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 September 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 of incorporation (I.R.S.) Employer
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 November 15, 2000 the Company had 9,494,884 outstanding shares of
common stock.
EAST COAST BEVERAGE CORP.
- -------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, 2000 December 31,
ASSETS (Unaudited) 1999
- -------------------------------------------------------------------------------
CURRENT ASSETS
Cash and equivalents $53,450 $115,364
Accounts receivable, net 1,825,538 109,689
Inventories 1,446,486 2,018,573
Prepaid mold fee 101,148 118,866
Prepaid expenses and other current assets 207,671 154,179
- -------------------------------------------------------------------------------
Total current assets
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $287,825 and $122,545,
respectively 720,719 679,321
- -------------------------------------------------------------------------------
TOTAL ASSETS $4,355,012 $3,195,992
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $2,584,371 $1,746,109
Accrued expenses 996,948 209,139
Notes payable - current portion 450,000 525,000
Due to stockholder - current portion 538,230 765,516
- -------------------------------------------------------------------------------
Total current liabilities
- -------------------------------------------------------------------------------
LONG-TERM DEBT
Notes payable - 650,000
Due to stockholder - 1,750,000
- -------------------------------------------------------------------------------
Total long-term debt -
- -------------------------------------------------------------------------------
MANDATORILY REDEEMABLE PREFERRED STOCK 1,371,000 -
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Common stock, par value $.0001 per
share; 100,000,000 shares authorized;
9,221,592 and 6,348,975 issued and
outstanding 922 635
Additional paid in capital 10,795,591 3,589,870
Prepaid consulting fees (630,030) -
Accumulated deficit (11,752,020) (6,040,277)
- -------------------------------------------------------------------------------
Total stockholders' equity (deficiency
in assets) (1,585,537) (2,449,772)
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY IN ASSETS) $4,355,012 $3,195,992
- -------------------------------------------------------------------------------
See accompanying notes - unaudited
EAST COAST BEVERAGE CORP.
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Nine Months Ended Three Months Ended
------------------------ --------------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------
SALES $5,977,291 $3,811,740 $426,024 $895,945
COST OF GOODS SOLD 4,218,829 2,786,300 377,174 684,535
- -------------------------------------------------------------------------------------------
GROSS PROFIT 1,758,462 1,025,440 48,850 211,410
- -------------------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Provision for bad debts 500,000 - 500,000 -
Depreciation 163,748 72,015 59,509 39,449
Freight 606,899 381,127 41,221 103,772
General and administrative expense 1,329,500 1,009,437 584,835 473,307
Professional fees and consulting 461,619 347,095 118,438 192,057
Promotion and advertising 3,091,486 1,712,283 689,902 749,258
Selling expenses 1,225,066 407,529 423,807 133,901
- -------------------------------------------------------------------------------------------
Total selling, general and
administrative expenses 7,378,318 3,929,486 2,417,712 1,691,744
- -------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (5,619,856) (2,904,046) (2,368,862) (1,480,334)
INTEREST EXPENSE AND FINANCING FEES (91,887) (574,888) (28,417) (432,489)
- -------------------------------------------------------------------------------------------
NET LOSS ($5,711,743) ($3,478,934) ($2,397,279) ($1,912,823)
- -------------------------------------------------------------------------------------------
Weighted Average Number of Common
Shares Outstanding 7,838,957 3,789,248 8,996,592 4,807,954
- -------------------------------------------------------------------------------------------
Net loss per share - basic and diluted ($0.73) ($0.92) ($0.27) ($0.40)
- -------------------------------------------------------------------------------------------
EAST COAST BEVERAGE CORP.
CONDENSED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
September 30, September 30,
2000 1999
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net
loss ($5,711,743) ($3,478,934)
- --------------------------------------------------------------------------------
Adjustments to reconcile net loss to net
cash
used in operating activities:
Provision for bad debts 500,000 -
Depreciation 163,748 72,015
Stock options issued for services 15,570 -
Stock options issued for financing costs 9,962 -
Changes in assets and liabilities:
Accounts receivable (2,215,849) (931,404)
Inventories 572,087 (202,344)
Prepaid assets and other current
assets (35,774) (101,146)
Bank overdraft - (44,386)
Accounts payable and accrued expenses 1,791,146 775,222
- --------------------------------------------------------------------------------
Total adjustments 800,890 (432,043)
- --------------------------------------------------------------------------------
Net cash used in operating
activities (4,910,853) (3,910,977)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to employees - (19,800)
Capital expenditures (205,146) (534,331)
- --------------------------------------------------------------------------------
Net cash used in investing (205,146) (554,131)
activities
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from stockholder 473,964 1,440,722
Net borrowings from (repayments on) notes
payable (75,000) 1,877,500
Net proceeds from issuance of common stock 3,284,121 1,144,401
Proceeds from issuance of mandatorily
redeemable preferred stock 1,371,000 -
- --------------------------------------------------------------------------------
Net cash provided by financing
activities 5,054,085 4,462,623
- --------------------------------------------------------------------------------
NET DECREASE IN CASH AND EQUIVALENTS (61,914) (2,485)
CASH AND EQUIVALENTS - BEGINNING 115,364 2,485
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ 53,450 $ -
- --------------------------------------------------------------------------------
Supplemental Disclosures:
- --------------------------------------------------------------------------------
Interest paid $116,009 $153,766
- --------------------------------------------------------------------------------
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 $213,802 $ -
- --------------------------------------------------------------------------------
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 nine months ended September 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 UNCERTAINTIES
- -------------------------------------------------------------------------------
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 September 30, 2000, approximately 32% of the Company's
accounts receivable were from a related party. Sales to the related
party for the nine months ended September 30, 2000 represented
approximately 26% of total sales.
Individual sales for the nine months ended September 30, 2000 in
excess of 10% of net sales to unaffiliated customers represented
approximately $1,391,000.
Individual gross accounts receivable balance at September 30, 2000
in excess of 10% of gross accounts receivable are as follows:
Customer A $1,287,924
Customer B 574,540
-------------------------------------------------------------------
$1,862,464
-------------------------------------------------------------------
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 nine
months ended September 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 September 2000, the Company entered into an agreement with Solid
ISG Capital Markets, LLC (Solid ISG) to be an exclusive placement
agent in connection with "bridge" financing of two year 10% Callable
Straight Preferred Stock with a minimum of $1 million and a maximum
of $3 million. As exclusive placement agent, Solid ISG will provide,
on a best efforts basis, services necessary to assist in privately
placing these securities with prospective investors. Solid ISG is
under no obligations to purchase securities for its own 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 10% of the
securities sold and reimbursement of all necessary and reasonable
out-of-pocket expenses incurred in connection with this agreement.
As of September 30, 2000, the Company had received $1,371,000 in
connection with this agreement. Approximately $145,000 of
commissions and legal expenses was recorded in connection with this
transaction.
NOTE 7. SUBSEQUENT EVENTS
- -----------------------------------------------------------------------------
On November 3, 2000 the Company entered into an agreement to acquire
all of the issued and outstanding common stock of Star Talk Holdings
Inc. (STH), in exchange for 8,900,000 of the Company's Series B
Preferred Stock. STH owns 73% of Star Talk Inc., a company engaged
in the sale of prepaid phone cards and long distance telephone time.
PART II
OTHER INFORMATION
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
September 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: November 22, 2000 EAST COAST BEVERAGE CORP.
By:
------------------------------------
Jack Namer, Chief Executive Officer
By:
------------------------------------
Bruce S. Schames, Chief Financial
Officer and Principal Accounting Officer