SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 7, 2003
EAST COAST BEVERAGE CORP.
-------------------------
(Exact name of Registrant as specified in its charter)
Colorado 0-22095 88-1039267
- ------------------ ------------------ -------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
1575 Bella Cruz Drive
#328
The Villages, FL 32159
-----------------------------------------------
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (352) 259-5849
1750 University Drive
Suite 117
Coral Springs, FL 33071
(Former name or former address if changed since last report.)
Item 3. Bankruptcy or Receivership
BACKGROUND
East Coast Beverage Corporation ("the Company") 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. After August 31, 1999 the Company's
business involved the development, production and distribution of Coffee House
USA, a proprietary line of all natural, ready to drink bottled coffee drinks.
In February 2000 USA changed its name to East Coast Beverage Corp.
The Company sold its products through distributors and wholesalers to
supermarkets, mass-marketers, convenience stores, drug store chains and oil
company convenience stores. However, the Company was never able to generate a
profit. During the year ended December 31, 2000 the Company estimated that it
had lost in excess of $10,000,000. The Company has not prepared any financial
statements since that date but it is believed that the Company's losses since
December 31, 2000 have been substantial.
As a result of the Company's inability to raise capital to fund its
continuing operating losses, the Company discontinued its bottled coffee
operations in October 2001.
On November 27, 2001 William Smith became the sole officer and director of
the Company. His objective was to reorganize the Company without the necessity
of a bankruptcy proceeding. Mr. Smith's plan was to have substantially all the
Company's creditors agree to accept shares of the Company's common stock in
settlement of amounts owed to the creditors by the Company. Although many
creditors were willing to accept the plan proposed by Mr. Smith, a number of
creditors refused to agree to the Smith proposal.
On April 11, 2002 the Company filed a petition for reorganization under
Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of Florida (Case No. 02-22675-BKC-PGH).
PLAN OF REORGANIZATION
After its bankruptcy filing, and in accordance with the provisions of the
Federal Bankruptcy Code, a committee of the Company's largest unsecured
creditors was formed to assist in the reorganization of the Company. The
Creditors Committee developed a Plan of Reorganization of the Company, was
approved by a majority of the Company's creditors and confirmed by the Federal
Bankruptcy Court on July 8, 2003.
Generally, the Plan of Reorganization provided for the following:
1. A reverse split Company's common stock so that each issued share of
common stock was converted into 1/15th of one share. Each common shareholder
received one warrant for each common share held after the reverse split. Each
warrant entitles the holder to purchase one share of the Company's common stock
at a price of $1.75 per share prior to January 1, 2008.
All options, warrants or other instruments providing any person the right
to acquire additional shares of the Company's capital stock, and which were
outstanding on the date the Plan of Reorganization was confirmed, were canceled.
2. The issuance of two million new shares of the Company's common stock to
Royal Brokerage Group in exchange for 10% of the gross revenues to be received
by Royal Brokerage Group from the sale of Carbonell products in certain areas of
the Eastern United States.
3. The sale of 1,000,000 (post-split) shares of the Company's common stock
to a group of private investors for $250,000 in cash. The funds raised from the
sale of the 1,000,000 shares referred to above were used to pay administrative
claims of relating to
4. The issuance of 17,005 shares of common stock to the Class 3 Creditors.
The Class 3 Creditors were unsecured creditors whose claims were $3,000 or less.
The Class 3 creditors were paid 50% of their claims in a single payment, plus
one share of the Company's common stock for each $0.50 of their claim.
5. The payment of a percentage of the Company's future profits to the
Class 4 Creditors, or at the option of any Class 4 Creditor, shares of the
Company's common stock if a Class 4 Creditor elects to convert all or any part
of the amount owed to common stock.
The Class 4 Creditors were unsecured creditors whose claims exceeded
$3,000. The amount owed to the Class 4 Creditors is approximately $3,500,000.
Each Class 4 creditor will receive the following pro rata share of the
Company's net income:
Period %
------ ---
Prior to January 1, 2004 25%
Twelve months ending December 31, 2004 35%
Periods subsequent to December 31,2004 45%
Each Class 4 creditor may convert the then outstanding amount of the
creditor's Class 4 claim into shares of the Company's common stock based upon
the following formula:
Amount of Claim Converted = Shares issued upon conversion
-------------------------
Conversion Price
The Conversion Price is 90% of the average closing price of the Company's
common stock for the 30 trading days immediately preceding the date of
conversion, provided however that the Conversion Price may not be less than
$1.75.
The maximum number of shares that can be converted during any three-month
period by any Class 5 creditor will be equal to:
QV x A
------ --------
10 TA
Where:
QV = For the 90 days preceding the conversion date, the sum of the product
obtained by multiplying (i) the number of shares of the Company's common stock
traded during each trading day during the 90 days preceding the conversion date
by (ii) the closing price of the Company's common stock for such day.
A = Outstanding Allowed Amount of the Class 4 claim held by the Class 4
creditor on date three business days before conversion date.
TA = Allowed Amounts of all outstanding Class 4 claims on date which is
three business days before conversation date.
Conversions will not be allowed five days before any Distribution Date.
The Company's net income will be determined in accordance with Generally
Accepted Accounting Principles and will be based upon financial statements made
public by the Company. The share of the Company's net income to which the Class
4 creditors are entitled will be distributed on a pro rata basis to the Class 4
creditors on April 30 of each year. The Company may make supplemental
distributions of its net income on additional dates during any year provided
that the Company provides each Class 4 creditor with at least 30 days written
notice of its intention to make a supplemental distribution and issues a press
release concerning the supplemental distribution. Each Class 4 creditor will
receive distributions of the Company's net income until the amount of the
Creditor's allowed claim, either through payments or the conversion of the
claim, is $-0-.
The pro rata amount to be distributed to each Class 4 creditor on any
Distribution Date will be equal to:
I x A = $
-----
TA
Where:
I = Amount of Company's net income subject to distribution.
A =Outstanding Allowed Amount of the Class 4 claim held by the Class 4
creditor on date three business days before any Distribution Date.
TA = Allowed Amounts of all outstanding Class 4 claims on date which is
three business days before any Distribution Date.
$ = Amount to be distributed to Class 4 creditor.
The total Allowed Amount of the Class 4 claims may not exceed $3,500,000.
If the total Allowed Amount of the Class 4 claims exceeds $3,500,000 then the
Allowed Amount of each Class 4 claim will be reduced in the following manner:
A x $3,500,000 = New/A
-------------------
Total/A
Where:
A = The Allowed Amount of the Class 4 claim prior to adjustment.
Total/A = The total Allowed Amount of all Class 4 claims.
New/A = The Adjusted Allowed Amount of the Class 4 claim.
In the event any adjustment is required by the foregoing then the term
"Allowed Amount" will be deemed to mean the "Adjusted Allowed Amount".
The Company will not pay interest to the Class 4 creditors.
6. The cancellation of all outstanding Series A Preferred Shares. Between
July 18, 2000 and September 20, 2000 the Company sold 14,010 shares of its
Series A Preferred Stock to various private investors. The Company was required
to redeem all outstanding Series A preferred shares, at a price of $100 per
share, on July 31, 2002. Each Series A Preferred Shareholder received 58 shares
of Company's common stock for each cancelled Series A Preferred Share, for a
total of 812,580 common shares.
The maximum number of shares that can be sold during any three-month
period by any former Series A Preferred shareholder will be equal to:
QV X S
------- -------------
10 812,580
Where:
QV = For the 90 days preceding the date which is three days prior to the
sale date, the sum of the product obtained by multiplying (i) the number of
shares of the Company's common stock traded during each trading day during such
90 days by (ii) the closing price of the Company's common stock for such day.
S = Shares of Company's common stock issued to former Series A
shareholders pursuant to the plan.
7. The installation of new management. William R. Smith became the
Company's President and a Director. David Schlect, the Chairman of the
Creditor's Committee, became the Company's other Director.
8. The issuance of 500,000 shares to William R. Smith for services
provided to the Company.
TRANSACTIONS SUBSEQUENT TO APPROVAL OF PLAN OF REORGANIZATION
In August 2003 the Company issued:
o 1,250,000 shares of common stock to Arnold Rosen, and
o 750,000 shares of common stock to Jerome "Buddy" Silverman
o Options for the purchase of 600,000 shares of the Company's common stock to
William R. Smith.
o Options for the purchase of 600,000 shares of the Company's common stock to
Gerald Heller.
These 2,000,000 shares were issued to Mr. Rosen and Mr. Silverman in
consideration for their forgiving any claim for the payment by the Company of
administrative expenses which they incurred during the period when the Company
was in bankruptcy and for assigning to the Company the rights to a business plan
relating to the sale of beverages. As part of this transaction the Company
agreed to appoint Arnold Rosen as a director.
PLAN OF OPERATION
The Company plans to derive revenue from the sale of Carbonell products
and the sale of beverages.
Sale of Carbonell Products
Olive oil, olives, wine vinegar, and related products, which are
manufactured by Carbonell de Cordoba, S.A. of Spain, have been sold in the
United States, primarily to customers in South Florida, since 1980. In September
2002 Carbonell named Badia Speices its exclusive distributor of record for the
Eastern United States. In September 2002 Badia Spices assigned to Royal
Brokerage Group the exclusive right to distribute Carbonell's olive oil, olives,
and wine vinegar in the Eastern United States, with the exception of certain
accounts in Florida and certain accounts in New York City (the "Territory"). In
consideration for 2,000,000 shares of the Company's common stock, Royal agreed
to pay the Company 10% of the gross amount received by Royal from the sale of
Carbonell products in the Territory. The Agreement with Royal also provides that
in return for marketing support the Company will pay Royal an annual consulting
fee of $20,000 and will reimburse Royal for its actual out-of-pocket expenses
incurred on behalf of ECBC up to a maximum of $8,000 per year.
The Agreement between Royal and Badia Spices generally provides that Royal
has the exclusive right to distribute the Carbonell products in the Territory
until September 30, 2007. For all sales of Carbonell products in the Territory,
Badia will pay Royal a commission equal to the difference between Badia's cost
for the products and price for which the products are sold by Royal. The
commission may not be less than 10% of the price for which the products are
sold, unless agreed to in writing by Royal and Badia. Badia is responsible for
all shipping, handling, storage and insurance costs for the products.
Badia has also agreed to pay all "slotting fees" or stocking allowances
relating to the Carbonell products. It is expected that Badia and/or Carbonell
will pay all other marketing expenses relating to marketing the products,
although as of August 31, 2003 neither Badia nor Carbonell had any agreements
with Royal relating to the payment of any marketing expenses other than slotting
fees. Carbonell may terminate its relationship with Badia Spices at any time.
As of August 31, 2003 Royal had not made any sales of Carbonell products.
Sale of Beverages
The Company also plans to distribute beverage products manufactured by
unrelated third parties. As of August 31, 2003 the Company did not have any
agreement with any other person relating to the distribution of any beverage
product and the possibility exists that the Company may never be successful in
distributing any beverage product.
MANAGEMENT
The following sets forth information concerning the management of the
Company:
Name Age Position
William R. Smith 69 President and Director
David Schlecht 48 Director
Name Age Position
Gerald Heller 67 Manager of Beverage Division
Arnold Rosen 62 Director
William R. Smith was the Company's President, as well as the sole director
of the Company, between November 2001 and April 2002. Upon the confirmation of
the Plan of Reorganization by the Bankruptcy Court in July 2003, Mr. Smith
became the Company's President and a director. Mr. Smith was the President and
Chief Executive Officer of W.R. Smith & Company, a major distributor and
converter of products for the printing industry, between 1973 and 1987. Prior to
1973 Mr. Smith served for three years in the U.S. Navy, obtained his B.A. degree
from Hofstra College in New York and successfully operated other business
ventures ranging from real estate to restaurants.
David Schlecht is the Chairman of the Company's Creditor's Committee. He
has been the President of Product Development & Packaging, Inc., (PDP) since
1990. PDP provides turn-key services and the procurement of packaging components
used in a variety of industries, including food, beverage, health and beauty
aids, eyewear and fitness. From 1988 to 1990 Mr. Schlecht was an independent
representative for companies in the packaging and retail industries. From 1979
to 1988 Mr. Schlecht was President of RBA Industries, a New Jersey based
packaging organization, which also sold private label breakfast items to a
number of supermarket chains in the Northeast. He started his packaging career
with International Paper Company after graduating from DePauw University in
1976.
Gerald Heller has been the manager of the Company's Beverage Division
since July 2003. Since 1976 Mr. Heller has been the President of H.A.
Incorporated, a firm involved in business development, consulting and corporate
finance. Between 1995 and 1997 Mr. Heller owned the distribution rights for the
Snapple Beverage line in Florida. After selling these rights to Snapple in 1997,
and until 1999, Mr. Heller sold Mystic Beverage products to Southern Wine and
Spirits. Between 1999 and 2001 Mr. Heller was a consultant to Saratogo Beverage.
Arnold Rosen has been a director of the Company since July 2003. Mr. Rosen
was also a director of the Company during the time the Company was in
bankruptcy. For the past twenty years Mr. Rosen has been involved in real estate
development and investments.
Mr. Rosen was appointed a director pursuant to an agreement between the
Company, Mr. Rosen and Buddy Silverman. See "Transactions subsequent to approval
of Plan of Reorganization".
Executive Compensation
The following table shows the compensation which the Company plans to
pay to its executive officer and key employee during the twelve months ending
September 30, 2004 and the time these persons plan to devote to the operation of
the Company:
Estimated Time to
be Devoted to
Name Compensation Business of Company
William R. Smith $75,000 85%
Gerald Heller $60,000 100%
In July 2003 the Company granted Mr. Smith an option to purchase 600,000
shares of the Company's common stock at a price of $0.25 per share.
In July 2003 the Company entered into an Employment Agreement with Mr.
Heller which provided for the following:
1. A term of one year which will be extended for two additional years
if the Company meets the sales objectives described below.
2. A salary of $60,000 for the first year, and if the employment term
is extended, a salary of $72,000 during the second year and $80,640
during the third year.
3. A bonus of $0.25 per case if cases of beverage products sold during
any year of the employment term exceed those specified in the sales
objectives.
4. Options to purchase 600,000 shares of the Company's common stock at
a price of $0.25 per share in accordance with the provisions of the
Company's Non-Qualified Stock Option Plan. However the options will
terminate if the Company fails to meet the financial criteria
described below.
The sales objectives specified by the terms of Mr. Heller's employment
contract are:
Annual Sales of Beverage Products
First year of employment term: 120,000 cases at an average selling
price of $14.00 per case
Second year of employment term: 168,000 cases at an average selling
price of $14.00 per case
Third year of employment term: 337,000 cases at an average selling
price of $14.00 per case
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of August 31, 2003, 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 Common Stock (1) Percent of Class
- ------ ----------------- -----------------
William R. Smith 500,000 6.8%
David Schlect -- --
Gerald Heller -- --
Arnold Rosen 1,250,000 17%
Buddy Silverman 750,000 10%
Royal Brokerage Corp. 2,000,000 27%
(1) Excludes shares issuable upon the exercise of options held by the following
persons:
Shares
Issuable
Upon
Exercise
Name of Options Exercise Price Expiration Date
William R. Smith 600,000 $0.25 01-01-09
Gerald Heller 200,000 $0.25 01-01-07
Gerald Heller 200,000 $0.25 01-01-08
Gerald Heller 200,000 $0.25 01-01-09
COMPARATIVE SHARE DATA
As of August 31, 2003 the Company had 7,376,550 outstanding shares of
common stock. As of this same date the Company had virtually no assets and had
liabilities of approximately $3,500,000.
The following is an analysis of the shares of the Company's common stock
which were outstanding as of August 31, 2003.
Shares of common stock outstanding prior
to approval of Plan of Reorganization by
Bankruptcy Court 15,704,469
Reduction in outstanding shares due to (14,657,504)
15-for-1 reverse stock split ------------
1,046,965
Shares issued to:
Class 3 Creditors 17,005
Royal Brokerage Group 2,000,000
Series A Preferred Shareholders 812,580
Private Investor Group 1,000,000 (1)
William R. Smith 500,000
Arnold Rosen 1,250,000
Buddy Silverman 750,000
----------
Outstanding shares as of August 31, 2003 7,376,550
=========
(1) The Company has agreed to file a registration statement with the Securities
and Exchange Commission so that 50% of these shares may be sold in the
public market.
The following table reflects additional shares of common stock which may
be issued by the Company:
Number of Note
Shares Reference
Shares issuable upon the exercise of options 1,200,000 A.
Shares issuable upon exercise of warrants 1,046,965 B.
Shares issuable upon the conversion of debt
owed to Class 4 Creditors 2,000,000 C.
Total shares which will be outstanding assuming
the exercise of all options and warrants and the
conversion of all debt. 10,623,515
A. The options were granted to in accordance with the provisions of the
Company's Incentive and Non-Qualified Stock Option Plans. These options are held
by:
Shares Issuable
Upon Exercise
Name of Options Exercise Price Expiration Date
William R. Smith 600,000 $0.25 01-01-09
Gerald Heller 200,000 $0.25 01-01-07
Gerald Heller 200,000 $0.25 01-01-08
Gerald Heller 200,000 $0.25 01-01-09
B. The Company's Plan of Reorganization provided for a reverse split of the
Company's common stock so that each issued share of common stock was converted
into 1/15th of one share. Each common shareholder received one warrant for each
common share held after the reverse split. Each warrant entitles the holder to
purchase one share of the Company's common stock at a price of $1.75 per share
prior to January 1, 2008. As a result of the reverse split, the Company had
1,046,965 outstanding shares of common stock, resulting in warrants to purchase
the same number of shares.
Any shares issued upon the exercise of the warrants will be exempt from
the registration requirements of the Securities Act of 1933 and equivalent state
securities laws by 11 U.S.C. ss. 1145 and the shares may generally be resold by
any holder without registration under federal and state securities laws.
C. The Class 4 Creditors were unsecured creditors whose claims exceeded $3,000.
The amount owed to the Class 4 Creditors is approximately $3,500,000. Each Class
4 Creditor is entitled to a percentage of the Company's future profits or may
convert the then outstanding amount of the creditor's Class 4 claim into shares
of the Company's common stock based upon the following formula:
Amount of Claim Converted = Shares issued upon conversion
-------------------------
Conversion Price
The Conversion Price is 90% of the average closing price of the Company's
common stock for the 30 trading days immediately preceding the date of
conversion, provided however that the Conversion Price may not be less than
$1.75. Although the actual number of shares that may be issued as a result of
the conversion of the amounts owed to the Class 4 Creditors will be based upon
the amount of Class 4 claims converted and the price of the Company's common
stock at the time of conversion, for purposes of the table it is assumed that
all Class 4 claims were converted into shares of the Company's common stock at a
conversion price of $1.75.
Any shares issued upon the conversion of the Class 4 claims will be exempt
from the registration requirements of the Securities Act of 1933 and equivalent
state securities laws by 11 U.S.C. ss. 1145 and the shares may generally be
resold without registration under federal and state securities laws.
Item 7. Financial Statements and Exhibits
(a) The audited balance sheet of the Company as of August 7, 2003 will
be filed by amendment.
(b) Not applicable
(c) Exhibits
Number Description
2 Plan of Reorganization
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: September 5, 2003
EAST COAST BEVERAGE CORP.
By: /s/ William R. Smith
----------------------------
William R. Smith, President
EXHIBIT 2