Modern Times is seeking a buyer or an investor, the company’s new CEO told Good Beer Hunting (GBH).
In the wake of closing four taprooms and laying off 73 workers, CEO Jennifer Briggs told the outlet that the company “would definitely entertain” a buyer.
“There’s a lot of consolidation happening with other breweries, so can we be a part of something as companies look at their growth? It’s a possibility,” she said.
Earlier this month, Modern Times closed taproom outposts in Portland, Oregon; and Oakland, Santa Barbara and Los Angeles, California; citing financial strain from the COVID-19 pandemic and “global declines in the craft beer industry.”
“As new leadership has stepped up and taken the helm over the last few weeks, it became clear that the financial state of the company that we are now tasked with directing is not just unsustainable, but in immediate and unavoidable peril,” the company wrote in a blog post. “As a result of this, we are forced to make some incredibly hard choices, which – while necessary for the health and continued success of our company – will result in many of our talented, hardworking staff losing their jobs.”
The brewery’s Point Loma, North Park, Encinitas and Anaheim locations across Southern California will remain open, while the company retrenched its distribution to Southern California and the southwestern U.S., pulling out of the Pacific Northwest market.
Briggs told GBH that the value of Modern Times will be determined in May or June as part of its Employee Stock Ownership Plan (ESOP), which controls 30% of the company.
As Brewbound reported in April 2019, Modern Times once valued itself at $264 million ($3,448 per barrel) in documents filed with the U.S. Securities and Exchange Commission as part of a crowdfunding raise at the time. Then-CEO and founder Jacob McKean justified the valuation methodology at the time as using a barrels-sold multiplier “consistent with industry practice” following Constellation Brands’ $1 billion purchase of Ballast Point in 2015.
In the GBH interview, Briggs acknowledged that the $264 million valuation didn’t age well and was “too high.” She added that her expectation for the upcoming review is a “pretty low” valuation following the closures and overall industry competition.
A potential sale of Modern Times would involve buying out McKean, who remains the majority owner of the company. McKean vacated the CEO role in May 2021 following Modern Times being called out as a toxic workplace rife with favoritism and harassment in nearly a dozen social media posts. According to Briggs, McKean “still cares a lot about this company” but is “ready to move on to something else.”
Modern Times’ Debt Load
Although Briggs declined to elaborate on Modern Times’ debt load to GBH, the company offered a window into its finances in an annual report filed with the SEC in June 2020. The report notes that due to the COVID-19 pandemic, the company was unable to meet its April 29, 2020, annual report filing requirements for securities sold via regulation crowdfunding and was relying on temporary relief from the SEC.
However, the annual report offers some insight into how Modern Times got to this point, and a balance sheet dated December 31, 2019, and filed with the SEC noted the company suffered net losses of nearly $4.7 million in 2019 and $2.9 million in 2018.
According to the report, the company said in June 2017 it entered into credit agreements with a commercial bank that provided a line of credit with maximum borrowings of $2 million and debt facilities up to $10 million and $3.2 million, respectively. Modern Times refinanced those lines of credit and debt facilities on April 1, 2019.
- Modern Times’ credit facilities with Live Oak Bank provide up to $8 million in debt financing, with $5 million being an SBA 7(a) term loan ($3,747,899 outstanding as of December 31, 2019), $500,000 being a conventional term loan ($500,000 outstanding as of December 31, 2019), and $2.5 million being a SBA CA term loan ($160,448 outstanding as of December 31, 2019.)
- With California Bank & Trust, the company entered into three separate loan facilities, including $7.6 million on an amortizing term loan ($6.745 million outstanding as of December 31, 2019), $2.5 million on an amortizing term loan ($2.125 million outstanding as of December 31, 2019), and $1.4 million on a revolving line of credit ($1.4 million outstanding as of December 31, 2019).
Modern Times also received a $500,000 Economic Injury Disaster Loan in April 2020, as well as $2.215 million from the Paycheck Protection Program (PPP), which was forgiven as of June 11, 2021, according to ProPublica.
“We are complying with the terms of each of these loans and will seek to maximize the forgiveness available on these loans,” the company wrote in the annual report.
Modern Times was approved for a second PPP loan for $2 million on February 11, 2021. The loan “has not yet been fully repaid or forgiven,” according to FederalPay.org.
In a section on the impact of the pandemic on Modern Times’ operations, the company reported that stay at home orders across California and mandated closings of restaurants have caused “a significant hit to our operations.”
“We believe the company will be able to continue to support itself through expanded delivery and carryout service for our beer, coffee, and food. However, we expect a reduced gross profit margin in 2020 compared to 2019. Depending on the overall length of the disruption, the ultimate financial impact on us cannot be reasonably estimated at this time.”
At the time of the filing, the company said it had no plans to raise additional capital from investors.
Also within the annual report, Modern Times shared eight loans made to the company in 2017 from stockholders and company directors related to the ESOP transaction. As of December 31, 2019, the company’s senior notes had an outstanding balance of more than $2.3 million, and its junior notes had an outstanding balance of more than $7.2 million. The company’s senior and junior subordinated notes included:
- A senior subordinated note on April 28, 2017, with founder Jacob McKean for $718,579. The note provides for interest payments of 4% and repayment of the principal beginning June 30, 2022. The note matures on April 28, 2024.
- A senior subordinated note on April 28, 2017, with Grover McKean, Jacob McKean’s father, for $572,776. The note provides for interest payments of 4% and repayment of the principal beginning June 30, 2022. The note matures on April 28, 2024.
- A senior subordinated note on April 28, 2017, with Benjamin McKean, Jacob McKean’s brother, for $63,642. The note provides for interest payments of 4% and repayment of the principal beginning June 30, 2022. The note matures on April 28, 2024.
- A junior subordinated note on June 21, 2017, with Jacob McKean for $299,182.05. The note provides for cash interest payments of 3% and payment in kind of 3% and repayment of the principal beginning September 30, 2021. The note matures on June 30, 2027.
- A junior subordinated note on June 21, 2017, with Grover McKean, for $1,994,546.95. The note provides for cash interest payments of 3% and payment in kind of 3% and repayment of the principal beginning September 30, 2021. The note matures on June 30, 2027.
- A junior subordinated note on June 21, 2017, with Benjamin McKean for $199,454.70. The note provides for cash interest payments of 3% and payment in kind of 3% and repayment of the principal beginning September 30, 2021. The note matures on June 30, 2027.
- A subordinated promissory note on December 31, 2017, with then-COO Chris Sarette for $531,606. The note provided for accruing interest at a rate of 2.25% until December 31, 2018, when the rate increased to 16%. The note matured on December 31, 2019, and was paid in full.
- A subordinated promissory note on December 31, 2017, with director Amy Krone for $152,598. The note provided for accruing interest at a rate of 2.25% until December 31, 2018, when the rate increased to 13%. The note matured on December 31, 2019, and was paid in full.
Production Numbers, Price Per Barrel Figures
Modern Times reported production of 40,600 barrels in 2016 (29,363 barrels sold), 49,600 barrels in 2017 (36,403 barrels sold in 2017), 68,365 barrels in 2018 (51,468 barrels in 2018), 70,300 barrels in 2019 (56,023 barrels sold in 2019). The company had originally estimated barrel production of 77,700 and sales of 59,363 in 2020, but it wrote “these figures will likely be reduced” due to the pandemic.
Modern Times added that its price per barrel, based on gross revenues, were $506 per barrel in 2016, $528 in 2017, $594 in 2018 and $625 in 2019. The company estimated at the time that its revenue per barrel would grow to $721 in 2020 and $746 in 2021.