Capital Brewery: Reports Third Consecutive Year of Profitable Growth

MIDDLETON, Wis. Capital Brewery achieved its third

consecutive year of profitable growth in the year ended May 31,

2006, reporting net sales of $3,657,178 and net income of

$138,742. Fiscal year 2006 was marked by significant

accomplishments including the highly acclaimed product launch of

Island Wheat, the completion of the first phase of cellar

expansion, and the commencement of a 15,000 barrel expansion

project for the company’s brewing and cellar facility in

Middleton, Wisconsin. We also continued to build our strong team

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by recruiting Catherine Baldauf for our sales team and Brodie

Birkel for our Brew House team.

Carl Nolen, Capital Brewery President and CEO, said “The

efforts of our employees and the spirit in which they have

performed their duties are very much appreciated. We are growing

and there is much more to learn. Our opportunity to rise to the

occasion and compete as a major player in the Craft Beer segment

in the Malt Beverage Industry is there for us. We will navigate

the course successfully and meet the challenges “head on.” We

will succeed.”Sales and Cost of Goods Sold

Net sales (sales net of excise tax and sales

discounts) increased to $3,657,178 in fiscal year 2006, an

increase of $794,493 from the prior year. Gross profit

increased to $1,235,600 from the prior year gross profit of

$1,026,103. The overall gross margin for fiscal year 2006

was 33.8% compared to 35.8% gross margin last year. The

decrease in gross margin occurred because the product mix

shifted slightly in fiscal year 2006 to a higher percentage

of packaged product sales compared to draught product.Expenses

Sales and marketing expenses in fiscal year 2006 were

$515,406 compared to $321,740 in fiscal year 2005. The

increase in sales and marketing expenses was for the

“Island Wheat” product launch and for overall increases in

our sales and marketing capabilities. Our sales and

marketing efforts continue to focus on our home territory

of Wisconsin. Administration expense was $501,620 in 2006

compared to $451,572 in 2005. Interest expense increased

slightly in fiscal year 2006 due to additional borrowing

for new aging tanks in fiscal year 2006.Liquidity and Capital Resources

As of May 31, 2006, we had working capital of

$659,541, compared to $525,627 as of May 31, 2005. This

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increase of $133,914 was principally the result of working

capital provided by profitable operations (income before

depreciation and deferred income tax) totaling $318,124,

less debt repayment of $145,323.

Capital Brewery’s achievements are based on the success

factors of our business:

• We can grow our business profitably and will continue to

do so.

• Wisconsin is our home and our primary market and

presents great opportunity.

• Our employees are the greatest asset of our Company.

“This past year has been another fantastic year for us at

Capital Brewery. At the end of the day it’s all about the beer,”

stated Carl Nolen.