THIS DOCUMENT IS A COPY OF THE FORM 10-QSB FILED ON
NOVEMBER 22, 1999 PURSUANT TO A RULE 201 TEMPORARY
HARDSHIP EXEMPTION.
UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000.
OR
( ) 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 0-22095
EAST COAST BEVERAGE CORPORATION
Colorado 88-1039267
State or other jurisdiction of (I.R.S.) Employer
incorporation Identification No.
USA Service Systems, Inc.
1750 University Drive
Suite 117
Coral Springs, Florida 33071
Address of principal executive offices
(954) 796-8060
---------------- --------------
Registrant's telephone number, including area code
10770 Wiles Road
Coral Springs, Florida 33076
Former address of principal executive offices
Indicate by check mark whether the Registrant (1) has files all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) had been subject to such filing
requirements for the past 90 days.
Yes X No ________
------------------
As of May 10, 2000 the Company had 8,961,596 outstanding shares of common
stock.
CONDENSED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS March 31, 2000 December 31,
(Unaudited) 1999
- --------------------------------------------------------------------------------
CURRENT ASSETS
Cash and equivalents $ 285,604 $ 115,364
Accounts receivable 2,158,424 109,689
Inventories 2,150,167 2,018,573
Prepaid mold fee 112,960 118,866
Prepaid expenses and other current assets 171,375 154,179
------------------------------------------------------------------------
Total current assets 4,878,530 2,516,671
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $174,387 707,189 679,321
TOTAL ASSETS $ 5,585,719 $ 3,195,992
- ---------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued interest payable $3,222,984 $ 1,955,248
Notes payable - current portion 375,000 525,000
Due to stockholder - current portion 276,016 765,516
- ---------------------------------------------------------------------------
Total current liabilities 3,874,000 3,245,764
LONG-TERM DEBT
Notes payable - 650,000
Due to stockholder 700,000 1,750,000
- ---------------------------------------------------------------------------
Total long-term debt 700,000 2,400,000
- ---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Common stock, par value $.0001 per share; 5,000,000
shares authorized; 8,236,142 and 6,348,975 issued and
outstanding 824 635
Additional paid in capital 8,325,714 3,589,870
Accumulated deficit (7,314,819) (6,040,277)
- ----------------------------------------------------------------------------
Total stockholders' equity
(deficiency in assets) 1,011,719 (2,449,772)
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY IN ASSETS) $ 5,585,719 $ 3,195,992
- ---------------------------------------------------------------------------
See accompanying notes - unaudited
EAST COAST BEVERAGE CORP.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
- --------------------------------------------------------------------------------
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------
SALES $ 2,260,194 $ 1,854,509
COST OF GOODS SOLD 1,595,136 1,314,966
- ---------------------------------------------------------------------------
GROSS PROFIT 665,058 539,543
- ---------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation 50,307 6,117
Freight 269,155 187,593
General and administrative expense 272,300 134,306
Professional fees and consulting 160,445 61,323
Promotion and advertising 794,903 676,503
Selling expenses 349,266 319,685
- ---------------------------------------------------------------------------
Total selling, general and
administrative expenses 1,896,376 1,385,527
- ---------------------------------------------------------------------------
LOSS FROM OPERATIONS (1,231,318) (845,984)
INTEREST EXPENSE AND FINANCING FEES
($41,868 AND $2,350 PAID TO STOCKHOLDER) 43,224 38,229
- ---------------------------------------------------------------------------
NET LOSS (1,274,542) ($884,213)
- ---------------------------------------------------------------------------
Weighted Average Number of Common Shares
Outstanding 7,709,036 2,361,455
- ---------------------------------------------------------------------------
Net loss per share - basic and diluted ($0.17) ($0.37)
- ----------------------------------------------------------------------------
See accompanying notes - unaudited
EAST COAST BEVERAGE CORP.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
- --------------------------------------------------------------------------------
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,274,542) ($884,213)
- ---------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 50,307 6,117
Changes in assets and liabilities:
Accounts receivable (2,048,735) (26,037)
Inventory (131,594) (66,569)
Prepaid assets 5,906 27,213
Other assets (17,196) (25,713)
Accounts payable and accrued expenses 1,480,348 500,251
- --------------------------------------------------------------------------
Total adjustments (660,964) 415,262
- --------------------------------------------------------------------------
Net cash used in operating activities(1,935,506) (468,951)
- ---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (78,175) (155,740)
- ---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank overdraft (27,794)
Net borrowings from stockholders 210,500 175,000
Net borrowings from (payments to) related parties(150,000) 475,000
Net proceeds from issuance of common stock 2,123,421 --
- --------------------------------------------------------------------------
Net cash provided by financing activities 2,183,921 622,206
- --------------------------------------------------------------------------
NET INCREASE IN CASH AND EQUIVALENTS 170,240 (2,485)
CASH AND EQUIVALENTS - BEGINNING 115,364 2,485
- --------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ 285,604 $ --
- ------------------------------------------------------------------------------
Supplemental Disclosures
- -----------------------------------------------------------------------------
Interest paid $ 56,661 $ 38,229
Non-Cash Financing Activities:
Conversion of debt to common stock $ 2,400,000 $ --
- -------------------------------------------------------------------------------
Conversion of accrued interest payable
to common stock $ 212,612 $ --
- -------------------------------------------------------------------------------
See accompanying notes - unaudited
EAST COAST BEVERAGE CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included and such adjustments are of a normal recurring nature.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2000.
The financial data at December 31, 1999 is derived from audited
financial statements which are included in the Company's Annual
Report on Form 10-KSB and should be read in conjunction with the
audited financial statements and the notes thereto.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Net Loss Per Share
The Company applies Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (FAS 128). Net loss per share is computed
by dividing net loss by the weighted average number of common shares
outstanding during the reported periods. Outstanding stock
equivalents were not considered in the calculation as their effect
would have been anti-dilutive.
Segment Reporting
During 1998, the Company adopted Financial Accounting Standards
Board ("FASB") statement No. 131, "Disclosure about Segments of an
Enterprise and Related Information". The Company has considered its
operations and has determined that it operates in a single operating
segment for purposes of presenting financial information and
evaluating performance. As such, the accompanying financial
statements present information in a format that is consistent with
the financial information used by management for internal use.
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Reclassifications
Certain amounts in the 1999 financial statements have been
reclassified to conform with 2000 presentation.
- --------------------------------------------------------------------------------
NOTE 3. GOING CONCERN
- --------------------------------------------------------------------------------
The Company has sustained substantial operating losses and negative
cash flows from operations since inception. In the absence of
achieving profitable operations and positive cash flows from
operations or obtaining additional debt or equity financing, the
Company may have difficulty meeting current obligations.
In view of these matters, realization of a major portion of the
assets in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the
Company's ability to meet its financial obligations. Management
believes that actions presently being taken provide the opportunity
for the Company to continue as a going concern.
- --------------------------------------------------------------------------------
NOTE 4. CONCENTRATIONS
- --------------------------------------------------------------------------------
As of March 31, 2000, approximately 70% of the Company's accounts
receivable were from a related party. Sales to the related party
for the three months ended March 31, 2000 represented approximately
70% of total sales.
- --------------------------------------------------------------------------------
NOTE 5. CONTINGENCIES
- --------------------------------------------------------------------------------
In connection with the a Private Placement, the Company agreed to
file a registration statement covering the shares of common stock
sold under the Private Placement. The Company has not filed such
registration statement. The extent of the Company's liability, if
any, can not be determined at this time.
- --------------------------------------------------------------------------------
NOTE 6. SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
During the period from April 1, 2000 through May 8, 2000, pursuant
to the private placement memorandum the Company issued 470,454
shares of common stock for $1,293,748 or $2.75 per share. Costs
associated with this private placement amounted to approximately
$130,000.
Effective May 2000, the Chief Executive Officer converted $701,250
of loans and accrued interest into 255,000 shares of company stock
at $2.75 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
QUARTER ENDED MARCH 31, 2000
For the quarter ended March 31, 2000, sales of $2,260,194 produced a
gross profit margin of $665,058 or 29.4%. This margin compared
favorably with the 26.9% margin realized in all of 1999 but is still
below desired levels. Better product sourcing, manufacturing
efficiencies and additional funding are anticipated to improve sales
levels and margins.
The high level of freight is reflective of increased costs due to
production transfers pending installation of new specialized
wrapping equipment. The return to a more economical production
source configuration is expected during the next quarter.
The higher level of depreciation is largely attributable to the
increases in assets employed, primarily coolers and display
equipment.
Promotion, advertising and selling expenses reflect the "expansion"
mode of the business, with costs incurred for market introduction,
additional slotting fees for product placement at new locations and
customer development.
The high level of professional and consulting expenses during the
quarter reflect the start up nature of the Company. However,
expenditures in this category are projected to be reduced in
subsequent quarters.
General and administrative costs are coming under control and are
lower than annualized 1999 levels.
Cash requirements include the operating loss of $1,274,542,
significant increases in accounts receivable and additions to
inventory and property and equipment. This was largely funded by
higher levels of accounts payable and accruals and $2.1 million of
additional net equity.
QUARTER ENDED MARCH 31, 1999
The Company started shipping product during the later part of 1998
and the quarter ended March 31, 1999 was the first full quarter of
operations. Net sales of $1,854,509 yielded a gross profit of
$539,543 or 29%. Freight expense of $187,593 was 10% of revenue,
reflective of opportunistic sourcing.
Selling expenses, and start-up promotion and advertising were
required for the "new product" launch and the "start-up" mode of the
business. Costs were incurred for market introduction, slotting fees
for product placement and customer development.
The level of general and administrative expense and consulting and
professional fees were indicative of a new start-up, pending
infrastructure buildup incurred later in the fiscal year.
Cash was primarily required to fund the net loss of $884,213 and
property and equipment purchases of $155,740. This was principally
funded by borrowings from the stockholder, short term loans and
approximately $500,000 of increases in accounts payable and
accruals.
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the quarter ending March 31, 2000, the Company:
A. sold 876,002 shares of its common stock to private investors at a price of
$2.75 per share. The Company paid commissions of $285,584 in connection
with the sale of these shares.
B. issued 694,973 shares of its common stock to John Calebrese, an officer,
director and principal shareholder of the Company, in settlement of
$1,750,000, plus accrued interest of $160,000, owed to Mr. Calebrese by the
Company.
C. issued 316,192 shares of its common stock to other creditors in settlement
of $650,000, plus accrued interest of $52,612, owed to these creditors by
the Company.
The Company relied upon the exemption provided by Section 4 (2) of the
Securities Act of 1933 in connection with the sale of these shares of common
stock. The shares described above are "restricted securities" and that term is
defined in Rule 144 of the Securities and Exchange Commission.
Item 4. Submission of Matters to a Vote of Security Holders
On February 7, 2000 the Company held a special meeting of its
shareholders. At the meeting, the Company's shareholders approved:
The change of the Company's name to East Coast Beverage Corp.;
A reverse split of the Company's common stock such that each 8.194595
shares of the Company's common stock were converted into one share of the
Company's common stock; and
The adoption of the Company's Incentive Stock Option, Non-Qualified Stock
Option and Stock Bonus Plans.
The following table lists the shares voted for and against each proposal
and the shares which abstained from voting:
Shares Voted Shares Which
------------------ Abstained
Proposal In Favor Against From Voting
Change in Company's name 5,011,684 -- --
Reverse Stock Split 5,011,684 -- --
Adoption of Incentive Stock
Option Plan 5,011,684 -- --
Adoption of Non-Qualified Stock
Option Plan 5,011,684 -- --
Adoption of Stock Bonus Plan 5,011,684 -- --
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No exhibits are filed with this report
(b) Reports on Form 8-K
On February 7, 2000 the Company filed a report on Form 8-K which disclosed
the sale of the Company's common stock in a private offering and the issuance of
common stock in settlement of liabilities.
SIGNATURES
Pursuant to the requirements of Section 13 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.
EAST COAST BEVERAGE CORP.
/s/ John Calebrese
By: -------------------------------------------
John Calebrese, Chief Executive Officer
/s/ Bruce S. Schames
By: -------------------------------------------
Bruce S. Schames, Chief Financial Officer
and Principal Accounting Officer