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 June 30, 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 (I.R.S.) Employer of 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 August 15, 2000 the Company had ________ outstanding shares of common stock. EAST COAST BEVERAGE CORP. - ------------------------------------------------------------------------------- CONDENSED BALANCE SHEETS JUNE 30, 2000 AND DECEMBER 31, 1999 June 30, 2000 ASSETS (Unaudited) December 31, 1999 - ------------------------------------------------------------------------------- CURRENT ASSETS Cash and equivalents $ -- $ 115,364 Accounts receivable, net 3,173,819 109,689 Inventories 1,489,674 2,018,573 Prepaid mold fee 107,054 118,866 Prepaid expenses and other current assets 56,100 154,179 - ------------------------------------------------------------------------------- Total current assets PROPERTY AND EQUIPMENT, net of accumulated depreciation of $228,320 and $122,545, respectively 747,020 679,321 - ------------------------------------------------------------------------------ TOTAL ASSETS $ 5,573,667 $ 3,195,992 - ------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable and accrued expenses $3,909,179 $1,955,248 Notes payable - current portion 450,000 525,000 Due to stockholder - current portion 363,928 765,516 - ------------------------------------------------------------------------------- Total current liabilities - ------------------------------------------------------------------------------- LONG-TERM DEBT Notes payable -- 650,000 Due to stockholder -- 1,750,000 - ------------------------------------------------------------------------------- Total long-term debt -- 2,400,000 - ------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) Common stock, par value $.0001 per share; 25,000,000 shares authorized; 8,971,592 and 6,348,975 issued and outstanding 897 635 Additional paid in capital 10,204,404 3,589,870 Accumulated deficit (9,354,741) (6,040,277) - ------------------------------------------------------------------------------- Total stockholders' equity (deficiency in assets) 850,560 (2,449,772) - ------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) $ 5,573,667 $ 3,195,992 - ------------------------------------------------------------------------------ See accompanying notes - unaudited EAST COAST BEVERAGE CORP. - ------------------------------------------------------------------------------- CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Six Months Ended Three Months Ended ------------------------- ------------------------- June 30, June 30, June 30, 2000 1999 2000 June 30, 1999 (Unaudited) (Unaudited) (Unaudited) (Unaudited) - ------------------------------------------------------------------------------------------ SALES $5,551,267 $2,915,795 $3,291,073 $1,061,286 COST OF GOODS SOLD 3,841,655 2,101,765 2,246,519 786,799 - ------------------------------------------------------------------------------------------ GROSS PROFIT 1,709,612 814,030 1,044,554 274,487 - ------------------------------------------------------------------------------------------ SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Depreciation 104,239 32,566 53,932 26,449 Freight 565,678 277,355 296,523 89,762 General and administrative expense 744,665 436,130 723,565 301,374 Professional fees and consulting 343,181 155,038 182,736 78,772 Promotion and advertising 2,401,584 763,025 1,606,681 51,099 Selling expenses 801,259 573,628 451,993 304,759 - ------------------------------------------------------------------------------------------ Total selling, general and administrative expenses 4,960,606 2,237,742 3,064,230 852,215 - ------------------------------------------------------------------------------------------ LOSS FROM OPERATIONS (3,250,994) (1,423,712) (2,019,676) (577,728) INTEREST EXPENSE AND FINANCING FEES 63,470 142,399 20,246 104,170 - ------------------------------------------------------------------------------------------ NET LOSS ($3,314,464) ($1,566,111) ($2,039,922) ($681,898) - ------------------------------------------------------------------------------------------ Weighted Average Number of Common Shares Outstanding 7,484,500 5,908,182 8,522,912 3,271,455 - ------------------------------------------------------------------------------------------ Net loss per share - basic and diluted ($0.44) ($0.27) ($0.24) ($0.21) - ------------------------------------------------------------------------------------------ EAST COAST BEVERAGE CORP. CONDENSED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 June 30, 2000 June 30, 1999 (Unaudited) (Unaudited) - ------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($ 3,314,464) ($ 1,566,111) - ------------------------------------------------------------------------------ Adjustments to reconcile net loss to net cash used in operating activities: Provision for bad debts 25,000 -- Depreciation 104,239 32,566 Stock options issued for consulting services 11,250 -- Stock options issued for loan costs 5,850 -- Changes in assets and liabilities: Accounts receivable (3,089,130) (438,944) Inventories 528,899 (204,000) Note receivable -- (5,000) Prepaid assets and other current assets 109,891 (67,026) Accounts payable and accrued expenses 2,086,396 89,331 - ------------------------------------------------------------------------------ Total adjustments (217,605) (593,073) - ------------------------------------------------------------------------------ Net cash used in operating activities (3,532,069) (2,159,184) - ------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (171,938) (530,045) - ------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net change in bank overdraft 80,147 (55,913) Net borrowings from stockholder 299,662 866,222 Net borrowings from (repayments to) related parties (75,000) 1,902,500 Net proceeds from issuance of common stock 3,283,834 -- - ------------------------------------------------------------------------------ Net cash provided by financing activities 3,588,643 2,712,809 - ------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (115,364) 23,580 CASH AND EQUIVALENTS - BEGINNING 115,364 2,485 - ------------------------------------------------------------------------------ CASH AND EQUIVALENTS - ENDING $ -- $ 26,065 - ------------------------------------------------------------------------------ Supplemental Disclosures: - ------------------------------------------------------------------------------ Interest paid $ 125,130 $ 88,477 - ------------------------------------------------------------------------------ Non-Cash Financing Activities: - ------------------------------------------------------------------------------ Conversion of debt to common stock - related parties $ 650,000 $ -- - ------------------------------------------------------------------------------ Conversion of debt to common stock - stockholder $2,450,000 $ -- - ------------------------------------------------------------------------------ Conversion of accrued interest payable to common stock $ 213,862 $ -- - ------------------------------------------------------------------------------ c:\east coast beverage\2nd quarter fins 8-18-00.doc 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 and six months ended June 30, 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. - ------------------------------------------------------------------------------- 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. - ----------------------------------------------------------------------------- NOTE 3. GOING CONCERN (cont'd) - ----------------------------------------------------------------------------- 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 June 30, 2000, approximately 35% of the Company's accounts receivable were from a related party. Sales to the related party for the six months ended June 30, 2000 represented approximately 29% of total sales. Sales for the six months ended June 30, 2000 to individual unaffiliated customers in excess of 10% of net sales to unaffiliated customers are as follows: Customer A $1,309,504 Customer B 587,120 ------------- $1.896,624 =============== Individual accounts receivable balance at June 30, 2000 in excess of 10% of total accounts receivable are as follows: Customer A $710,233 Customer B 440,340 ---------------- $1,150,573 ================ - ------------------------------------------------------------------------------ NOTE 5. STOCK OPTIONS - ---------------------------------------------------------------------------- The Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") in 1997. The Company has elected to continue using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for employee stock options. Accordingly, no compensation expense has been recorded for options granted to employees during the six months ended June 30, 2000 as the exercise price was not below the market value of the underlying stock at the date of grant. - --------------------------------------------------------------------------- NOTE 6. PRIVATE PLACEMENT AGREEMENT - ---------------------------------------------------------------------------- In June 2000, the Company retained Solid ISG Capital Markets, LLC (Solid ISG) to be its exclusive placement agent in connection with the sale of up to $3,000,000 of the Company's 10% Preferred Stock. As exclusive placement agent, Solid ISG will provide, on a best efforts basis, services necessary to assist the Company in privately placing these securities with prospective investors. Solid ISG is under no obligations to purchase the preferred shares for its account or the accounts of its customers. Solid ISG's compensation for acting as placement agent consists of a placement fee equal to 10% of the aggregate principal amount sold, warrants to purchase shares of the Company's common stock and reimbursement of all necessary and reasonable out-of-pocket expenses incurred in connection with the sale of the preferred stock. As of August 15, 2000, approximately $800,000 of preferred stock had been sold by Solid ISG. - ------------------------------------------------------------------------------- NOTE 7. SUBSEQUENT EVENTS - ------------------------------------------------------------------------------- Effective July 17, 2000, the Company's common shares commenced trading on the OTC Bulletin Board under the ticker symbol "ECBV". MANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATIONS The Months Ended June 30, 2000 Sales of $3,291,073 for the quarter ended June 30, 2000 produced a gross profit of $1,044,554 for a 31.7% margin. Comparable 1999 sales were $ 1,061,286 with a margin of 25.9%. The Company's "Coffee House USA" brand of iced coffee is now national in scope, currently being retailed in 48 states. The Company is striving to further enhance the profit margin through improved purchasing and continued production efficiencies. The higher level of depreciation is attributable to increases in assets employed, primarily display coolers and related equipment. Freight expense as a percentage of sales is comparable to the three months ended March 31, 2000. Improved manufacturing logistics in future quarters are projected to yield related freight savings. The higher levels of Promotion and Advertising expenses are attributable to the growth of sales and expenses related to market penetration of the Company's products. Professional fees and consulting expenses reflect the expansion of the Company and costs associated with listing the Company's common stock on the OTC bulletin board. The Company's common stock began trading on the OTC bulletin board on July 17, 2000. The lower 1999 costs are reflective of the initial stages of the Company's development. The higher General and Administrative expenses compared to last year are due to the full staffing during the period and a more mature operation versus a start-up and growth nature in 1999. Six Months Ended June 30, 2000 Sales for the six months ended June 30, 2000 increased due to the expansion of the Company's business. Gross profit margins for the six months ended June 30, 2000 were 30.8%, an improvement over last year's 27.9%. This improvement is attributable to better expense management and unfavorable start up costs last year. The increase in Promotion and Advertising expenses during the six months ended June 30, 2000 reflects the continued expansion of the Company's business. General and administrative costs for the six months are higher than last year levels largely due to the expansion of the Company. Also, costs in 2000 increased due to efforts associated with listing the Company's common stock on the OTC bulletin board. During the six months ended June 30, 2000, the Company's operations used $3,532,069 of cash. The Company's cash requirements during this period were funded by loans from a shareholder and the private sale of the Company's common stock. Due to the inability of the Company raise sufficient capital to build and ship inventory, during the three months ending September 30, 2000 the Company anticipates that it will lose approximately $1.5 million in sales. The Company believes that these sales lost can largely be recovered during the three months ending December 31, 2000 when capital is obtained. During the period between September 1 and December 31, 2000 the Company anticipates that its capital requirements will be as follows: Payment of Outstanding $3,000,000 Liabilities Fund Inventory and Receivables 3,000,000 Marketing and Promotion 1,000,000 Other Operating Expenses 650,000 --------- 7,650,000 In the event the Company suffers future losses, the Company may need to obtain additional capital in order to continue operations. The Company does not currently have any inventory or receivable financing or any bank lines of credit but is negotiating to obtain additional funding sources. Additionally, the Company intends to satisfy its cash requirements through the collection of receivables and the sale of equity securities. As of June 30, 2000 the Company had outstanding receivables of $3,173,819. Extended payment terms, in excess of the company's traditional collection policy have been offered to some preferred customers in recognition of significant orders and sales and marketing efforts. PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds During the quarter ending June 30, 2000, the Company: A. sold 480,450 shares of its common stock to private investors at a price of $2.75 per share. The Company paid commissions of $132,000 in connection with the sale of these shares. B. issued 255,000 shares of its common stock to John Calebrese, an officer, director and principal shareholder of the Company, in settlement of $701,250 owed to Mr. Calebrese 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 6. Exhibits and Reports on Form 8-K (a) Exhibits No exhibits are filed with this report (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ending June 30, 2000. 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. Dated: August 21, 2000 EAST COAST BEVERAGE CORP. By: John Calebrese, Chief Executive Officer By: Bruce S. Schames, Chief Financial Officer and Principal Accounting Officer