As filed with the Securities and Exchange Commission on February 8, 2001.
Registration No. 333-41310
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
Registration Statement
Under
THE SECURITIES ACT OF 1933
EAST COAST BEVERAGE CORP.
------ ---------------------------
(Exact name of registrant as specified in charter)
Colorado 2086 84-1039267
---------------- -------------------------- --------------
(State or other (Primary Standard Classi- (IRS Employer
jurisdiction of fication Code Number) I.D. Number)
incorporation)
1750 University Drive
Suite 205
Coral Springs, Florida 33071
(954) 796-8060
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(Address and telephone number
of principal executive offices)
1750 University Drive
Suite 205
Coral Springs, Florida 33071
(Address of principal place of business or
intended principal place of business)
Alex Garabedian
1750 University Drive
Suite 205
Coral Springs, Florida 33071
(954) 796-8060
----------- ----------------
(Name, address and telephone number of agent for service)
Copies of all communications, including all communications sent
to the agent for service, should be sent to:
William T. Hart, Esq.
Hart & Trinen
1624 Washington Street
Denver, Colorado 80203
(303) 839-0061
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date
of this Registration Statement
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Unit (3) Price Fee (3)
- ---------- ---------- --------- --------- ------------
Common stock 10,940,730(1) $1.27 $13,894,727 $3,668
Common stock
(1) Shares are offered by certain shareholders of the Company.
(2) Offering price computed in accordance with Rule 457 (c).
(3) A filing fee of $2,675 was paid when this registration statement was
initially filed.
Pursuant to Rule 416, this Registration Statement includes such
indeterminate number of additional securities as may be required for issuance
upon the exercise of the options or warrants as a result of any adjustment in
the number of securities issuable by reason of the options or warrants.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of l933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
EAST COAST BEVERAGE CORP.
Common Stock
This prospectus relates to the sale of 10,940,730 shares of the common
stock of East Coast Beverage Corp. ("ECBC") by certain owners of the shares. The
shares were issued by ECBC for cash, services rendered and in settlement of
amounts owed by ECBC to various third parties.
The owners of the common stock to be sold by means of this prospectus
are referred to as the "selling shareholders".
ECBC will not receive any proceeds from the resale of the shares by the
selling shareholders. The selling shareholders may resell the shares they
acquire by means of this prospectus from time to time in the public market. The
selling shareholders have advised ECBC that they will offer the shares through
broker/dealers at market prices with customary commissions being paid by the
selling shareholders. The costs of registering the shares offered by the selling
shareholders are being paid by ECBC. The selling shareholders will pay all other
costs of the sale of the shares offered by them. See "Dilution and Comparative
Share Data" and "Selling Shareholders".
These securities are speculative and involve a high degree of risk and
should be purchased only by persons who can afford to lose their entire
investment. For a description of certain important factors that should be
considered by prospective investors, see "Risk Factors" beginning on page 4 of
this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
ECBC's common stock is listed for trading on the OTC Bulletin Board under
the symbol "ECBV". On February 7, 2001 the closing price of ECBC's common stock
was $1.27.
The date of this prospectus is February __, 2001
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY ........................................ 5
RISK FACTORS .............................................. 7
COMPARATIVE SHARE DATA .................................... 8
MARKET FOR ECBC'S COMMON STOCK............................. 10
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF
OPERATIONS............................................ 11
BUSINESS .................................................. 13
MANAGEMENT ................................................ 17
PRINCIPAL SHAREHOLDERS .................................... 26
SELLING SHAREHOLDERS ...................................... 28
DESCRIPTION OF SECURITIES ................................. 30
EXPERTS ................................................... 31
LITIGATION ................................................ 31
INDEMNIFICATION ........................................... 32
ADDITIONAL INFORMATION .................................... 32
FINANCIAL STATEMENTS ......................................
PROSPECTUS SUMMARY
Prior to September 1999 ECBC did business under the name USA Service
Systems, Inc. ("USA"). Between November 1998 and July 1999 USA provided retail
stores and manufacturers with product assembly, product demonstrations, point -
of - sale product displays, and inventory counts and audits. As of July 1999 USA
had entered into letters of intent for the acquisition of four companies engaged
in the same business as that conducted by USA. However, USA was unable to obtain
approximately $4,000,000 in additional equity capital which was needed to
finance these acquisitions. In July 1999 USA essentially discontinued its
business and made plans to distribute its remaining assets (having a minimal
value) to George Pursglove, a former officer and director of USA.
Effective August 31, 1999 ECBC acquired all of the issued and outstanding
shares of East Coast Beverage Corp., a Florida Corporation, in exchange for
5,040,000 shares of common stock. Following this transaction the former
shareholders of East Coast Beverage owned approximately 93% of USA's common
stock. In connection with this transaction the management of USA resigned and
was replaced by the management of East Coast Beverage.
ECBC's business involves the development, production and distribution of
Coffee House USA(TM), a proprietary line of all natural, ready to drink ("RTD")
bottled coffee drinks.
ECBC sells its products through distributors and wholesalers to
supermarkets, mass-marketers, convenience stores, drug store chains and oil
company convenience stores. As of January 31, 2001 ECBC's products were being
sold in 45 states.
ECBC's offices are located at 1750 University Drive, Suite 205, Coral
Springs, Florida 33071. ECBC's telephone number is (954) 796-8060 and its
facsimile number is (954) 796-0802.
All historical share data in this prospectus has been adjusted to
reflect a 8.194595-for-one reverse split of ECBC's common stock, which was
approved by ECBC's shareholders on February 22, 2000.
As of January 31,2001, ECBC had 12,589,248 shares of common stock
outstanding. The number of outstanding shares does not give effect to shares
which may be issued upon the exercise and/or conversion of options, warrants or
other convertible securities previously issued by ECBC. See "Dilution and
Comparative Share Data", "Selling Shareholders" and "Description of Securities".
RISK FACTORS
There are substantial risks associated with an investment in ECBC's
common stock including, among others, ECBC's history of losses and need for
additional capital, intense competition and the fact that there is only a
limited public market for ECBC's common stock.
SUMMARY FINANCIAL INFORMATION
The following sets forth certain financial data with respect to ECBC
and is qualified in its entirety by reference to the more detailed financial
statements and notes included elsewhere in this prospectus.
Statement of Operations Data:
- ----------------------------
Year Ended Nine Months Ended
December 31, 1999 September 30, 2000
Revenues $4,403,499 $5,977,291
Cost of Sales (3,218,516) (4,218,829)
Selling, General and Administrative
Expenses (5,624,943) (7,378,318)
Interest Expense and Financing Fees (820,333) (91,887)
-------------- ---------------
Net (Loss) $(5,260,293) $(5,711,743)
============ ============
Balance Sheet Data:
- ------------------
December 31, 1999 September 30, 2000
Current Assets $2,516,671 $3,634,293
Total Assets 3,195,992 4,355,012
Current Liabilities 3,245,764 4,569,549
Total Liabilities 5,646,764 5,940,549
Working Capital (Deficit) ( 729,093) (935,256)
Shareholders' Equity (Deficit) (2,449,772) (1,585,537)
See "Management - Transactions with Affiliates and Recent Sales of
Securities" for information concerning securities which ECBC has issued or sold
since September 30, 2000.
RISK FACTORS
The securities offered by this Prospectus are speculative and involve a
high degree of risk and should be purchased only by persons who can afford to
lose their entire investment. Therefore, prospective investors should read this
entire prospectus and carefully consider, among others, the following risk
factors in addition to the other information set forth in this prospectus prior
to making an investment.
History of Losses. ECBC has incurred losses since it was formed in
1998. From the date of its formation through September 30, 2000, ECBC incurred
net losses of approximately $(11,752,000). There can be no assurance that ECBC
will be profitable.
ECBC needs additional capital. This offering is being made on behalf of
certain selling shareholders. ECBC will not receive any proceeds from the sale
of the shares offered by the selling shareholders. ECBC needs approximately
$7,500,000 in additional capital to fund operating losses, pay outstanding
liabilities, and for other corporate purposes. There can be no assurance that
ECBC
will be able to obtain any additional financing. The failure of ECBC to obtain
additional capital on terms acceptable to it, or at all, may significantly
restrict ECBC's proposed operations.
As of January 31, 2001 ECBC was unable to pay all of its obligations as
they became due. Numerous creditors have filed lawsuits against ECBC seeking to
recover approximately $1,200,000 claimed to be owed by ECBC to these creditors.
Two of these creditors have obtained judgements totaling approximately $373,000
against ECBC.
ECBC's operations are subject to all of the risks inherent in the
establishment of a new business enterprise, including limited capital and
possible delays in the expansion of ECBC's business. The likelihood that ECBC
will succeed must be considered in light of the problems, expenses, and delays
frequently encountered in connection with the development of new businesses.
ECBC's operations may place significant strains on its management, staff,
working capital, and financial control systems. The failure to maintain
financial control systems, to recruit qualified staff or to respond effectively
to difficulties encountered during expansion could have a material adverse
effect on ECBC's business, financial condition and results of operations. There
can be no assurance that ECBC's systems and controls or staff will be adequate.
ECBC competes with numerous other businesses which are involved in the
sale of ready-to-drink beverages. Most of ECBC's competitors have greater name
recognition and greater financial, management and marketing resources than those
of ECBC.
There is only a limited public market for the securities of ECBC.
ECBC's common stock is traded on the OTC Bulletin Board. As of January 31, 2001
there was only a limited market for ECBC's common stock. Trades of ECBC's common
stock are subject to Rule 15g-9 of the Securities and Exchange Commission, which
rule imposes certain requirements on broker-dealers who sell securities subject
to the rule to persons other than established customers and accredited
investors. For transactions covered by the rule, brokers/dealers must make a
special suitability determination for purchases of the securities and receive
the purchaser's written agreement to the transaction prior to sale. The
Securities and Exchange Commission also has rules that regulate broker-dealer
practices in connection with transactions in "penny stocks". Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in that security is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the Commission that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker-dealer and salesperson compensation
information, must be given to the customer in writing before or with the
customer's confirmation. These disclosure requirements may have the effect of
reducing the level of trading activity in any market that may develop for ECBC's
common stock. As a result of the foregoing investors may find it more difficult
to sell the shares of ECBC's common stock offered by this prospectus.
ECBC has registered additional shares of its common stock for public
sale. ECBC has filed a separate registration statement with the Securities and
Exchange Commission so as to permit the public sale of approximately 2,160,687
shares of common stock held by certain private investors. The public sale of
these shares, or the perception that such shares may occur, may depress the
market price of ECBC's common stock.
The Potential Issuance of Preferred Stock Could Adversely Affect the
Rights of ECBC's Shareholders. ECBC's Articles of Incorporation authorize ECBC's
Board of Directors to issue up to 20,000,000 shares of Preferred Stock. The
provisions in ECBC's Articles of Incorporation relating to the Preferred Stock
allow ECBC's directors to issue Preferred Stock with multiple votes per share
and dividend rights which would have priority over any dividends paid with
respect to ECBC's common stock. The issuance of Preferred Stock with such rights
may make the removal of management difficult even if such removal would be
considered beneficial to shareholders generally, and will have the effect of
limiting shareholder participation in certain transactions such as mergers or
tender offers if such transactions are not favored by incumbent management.
COMPARATIVE SHARE DATA
As of January 31, 2001 ECBC had 12,589,248 outstanding shares of common
stock.
Number of Shares
Shares outstanding as of January 31, 2001 12,589,248
Shares offered by selling shareholders 10,940,730
Percentage of ECBC's common stock represented by shares offered by this
prospectus, assuming all options and warrants held by selling shareholders are
exercised 64%
The purchasers of the securities offered by this prospectus will suffer an
immediate dilution if the price paid for the securities offered is greater than
the then net tangible book value of ECBC's common stock.
The following table reflects additional shares of common stock which
may be issued by ECBC as the result of the exercise of warrants and options
issued by ECBC.
Number of Note
Shares Reference
Shares Outstanding 12,589,248
Shares issuable upon exercise of options 160,000 A
held by officers and directors
Shares issuable upon exercise of options 4,560,029 B
held by others
Securities issuable upon conversion of Not calculable at C
Series A preferred stock this time
Shares issuable upon exercise of warrants 420,300 C
Shares issuable in payment of dividends Not calculable C
on Series A preferred stock at this time.
Shares issuable to investor Not calculable at D
relations consultant this time
A. Options are held by the following officers and directors. All options
are currently exercisable.
Shares Issuable Option
Upon Exercise Exercise
Name Of Option Price Expiration Date
Bruce Schames 60,000 $3.50 01/01/06 to 01/01/08
Bruce Schames 50,000 $2.75 04/26/05
Conard Wagner 15,000 $12.00 10/01/06
Conard Wagner 15,000 $14.00 10/01/07
Conard Wagner 20,000 $16.00 10/01/08
--------
160,000
B. Options are held by the following persons.
Shares Issuable Upon Option Expiration
Name Exercise of Options Exercise Price Date
- ---- -------------------- -------------- ----------
John Calebrese 2,000,000 $0.70 03/31/01
John Calebrese 500,000 $2.75 01/05/05
Arnold Rosen 100,000 $2.00 01/03/02
Arnold Rosen 12,500 $3.50 01/03/02
Arnold Rosen 7,500 $5.00 03/02/02
Bonnie Rosen 15,000 $5.00 03/02/02
Melvin Leiner 250,000 $2.75 04/26/05
Melvin Leiner 150,000 $2.75 07/03/05
Darren Marks 250,000 $2.75 04/26/05
Darren Marks 150,000 $2.75 07/03/05
Continental Capital &
Equity Corporation 200,000 $7.00/$10.00 Various
Solid ISG Capital
Markets, LLC 85,000 $2.75 03/31/05
Solid ISG Capital
Markets, LLC 40,029 $3.50 10/12/05
Other third parties 300,000 $2.75/$7.00 01/03/02 to
----------
12/15/03
4,560,029
Mr. Rosen received his options for extending loans of $200,000 to ECBC and
for converting a $250,000 loan into shares of ECBC's common stock. See
"Management-Transactions with Affiliates and Recent Sales of Securities". See
"Principal Shareholders" for information concerning the share ownership of Mr.
Rosen and persons affiliated with Mr. Rosen.
Melvin Leiner and Darren Marks, who became employees of ECBC as of May 24,
2000, also control FPI, Inc. See "Principal Shareholders" for information
concerning the shares of ECBC's common stock which are owned by FPI.
Continental Capital & Equity Corporation received options to purchase
200,000 shares of ECBC's common stock as partial consideration for providing
consulting services to ECBC. Options to purchase 50,000 shares are exercisable
at $7.00 per share, options to purchase 50,000 shares are exercisable at $8.00
per share, options to purchase the remaining 50,000 shares are exercisable at
$9.00 per share and options to purchase 50,000 shares are exercisable at $10.00
per share. The options expire two years after the shares issuable upon the
exercise of the options are available for public sale by means of a registration
statement which has been declared effective by the Securities and Exchange
Commission.
In connection with ECBC's sale of 2,233,832 shares of its common stock at
a price of $2.75 per share, Solid ISG Capital Markets, LLC acted as the sales
agent with respect to the sale of 850,000 these shares. For its participation in
this offering Solid ISG, received a cash commission as well as warrants to
purchase 85,000 shares of ECBC's common stock at $2.75 per share.
Solid ISG acted as the sales agent in connection with ECBC's sale of
14,010 shares of its Series A Preferred Stock and warrants. For its
participation in this offering Solid ISG received a cash commission as well as
warrants to purchase 40,029 shares of ECBC's common stock at $3.50 per share.
C. Between July 18, 2000 and September 20, 2000 ECBC sold 14,010 shares of
its Series A Preferred Stock and 420,300 warrants to various private investors.
Each warrant allows the holder to purchase one additional share of ECBC's common
stock at a price of $10.00 per share at any time prior to October 12, 2005. The
preferred shares and warrants were sold by Solid ISG Capital Markets, LLC on
behalf of ECBC. ECBC has agreed to include the shares of common stock issuable
upon the exercise of these warrants in any future registration statement filed
by ECBC.
Each Series A preferred share is exchangeable at the option of the holder
into any securities offered by ECBC in any public offering. The number of
securities which each preferred shareholder is entitled to receive for each
preferred share will be determined by dividing $105 by the initial public
offering price of the securities sold in the public offering.
ECBC is required to redeem all outstanding Series A preferred shares, at a
price of $100 per share, upon the first to occur of the following:
o The closing of a private placement or public offering through which ECBC
receives at least $5,000,000 in gross proceeds,
o The acquisition by any person of more than 51% of the outstanding shares of
ECBC's common stock,
o A merger in which ECBC is not the surviving entity,
o The sale of all or substantially all of ECBC's assets, or
o July 31, 2002.
Each preferred share is entitled to a quarterly dividend of $2.50 per
share. At ECBC's option any dividend may be paid in cash or in shares of ECBC's
common stock. For dividends paid in shares of common stock, the number of shares
to be issued will be determined by dividing the amount of the dividend by the
average closing price of ECBC's common stock for the 20 trading days preceding
the date the dividend is declared.
In the event of any liquidation, dissolution or winding up (voluntary or
involuntary) of ECBC, the holders of shares of the Series A Preferred Stock are
entitled to receive from the assets of ECBC available for distribution to
shareholders, and before any distribution of assets is made to holders of ECBC's
common stock, a liquidating distribution in the amount of $100 per share plus
accumulated and unpaid dividends.
ECBC has agreed to include any shares of common stock issued as a dividend
payment in any registration statement filed by ECBC subsequent to December 31,
2000. However if the shares of common stock issued as a dividend payment have
not been registered for public sale by December 31 2001, then ECBC will file a
separate registration statement with the Securities and Exchange Commission so
as to permit the public sale of such shares.
D. During the year ending December 31, 2000 ECBC issued 400,000 shares of
its common stock to an investor relations consultant. The agreement with the
investor relations consultant provides that for every 100 shares of ECBC's
common stock sold between September 25, 2000 and March 25, 2003, ECBC will issue
an additional 4.3 shares of its common stock to the consultant.
Shares Covered by Separate Registration Statement
Approximately 2,161,000 shares of ECBC's common stock owned by, or
issuable upon the exercise of warrants held by John Calebrese, Arnold Rosen,
FPI, Inc., Continental Capital & Equity Corporation and other third parties are
being offered for public sale by means of a separate registration statement
which has been filed with the Securities and Exchange Commission.
MARKET FOR ECBC'S COMMON STOCK
As of January 31, 2001 there were approximately 260 record owners of
ECBC's common stock. On July 11, 2000 ECBC's common stock was approved for
trading on the OTC Bulletin Board under the symbol "ECBV".
The following table shows the high and low bid prices of ECBC's common
stock for the months indicated:
High Low
July 2000 $ 8.75 $4.00
August 2000 $10.50 $8.00
September 2000 $ 8.00 $3.75
October 2000 $ 4.25 $2.44
November 2000 $ 3.19 $1.77
December 2000 $ 1.94 $1.00
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available and, in the
event of liquidation, to share pro rata in any distribution of ECBC's assets
after payment of liabilities. The Board of Directors is not obligated to declare
a common stock dividend. ECBC has not paid any common stock dividends and ECBC
does not have any current plans to pay any common stock dividends.
The provisions in ECBC's Articles of Incorporation relating to ECBC's
preferred stock would allow ECBC's directors to issue preferred stock with
rights to multiple votes per share and dividends rights which would have
priority over any dividends paid with respect to ECBC's common stock. The
issuance of preferred stock with such rights may make more difficult the removal
of management even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if such
transactions are not favored by incumbent management.
ECBC has filed a separate registration statement with the Securities and
Exchange Commission to permit the public sale of approximately 2,161,000 shares
of common stock which are held by certain other shareholders of ECBC or which
are issuable upon the exercise of warrants or options issued by ECBC. The sale
of these 2,161,000 shares, or the perception such sales may occur, may depress
the price of ECBC's common stock to the detriment of investors in this offering.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following selected financial data should be read in conjunction
with the more detailed financial statements, related notes and other financial
information included in this prospectus.
Statement of Operations Data:
- ----------------------------
Year Ended Nine Months Ended
December 31, 1999 September 30, 2000
Revenues $4,403,499 $5,977,291
Cost of Sales (3,218,516) (4,218,829)
Selling, General and Administrative
Expenses (5,624,943) (7,378,318)
Interest Expense and Financing Fees (820,333) (91,887)
-------------- ---------------
Net (Loss) $(5,260,293) $(5,711,743)
============ ============
Balance Sheet Data:
- ------------------
December 31, 1999 September 30, 2000
Current Assets $2,516,671 $3,634,293
Total Assets 3,195,992 4,355,012
Current Liabilities 3,245,764 4,569,549
Total Liabilities 5,646,764 5,940,549
Working Capital (Deficit) ( 729,093) (935,256)
Shareholders' Equity (Deficit) (2,449,772) (1,585,537)
Results of Operations
Period From Inception (March 25, 1998) to December 31, 1998
ECBC first began shipping product in December 1998. During this period
ECBC's gross profit ratio was 28%.
The primary components of selling, general and administrative expenses
during this period were:
Salaries and Contract Labor $432,997
Travel and Marketing $42,991
Organization Expenses $146,683
Year Ending December 31, 1999
ECBC did not begin shipping product until December 1998. As a result,
comparisons cannot be made between operations for fiscal 1999 and the prior
period.
During the year ended December 31, 1999 ECBC had losses of $(5,260,293).
During the year ECBC's gross profit margin of 26.9% was significantly below
anticipated levels due to costs associated with start up expenses and initial
inefficiencies in production, product mixing and purchasing.
Promotion and advertising costs during the year were unfavorably impacted
by product introduction costs, slotting fees for product placement in retail
stores and higher (relative to sales volumes) first year marketing programs. The
high level of professional and consulting expenses during the year is the result
of business development and ECBC's first full year of operations.
During the latter part of 1999 ECBC began to bring its expenses under
control and management is continuing its efforts to lower product costs and
operating expenses.
Nine Months Ending September 30, 2000
For the nine months ended September 30, 2000, ECBC had a gross profit
margin of 29% which was an improvement over fiscal 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 the result inventory transfers pending
installation of new specialized wrapping equipment. The return to a more
economical production sourcing is expected by June 30, 2001.
The higher level of depreciation is largely attributable to the increases
in ECBC's assets, primarily coolers and display equipment.
The increase in promotion, advertising and selling expenses reflect ECBC's
higher level of sales for the period, with costs incurred for market
introduction, additional slotting fees for product placement at new locations
and customer development.
Liquidity and Sources of Capital
ECBC's operations used $4,534,530 in cash during the year ended December
31, 1999. During fiscal 1999 ECBC spent $777,247 to purchase property and
equipment. ECBC funded its cash requirements during this year with loans from
John Calebrese, ECBC's Chief Executive Officer, loans from third parties, and
the sale of ECBC's common and preferred stock.
During the nine months ended September 30, 2000 ECBC's operations used
$4,910,853 in cash and ECBC spent $205,146 on the purchase of property and
equipment. Cash required during this nine-month period was generated through
sales of ECBC's common and preferred stock and loans from John Calebrese, who
was then ECBC's Chief Executive Officer.
During the year ending December 31, 2001 ECBC anticipates that its capital
requirements will be as follows:
Payment of Outstanding
Liabilities $3,100,000
Fund Inventory and Receivables 3,000,000
Marketing and Promotion 800,000
Other 600,000
-------
$7,500,000
ECBC estimates that it will need to generate approximately $23,000,000
in gross revenues (which represents the sale of approximately 1,500,000 cases of
product) before it becomes marginally profitable. As of January 15, 2001 ECBC
had an inventory of approximately 190,000 cases of iced coffee. As of that same
date ECBC did not have any backlog since it was filling orders with inventory on
hand.
ECBC does not have any bank lines of credit, inventory or receivable
financing, or any other traditional financing arrangements. ECBC expects to
obtain additional capital through the private sale of ECBC's common stock or
from borrowings from private lenders and/or financial institutions. There can be
no assurance that ECBC will be successful in obtaining any additional capital
which may be needed.
BUSINESS
ECBC is a Colorado corporation which prior to September 1999 did business
under the name USA Service Systems, Inc. ("USA"). Between November 1998 and July
1999 USA provided retail stores and manufacturers with product assembly, product
demonstrations, point - of - sale product displays, and inventory counts and
audits.
As of July 1999 USA had entered into letters of intent for the acquisition
of four companies engaged in the same business as that conducted by USA.
However, USA was unable to obtain approximately $4,000,000 in additional equity
capital which was needed to finance these acquisitions. In July 1999 USA
essentially discontinued its business and made plans to distribute its remaining
assets (having a minimal value) to certain officers and directors of USA.
Effective August 31, 1999 USA acquired all of the issued and outstanding
shares of East Coast Beverage Corp. in exchange for 5,040,000 shares of USA's
common stock. In connection with this transaction the management of USA resigned
and was replaced by the management of ECBC. ECBC's business now involves the
development, production and distribution of Coffee House USA(TM), a proprietary
line of all natural, ready to drink ("RTD") bottled coffee drinks.
In February 2000 USA changed its name to East Coast Beverage Corp.
Coffee is the number one drink in the world, with Americans alone
consuming over $5.8 billion in 1997. According to the National Coffee
Association in 1998 over 108 million Americans drank an espresso, cappuccino,
latte or iced coffee, a 35% increase over the previous year. Three years ago,
frozen coffee drinks came into the market and the consumption of frozen coffee
has doubled every year. However, the drawback with frozen coffees is they must
be consumed immediately and could not be sold to the mass market. From this
evolved the RTD (ready to drink) Iced Coffee category, which in a few years has
become the fastest growing segment in the New Age category with an increase of
153% in 1997 and 83% in 1998. The New Age category refers to premium-priced
beverages that were created to respond to emerging consumer trends and interest.
Products
ECBC's products are more than just a cold coffee, tasting like a
milkshake, and is marketed as such. It can be substituted at any occasion where
a milkshake might be used - with a hamburger at lunch, as a stand-alone snack,
etc. ECBC's iced coffee is naturally flavored and enhanced with whole milk and
rich coffee bean extract. ECBC's products are all natural, low in fat, visually
exciting and have a broad spectrum of flavors.
ECBC's products can be differentiated with those of competitors by its
taste, advanced technological Fuji wrap and ECBC's proprietary glass container.
Each of the flavors used by ECBC has gone through extensive consumer tasting and
approval. ECBC's iced coffee comes in the following flavors:
Cinnamon, Mocha, Vanilla Mousse, Regular, Hazelnut, Toasted Almond,
German Chocolate, and Banana's Foster
ECBC's proprietary formulas for its products are trade secrets and ECBC
requires its
manufacturers, employees, brokers and consultants to sign confidentiality
agreements. ECBC's glass container is also proprietary and design protected.
Production
ECBC does not own or operate any manufacturing facilities, but rather
outsources manufacturing and bottling to third party copackers. Outsourcing
provides ECBC production flexibility and capacity and allow management to focus
its energy and resources on marketing and sales while avoiding the costs and
risks associated with production .
ECBC's products are manufactured using ECBC's proprietary formulas.
Copackers may not produce products for any other customer using these formulas.
ECBC purchases flavor, nutrient, and packaging raw materials for delivery to the
copacker.
ECBC's copackers have the capacity to produce 70,000 cases a day. If
ECBC's growth exceeds the production capacity of its copackers, or they were
unable or unwilling to continue production, ECBC believes it could locate other
copackers to meet its production needs without any serious disruption to ECBC's
operations.
The copackers produce and package ECBC's products in accordance with
Standard Operating Procedures for Good Manufacturing Practice specified by the
Food and Drug Administration.
As of January 15, 2001 ECBC had an inventory of approximately 190,000
cases of iced coffee. As of that same date ECBC did not have any backlog since
it was filing orders with inventory on hand.
Distribution and Marketing
ECBC uses a network of distributors to market its iced coffee beverage.
Certain distributing companies used by ECBC have long term relationships with
major grocery chains and as a result, are capable of rapidly gaining access into
chain shelves at reduced rates.
Other distributors are dominant in the convenience/deli/single serve
business that is essential in building a brand from the ground up. The
distributors in each territory have been selected based on their impact in the
territory, financial strength, commitment to building the brand and expertise in
specific distribution venues. In many cases, ECBC will employ two distributors
to launch the product in a specific region, allowing each to focus on their
respective area of distribution expertise.
ECBC sells its products through distributors and wholesalers to
supermarkets, convenience stores, drug store chains and oil company convenience
stores. As of January 31, 2001 ECBC's products were being sold in 45 states.
ECBC believes that there may be an opportunity to distribute its products
to a number of national food and beverage chains under private labeling
agreements.
Free samples are distributed to consumers, store managers, store employees
and caterers to generate product awareness.
Paper point of sale items are used to enhance product visibility and
exposure. Other promotional items, such as drink coolers are used to enhance
product visibility and exposure.
ECBC also plans to participate as an exhibitor at all major retail trade
and distributor shows.
Competition
ECBC's products compete with the following brands:
National Brands
Starbucks "Frappuccino" - Distributed exclusively by Pepsi-Cola. Five
flavors available in glass bottles. Sold in supermarkets in four packs
only. Shelf life is six months.
Regional Brands
"Ghirardelli Iced Coffees" - Limited nationwide - Only two flavors
available in cans.
"Havana Iced Cappuccino" - Scattered distribution in New England and
Mid-Atlantic- 3 flavors available in cans.
"Main Street Cafe' Iced Lattes" - Manufactured by GehI's Guernsey Farms -
5 flavors available in cans -scattered distribution.
"The Coffee" - by Pokka Beverages, Inc. California - Scattered distribution -3
flavors available in cans.
"America's Best" - Available in Northeast only - 5 flavors available in
both glass and cans.
"Jamaica Gold" - Distributed in Northwest -3 flavors available in cans
New Entries
Procter and Gamble is testing a new product called "Jakada" in
California. The results so far are extremely positive; rollout
information is not available.
Coca-Cola has purchased Cafe Java, a New York based brand that has three
flavors..
Research and Development
A number of new products are being studied. These products include a
dietary line and new flavors, as well as a coffee based nutraceutical line. ECBC
is also considering the development of a Decaf product.
StarTalk Transaction
On November 3, 2000 ECBC acquired all of the outstanding shares of
StarTalk Holdings, Inc. in exchange for 8,900,000 shares of ECBC's Series B
Preferred Stock. StarTalk Holdings owns
73% of StarTalk, Inc., a corporation involved in the sale of prepaid phone cards
and long distance telephone time.
On December 22, 2000 ECBC, StarTalk Holdings, and the shareholders of
StarTalk Holdings agreed to rescind this acquisition. In connection with the
rescission of this acquisition Jack Namer, who was appointed ECBC's Chief
Executive Officer and a Director in November 2000, resigned his positions with
ECBC. John Calebrese resumed his position as a director and ECBC's Chief
Executive Officer. On January 15, 2001 Mr. Calebrese resigned as ECBC's Chief
Executive Officer and became a consultant to ECBC.
Employees and Offices
As of January 31, 2001, ECBC employed sixteen persons on a full-time
basis. Seven employees serve in management or administrative capacities, and the
remainder are hourly workers in ECBC's operations. None of ECBC's employees are
covered by a collective bargaining agreement. ECBC has never experienced an
organized work stoppage, strike or labor dispute. Management considers ECBC's
relations with its employees to be good.
ECBC leases a 1,975 square foot production and office facility in Coral
Springs, Florida at an annual rent of $23,700. The lease on this facility
expires on July 31, 2004.
MANAGEMENT
The following sets forth certain information concerning the management of
ECBC:
Name Age Position with Company
Alex Garabedian 46 Chief Executive Officer and a Director
Conard Wagner 55 Vice President of Midwest Sales
Bruce S. Schames 54 Chief Financial Officer
Edith G. Osman 50 Director
Alex Garabedian has been the President of ECBC since October 1998. Mr.
Garabedian was appointed a director and as ECBC's Chief Executive Officer on
January 15, 2001. From 1968 to 1997 Mr. Garabedian was President and Chief
Executive Officer of Fine Distributing, a subsidiary of Hagameyer, a large
multi-national food distributor.
Conard Wagner has been ECBC's Vice President since September 2000. Prior
to joining ECBC Mr. Wagner was vice president of national accounts for National
Beverage Corporation.
Bruce S. Schames has been ECBC's Chief Financial Officer since April 2000.
From January 1999 to April 2000 Mr. Schames operated his own Certified Public
Accounting practice. From September 1994 to December 1998 Mr. Schames was the
Chief Accounting Officer for Sims Communications, Inc. (now named Medcom USA,
Incoporated).
Edith G. Osman has been a director of ECBC since January 2000. Ms. Osman
has been a practicing attorney since 1984. Ms. Osman is presently a shareholder
of the law firm of Carlton Fields in Miami, Florida. Ms. Osman is also the
former president of the Florida Bar and is a former member of the Florida Bar
Board of Governors.
All of ECBC's officers devote substantially all of their time on ECBC's
business. Ms. Osman, as a director, devotes only a minimal amount of time to
ECBC.
Consultant
John Calebrese became a consultant to ECBC on January 15, 2001. Mr.
Calebrese was a director of ECBC between March 1998 and January 26, 2001. Mr.
Calebrese was ECBC's Chief Executive Officer between March 1998 and November
2000 and for the four weeks prior to January 15, 2001. From 1993 to 1995 Mr.
Calebrese was a broker for Arizona Beverage Company (Arizona Iced Tea) in the
Florida market. From 1980 to 1992 Mr. Calebrese was an officer of A & C Italian
Bakery, a large Italian wholesale bakery which was sold to Ferrara's of New York
in 1990. From 1981 to 1984 Mr. Calebrese opened a number of deli/restaurants
which were purchased by Subway in 1984. During this period of time Mr. Calebrese
also developed the concept for ECBC's ready-to-drink iced coffee beverages. From
1990 to 1993 Mr. Calebrese developed and marketed an iced coffee beverage which
was acquired in 1993 by Lewis and Clark Snake River.
The Consulting Agreement with Mr. Calebrese provides that for services
provided to ECBC. Mr. Calebrese will receive 750,000 shares of ECBC's common
stock and options to purchase 2,000,000 shares of the Company's common stock at
a price of $0.70 per share.
Changes in Management
In September 1999, and in connection with the acquisition of East Coast
Beverage Corp., George Pursglove, Chet Howard, Douglas Maclellan and William
Solfisburg resigned as officers and directors and were replaced with the
following persons who were then the management of East Coast Beverage Corp: John
Calebrese (Chief Executive Officer and a director), Alex Garabedian (President),
Edward Shanahan, John Daumeyer, William Perry Maxwell and Drew Carver (each a
Vice President) and Edith Osman (director).
In November 2000, and in connection with ECBC's acquisition of StarTalk
Holdings:
o John Calebrese, Edward Shanahan, John Daumeyer, William Perry Maxwell and
Drew Carver resigned as officers and/or directors of ECBC.
o Jack Namer was appointed as a director and ECBC's Chief Executive Officer,
and
On December 22, 2000 ECBC, StarTalk Holdings, and the shareholders of
StarTalk Holdings agreed to rescind this acquisition. In connection with the
rescission of this acquisition, Jack Namer, who was appointed ECBC's Chief
Executive Officer and a Director in November 2000, resigned his positions with
ECBC. John Calebrese resumed his position as a director and as ECBC's Chief
Executive Officer. On January 15, 2001 Mr. Calebrese resigned as ECBC's Chief
Executive Officer and became a consultant to ECBC. On that same date Alex
Garabedian became ECBC's Chief
Executive Officer and a Director. On January 26, 2001 Mr. Calebrese resigned as
a Director of ECBC.
Executive Compensation
The following table sets forth in summary form the compensation
received by (i) the Chief Executive Officer of ECBC and (ii) by each other
executive officer of ECBC who received in excess of $100,000 during the fiscal
year ended December 31, 2000.
Other Re-
Annual stricted
Compen- Stock Options
Name and Prin- Fiscal Salary Bonus sation Awards Granted
cipal Position Year (1) (2) (3) (4) (5)
- -------------- ------ ------ ----- ------ ------- -------
John Calebrese, 2000 $186,154 -- -- 800,000 500,000
Chief Executive 1999 $250,000 -- -- -- --
Officer * 1998 $125,000 -- -- -- --
Alex Garabedian, 2000 $125,000 -- -- -- --
President 1999 $125,000 -- -- -- --
1998 $62,500 -- -- $325 --
Edward Shanahan 2000 $125,000 -- $6,500 -- --
Vice President * 1999 $125,000 $13,000 $6,000 -- --
1998 $ 25,000 -- -- $195 --
* Former officer. See "Changes in Management" above.
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
Amounts in the table represent car allowances.
(4) During the year ending December 31, 2000, the shares of ECBC's common stock
issued as compensation for services.
(5) The shares of common stock to be received upon the exercise of all stock
options granted during the year ending December 31, 2000.
The table below shows the number of shares of ECBC's common stock owned by
the officers listed above, and the value of such shares ($1.50) as of December
31, 2000.
Name Shares Value
---- ------ -----
John Calebrese 2,417,110 $3,625,665
Alex Garabedian 325,000 $487,500
Edward Shanahan 185,000 $277,500
Employment Contracts
ECBC has employment agreements with the following officers:
Alex Garabedian
o Term of three years, expiring December 27, 2002.
o Annual salary of $190,000, monthly car allowance of $1,150, monthly medical
insurance reimbursement of $1,200.
o Four weeks of paid vacation
o Grant of 325,000 shares of ECBC's common stock.
o Mr. Garabedin will be entitled to a bonus equal to 35% of his annual salary
in the event ECBC has sales (net of returns and allowances) of at least
$30,000,000 during 2000, $65,000,000 during 2001, and $125,000,000 during
2002.
Conard Wagner
o Term of two years, expiring September 25, 2002.
o Annual salary of $100,000, plus options to purchase 50,000 shares of ECBC's
common stock at prices varying between $12.00 and $16.00 per share. The
options vest over a three-year period.
o Two weeks of paid vacation
o The right to participate in any group medical, group life insurance or any
other employee benefit plan that ECBC may, from time to time, maintain.
Bruce Schames
o Term of three years, expiring April 1, 2003.
o Annual salary of $85,000 to be increased each year by a minimum of 6%, plus
options to purchase 60,000 shares of ECBC's common stock at a price of
$3.50 per share. The options vest over a three-year period.
o Two weeks of paid vacation.
o The right to participate in any group medical, group life insurance or any
other employee benefit plan that ECBC may, from time to time, maintain.
Other Employment Contracts
Since July 2000 Mel Leiner and Darren Marks have each been employed by ECBC
at a salary of $150,000 per year. Mr. Leiner and Mr. Marks control FPI, Inc. FPI
acts as a consultant to the ECBC and is a principal shareholder.
Long Term Incentive Plans - Awards in Last Fiscal Year
None
Employee Pension, Profit Sharing or Other Retirement Plans
Except as provided in ECBC's employment agreements with its executive
officers, ECBC does not have a defined benefit, pension plan, profit sharing or
other retirement plan, although ECBC may adopt one or more of such plans in the
future.
Compensation of Directors
Standard Arrangements. At present ECBC does not pay its directors for
attending meetings of the Board of Directors, although ECBC expects to adopt a
director compensation policy in the future. ECBC has no standard arrangement
pursuant to which directors of ECBC are compensated for any services provided as
a director or for committee participation or special assignments.
Except as disclosed elsewhere in this prospectus no director of ECBC
received any form of compensation from ECBC during the years ended December 31,
1999 and 2000.
Stock Option and Bonus Plans
ECBC has an Incentive Stock Option Plan, a Non-Qualified Stock Option Plan
and a Stock Bonus Plan. A summary description of each Plan follows. In some
cases these three Plans are collectively referred to as the "Plans".
Incentive Stock Option Plan.
- ---------------------------
The Incentive Stock Option Plan authorizes the issuance of options to
purchase up to 500,000 shares of ECBC's common stock. The Incentive Stock Option
Plan will remain in effect until January 10, 2010 unless terminated earlier by
action of the Board. Only officers, directors and key employees of ECBC may be
granted options pursuant to the Incentive Stock Option Plan.
In order to qualify for incentive stock option treatment under the
Internal Revenue Code, the following requirements must be complied with:
1. Options granted pursuant to the Plan must be exercised no later than:
(a) The expiration of thirty (30) days after the date on which an option
holder's employment by ECBC is terminated.
(b) The expiration of one year after the date on which an option holder's
employment by ECBC is terminated, if such termination is due to the Employee's
disability or death.
2. In the event of an option holder's death while in the employ of ECBC,
his legatees or distributees may exercise (prior to the option's expiration) the
option as to any of the shares not previously exercised.
3. The total fair market value of the shares of common stock (determined
at the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$100,000.
4. Options may not be exercised until one year following the date of
grant. Options granted to an employee then owning more than 10% of the common
stock of ECBC may not be exercisable by its terms after five years from the date
of grant.
5. The purchase price per share of common stock purchasable under an
option is determined by the Committee but cannot be less than the fair market
value of ECBC's common stock on the date of the grant of the option (or 110% of
the fair market value in the case of a person owning ECBC's stock which
represents more than 10% of the total combined voting power of all classes of
stock).
Non-Qualified Stock Option Plan.
- -------------------------------
The Non-Qualified Stock Option Plan authorizes the issuance of options to
purchase up to 1,500,000 shares of ECBC's common stock. The Non-Qualified Stock
Option Plan became effective on January 10, 2000. ECBC's employees, directors,
officers, consultants and advisors are eligible to be granted options pursuant
to the Plan, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by the Committee but cannot be less than the market
price of ECBC's common stock on the date the option is granted.
Options granted pursuant to the Plan not previously exercised terminate
upon the first to occur of the following dates:
(a) The expiration of one year after the date on which an option holder's
employment by ECBC is terminated (whether termination is by ECBC, disability or
death); or
(b) The expiration of the option which occurs five (5) years from the date
the option was granted.
In the event of an option holder's death while in the employ of ECBC, his
legatees or distributees may exercise the option as to any of the shares not
previously exercised prior to the option's expiration.
Stock Bonus Plan.
- ----------------
Up to 250,000 shares of common stock may be granted under the Stock Bonus
Plan. Such shares may consist, in whole or in part, of authorized but unissued
shares, or treasury shares. Under the Stock Bonus Plan, ECBC's employees,
directors, officers, consultants and advisors are eligible to receive a grant of
ECBC's shares; provided, however, that bona fide services must be rendered by
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Other Information Regarding the Plans.
- -------------------------------------
The Plans are administered by ECBC's Board of Directors. The Board of
Directors has the authority to interpret the provisions of the Plans and
supervise the administration of the Plans. In addition, the Board of Directors
is empowered to select those persons to whom shares or options are to be
granted, to determine the number of shares subject to each grant of a stock
bonus or an option and to determine when, and upon what conditions, shares or
options granted under the Plans will vest or otherwise be subject to forfeiture
and cancellation.
In the discretion of the Board of Directors, any option granted pursuant
to the Plans may include installment exercise terms such that the option becomes
fully exercisable in a series of cumulating portions. The Board of Directors may
also accelerate the date upon which any option (or any part of any options) is
first exercisable. Any shares issued pursuant to the Stock Bonus Plan and any
options granted pursuant to the Incentive Stock Option Plan or the Non-Qualified
Stock Option Plan will be forfeited if the "vesting" schedule established by the
Board of Directors at the time of the grant is not met. For this purpose,
vesting means the period during which the employee must remain an employee of
ECBC or the period of time a non-employee must provide services to ECBC. At the
time an employee ceases working for ECBC (or at the time a non-employee ceases
to perform services for ECBC), any shares or options not fully vested will be
forfeited and cancelled. In the discretion of the Board of Directors payment for
the shares of underlying options may be paid through the delivery of shares of
ECBC's common stock having an aggregate fair market value equal to the option
price, provided such shares have been owned by the option holder for at least
one year prior to such exercise. A combination of cash and shares of common
stock may also be permitted at the discretion of the Board of Directors.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
The Board of Directors of ECBC may at any time, and from time to time,
amend, terminate, or suspend one or more of the Plans in any manner it deems
appropriate, provided that such amendment, termination or suspension cannot
adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
common stock which may be issued pursuant to the Plans except in the case of a
reclassification of ECBC's capital stock or a consolidation or merger of ECBC;
reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.
The Plans are not qualified under Section 401(a) of the Internal Revenue
Code, nor are they subject to any provisions of the Employee Retirement Income
Security Act of 1974.
Summary.
- -------
The following sets forth certain information as of January 31, 2001,
concerning the stock options and stock bonuses granted by ECBC. Each option
represents the right to purchase one share of ECBC's common stock.
Total Shares Remaining
Shares Reserved for Shares Options/
Reserved Outstanding Issued As Shares
Name of Plan Under Plan Options Stock Bonus Under Plan
- ------------ ---------- ---------- ----------- ----------
Incentive Stock Option Plan 500,000 60,000 N/A 440,000
Non-Qualified Stock Option
Plan 1,500,000 550,000 N/A 950,000
Stock Bonus Plan 250,000 N/A 10,000 240,000
ECBC did not grant any options or stock bonuses to any officer or director
during the year ended December 31, 1999. Subsequent to December 31, 1999 ECBC
granted John Calebrese and Bruce Schames options to purchase shares of common
stock. See "Comparative Share Data" for information concerning these options. In
May 2000 ECBC granted Mr. Schames a bonus of 10,000 shares of common stock.
Other Options
See "Comparative Share Data" for information concerning other options
granted by ECBC. These options were not granted pursuant to ECBC's Incentive or
Non-Qualified stock option plans.
Transactions with Affiliates and Recent Sales of Securities
ECBC has issued shares of its to the persons, in the amounts, and for the
consideration set forth in the following table. The amounts have been adjusted
to reflect the shares issued to the former shareholders of East Coast Beverage
Corp. in connection with the August 1999 acquisition of East Coast Beverage
Corp. and the 8.194595 for - one reverse split approved by the shareholders of
ECBC on February 22, 2000:
Number Note
Name Date of Shares Consideration Reference
John Calebrese 3/01/98 2,411,454 Services rendered A
Alex Garabedian 9/10/98 325,000 Services rendered B
Edward Shanahan 10/26/98 195,000 Services rendered B
John Daumeyer 10/19/98 130,000 Services rendered B
William Perry Maxwell 11/02/98 130,000 Services rendered B
Drew Carver 10/10/98 130,000 Services rendered B
FPI, Inc 1/29/99 700,000 Services rendered F
Arnold Rosen 8/01/99 66,666 Services rendered C
Arnold Rosen 08/31/99 250,000 Modification of
loan terms C
Arnold Rosen 09/01/99 34,000 Consulting services C
Arnold Rosen 10/20/99 15,000 Extension of maturity
of loan C
John Calebrese 1/10/00 694,973 Payment of loan D
Raygard Enterprises 1/10/00 190,000 Conversion of loan E
Arnold Rosen 1/11/00 126,192 Conversion of loan C
John Calebrese 5/15/00 255,000 Conversion of loan D
Bruce Schames 5/25/00 10,000 Services rendered
John Calebrese 12/22/00 300,000 Conversion of loan D
FPI, Inc. 12/22/00 1,100,000 Services rendered F
John Calebrese 12/29/00 750,000 Services rendered D
John Calebrese 12/29/00 50,000 Services rendered G
Edith Osman 12/29/00 50,000 Services rendered G
Mel Leiner 12/29/00 75,000 Services rendered F
Darren Marks 12/29/00 75,000 Services rendered F
A. Subsequent to March 1, 1998 Mr. Calebrese sold 428,812 shares to Genco
Overseas Ventures Limited and 428,812 shares to Aicon Investments, Limited.
Subsequent to March 1, 1998 Mr. Calebrese also assigned shares of ECBC's common
stock to FPI, Inc., Arnold Rosen and other third parties. See "Principal
Shareholders".
B. Shares were issued as part of the compensation provided in the
employment agreement with this person.
C. Between March and May 1999 ECBC sold 1,000 shares of its Series A
preferred stock to a group of private investors for $1,000,000. All Series A
preferred shares were subsequently converted into shares of the common stock of
East Coast Beverage Corp. In connection with the acquisition of East Coast
Beverage Corp. the former Series A preferred shareholders received 751,879
shares of ECBC's common stock. Arnold Rosen, a principal shareholder and a
consultant to ECBC, together with his wife and their respective IRA accounts,
purchased 520 of the Series A preferred shares.
Between May and August 1999 ECBC borrowed $1,000,000 from Mr. Rosen. The
loan from Mr. Rosen enabled ECBC to fund a level of operations associated with
increased orders. The loans are represented by a series of convertible notes
(the "Notes") which bear interest at 12% per annum and are due and payable in
April 2000. The Notes originally provided Mr. Rosen with certain rights (i) with
respect to payment if ECBC was sold, (ii) conversion of the notes into ECBC
stock, and (iii) under certain circumstances, to a percentage of ECBC's net
income.
In exchange for 250,000 shares of ECBC's common stock, ECBC and Mr. Rosen
agreed to the following modifications to the terms of the Notes:
o ECBC would repay Mr. Rosen $400,000, plus accrued interest, prior to
September 30, 1999.
o An additional $300,000 plus accrued interest would be repaid to Mr. Rosen
prior to October 15, 1999.
o The remaining $300,000, plus accrued interest would be payable on or before
April 1, 2000.
o The rights (i) to receive, under certain circumstances, a percentage interest
in ECBC's net income; and (ii) to receive 150% of the unpaid principal if
ECBC was sold, were terminated.
o The right to convert up to $300,000 of the amount owed to Mr. Rosen into such
number of shares of ECBC's common stock as may be determined by dividing the
amount to be converted by $2.75. On January 11, 2000 Mr. Rosen converted
$250,000 owed to him by ECBC, plus $2,383 in accrued interest, into 126,192
shares of ECBC's common stock.
On October 20, 1999 ECBC paid Mr. Rosen $50,000 toward a $300,000 loan
which was due to be paid by October 15, 1999 and issued Mr. Rosen 15,000 shares
of ECBC's common stock for extending the maturity of the remaining amount of
this loan until January 15, 2000.
In September 1999 ECBC issued Mr. Rosen 34,000 shares of common stock in
consideration for consulting services provided to ECBC.
D. On January 10, 2000 John Calebrese converted $1,750,000 of advances to
ECBC, plus accrued interest of approximately $160,000 into 694,973 shares of
ECBC's common stock. The advances were made between March 1998 and October 1999,
were unsecured and bore interest at 10% per year.
On May 15, 2000 Mr. Calebrese converted $701,250 of advances and accrued
interest into 255,000 shares of ECBC's common stock. The funds were borrowed
from Mr. Calebrese between June and October 1999 and were used by ECBC for
working capital purposes. The loan from Mr. Calebrese bore interest at 10% per
annum, was due on demand and was unsecured.
On December 29, 2000 Mr. Calebrese converted $583,231 of loans made to
ECBC, plus unpaid expenses of approximately $15,000 into 300,000 shares of
ECBC's common stock.
On December 29, 2000 Mr. Calebrese was issued 750,000 shares of ECBC's
common stock for services rendered and pursuant to his consulting agreement with
ECBC.
During December 2000 John Calebrese loaned ECBC $345,000. The loan is
unsecured, bears interest at 10% per year and is due and payable on demand. The
funds borrowed from Mr. Calebrese were used to fund the Company's operations.
On January 31, 2001 ECBC granted Mr. Calebrese an option to purchase
2,000,000 shares of ECBC's common stock at a price of $0.70 per share. This
option expires on March 31, 2001 and was part of Mr. Calebrese's Consulting
Agreement with ECBC.
E. On January 10, 2000 ECBC issued 190,000 shares of common stock to
Raygard Enterprises of South Florida, Inc. in settlement of $400,000 loaned to
ECBC by Raygard. The amount owed to Raygard was due on July 1, 2000, was
unsecured and bore interest at 10% per year.
F. On January 25, 1999, ECBC entered into a consulting agreement with
F.P.I., Inc., a principal shareholder. Pursuant to the terms of this agreement
FPI provides ECBC with consulting services and assistance with financial growth
strategies. During the year ended December 31, 1999 ECBC issued 700,000 shares
of common stock.
During the ending December 31, 2000 ECBC issued 1,100,000 shares of common
stock to FPI and paid FPI approximately $306,050 in cash for consulting services
and assisting ECBC in raising capital.
On December 29, 2000 ECBC issued 75,000 shares of common stock to Mel
Leiner and 75,000 shares of common stock to Darren Marks for services rendered
to ECBC. Mr. Leiner and Mr. Marks control FPI.
As of January 31, 2001 ECBC collectively owed FPI, Mel Leiner and Darren
Marks $373,000 for accrued salaries, expenses, and loans to ECBC.
See "Comparative Share Data" for information concerning options granted to
Melvin Leiner and Darren Marks, who control FPI, Inc.
G. On December 29, 2000 ECBC issued 50,000 shares of common stock to John
Calebrese and 50,000 shares of common stock to Edith Osman for their services as
directors of ECBC.
Other Sales
Between September 1999 and May 31, 2000 ECBC sold 2,233,832 shares of its
common stock to a group of private investors at a price of $2.75 per share. ECBC
has filed a separate registration statement with the Securities and Exchange
Commission so as to permit the public sale of these shares.
Between July 18, 2000 and September 20, 2000 ECBC sold 14,010 shares of
its Series A Preferred Stock and 420,300 warrants to various private investors.
Each warrant allows the holder to purchase one additional share of ECBC's common
stock at a price of $10.00 per share at any time prior to October 12, 2005. ECBC
has agreed to include the shares of common stock issuable upon the exercise of
these warrants in any future registration statement filed by ECBC.
Between October 31, 2000 and December 31, 2000 ECBC sold 519,556 shares of
its common stock to a group of private investors at a price of $1.125 per share.
In January 2001 ECBC sold 171,429 shares of its common stock to one investor at
a price of $0.875 per share. ECBC plans to include these shares in a separate
registration statement filed with the Securities and Exchange Commission so as
to permit the public sale of these shares.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of January 31, 2001, information with
respect to the only persons owning beneficially 5% or more of the outstanding
common stock and the number and percentage of outstanding shares owned by each
director and officer and by the officers and directors
as a group. Unless otherwise indicated, each owner has sole voting and
investment powers over his shares of common stock.
Shares of
Name and Address Common Stock (1) Percent of Class
- ---------------- ---------------- -----------------
Alex Garabedian 325,000 2.5%
1750 University Drive
Suite 205
Coral Springs, FL 33071
Bruce Schames 10,000 *
1750 University Drive
Suite 205
Coral Springs, FL 33071
Conard Wagner -- --
1750 University Drive
Suite 205
Coral Springs, FL 33071
Edith G Osman 51,826 *
808 Brickle Key Blvd., #2301
Miami, FL 33131
John Calebrese 2,417,110 19%
6238 N.W. 102nd Drive
Coral Springs, FL 33076
Arnold Rosen 1,091,602 (2) 8.7%
7138 Ayrshire Lane
Boca Raton, FL 33496
FPI, Inc. 1,472,463 (3) 11.7%
Mizner Park Corporate Center
433 Plaza Real, Suite 275
Boca Raton, FL 33445
Genco Overseas Ventures Limited 415,812 (4) 3.3%
1500 Northwest 65th Ave.
Plantation, FL 33313
Acion Investments, Limited 415,812 (4) 3.3%
1500 Northwest 65th Ave.
Plantation, FL 33313
All Officers and Directors 386,826 3.1%
as a Group (4 persons)
*Less than 1%
(1) Excludes shares issuable upon the exercise of options held by the following
persons. See "Comparative Share Data" for information concerning the terms
of these options.
Shares Issuable Upon
Name Exercise of Option
Bruce Schames 110,000
John Calebrese 2,500,000
Arnold Rosen 112,500
FPI, Inc. 800,000 (3)
(2) Includes shares held by Mr. Rosen, Mr. Rosen's wife, and their respective
IRA accounts.
(3) Includes shares and/or options are held by Melvin Leiner and Darren Marks
who are employees of ECBC as well as controlling shareholders of FPI, Inc.
(4) Genco Overseas Ventures Limited and Acion Investments Limited are both
controlled by Jack Namer.
The percentage ownership for each shareholder in the foregoing table has
been computed without including any shares issuable upon the exercise of any
options or warrants.
SELLING SHAREHOLDERS
The Offering
This prospectus relates to the sale of shares of ECBC's common stock:
o held by certain persons who either purchased the shares from ECBC in
private offerings, received the shares for services provided to ECBC, or
received the shares in settlement of amounts owed to these persons by ECBC.
o issuable upon the exercise of warrants and options which were previously
issued by ECBC, and
The holders of the warrants and options, to the extent they exercise the
warrants or options, and the owners of the common stock described above are
referred to in this prospectus as the selling shareholders. One of the selling
shareholders, Solid ISG, Capital Markets, LLC, is a registered broker/dealer. To
the knowledge of ECBC, none of the other selling shareholders is affiliated with
a broker-dealer. ECBC has agreed to pay the expenses associated with registering
the shares to be sold by the selling shareholders.
ECBC has agreed with the selling shareholders to file a registration
statement, of which this prospectus is a part, to register for public sale all
or part of the shares which they own, or which they may acquire upon the
exercise of options or warrants. ECBC has agreed with the other selling
shareholders to include their shares in this registration statement.
ECBC will not receive any proceeds from the resale of the shares by the
selling shareholders. The costs of registering the shares offered by the selling
shareholders are being paid by ECBC. The selling shareholders will pay all other
costs of the sale of the shares offered by them.
The following table identifies the selling shareholders and the shares
which are being offered for sale by the selling shareholders.
Shares Which
May be
Acquired Upon Shares to Share
Number Exercise of be Sold Ownership
of Shares Options or in this After
Name Owned Warrants Offering Offering
Acion Investments, Limited 413,812 413,812
Albertson, Bruce and Edna 136,399 20,000 156,399
Albertson, Bruce R., Jr. 23,006 23,006
Ankrum, Keith 18,187 18,187
Aronson, Inette 2,000 2,000
B.K.P.W. Partnership 14,549 14,549
Barr, Gregory 4,001 4,001
Bass, Lucille 5,000 5,000
Birdwell, Lyle 8,000 8,000
Bond,Charles H. Jr. 10,000 7,500 17,500
Bristol, George 10,000 10,000
Bronstein, Alex 7,000 7,000
Burg, Jame 1,454 1,454
Butterfield, Roger 10,000 7,500 17,500
Bock, Joe 3,637 3,637
C & D America, Inc. 36,373 36,373
Calebrese, John 2,417,110 2,000,000 2,860,000 1,557,110
Callow, Daniel 4,000 7,500 11,500
Campbell, James 10,000 7,500 17,500
Capitshare Funds 5,370 5,370
Carver, Richard D. 12,503 12,503
Clafferty, M. - Intercont Svcs. 10,000 10,000
Clinton, Mark 8,547 8,547
Comolli, Tamara 18,187 18,187
Continental Capital & Equity
Corporation 100,000 100,000
Courtney, Eric 5,456 5,456
Crozer, Robert M. 18,187 18,187
Crum, William 4,444 4,444
Decker, Gary 1,500 1,500
Del George, Susan 25,000 25,000
Devick, Richard 44,444 44,444
Direct Resource Group, Inc. 46,376 46,376
Dowd, Arthur 9,093 9,093
Shares Which
May be
Acquired Upon Shares to Share
Number Exercise of be Sold Ownership
of Shares Options or in this After
Name Owned Warrants Offering Offering
Edidin, Cathleen 10,912 10,912
Erb, Connie and Steven 6,102 6,102
Fayette, James J. 4,001 4,001
Feldman, Jeffrey 4,728 4,728
Fetzer, Bruce and Barbara 10,000 7,500 10,000
Fleek, Gina 2,000 2,000
Florida Tropical Builders,
Inc. 44,444 44,444
FPI, Inc. 1,023,463 741,500 281,963
Frances Gayle Wheaton Trust 9,333 9,333
Freuck, Esther 25,461 25,461
Fritz, Mark 12,730 12,730
Garabedian, Alex 325,000 325,000
Genco Overseas Ventures
Limited 413,812 413,812
Goglia, Stanley 11,000 11,000
Goldstein, Sydney J. 60,000 60,000
Gore, Ron 7,274 7,274
Graham, Dr. Patrick 65,224 65,224
Guzov, Debra 3,330 3,330
Hager, William 5,000 5,000
Halperin, Barry S. 482,540 482,540
Hardy, W. Bill 4,444 4,444
Harris, Elliot 4,444 4,444
Haskin Associates, Inc. 25,000 25,000
Heidenreich, Jerry R. and
Debra R. 10,000 10,000
Hodge, Dave 5,000 5,000
Hoffman, Birte 5,000 5,000
Hudson, Rosemary 5,000 5,000
Hudson, Franklin 15,000 15,000
Holt, Sharon S. 17,883 17,883
Iannotti, John 3,661 3,661
Investor Resource Services 10,000 10,000
Isidore Siegal Trust 10,000 10,000
Itow, Marc 5,001 5,001
Jenkins, James P. 10,000 10,000
Joseph Silver Enterprises 10,000 10,000
Juranek, Robert 5,000 7,500 12,500
Karounos, Dino & Hilde 3,637 3,637
Kaufman, Alan 20,000 20,000
Kessel, Daniel 10,000 7,500 17,500
Shares Which
May be
Acquired Upon Shares to Share
Number Exercise of be Sold Ownership
of Shares Options or in this After
Name Owned Warrants Offering Offering
Kleinman, Bonnie 9,093 9,093
Klepetko, Frank 100,000 100,000
Klepetko, Lawrence 10,000 10,000
Kleyman, Boris 10,000 10,000
Krane, Edwin 10,000 7,500 17,500
Krinsky, David 27,500 27,500
Kubala, Robert 30,546 30,546
Kuharich, Bill 7,500
Leiner, Melvin 75,000 362,500 437,500
Leskar, David W. 22,222 22,222
Lessor Corp. C/O
Terry Davison 10,003 10,003
Levitt, Alda 10,000 10,000
Levy, Eric 9,093 9,093
Lica, Steven 20,000 20,000
Litchman, Sayre A. 5,001 5,001
Litchman, Sanford 22,222 22,222
Llera, Ismael 88,000 88,000
MH Enterprise 100,000 100,000
MacLeod, Craig 800 800
Maiuro, Joseph K. 18,186 18,186
Marks, Darren 75,000 362,500 437,500
Marks, Martin 265,000 265,000
Mayzer, Louise 6,002 6,002
McManus, Charles 26,667 14,000 40,667
Molinari, Steven 75,000 75,000
Molinsky, Maria 110,003 150,000 260,003
Molinsky, Richard 10,000 10,000
Molinsky, Victor 15,000 15,000
Morra, Bruce 10,000 15,000 25,000
Muller, Guy 10,003 10,003
Nathan, Stuart 10,000 10,000
Nilva, Veniamin 20,000 30,000 50,000
Northcut, William E. 10,000 10,000
Okrent, Ellyn 44,444 44,444
Olsen, Gregory 72,746 72,746
Osman, Edith 50,000 50,000
O'Steen, Grace 15,000 10,800 25,800
Ostrow, Gary 14,549 14,549
Ostrow, Robert 2,728 2,728
Pace, Roger 8,888 8,888
Pannu, Debra B. 7,274 7,274
Shares Which
May be
Acquired Upon Shares to Share
Number Exercise of be Sold Ownership
of Shares Options or in this After
Name Owned Warrants Offering Offering
Parnes, Alan 18,000 18,000
Patton, Robert 10,000 7,500 17,500
Pearlman, Herbert 10,003 10,003
Piteo, Mario and Lou
Marsella 3,637 3,637
Podmolik, V.F. c/o
Lucille Bass 5,000 5,000
Polak, Werner 13,000 13,000
Poto, Donald 90,933 90,933
Provence, Dave 14,550 14,550
Prussin, Jarret 3,637 3,637
Prussin, Ross 3,637 3,637
Pype, Pierre 20,000 15,000 35,000
Raskin. Edward 72,982 72,982
Raymond C. Wheaton Trust 10,003 10,003
Rennick, Robert 35,000 35,000
Riccio, Frank 72,746 72,746
Rodabaugh, Dr. Galon 20,000 30,000 50,000
Rohrbacher, Michael 4,000 15,000 19,000
Rohrs, Roger 15,000 7,500 22,500
Rountree, William 20,000 20,000
Rosche, Timothy 18,305 18,305
Rosen, Fred 16,000 15,000 31,000
Rosen, Arnold 862,553 455,559 406,994
Rosen, Bonnie J., IRA 120,027 120,027
Rosen, Esther 16,005 16,005
Rosen, Eugene 9,821 9,821
Ruggiero, Ann 25,000 25,000
Russo, Peter 5,000 18,000 23,000
SJG Management, Inc. Profit
Sharing Fund 23,642 23,642
Saccoccio, August 16,000 16,000
Schames, Bruce 10,000 10,000
Scheft, Michael 20,000 20,000
Schlecht, David 6,102 6,102
Schlosser, James A. 9,099 9,099
Seals, D. 50,000 50,000
Seasons Development Corp. 90,933 90,933
Shapiro, Sam 10,003 10,003
Shepard, Murray E. 22,222 22,222
Silver, Joseph 15,000 15,000
Silverman, Buddy 88,888 88,888
Silverman, Marc 44,444 44,444
Shares Which
May be
Acquired Upon Shares to Share
Number Exercise of be Sold Ownership
of Shares Options or in this After
Name Owned Warrants Offering Offering
Simmons, Bryan 20,000 20,000
Smith, William R. 65,461 65,461
Solfisburg, William 18,187 18,187
Solid ISG Capital Markets, LLC 85,000 85,000
Solomon, Bruce 3,555 3,555
Stoddard, Morris 75,000 75,000
Strassner, Bernard 15,000 7,500 22,500
Summit Trading Limited 400,000 400,000
Thaler, Herbert 60,000 60,000
Vossler, Ralph 2,000 2,000
Wagda, Joseph 10,000 10,000
Wailand, George 10,000 7,500 17,500
Warstler, Michelle 9,093 9,093
Weis, Robert 7,500 7,500
Zenkel, Elliott 7,500 7,500
Zeng, Dr. Xiao-Mei 2,000 2,000
See "Comparative Share Data" for information concerning the terms of the
options held by certain selling shareholders.
If all shares offered by this prospectus are sold, the following person
will own more than 1% of ECBC's common stock. Each of the other selling
shareholders will own less than 1% of ECBC's common stock.
Name Percentage Ownership
John Calebrese 9%
Manner of Sale. The shares of common stock owned, or which may be
acquired, by the selling shareholders may be offered and sold by means of this
prospectus from time to time as market conditions permit in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then-current market price, or in negotiated transactions. These shares
may be sold by one or more of the following methods, without limitation:
o a block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o face-to-face transactions between sellers and purchasers without a
broker/dealer.
In effecting sales, brokers or dealers engaged by the selling shareholders
may arrange for other brokers or dealers to participate. Such brokers or dealers
may receive commissions or discounts from selling shareholders in amounts to be
negotiated.
The selling shareholders and any broker/dealers who act in connection with
the sale of the Shares hereunder may be deemed to be "underwriters" within the
meaning of ss.2(11) of the Securities Acts of 1933, and any commissions received
by them and profit on any resale of the Shares as principal might be deemed to
be underwriting discounts and commissions under the Securities Act. ECBC has
agreed to indemnify the selling shareholders and any securities broker/dealers
who may be deemed to be underwriters against certain liabilities, including
liabilities under the Securities Act as underwriters or otherwise.
ECBC has advised the selling shareholders that they and any securities
broker/dealers or others who may be deemed to be statutory underwriters will be
subject to the Prospectus delivery requirements under the Securities Act of
1933. ECBC has also advised each Selling Shareholder that in the event of a
"distribution" of the shares owned by the Selling Shareholder, such Selling
Shareholder, any "affiliated purchasers", and any broker/dealer or other person
who participates in such distribution may be subject to Rule 102 under the
Securities Exchange Act of 1934 ("1934 Act") until their participation in that
distribution is completed. Rule 102 makes it unlawful for any person who is
participating in a distribution to bid for or purchase stock of the same class
as is the subject of the distribution. A "distribution" is defined in Rule 102
as an offering of securities "that is distinguished from ordinary trading
transactions by the magnitude of the offering and the presence of special
selling efforts and selling methods". ECBC has also advised the selling
shareholders that Rule 101 under the 1934 Act prohibits any "stabilizing bid" or
"stabilizing purchase" for the purpose of pegging, fixing or stabilizing the
price of the common stock in connection with this offering.
Shares Covered By Separate Registration Statement
Up to 100,000 shares of common stock issuable upon the exercise of the
warrants held by Continental Capital & Equity Corporation as well as 2,160,687
shares of common stock held by John Calebrese, FPI, Inc., Edith Osman, Arnold
Rosen and certain other shareholders of ECBC, are being offered for public sale
by means of a separate registration statement which has been filed with the
Securities and Exchange Commission.
DESCRIPTION OF SECURITIES
Common Stock
ECBC is authorized to issue 100,000,000 shares of common stock. Holders of
common stock are each entitled to cast one vote for each share held of record on
all matters presented to shareholders. Cumulative voting is not allowed; hence,
the holders of a majority of the outstanding common stock can elect all
directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of ECBC's
assets after payment of liabilities. The board is not obligated to declare a
dividend. It is not anticipated that dividends will be paid in the foreseeable
future.
Holders of common stock do not have preemptive rights to subscribe to
additional shares if issued by ECBC. There are no conversion, redemption,
sinking fund or similar provisions regarding the common stock. All of the
outstanding shares of common stock are fully paid and nonassessable.
Preferred Stock
ECBC is authorized to issue up to 20,000,000 shares of preferred stock.
ECBC's Articles of Incorporation provide that the Board of Directors has the
authority to divide the preferred stock into series and, within the limitations
provided by Colorado statute, to fix by resolution the voting power,
designations, preferences, and relative participation, special rights, and the
qualifications, limitations or restrictions of the shares of any series so
established. As the Board of Directors has authority to establish the terms of,
and to issue, the preferred stock without shareholder approval, the preferred
stock could be issued to defend against any attempted takeover of ECBC.
Between July 18, 2000 and September 20, 2000 ECBC sold 14,010 shares of
its Series A Preferred Stock and 420,300 warrants to various private investors.
Each warrant allows the holder to purchase one additional share of ECBC's common
stock at a price of $10.00 per share at any time prior to October 12, 2005.
Each Series A preferred share is exchangeable at the option of the holder
into any securities offered by ECBC in any public offering. The number of
securities which each preferred shareholder is entitled to receive for each
preferred share will be determined by dividing $105 by the initial public
offering price of the securities sold in the public offering.
ECBC is required to redeem all outstanding Series A preferred shares, at a
price of $100 per share, upon the first to occur of the following:
o The closing of a private placement or public offering through which ECBC
receives at least $5,000,000 in gross proceeds,
o The acquisition by any person of more than 51% of the outstanding shares of
ECBC's common stock,
o A merger in which ECBC is not the surviving entity,
o The sale of all or substantially all of ECBC's assets, or
o July 31, 2002.
Each preferred share is entitled to a quarterly dividend of $2.50 per
share. At ECBC's option any dividend may be paid in cash or in shares of ECBC's
common stock. For dividends paid in shares of common stock, the number of shares
to be issued will be determined by dividing the amount of the dividend by the
average closing price of ECBC's common stock for the 20 trading days preceding
the date the dividend is declared.
In the event of any liquidation, dissolution or winding up (voluntary or
involuntary) of ECBC, the holders of shares of the Series A Preferred Stock are
entitled to receive from the assets of ECBC available for distribution to
shareholders, and before any distribution of assets is made to holders of ECBC's
common stock, a liquidating distribution in the amount of $100 per share plus
accumulated and unpaid dividends.
ECBC has agreed to include any shares of common stock issued as a dividend
payment in any registration statement filed by ECBC subsequent to December 31,
2000. However if the shares of common stock issued as a dividend payment have
not been registered for public sale by December 31 2001, then ECBC will file a
separate registration statement with the Securities and Exchange Commission so
as to permit the public sale of such shares.
Transfer Agent
American Securities Transfer and Trust, Inc. is the transfer agent for
ECBC's common stock.
EXPERTS
The balance sheet of ECBC as of December 31, 1999 and the Statement of
Operations, Statement of Changes in Deficiency in Assets and Statement of Cash
Flows for the year then ended and for the period from inception (March 25, 1998)
to December 31, 1998 have been included herein in reliance on the report of
Kaufman Rossin & Co., Professional Association, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
LITIGATION
There are no legal proceedings to which ECBC is a party or to which its
properties are subject, other than routine litigation incident to ECBC's
business which is covered by insurance or which would not have a material
adverse effect on ECBC.
INDEMNIFICATION
ECBC's Bylaws authorize indemnification of a director, officer, employee
or agent of ECBC against expenses incurred by him in connection with any action,
suit, or proceeding to which he is named a party by reason of his having acted
or served in such capacity, except for liabilities arising from his own
misconduct or negligence in performance of his duty. In addition, even a
director, officer, employee, or agent of ECBC who was found liable for
misconduct or negligence in the performance of his duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, or persons
controlling ECBC pursuant to the foregoing provisions, ECBC has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
AVAILABLE INFORMATION
ECBC is subject to the informational requirements of the Securities
Exchange Act of l934 and in accordance therewith is required to file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Copies of any such reports, proxy statements and
other information filed by ECBC can be inspected and copied at the public
reference facility maintained by the Securities and Exchange Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. and at the Securities and
Exchange Commission's Regional offices in New York (7 World Trade Center, Suite
1300, New York, New York 10048) and Chicago (Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511). Copies of such material can be obtained from the Public Reference
Section of the Securities and Exchange Commission at its office in Washington,
D.C. 20549 at prescribed rates. Certain information concerning ECBC is also
available at the Internet Web Site maintained by the Securities and Exchange
Commission at www.sec.gov ECBC has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (together with all amendments
and exhibits) under the Securities Act of 1933, as amended (the "Act"), with
respect to the Securities offered by this prospectus. This prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Securities and Exchange Commission. For further information, reference is made
to the Registration Statement.
- --------------------------------------------------------------------------------
EAST COAST BEVERAGE CORP.
FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
C O N T E N T S
Page
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statement of Changes in Deficiency in Assets 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 19
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
Board of Directors
East Coast Beverage Corp.
Coral Springs, Florida
We have audited the accompanying balance sheet of East Coast Beverage Corp. as
of December 31, 1999, and the related statements of operations, changes in
deficiency in assets, and cash flows for the year ended December 31, 1999 and
for the period from inception (March 25, 1998) to December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of East Coast Beverage Corp. as of
December 31, 1999, and the results of its operations and its cash flows for the
year ended December 31, 1999 and for the period from inception (March 25, 1998)
to December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, 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. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
KAUFMAN, ROSSIN & CO.
Miami, Florida
March 24, 2000 (Except for Note 2, as to which the date is April 7, 2000)
EAST COAST BEVERAGE CORP.
- --------------------------------------------------------------------------------
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
- --------------------------------------------------------------------------------
CURRENT ASSETS
Cash and equivalents $ 115,364
Accounts receivable (Note 4) 109,689
Inventories (Note 5) 2,018,573
Prepaid mold fee (Note 8) 118,866
Prepaid expenses and other current assets (Note 6) 154,179
- --------------------------------------------------------------------------------
Total current assets 2,516,671
PROPERTY AND EQUIPMENT (NOTE 7) 679,321
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 3,195,992
- --------------------------------------------------------------------------------
LIABILITIES AND DEFICIENCY IN ASSETS
- --------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,790,668
Accrued interest payable 164,580
Notes payable - current portion (Note 12) 525,000
Due to stockholder - current portion (Note 9) 765,516
- --------------------------------------------------------------------------------
Total current liabilities 3,245,764
- --------------------------------------------------------------------------------
LONG-TERM DEBT
Notes payable (Note 12) 650,000
Due to stockholders (Note 9) 1,750,000
- --------------------------------------------------------------------------------
Total long-term debt 2,400,000
- --------------------------------------------------------------------------------
DEFICIENCY IN ASSETS (NOTE 11) ( 2,449,772)
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 3,195,992
- --------------------------------------------------------------------------------
See accompanying notes.
EAST COAST BEVERAGE CORP.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE PERIOD FROM INCEPTION (MARCH 25, 1998) TO DECEMBER 31, 1998
1999 1998
- --------------------------------------------------------------------------------
SALES $ 4,403,499 $ 478,066
COST OF GOODS SOLD 3,218,516 344,493
- --------------------------------------------------------------------------------
GROSS PROFIT 1,184,983 133,573
- --------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation 121,544 1,001
Freight 441,854 24,050
General and administrative expense 1,703,525 758,210
Professional fees and consulting 505,105 46,250
Promotion and advertising 2,334,228 2,120
Selling expenses 518,687 -
- --------------------------------------------------------------------------------
Total selling, general and administrative 5,624,943 831,631
- --------------------------------------------------------------------------------
LOSS FROM OPERATIONS ( 4,439,960) ( 698,058)
INTEREST EXPENSE AND FINANCING FEES 820,333 40,259
- --------------------------------------------------------------------------------
NET LOSS ( $ 5,260,293) ( $ 738,317)
- --------------------------------------------------------------------------------
Weighted Average Number of Common Shares
Outstanding 4,385,993 2,361,455
- --------------------------------------------------------------------------------
Net loss per share ( $ 1.21) ( $ 0.31)
- --------------------------------------------------------------------------------
See accompanying notes.
EAST COAST BEVERAGE CORP.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN DEFICIENCY IN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM INCEPTION (MARCH 25,
1998) TO DECEMBER 31, 1998
Preferred Stock, Common Stock,
$0.0001 Par Value; $0.0001 Par Value; Additional
5,000,000 Shares 25,000,000 Paid-In
Description Authorized Shares Authorized Capital Deficit
-----------------------------------------------
Shares Amount Shares Par Value Total
- ------------------------------------------------------------------------------------------------------------------------
Issuance of stock, net of stock
returned - $ - 2,361,455 $ 236 $ 264 $ - $ 500
Net loss - period ended December 31, 738,317)
1998 - - - - - ( ( 738,317)
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 - - 2,361,455 236 264 ( 738,317) ( 737,817)
Issuance of common stock related to
employment agreements, net of
stock returned - - 910,000 91 49 - 140
Issuance of common stock for
consulting services, net of
stock returned - - 800,666 80 197,086 - 197,166
Issuance of preferred stock for cash 1,000 0.10 - - 1,000,000 - 1,000,000
Preferred stock offering costs - - - - ( 100,000) - ( 100,000)
Issuance of common stock for loan
agreement modification - - 265,000 27 408,584 - 408,611
Issuance of options for loan
agreement modification - - - - 88,192 - 88,192
Conversion of preferred stock into
common stock ( 1,000) ( 0.10) 751,879 75 ( 75) - -
Acquisition of net assets of USA
Services Systems, Inc. - - 372,599 37 (200,037) - (200,000)
Issuance of common stock under
Private Placement - - 887,376 89 2,440,195 - 2,440,284
Private placement offering costs - - - - ( 244,388) - ( 244,388)
Dividends on preferred stock - - - - ( 41,667) ( 41,667)
Net loss - year ended December 31,
1999 - - - - - (5,260,293) (5,260,293)
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 - $ - 6,348,975 $ 635 $3,589,870 ($6,040,277)($2,449,772)
- ------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
EAST COAST BEVERAGE CORP.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE PERIOD FROM INCEPTION (MARCH 25, 1998) TO DECEMBER 31, 1998
1999 1998
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net
loss ( $ 5,260,293) ( $ 738,317)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 121,544 1,001
Provision for bad debts 12,187 -
Stock issued for modification of loans 496,803 -
Stock issued for professional services 197,306 -
Changes in assets and liabilities:
Accounts receivable 215,262 ( 337,138)
Inventory ( 807,487) ( 1,211,086)
Prepaid assets ( 85,261) ( 141,882)
Other assets 23,111 ( 25,713)
Accounts payable and accrued expenses 552,298 1,202,950
- --------------------------------------------------------------------------------
Total adjustments 725,763 ( 511,868)
- --------------------------------------------------------------------------------
Net cash used in operating activities (4,534,530) ( 1,250,185)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to employee ( 33,300) ( 10,000)
Purchases of property and equipment ( 777,247) ( 24,619)
- --------------------------------------------------------------------------------
Net cash used in investing activities ( 810,547) ( 34,619)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank overdraft ( 55,913) 55,913
Net borrowings from stockholders 1,284,640 1,230,876
Net borrowings from related parties 1,260,000 -
Net proceeds from issuance of preferred stock 900,000 -
Net proceeds from issuance of common stock 2,195,896 500
Dividends paid ( 41,667)
Loan acquisition costs ( 85,000)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 5,457,956 1,287,289
- --------------------------------------------------------------------------------
NET INCREASE IN CASH AND EQUIVALENTS 112,879 2,485
CASH AND EQUIVALENTS - BEGINNING 2,485 -
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ 115,364 $ 2,485
- --------------------------------------------------------------------------------
Supplemental Disclosures:
- --------------------------------------------------------------------------------
Interest paid $ 125,079 $ 18,416
- --------------------------------------------------------------------------------
See accompanying notes.
EAST COAST BEVERAGE CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description and Activity
East Coast Beverage Corp. (the Company) was incorporated on March
25, 1998, under the laws of the State of Florida and effective
August 31, 1999, became a public reporting Colorado Corporation
through a reverse acquisition of a public shell corporation. The
Company's business activity includes developing, producing and
distributing Coffee House USA(TM), a proprietary line of all
natural, ready to drink, bottled coffee drinks. In late 1998 the
Company began production and distribution of its products throughout
the continental United States, Hawaii and Guam.
The Company uses third-party manufacturers to produce its products
and for the year ended December 31, 1999, two manufacturers
accounted for 100% of the Company's production of finished goods.
All historical common stock data in the financial statements and
notes to financial statements has been adjusted to give effect for
i) a March 24, 1999, 25,000 for 1 forward stock split, ii) an
exchange allocation of 8.194595 for 1 upon the reverse acquisition
discussed below, and iii) a February 22, 2000 1 for 8.194595 reverse
stock split.
Reverse Acquisition
Effective August 31, 1999, the Company entered into an Agreement to
Exchange Common Stock with USA Service Systems, Inc. (USA), a
non-operating public company. The Agreement provided for the
exchange of 5,040,000 restricted shares of common stock of USA for
all of the issued and outstanding shares of the Company. This
transaction was treated for accounting purposes as a capital
transaction. As the Company is the accounting acquirer in this
"Reserve Acquisition," the financial statements of USA are
considered to be a continuation of the Company. Concurrent with this
merger, USA changed its name to East Coast Beverage Corp.
Cash and Equivalents
For purposes of the statement of cash flows, the Company considers
cash and highly liquid securities (consisting primarily of
money-market investments) with an original maturity or redemption
option of three months or less to be cash and equivalents.
During 1999 the Company maintained cash and equivalents with a
brokerage firm and with a bank. Brokerage amounts are insured up to
$500,000 (with a limit of $100,000 for cash) by the Securities
Investor Protection Corporation while bank deposits are insured by
the FDIC up to $100,000. The Company may, from time to time,
maintain balances in excess of these insured limits.
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit
risk consist principally of trade receivables. Trade receivables
terms are generally 30 days. The Company performs services and
extends credit based on an evaluation of the customers' financial
condition without requiring collateral. Exposure to losses on
receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit
losses and maintains allowances for anticipated losses considered
necessary under the circumstances.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major
betterments and additions are charged to the asset accounts while
replacements, maintenance and repairs which do not improve or extend
the lives of the respective assets are charged to expense currently.
Depreciation
Depreciation of property and equipment is determined utilizing
straight-line and accelerated methods at various rates based
generally on the estimated useful lives of the assets. The range of
estimated useful lives is as follows:
Office furniture and equipment 5 to 7 years
Machinery and equipment 5 to 7 years
Coolers and display equipment 3 to 5 years
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market (replacement cost). All inventories on hand at
December 31, 1999 were held by third party storage facilities
located in Batavia, New York, Sanger, California and Richwood, New
Jersey.
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.
The Company has recorded a deferred tax asset of approximately
$1,964,000 at December 31, 1999, which is completely offset by a
valuation allowance. Realization of the deferred tax asset is
dependent on generating sufficient taxable income in the future. The
amount of the deferred tax asset considered realizable could change
in the near term if estimates of future taxable income are modified.
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Income Taxes
The Company accounts for income taxes under the liability method
according to Statement of Financial Accounting Standards No. 109.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled.
Through December 31, 1998, the Company had elected, with the consent
of the stockholders, to be taxed under S Corporation provisions of
the Internal Revenue Code. Under these provisions, the taxable
income of the Company is reflected by the stockholders on their
personal income tax returns. Effective January 1, 1999, in
contemplation of issuing preferred stock, the Company terminated its
S Corporation status.
Revenue Recognition
Revenue from product sales is recognized by the Company when title
and risk of loss passes to the distributor, which generally occurs
upon shipment from the manufacturing facilities or third party
storage facilities.
Advertising
Advertising is expensed as incurred and is included in selling,
general and administrative expenses.
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 and preferred stock dividends of $41,667 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 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments
The carrying values of cash and equivalents, accounts receivable and
notes receivable approximate their fair values due to the short
maturity of these instruments.
The fair value of the notes payable and due to stockholder is
determined by calculating the present value of the note by a current
market rate of interest as compared to the stated rate of interest.
The difference between fair value and the carrying values is not
deemed to be significant.
Comprehensive Income
The items affecting comprehensive income are not material to the
financial statements and, accordingly, are not presented herein.
Reclassifications
Certain amounts in the 1998 financial statements have been
reclassified to conform with 1999 presentation.
Year 2000 Uncertainties
Although the Company has not identified or incurred any computer
system or program problems, there is still a possibility that at
some time during the Year 2000 their computer systems and programs,
as well as equipment that uses embedded computer chips, may be
unable to distinguish between the years 1900 and 2000. This may
create system errors and failures resulting in the disruption of
normal business operations. Although it is unlikely, there may be
some third parties, such as governmental agencies, utilities,
telecommunication companies, vendors and customers that at times may
not be able to continue business with the Company due to their own
Year 2000 problems.
NOTE 2. GOING CONCERN
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a 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.
Subsequent to December 31, 1999, approximately $2,400,000 due under
notes payable and due to stockholder, plus accrued interest thereon
of approximately $213,000 were converted into 1,011,165 shares of
the Company's common stock. The Company continues to pursue the sale
of its common stock through private placement offerings and
subsequent to December 31, 1999 through April 7, 2000, the Company
issued 933,901 shares of common stock for $2,568,230 less costs
associated with these issuances of approximately $256,823.
- --------------------------------------------------------------------------------
NOTE 2. GOING CONCERN (Continued)
- --------------------------------------------------------------------------------
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, as described in the
preceding paragraph, provide the opportunity for the Company to
continue as a going concern.
NOTE 3. MAJOR CUSTOMERS
Sales to individual unaffiliated customers in excess of 10% of net
sales were as follows:
1999 1998
-----------------------------------------------------
Amount % of Sales Amount % of Sales
--------------------------------------------------------------------
Customer A $ 552,983 13% $ - -%
Customer B $ 548,578 12% $ - -%
Customer C $ 206,950 5% $ 49,412 10%
Customer D $ 24,706 1% $ 49,104 10%
Individual accounts receivable balances at December 31, 1999, in
excess of 10% of total accounts receivable were as follows:
% of Accounts
Receivable,
Amount Net
--------------------------------------------------------------------
Customer E $ 24,980 20%
Customer F $ 18,651 15%
Customer G $ 15,325 13%
NOTE 4. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1999 consisted of the following:
Trade accounts receivable $ 121,876
Less allowance for doubtful accounts 12,187
--------------------------------------------------------------------
$ 109,689
--------------------------------------------------------------------
During 1999, the Company established an allowance for doubtful
accounts through a charge to earnings of $12,187.
- --------------------------------------------------------------------------------
NOTE 4. ACCOUNTS RECEIVABLE (Continued)
- --------------------------------------------------------------------------------
The activity in the allowance for doubtful accounts during the year
ended December 31, 1999 was as follows:
Allowance for
Doubtful
Accounts
--------------------------------------------------------------------
Balance - December 31, 1998 $ -
1999 provision for doubtful accounts 12,187
1999 charge-offs -
--------------------------------------------------------------------
Balance - December 31, 1999 $ 12,187
--------------------------------------------------------------------
On December 2, 1999, the Company entered into a perpetual
distribution agreement with an entity that is both a shareholder of the
Company and is 50% owned by the CFO of the Company (Related
Distributor). The Related Distributor was appointed as the exclusive
distributor to certain significant territories and the Company does not
have the right to unilaterally terminate this agreement absent "cause".
Pursuant to this agreement, an "initial order" for approximately
$1,328,000 of product was conveyed and invoiced to the Related
Distributor in 1999, with the following payment terms:
February 28, 2000 $ 50,000
March 31, 2000 150,000
April 30, 2000 150,000
May 31, 2000 300,000
June 30, 2000 300,000
July 31, 2000 378,000
Although, according to the distribution agreement all product
conveyed to the Related Distributor is deemed to be property of the
Related Distributor upon such conveyance, as the sales terms do not
comply with the Company's normal polices, the Company does not
record sales until such products are shipped from the manufacturer
or warehouse to a third-party customer.
The Related Distributor distribution agreement has additional
provisions requiring, among other things, in the event of the sale
of the Company or termination of the Related Distributor, the
Related Distributor will be reimbursed at a price of $4.00 per case,
since inception. At December 31, 1999, approximately $540,000 in
reimbursements would be due to the Related Distributor in the event
of the sale of the Company or termination of the Related
Distributor.
As of December 31, 1999, conveyances of $0 to the Related
Distributor were recorded as sales and approximately $994,000 (cost) of
product conveyed and invoiced is included in inventory as it remained
in the custody of the manufacturer or third-party warehouses.
In addition, in connection with this agreement the Company paid
approximately $28,000 in commissions and consulting fees to the Related
Distributor.
NOTE 5. INVENTORIES
Inventories at December 31, 1999 consisted of the following:
Finished goods (invoiced to, and held
on behalf of the Related Distributor) $ 994,187
Raw materials 1,024,386
--------------------------------------------------------------------
$2,018,573
--------------------------------------------------------------------
NOTE 6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following
at December 31, 1999:
Employee advances $ 43,300
Deposits 2,602
Prepaid consulting fees 108,277
--------------------------------------------------------------------
$ 154,179
--------------------------------------------------------------------
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 consisted of the
following:
Office furniture and equipment $ 11,462
Machinery and equipment 18,700
Coolers and display equipment 771,704
--------------------------------------------------------------------
801,866
Less: accumulated depreciation ( 122,545)
--------------------------------------------------------------------
$ 679,321
--------------------------------------------------------------------
Depreciation expense amounted to $121,544 and $1,001 in 1999 and
1998, respectively.
NOTE 8. PREPAID MOLD FEE
The Company entered into an agreement with a manufacturer, whereby a
$150,000 mold fee was required in order to set up for the
manufacture of bottles. The manufacturer will credit up to the full
amount of the fee at a rate of $0.40 per gross (144) on all bottles
manufactured for and accepted by the Company within a three year
period. The Company received credits of $23,016 and $8,118 related
to this agreement during 1999 and 1998, respectively. The Company
believes that its production in 2000 will be sufficient to earn
credit for the remaining prepaid mold fee amount.
NOTE 9. DUE TO STOCKHOLDER
At December 31, 1999, the Company had an unsecured loan payable to
the Chief Executive Officer (CEO) in the amount of $2,515,516. The
loan bears interest at 10% per annum, with principal and all accrued
interest due on demand. Interest expense in connection with this
note amounted to $181,007 during 1999. On January 10, 2000,
$1,750,000 of this amount, plus accrued interest of approximately
$160,000 was converted into 694,973 shares of common stock of the
Company.
NOTE 10. RISKS AND UNCERTAINTIES
The Company is currently substantially dependent on two unrelated
parties as manufacturers of their products. The Company is pursuing
alternative production sources. Management believes that the loss of
these current manufacturers would not significantly disrupt
operations and that relationships with alternate manufacturers at
similar costs could be established within a few weeks.
NOTE 11. DEFICIENCY IN ASSETS
- --------------------------------------------------------------------------------
Private Placements
During March and April 1999, pursuant to a Private Placement
Memorandum, the Company issued 1,000 shares of convertible preferred
stock for $1,000 per share. On August 25, 1999 these shares of
preferred stock were converted into 751,879 shares of common stock.
Costs associated with this offering amounted to approximately
$100,000. Dividends paid in connection with the preferred shares
were $41,667 for the year ended December 31, 1999.
During the period from September 1999 through December 31, 1999,
pursuant to a second private placement memorandum seeking up to
$4,000,000 (Second Private Placement), the Company issued 887,376
shares of common stock for $2,440,284, or $2.75 per share. Costs
associated with the second private placement amounted to
approximately $244,000.
Common Stock
During August 1999, 12,778,545 shares of the Company's common stock
were returned to the Company by certain shareholders in anticipation
of the Reverse Acquisition.
As of December 31, 1999, the Company had not issued certain stock
certificates issuable in connection with employment agreements,
consulting agreements, stock sales and founding stockholder shares
due. However, as the Company is obligated to issue these shares, for
financial reporting purposes, all are deemed to be issued and
outstanding.
NOTE 12. RELATED PARTY TRANSACTIONS
Consulting Agreement
On January 25, 1999, the Company entered into an agreement
(Consulting Agreement) with an entity (Consultant) who is also a
shareholder of the Company, to act as its agent and to perform
consulting services and provide assistance with financial growth
strategies. Under the terms of the Consulting Agreement, as amended on
January 29, 1999, and April 4, 1999, the Company agreed to compensate
the Consultant based upon various formulas, including the following:
a) $20,000 paid on January 25, 1999;
b) $2,500 per month for 12 months;
c) 704,576 shares (after giving effect for a return of shares by the
consultant in anticipation of the Reverse Acquisition) of the Company's
common stock;
d) Fees for debt moneys raised due to the efforts of Consultant shall be set
at two percent (2%);
e) Finder's fees computed at a rate to be agreed by both parties;
Also under the Consulting Agreement, and in connection with the
Second Private Placement, the Company agreed to pay the Consultant
approximately $100,000 for each one million dollars raised, or part
thereof, through parties introduced directly or indirectly by the
Consultant.
For the year ended December 31, 1999 compensation in the form of the
Company's common stock and cash paid to the Consultant aggregated
700,000 shares and approximately $438,000, respectively.
Second Consulting Agreement
On August 1, 1999, in connection with the restructuring of the note
payable discussed below, the Company entered into a second
consulting agreement (Second Consulting Agreement) with an
individual (Individual Consultant) who is also a shareholder of the
Company. This agreement required the Individual Consultant to
provide services including product market studies, customer
relations and public relations assistance for six months from the
date of the agreement. Under the terms of this agreement, the
Company agreed to compensate the Individual Consultant based upon
various formulas, as follows:
a) 25,000 shares of the Company's common stock, issuable 10 days after the
signing of this agreement.
b) 20,833 shares of the Company's common stock, per month for a two month
period, commencing 30 days after the signing of this agreement.
For the year ended December 31, 1999, compensation in the form of
the Company's common stock paid to the Individual Consultant aggregated
66,666 shares. On October 29, 1999 the Company amended the Second
Consulting Agreement, to extend the terms for an additional six months,
expiring on July 31, 2000 and agreed to compensate the Individual
Consultant with 17,000 shares of the Company's common stock per month
for a two month period, commencing 15 days after signing the agreement.
Compensation related to this amendment is included in prepaid
expenses and other current assets.
- --------------------------------------------------------------------------------
NOTE 12. RELATED PARTY TRANSACTIONS (Continued)
- --------------------------------------------------------------------------------
Third Consulting Agreement
In May 1999, the Company entered into a consulting agreement with an
entity who is also a shareholder of the Company, which provides for,
among other things, payment of $100,000 per year for as long as the
present majority shareholder maintains a controlling interest in the
Company. Approximately $56,000 was paid in connection with this
agreement for the year ended December 31, 1999.
Notes Payable
Between May and August 1999, the Company borrowed funds under notes
payable aggregating $1,200,000 from the Individual Consultant, with
interest at 10% to 12%; principal and accrued interest due at
varying dates through April 2000. As consideration to restructure a
certain note, and in connection with the Second Consulting Agreement
discussed above, the Company agreed to issue the Individual
Consultant 250,000 shares of the Company's common stock. Interest
expense for the year ended December 31, 1999 related to this note
amounted to $50,016. At December 31, 1999, $750,000 in notes payable
and accrued interest of approximately $15,000 was due to the
Individual Consultant. Subsequent to December 31, 1999, $250,000 in
notes payable plus accrued interest of $2,383 was converted into
126,192 shares of the Company's common stock.
During 1999 the Company borrowed funds under notes payable
aggregating $475,000 from the Related Distributor, with interest at
15%; $75,000 principal and accrued interest due in July 2000 and
$400,000 principal and accrued interest due in November 2000.
Interest expense related to this note amounted to approximately
$50,000 for the year ended December 31, 1999. Subsequent to December
31, 1999, $400,000 of these notes payable plus accrued interest of
$50,229 was converted into 190,000 shares of the Company's common
stock.
NOTE 13. INCOME TAXES
The components of the income tax benefit for the year ended December
31, 1999 were as follows:
Current Benefit
Federal $ -
State -
Deferred Benefit
Federal 1,686,000
State 278,000
Increase in Valuation Allowance ( 1,964,000)
--------------------------------------------------------------------
Income Tax Benefit $ -
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 13. INCOME TAXES (Continued)
- --------------------------------------------------------------------------------
The major elements contributing to the difference between the income
tax benefit and the amount computed by applying the federal
statutory tax rate of 34% to loss before income taxes are as follows
for 1999:
Tax benefit at U.S. Statutory rates $1,686,000
State income tax benefit 278,000
Change in valuation allowance ( 1,964,000)
--------------------------------------------------------------------
Income tax benefit $ -
--------------------------------------------------------------------
At December 31, 1999 the Company had deferred tax assets of
$1,964,000, principally comprised of net operating losses. The
deferred tax assets were offset by a valuation allowance in the same
amount. Deferred tax assets, net of a valuation allowance, are
recorded when management believes it is more likely than not that
tax benefits will be realized.
The Company has net operating loss carryforwards totaling
approximately $5,260,000, expiring in 2019.
NOTE 14. STOCK OPTION PLANS
In February 2000, the Company established a Non-Qualified Stock
Option Plan under which employees and non-employee directors and
advisors may be granted options to purchase shares of the Company's
common stock, at a price to be determined by a two or more director
committee, which can not be less than the common stock fair market
value at the date of grant. The Plan authorizes the issuance of up
to 1,500,000 shares of the Company's common stock. At December 31,
1999, no options had been granted under this Plan. Subsequent to
December 31, 1999, options to purchase 500,000 shares were granted
to the CEO, in connection with his employment agreement.
During 1999, the Company established an Incentive Stock Option plan,
authorizing the issuance of options to purchase up to 1,500,000
shares of the Company's common stock to employees and non-employee
directors and advisors. As of December 31, 1999 no options had been
granted in connection with this plan.
The Company has a Stock Bonus Plan, under which the Company's
employees, directors, officer and consultants or advisors are
eligible to receive a grant of the Company's common stock shares. At
December 31, 1999, 250,000 shares of common stock were authorized in
connection with this Plan and none had been granted.
During 1999, the Company granted options to purchase 100,000
shares of common stock in connection with modification of debt.
- --------------------------------------------------------------------------------
NOTE 14. STOCK OPTION PLANS (Continued)
- --------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-based Compensation," ("SFAS No. 123") requires the Company to
record stock options granted to non-employees at fair value on the date
of grant. The Company estimated the fair value of each stock option by
using the Black Scholes pricing model with the following assumptions:
expected life of the options of 13 months; volatility of 20%; no
dividends; and a risk free interest rate of 6.00%.
A summary of the Company's stock option activity, and related
information for the year ended December 31, 1999 is as follows:
Weighted
# of Average
Options Exercise Price
--------------------------------------------------------------------
Outstanding January 1, 1999 - $ -
Granted 100,000 2.00
Exercised - -
Forfeited - -
--------------------------------------------------------------------
Outstanding and exercisable December 31,
1999 100,000 $ 2.00
--------------------------------------------------------------------
The weighted-average fair value of options granted during 1999,
using the Black Scholes pricing model calculation was $.88 per option.
The exercise price for options outstanding as of December 31, 1999
was $2.00. The remaining contractual life of these options at December
31, 1999 was 10 months.
NOTE 15. COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company entered into employment agreements with certain key
employees, effective October 1998 and February 2000.
The agreements provide for, among other things, minimum annual
salaries, performance bonuses based on meeting projected sales and
issuance of common stock to certain employees. In addition, the CEO
received stock options.
Future annual minimum payments under these employment agreements are
as follows:
2000 $ 688,344
2001 351,750
2002 351,750
--------------------------------------------------------------------
$1,391,844
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 15. COMMITMENTS AND CONTINGENCIES (Continued)
- --------------------------------------------------------------------------------
Leases
The Company leases its office facilities under a non-cancellable
operating lease agreement expiring in 2000. The minimum rental
commitment under this lease for year 2000 is $10,989.
Total rent expense amounted to $15,141 and $11,199 in 1999 and 1998,
respectively.
Commitments
Under a purchase agreement with a certain manufacturer, the Company is
committed to minimum annual purchases of approximately $940,000. This
amount would represent approximately 400,000 cases of coffee product
per year. Management expects production to surpass this minimum,
however, there can be no assurance this minimum will be met.
Contingencies
The Company is involved in various claims and legal proceedings of a
nature considered normal to its business. The Company believes that the
results of these claims will not have a material adverse effect on the
Company's financial condition.
In connection with the Second 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 16. SUBSEQUENT EVENTS
On January 11, 2000, the Company granted options to purchase common
stock to certain consultants as follows:
Shares Option Expiration
Issuable Exercise Price Date
--------------------------------------------------------------------
Individual Consultant 12,500 $ 3.50 1-3-02
Third Consultant 20,000 3.50 1-3-02
Fourth Consultant 20,000 3.50 1-3-02
Effective February 2, 2000 the Company entered into an agreement
with a public relations firm (PR Consultant) whereby the PR
Consultant will establish a financial public relations methodology
to promote awareness of the Company in the investment community,
assist the Company in the implementation of their business plan,
conduct tele-marketing, assist with press releases and perform other
public relations services. The term of the agreement is 12 months
and provides for payments of $15,000 per month and options to
purchase 200,000 shares of common stock at exercise prices from
$7.00 to $10.00 per share.
NOTE 17. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
During the fourth quarter the Company made certain adjustments
deemed to be material to the results of the quarter, including the
following:
The Company charged approximately $1,470,000 to operations relating
to promotional and advertising expenses.
The Company charged approximately $152,000 to operations relating to
professional and consulting fees.
The Company charged approximately $611,000 to operations relating to
interest expense and financing fees.
The Company reversed sales of approximately $1,000,000 which were
recorded in the third quarter.
- --------------------------------------------------------------------------------
EAST COAST BEVERAGE CORP.
CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
- --------------------------------------------------------------------------------
C O N T E N T S
Page
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Cash Flows 4
Notes to Condensed Financial Statements 5 - 7
EAST COAST BEVERAGE CORP.
- --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, 2000 December
ASSETS (Unaudited) 31, 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 3,634,293 2,516,671
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 4,569,549 3,245,764
- --------------------------------------------------------------------------------
LONG-TERM DEBT
7Notes payable - 650,000
Due to stockholder - 1,750,000
- --------------------------------------------------------------------------------
Total long-term debt - 2,400,000
- --------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------
See accompanying notes - unaudited
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 $ -
- --------------------------------------------------------------------------------
See accompanying notes - unaudited
6
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 of the Company which are included elsewhere in
this prospectus.
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.
On December 22, 2000 the Company, StarTalk Holdings, and the
shareholders of StarTalk Holdings, agreed to rescind this
acquisition. In connection with the rescission of its acquisition,
Jack Namer, who was appointed the Company's Chief Executive Officer
and a Director in November 2000, resigned his position with the
Company. John Calebrese resumed his position as a director and the
Company's Chief Executive Officer. In January 2001 Mr. Calebrese
resigned as a director and as the Company's Chief Executive Officer
and became a consultant to the Company. Following the resignation of
Mr. Calebrese, Alex Garabedian became a director and the Company's
new Chief Executive Officer.
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Officers and Directors.
The Colorado Business Corporation Act and the Company's Bylaws provide that
the Company may indemnify any and all of its officers, directors, employees or
agents or former officers, directors, employees or agents, against expenses
actually and necessarily incurred by them, in connection with the defense of any
legal proceeding or threatened legal proceeding, except as to matters in which
such persons shall be determined to not have acted in good faith and in the best
interest of the Company.
Item 25. Other Expenses of Issuance and Distribution.
-------------------------------------------
SEC Filing Fee $ 3,668
NASD Filing Fee --
Blue Sky Fees and Expenses 2,000
Printing and Engraving Expenses 500
Legal Fees and Expenses 25,000
Accounting Fees and Expenses 5,000
Miscellaneous Expenses 3,832
--------
TOTAL $40,000
=======
All expenses other than the S.E.C. and NASD filing fees are estimated.
Item 26. Recent Sales of Unregistered Securities.
---------------------------------------
The following information sets forth all securities of the Company
which have been sold during the past three years and which securities were not
registered under the Securities Act of 1933, as amended. All historical share
data has been adjusted to reflect a 8.194595-for-one reverse split of the
Company's common stock, which was approved by the Company's shareholders on
February 22, 2000.
A. In November 1998 the Company issued 706,258 shares of common stock to the
former shareholders of USA Service Systems, Inc. (28 in number) in exchange for
all of the issued and outstanding shares of USA Service Systems, Inc. A total of
333,659 shares were subsequently returned to the Company for cancellation.
B. In August 1999 the Company issued 5,040,000 shares of its common stock to
the former shareholders (fourteen in number) of East Coast Beverage Corp., a
Florida corporation in exchange for all of the issued and outstanding shares of
East Coast Beverage Corp.
C. Between September 1999 and May 31, 2000 the Company sold 2,233,832 shares
of its common stock to 91 persons (70 of whom are accredited investors) at a
price of $2.75 per share.
Between July 18, 2000 and September 20, 2000 the Company sold 14,010
shares of its Series A Preferred Stock and 420,300 warrants to various private
investors. Each warrant allows the holders to purchase one additional share of
the Company's common stock at a price of $10.00 per share at any time prior to
October 12, 2005.
Between October 31, 2000 and December 31, 2000 the Company sold 519,556
shares of its common stock to a group of private investors at a price of $1.125
per share. In January 2001 the Company sold 171,429 shares of its common stock
to one investor at a price of $0.875 per share.
D. The Company has also sold shares of common stock to the following persons:
Number
Name Date of Shares Consideration
Arnold Rosen 09/01/99 34,000 Consulting Services
Arnold Rosen 10/20/99 15,000 Extension of Maturity
of loan
John Calebrese 01/10/00 694,973 Payment of loan
Rayguard Enterprises01/10/00 190,000 Conversion of loan
Arnold Rosen 01/11/00 126,192 Conversion of loan
John Calebrese 05/15/00 255,000 Conversion of loan
Bruce Schames 05/25/00 10,000 Services rendered
John Calebrese 12/22/00 300,000 Conversion of loan
FPI, Inc. 12/22/00 1,100,000 Services rendered
John Calebrese 12/29/00 750,000 Services rendered
John Calebrese 12/29/00 50,000 Services rendered
Edith Osman 12/29/00 50,000 Services rendered
Mel Leiner 12/29/00 75,000 Services rendered
Darren Marks 12/29/00 75,000 Services rendered
The sales of the Company's common stock referred to in Sections A and D were
exempt from Registration pursuant to Section 4 (2) of the Securities Act of
1933. The shares of common stock were acquired for investment purposes only and
without a view to distribution. All of the persons who acquired these shares
were fully informed and advised about matters concerning the Company, including
its business, financial affairs and other matters. The purchasers of the
Company's common stock acquired the securities for their own accounts. The
certificates evidencing the shares of common stock will bear legends stating
that the shares represented by the certificates may not be offered, sold or
transferred other than pursuant to an effective registration statement under the
Securities Act of 1933, or pursuant to an applicable exemption from
registration. The shares of common stock referred to in Sections A and D are
"restricted" securities as defined in Rule 144 of the Securities and Exchange
Commission.
The sales of the Company's common stock referred to in Sections B and C were
exempt from registration pursuant to Rule 506 of the Securities and Exchange
Commission. The shares of the common stock were acquired for investment purposes
only and without a view to distribution. The persons who acquired these shares
were fully informed and advised about matters concerning the Company, including
its business, financial affairs and other matters. The purchasers of the
Company's common stock acquired the securities for their own accounts. The
certificates evidencing the common these shares will bear legends stating that
they may not be offered, sold or transferred other that pursuant to an effective
registration statement under the Securities Act of 1933, or pursuant to an
applicable exemption from registration. The shares of common stock referred to
in Sections B and C are "restricted" securities as defined in Rule 144 of the
Securities and Exchange Commission.
Item 27. Exhibits
Exhibits Page Number
1 Underwriting Agreement N/A
--------------------
2. Share Exchange Agreement between USA
Service Systems, Inc. and East Coast
Beverage Corp. *
-----------------
3.1 Articles of Incorporation, *
------------------------
as restated and amended
3.2 Bylaws *
------------------------
4.1 Incentive Stock Option Plan *
------------------------
4.2 Non-Qualified Stock Option Plan *
------------------------
4.3 Stock Bonus Plan *
------------------------
5. Opinion of Counsel
-------------------------
10 Employment Agreements *
------------------------
23.1 Consent of Attorneys
-------------------------
23.2 Consent of Accountants *
------------------------
24. Power of Attorney Included as part of the
Signature Page
* Incorporated by reference to the same exhibit filed as part of the Company's
registration statement on Form SB-2 (Commission File # 333-31188).
Item 28. Undertakings.
------------
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement.
(i) To include any Prospectus required by Section l0(a)(3) of the
Securities Act of l933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement, including
(but not limited to) any addition or deletion of a managing underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act of l933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of l933 may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
authorizes the agent for service named in this Registration Statement, with full
power to act alone, to file one or more amendments (including post-effective
amendments) to this Registration Statement, which amendments may make such
changes in this Registration Statement as such agent for service deems
appropriate, and the Registrant and each such person hereby appoints such agent
for service as attorney-in-fact, with full power to act alone, to execute in the
name and in behalf of the Registrant and any such person, individually and in
each capacity stated below, any such amendments to this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Coral Springs, Florida,
on the 7th day of February, 2001.
EAST COAST BEVERAGE CORP.
By: /s/ Alex Garabedian
---------------------------------
Alex Garabedian, Chief Executive Officer
By: /s/ Bruce Schames
---------------------------------
Bruce Schames, Principal Financial Officer
and Chief Accounting Officer
Pursuant to the requirements of the Securities Act of l933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Alex Garabedian
- -------------------------
Alex Garabedian Director February 7, 2001
/s/ Edith G. Osman
- -------------------------
Edith G. Osman Director February 7, 2001