SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 31, 1999
USA SERVICE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Colorado 0-22095 84-1039267
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) Identification No.)
1750 University Drive, Suite 117
Coral Springs, Florida 33071
(Address of principal executive offices) (Zip Code)
(954) 796-8060
(Registrant's telephone number, including area code)
10770 Wiles Road
Coral Springs, Florida 33076 Former name,
former address and former fiscal year,
if changed since last report)
Item 2. Acquisition or Disposition of Assets.
Effective August 31, 1999 USA Service Systems, Inc. (the "Company)
acquired all of the issued and outstanding shares of East Coast Beverage Corp.
("ECBC") in exchange for 41,300,758 shares of the Company's common stock.
Immediately prior to this transaction, certain officers and directors of the
Company surrendered 2,734,202 shares of the Company's common stock. Following
this transaction the Company had 44,354,056 issued and outstanding shares of
common stock. The former shareholders of ECBC now own approximately 93% of the
Company's common stock. In connection with this transaction the management of
the Company resigned and was replaced by the management of ECBC.
The business of the Company, which is conducted through ECBC, 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.
This report amends the 8-K report filed on September 14, 1999 by the
addition of the financial statements described in Item 7.
Item 7(a) and 7(b). Financial Statements and Pro Forma Financial Statements.
The following financial statements are included with this report:
1. Audited financial statements of East Coast Beverage Corp. as of December
31, 1998
2. Pro forma financial statements.
Item 7(c). Exhibits.
None
EAST COAST BEVERAGE CORP.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Deficiency in Assets 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 12
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, 1998, and the related statements of operations, changes in
deficiency in assets, and cash flows 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides 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, 1998, and the results of its operations and its cash flows for the
period from inception (March 25, 1998) to December 31, 1998 in conformity with
generally accepted accounting principles.
Kaufman Rossin & Co.
Miami, Florida
October 22, 1999
EAST COAST BEVERAGE CORP.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash and equivalents $ 2,485
Accounts receivable (Note 2) 337,138
Note receivable 10,000
Inventories (Note 3) 1,211,086
Total current assets 1,560,709
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,001 (Note 4) 23,618
PREPAID ASSETS (NOTE 5) 141,882
OTHER ASSETS (NOTE 6) 25,713
- --------------------------------------------------------------------
TOTAL ASSETS $1,751,922
LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES
Bank overdraft $ 55,913
Accounts payable and accrued expenses 1,202,950
Due to stockholder (Note 7) 1,230,876
Total current liabilities 2,489,739
DEFICIENCY IN ASSETS ( 737,817)
- ---------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 1,751,922
See accompanying notes.
EAST COAST BEVERAGE CORP.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MARCH 25, 1998) TO DECEMBER 31, 1998
SALES $ 478,066
COST OF GOODS SOLD 344,493
GROSS PROFIT 133,573
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 874,025
LOSS FROM OPERATIONS ( 740,452)
OTHER INCOME 2,135
NET LOSS ($ 738,317)
- ---------------------------------------------------------------------
See accompanying notes.
EAST COAST BEVERAGE CORP.
STATEMENT OF CHANGES IN DEFICIENCY IN ASSETS
FOR THE PERIOD FROM INCEPTION (MARCH 25, 1998) TO DECEMBER 31, 1998
Common Stock,
$1.00 par value;
1,000 shares authorized
Shares Par Value Deficit Total
Issuance of common stock 500 $ 500 $ - $ 500
Net loss -- -- ( 738,317) ( 738,317)
- ------------------------------------------------------------------------
Balances as of December
31, 1998 500 $ 500 ($738,317 ($737,817)
- ------------------------------------------------------------------------
See accompanying notes.
EAST COAST BEVERAGE CORP.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 25, 1998) TO DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 738,317)
- ----------------------------------------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,001
Changes in operating assets and liabilities:
Accounts receivable ( 337,138)
Inventories ( 1,211,086)
Prepaid assets ( 141,882)
Other assets ( 25,713)
Bank overdraft 55,913
Accounts payable and accrued expenses 1,202,950
Total adjustments ( 455,955)
Net cash used in operating activities (1,194,272)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to employee ( 10,000)
Purchases of property and equipment ( 24,619)
- ----------------------------------------------------------------------
Net cash used in investing activities ( 34,619)
- ----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 500
Net borrowings from stockholder 1,230,876
Net cash provided by financing activities 1,231,376
NET INCREASE IN CASH AND EQUIVALENTS AND BALANCE
AT DECEMBER 31, 1998 2,485
- ---------------------------------------------------------------------
Supplemental Disclosures:
Interest paid to stockholder $ 18,416
- ---------------------------------------------------------------------
See accompanying notes.
EAST COAST BEVERAGE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description and Activity
The Company was incorporated in March 25, 1998, under the laws of the State
of Florida for the purpose of developing, producing and distributing Coffee
House USA(TM), a proprietary line of all natural, ready to drink, bottled
coffee drinks.
Cash and Equivalents
During 1998 the Company maintained an account with a brokerage firm. Cash
and equivalents are comprised of cash and highly liquid securities
(consisting primarily of money-market investments) with an original
maturity or redemption option of three months or less. Balances are
insured up to $500,000 (with a limit of $100,000 for cash) by the
Securities Investor Protection Corporation.
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
Accounts Receivable
In the opinion of management, substantially all of the accounts receivable
are considered to be realizable at the amounts stated in the accompanying
balance sheet, and no allowance for doubtful accounts is considered
necessary.
Inventories
Inventories are stated at the lower of cost or market, using the first-in,
first-out method in determining cost and replacement cost in determining
market.
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Income Taxes
No provision for income taxes has been made in the accompanying financial
statements as the Company has elected, with the stockholder's consent, 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 stockholder on his personal income tax return.
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 facility.
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.
Impact of the "Year 2000" Computer Issue
Because computers frequently use only two digits to recognize years, on
January 1, 2000, many computer systems, as well as equipment that uses
embedded computer chips, may be unable to distinguish between the years
1900 and 2000. If not remediated, this problem could create system errors
and failures resulting in the disruption of normal business operations. In
the event the Company fails to identify or correct a material Year 2000
problem, there could be disruptions in normal business operations, which
could have a material adverse effect on the Company's results of
operations, liquidity or financial condition. Further, there
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
may be some third parties, such as governmental agencies, utilities,
telecommunication companies, vendors, suppliers and customers who may not
be able to continue business with the Company due to their own Year 2000
problems. Also, risks associated with some foreign third parties may be
greater since there is general concern that some entities operating
outside the United States are not addressing Year 2000 issues on a timely
basis. There can be no assurance that any efforts made will fully mitigate
the effect of Year 2000 issues.
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 consisted of the following:
Trade accounts receivable $306,202
Accounts receivable from factor 30,936
--------
$337,138
During 1998, the Company entered into a factoring agreement, providing for
assignment of pre-approved trade receivables on a non-recourse basis of up
to $2,000,000 with advances based on 80% of eligible receivables. Pursuant
to this agreement, the Company is charged fixed factoring fees of 2% of
the gross receivables assigned and a variable discount computed on the
actual days elapsed from the date of the initial payment until and
including five days after payment is received by the factor, based on the
base rate plus 2% per annum, with a minimum of 7% per annum. The agreement
is collateralized by substantially all of the assets of the Company and
personally guaranteed by the stockholder. Total finance changes amounted
to approximately $13,000 during 1998.
NOTE 3. INVENTORIES
Inventories at December 31, 1998 consisted of the following:
Finished goods $1,023,122
Raw materials 187,964
----------
$1,211,086
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 consisted of the following:
Office furniture and equipment $ 6,539
Machinery and equipment 18,080
--------
$24,619
Less: accumulated depreciation ( 1,001)
-----------------------------------------------------------------
$23,618
-----------------------------------------------------------------
Depreciation expense amounted to $1,001 in 1998.
NOTE 5 PREPAID ASSETS
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 on all ware manufactured for and accepted by the
Company within a three year period. During 1998 the Company received a
$8,118 credit related to this agreement.
NOTE 6. OTHER ASSETS
Other assets at December 31, 1998 consisted of the following:
Promotional items $14,487
Trademark 500
Deposits 10,726
-------
$25,713
NOTE 7. DUE TO STOCKHOLDER
At December 31, 1998, the Company had an unsecured loan payable to the
sole stockholder in the amount of $1,230,876. The loan bears interest
payable monthly at 10% per annum, and is due on demand. Interest expense
in connection with this note amounted to $26,822 during 1998.
NOTE 8. RISKS AND UNCERTAINTIES
The Company is substantially dependent on two unrelated parties as
manufacturers of their products. Management believes that the loss of
these manufacturers would not significantly disrupt operations and that
relationships with alternate manufacturers at similar costs could be
established within a few weeks.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Employment Agreements
Prior to commencement of operations, the Company entered into employment
agreements with certain key employees, which provide for, among other
things, minimum annual salaries and issuance of common stock. In
connection with these agreements, the Company agreed to issue in the
aggregate, 140 shares of common stock, representing approximately 21% of
total outstanding common stock of the Company. As these shares are the
equivalent of founder shares and the value of the shares is nominal, no
compensation was recorded by the Company. On January 1, 1999, these shares
were deemed to be issued.
Leases
The Company leases its office facilities under a non-cancellable operating
lease agreement expiring in 2000.
Minimum annual rental commitments under this lease for the years
subsequent to December 31, 1998 are as follows:
1999 $14,284
2000 10,989
----------------------------------------------------------------
$25,273
Total rent expense amounted to $11,199 in 1998.
Commitments
The Company has entered into purchase agreements with two unrelated
entities to provide the Company with manufacturing of the products to be
used in its normal operations.
Under one of the purchase agreements, the Company is committed to minimum
purchases of approximately $940,000, representing 400,000 cases of coffee
NOTE 9. COMMITMENTS AND CONTINGENCIES (cont'd)
product per year. Management expects production to surpass this minimum,
however, there can be no assurance this minimum will be met.
Contingencies
An individual that formerly acted as counsel to the Company has notified
the Company that he believes he is entitled to a five percent ownership
interest in the Company in connection with services rendered. The Company
disagrees with this individual's representation and intends, if any claim
is made for such ownership interest to vigorously defend its position.
NOTE 10. SUBSEQUENT EVENTS
Stock Split
On March 24, 1999, the Company approved and effectuated a 25,000 for 1
forward stock split of its common stock resulting in an increase in the
number of shares of common stock effectively outstanding from 670 to
16,750,000.
Consulting Agreements
On January 25, 1999, the Company entered into an agreement (Consulting
Agreement) with an entity (Consultant) to act as its agent and to
perform consulting services 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) 30 shares 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;
f) Upon sale of the Company, additional equity in the Company of five
percent(5%), a proportionate amount of the cash, cash and stock or
cash and options received upon sale, plus a proportional pro-rata
share of the net profits.
Also under the Consultant Agreement, it is contemplated that the Company
will seek a private placement in an amount up to $4,000,000 and in
connection therewith will pay Consultant $100,000 for each one million
dollars raised, or part
NOTE 10. SUBSEQUENT EVENTS (Continued)
thereof, through parties introduced directly or indirectly by the
Consultant.
Compensation in the form of the Company's common stock and cash
compensation paid to the Consultant aggregated 700,000 shares (after
giving effect to the March 24, 1999 forward stock split and a return of
certain shares by the Consultant in anticipation of a recapitalization)
and $322,535, respectively.
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)
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 common Company stock payable per month for a two month
period, commencing 30 days after the signing of this agreement.
As of October 22, 1999 compensation in the form of the Company's common
stock paid to the Individual Consultant aggregated 66,666 shares.
Private Placement
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 each share of preferred stock was converted
into 751,879 shares of common stock. Costs associated with this offering
amounted to approximately $87,500.
Common Stock
As of October 22, 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 Payable
Between May and August 1999, the Company borrowed funds aggregating
$1,000,000 from the Individual Consultant, with interest at 12%. Principal
and
NOTE 10. SUBSEQUENT EVENTS (Continued)
accrued interest is due at varying dates from September 1999 through April
2000. As consideration to restructure this 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.
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 company. The Agreement provided for the exchange of
41,300,758 restricted shares of common stock of USA for all of the issued
and outstanding shares of the Company. This merger was treated for
accounting purposes as a capital transaction. As the Company is the
accounting acquiror 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.
Item 7. Financial Statements and Exhibits
F-1 Pro Forma Combined Financial Statements of the Registrant and ECBC
USA Service Systems, Inc.
Pro Forma Condensed Financial Statements
Unaudited
The following pro forma condensed balance sheet as of June 30, 1999 and the
condensed statement of operations for the six month period ended June30, 1999
give effect to USA Service Systems, Inc.'s ("USA") reverse acquisition with East
Coast Beverage Corp. (ECBC or the "Company").
The pro forma financial information is based on the historical financial
statements of USA and ECBC giving effect to the reverse acquisition and the
assumptions and adjustments in the accompanying notes to the pro forma financial
statements.
The pro forma balance sheet gives effect to the reverse acquisition as if it
occurred on the balance sheet date. The pro forma statement of operations for
the six months ended June 30, 1999 gives effect to the reverse acquisition as if
it had occurred at the beginning of the period.
The pro forma financial statements have been prepared by the Company's
management based upon the historical financial statements of USA for the six
months ended May 31, 1999 and the historical financial statements of ECBC for
the six months ended June 30, 1999. These pro forma financial statements may not
be indicative of what would have occurred if the reverse acquisition had
actually occurred on the indicated dates and they may not be indicative of
future results of operations.
Unaudited Pro Forma Condensed Balance Sheet as of June 30, 1999
Historical Adjustments Pro Forma
Combined
USA ECBC Debit Credit
Cash and Equivalents $ 1,243 $243,324 $ - $ 1,243 (1) $243,324
Accounts Receivable 29,239 873,967 29,239 (1) 873,967
Note Receivable 20,500 20,500
Inventories 1,286,417 1,286,417
Other Current Assets 208,500 251,685 208,500 (1) 251,685
Total Current Assets 238,982 2,675,893 238,982 2,675,893
Property and
Equipment, net 15,875 1,015,612 15,875 (1) 1,015,612
Other Assets 121,581 121,581
Total Assets $254,857 $3,813,086 $254,857 $3,813,086
Historical Adjustments Pro Forma
Combined
USA ECBC Debit Credit
Accounts Payable and
Accrued Expenses 150,340 1,058,897 150,340(1) 200,000(1) 1,258,897
Notes payable 1,055,000 1,055,000
Due to Stockholder 1,308,822 1,308,822
Other Current 74,528 74,528(1) -
Liabilities
Total Current 224,868 3,422,719 224,868 200,000 3,622,719
Liabilities
Preferred Stock 1,000,000 1,000,000(2) -
Common Stock 5,787 670 2,734(1) 30(2)
511 38,582(3)
159(2) 41,665
(3)
Additional Paid in
Capital 849,646 1,055,433(1) 2,734(1)
38,423(3) 999,970(2)
511(2) 759,005
Accumulated deficit (825,444) (610,303) 825,444(1) (610,303)
Total Stockholders'
Equity (Deficiency in
Assets) 29,989 390,367 2,097,260 1,867,271 190,367
Total Liabilities and
Stockholders' Equity
(Deficiency in Assets) 254,857 2,322,128 1,321,602 2,067,271 3,813,086
Revenues 108,306 4,292,351 108,306(4) 4,292,351
Cost of Sales 69,322 3,210,141 69,322(4) 3,210,141
Gross Profit 38,984 1,082,210 108,306 69,322 1,082,210
Selling, General and
Administrative 448,847 954,025 448,847(4) 954,025
Expenses
Net Income (Loss) (409,863) 128,185 108,306 518,169 128,185
Footnotes to Pro Forma Financial Statements
Footnote (1) - Assets and liabilities not acquired
USA was a shell company at the time of the reverse acquisition, and
although ECBC agreed to assume $200,000 in liabilities of USA, ECBC did not
acquire the assets or other liabilities of USA. Additional terms of the reverse
merger provided for the return of shares of USA held by certain officers of USA
prior to the transaction. In this regard, it is necessary to eliminate the
assets and liabilities not subject to the reverse acquisition, to record
$200,000 in assumed liabilities, and to record the return of certain share of
USA common stock.
Footnote (2) - Conversion of Preferred Stock
Directly attributable to the reverse merger transaction, all outstanding
ECBC preferred stock was converted into common stock and certain ECBC
shareholders elected to return a portion of their shares to ECBC. In connection
therewith, an adjustment is necessary to reflect this conversion and return of
shares as of June 30, 1999.
Footnote (3) - Share Exchange
Common Stock is adjusted to reflect the common stock that would have been
exchanged if the reverse merger transaction had occurred on June 30, 1999.
Footnote (4) - Operations not acquired
USA was a shell company at the time of the reverse acquisition and ECBC
did not acquire the operations of USA. In this regard, it is necessary to
eliminate the operations not subject to the reverse acquisition.
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.
USA SERVICE SYSTEMS, INC.
By /s/ John Calabrese
John Calabrese, Chief Executive Officer
DATE: November 15, 1999