771,379 15,584,095 56,838,801 6,878,712
NOTE 4 -- SHAREHOLDER'S LOAN The shareholder's loan of RMB 73,794,948 (USD8,930,769) at September 30, 1996 and December 31, 1995 was provided by Oriental Win (the former controlling shareholder) in connection with the acquisition of High Worth JV by Holdings. The loan is denominated in USD, is unsecured, interest free and is not due and payable unless alternate long term debt or equity funds are available to the Company. 9 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued) THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NOTE 5 -- INTEREST IN AN ASSOCIATED COMPANY The unlisted investment consists of the Company's 40% equity interest in Noble Brewery held by a 60% owned subsidiary as follows:
RMB Unlisted investment, at cost, October 31, 1994 209,361,595 The Company's share of earnings and dividends of an associated company: Earnings - Two months ended December 31, 1994 7,812,392 For the year ended December 31, 1995 34,213,058 Three months ended March 31, 1996 4,011,244 Three months ended June 30, 1996 4,480,286 Three months ended September 30, 1996 6,567,324 Dividends - Declared and paid during 1995 (28,644,569) Declared and paid during 1996 (39,797,878) ----------- Unlisted investment, September 30, 1996 198,003,452 ===========
The condensed statements of operations of Noble Brewery for the three months and nine months ended September 30, 1996 and 1995 are as follows:
Three Months Nine Months Ended Ended Three Months Ended Nine Months Ended September 30, September 30, September 30, 1996 September 30, 1996 1995 1995 ---------------------------- ---------------------------- ------------- ----------- RMB USD RMB USD RMB RMB ----------- ---------- ----------- ---------- ----------- ----------- (As adjusted (As adjusted - Note 2) - Note 2) Sales, net of sales taxes 166,186,130 20,112,082 508,780,266 61,573,311 189,240,239 552,113,728 =========== ========== =========== ========== =========== =========== Net income 20,730,412 2,508,824 55,898,583 6,764,926 25,969,655 75,410,850 =========== ========== =========== ========== =========== =========== The Company's share of net income after deduction of unrealised intercompany profit 6,567,324 794,787 15,058,854 1,822,444 10,387,862 30,164,340 =========== ========== =========== ========== =========== ===========
10 CBR BREWING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued) THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NOTE 6 -- MARKETING COMPANY The Marketing Company was established during 1995 to conduct the distribution, marketing and promotion of Pabst Blue Ribbon beer in China. The Marketing Company also sells mineral water and non-carbonated soft drinks bearing the Blue Ribbon label produced by Guangdong Blue Ribbon. Zhaoqing Brewery owns a 70% interest and Guangdong Blue Ribbon owns a 30% interest in the Marketing Company. Zhaoqing Brewery and Noble Brewery commenced the distribution of their production of Pabst Blue Ribbon beer through the Marketing Company during April 1995 and July 1995, respectively. The consolidated financial statements include the results of operations of the Marketing Company on a consolidated basis. The Marketing Company commenced operations on April 1, 1995. The commencement of the Marketing Company's operations, which are presented on a consolidated basis, resulted in a significant change in the Company's operating structure and income statement presentation during 1995. Accordingly, a comparison of results of operations for the nine months ended September 30, 1996 to results of operations for the nine months ended September 30, 1995, is not necessarily meaningful. 11 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview: Effective December 16, 1994, the Company acquired Holdings, which, through its subsidiaries and affiliates, manages and controls the production and sale of domestically-brewed Pabst Blue Ribbon beer in China. Holdings is a holding company which was formed solely to effect the acquisition of a 60% interest in High Worth JV. On October 31, 1994, High Worth JV acquired a 100% interest in Zhaoqing Brewery, including Zhaoqing Brewery's 40% interest in Noble Brewery. The acquisition of Zhaoqing Brewery, including Zhaoqing Brewery's 40% interest in Noble Brewery, has been accounted for under the purchase method of accounting. The consolidated financial statements include the results of operations of Zhaoqing Brewery on a consolidated basis and Noble Brewery under the equity method of accounting for investments, commencing October 31, 1994, to reflect the post-acquisition consolidated results of operations of Zhaoqing Brewery and Noble Brewery attributable to the Company. For accounting purposes, the acquisition of Holdings by the Company has been treated as a recapitalization of Holdings with Holdings as the acquiror (reverse acquisition). Accordingly, the historical financial statements prior to December 16, 1994 are those of Holdings. During 1995, the Marketing Company was established to conduct the distribution, marketing and promotion of Pabst Blue Ribbon beer in China. The Marketing Company also sells mineral water and non-carbonated soft drinks bearing the Blue Ribbon label produced by Guangdong Blue Ribbon. Zhaoqing Brewery owns a 70% interest and Guangdong Blue Ribbon owns a 30% interest in the Marketing Company. Zhaoqing Brewery and Noble Brewery commenced the distribution of their production of Pabst Blue Ribbon beer through the Marketing Company during April 1995 and July 1995, respectively. The Marketing Company generally requires a 50% cash deposit from its customers as security. However, for those customers located in Guangdong Province, the deposit policy has been replaced by cash-on- delivery or pre-approved credit terms. The consolidated financial statements include the results of operations of the Marketing Company on a consolidated basis. Business: Pabst Blue Ribbon beer is distributed and sold throughout China. In general, the beer market in China is still undergoing a rapid growth stage. There is a substantial difference in the price at which local or regional beer is sold in China as compared to the price of foreign or premium brands of beer. On average, a 640 ml. bottle of local or regional beer would typically sell for 1 - 2 RMB, as compared to a foreign or premium beer which would sell for 4 - 6 RMB. The beer industry in China is seasonal, with sales at their lowest in the months of October and November, and at their highest in the months of March through September. The Company's brewing facilities consist of the following : Zhaoqing Brewery: The original facilities of Zhaoqing Brewery were constructed ---------------- between 1978 and 1980 with annual production capacity based on old brewing technology of 50,000 metric tons or 425,000 barrels of beer. With the implementation of the new brewing technology and the purchase of additional equipment, Zhaoqing Brewery reached an annual production capacity of 100,000 metric tons or 850,000 barrels by the end of 1995. Prior to March 1995, Zhaoqing Brewery had produced exclusively domestic brands of beer. In mid-1994, with the assistance of Pabst Brewing Company, Zhaoqing Brewery commenced the conversion and refinement of its original facilities and adopted a new brewing technology in order to produce beer under the Pabst Blue Ribbon label. During March 1995, Zhaoqing Brewery discontinued production of all domestic brands and commenced 12 exclusive production of Pabst Blue Ribbon beer on a full-scale basis. However, beer that does not meet Pabst Blue Ribbon quality standards is generally packaged and distributed as local brand beer. Noble Brewery: The original facilities of Noble Brewery were constructed ------------- between 1988 and 1990 with annual production capacity of approximately 80,000 metric tons or 680,000 barrels of beer. During July 1994, a second brewing facility was completed, which increased annual production capacity by an additional 120,000 metric tons or 1,020,000 barrels of beer. The second brewing facility commenced full-scale production during late 1994. Noble Brewery has produced Pabst Blue beer exclusively since it commenced operations. Consolidated Results of Operations : Zhaoqing Brewery and Noble Brewery commenced distribution of their production of Pabst Blue Ribbon beer through the Marketing Company during April 1995 and July 1995, respectively. The commencement of the Marketing Company's operations, which are presented on a consolidated basis, resulted in a significant change in the Company's operating structure and income statement presentation during 1995. Accordingly, a comparison of result of operations for the nine months ended September 30, 1996 to results of operations for the nine months ended September 30, 1995 is not necessarily meaningful. Three Months Ended September 30, 1996 and 1995 - Sales: During the three months ended September 30, 1996, Zhaoqing Brewery produced 23,443 metric tons and sold 23,412 metric tons of beer, of which 504 metric tons (2.2%) were local brand beer and 22,908 metric tons (97.8%) were Pabst Blue Ribbon beer. During the three months ended September 30, 1995, Zhaoqing Brewery produced 10,338 metric tons and sold 11,630 metric tons, of which 1,396 metric tons (12.0%) were local brand beer and 10,234 metric tons (88.0%) were Pabst Blue Ribbon beer. As a result of increased demand for Pabst Blue Ribbon beer, in conjunction with the implementation of the new brewing technology and the installation of new equipment to increase the production capacity at the end of 1995, total beer sold increased by 11,782 metric tons or 101.3% from 1995 to 1996. During the three months ended September 30, 1996, Noble Brewery produced 45,946 metric tons and sold 42,587 metric tons of beer, as compared to 35,047 metric tons of beer produced and 36,793 metric tons of beer sold for the three months ended September 30, 1995. As a result of increased demand for Pabst Blue Ribbon beer, total beer sold increased by 5,794 metric tons or 15.7% from 1995 to 1996. For the three months ended September 30, 1996, net sales, all of which were conducted through the Marketing Company, were RMB 300,905,499, of which RMB 273,815,456 (91.0%) were attributable to beer sales and RMB 27,090,043 (9.0%) were attributable to the sales of mineral water, non-carbonated soft drinks and red wine. During the three months ended September 30, 1996, the Marketing Company purchased RMB 177,212,319 of beer products from Noble Brewery for resale, and RMB 25,180,377 of mineral water, non-carbonated soft drinks and red wine from Guangdong Blue Ribbon for resale. Approximately 99.6% of total beer sales during the three months ended September 30, 1996 were provided from the sale and distribution of products under the Pabst Blue Ribbon brand name. For the three months ended September 30, 1995, net sales, all of which were conducted through the Marketing Company, were RMB 250,040,388, of which RMB 218,035,218 (87.2%) were attributable to beer sales and RMB 32,005,170 (12.8%) were attributable to the sales of mineral water and non-carbonated soft drinks. Gross Profit: For the three months ended September 30, 1996, total gross profit was RMB 44,986,152 or 15.0% of total net sales, and consisted of gross profit from beer sales of RMB 43,076,486 or 15.7% of net sales of beer and gross profit from sales of mineral water, non-carbonated soft drinks and red wine of RMB 1,909,666 or 7.0% of net sales of mineral water, non-carbonated soft drinks and red wine. For the three months ended September 30, 1995, total gross profit was RMB 30,752,081 or 12.3% of total net sales and consisted of gross profit from beer sales of RMB 29,022,614 or 13.3% of net sales of beer and gross profit from sales of mineral water and non-carbonated soft drinks of RMB 1,729,467 or 5.4% of net sales of mineral water and non-carbonated soft drinks. 13 The Company expects continuing pressure on its gross profit during 1996 as a result of the following factors: (1) a general softening of consumer demand in China, caused in substantial part by the central government of China's regulatory controls and economic policies; (2) increasing competition from foreign premium brand beers; and (3) an increase in 1996 raw material and packaging costs in excess of 10%. The Company has not been able to fully pass on to its customers the increased raw material and packaging costs, but in an effort to reduce product costs, the Company introduced a bottle recycling program in early 1996. During July 1996, Renhe Trading Company, a trading company located in Shenzhen, PRC, commenced importing and distributing U.S.-brewed Pabst Blue Ribbon beer in Southern China, and has advertised widely throughout Southern China that Pabst Brewing Company USA has granted it the exclusive right to distribute U.S.-brewed Pabst Blue Ribbon beer in China. Pabst Brewery Company USA has officially denied granting such authorization. The Company and its joint venture partner, Guangdong Blue Ribbon, which is the exclusive license holder of the Pabst Blue Ribbon brand in China, have jointly taken actions to stop the importation of U.S.-brewed Pabst Blue Ribbon beer by making successful applications to the head offices of the Custom Bureau and the Industrial and Commercial Bureau in Beijing for protection of the trademark and the exclusive license rights. During September 1996, the head office of the Custom Bureau officially notified all Provincial Custom Departments to confiscate all imported Pabst Blue Ribbon beer. In addition, the Industrial and Commercial Bureau has instructed its provincial branches to confiscate the imported U.S.-brewed Pabst Blue Ribbon beer appearing in the retail market. Accordingly, the influx of imported U.S.-brewed Pabst Blue Ribbon beer has been substantially reduced. However, there can be no assurances that this problem will not reoccur in the future. Guangdong Blue Ribbon intends to commence legal proceedings against Renhe Trading Company for the damages caused by its importation activities. Selling and Administrative Expenses: For the three months ended September 30, 1996, selling and administrative expenses were RMB 37,320,069 or 12.4% of net sales, consisting of selling expenses of RMB 29,142,163 and general and administrative expenses of RMB 8,177,906. Selling expenses include costs relating to the advertising, promotion, marketing and distribution of Pabst Blue Ribbon beer in China, and have been incurred in conjunction with the increase in the production capacity of Zhaoqing Brewery and the increase in sales volume. For the three months ended September 30, 1996, the Company recorded an allowance for doubtful accounts of RMB 801,251 to provide for estimated losses on accounts receivable for the period. During 1995, the Marketing Company was established to market the Pabst Blue Ribbon beer produced by Zhaoqing Brewery and Noble Brewery throughout China. The Marketing Company assumed the responsibility for marketing Zhaoqing Brewery's production of Pabst Blue Ribbon beer in April 1995, and has incurred most of the selling expenses since that date. General and administrative costs include the costs associated with the operation of the Company's executive offices, and the legal and accounting costs associated with the operation of a public company. As a result of softening consumer demand and increasing competition from foreign premium brand beers, the Company has implemented a substantially expanded advertising and promotional program in 1996 in order to stimulate consumer demand and maintain the market position of Pabst Blue Ribbon beer in China. Operating Income: For the three months ended September 30, 1996, operating income was RMB 7,666,083 or 2.5% of net sales. For the three months ended September 30, 1995, operating income was RMB 4,453,277 or 1.8% of net sales. Interest Expense: For the three months ended September 30, 1996, interest expense increased by RMB 3,102,970 or 190.9% to RMB 4,728,093, as compared to RMB 1,625,123 for the three months ended September 30, 1995. Interest expense increased in 1996 as compared to 1995 as a result of the increase in bank loans, capital lease obligations and amounts payable to Guangdong Blue Ribbon as a result of its advances for the expansion of Zhaoqing Brewery. Income Taxes: For the three months ended September 30, 1996, income tax expense was RMB 473,587. Although the Zhaoqing Brewery's operations in China were subject to a tax holiday in 1996, deferred income tax 14 expense of RMB 250,000 was recorded for the three months ended September 30, 1996 as a result of temporary timing differences with respect to accelerated depreciation of property, plant and equipment during the tax exemption period. In addition, for the three months ended September 30, 1996, the Company recorded RMB 223,587 for the local income tax expense of the Marketing Company's operations. For the three months ended September 30, 1995, deferred income tax expense of RMB 2,000,000 was recorded. Net Income: As a result of decreased sales and earnings of Noble Brewery, increased selling expenses incurred by the Marketing Company, and increased interest expense, net income decreased to RMB 3,989,207 for the three months ended September 30, 1996, as compared to RMB 4,843,457 for the three months ended September 30, 1995. Nine Months Ended September 30, 1996 and 1995 - Sales: During the nine months ended September 30, 1996, Zhaoqing Brewery produced 66,483 metric tons and sold 66,432 metric tons of beer, of which 1,526 metric tons (2.3%) were local brand beer and 64,906 metric tons (97.7%) were Pabst Blue Ribbon beer. During the nine months ended September 30, 1995, Zhaoqing Brewery produced 34,155 metric tons and sold 37,471 metric tons, of which 10,237 metric tons (27.3%) were local brand beer and 27,234 metric tons (72.7%) were Pabst Blue Ribbon beer. As a result of increased demand for Pabst Blue Ribbon beer, in conjunction with the implementation of the new brewing technology and the installation of new equipment to increase the production capacity at the end of 1995, total beer sold increased by 28,961 metric tons or 77.3% from 1995 to 1996. Of the 11,388 metric tons of local brand beer produced in 1995, 10,237 metric tons (89.9%) were produced during the nine months ended September 30, 1995. During the nine months ended September 30, 1996, Noble Brewery produced 124,946 metric tons and sold 121,633 metric tons of beer, as compared to 127,891 metric tons of beer produced and 119,270 metric tons of beer sold for the nine months ended September 30, 1995. Total beer sold increased by 2,363 metric tons or 2.0% from 1995 to 1996, as a result of the regulation of sales by the Marketing Company, which purchases beer from the two breweries in accordance with their respective production capacities. For the nine months ended September 30, 1996, net sales, all of which were conducted through the Marketing Company, were RMB 932,096,138, of which RMB 861,982,510 (92.5%) were attributable to beer sales and RMB 70,113,628 (7.5%) were attributable to the sales of mineral water, non-carbonated soft drinks and red wine. During the nine months ended September 30, 1996, the Marketing Company purchased RMB 540,238,236 of beer products from Noble Brewery for resale, and RMB 64,941,169 of mineral water, non-carbonated soft drinks and red wine from Guangdong Blue Ribbon for resale. Approximately 99.7% of total beer sales during the nine months ended September 30, 1996 were provided from the sale and distribution of products under the Pabst Blue Ribbon brand name. For the nine months ended September 30, 1995, net sales were RMB 377,415,724, of which RMB 320,803,365 (85.0%) were attributable to beer sales and RMB 56,612,359 (15.0%) were attributable to the sales of mineral water and non-carbonated soft drinks. Gross Profit: For the nine months ended September 30, 1996, total gross profit was RMB 144,192,640 or 15.5% of total net sales, and consisted of gross profit from beer sales of RMB 139,020,181 or 16.1% of net sales of beer and gross profit from sales of mineral water, non-carbonated soft drinks and red wine of RMB 5,172,459 or 7.4% of net sales of mineral water, non-carbonated soft drinks and red wine. For the nine months ended September 30, 1995, total gross profit was RMB 51,688,909 or 13.7% of total net sales and consisted of gross profit from beer sales of RMB 48,849,839 or 15.2% of net sales of beer and gross profit from sales of mineral water and non-carbonated soft drinks of RMB 2,839,070 or 5.0% of net sales of mineral water and non-carbonated soft drinks. The Company expects continuing pressure on its gross profit during 1996 as a result of the following factors: (1) a general softening of consumer demand in China, caused in substantial part by the central government of China's regulatory controls and economic policies; (2) increasing competition from foreign premium brand beers; and (3) an increase in 1996 raw material and packaging costs in excess of 10%. The Company has not been able to fully pass on to its customers the increased raw material and packaging costs, but in an effort to reduce product costs, the Company introduced a bottle recycling program in early 1996. 15 During July 1996, Renhe Trading Company, a trading company located in Shenzhen, PRC, commenced importing and distributing U.S.-brewed Pabst Blue Ribbon beer in Southern China, and has advertised widely throughout Southern China that Pabst Brewing Company USA has granted it the exclusive right to distribute U.S.-brewed Pabst Blue Ribbon beer in China. Pabst Brewery Company USA has officially denied granting such authorization. The Company and its joint venture partner, Guangdong Blue Ribbon, which is the exclusive license holder of the Pabst Blue Ribbon brand in China, have jointly taken actions to stop the importation of U.S.-brewed Pabst Blue Ribbon beer by making successful applications to the head offices of the Custom Bureau and the Industrial and Commercial Bureau in Beijing for protection of the trademark and the exclusive license rights. During September 1996, the head office of the Custom Bureau officially notified all Provincial Custom Departments to confiscate all imported Pabst Blue Ribbon beer. In addition, the Industrial and Commercial Bureau has instructed its provincial branches to confiscate the imported U.S.-brewed Pabst Blue Ribbon beer appearing in the retail market. Accordingly, the influx of imported U.S.-brewed Pabst Blue Ribbon beer has been substantially reduced. However, there can be no assurances that this problem will not reoccur in the future. Guangdong Blue Ribbon intends to commence legal proceedings against Renhe Trading Company for the damages caused by its importation activities. Selling and Administrative Expenses: For the nine months ended September 30, 1996, selling and administrative expenses were RMB 119,096,142 or 12.8% of net sales, consisting of selling expenses of RMB 84,158,443 and general and administrative expenses of RMB 34,937,699. Selling expenses include costs relating to the advertising, promotion, marketing and distribution of Pabst Blue Ribbon beer in China, and have been incurred in conjunction with the increase in the production capacity of Zhaoqing Brewery and the increase in sales volume. For the nine months ended September 30, 1996, the Company recorded an allowance for doubtful accounts of RMB 2,131,251 to provide for estimated losses on accounts receivable for the period. During 1995, the Marketing Company was established to market the Pabst Blue Ribbon beer produced by Zhaoqing Brewery and Noble Brewery throughout China. The Marketing Company assumed the responsibility for marketing Zhaoqing Brewery's production of Pabst Blue Ribbon beer in April 1995, and has incurred most of the selling expenses since that date. General and administrative costs include the costs associated with the operation of the Company's executive offices, and the legal and accounting costs associated with the operation of a public company. As a result of softening consumer demand and increasing competition from foreign premium brand beers, the Company has implemented a substantially expanded advertising and promotional program in 1996 in order to stimulate consumer demand and maintain the market position of Pabst Blue Ribbon beer in China. Operating Income: For the nine months ended September 30, 1996, operating income was RMB 25,096,498 or 2.7% of net sales. For the nine months ended September 30, 1995, operating income was RMB 5,908,122 or 1.6% of net sales. Interest Expense: For the nine months ended September 30, 1996, interest expense increased by RMB 11,566,887 or 193.2% to RMB 17,553,745, as compared to RMB 5,986,858 for the nine months ended September 30, 1995. Interest expense increased in 1996 as compared to 1995 as a result of the increase in bank loans, capital lease obligations and amounts payable to Guangdong Blue Ribbon as a result of its advances for the expansion of Zhaoqing Brewery. Income Taxes: For the nine months ended September 30, 1996, income tax expense was RMB 973,587. Although the Zhaoqing Brewery's operations in China were subject to a tax holiday in 1996, deferred income tax expense of RMB 750,000 was recorded for the nine months ended September 30, 1996 as a result of temporary timing differences with respect to accelerated depreciation of property, plant and equipment during the tax exemption period. In addition, for the nine months ended September 30, 1996, the Company recorded RMB 223,587 for the local income tax expense of the Marketing Company's operations. For the nine months ended September 30, 1995, deferred income tax expense of RMB 2,000,000 was recorded. 16 Net Income: As a result of decreased sales and earnings of Noble Brewery, increased selling expenses incurred by the Marketing Company and increased interest expense, net income decreased to RMB 12,661,601 for the nine months ended September 30, 1996, as compared to RMB 15,052,819 for the nine months ended September 30, 1995. Noble Brewery: - ------------- Three Months Ended September 30, 1996 and 1995 - Sales: For the three months ended September 30, 1996 and 1995, net sales were RMB 166,186,130 and RMB 189,240,239, respectively. Gross Profit: For the three months ended September 30, 1996 and 1995, gross profit was RMB 36,443,517 or 21.9% of net sales and RMB 39,840,815 or 21.1% of net sales, respectively. Selling and Administrative Expenses: For the three months ended September 30, 1996, selling and administrative expenses totalled RMB 11,753,658 or 7.1% of net sales, consisting of selling expenses of RMB 5,290,666 and general and administrative expenses of RMB 6,462,992. For the three months ended September 30, 1995, selling and administrative expenses totalled RMB 13,530,035 or 7.1% of net sales, consisting of selling expenses of RMB 9,184,023 and general and administrative expenses of RMB 4,346,012. Selling expenses include costs relating to the advertising, promotion, marketing and distribution of Pabst Blue Ribbon beer in China and were incurred in conjunction with the increase in the production capacity of Noble Brewery. During 1995, the Marketing Company was established to market the Pabst Blue Ribbon beer produced by Zhaoqing Brewery and Noble Brewery throughout China. The Marketing Company assumed the responsibility for marketing Noble Brewery's production of Pabst Blue Ribbon beer in July 1995. Operating Income: For the three months ended September 30, 1996 and 1995, operating income was RMB 24,689,859 or 14.9% of net sales and RMB 26,310,780 or 13.9% of net sales, respectively. Income Taxes: The two-year income tax holiday for Noble Brewery expired on December 31, 1995. In 1996, Noble Brewery is required to pay local income tax at half the normal rate of 33% on its profit as determined in accordance with PRC accounting standards applicable to Noble Brewery. Accordingly, RMB 4,477,400 has been recorded as income tax expense for the three months ended September 30, 1996. Net Income: As a result of decreased sales, and increased administrative expenses and income tax expense, partially offset by decreased selling expenses, net income decreased to RMB 20,730,412 or 12.5% of net sales for the three months ended September 30, 1996, as compared to RMB 25,969,655 or 13.7% of net sales for the three months ended September 30, 1995. Nine Months Ended September 30, 1996 and 1995 - Sales: For the nine months ended September 30, 1996 and 1995, net sales were RMB 508,780,266 and RMB 552,113,728, respectively. Gross Profit: For the nine months ended September 30, 1996 and 1995, gross profit was RMB 106,325,230 or 20.9% of net sales and RMB 129,921,929 or 23.5% of net sales, respectively. Selling and Administrative Expenses: For the nine months ended September 30, 1996, selling and administrative expenses totalled RMB 36,212,574 or 7.1% of net sales, consisting of selling expenses of RMB 12,535,121 and general and administrative expenses of RMB 23,677,453. For the nine months ended September 30, 1995, selling and administrative expenses totalled RMB 50,649,896 or 9.2% of net sales, consisting of selling expenses of RMB 28,143,454 and general and administrative expenses of RMB 22,506,442. Selling expenses include costs relating to the advertising, promotion, marketing and distribution of Pabst Blue Ribbon beer in China and were incurred in conjunction with the increase in the production capacity of Noble Brewery. 17 During 1995, the Marketing Company was established to market the Pabst Blue Ribbon beer produced by Zhaoqing Brewery and Noble Brewery throughout China. The Marketing Company assumed the responsibility for marketing Noble Brewery's production of Pabst Blue Ribbon beer in July 1995. Operating Income: For the nine months ended September 30, 1996 and 1995, operating income was RMB 70,112,656 or 13.8% of net sales and RMB 79,272,033 or 14.4% of net sales, respectively. Income Taxes: The two-year income tax holiday for Noble Brewery expired on December 31, 1995. In 1996, Noble Brewery is required to pay local income tax at half the normal rate of 33% on its profit as determined in accordance with PRC accounting standards applicable to Noble Brewery. Accordingly, RMB 14,251,007 has been recorded as income tax expense for the nine months ended September 30, 1996. Net Income: As a result of decreased sales and gross margin, and increased administrative expenses and income tax expense, partially offset by decreased selling expenses, net income decreased to RMB 55,898,583 or 11.0% of net sales for the nine months ended September 30, 1996, as compared to RMB 75,410,850 or 13.7% of net sales for the nine months ended September 30, 1995. Consolidated Financial Condition - September 30, 1996 : Liquidity and Capital Resource - For the nine months ended September 30, 1996, the Company's operations provided cash resources of RMB 1,031,676. The Company's cash balance increased by RMB 14,510,205 to RMB 71,958,510 at September 30, 1996, as compared to RMB 57,448,305 at December 31, 1995. The Company's net working capital deficit decreased by RMB 2,879,487 to RMB 94,676,066 at September 30, 1996, as compared to RMB 97,555,553 at December 31, 1995, and the Company's current ratio at September 30, 1996 was 0.80: 1, as compared to 0.77 : 1 at December 31, 1995. The Company's inventories increased by RMB 71,932,578 or 126.6% to RMB 128,771,379 at September 30, 1996, as compared to RMB 56,838,801 at December 31, 1995. Such increase resulted from the expansion of production to meet the growth in market demand for beer products, and consisted primarily of an increase in finished goods in order to satisfy expected market demand during the peak season from July to September. This increase was also due to the influx of U.S.-brewed Pabst Blue Ribbon beer imported by Renhe Trading Company since July 1996, which interferred with the sales effort of the Marketing Company and disrupted the scheduled production timetable. Even though the influx of imported U.S.-brewed Pabst Blue Ribbon beer has been substantially reduced, it is expected to take some time for the Marketing Company to re-capture sales and reduce inventory levels. The amounts due from related companies mainly represented receivable balances from Guangdong Blue Ribbon and its affiliated companies. The amounts due from related companies decreased by RMB 25,588,630 or 55.1% to RMB 20,823,149 at September 30, 1996, as compared to RMB 46,411,779 at December 31, 1995. The decrease was primarily due to the increase in payments by Gunagdong Blue Ribbon and the increase in transaction volume with other related companies under normal operating levels during the period. The Company's accounts payable and accrued liabilities balance increased by RMB 64,817,290 or 115.2% to RMB 121,096,471 at September 30, 1996 as compared to RMB 56,279,181 at December 31, 1995. Such increase was mainly due to the increase in purchases of raw materials and packing materials for the peak season sales and production from July to September, and the increase in accrued expenses as a result of the expansion of production and operating activities. The Company's former principal shareholder, Oriental Win, and Guangdong Blue Ribbon, a related party, have undertaken to provide continuing financial support to the Company, as described below. The conversion and expansion of Zhaoqing Brewery has required substantial capital to finance the costs of expansion and to support substantially higher sales levels. Guangdong Blue Ribbon has provided and committed to provide Zhaoqing Brewery a line of credit, or to otherwise arrange financing, sufficient to finance the purchase of new machinery and equipment in connection with the expansion of Zhaoqing Brewery to an annual production capacity of 100,000 metric tons of beer. 18 For the nine months ended September 30, 1996, additions to property, plant and equipment in connection with the planned expansion of Zhaoqing Brewery to an annual production capacity of 100,000 metric tons of beer aggregated RMB 46,122,765, and were financed by advances under the line of credit from Guangdong Blue Ribbon, other borrowings, and dividends from an associated company. In addition, during the nine months ended September 30, 1996, other capital expenditures relating to the installation and final testing of machinery and equipment and the related construction costs at Zhaoqing Brewery aggregated RMB 4,558,883, and various other additions to property, plant and equipment aggregated RMB 1,571,923. The Company anticipates that additional capital expenditures in connection with the continuing expansion of Zhaoqing Brewery during the remainder of 1996 will be minimal. During the nine months ended September 30, 1996, Zhaoqing Brewery acquired undeveloped land near the existing plant site with a total area of 51,034 square meters for future expansion purposes. The total capital expenditures incurred in this regard during the nine months ended September 30, 1996 were RMB 17,858,652, which included the acquisition cost of the land and related site preparation costs. The Company anticipates that additional capital expenditures in connection with the development of the land during the remainder of 1996 will amount to approximately RMB 3,000,000. During the nine months ended September 30, 1996, the Company increased its short-term bank borrowings by RMB 13,500,000, resulting in net short-term bank borrowings outstanding at September 30, 1996 of RMB 46,074,400. During the nine months ended September 30, 1996, High Worth JV received a dividend from Noble Brewery of RMB 39,797,878, as compared to RMB 28,644,569 during the nine months ended September 30, 1995. Such dividend was used to fund, in part, additions to property, plant and equipment. Oriental Win and Guangdong Blue Ribbon are providing continuing financial support to the Company. The existing loan payable to Oriental Win was incurred in connection with the acquisition of High Worth JV by Holdings and totaled RMB 73,794,948 at September 30, 1996, equivalent to approximately USD 8,931,000. The loan is denominated in United States Dollar, is unsecured, interest free and is not due and payable unless alternate long-term debt or equity funds are available to the Company. The Company anticipates that its operating cash flow, combined with cash on hand, bank lines of credit and other external credit sources, and the line of credit and other credit facilities provided by affiliates or related parties, are adequate to satisfy the Company's working capital requirements for the fiscal year ending December 31, 1996. In order to finance the continuing capital requirements of the Company subsequent to the completion of the Zhaoqing Brewery expansion, the Company has begun negotiations to arrange for long term bank or lease financing. In addition, the accelerated development or acquisition of additional brewing facilities may require the use of long term borrowing or equity financing by the Company. Inflation and Currency Matters - In recent years, the Chinese economy has experienced periods of rapid economic growth as well as high rates of inflation, which in turn has resulted in the periodic adoption by the Chinese government of various corrective measures designed to regulate growth and contain inflation. Since 1993, the Chinese government has implemented an economic program designed to control inflation, which has resulted in the tightening of working capital available to Chinese business enterprises. The success of the Company depends in substantial part on the continued growth and development of the Chinese economy. Foreign operations are subject to certain risks inherent in conducting business abroad, including price and currency exchange controls, and fluctuations in the relative value of currencies. Changes in the relative value of currencies occur periodically and may, in certain instances, materially affect the Company's results of operations. Zhaoqing Brewery and Noble Brewery conduct virtually all of their business in China and, accordingly, the sale of their products are settled primarily in RMB. As a result, devaluation of the RMB against the USD would adversely affect their financial performance when measured in USD, and could have material adverse effects upon the results of operations and financial position of the Company. In addition, a significant portion of revenues will need to be converted into USD to meet foreign currency obligations. Although prior to 1994 the RMB experienced significant devaluation against the USD, the RMB has remained fairly stable from 1994 to present. The unified 19 exchange rate was US$1.00 to RMB8.65 at December 31, 1993, RMB8.45 at December 31, 1994, RMB8.32 at December 31, 1995, and RMB 8.26 at September 30, 1996. 20 PART II. OTHER INFORMATION --------------------------- ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - 27 Financial Data Schedule (electronic filing only) (b) Reports on Form 8-K - Three Months Ended September 30, 1996 : None. 21 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. CBR BREWING COMPANY, INC. ------------------------- (Registrant) Date: November 11, 1996 By: /S/ JOHN Z. LI ------------------------------- John Z. Li President and Director (Duly authorized officer) Date: November 11, 1996 By: /S/ GARY C. K. LUI ------------------------------- Gary C. K. Lui Chief Financial Officer (Chief Financial Officer) 22 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 8,708,521 0 19,035,325 0 15,584,095 46,916,046 29,659,963 0 100,538,668 58,373,878 3,013,106 0 0 826 16,946,804 100,538,668 112,803,599 112,803,599 95,353,201 95,353,201 0 0 2,124,379 977,516 117,825 1,532,325 0 0 0 1,532,325 .19 0
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