<PAGE> 1
As filed with the Securities and Exchange Commission on January 28, 1997
Registration No. 333-9995
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
CAPITAL BEVERAGE CORPORATION
(Name of Small Business Issuer in its charter)
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<S> <C> <C>
Delaware 5181 13-3878747
- ---------------------------- ---------------------------- -------------------
(State or other jurisdiction (Primary Standard industrial (I.R.S. Employer
of incorporation) classification code number) Identification No.)
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1111 East Tremont Avenue
Bronx, New York 10460
(718) 409-2337
(Address and telephone number of registrant's principal executive offices)
Carmine N. Stella, President
Capital Beverage Corporation
1111 East Tremont Avenue
Bronx, New York 10460
(718) 409-2337
(Name, address and telephone number of agent for service)
* * * * * * * * *
Copies to:
WILLIAM E. WEBER, ESQ. M. DAVID SAYID, ESQ.
WEBER & WEBER SAYID AND ASSOCIATES
300 Rabro Drive 411 Hackensack Avenue
Hauppauge, New York 11788 Hackensack, New Jersey 07601
Telephone: (516) 232-0301 Telephone: 201-525-4746
Fax: (516) 232-0817 Fax: 201-525-0831
Approximate date of sale to the public: As soon as practicable after
the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (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 of the Securities Act, please check the following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box. [x]
TOTAL NUMBER OF SEQUENTIAL PAGES ______
EXHIBIT INDEX ON SEQUENTIAL PAGE NUMBER ______
<PAGE> 2
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, or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission (the "Commission"),
acting pursuant to said Section 8(a), may determine.
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CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Per Aggregate Offering Amount of
to be Registered Registered(1) Security(2) Price Registration Fee
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Units, consisting of one (1) share
of Common Stock, $.001 par
value, and one-half (1/2) Class A
Warrant 800,000 $5.05(3) $4,040,000 $1,393.00
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Common Stock, $.001 par value 800,000 --- --- ---
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Class A Warrants(4) 400,000 --- --- ---
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Common Stock, $.001 par value,
underlying the Class A Warrants
(4)(5) 400,000 $5.00 $2,000,000 $ 689.60
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Representative's Unit Purchase
Option(6) 80,000 $.001 $ 100.00 $ 1.00
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Units, each Unit consists of one
(1) share of Common stock, par
value $.001 per share, and one-
half (1/2) Class A Warrant(6) 80,000 $6.06 $ 484,800 $ 167.16
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Common Stock, $.001 par value
underlying Representative's Unit
Purchase Option 80,000
--- --- ---
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Class A Warrants underlying
Representative's Unit Purchase
Option 40,000 --- --- ---
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Common Stock, par value $.001 per
share, underlying Class A Warrants
in Representative's Unit Purchase
Option(7) 40,000 $5.00 $ 200,000 $ 68.96
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Selling Securityholders
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Common Stock, par value $.001 per 300,000 $5.00 $1,500,000 $ 517.20
share(8)
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Common Stock, par value $.001
per share, issuable upon conversion
of Series A Preferred Stock(9) 337,500 $5.00 $1,687,500 $ 581.85
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
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- ------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Per Aggregate Offering Amount of
to be Registered Registered(1) Security(2) Price Registration
Fee
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Class A Warrants(10) 3,175,000 --- --- ---
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
Common Stock, par value $.001 per
share, underlying Class A
Warrants(11) 3,175,000 $5.00 $15,875,000 $5,473.70
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
TOTAL --- --- --- $8,892.47
PREVIOUSLY PAID
TOTAL AMOUNT DUE
- ------------------------------------- --------------------- --------------------- ---------------------- ---------------------
</TABLE>
- ----------
1. Pursuant to Rule 416 under the Securities Act of 1933, this
Registration Statement covers such additional indeterminate number of
shares of Common Stock and Class A Common Stock Purchase Warrants(the
"Class A Warrants") as may be issued by reason of adjustments in the
number of shares of Common Stock and Class A Warrants pursuant to
anti-dilution provisions contained in the Class A Warrants being
registered hereunder and in the Representative's unit purchase option
(the "Unit Purchase Option"). Because such additional shares of Common
Stock and Class A Warrants will, if issued, be issued for no additional
consideration, no registration fee is required.
2. Estimated solely for purposes of calculating registration fee.
3. Of such Unit purchase price, $5.00 has been allocated to the Common
Stock and $.05 has been allocated to each one-half (1/2) Class A
Warrant ($.10 per whole Class A Warrant).
4. Each whole Class A Warrant is exercisable over a four (4) year period
commencing on the Effective Date of this Offering into one (1) share of
Common Stock at an exercise price of $5.00 per share.
5. The number of shares of Common Stock specified is the number which may
be acquired by the holders of the Units upon exercise of whole Class A
Warrants at the exercise price thereof.
6. The Representative's Unit Purchase Option entitles the Representative
to purchase up to 80,000 Units at 120% of the offering price.
7. Represents shares of Common Stock that are issuable upon exercise of
the Class A Warrants included in the Representative's Unit Purchase
Option.
8. Represents 300,000 shares of Common Stock that may be sold from time to
time by an officer of the Company. Such officer has agreed that he will
not sell any of such shares prior to the expiration of two (2) years
after the Effective Date without the consent of the Representative.
9. Represents 337,500 shares of Common Stock that may be offered for sale
from time to time by the Selling Securityholders. Such 337,500 shares
of Common Stock are issuable by the Company to the Selling
Securityholders upon conversion during the period commencing 180 days
and ending 360 days after the Effective Date of 337,500 shares of
Series A Preferred Stock acquired by such Selling Securityholders in
the Company's 1996 Private Placement Financing.
10. Represents 675,000 Class A Warrants issued to 26 accredited investors
in the Company's Private Placement of Units of Series A Preferred Stock
and Class A Warrants, which occurred between January and March 1996,
and 2,500,000 Class A Warrants that will be issued upon the automatic
conversion on the Effective Date of the $250,000 of principal amount of
Convertible Bridge Notes issued to two (2) accredited investors in the
Company's Bridge Financing that occurred in April 1996.
11. Represents shares of Common Stock either that may be resold by the
Selling Securityholders after acquisition of such shares upon exercise
of Class A Warrants held by such Selling Securityholders or,
alternatively, that may be issued by the Company to those individuals
or entities that purchase Class A Warrants from the Selling
Securityholders.
iii
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CAPITAL BEVERAGE CORPORATION
CROSS-REFERENCE SHEET
Showing Location in Prospectus of Part I Items of Form SB-2
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Item Number and Heading
In Form SB-2 Registration Statement Location in Prospectus
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1. Front of Registration Statement and Outside Front
Cover of Prospectus ................................ Front of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ......................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information and Risk Factors ...................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price ........................... Risk Factors; Underwriting
6. Dilution .................................................. Risk Factors; Dilution
7. Selling Securityholders ................................... Selling Securityholders
8. Plan of Distribution ...................................... Outside Front Cover Page of
Prospectus; Underwriting
9. Legal Proceedings ......................................... Business
10. Directors, Executive Officers, Promoters and
Control Persons ...................................... Management
11. Security Ownership of Certain Beneficial
Owners and Management ................................ Principal Stockholders
12. Description of Securities ................................. Description of Securities
13. Interest of Named Experts and Counsel ..................... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ....... Risk Factors; Management
15. Organization Within Last Five Years Prospectus Summary; Business
16. Description of Business ................................... Prospectus Summary; Risk Factors;
Business
17. Management's Discussion and Analysis or Plan of
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Item Number and Heading
In Form SB-2 Registration Statement Location in Prospectus
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Operation ...................................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18.Description of Property .................................... Business
19.Certain Relationships and Related Transactions ............. Certain Transactions; Management
20.Market for Common Equity and Related Stockholder
Matters ........................................ Outside Front Cover Page of Prospectus;
Prospectus Summary; Dividend Policy;
Description of Securities; Shares Eligible
for Future Sale
21.Executive Compensation ..................................... Management
22.Financial Statements ....................................... Selected Financial Data; Financial
Statements
23.Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ......... Not Applicable
</TABLE>
<PAGE> 6
EXPLANATORY NOTE
This registration statement covers the primary offering ("Offering") of
Units, consisting of one (1) share of Common Stock and one-half (1/2) Class A
Warrant by Capital Beverage Corporation (the "Company") and the concurrent
offering of Common Stock and Class A Warrants by the Selling Securityholders.
The Company is registering under the primary prospectus ("Primary Prospectus")
800,000 Units, 800,000 shares of Common Stock, 400,000 whole Class A Warrants,
and 400,000 shares of Common Stock issuable upon the exercise of such whole
Class A Warrants. The Company is also registering on behalf of the Selling
Securityholders under an alternate prospectus ("Alternate Prospectus") 3,812,500
shares of Common Stock and 3,175,000 Class A Warrants. The Alternate Prospectus
pages, which follow the Primary Prospectus, are to be combined with all of the
sections contained in the Primary Prospectus with the following exceptions: the
front and back cover pages and the sections entitled "Offering," "Selling
Securityholders" and "Underwriting".
<PAGE> 7
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
Subject to Completion, Dated _____ __, 1996
CAPITAL BEVERAGE CORPORATION
800,000 Units
Each Unit Consisting of One (1) Share of Common Stock, $.001 par value, and
One-Half (1/2) Class A Redeemable Common Stock Purchase Warrant
Capital Beverage Corporation, a Delaware corporation (the "Company" or
"Capital"), hereby offers Eight Hundred Thousand (800,000) Units ("Units"), each
Unit consisting of One (1) Share (the "Shares") of Common Stock, $.001 par value
(the "Common Stock"), and One-Half (1/2) Class A Redeemable Common Stock
Purchase Warrant, at an offering price of $5.05 per Unit ("Offering Price").
Each one-half (1/2) Class A Warrant may only be exercised in combination with
another one-half (1/2) Class A Warrant. Each whole Class A Warrant will entitle
the holder to purchase one (1) share of Common Stock at an exercise price of
$5.00 per share, subject to adjustment. The Units, the Shares and the Class A
Warrants offered hereby are sometimes referred to as the "Securities". The
Shares and whole Class A Warrants offered hereby will be separately tradeable
immediately upon issuance. Each Class A Warrant is exercisable commencing on the
effective date of the Registration Statement covering the Securities (the
"Effective Date") and expiring at the close of business on the last day of the
four (4) year period following the Effective Date. The Class A Warrants are
subject to redemption by the Company, with the consent of R.D. White & Co., Inc.
(the "Representative") in the event a redemption occurs prior to the first
anniversary of the Effective Date, for a redemption price of $.001 per warrant,
provided (i) notice of not less than forty-five (45) days is given; (ii) the
closing bid quotation of the Common Stock of the Company has been at least One
Hundred Sixty Percent (160%) of the then exercise price of the Class A Warrants
on all twenty (20) of the trading days ending on the date prior to the day that
notice is given; and (iii) holders of the Class A Warrants shall have had
exercise rights until the close of business on the date fixed for redemption.
The exercise price of the Class A Warrants is subject to adjustment under
certain circumstances. See "Description of Securities - Class A Warrants".
The Registration Statement of which this Prospectus forms a part also
relates to (i) the offer and sale by an officer of the Company of up to 300,000
shares of Common Stock; (ii) the offer and sale by certain holders ("Selling
Securityholders") of the Company's 7% Series A Convertible Preferred Stock
("Series A Preferred Stock") of 337,500 shares of Common Stock issuable by the
Company to such Selling Securityholders upon conversion of 337,500 shares of
Series A Preferred Stock held by such Selling Securityholders; (iii) the offer
and sale by the Selling Securityholders of up to 3,175,000 Class A Warrants and
3,175,000 shares of Common Stock issuable to such Selling Securityholders upon
their exercise of such Class A Warrants; (iv) the possible issuance by the
Company of up to 3,175,000 shares of Common Stock upon exercise by individuals
or entities that purchase Class A Warrants sold by the Selling Securityholders
(the securities referred to in (i) through (iv) being sometimes collectively
referred to herein as the "Additional Securities"); and (v) the offer and sale
by the Company of the Representative's Unit Purchase Option and the securities
issuable to the Representative upon exercise of its Unit Purchase Option. See
"Description of Securities, " "Selling Securityholders" and "Underwriting." The
Company will not receive any of the proceeds from the sale of the securities by
the Selling Securityholders.
Prior to the Offering, there has been no public market for any of the
Company's securities. The Company has applied for quotation of Common Stock and
Class A Warrants on the Nasdaq Small Cap Market (NASDAQ) under the symbols
__________ and _____________, respectively, although there can be no assurance
that such application for quotation will be approved. See "Risk Factors -
Effects of Delisting from NASDAQ SmallCap Market." However, there can be no
assurance that a market for the Common Stock or Class A Warrants will develop or
be sustained. See "Risk Factors," which begins on Page ___ "Description of
Securities," and "Underwriting".
--------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" AND "DILUTION".
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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- -------------- ------------------- ---------------- ----------------
Underwriting
Discounts & Proceeds to
Price to Public Commissions(1) Company(2)
- -------------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
Per Unit $5.05 $.505 $4.545
- -------------- ------------------- ---------------- ----------------
Total $4,040,000 $404,000 $3,636,000
- -------------- ------------------- ---------------- ----------------
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(1) Does not reflect additional compensation to be received by the
Representative in the form of: (i) a non-accountable expense allowance
of $121,200; (ii) the sale of $100 of an option to purchase up to
80,000 units consisting of 80,000 shares of Common Stock and Class A
Warrants to purchase up to 40,000 shares of Common Stock at 120% of the
Price to Public of the Units offered hereby; (iii) an agreement to
retain an affiliate of the Representative as the Company's management
consultant for a period of 24 months following the Effective Date; and
(iv) an agreement to indemnify the Representative against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting".
(2) Before deducting other expenses of the Offering payable by the Company
estimated at $345,000, including Blue Sky fees and expenses of
approximately $30,000, filing fees of approximately $12,000, NASDAQ
listing fee of $10,0000 printing expenses of approximately $75,000,
legal fees of approximately $100,000, accounting fees of approximately
$60,000 and other miscellaneous fees and expenses of approximately
$58,000. The Selling Securityholders will not bear any expenses of this
Offering.
The Units are offered by the Representative on a "firm commitment"
basis, subject to prior sale, when, as and if delivered and accepted by them,
and subject to approval of certain legal matters by counsel and certain other
conditions. It is expected that delivery of certificates representing the Common
Stock and Class A Warrants will be made on or about _____________, 1996 at the
offices of Investors Associates, Inc., 411 Hackensack Avenue, Hackensack, New
Jersey.
R.D. White & Co., Inc.
The date of this Prospectus of January __, 1997
<PAGE> 8
Although it has no legal obligation to do so, the Representative from
time to time may become a market maker and otherwise effect transactions in the
Securities (and has indicated to the Company that it intends to do so). The
Representative, if it participates in the market, may be a significant influence
in any market that might develop for any of the Securities. The prices and
liquidity of the Securities may be significantly affected by the degree, if any,
of the Representative's participation in the market. Such activities, if
commenced, may be discontinued at any time or from time to time. See "Risk
Factors - Representative's Possible Ability to Dominate or Influence the Market
for the Securities."
IN CONNECTION WITH THIS OFFERING, THE REPRESENTATIVE MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON
STOCK AND/OR THE CLASS A WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
The Additional Securities being offered by the Selling Securityholders
may be sold directly by such Selling Securityholders or through brokers,
dealers, underwriters or agents on terms to be determined at the times of such
sales. The Company is registering the Additional Securities pursuant to the
Company's obligations under certain registration rights agreements and, in the
case of the 300,00 shares of Common Stock being offered by an officer of the
Company, pursuant to the request of such officer. The registration of the
Additional Securities does not necessarily mean that any of such Additional
Securities will be offered or sold. At the time a particular offer of securities
is made by or on behalf of a Selling Securityholder, to the extent required, a
Prospectus will be distributed which will set forth the number of shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for securities purchased from the Selling Securityholder and any
2
<PAGE> 9
discounts, commissions or concessions allowed or reallowed or paid to dealers
and the proposed selling price to the public.
The Company will receive no proceeds from the sale of the Additional
Securities by the Selling Securityholders, but the Company has agreed to bear
substantially all the expenses of registration of such Additional Securities
under federal and state securities laws. The Company will receive proceeds from
the issuance of Common Stock issued to individuals that purchase Class A
Warrants from Selling Securityholders when and if any of such Class A Warrants
are exercised by such warrant holders. Sales of Additional Securities and/or the
potential of such sales at any time may have an adverse effect on the market
prices of the Securities offered hereby.
---------------------------------
ADDITIONAL INFORMATION
With respect to the Securities offered hereby, the Company has filed
with the principal office of the Commission in Washington, D.C., a Registration
Statement on Form SB-2 under the Securities Act of 1933, as amended (the
"Securities Act"). For purposes hereof, the term "Registration Statement" means
the original Registration Statement and any and all amendments thereto. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, to which reference hereby is made. Each
statement made in this Prospectus concerning a document filed as an exhibit to
the Registration Statement is not necessarily complete and is qualified in its
entirety by reference to such exhibit for a complete statement of its
provisions. Any interested party may inspect the Registration Statement and its
exhibits without charge, or obtain a copy of all or any portion thereof, at
prescribed rates, at the public reference facilities of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549. The Registration Statement and exhibits may also be
inspected at the Commission's regional offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7
World Trade Center, Suite 1300, New York, New York 10048.
The Company is not a reporting company subject to certain informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and does not file reports and other information with the Commission. As a
result of this Offering, the Company will become subject to such requirements
and will file periodic reports with the Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements, audited by independent certified public
accountants, and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year following
the end of each such quarter.
3
<PAGE> 10
PROSPECTUS SUMMARY
This summary of certain provisions of this Prospectus is intended only
for ease of reference, is not a complete presentation of all relevant facts, and
is qualified in its entirety by reference to the detailed information appearing
elsewhere in this Prospectus, including the attachments hereto. This Prospectus
describes in detail numerous aspects of the Company and its business which are
material to investors, including aspects summarized here. The entire Prospectus
should be read and understood by prospective investors. Unless otherwise
indicated, the information in this Prospectus does not give effect to the
conversion of any shares of Series A or Series B Preferred Stock or to the
exercise of (i) the Class A Warrants included in the Units; (ii) the
Representative's Unit Purchase Option; (iii) any outstanding Class A Warrants;
or (iv) options available for grant under the Company's 1996 Incentive Stock
Option Plan.
THE COMPANY
Capital Beverage Corporation, a Delaware corporation, was organized on
December 5, 1995. In January 1996, the Company acquired from Consolidated
Beverage Corporation ("Consolidated") the right to become the exclusive
distributor ("Pabst Distribution Rights") for certain beer and malt liquor
products (the "Pabst Products") manufactured by Pabst Brewing Company ("Pabst")
in Manhattan, Bronx, Queens, Staten Island, and Westchester County (the
"Territory"). The purchase price for the Pabst Distribution Rights was
$1,600,000, payable $800,000 in cash at or prior to closing and the balance by
delivery of a series of 120 promissory notes of the Company, each in the amount
of $10,000 inclusive of interest at 9% per annum. Upon acquisition of the Pabst
Distribution Rights, the Company simultaneously entered into an agreement with
Pabst (the "Distributorship Agreement") to become the exclusive distributor for
Pabst Products within the Territory. Pursuant to the Distributorship Agreement,
the Company is required to use its best efforts to market and sell the Pabst
Products to each prospective account located within the Territory.
The Company acts as a primary distributor for Pabst Products within the
Territory, subject to policies and procedures determined by Pabst, so that all
in-Territory orders for Pabst Products flow directly through the Company. The
Company has established good relationships with various independent Class C
wholesalers within its territory to aide in its efficient distribution of
products throughout its assigned territory, except for Company accounts, each
independent wholesaler is responsible for its own invoicing, employees and
distribution of Pabst Products within its geographical sector.
In June 1996, the Company entered into an agreement and plan of merger
(the "Merger Agreement") with Vito Santoro, Inc. ("VSI"), a New York wholesale
and retail beverage distributor doing business under the tradename Caribe
Beverages. During its fiscal years ended December 31, 1994 and 1995, VSI had
revenues of approximately $12 million and $7 million, respectively, and net
income (loss) of approximately $59,000 and ($15,000), respectively. The Company
intends to complete the merger with VSI ("Merger") prior to the Effective Date.
The financial information contained in this Prospectus for periods prior to
January 3, 1996 (the date that Capital obtained the Pabst Distribution Rights)
relates solely to VSI. For periods on or after January 3, 1996, the financial
information relates to the Company and VSI on a combined basis as if the
proposed Merger had been consummated on January 3, 1996.
All of the outstanding capital stock of VSI is owned by Mr. Carmine
Stella, who is the Chairman of the Board, President and Chief Executive Officer
of the Company. Under the terms of the Merger Agreement, Mr. Stella will receive
300,000 shares of the Company's 7% Cumulative Convertible Series B Preferred
Stock (the "Series B Preferred Stock") in exchange for his interest in VSI.
VSI distributes several different brands of beer, soda and other
beverages primarily in the New York metropolitan area. Customers of VSI
primarily consist of approximately 700 grocery stores and 50 wholesalers, all of
which pick up and purchase beverage products at VSI's warehouse on a "cash and
carry" basis. VSI does not own or lease any vehicles for the distribution of its
beverages and is a non-exclusive
4
<PAGE> 11
wholesaler of all of the beverages that it sells.
The Company's offices are located at 1111 East Tremont Avenue, Bronx,
New York 10460. Its telephone number is (718) 409-2337.
THE OFFERING
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<CAPTION>
<S> <C>
Securities Offered by Company 800,000 Units, each Unit consisting of one (1) Share
of Common Stock and one-half (1/2) Class A Warrant.
Each whole Class A Warrant entitles the holder thereof
to purchase one (1) share of Common Stock at any time
commencing on the Effective Date and expiring four
years after such Effective Date at an exercise price
of $5.00 per share of Common Stock. The exercise price
of the Class A Warrants is subject to adjustment
pursuant to anti-dilution rights. The Class A Warrants
are redeemable by the Company under certain
circumstances. See "Description of Securities -
Class A Warrants."
Offering Price $5.05 per Unit
Common Stock Outstanding
Prior to this Offering 1,240,909 shares(1)
After this Offering 2,040,909 shares(1)
Class A Warrants Outstanding
Prior to this Offering 3,759,000
After this Offering 4,159,000(2)
Proposed Nasdaq Small-Cap
Market Trading Symbols:
Common Stock ________
Class A Warrants ________
</TABLE>
___________
(1) Unless otherwise indicated, all information in this Prospectus assumes
that: (i) no Class A Warrants are exercised, (ii) the Representative's
Unit Purchase Option is not exercised; (iii) no options under the
Company's 1996 Incentive Stock Option Plan are exercised; and (iv) no
shares of Series A or Series B Preferred Stock have been converted into
shares of Common Stock. See "Capitalization," "Description of
Securities" and "Underwriting."
(2) Of such 4,159,000 Class A Warrants, 400,000 are being offered hereby,
3,175,000 will be offered from time to time by the Selling
Securityholders. In addition, an aggregate of 584,000 Class A Warrants
are held by Messrs. Carmine Stella, who is the Chairman of the Board,
President and Chief Executive Officer of the Company, Eugene Fernandez,
who is a Director of the Company, and Anthony Stella, who is the Sales
Manager of the Company. Such 584,000 Class A Warrants have not been
registered under the Securities Act. Moreover, each holder of such
584,000 Warrants has
5
<PAGE> 12
agreed not to transfer such Warrants or the Common Stock issuable on
the exercise thereof prior to two (2) years after the Effective Date
without the consent of the Representative. Such restriction does not
apply to 50,000 Class A Warrants held by Mr. Carmine Stella, 25,000
Class A Warrants held by Mr. Fernandez and 12,500 Class A Warrants held
by Ms. Carol Macchiarulo, who is Secretary and Treasurer of the
Company, which were purchased by such three (3) individuals in the
Company's Units Financing that took place between January and March
1996 and are being registered in this Offering on behalf of the Selling
Securityholders.
<TABLE>
<CAPTION>
<S> <C>
Estimated Net Proceeds Approximately $3,170,000 after deducting discounts
and commissions of $404,000, the Representative's
non-accountable expense allowance of $121,200, and
other Offering expenses of approximately $345,000,
including Blue Sky fees and expenses of approximately
$30,000, filing fees of approximately $12,000,
NASDAQ listing fees of $10,000, printing expenses
of approximately $75,000, legal fees of
approximately $100,000, accounting fees of
approximately $60,000 and other miscellaneous fees
and expenses of approximately $58,000.
Use of Proceeds To provide working capital for acquisition of
inventory and licensing of additional brands, to
acquire beverage wholesalers, to implement the
Company's marketing plan and for general corporate
purposes.
Additional Securities
Offered by Selling Securityholder This Registration Statement also covers the offer
and sale by the Selling Securityholders of
3,812,500 shares of Common Stock, including 300,000
outstanding shares of Common Stock held by an
officer of the Company; 337,500 shares of Common
Stock issuable by the Company to the Selling
Securityholders upon their conversion during the
period beginning 180 days and ending 360 days after
the Effective Date of 337,500 shares of Series A
Preferred Stock; and 3,175,000 shares of Common
Stock issuable upon exercise of 3,175,000 Class A
Warrants held by the Selling Securityholders at
$5.00 per share.
Up to 3,175,000 shares of Common Stock
underlying the Class A Warrants held by the
Selling Securityholders may be issued and sold by
the Company upon the exercise of outstanding
Class A Warrants held by persons who acquire
such Class A Warrants directly or indirectly
from the Selling Securityholders under this
Registration Statement. See "Selling
Securityholders". The Company will not receive
any proceeds from the sale of the securities by
the Selling Securityholders.
Risk Factors An investment in the Securities involves a high
degree of risk and immediate substantial dilution.
</TABLE>
6
<PAGE> 13
Prospective investors should review and
consider carefully the factors described
under"Risk Factors" and "Dilution."
7
<PAGE> 14
SUMMARY FINANCIAL INFORMATION
The financial information contained in this Prospectus for periods
prior to January 3, 1996 (the date that Capital obtained the Pabst Distribution
Rights) relates solely to VSI. For periods on or after January 3, 1996, the
financial information relates to the Company and VSI on a combined basis as if
the proposed Merger had been consummated on January 3, 1996. All information set
forth below should be read in conjunction with the financial statements and
notes thereto of Capital Beverage Corporation included elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
Years Ended December 31 Nine Months Ended September 30
----------------------- ------------------------------
STATEMENT OF 1995 1994 1996 1995
OPERATIONS ---- ---- ---- ----
DATA
<S> <C> <C> <C> <C>
Net Sales $6,926,789 $12,135,655 $ 9,709,520 $ 5,550,817
Gross Profit 504,300 678,904 971,763 397,757
Income (loss) before
income taxes (11,948) 60,818 160,689 63,002
Net Income (loss) (15,308) 58,616 143,689 56,502
Pro forma Income (loss)
before income taxes(1) (311,948) (239,182) (14,311) (161,998)
Pro forma Net Income
(loss)(2) $ (311.948) $ (239,182) $ (14,311) $ (161,998)
========== =========== =========== ===========
Pro forma Net Income
(loss) per Common Share $ (.25) $ (.19) $ (.06) $ (.13)
========== =========== =========== ===========
Weighted Average Number
of Common Shares
Outstanding 1,240,909 1,240,909 1,240,909 1,240,909
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------
BALANCE SHEET DATA Actual As Adjusted (3)
----------- ---------------
<S> <C> <C>
Working Capital $ 505,270 3,675,270
Total Assets 2,863,015 6,033,015
Long-Term Debt 648,963 648,963
Stockholders' Equity (4) 1,763,427 5,095,927
</TABLE>
8
<PAGE> 15
- ---------------------
(1) For the years presented Mr. Carmine Stella received no compensation
from either VSI or the Company. For the nine months ended September 30,
1996, Mr. Stella received $50,000 as compensation pursuant to his
employment contract setting forth an annual salary of $300,000 which
became effective August 1, 1996. The pro forma results reflect the
impact of this salary for the periods presented.
(2) For the years ended December 31, 1995 and 1994 and the nine (9) months
ended September 30, 1996, VSI operated as an S corporation for federal
income tax purposes, and, accordingly, federal income taxes were the
obligation of VSI's shareholders. In contemplation of this Offering,
VSI's S corporation tax status will be revoked and, accordingly, the
Company will be required to pay income taxes on its taxable income.
(3) Adjusted to reflect the receipt by the Company of the net proceeds of
the Offering. See "Use of Proceeds" and "Capitalization."
(4) The Company has never paid cash dividends on its Common Stock. See
"Dividend Policy."
9
<PAGE> 16
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE AND INVOLVE A
HIGH DEGREE OF RISK. THEY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD, PRIOR
TO PURCHASE, CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS ALL
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
DEPENDENCE ON OFFERING PROCEEDS; POSSIBLE NEED FOR ADDITIONAL FINANCING;
VSI was marginally profitable during fiscal 1994, incurred a $15,000
loss during fiscal 1995 and, together with the Company on a combined basis, was
profitable for the nine month period ended September 30,1996. In addition, the
Company's present working capital position is adequate for its needs based on
its current operations. However, the Company will be significantly dependent on
the net proceeds of this Offering in order to enhance its existing working
capital and provide it with the additional financing abilities to expand
inventories required as a result of the Company's acquisition of the Pabst
Distribution Rights. There can be no assurance that without the receipt of the
net proceeds of this Offering the Company will be able to increase its working
capital to the levels estimated to be necessary by management. In addition, it
is estimated that of the net proceeds of this Offering will be utilized to make
acquisitions of beverage distributors in desirable locations and/or the
acquisition of distribution rights of additional leading brands. The Company
intends to seek the acquisition of distributors with the distribution rights to
other beverage brands of beer, soda, water, tea, juice and wine coolers. The
Company has no intention of acquiring any distributors from related entities and
does not have any present plans, proposals, arrangements or understandings
regarding any acquisitions. See "Use of Proceeds." Although the Company has been
in preliminary discussions with respect to the acquisition of an additional
brand, no assurance can be given that such discussions will result in an
agreement acceptable to the Company. In addition, there can be no assurance that
the Company will continue to operate profitably if and when such acquisitions
are consummated, or that additional equity and/or debt financing will not be
required to consummate such acquisitions. Moreover, the Company's ability to
generate sufficient cash flow from operations that will be necessary in view of
the debt incurred to acquire the Pabst Distribution Rights and the dividend
requirements of the Series A and Series B Preferred Stock will be dependent to a
large extent upon the success of its new market entry strategy, the proposed
licensing of additional product brands, successful implementation of its
distribution strategy and its marketing and sales efforts, none of which the
Company can give any assurances will occur. See "Business", "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
"Financial Statements and Notes."
DEPENDENCE ON AGREEMENT WITH PABST FOR A SIGNIFICANT PORTION OF ITS ANTICIPATED
FUTURE REVENUES
The Company is substantially dependent on its relationship with Pabst
for a significant portion of its anticipated future revenues. The Company
anticipates that a substantial portion of such future revenues will be derived
from such relationship. The Company's Distributorship Agreement with Pabst
permits Pabst to terminate such agreement under certain circumstances. See
"Business - Distributorship Agreement with Pabst". If Pabst were to terminate
the Distributorship Agreement, such termination would have a materially adverse
effect on the Company's financial condition and results of operations. See
"Business."
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivable and
short-term cash investments. Although the Company believes that its credit risk
is minimized because of a large customer base, the Company does rely on the
payment of the receivables. Thus the Company's
10
<PAGE> 17
credit risk is dependent upon the financial strength of its customers. See "Note
10 to Financial Statements."
GOVERNMENT REGULATION
Wholesale and retail distribution of alcoholic beverages is regulated
by federal and state law. The Company's business is highly regulated by federal,
state and local laws and regulations. The Company must comply with extensive
laws and regulations regarding such matters as state and regulatory approval and
licensing requirements, trade and pricing practices, permitted and required
labeling, advertising, promotion and marketing practices, relationships with
distributors and related matters. Since the Company intends to distribute such
alcoholic beverages in New York State, the Company is required to obtain
authorization from the Federal Bureau of Alcohol, Tobacco and Firearms (BATF)
and the New York State Liquor Authority (SLA). The Company has applied to the
BATF and SLA for its required licenses and is not aware of any reason why such
licenses will not be granted. In the experience of management, although such
agencies may impose conditions on the grant of such licenses, such licenses are
ordinarily granted. In the event, either the SLA or the BATF should impose
conditions on the grant of such licenses, the Company intends to take all steps
necessary to satisfy such conditions. Pending receipt of its licenses, the
Company has appointed VSI, which is a licensed distributor, to act as its agent
for distribution of Pabst Products. There can be no assurance that the various
governmental regulations applicable to the beverage industry will not be changed
so as to impose more stringent requirements on the Company. If the Company was
to fail to be in compliance with any applicable governmental regulation, such
failure could cause the Company's licenses to be revoked and have a material
adverse effect on the business of the Company. See "Business."
ARBITRARY DETERMINATION OF OFFERING PRICE
The Offering Price of the Units, as well as the exercise price of the
Class A Warrants being offered hereby, bear no relation to book value, assets,
earnings or any other objective criteria of value. They have been arbitrarily
determined by the Company in discussion with the Representative. There can be no
assurance that, even if a public trading market develops for the Common Stock
and the Class A Warrants offered in this Offering, such securities will attain
market values commensurate with the offering price of the Units. See "Dilution".
POSSIBLE INCREASE IN GOVERNMENT TAXATION
The sale of alcoholic beverages is a business that is highly regulated
and taxed at the federal, state and local levels. The Company's beer operations
may be subject to increased taxation by federal, state and local governmental
agencies as compared with those of non-alcohol related businesses. In addition,
if federal or state excise taxes are increased, the Company may have to raise
prices to maintain present profit margins. The Company does not believe that a
price increase due to increased taxes will reduce unit sales, but the actual
effect will depend on the amount of any such increase, general economic
conditions and other factors. Higher taxes may reduce overall demand for beer,
and thus negatively impact sales of the Company's beer products.
POSSIBILITY OF INCREASED GOVERNMENTAL REGULATION
The alcohol beverage industry has become the subject of considerable
societal and political attention in recent years due to increasing public
concern over alcohol-related social problems including driving while
intoxicated, underage drinking and health consequences from the abuse of
alcohol. As an outgrowth of these concerns, the possibility exists that
advertising by beer producers could be restricted, additional cautionary
labeling or packaging requirements might be imposed, or that there may be
renewed efforts to impose increased excise or other taxes on beer. If beer
consumption in general were to come
11
<PAGE> 18
into disfavor among consumers, the Company's business could be materially
adversely affected.
SEASONALITY; FLUCTUATION OF QUARTERLY RESULTS OF OPERATIONS; DEPENDENCE ON SALES
IN KEY PEAK DEMAND PERIODS
The Company's business is subject to substantial seasonal fluctuations.
Historically, a significant portion of the Company's net sales and net earnings
have been realized during the period from May through September and the month of
December, and levels of net sales and net earnings have generally been
significantly lower during the period from October through April (other than the
month of December). The Company believes that this is the general pattern
associated with other beverage distributors with which it competes. Accordingly,
the Company's operating results may vary significantly from quarter to quarter.
The Company's operating results for any particular quarter are not necessarily
indicative of any other results. Additionally, fluctuations caused by variations
in quarterly operating results may adversely affect the market price of the
Common Stock. If for any reason the Company's sales were to be substantially
below seasonal norms during December and/or the months of May through September,
the Company's annual revenues and earnings could be materially and adversely
affected. See "Financial Statements and Notes", "Managements Discussion and
Analysis of Financial Condition and Results of Operations", and "Business".
DEPENDENCE ON GENERAL ECONOMIC CONDITIONS
The success of the Company depends, to a large extent, on certain
economic factors that are beyond its control. Factors such as general economic
conditions, levels of unemployment, interest rates, tax rates at all levels of
government, competition and other factors beyond the Company's control may have
an adverse effect on the Company's ability to sell its products and to collect
sums due and owing to it.
HIGHLY COMPETITIVE INDUSTRY
The Company's business is highly competitive. As of May 31, 1996, the
Company competed with approximately ten other companies in the metropolitan New
York area that are engaged in businesses that are substantially similar to that
engaged in by the Company. Some of the Company's competitors may be better
capitalized, better financed, more established and more experienced than the
Company and may offer beer, beverage and related products at lower prices or
greater concessions than the Company. Should the Company not be able to compete
effectively, the Company's results of operations and financial position would be
materially and adversely affected. See "Business-Competition."
DEPENDENCE UPON OUTSIDE ADVISORS
To supplement the business experience of management, the Company may be
required to employ accountants, technical experts, appraisers, attorneys, or
other consultants or advisors. The selection of any such advisors will be made
by management without any input from stockholders. Furthermore, it is
anticipated that such persons may be engaged on an "as needed" basis without a
continuing fiduciary or other obligation to the Company. Although the Company
has no present intention to do so, it is possible that the Company would hire
affiliates as outside advisors. At present, the Company has no such agreements
with any of its affiliates.
LIMITED NUMBER OF MANAGEMENT PERSONNEL
There is currently only one (1) non-employee Director of the Company
who is also a major stockholder of the Company. Following this Offering, there
can be no assurance that, if the
12
<PAGE> 19
Company grows, that there will be additional non-employee Directors with
substantial equity in the Company, or that current management will be able to
continue to properly manage the Company's affairs. Further, there can be no
assurance that the Company will be able to identify additional qualified
managers on terms economically feasible to the Company. See "Management."
POSSIBLE LOSS OF PABST DISTRIBUTION RIGHTS UPON DEFAULT UNDER CONSOLIDATED NOTES
The Company is required to make monthly payments to Consolidated
Beverage Corporation, from which it obtained the Pabst Distribution Rights, of
Ten Thousand Dollars ($10,000) until January 2006. Although the Company believes
it has and will continue to have sufficient resources to make the monthly
payments to Consolidated Beverage Corporation, there can be no assurances that
it will be able to do so. Failure to make any of such monthly payments could
result in a re-transfer of the Pabst Distribution Rights to Consolidated
Beverage Corporation. Any such re-transfer would have a materially adverse
effect on the Company's financial condition and results of operations. See
"Business."
POSSIBLE ADVERSE EFFECT OF REDEMPTION OF CLASS A WARRANTS
The Class A Warrants are subject to redemption by the Company, with the
consent of the representative in the event redemption occurs prior to one (1)
year after the Effective Date, upon forty-five (45) days' written notice, at a
price of $.001 per Warrant, at any time during the exercise period of the
Warrants provided that the final bid price for shares of the Company's Common
Stock has been at least 160% of the then exercise price of the Class A Warrants
for the twenty (20) trading days preceding the date notice of redemption is
given and the holders of the Class A Warrants shall have had exercise rights
until the close of business on the date fixed for redemption. Redemption of the
Class A Warrants by the Company could force the holder to exercise the Class A
Warrants and pay the exercise price at a time when it may be disadvantageous for
the holder to do so or to sell such Warrants at their then current market price
when the holder might otherwise wish to hold such Warrants for possible
appreciation. Alternatively, the holders may accept the redemption price when it
is likely to be substantially less than the market value of the Class A Warrants
at the time of redemption. Any holder who does not exercise Class A Warrants
prior to their expiration or redemption, as the case may be, will forfeit the
right to purchase shares of Common Stock of the Company underlying such
Warrants. See "Description of Securities Class A Warrants."
DIVIDENDS ON COMMON STOCK NOT LIKELY; REQUIREMENT TO PAY DIVIDENDS ON PREFERRED
STOCK
It is anticipated that earnings, if any, which might be generated from
operations of the Company and be available to holders of Common Stock, will be
used to finance the growth of the Company and that cash dividends will not be
paid on the Common Stock. See "Dividends". In addition, the Company is obligated
to pay cumulative dividends on its outstanding Series A and Series B Preferred
Stock. Under Delaware law, cash dividends are payable out of a corporation's
surplus or, if there is no surplus, out of its net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year. See
"Description of Securities". There can be no assurance that the Company will
ever operate at levels of profitability and generate sufficient positive cash
flow to meet the dividend requirements of its Series A and Series B Preferred
Stock. See "Dividend Policy" and "Description of Securities."
DEPENDENCE ON KEY PERSONNEL
The Company is relying on a relatively small number of key individuals
to implement the Company's operations, and, in particular, the services of Mr.
Carmine Stella, its Chairman of the Board, President and Chief Executive
Officer. The Company has entered into an employment agreement with Mr. Stella.
Additionally, upon the completion of this Offering, the Company intends to apply
13
<PAGE> 20
for key personnel life insurance. To the extent that the services of Mr. Stella
or other key personnel become unavailable, there can be no assurances that the
Company will be able to attract or retain personnel who would be able to
adequately perform the functions previously performed by the personnel whose
services have been lost. See "Management."
DISCRETIONARY USE OF PROCEEDS
The Company presently intends to use the net proceeds of this Offering
for acquisition of inventory; licensing of additional beer brands; acquisition
of other independent wholesalers, implementation of the Company's marketing
plan; and working capital. However, the net proceeds of this Offering may, in
the discretion of the Company, be used to finance other opportunities consistent
with the Company's plan of operation based on facts and circumstances which may
develop subsequent to the completion of this Offering. See "Business" and "Use
of Proceeds."
CONTROL BY EXISTING DIRECTORS AND OFFICERS AND RELATED PARTY TRANSACTIONS
Following completion of this Offering, the existing members of the
Board of Directors and management of the Company will own 100% of the Common
Stock and 100% of Series B Preferred Stock outstanding. In June 1996, the
Company entered into an Agreement and Plan of Merger (the "Merger Agreement")
with VSI pursuant to which VSI would be merged with and into the Company. All of
the outstanding stock of VSI is owned by Mr. Carmine Stella, who is the Chairman
of the Board, President, and Chief Executive Officer of the Company. On the
effective date of the Merger ("Merger Date") each share of common stock of VSI
presently outstanding shall be automatically canceled and converted into the
right to receive 3,000 fully paid and non-assessable shares of the Company's
Series B Preferred Stock. Accordingly, management will have a significant voting
influence in connection with the election of the directors of the Company and
control of the Company's business and affairs. See "Management," "Principal
Shareholders" and "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in this offering will incur immediate, substantial dilution
of $3.23 or 64.6% in the pro forma net tangible book value per share from the
price for which they acquired the Units being offered in this Offering. See
"Dilution."
LIMITATIONS ON DIRECTOR LIABILITY
The Company's Articles of Incorporation provide, as permitted by
governing Delaware law, that a director of the Company will not be personally
liable to the Company or its shareholders for monetary damages relating to such
director's position with the Company, with certain exceptions. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors of the Company pursuant to the foregoing, or otherwise,
the Company has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. See "Description of Securities - Certain By-law
and Charter Provisions.."
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF MARKET IN GENERAL
Prior to this Offering, there has been no public trading market for the
Company's Securities. Although the Company intends to seek quotation of the
Shares and Class A Warrants on the NASDAQ Small Cap Market, there can be no
assurance that the Company will be successful in its efforts, and even if the
Company is successful, there can be no assurance that a regular trading market
for the Shares and
14
<PAGE> 21
Class A Warrants will develop after this Offering or that, if developed, such a
market will be sustained. Following this Offering, the market price of the
Company's Common Stock and Class A Warrants may be volatile depending on various
factors, including the general economy, stock market conditions, announcements
by the Company or its competitors, fluctuations in the Company's operating
results or for undeterminable reasons. In addition, the stock market has
experienced extreme price and volume fluctuations in recent years. These
fluctuations have had a substantial effect on the market price for many
companies, often unrelated to the operating performance of such companies and
may adversely affect the market prices of the Shares and Class A Warrants. See
"Underwriting", "Description of Securities", and "Financial Statements."
REPRESENTATIVE'S UNIT PURCHASE OPTION; ADDITIONAL OPTIONS AND WARRANTS;
PREFERRED STOCK
The Company has agreed to issue to the Representative a Unit Purchase
Option to purchase up to 80,000 Units, consisting of 80,000 shares of Common
Stock and Class A Warrants to purchase up to an additional 40,000 shares of
Common Stock, at $6.06 per Unit (120% of the offering price of the Units offered
hereby). Moreover, In addition to the 400,000 shares of Common Stock reserved
for issuance upon the exercise of the Class A Warrants offered hereby and the
40,000 shares of Common Stock so reserved upon exercise of the Class A Warrants
included in the Representative's Unit Purchase Option, the Company has reserved
a total of 3,759,000 shares of Common Stock for issuance upon the exercise of
other Class A Warrants, including (i) 675,000 Class A Warrants issued to
investors in the Company's 1996 Units Financing, (ii) 2,500,000 Class A Warrants
that may be issued to investors that acquired the Company's Convertible Bridge
Notes in April 1996, and (iii) 584,000 Class A Warrants issued to certain
members of management of the Company in December 1995. None of the outstanding
Class A Warrants have been exercised. The Class A Warrants issued or issuable in
connection with the Company's 1996 Units Financing and Convertible Bridge Notes
are being registered for resale to the public in this Offering. In addition, the
Company has agreed with the Representative, under certain circumstances, to
register the shares of Common Stock and Class A Warrants (and the shares of
Common Stock underlying such Class A Warrants) included in the Representative's
Unit Purchase Option for distribution to the public. Exercise of these
registration rights could involve a substantial expense to the Company and could
prove a hindrance to future financing. See "Underwriting." The Company has also
reserved 350,000 shares of its Common Stock for issuance upon exercise of stock
options which may be granted pursuant to the Company's 1996 Incentive Stock
Option Plan and 637,500 of such shares for issuance upon conversion of its
Series A and Series B Preferred Stock. Exercise of the Unit Purchase Option, the
Class A Warrants, and options that may be granted under the 1996 Incentive Stock
Option Plan and/or conversion of the Series A and/or Series B Preferred Stock,
will reduce the percentage of Common Stock held by the public stockholders
purchasing Units in this Offering. Further, the terms on which the Company could
obtain additional capital during the life of such Securities may be adversely
affected, and it should be expected that the holders of such convertible
securities would exercise them at a time when the Company would be able to
obtain equity capital on terms more favorable than those provided for by such
convertible securities. See "Dilution" and "Underwriting".
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION WITH EXERCISE
OF THE CLASS A WARRANTS
On the Effective Date, the Class A Warrants offered hereby shall be
immediately detachable from the Units and separately tradable from the Shares.
Although the Securities offered hereby will not be sold to purchasers in
jurisdictions in which such Securities are not registered or otherwise qualified
for sale, purchasers who buy Class A Warrants in the aftermarket may reside or
may move to jurisdictions in which the shares issuable upon exercise of the
Class A Warrants are not so registered or qualified. In this event, the Company
would be unable to issue shares of Common Stock to the holder desiring to
exercise a Class A Warrant unless the shares could be registered or otherwise
qualified for sale in the jurisdiction in which such purchaser resides, or an
exemption from such registration or qualification exists in such
15
<PAGE> 22
jurisdiction. No assurance can be given that the Company will be able to effect
any required registration or qualification. See "Description of Securities."
NECESSITY TO MAINTAIN CURRENT PROSPECTUS
After the Effective Date, the shares of Common Stock issuable upon
exercise of the Class A Warrants included in this Registration Statement will be
registered under the Securities Act. The Company will be required, from time to
time, to file post-effective amendments to such Registration Statement in order
to maintain a current prospectus with respect to such shares. The Company has
undertaken to file post-effective amendments and to use its best efforts to
cause such post-effective amendments to become effective. If for any reason a
post-effective amendment to the Registration Statement does not become effective
or is not maintained with respect to the shares underlying the Class A Warrants
registered pursuant to this Registration Statement, the respective holders of
such Warrants will be prevented from exercising these warrants.
REPRESENTATIVE'S POSSIBLE ABILITY TO DOMINATE OR INFLUENCE THE MARKET FOR THE
SECURITIES
A significant amount of the Securities offered hereby may be sold to
customers of the Representative. This may adversely affect the market for and
liquidity of the Securities if additional broker/dealers do not make a market in
the Securities. Although it has no legal obligation to do so, the Representative
may from time to time act as a market maker and otherwise effect transactions in
the Securities. The Company cannot ensure that other broker/dealers besides the
Representative will make a market in the Securities. In the event that other
broker/dealers fail to make a market in the Securities, the possibility exists
that the market for, and liquidity of, the Company's Securities could be
adversely affected, which in turn could affect stockholders' ability to trade
the Securities.
Additionally, commencing twelve (12) months after the Effective Date,
the Representative may participate in the solicitation of the exercise of the
Class A Warrants. In connection with the solicitation of Warrant exercises,
unless the Representative is granted an exemption by the Commission from Rule
10b-6 under the Exchange Act, the Representative and any other soliciting
broker-dealer will be prohibited from engaging in any market making activities
with respect to the Company's securities for the period commencing either two
(2) or nine (9) business days (depending on the market price of the Common
Stock) prior to any solicitation activity until the later of (i) the termination
of such solicitation activity, or (ii) the termination (by waiver or otherwise)
of any right that the Representative or any other soliciting broker-dealer may
have to receive a fee for the exercise of Class A Warrants following such
solicitation. As a result, the Representative or any other soliciting
broker-dealer may be unable to provide a market for the Company's securities,
should it desire to do so, during certain periods while the Class A Warrants are
exercisable. Such restrictions may adversely affect the price and liquidity of
the shares of Common Stock and Class A Warrants.
If the Representative should exercise its registration rights to effect
the distribution of Securities underlying the Unit Purchase Option, the
Representative, prior to and during such distribution, will be unable to make a
market in the Company's securities. If the Representative ceases to make a
market in the Common Stock or Class A Warrants, the market and market prices for
the Common Stock or Class A Warrants may be materially adversely affected, and
holders thereof may be unable to sell or otherwise dispose of the Common Stock
or Class A Warrants.
POSSIBLE RESALES UNDER RULE 144; SHARES ELIGIBLE FOR IMMEDIATE SALE ON BEHALF OF
SELLING SECURITYHOLDERS
Upon consummation of this Offering, an aggregate of 940,909 outstanding
shares of Common Stock, 584,000 outstanding Class A Warrants (and the 584,000
shares of Common Stock for which
16
<PAGE> 23
such Class A Warrants may be exercised), and 300,000 outstanding shares of
Series B Preferred Stock (and the 300,000 shares of Common Stock into which it
may be converted) will not have been registered under the Securities Act. In
addition, the 337,500 shares of Series A Preferred Stock that were issued in the
Company's 1996 Units Financing will also not have been registered under the
Securities Act, although the 337,500 shares of Common Stock into which such
Series A Preferred stock are convertible are being registered hereby (such
unregistered shares of Common Stock and Preferred Stock and Class A Warrants
being collectively referred to herein as the "Restricted Securities"). The
Restricted Securities may, however, under certain circumstances, be available
for public sale by means of ordinary brokerage transactions in the open market
pursuant to Rule 144, promulgated under the Securities Act, subject to certain
limitations. In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a two-year holding period may, under certain
circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of Common Stock
or the average weekly trading volume of the class during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of securities, without any limitation, by a person who is not an affiliate of
the Company and who has satisfied a three-year holding period. The holders of
all of the shares of the Common Stock of the Company currently outstanding have
agreed not to publicly offer, sell or otherwise dispose of directly or
indirectly, any of their shares of Common Stock for a period of 24 months
following the consummation of this Offering without the prior written consent of
the Representative. Any substantial sale of Common Stock pursuant to Rule 144
may have an adverse effect on the market price of the Securities. See "Shares
Eligible for Future Sale", "Underwriting", and "Selling Securityholders."
Prospective investors should be aware that the possibility of sales
may, in the future, have a depressive effect on the price of the Company's
Common Stock in any market which may develop, and therefore, the ability of any
investor to market his shares may be dependent directly upon the number of
shares that are offered and sold. Affiliates of the Company may sell their
shares during a favorable movement in the market price of the Company's Common
Stock which may have a depressive effect on its price per share.
EFFECTS OF DELISTING FROM NASDAQ SMALLCAP MARKET
The Company has applied for quotation of the Common Stock and Class A
Warrants on the NASDAQ SmallCap Market, although there can be no assurance that
such application for quotation will be approved, or, if approved, that the
Company will be able to maintain the qualification standards for listing of the
Common Stock on the NASDAQ SmallCap Market. Continued inclusion on the NASDAQ
SmallCap Market will require the Company to have at least two active market
makers in the Common Stock, total assets of $4 million, capital and surplus of
$2 million, a minimum bid price for the Common Stock of $3.00 per share, 300
Shareholders of its Common Stock, and at least 100,000 shares of its Common
Stock held by non-affiliates having a market value of $1,000,000 or more. If the
Company fails to maintain the listing criteria, the Common Stock will be subject
to delisting. In such event, trading, if any, in the Common Stock would
thereafter be conducted in the over-the-counter market on the National
Association of Securities Dealers' "Electronic Bulletin Board." Consequently,
the liquidity of the Company's Common Stock would likely be impaired, not only
in the number of shares, which could be bought and sold, but also through delays
in the timing of the transactions, and reduction in security analysts' and the
news media's coverage, if any, of the Company. As a result, prices for the
Company's shares of Common Stock may be lower than might otherwise prevail.
APPLICABILITY OF "PENNY STOCK RULES"
Federal regulations under the Exchange Act regulate the trading of
so-called "penny stocks" (the "Penny Stock Rules"), which are generally defined
as any security not listed on a national securities exchange or NASDAQ, priced
at less than $5.00 per share, and offered by an issuer with limited net
17
<PAGE> 24
tangible assets and revenues. In addition, equity securities listed on NASDAQ
that are priced at less than $5.00 per share are deemed penny stocks for the
limited purpose of Section 15(b)(6) of the Exchange Act. Therefore, if, during
the time in which the Common Stock is quoted on the NASDAQ SmallCap Market, the
Common Stock is priced below $5.00 per share, trading of the Common Stock will
be subject to the provisions of Section 15(b(6) of the Exchange Act, which makes
it unlawful for any broker-dealer to participate in a distribution of any penny
stock without the consent of the Commission if, in the exercise of reasonable
care, the broker-dealer is aware of, or should have been aware of, the
participation of a previously sanctioned person. In such event, it may be more
difficult for broker-dealers to sell the Common Stock, and purchasers of the
shares of Common Stock offered hereby may have difficulty in selling their
shares in the future in the secondary trading market.
In the event that the Company's Common Stock is delisted from the
NASDAQ SmallCap Market and the Company fails other relevant criteria, trading,
if any, of the Common Stock would be subject to the full range of the Penny
Stock Rules. Under these rules, broker-dealers must take certain steps prior to
selling a "penny stock," which steps include: (i) obtaining financial and
investment information from the investor: (ii) obtaining a written suitability
questionnaire and purchase agreement signed by the investor; and (iii) providing
the investor a written identification of the shares being offered and in what
quantity. If the Penny Stock Rules are not followed by the broker-dealer, the
investor has no obligation to purchase the shares. Accordingly, delisting from
the NASDAQ SmallCap Market and the application of the comprehensive Penny Stock
Rules may make it more difficult for broker-dealers to sell the Company's Common
Stock, and purchasers of the shares of Common Stock in the Offering may have
difficulty in selling their shares in the future in the secondary trading
market.
18
<PAGE> 25
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 800,000 Units
offered hereby are estimated to be $3,170,000 after deducting estimated
underwriting discounts, commissions and other offering expenses at an
anticipated public offering price of $5.05 per Unit. The Company intends to use
such net proceeds as follows:
<TABLE>
<CAPTION>
Application of Proceeds Approximate Dollar Amount Percentage
----------------------- ------------------------- ----------
<S> <C> <C>
Acquisition of Inventory (1) $ 900,000 28.4
Acquisition of Beverage Wholesalers (2) 600,000 18.9
Acquisitions of Additional Brands (3) 1,000,000 31.6
Implementation of Sales and Marketing Plan (4) 150,000 4.7
Working Capital (5) 520,000 16.4
---------- ------
TOTAL $3,170,000 100.0
========== ======
</TABLE>
- --------------------
(1) Of the $900,000 to be used for acquisition of inventory, approximately
$600,000 will be used to acquire additional inventory of Pabst
Products. Currently, the Company's inventory of such products averages
approximately seven (7) days' supply. Management believes that normal
inventory levels should average thirty (30) days' supply. The
additional inventory will permit the Company to adequately meet
anticipated customer demand for Pabst Products. The remaining $300,000
will be used to increase inventories of other brands that the Company
currently distributes.
(2) Management of the Company intends to complete the acquisition of two
(2) to four (4) distributors that have previously acquired exclusive
rights to distribute alcoholic products other than Pabst Products. The
Company intends to seek the acquisition of distributors with the
distribution rights to other beverage brands of beer, soda, water, tea,
juice and wine coolers. The Company has no intention of acquiring any
distributors from related entities and does not have any present plans,
proposals, arrangements or understandings regarding any acquisitions.
See "Use of Proceeds." The amount allocated to the acquisition of such
distributors would be utilized, together with other debt or equity
securities of the Company, to complete such acquisitions. Management is
not currently negotiating for the acquisition of any such distributors
and has no plans, proposals, arrangements or understandings with
respect to such acquisitions. The Company does not intend to acquire
any wholesaler from affiliates of the Company. Moreover, there can be
no assurances that the Company will complete any such acquisitions.
(3) Management of the Company plans to utilize approximately $1,000,000 of
the proceeds of this Offering to acquire exclusive rights to distribute
between two (2) and four (4) additional brands of alcoholic and/or
non-alcoholic products in the areas in which it currently distributes
Pabst Products. Depending on the brand(s) for which it acquires such
distribution rights, the Company may be required to pay acquisition
fees to the prior holder of such distribution rights, which it would
partially finance out of the proceeds of this Offering. Negotiations
are in a preliminary stage, and no agreement or letter of intent has
been executed by the parties. There can be no
19
<PAGE> 26
assurances that the Company will be successful in its efforts to
successfully complete an agreement with such distributor or, even if it
is successful, that it will be able to obtain the consent of the
brewery that produces such products, to such distribution arrangement.
(4) Such amount will be used primarily as compensation for additional sales
people and to purchase point-of-sale promotional items, such as neon
signs, "shelf-talkers," banners, and other similar promotional items.
(5) Working capital includes funds for inventory, support of accounts
receivable and the hiring of additional personnel.
The foregoing represents the Company's estimate of the allocation of
the net proceeds of this Offering, based on the current status of its product
line, its sales expectations, anticipated operating expenses, inventory
requirements and current marketing plans. If the Company experiences unforeseen
delays or cost increases or encounters marketing problems, the Company may
modify the intended utilization of proceeds as necessary to allow it to conserve
capital by slowing the speed of inventory build-up and delaying other
expenditures while attempting to resolve such problems.
The Company anticipates that the proceeds of this Offering, together
with revenues from operations, will satisfy its cash requirements for at least
the next twenty-four (24) months. This estimate is based principally upon the
Company's assumptions of (i) continuing demand for its products, and (ii) its
ability to meet the supply requirements for customer demand and inventory
buildup. No assurance can be given that future unforeseen events or
contingencies will not affect the validity of these assumptions. Any significant
favorable or unfavorable deviation in the Company's sales performance could
significantly affect the timing and amount of additional financing required.
There is no assurance that financing of any kind will be available to the
Company if required, and if available, that it will be on terms acceptable to
the Company.
Any additional net proceeds received upon the exercise of the Class A
Warrants or any options that may be granted under the Company's 1996 Incentive
Stock Option Plan will be used for working capital. Pending the use of the
proceeds of this Offering, the funds will be deposited in interest or
non-interest bearing accounts, or invested in commercial paper, certificates of
deposit, governmental securities or similar instruments.
DIVIDEND POLICY
The Company has not previously paid any dividends since its inception
and, except for cash dividends, if any, to be paid on its outstanding Series A
Preferred Stock and the Series B Preferred Stock to be issued upon completion of
the Merger, currently intends to follow a policy of retaining all of its
earnings, if any, to finance the development and continued expansion of its
business. Except for dividends to be paid on the Company's Series A and Series B
Preferred Stock, which dividends may be paid in either cash or shares of the
Company's Common Stock, there can be no assurance that dividends will ever be
paid by the Company. Investors who anticipate the need for dividends from their
investment should take into consideration this factor, among others, in deciding
whether they should purchase Units and if, they purchase Units, whether they
should exercise their Class A Warrants to purchase shares of the Company's
Common Stock.
20
<PAGE> 27
CAPITALIZATION
The following table sets forth the capitalization of the Company
assuming the proposed Merger had taken place on or prior to September 30, 1996.
The as adjusted amounts give effect to the sale of the 800,000 Units offered by
the Company hereby, the application of the estimated net proceeds therefrom and
the conversion of the bridge notes outstanding at September 30, 1996. The table
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
September 30, 1996
Actual As Adjusted(1)
------ --------------
<S> <C> <C>
Bridge Notes $ 197,500 $ --
Long-term debt, net of current portion 648,963 648,963
---------- ----------
Stockholders' equity:
Preferred Stock, par value $.01 per share;
1,000,000 shares authorized;
337,500 Series A shares issued and
outstanding; 1,350,000 1,350,000
300,000 Series B shares
issued and outstanding, as adjusted 3,000 3,000
Common Stock, par value $.001 per share
20,000,000 shares authorized;
1,240,909 shares issued and
outstanding prior to Offering
2,040,909 shares issued and outstanding
after Offering(2) 1,241 2,041
Additional paid-in capital 348,333 3,715,033
Retained earnings(3) 60,853 25,853
Total stockholders' equity 1,763,927 5,095,927
---------- ----------
Total capitalization $2,609,890 $5,744,890
========== ==========
</TABLE>
- --------------------
(1) As adjusted for the issuance of 800,000 shares of the Company included
as part of the Units in this Offering.
(2) Excludes: (i) 337,500 shares of Common Stock reserved for issuance upon
conversion of shares of Series A Preferred Stock; (ii) 300,000 shares
of Common Stock that may be issued upon conversion of shares of Series
B Preferred Stock (); (iii) 400,000 shares of Common Stock reserved for
issuance upon exercise of the Class A Warrants being offered hereby;
(iv) 3,175,000 shares of Common Stock reserved for issuance upon
exercise of the Class A Warrants that were issued in the Company's 1996
Units Financing and that will be issued upon conversion of the
Convertible Bridge Notes; (v) 584,000 shares of Common Stock reserved
for issuance upon exercise of the Class A Warrants issued to certain
members of management of the Company in December 1995; (vi) 120,000
shares of Common Stock reserved for issuance upon exercise of the
Representative's Unit Purchase Option and the Class A Warrants included
therein; and (vii) 350,000 shares of Common Stock that may be issued
under the Company's 1996 Incentive Stock Option Plan.
(3) Reflects the write-off, net of tax benefit, of unamortized deferred
loan costs in the amount of $35,000 as a result of the assumed
conversion of the bridge notes.
21
<PAGE> 28
DILUTION
As of September 30, 1996, the Company had a deficiency in its net
tangible book value (total tangible assets, which excludes the amortized cost of
the Pabst license of $1,480,000 at September 30, 1996, less total liabilities)
of $(107,278), or approximately $.09 per share of Common Stock. After giving
effect to the sale of 800,000 Units offered hereby and the receipt of the net
proceeds therefrom (after deduction of underwriting discounts, the
Representative's non-accountable expense allowance, and the expenses of this
Offering), and the conversion of the Bridge Notes into Class A Warrants the pro
forma net tangible book value of the Company will be approximately $3,615,927,
or $1.77 per share of Common Stock. This represents an immediate dilution of
$3.23 or 64.6% for each share of Common Stock purchased by public investors and
an immediate increase of $1.79 per share to existing shareholders. The following
table, which illustrates this dilution, assumes that there has been no
conversion of Series A Preferred Stock or exercise of the Class A Warrants
issued in this Offering or any additional outstanding Class A Warrants, the
Representative's Unit Purchase Option or options that may be granted under the
Company's 1996 Incentive Stock Option Plan:
<TABLE>
<S> <C>
Public offering price per share $5.00
Net deficiency intangible book value per share (.02)
at September 31, 1996
Increase in net tangible book value per share of Common Stock
attributable to public investors 1.79
-----
Pro forma net tangible book value per share after Offering 1.77
-----
Dilution per share to public investors $3.23
=====
</TABLE>
The following table summarizes as of September 30, 1996 the differences
between existing stockholders and public investors with respect to the number
and percentage of shares of Common Stock purchased from the Company, the total
consideration and percentage of total consideration paid to the Company, and the
average consideration per share paid (at an assumed initial public offering
price of $5.00 per share):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
---------------- ------------------- -------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders 1,240,909 60.8 $ 352,574 8.1 $0.28
Public Investors 800,000 39.2 4,000,000 91.9 5.00
--------- ----- ---------- ----- -----
Total 2,040,909 100.0 $4,352,574 100.0 2.13
========= ===== ========== ===== =====
</TABLE>
22
<PAGE> 29
SELECTED FINANCIAL DATA
The following selected financial data at September 30, 1996 and for the
nine months ended September 30, 1996 and the two years ended December 31, 1995
have been derived from the financial statements of the Company and VSI, that are
included elsewhere in this Prospectus and that (except for the nine months ended
September 30, 1996 and 1995) have been audited by Feldman Radin & Co., P.C.,
whose reports with respect thereto are also included elsewhere in this
Prospectus. The financial information contained in this Prospectus for periods
prior to January 3, 1996 (the date that Capital obtained the Pabst Distribution
Rights) relates solely to VSI. For periods on or after January 3, 1996, the
financial information relates to the Company and VSI on a combined basis as if
the proposed Merger had been consummated on January 3, 1996. This information
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations". Operating results for the
nine month period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for an entire fiscal year.
<TABLE>
<CAPTION>
Nine (9) Months Ended September 30 Years Ended December 31
---------------------------------- --------------------------------
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 9,709,520 $ 5,550,817 $ 6,926,789 $ 12,135,655
Gross Margin 97,763 397,757 504,300 678,904
Net Income (Loss) 143,689 56,502 (15,308) 58,616
Pro Forma Net Income
(Loss)(1)(2) $ (14,311) $ (161,998) $ (311,948) $ (239,182)
============ ============ ============ ============
Pro Forma Net Income (Loss)
Per Common Share $ (.06) $ (.13) $ (.25) $ (.19)
============ ============ ============ ============
<CAPTION>
BALANCE SHEET DATA: September 30, 1996
Working Capital $ 505,270
Total Assets 2,863,015
Long Term Debt 648,963
Stockholders' Equity (3) 1,763,427
</TABLE>
- --------------------
(1) For the years presented Mr. Carmine Stella received no compensation
from either VSI or the Company. For the nine months ended September 30,
1996, Mr. Stella received a salary of $50,000 pursuant to his
employment contract consummated on August 1, 1996 setting forth an
annual salary of $300,000. The Pro Forma results reflect the impact of
this salary.
23
<PAGE> 30
(2) For the years ended December 31, 1995 and 1994 and the nine months
ended September 30, 1996, VSI operated as an S corporation for federal
income tax purposes and, accordingly, federal income taxes were the
obligation of VSI's shareholders. In contemplation of this Offering,
VSI's S corporation tax status will be revoked and, accordingly, the
Company will be required to pay income taxes on its taxable income.
(3) The Company has never paid cash dividends on its Common Stock. See
"Dividend Policy."
24
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the information contained in the Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus. The financial information contained in
this Prospectus for periods prior to January 3, 1996 (the date that Capital
obtained the Pabst Distribution Rights) relates solely to VSI. For periods on or
after January 3, 1996, the financial information relates to the Company and VSI
on a combined basis as if the proposed merger had been consummated on January 3,
1996.
RESULTS OF OPERATIONS
Nine (9) months ended September 30, 1996 ("the 1996 Interim Period") as compared
to the nine (9) months ended September 30, 1995 ("the 1995 Interim Period"):
Net sales for the nine months ended September 30, 1996 were $9,709,520,
reflecting an increase of approximately $4,158,703, or approximately 75%, from
the $5,550,817 of net sales for the nine months ended September 30, 1995. Net
sales for the 1996 Interim Period were favorably impacted by the Company's
acquisition, in January 1996 of its license to distribute certain products (the
"Pabst Products") of the Pabst Brewery Company in the five boroughs of New York
City and certain other surrounding counties. Net sales for the 1995 Interim
Period continued the trend from fiscal 1994, wherein management had determined
to scale back its distribution of certain products as a result of lower gross
margins in those products. The determination to scale back distribution resulted
from the decision of Anheuser Busch to discontinue the sales discount that it
has historically afforded to the Company's tier of distributors. Without this
favorable discount the Company determined that it would not favorably compete
with their primary distributors. Net sales of Pabst products were approximately
$5,300,000 during the 1996 Interim Period.
Cost of sales was $8,737,757, or 90% of net sales, for the 1996 Interim
Period, as compared to $5,153,060, or 93% of net sales, for the 1995 Interim
Period. The increase, in dollar terms, of $3,584,697 in cost of sales from the
1995 Interim Period to the 1996 Interim Period reflects the significantly higher
net sales in the 1996 Interim Period as compared to the 1995 Interim Period.
The Company's gross margin was $971,763, or 10% of net sales, in the
1996 Interim Period as compared to $397,757, or 5.7% of net sales, in the 1995
Interim Period. The increase, in dollar terms, is a result of increased sales in
the 1996 Interim Period as compared to the 1995 Interim Period. In addition,
specifically as a result of the acquisition of the license to distribute Pabst
Products, gross margin as a percentage of net sales increased in the 1996
Interim Period, as compared to the 1995 Interim Period. The Company's gross
margins on sales of Pabst Products are significantly higher than on sales of
other products, and management expects the improving trend in both net sales and
gross margin to continue in 1996, although there can be no assurances that this
will occur.
Selling and delivery expenses were $78,750 in the 1996 Interim Period,
as compared to 30,636 for the 1995 Interim Period reflecting additional
marketing efforts and incentives offered in the 1996 interim period.
General and administrative expenses were $680,328 for the 1996 Interim
Period, as compared to $296,531 for the 1995 Interim Period. This represents an
increase of $833,797, or 129%, from the 1995 to the 1996 Interim Period.
Amortization of intangible assets was $120,000 in the 1996 Interim Period, as
compared to none in the 1995 Interim Period, as a result of the license acquired
in January 1996. The cost of license agreement is being amortized over ten (10)
years. Other general and administrative expenses fluctuated sightly upward from
the 1995 Interim Period to the 1996 Interim Period
25
<PAGE> 32
as a result of marginal increases in office expense, utilities and repairs, and
maintenance expenses.
Interest expense was $51,996 for the 1996 Interim Period, as compared
to $7,588 for the 1995 Interim Period. This represents an increase of $44,408,
or 585%. The increase in interest expense is a result of higher borrowings
during the 1996 Interim Period as a result of the debt incurred (approximately
$800,000) to acquire the license to distribute Pabst Products, as will the
amortization of deferred loan costs in 1996.
Management believes that interest expense for the balance of 1996 will
exceed interest expense for the year ended December 31, 1995 as a result of the
aforementioned liability incurred in 1996.
Year Ended December 31, 1995 ("Fiscal 1995") as compared to the year ended
December 31, 1994 ("Fiscal 1994")
Net sales were $6,926,789 for fiscal 1995, as compared to $12,135,655
for fiscal 1994. The decline in net sales of $5,208,866, or approximately 43%,
resulted from VSI's decision to withdraw as a distributor of certain
Anheuser-Busch products. The decision to withdraw as a distributor of certain
Anheuser-Busch products resulted from Anheuser-Busch's discontinuance of certain
sales discounts that it has historically afforded to the Company. Without this
discount the Company determined that it could not compete with Anheuser Busch's
primary distributors.
Anheuser-Busch ("AB") instituted a rebate program for retailers who
sell AB beer products ("Products"). The rebate was passed on to the retailers by
the AB Franchise Wholesalers. Consequently, the Products were being sold to the
retailers with the rebate at a price which left the middle level C- License beer
distributer like VSI at an economic disadvantage.
VSI could not handle the Products, distribute the Products and mark up
the price at a price that was competitive with the low price to retailers
created by the AB Rebate Program. AB refused to give the benefit of the rebate
program to VSI and offer distributors. Consequently, VSI was forced through
economics to withdraw as an active distributor of various AB Products.
Cost of sales was $6,422,489 for fiscal 1995 as compared to $11,456,751
for fiscal 1994. Cost of sales declined, both in dollar terms and as a
percentage of net sales, in part due to VSI's decision to withdraw from the
Anheuser-Busch market, where gross margins were extremely competitive. As a
result, gross margin declined from $678,904 in fiscal 1994 to $504,300 in fiscal
1995. Gross margin as a percentage of net sales increased from 5.6% in fiscal
1994 as a result of the discontinuance of the distribution of certain low margin
products, including the Anheuser-Busch products referred to herein.
Selling and delivery expenses declined from $78,175 in fiscal 1994 to
$56,083 in fiscal 1995. This $22,092, or 28% decline, is a result of decreased
commissions as a result of lower sales in fiscal 1995 as compared to fiscal
1994.
General and administrative expense declined from $530,649 in fiscal
1994 to $445,689 in fiscal 1995, a decrease of $84,960 or 16%. The principal
reason for this decline was a decline in rent expense of $95,890 as VSI was able
to sublease a portion of its unutilized leased space in 1995. Other general and
administrative expenses changed slightly from fiscal 1994 to fiscal 1995.
Interest expense increased in fiscal 1995 by $5,214 as a result of slightly
higher borrowings.
LIQUIDITY AND CAPITAL RESOURCES
26
<PAGE> 33
VSI has historically financed its operations and capital expenditures
primarily through cash flow from operations, bank borrowing and other short-term
credit facilities. Thus, for fiscal 1995 and fiscal 1994 VSI's operating
activities generated positive cash flow of $88,781 and $71,755, respectively. As
capital expenditures were not required in either of these two years, cash
generated by operating activities was utilized to repay indebtedness,
distributions to stockholders and retention for working capital.
Nevertheless, in the 1996 Interim Period the Company utilized
approximately $163,000 in operating activities, as the Company extended credit
terms to certain customers, thereby increasing accounts receivable by
($400,416). Management believes that this increase was necessary in view of the
change in the business dynamics as a result of the acquisition of the right to
become the exclusive distributor of Pabst Products in the Territory. Management
further believes that these increases will not be as significant in the future
since they are related to the start up of the Pabst Products distribution.
Hence, management believes the cash flow from operations will become positive in
the remainder of 1996, although there can be no assurances that this will occur.
During the 1996 Interim Period, the Company paid $800,000 towards the
acquisition of the acquisition of the right to become the exclusive in-Territory
distributor of Pabst Products and signed a promissory note for the balance of
the purchase price payable over 10 years, together with interest at 9% per
annum.
In order to finance the acquisition of the right to become the
exclusive distributor of Pabst Products referred to herein, as well as to
provide cash flow during the operating cash flow deficit during the 1996 Interim
Period, the Company sold $1,350,000 of Units consisting of its 7% Cumulative
Convertible Series A Preferred Stock and Class A Warrants, sold $250,000 of its
Convertible Bridge Notes, and borrowed $185,000 from an officer (and significant
stockholder).
The Company expected that capital expenditures necessary to the
implementation of its marketing strategies in the next year will not be
significant because the Company's existing capital assets are sufficient with
respect to its current expansion plans.
27
<PAGE> 34
BUSINESS
Capital Beverage Corporation was incorporated under the laws of the
State of Delaware on December 5, 1995. In January 1996, the Company acquired
from Consolidated Beverage Corporation, the right to become the exclusive
distributor ("Pabst Distribution Rights") for certain beer and malt liquor
products ("Pabst Products") manufactured by Pabst Brewing Company ("Pabst"). The
consideration paid by the Company for the Pabst Distribution Rights was One
Million Six Hundred Thousand Dollars ($1,600,000), payable Eight Hundred
Thousand Dollars ($800,000) in cash at or prior to closing, and the balance by
delivery of a series of 120 promissory notes, each in the amount of Ten Thousand
Dollars ($10,000) (collectively, the "Pabst Notes"). The Pabst Notes bear
interest at 9% per annum, which interest is included in the monthly $10,000
payments. If the Company defaults in payment of any of the Pabst Notes, such
default may result in a re-conveyance of the Pabst Distribution Rights to
Consolidated Beverage Corporation. Any such loss of the Pabst Distribution
Rights may have a materially adverse effect on the Company's financial condition
and results of operations.
Subject to the conditions set forth in the agreement pursuant to which
the Company acquired the Pabst Distribution Rights, the Company became the
exclusive distributor of the following Pabst Products in the following areas
(collectively, the "Territory"):
Borough of Manhattan: Pabst Blue Ribbon Beer, Pabst Extra Light Beer,
Pabst Light Beer, Pabst Genuine Draft Beer, Pabst 10E Draft Beer, Pabst Non Ala
Beer, Andeker Beer, Hamm's Beer, Hamm's Special Light Beer, Hamm's Genuine Draft
Beer, Big Bear Malt Liquor, Olde English "800" Malt Liquor, Olde English "800"
Genuine Draft Malt Liquor, "800" Ice Malt Liquor and Old Tankard Ale.
Borough of the Bronx: Hamm's Beer, Hamm's Special Light Beer, Hamm's
Genuine Draft Beer, Olde English "800" Malt Liquor, Olde English "800" Genuine
Draft Malt Liquor and "800" Ice Malt Liquor.
Borough of Queens: In that portion of Queens County situated west and
north of the following described boundary lines: starting at a point in Flushing
Bay at the boat basin; thence southerly along Grand Central Parkway to the
intersection of Union Turnpike and Interboro Parkway to the western boundary of
Queens County, thence northerly along the western boundary of Queens County to
the East River, being the terminal of Queens County: Olde English "800" Malt
Liquor, Olde English "800" Genuine Draft Malt Liquor and "800" Ice Malt Liquor.
Borough of Staten Island: Pabst Blue Ribbon Beer, Pabst Extra Light
Beer, Pabst Light Beer, Pabst Genuine Draft Beer, Pabst 10E Draft Beer, Pabst
Non Ala Beer, Andeker Beer, Hamm's Beer, Hamm's Special Light Beer, Hamm's
Genuine Draft Beer, Big Bear Malt Liquor, Olde English "800" Malt Liquor, Olde
English "800" Genuine Draft Malt Liquor, "800" Ice Malt Liquor and Old Tankard
Ale. Westchester County: In that portion of Westchester County situated south of
Interstate Highway No. 287, but not including the Towns of Ardsley and Dobbs
Ferry: Hamm's Beer, Hamm's Special Light Beer and Hamm's Genuine Draft Beer.
State of New York: Old Tankard Ale.
DISTRIBUTORSHIP AGREEMENT WITH PABST
Duties and Responsibilities: At the time the Company acquired the Pabst
Distribution Rights, it simultaneously entered into an agreement with Pabst (the
"Distributorship Agreement") to become the exclusive distributor for Pabst
Products within the Territory. Pursuant to the Distributorship Agreement, the
Company is required to solicit and seek to service every retail account within
the Territory and to use its best efforts to market, promote and sell the Pabst
Products within such Territory. The Company is prohibited under the
Distributorship Agreement from selling or supplying Pabst Products to customers
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<PAGE> 35
located outside the Territory.
The responsibilities of the Company under the Distributorship Agreement
include, but are not limited to: (i) establishment and maintenance of a planned
overall sales and contact program on a continuing basis; (ii) establishment and
maintenance of a place of business within the Territory, including distribution
and warehouse facilities; (iii) establishment and maintenance of stock rotation
procedures for the Pabst Products in the warehouse, on trucks and in retail
accounts to the extent permitted by law and adherence to all stated policies of
Pabst in regard to overage Pabst Products (with the cost of replacing overage
products to be absorbed by the Company); (iv) establishment and maintenance of a
fleet of trucks; (v) cooperation with Pabst in the distribution of point-of-sale
materials necessary to support Pabst Products; (vi) personal involvement of
management of the Company in maintaining satisfactory contact with all accounts;
(vii) maintenance of adequate capital and cash flow to insure competitive
strength in facilities, inventory, equipment, personnel, advertising and
promotions; (viii) maintenance of a continuous in-house training program where
practicable and attendance at sales meetings and training schools scheduled by
Pabst; and (ix) maintenance of sufficient inventories and mix of package types
as reasonably requested by Pabst and justified by market conditions existing in
the Territory.
Terms of Sale. Any orders for the Pabst Products placed by the Company
will be subject to the written approval of Pabst, and Pabst shall not be
obligated to fill such order. Sales made by Pabst to the Company shall be upon
such terms and prices as are approved by the Pabst Credit and Pricing
Departments from time to time in their discretion. The Company is required under
the Distributorship Agreement to grant to Pabst a security interest in the Pabst
Products to secure the performance of all obligations owed by it to Pabst.
Termination. Pabst may terminate the Distributorship Agreement
immediately upon the occurrence of any of the following events: (i) assignment
or attempted assignment for the benefit of creditors by the Company or
insolvency of the Company; (ii) institution of voluntary or involuntary
bankruptcy proceedings or for receivership or dissolution; (iii) non-payment by
the Company of sums past due and owing to Pabst, which sums continue to remain
owing upon the expiration of twenty (20) days after written notice of
non-payment to the Company by Pabst; (iv) fraudulent conduct of the Company; (v)
loss by the Company of any federal, state or local license required by law or
necessary in order to carry out the Company's duties as a distributor of Pabst
Products; (vi) attempted assignment of the Distributorship Agreement by the
Company or change in control of the Company's business without the prior written
consent of Pabst; (vii) violation by the Company of its obligations to sell and
distribute the Pabst's Products only within the Territory and/or its obligation
to solicit every retail account within the Territory and to use its best efforts
to market and promote Pabst Products and protect their quality.
Deficiency Termination. Pabst may also terminate the Distributorship
Agreement if any of the following occurs: (i) the Company fails to perform its
duties and responsibilities in the reasonable judgment of Pabst; or (ii) other
breaches by the Company of its obligations contained in the Distributorship
Agreement (a "deficiency termination"). In the case of any such default, Pabst
has agreed to provide the Company with notice of the manner in which such
default has occurred and to allow the Company not less than ninety (90) days to
cure such default. Moreover, in the event of any such deficiency termination,
Pabst will pay the Company an amount equal to twice the Company's pre-tax net
earnings arising from the sale and distribution of the Pabst Products during the
immediate preceding annual accounting period of the Company. In addition, Pabst
will purchase from the Company its entire inventory of saleable Pabst Products
at an amount equal to the cost of such inventory plus a handling charge of $.10
per case, $.50 per half-barrel and $5.25 per quarter-barrel. Upon request by the
Company, Pabst will purchase from the Company, at the then fair market value,
those local delivery vehicles regularly used by the Company in the sale and
distribution of Pabst Products.
Uniform Termination. Pabst also has the right to terminate the
Distributorship Agreement if Pabst
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simultaneously terminates all other agreements that are substantially similar to
the Distributorship Agreement between the Company and Pabst.
Partial Termination. Pabst has the right to assign any individual brand
of beer listed as a Pabst Product to another distributor if, in the reasonable
judgment of Pabst, the Company cannot or does not adequately promote and/or
market such brand of beer. Pabst also has the right to effect a termination of
the part of the Company's Territory if, in its reasonable judgment, the Company
does not adequately promote and market Pabst Products in that part of the
Territory.
Change of Control Termination. Pabst also has the right to terminate
the Distributorship Agreement if there is a change in ownership or control in
the Company's business which occurs without the prior written consent of Pabst
(which consent may not be unreasonably withheld). For purposes of the
Distributorship Agreement, the term "control" means record or beneficial
ownership of (i) thirty-three percent (33%) or more of the Company's voting
stock; (ii) thirty-three percent (33%) or more of its business; or (iii)
thirty-three percent (33%) or more interest in an entity which owns fifty-one
percent (51%) or more of the Company's voting stock.
STRATEGY
Management of the Company believes it has developed a strategy to
effectively market, sell and distribute Pabst Products throughout the Territory.
This strategy includes plans to expand the Company's customer base; to increase
sales and marketing efforts; and to develop a distribution network utilizing
independent licensed distributor wholesalers ("Wholesalers") that will result in
reduced costs.
EXPANDING CUSTOMER BASE
In order to expand its customer base for Pabst Products in the
Territory, the Company intends to concentrate its efforts on increasing its
sales of Pabst Products through supermarket chains, such as Waldbaums, A&P,
Grand Union and Pathmark; chain convenience stores, such as 7-Elevens, Mobil
Marts, Hess Stores and Shell Marts; and beverage centers such as Thrifty
Beverage, Beverage Barn and Empire Beverage Centers. In addition, only 10% of
the approximately 10,000 potential retail accounts for Pabst Products within the
Territory are currently being serviced by the Company, and the Company has
recently implemented a marketing and sales strategy for increasing such
percentage. The recently implemented strategy includes the hiring of 15 direct
sales personnel who service the marketing territory. The Company has also
streamlined the sale process by reorganizing the sale territory and increasing
the supervision of the sales staff.
The Company will also attempt to sell Pabst Products at Yankee and Shea
Stadiums, Madison Square Garden, New York theaters, the Jacob K. Javits Center,
the World Trade Center, South Street Seaport, the Port Authority, Grand Central
Station and Pennsylvania Station, where such products are not currently being
sold. In addition, the Company intends to promote and sell Pabst Products at
special events, such as Harlem Week, Latin and Cuban Days and the Caribbean Day
Parade.
SALES AND MARKETING
The Company employs sales people to obtain new accounts for Pabst
Products and to increase sales of Pabst Products to existing accounts for such
products in the Territory. In addition to employing a sales staff, the Company
employs sales supervisors who recommend sales policies and incentive programs to
the Wholesalers in order to motivate these Wholesalers and their sales personnel
to sell Pabst Products within the Territory. The Company also creates
promotional materials and has formulated marketing plans to increase sales by
the Company and the other Wholesalers within the Territory. The Company's sales
personnel receive formal training both at Company and Pabst sponsored
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seminars. The Company also intends to hire a training coordinator to conduct
seminars, covering such topics as draft technology, brewing processes and
role-playing. Sales personnel are responsible for preparing weekly schematics on
key store resets (both shelf and cooler) to secure the most visible positions
for maximum consumer exposure. Shelf allocations are periodically reviewed under
the supervision of the Vice- President of Sales and Marketing to assure that
space allocations and placement comply with retailer policies, distribution
philosophies, and recommendations from suppliers. The Company has also
implemented merchandising services to handle trade problems and seek future
sales opportunities.
The Company offers bonuses to sales personnel who market and sell
additional Pabst Products to existing customers and maintain established goals
on reorders of Pabst Products. This incentive program is designed to achieve
long and steady growth for additional product placements.
Consistent with the Company's plan to expand its customer base, it
expects to incur additional selling and marketing costs of approximately
$150,000 in the next fiscal year. Such estimates have been derived from
managements plans and budgets for 1997.
DISTRIBUTION
The Company has implemented a strategy to achieve effective
distribution of Pabst Products in the Territory. Under this strategy, the
Company acts as an exclusive distributor for Pabst Products, subject to policies
and procedures determined by Pabst, so that all orders for Pabst Products come
through the Company. Because of the expansiveness of the Territory, the Company
relies on independent, licensed beverage wholesalers that are responsible for
hiring and maintaining their own staffs, maintaining trucking fleets to
distribute Products to the wholesale and/or retail customers.
The Company's objective in utilizing these alternate means of
distribution to service each sector within the Territory is to increase
effective sales and distribution of all Pabst Products while not incurring the
total expense of such sales and distribution efforts. Specific strategies
include: developing sales incentives with the cooperation of Pabst
representatives for wholesalers that meet sales goals for both "on-premises" and
"off-premises" accounts; establishing a method of monitoring accounts within the
Territory that do not purchase Pabst Products and establishing incentives for
wholesalers who reverse such pattern; scheduling monthly promotions for all
on-premises accounts; and utilizing and promoting "Brewery Rebate" programs.
VSI
The Company believes that the VSI acquisition provides an excellent
opportunity for the Company to expand its distribution network. VSI is a
wholesale and retail distributor of beverage products. VSI operates exclusively
from its warehouse facility in the Bronx and is centrally located within its
acquired Pabst distribution territory and serves as its central headquarters for
Capital Beverage. VSI has been in business for over five (5) years and the
Company believes that it has developed an extensive distribution network. VSI
also has highly experienced management personnel and maintains a Class C liquor
license which permits it to engage in both wholesale and retail sales.
ADVERTISING
The Company intends to present to the trade and the consumer an ongoing
marketing campaign. To achieve this, the Company will establish and maintain an
advertising and marketing budget. Such
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budget will be used primarily to participate in cooperative radio and billboard
advertising programs established by Pabst. A proposed budget of $.05 per case
based upon monthly estimated sales during Fiscal 1996 of 60,000 cases will
enable the Company to allocate $3,000 per month toward this advertising.
PROPERTIES
In January 1996, the Company entered into a lease with East Tremont
Partners under which it agreed to lease 15,000 square feet of administrative
office and warehousing space for a term of five (5) years commencing on April 1,
1996 and continuing until May 31, 2001. Total monthly payments under such lease
are $5,000, subject to increases during subsequent years of the lease term. East
Tremont Partners is a New York partnership in which Mr. Stella holds a one-sixth
interest. Management of the Company believes that the rent paid by the Company
under this lease is less than what it would be required to pay for similar
premises within the area in which the Company's administrative offices are
located.
In December 1995, the Company entered into a lease with East Tremont
Partners, pursuant to which it agreed to lease approximately 7,000 square feet
of retail and warehousing space for a term of five (5) years commencing on April
1, 1996 and continuing until May 31, 2001. Total monthly payments under such
lease are $5,000, subject to increases during subsequent years of the lease
term. Management of the Company believes that the rent paid by it under this
lease is also less than the fair market value of similar premises within the
area in which such premises are located.
Management believes that the facilities used by it in the operation of
its business are adequately covered by insurance and are suitable and adequate
for their respective purposes.
EMPLOYEES
As of July 29, 1996, the Company employed a staff of 18, including two
(2) sales supervisors, one (1) sales manager, twelve (12) sales people, and
three (3) managerial/administrative employees. The Company does not have any
collective bargaining agreements and has not experienced any work stoppages as a
result of labor disputes. The Company considers its employee relations to be
good.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings,
and no such proceedings are known to be contemplated.
COMPETITION
The business conducted by the Company is highly competitive. As of May
31, 1996, the Company competed with approximately ten (10) other companies in
the metropolitan New York area that are engaged in businesses that are
substantially similar to that engaged in by the Company. Some of the Company's
competitors are better capitalized, better financed, more established and more
experienced than the Company and may offer beer, beverage and related products
at lower prices or concessions than the Company. Should the Company not be able
to compete effectively, its results of operations and financial condition could
be materially adversely affected.
SOURCES OF SUPPLY
In addition to purchasing Pabst Products directly from Pabst, the
Company intends to purchase products (other than Pabst Products) from a number
of nationally known beer and beverage companies.
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Since there are many manufacturers of alcoholic and non-alcoholic products sold
by the Company, the Company does not anticipate difficulty in obtaining such
products if its relationship with one or more of its suppliers terminates.
Management of the Company believes that except for Pabst, the loss of any one
supplier will not adversely affect the Company's business. Termination of the
Company's Distributorship Agreement with Pabst could have a materially adverse
effect on the business of the Company.
SEASONALITY
The Company's business is subject to substantial seasonal variations.
Historically, a significant portion of the Company's net sales and net earnings
have been realized during the month of December and the months of May through
September, and levels of net sales and net earnings have generally been
significantly lower during the period from October through April (excluding
December). The Company believes that this is the general pattern associated with
other beverage distributors with which it competes. If for any reason the
Company's sales were to be substantially below seasonal norms during the month
of December and/or the months of May through September, the Company's
anticipated revenues and earnings could be materially and adversely affected.
GOVERNMENT REGULATION
Wholesale and retail distribution of alcoholic beverages is regulated
by federal and state law. The Company's business is highly regulated by federal,
state and local laws and regulations. The company must comply with extensive
laws and regulations regarding such matters as state and regulatory approval and
licensing requirements, trade and pricing practices, permitted and required
labeling, advertising, promotion and marketing practices, relationships with
distributors and related matters. Since the Company intends to distribute such
alcoholic beverages in New York State, the Company is required to obtain
authorization from the Federal Bureau of Alcohol, Tobacco and Firearms (BATF)
and the New York State Liquor Authority (SLA). The Company has applied to the
BATF and SLA for its required licenses and is not aware of any reason why such
licenses will not be granted. In the experience of management, although such
agencies may impose conditions on the grant of such licenses, such licenses are
ordinarily granted. In the event, either the SLA or the BATF should impose
conditions on the grant of such licenses, the Company intends to take all steps
necessary to satisfy such conditions. Pending receipt of its licenses, the
Company has appointed VSI, which is a licensed distributor, to act as its agent
for distribution of Pabst Products. There can be no assurance that the various
governmental regulations applicable to the beverage industry will not be changed
so as to impose more stringent requirements on the Company. If the Company was
to fail to be in compliance with any applicable governmental regulation, such
failure could cause the Company's licenses to be revoked and have a material
adverse effect on the business of the Company.
PROPOSED ACQUISITION OF VSI
In June 1996, the Company entered into an agreement and plan of merger
(the "Merger Agreement") with VSI, a New York wholesale and retail beverage
distributor doing business under the tradename Caribe Beverages. During its
fiscal years ended December 31, 1994 and 1995, VSI had revenues of $12 million
and $7 million, respectively, and net income (loss) of $59,000 and $(15,000),
respectively. The Company intends to complete the Merger with VSI as soon as
practicable after obtaining its required licenses and prior to the Effective
Date. All of the outstanding capital stock of VSI is owned by Mr. Carmine
Stella, who is the Chairman of the Board of Directors, President and Chief
Executive Officer of the Company. Under the terms of the Merger Agreement, Mr.
Stella will receive 300,000 shares of the Company's Series B Preferred Stock in
consideration for his interest in VSI.
VSI distributes beer, soda, bottled water and other beverages primarily
in the New York City metropolitan area. Customers of VSI consist primarily of
approximately 700 grocery stores and fifty (50)
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wholesalers, all of which purchase such beverage products at VSI's warehouse on
a "cash and carry" basis. VSI does not own or lease any vehicles for the
distribution of its beverages and is a non-exclusive wholesaler of all of the
beverages that it sells. VSI distributes several different brands, and
management of VSI believes that supplies of such brands are readily available
from several different suppliers. Audited financial statements of VSI and pro
forma financial statements of the Company, assuming completion of the Company's
proposed Merger with VSI, are contained in the financial statements included
with this Prospectus.
PRIVATE PLACEMENT FINANCINGS
Between December 1995 and March 1996, the Company conducted a private
offering under Section 4(2) of the Securities Act and Regulation D promulgated
thereunder, of units ("Units") of its Series A Preferred Stock and Class A
Warrants (the "Units Financing"). Each Unit consisted of 12,500 shares of Series
A Preferred Stock and 25,000 Class A Warrants. A total of 27 Units, consisting
of an aggregate of 337,500 shares of Series A Preferred Stock and 675,000 Class
A Warrants, were sold to 26 "accredited investors" (as such term is defined in
the Securities Act) for gross offering proceeds of $1,350,000. Pursuant to an
Agency Agreement, dated December 6, 1995, the Company retained the
Representative as its exclusive agent in connection with the Units Financing and
paid the Representative a selling commission equal to 10% of the gross proceeds
from the sale of the Units ($135,000) and a non-accountable expense allowance
equal to 1% of such gross proceeds ($13,500). Approximately $800,000 of the net
proceeds of the Units Financing were used to acquire the Pabst Distribution
Rights. The balance of such net proceeds were used for purchase of inventory of
Pabst Products, for legal fees related to such financing and general corporate
purposes.
In April 1996, the Company conducted a private offering under Section
4(2) of the Securities Act and Regulation D promulgated thereunder, of its 12%
Convertible Bridge Notes ("Bridge Financing"). The Convertible Bridge Notes were
purchased by two (2) accredited investors for aggregate gross offering proceeds
of $250,000. Subsequently, in January 1997, these two (2) investors transferred
the Convertible Bridge Notes to nine (9) unaffiliated investors. The Convertible
Bridge Notes, including accrued interest thereon, are due one (1) year after
issuance but will automatically be converted into an aggregate of 2,500,000
Class A Warrants upon the Effective Date. The Company retained the
Representative as its exclusive placement agent (the "Placement Agent") in
connection with such private placement. As compensation for the Representative's
services as Placement Agent, the Company paid the Representative a selling
commission equal to 10% of the gross proceeds of the Bridge Financing in
($25,000) and a non-accountable expense allowance of 1% of such gross proceeds
($2,500). The proceeds of the Bridge Financing were used principally for
purchase of inventory of Pabst Products, for legal fees related to such
financing and general corporate purposes.
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MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Directors and Executive Officers
Name Age Position(s) Held
- ------------------------------ --- -----------------------------------
<S> <C> <C>
Carmine N. Stella 44 President, Chief Executive Officer,
Chairman of the Board
Robert A. Vessa 46 Vice President--Sales and Marketing
Carol Macchiarulo 41 Secretary and Treasurer
Eugene Fernandez, Jr 35 Director
</TABLE>
Carmine N. Stella - Mr. Stella has served as President, Chief Executive
Officer and Chairman of the Board of Directors of the Company since its
inception in December 1995. From 1991 to the present, Mr. Stella has been the
sole officer, director and shareholder of VSI, a wholesale and retail seller of
alcoholic and nonalcoholic beverages with $12,000,000 of sales during fiscal
1994 and $7,000,000 of sales during fiscal 1995. From 1986 to 1990, Mr. Stella
served as President and a director of Gotham Wholesale Beer Distributors, a beer
and non-alcoholic beverage wholesaler with annual sales in excess of
$20,000,000. Mr. Stella served as a President and Director of the Empire State
Beer Distributors Association from 1984 to 1988. Mr. Stella received a B.B.A. in
Accounting from Bernard M. Baruch College, New York, New York in 1973.
Robert A. Vessa - Mr. Vessa has served as Vice President - Sales and
Marketing since February 1996. From 1984, Mr. Vessa has acted as Business
Affairs Coordinator and a member of the Board of Directors of the Empire State
Beer Distributors Association. Mr. Vessa received a B.B.A. degree in Marketing
and Advertising from Bernard M. Baruch College, City University of New York in
1973. Carol Macchiarulo - Ms. Macchiarulo has served as Secretary and Treasurer
of the Company since February 1996. From 1991. Ms. Macchiarulo has also served
as Comptroller and Operations Manager of VSI from 1991 to the present.
Eugene Fernandez, Jr. - Mr. Fernandez has been a director of the
Company since its inception in December 1995. From December 1994 to the present,
Mr. Fernandez has been self employed as a developer and builder of residential
real estate and has acted as a private investor and financial consultant. From
April 1991 to December 1994, Mr. Fernandez was an account executive for Sandoz
Pharmaceuticals, a distributor of pharmaceutical products. From January 1989 to
April 1991, Mr. Fernandez served as an Account Executive for Screen Tech, Inc.,
a distributor of promotional advertising. Mr. Fernandez received a B.A. degree
in Marketing and Finance from Dominion College in Orangeburg, New York in 1984.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors does not currently have any separate
compensation, audit, or nominating committees. However, the Board of Directors
may establish audit, compensation, and/or nominating committees after the
completion of this Offering. The Company intends to identify and thereafter to
appoint two independent directors to the Board within 180 days following the
Effective Date.
EXECUTIVE AND DIRECTOR COMPENSATION
The Company did not have any employees during the year of its
organization, 1995. The Company intends to enter into an employment agreement
with Mr. Carmine Stella and such other employees as may be determined by the
Board of Directors to be effective on completion of this Offering. The
employment
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agreement with Mr. Stella will provide for a three-year term and will
include annual compensation of approximately $300,000, plus certain fringe
benefits including health and life insurance. In addition, Mr. Stella and other
key employees selected by the Board will receive incentive bonus compensation
typically offered to executive officers of similar size to that of the Company.
Directors of the Company will be reimbursed for their ordinary and necessary
expenses incurred in attending meetings of the Board of Directors or a committee
thereof.
1996 INCENTIVE STOCK OPTION PLAN
The Company's 1996 Incentive Stock Option Plan was approved by the
Board of Directors and holders of Common Stock of the Company on June 19, 1996
to provide for the grant of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986 to officers and employees of
the Company. A total of 350,000 shares of Common Stock has been authorized and
reserved for issuance under the 1996 Incentive Stock Option Plan, subject to
adjustment to reflect changes in the Company's capitalization in the case of a
stock split, stock dividend or similar event. No options have been granted under
the Company's 1996 Incentive Stock Option Plan. The 1996 Incentive Stock Option
Plan will be administered by the Compensation Committee, which has the sole
authority to interpret the 1996 Incentive Stock Option Plan, to determine the
persons to whom options will be granted, to determine the basis upon which the
options will be granted, and to determine the exercise price, duration and other
terms of options to be granted under the 1996 Incentive Stock Option Plan;
provided that, (i) the exercise price of each option granted under the 1996
Incentive Stock Option Plan may not be less than the fair market value of the
Common Stock on the day of the grant of the option, (ii) the exercise price must
be paid in cash and or stock upon exercise of the option, (iii) no option may be
exercisable for more than 10 years after the date of grant, and (iv) no option
is transferable other than by will or the laws of descent and distribution. No
option is exercisable after an optionee ceases to be employed by the Company or
a subsidiary of the Company, subject to the right of the Compensation Committee
to extend the exercise period for not more than 90 days following the date of
termination of an optionee's employment. If an optionee's employment is
terminated by reason of disability, the Compensation Committee has the authority
to extend the exercise period for not more than one year following the date of
termination of the optionee's employment. If an optionee dies holding options
that were not fully exercised, such options may be exercised in whole or in part
within one year of the optionee's death by the executors or administrators of
the optionee's estate or by the optionee's heirs. The vesting period, if any,
specified for each option will be accelerated upon the occurrence of a change of
control or threatened change of control of the Company
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
(the "General Corporation Law"), the Company's Articles of Incorporation and the
Company's By-laws contain provisions for indemnification of officers, directors,
employees and agents of the Company. The Company's Articles of Incorporation and
By-laws require the Company to indemnify such persons to the fullest extent
permitted by Delaware law. Each person will be indemnified in any proceeding if
he acted in good faith and in a manner which he reasonably believed to be in, or
not opposed to, the best interests of the Company. Indemnification would cover
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement.
The Company's Articles of Incorporation also provide that the Board of
Directors may cause the Company to purchase and maintain insurance on behalf of
any present or past director or officer insuring against any liability asserted
against such person incurred in the capacity of director or officer or arising
out of such status, whether or not the Company would have the power to indemnify
such person. The Company may seek to obtain directors' and officers' liability
insurance upon completion of this Offering. Insofar as indemnification for
liabilities arising under the Securities Act, may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed
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in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer, or controlling
person of the Company 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 Company 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 whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such of such court.
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<PAGE> 44
PRINCIPAL SHAREHOLDERS
COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) by each officer and director of the Company,
and (iii) by all officers and directors of the Company as a group. Unless
otherwise indicated, each of the following persons has sole voting and
investment power with respect to the shares of Common Stock set forth opposite
his name.
<TABLE>
<CAPTION>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1) Percent of Class(1)
- ------------------------ ----------------------- -------------------
<S> <C> <C>
Carmine N. Stella (2)(3) 759,091 58.80
Eugene Fernandez, Jr.(2)(4) 379,545 30.00
Anthony Stella(2)(5) 177,273 14.30
Carol Macchiarulo(2)(6) 12,500 1.00
All Officers and Directors
as a Group:
(3 Persons) 1,151,136 86.66
</TABLE>
- ------------------------
1. The persons named in the table have sole voting and investment power
with respect to all shares of Common Stock. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage of
the person holding such options or warrants but are not deemed
outstanding for computing the percentage of any other person.
2. The address for Messrs. Carmine Stella, Eugene Fernandez and Anthony
Stella and Ms. Carol Macchiarulo is 1111 East Tremont Avenue, Bronx,
New York 10460.
3. Includes 50,000 shares of Common Stock that may be acquired by Mr.
Stella upon exercise of Class A Warrants acquired in the Company's
Units Financing that was completed in March 1996. Does not include: (i)
25,000 shares of Common Stock that Mr. Stella may acquire during the
period commencing 180 days and ending 360 days after the Effective Date
upon conversion of 25,000 shares of Series A Preferred Stock acquired
by him in the Company's 1996 Units Financing; (ii) 300,000 shares of
Common Stock that may be acquired by Mr. Stella during the period
commencing 180 days and ending three (3) years after the Effective Date
upon conversion of the 300,000 shares of Series B Preferred Stock that
will be issued to Mr. Stella upon consummation of the Merger; or (iii)
333,600 shares of Common Stock that may be acquired by Mr. Stella
beginning six (6) months after the Effective Date upon exercise of
333,600 additional Class A Warrants held by Mr. Stella.
4. Includes 25,000 shares of Common Stock that may be acquired by Mr.
Fernandez upon exercise of Class A Warrants acquired in the Company's
Units Financing that was completed in March 1996. Also includes 354,545
shares of Common Stock owned of record owned by Mr.
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<PAGE> 45
Fernandez. Does not include: (i) 12,500 shares of Common Stock that Mr.
Fernandez may acquire during the period commencing 180 days and ending
360 days after the Effective Date upon conversion of 12,500 shares of
Series A Preferred Stock acquired by him in the Company's 1996 Units
Financing; or (ii) 167,000 shares of Common Stock that may be acquired
by Mr. Fernandez, beginning six (6) months after the Effective Date
upon exercise of 167,000 Class A Warrants held by Mr. Fernandez.
5. Does not include 83,400 shares of Common Stock that may be acquired by
Mr. Anthony Stella beginning six (6) months after the Effective Date
upon exercise of 83,400 Class A Warrants held by him.
6. Includes 12,500 shares of Common Stock that may be acquired by Ms.
Macchairulo upon exercise of Class A Warrants acquired by her in the
Company's 1996 Units Financing. Does not include 6,250 shares that Ms.
Macchiarulo may acquire during the period commencing 180 days and
ending 360 days after the Effective Date upon conversion of 6,250
shares of Series A Preferred Stock acquired by Ms. Macchiarulo in the
Company's 1996 Units Financing.
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<PAGE> 46
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus forms a part also
relates to (i) the offer and sale by Mr. Carmine Stella, who is Chairman of the
Board, President and Chief Executive Officer of the Company, of up to 300,000
shares of Common Stock; (ii) the offer and sale by certain holders (including
Mr. Carmine Stella, Mr. Eugene Fernandez and Ms. Carol Macchiarulo) ("Selling
Securityholders") of the Company's 7% Series A Convertible Preferred Stock
("Series A Preferred Stock") of 337,500 shares of Common Stock issuable by the
Company to such Selling Securityholders upon conversion of 337,500 shares of
Series A Preferred Stock held by such Selling Securityholders; (iii) the offer
and sale by the Selling Securityholders of up to 3,175,000 Class A Warrants and
3,175,000 shares of Common Stock issuable to such Selling Securityholders upon
their exercise of such Class A Warrants; and (iv) the possible issuance by the
Company of up to 3,175,000 shares of Common Stock upon exercise by individuals
or entities that purchase Class A Warrants sold by the Selling Securityholders
(the securities referred to in (i) through (iv) being sometimes collectively
referred to herein as the "Additional Securities").
The shares of Common Stock underlying the Class A Warrants are offered
by the Company hereunder only for purchase upon exercise of Class A Warrants by
a holder who has purchased such Class A Warrants from a Selling Securityholder
and shall be issued by the Company to such holders from time to time pursuant to
exercise of such Class A Warrants in accordance with the terms thereof.
The securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the securities as agent but may purchase
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary broker
transactions and transactions in which the broker solicits purchasers, and (d)
in effecting sales, brokers or dealers engaged by the Selling Securityholders
may arrange for other brokers or dealers to participate. The Selling
Securityholders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of
a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for securities
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
The Company will not receive any proceeds from the sale of the
securities by the Selling Securityholders.
The Company has agreed to pay substantially all the expenses incurred
by the Selling Securityholders incident to the offering and sale of the
Additional Securities offered by the Selling Securityholders to the public, but
excluding any underwriting discounts, commissions or transfer taxes.
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<PAGE> 47
The Company has agreed to indemnify certain Selling Securityholders
against certain liabilities, including liabilities under the Securities Act.
Sales of Common Stock and/or Class A Warrants by the Selling
Securityholder or even the potential of such sales would likely have an adverse
effect on the market prices of the Securities offered hereby.
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<PAGE> 48
CERTAIN TRANSACTIONS
Upon formation of the Company in December 1995, the Company issued an
aggregate of 709,091 shares of Common Stock to Mr. Carmine Stella, 354,545
shares of Common Stock to Mr. Eugene Fernandez and 177,273 shares of Common
Stock to Mr. Anthony Stella, in consideration of the payment by each of such
individuals of $.001 per share, and issued 333,600 Class A Warrants to Mr.
Carmine Stella, 1,667,000 Class A Warrants to Mr. Eugene Fernandez and to a
corporation wholly owned by Mr. Fernandez, and 83,400 Class A Warrants to Mr.
Anthony Stella. The Company also issued 886,364 additional shares of Common
Stock and 416,000 additional Class A Warrants to four other individuals involved
in its formation but repurchased all of such additional shares and Class A
Warrants for nominal consideration in January 1996. All such reacquired shares
of Common Stock are being held as treasury stock, and all such reacquired Class
A Warrants have been canceled. In January 1996, in order to facilitate the
raising of additional capital for the Company, Mr. Fernandez and American
Marketing & Sales, Ltd. voluntarily agreed to the cancellation of 600,000 and
900,000 of the Class A Warrants, respectively, that had previously been issued
to them in order to change the capital structure of the Company.
In December 1995, the Company entered into a lease with East Tremont
Partners, pursuant to which it agreed to lease approximately 7,000 square feet
of retail and warehousing space for a term of five (5) years commencing on April
1, 1996 and continuing until May 31, 2001. Total monthly payments under such
lease are $5,000, subject to adjustment during subsequent years of the lease
term. East Tremont Partners is a New York partnership in which Mr. Stella holds
a one-sixth interest. Management of the Company believes that the rent paid by
it under this lease is less than the fair market value of similar premises
within the area in which such premises are located.
In January 1996, the Company entered into a lease with East Tremont
Partners under which it agreed to lease 15,000 square feet of administrative
office and warehousing space for a term of five (5) years commencing on April 1,
1996 and continuing until May 31, 2001. The initial monthly rent under such
lease is $5,000, subject to adjustment during the term of the lease. East
Tremont Partners is a New York partnership in which Mr. Stella holds a one-sixth
interest. Management of the Company believes that the rent paid by the Company
under this lease is less than what it would be required to pay for similar
premises within the area in which the Company's administrative offices are
located.
In March 1996, Mr. Carmine Stella made an interest free loan to the
Company in the amount of $185,000 to provide it with cash flow during the
operating deficit that occurred during the first quarter of 1996. The Company
repaid Mr. Stella the entire amount of such loan during the second and third
quarters of fiscal 1996.
In June 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with VSI pursuant to which VSI would be merged with and
into the Company. All of the outstanding stock of VSI is owned by Mr. Carmine
Stella, who is the Chairman of the Board, President, and Chief Executive Officer
of the Company. On the effective date of the Merger ("Merger Date") each share
of common stock of VSI presently outstanding shall be automatically canceled and
converted into the right to receive 3,000 fully paid and non-assessable shares
of the Company's Series B Preferred Stock and such shares of the Preferred Stock
will be distributed to Mr. Stella. In May 1996, the Company obtained an
appraisal of the business of VSI from 1st Class Management Inc., a
non-affiliated company with in excess of 25 years' experience in performing
business appraisals. No member of the board of directors or officer of the
Company is affiliated with such appraiser. 1st Class Management Inc. estimated
the value of VSI to be between $1,000,000 and $1,500,000. It was agreed between
the Company and Mr. Stella that the value of VSI for purposes of determining the
number of shares of Series
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<PAGE> 49
B Preferred Stock to be issued to Mr. Stella in the Merger is $1,200,000.
Under the terms of an Option Agreement between the Company and Mr.
Stella dated as of December 6, 1995, the Company and Mr. Stella agreed that the
consideration to be paid to Mr. Stella for VSI would be that number of shares of
the Company's Series B Preferred Stock equal to the value of VSI as determined
by an independent appraiser, with each share of Series B Preferred Stock having
a value of $4.00. The value for such Series B Preferred Stock was established by
attributing to the shares of such stock the same approximate value as was paid
for the Company's Series A Preferred Stock in the Company's Units Financing that
occurred between January and March of 1996.
The terms of the Company's Series A and Series B Preferred Stock are
substantially similar except that the Series B Preferred Stock ranks junior to
the Series A Preferred Stock with respect to payment of dividends and payment
upon liquidation, and the Series B Preferred Stock is convertible into Common
Stock of the Company at any time during the three (3) year period commencing 180
days and terminating three (3) years after the Effective Date, whereas the
Series A Preferred Stock may be converted into Common Stock of the Company
during the period commencing 180 days and terminating 365 days after the
Effective Date (unless the Representative consents to the conversion thereof
prior to such 180th day).
Under the terms of the Merger Agreement, VSI made certain
representations and warranties to the Company in connection with its business,
operations, assets and liabilities and agreed that it would perform certain
covenants. In order to ensure the accuracy of such representations and
warranties and the performance of the covenants of VSI contained in the Merger
Agreement, Mr. Stella agreed to deposit with an escrow agent all of the Series B
Preferred Stock received by him in the Merger. The Company's sole remedy in the
event of a breach of any representation, warranty or covenant is to recover that
number of shares of Series B Preferred Stock as may then be equal in value to
the loss incurred by the Company resulting from the breach, and the Company is
not entitled under the Merger Agreement to assert a claim against Mr. Stella
personally in connection with any such breach. Moreover, any claim for
indemnification under the Merger Agreement must be brought within two years and
may not be brought unless monetary damages incurred by the Company in connection
with such claim exceed $60,000 individually and $250,000 in the aggregate, in
which event the Company may only recover those damages that are in excess of
such $250,000 amount. Since the sole remedy of the Company for breaches of
representations, warranties and covenants in the Merger Agreement is limited to
the value of the Series B Preferred Stock placed in escrow, the Company may
incur losses arising out of such breaches for which it would not be indemnified.
Although the Company has no present intention of entering into any
affiliated transactions, the Company believes that material affiliated
transactions between the Company and its directors, officers, principal
shareholders or any affiliates thereof should be in the future on terms no less
favorable than could be obtained from unaffiliated third parties.
With respect to each of the foregoing transactions, the Company
believes that the terms of such transactions were as fair to the Company as
could be obtained from an unrelated third party. Future transactions with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated parties and will be approved by a majority of the independent
and/or disinterested members of the board of directors.
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<PAGE> 50
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock, par value $.001 per share, and 1,000,000 shares of
Preferred Stock, par value $.01 per share. Immediately prior to the Offering
made hereby, there were 1,240,909 shares of Common Stock issued and outstanding.
Of such 1,240,909 shares, 709,091 are beneficially owned by Mr. Carmine Stella,
who is the Chairman of the Board, President and Chief Executive Officer of the
Company, 354,545 are beneficially owned by Mr. Eugene Fernandez, who is a
Director of the Company, and 177,273 are beneficially owned by Mr. Anthony
Stella, who is the Director of Sales of the Company and the brother of Mr.
Carmine Stella. In addition, prior to this Offering, there were issued and
outstanding (i) 337,500 shares of the Company's Series A Preferred Stock held by
twenty-six (26) individual and entities that acquired such shares in the
Company's 1996 Units Financing; (ii) 300,000 shares of the Company's Series B
Preferred Stock issued to Mr. Carmine Stella upon consummation of the Merger;
and (iii) 3,759,000 Class A Warrants to purchase an aggregate of 3,759,000
shares of Common Stock held by thirty-five (35) Warrantholders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Subject
to preferential rights with respect to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and satisfaction of preferential rights and have no rights to
convert their Common Stock into any other securities. All shares of Common Stock
have equal, non-cumulative voting rights, and have no preference, conversion,
exchange, preemptive or redemption rights. The outstanding shares of Common
Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation grants to the Board, without
further action of the Company's stockholders, the authority to issue up to
1,000,000 shares of Preferred Stock in series and, at the time of issuance, to
determine the powers, rights, preferences and limitation of any such series.
Satisfaction of any dividend preferences on outstanding shares of Preferred
Stock will reduce the amount of funds available for the payment of dividends on
Common Stock. Holders of Preferred Stock would be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding up of
the Company before any payment is made to the holders of Common Stock. Under
certain circumstances, the issuance of such Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent directors.
7% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
Pursuant to the terms and conditions of a Certificate of Designations,
Powers, Preferences and Rights of the 7% Cumulative Preferred Stock, Series A
(the "Series A Certificate of Designations") filed with the Secretary of State
of the State of Delaware, the Board has designated 375,000 shares (of which
337,500 have been issued and are presently outstanding) of the Company's
authorized Preferred Stock as 7% Cumulative Preferred Stock, Series A (the
"Series A Preferred Stock"), with the following rights, designations and
preferences:
Dividends. Holders of the Series A Preferred Stock are entitled to
receive, out of funds legally
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<PAGE> 51
available therefor, annual dividends at the rate of twenty-eight cents ($.28)
per share (7% of the liquidation value), payable in either cash or common stock,
in preference to and priority over dividends (other than stock dividends) on
shares of the Company's Common Stock. Dividends on the Series A Preferred Stock,
which are cumulative, accrue beginning on the date of issuance thereof, and are
payable annually to the holders of record thirty (30) days prior to such date.
Voting Rights. So long as any shares of the Series A Preferred Stock
remain outstanding, the Company may not without the affirmative vote at a
meeting, or the written consent with or without a meeting, of the holders of at
least 66 2/3% of the shares of Series A Preferred Stock then outstanding, amend,
alter or repeal any of the provisions of the Series A Certificate of
Designations or the Certificate of Incorporation of the Company, or authorize
any reclassification of the Series A Preferred Stock, so as in any such case to
affect adversely the preferences, special rights or powers of the Series A
Preferred Stock, or authorize any capital stock of the Company ranking, either
as to payment of dividends or upon liquidation, dissolution or winding up of the
Company, prior to the Series A Preferred Stock. In addition, the Company may not
without the affirmative vote at a meeting or the written consent without a
meeting of the holders of at least a majority in voting power of the shares of
the Series A Preferred Stock then outstanding, increase the authorized number of
shares of Series A Preferred Stock or create or increase the authorized number
of shares of, any other class of capital stock of the Company ranking on a
parity with the Series A Preferred Stock either as to payment of dividends or
upon liquidation, dissolution or winding up of the Company. In exercising such
voting rights or when otherwise granted voting rights by operation of law, each
share of Series A Preferred Stock shall be entitled to one vote. Except as set
forth above or as otherwise required by law, holders of Series A Preferred Stock
shall have no special voting rights, and their consent shall not be required for
taking any corporate action.
Liquidation Rights. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, the holders of the Series A
Preferred Stock shall have preference and priority over any Common Stock upon
liquidation, dissolution or winding up, for payment out of the assets of the
Company or proceeds thereof available for distribution to stockholders of $4.00
per share plus all dividends accrued and unpaid thereon to the date of such
distribution, and after such payment the holders of the Series A Preferred Stock
shall be entitled to no other payments. If, in the case of any such liquidation,
dissolution or winding up of the Company, the assets of the Company or proceeds
thereof shall be insufficient to make the full liquidation payment of $4.00 per
share plus all accrued and unpaid dividends on the Series A Preferred Stock and
full liquidation payments on any other series of preferred stock ranking as to
liquidation on a parity with the Series A Preferred Stock, then such assets and
proceeds shall be distributed among the holders of the Series A Preferred Stock
and any such other preferred stock ratably in accordance with the respective
amounts which would be payable upon liquidation, dissolution or winding-up on
such shares of Series A Preferred Stock and any such other series of preferred
stock if all amounts payable thereof were paid in full. Neither the
consolidation nor merger of the Company into or with another corporation or
corporations, nor the sale of all or substantially all of the assets of the
Company, shall be deemed a liquidation, dissolution or winding up the affairs of
the Company.
Conversion. Each share of Series A Preferred Stock shall be convertible
into one (1) share of Common Stock, $.001 par value, of the Company, subject to
adjustment in certain events including (i) subdivisions or combinations of
shares of common stock, and (ii) reclassifications, consolidations, mergers and
similar transactions. Such conversion may be effected at the option of the
holder of shares of Series A Preferred Stock during the period commencing one
hundred eighty (180) days and terminating three hundred sixty (360) days after
the Effective Date of this Registration Statement unless the Representative and
the Company consent that such option may be exercised prior to such 180th day.
The registered holder of shares of Series A Preferred Stock at the
close of business on a dividend payment record date shall be entitled to receive
the dividend payable on such shares on the
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<PAGE> 52
corresponding dividend payment date notwithstanding the conversion thereof or
the Company's default on payment of the dividend due on such dividend payment
date. However, shares of Series A Preferred Stock surrendered for conversion
during the period from the close of business on any dividend payment record date
of such Series A Preferred Stock to the opening of business on the corresponding
dividend payment date must be accompanied by payment of an amount equal to the
dividend payable on such shares on such dividend payment date. A holder of
Series A Preferred Stock on a dividend payment record date who converts shares
of such Series A Preferred Stock on a dividend payment date will receive the
dividend payable on such Series A Preferred Stock by the Company on such date,
and the converting holder need not include payment in the amount of such
dividend upon surrender of shares of Series A Preferred Stock for conversion.
Other Holders of Series A Preferred Stock are not entitled to any
preemptive rights and no sinking fund provisions are applicable to such shares.
In addition, such Series A Preferred Stock may not be transferred, pledged or
otherwise disposed of in any manner prior to the expiration of twelve (12)
months after the Effective Date without the prior consent of the Company and the
Representative. However, in the event a holder of Series A Preferred Stock
converts his or her shares into shares of Common Stock of the Company
("Converted Preferred Stock") during the convertibility period thereof, such
Converted Preferred Stock may be sold by such holder under the Registration
Statement of which this Prospectus is a part.
7% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B
Pursuant to the terms and conditions of a Certificate of Designations,
Powers, Preferences and Rights of the 7% Cumulative Preferred Stock, Series B
(the "Series B Certificate of Designations") to be filed with the Secretary of
State of the State of Delaware, the Board has designated 300,000 shares of the
Company's authorized Preferred Stock as 7% Cumulative Preferred Stock, Series B
(the "Series B Preferred Stock"), with the following rights, designations and
preferences:
Dividends. Holders of the Series B Preferred Stock are entitled to
receive, out of funds legally available therefor, annual dividends at the rate
of twenty-eight cents ($.28) per share (7% of the liquidation value), payable in
either cash or common stock, in preference to and priority over dividends (other
than stock dividends) on shares of the Company's Common Stock but after payment
of all dividends then due on the Company's Series A Preferred Stock. Dividends
on the Series B Preferred Stock, which are cumulative, accrue beginning on the
date of issuance thereof, and are payable annually to the holders of record
thirty (30) days prior to such date.
Voting Rights. So long as any shares of the Series B Preferred Stock
remain outstanding, the Company will not without the affirmative vote at a
meeting, or the written consent with or without a meeting, of the holders of at
least 66 2/3% of the shares of Series B Preferred Stock then outstanding, amend,
alter or repeal any of the provisions of the Series B Certificate of
Designations or the Certificate of Incorporation of the Company, or authorize
any reclassification of the Series B Preferred Stock, so as in any such case to
affect adversely the preferences, special rights or powers of the Series B
Preferred Stock, or authorize any capital stock of the Company ranking, either
as to payment of dividends or upon liquidation, dissolution or winding up of the
Company, prior to the Series B Preferred Stock. In addition, the Company will
not without the affirmative vote at a meeting or the written consent without a
meeting of the holders of at least a majority in voting power of the shares of
the Series B Preferred Stock then outstanding, increase the authorized number of
shares of Series B Preferred Stock or create or increase the authorized number
of shares of, any other class of capital stock of the Company ranking on a
parity with the Series B Preferred Stock either as to payment of dividends or
upon liquidation, dissolution or winding up of the Company. In exercising such
voting rights or when otherwise granted voting rights by operation of law, each
share of Series B Preferred Stock shall be entitled to one (1) vote. Except as
set forth above or as otherwise required by law, holders of Series B Preferred
Stock shall have no special voting rights, and their consent shall not be
required for taking any corporate action.
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<PAGE> 53
Liquidation Rights. The holders of the Series B Preferred Stock shall
be subordinate to the rights of the Series A Preferred Stock but shall have
preference and priority over any Common Stock upon any liquidation, dissolution
or winding up, for payment out of the assets of the Company or proceeds thereof
available for distribution to stockholders, of $4.00 per share plus all
dividends accrued and unpaid thereon to the date of such distribution, and after
such payment the holders of the Series B Preferred Stock shall be entitled to no
other payments. If, in the case of any such liquidation, dissolution or winding
up of the Company, the assets of the Company or proceeds thereof shall be
insufficient to make the full liquidation payment of $4.00 per share plus all
accrued and unpaid dividends on the Series B Preferred Stock and full
liquidation payments on any other series of preferred stock ranking as to
liquidation on a parity with the Series B Preferred Stock, then such assets and
proceeds shall be distributed among the holders of the Series B Preferred Stock
and any such other preferred stock ratably in accordance with the respective
amounts which would be payable upon liquidation, dissolution or winding-up on
such shares of Series B Preferred Stock and any such other series of preferred
stock if all amounts payable thereof were paid in full. Neither the
consolidation nor merger of the Company into or with another corporation or
corporations, nor the sale of all or substantially all of the assets of the
Company, shall be deemed a liquidation, dissolution or winding up the affairs of
the Company.
Conversion. Each share of Series B Preferred Stock shall be convertible
into one (1) share of Common Stock, $.001 par value, of the Company, subject to
adjustment in certain events including (i) subdivisions or combinations of
shares of common stock, and (ii) reclassifications, consolidations, mergers and
similar transactions. Such conversion may be effected at the option of the
holder of shares of Series B Preferred Stock during the period commencing one
hundred eighty (180) days and terminating three (3) years after the Effective
Date.
The registered holder of shares of Series B Preferred Stock at the
close of business on a dividend payment record date shall be entitled to receive
the dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof or the Company's default on payment of
the dividend due on such dividend payment date. However, shares of Series B
Preferred Stock surrendered for conversion during the period from the close of
business on any dividend payment record date of such Series B Preferred Stock to
the opening of business on the corresponding dividend payment date must be
accompanied by payment of an amount equal to the dividend payable on such shares
on such dividend payment date. A holder of Series B Preferred Stock on a
dividend payment record date who converts shares of such Series B Preferred
Stock on a dividend payment date will receive the dividend payable on such
Series B Preferred Stock by the Company on such date, and the converting holder
need not include payment in the amount of such dividend upon surrender of shares
of Series B Preferred Stock for conversion.
Other Holders. of Series B Preferred Stock are not entitled to any
preemptive rights and no sinking fund provisions are applicable to such shares.
CLASS A WARRANTS
The Class A Warrants sold in this Offering and the other outstanding
Class A Warrants of the Company are governed by and subject to the terms of a
warrant agreement (the "Warrant Agreement") between the Company and Continental
Stock Transfer & Trust Company as warrant agent (the "Warrant Agent"). The
following statements are brief summaries of certain provisions of the Warrant
Agreement. Copies of the Warrant Agreement may be obtained from the Company or
the Warrant Agent and have been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
The holder of each Class A Warrant is entitled, upon payment of the
exercise price of $5.00, to purchase one share of the Company's Common Stock.
Unless previously redeemed, the Class A
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<PAGE> 54
Warrants are exercisable at any time commencing on the Effective Date until the
close of business on the day prior to the fourth anniversary of the Effective
Date ("Class A Warrant Exercise Period"), provided a registration statement
filed pursuant to the Securities Act covering the Class A Warrants and shares of
Common Stock underlying such Class A Warrants has been declared effective. The
Class A Warrant Exercise Period may be extended by the Company's Board of
Directors. The Class A Warrants are subject to redemption by the Company, with
the consent of the Representative in the event a redemption occurs prior to the
first anniversary of the Effective Date, upon not less than forty-five (45) days
written notice, at a price of $.001 per warrant, at any time during the Class A
Warrant Exercise Period, provided that the final bid price for a share of Common
Stock has been at least 160% of the then exercise price of the Class A Warrants
for the twenty (20) trading days preceding the date of such notice, and holders
of the Class A Warrants shall have had exercise rights until the close of
business on the date fixed for redemption. The Class A Warrants contain
provisions that protect the holders thereof against dilution by adjustment of
the exercise price in certain events including, but not limited to, stock
dividends, stock splits, reclassification or mergers. The ownership of a Class A
Warrant will not grant its holder any rights as a shareholder of the Company.
The shares of Common Stock, when issued upon the exercise of the Class A
Warrants in accordance with the terms thereof, will be fully paid and
non-assessable.
Holders of the Class A Warrants will automatically forfeit their rights
to purchase the shares of Common Stock issuable upon exercise of such Class A
Warrants unless the Warrants are exercised before the close of business on the
business day set for redemption. All Class A Warrants must be redeemed if any of
such Warrants are redeemed. A notice of redemption shall be mailed to each
registered holder of Class A Warrants by first class mail, postage prepaid, and
shall specify the redemption price, the date fixed for redemption, the place
where the Warrant certificates shall be delivered and the redemption price to be
paid, and that the right to exercise the Warrants shall terminate at 5:00 p.m.
(Eastern Standard Time) on the business day fixed for redemption.
Class A Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to the expiration of the redemption date (as explained
above) at the offices of the Company's Warrant Agent, with the form of "Election
to Purchase" attached to the Class A Warrant, filled out and executed as
indicated, accompanied by payment (in the form of certified or cashier's check
payable to the order of the Company) of the full exercise price for the number
of Class A Warrants being exercised. The Company may amend the terms of the
Class A Warrants but only by extending the termination date or lowering the
exercise price thereof. The Company has no present intention of amending such
terms.
On the Effective Date, there will be 4,159,000 Class A Warrants
outstanding. Of such 4,159,000 Class A Warrants, 400,000 are being registered
hereby and are freely tradeable immediately upon issuance, 3,175,000 are being
offered by the Selling Securityholders and will be tradeable commencing 120 days
after the Effective Date unless the Representative agrees that such warrants may
be transferred prior to such 120th day, and 584,000 are owned by certain members
of management of the Company and are "restricted securities", as such term is
defined in the Securities Act. Each member of management holding such 584,000
Class A Warrants has agreed that he will not exercise such warrants prior to the
expiration of 180 days after the Effective Date.
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation and By-laws limit the
liability of directors and officers to the extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
including gross negligence, except liability for (i) breach of the directors'
duty of loyalty; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) the unlawful
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<PAGE> 55
payment of a dividend or unlawful stock purchase or redemption; and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware law does not permit a corporation to eliminate a director's duty of
care, and this provision of the Company's Certificate of Incorporation has no
effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of duty of care.
The Company is planning to enter into indemnification agreements with
each of its current and future directors and officers which provide for
indemnification of, and advancing of expenses to, such persons to the greatest
extent permitted by Delaware law, including by reason of action or inaction
occurring in the past and circumstances in which indemnification and the
advancing of expenses are discretionary under Delaware law. The Company believes
that the limitation of liability provisions in its Certificate of Incorporation
and its By-laws and the indemnification agreements will facilitate the Company's
ability to continue to attract and retain qualified individuals to serve as
directors of the Company.
The Company's Certificate of Incorporation authorizes the Company to
purchase and maintain insurance for the purposes of indemnification. The Company
intends to apply for directors' and officers' insurance, although there can be
no assurance that the Company will be able to obtain such insurance on
reasonable terms, or at all. At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent for which
indemnification will be required or permitted under the Company's Certificate of
Incorporation, By-laws or indemnification agreements. The Company is not aware
of any threatened litigation or proceeding which may result in a claim for such
indemnification.
BUSINESS COMBINATION PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election); (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder; (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to render or vote stock held by
the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of the Company
and therefore could discourage attempts to acquire the Company.
TRANSFER AGENT
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<PAGE> 56
The Transfer Agent, Conversion Agent and Registrar for the Common Stock
and Preferred Stock, and the Warrant Agent is Continental Stock Transfer & Trust
Company.
DIVIDEND POLICY
The Company has not previously paid any dividends since its inception
and except for cash dividends, if any, to be paid on its Series A and Series B
Preferred Stock, currently intends to follow a policy of retaining all of its
earnings, if any, to finance the development and continued expansion of its
business. Except for dividends to be paid on the Company's Series A and Series B
Preferred Stock, which dividends may be paid in either cash or shares of the
Company's Common Stock, there can be no assurance that dividends will ever be
paid by the Company. Investors who anticipate the needs for dividends from their
investments should take into consideration this factor, among others, in
deciding whether they should purchase Units and if, they purchase them, whether
they should exercise their Warrants to purchase shares of the Company's Common
Stock.
TREASURY STOCK
In January 1996, the Company reacquired Shares of Common Stock of Class
A Warrants that previously had been held by certain shareholders for nominal
consideration. All of such common stock is being held as treasury stock, and all
of such Class A Warrants were canceled.
REGISTRATION RIGHTS
The Unit Purchase Option will contain a "demand" right to require, on
any one occasion one year after the date of this Prospectus, the Company to file
a registration statement with respect to the Common Stock and Class A Warrants
(including Common Stock to be issued upon exercise of such Class A Warrants)
(the "Registrable Securities") issuable upon exercise of the Representative's
Unit Purchase Option in order to effect a public offering thereof, and certain
"piggyback" rights to require the registration of such Registrable Securities in
certain registration statements filed by the Company with the Commission. Such
registration rights may be transferred to any subsequent holder of the
Registrable Securities. Holders of Registrable Securities may exercise their
demand registration right with respect to all or part of their Registrable
Securities provided, in either case, that the holders demanding registration
represent not less than a majority of the Registrable Securities then
outstanding. The Company has agreed to pay all expenses with respect to
registration pursuant to the demand registration right described above. The
Company has also agreed to register the 337,500 shares of Series A Preferred
Stock issued in connection with its Private Placement Financing completed in
March 1996, no earlier than 12, nor later than 13, months after the Effective
Date and to pay all expenses in connection therewith. The Common Stock into
which such preferred stock is convertible is being registered under the
Registration Statement of which this Prospectus forms a part.
LOCK-UP AGREEMENTS
The Registration Statement of which this Prospectus forms a part covers
Additional Securities held by the Selling Securityholders, including certain
Additional Securities held by Mr. Carmine Stella, who is Chairman of the Board,
President and Chief Executive Officer of the Company, Mr. Eugene Fernandez, who
is a Director of the Company, and Ms. Carol Macchiarulo, who is Secretary and
Treasurer of the Company. Except for such Additional Securities being offered by
such persons, each of the officers, directors and 5% or greater shareholders of
the Company has agreed not to sell any securities held by them, respectively,
for a period of 24 months after the Effective Date (or such longer period not to
exceed 36 months as may be required by any applicable state blue sky law)
without obtaining the prior written approval of the Representative (and, if
required by applicable blue sky laws, the securities commissioners of any such
states).
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<PAGE> 57
SECURITIES ELIGIBLE FOR FUTURE SALE
Assuming (i) the exercise of all of the 4,159,000 Class A Warrants to
be outstanding after this Offering for 4,159,000 shares of Common Stock, (ii)
conversion of the outstanding 337,500 shares of Series A Preferred Stock into
337,500 shares of Common Stock, and (iii) conversion of the outstanding 300,000
shares of Series B Preferred Stock into 300,000 shares of Common Stock (but
excluding the 120,000 shares of Common Stock that the Representative may acquire
upon exercise of the Representative's Unit Purchase Option and the Class A
Warrants issued thereunder), the Company would have outstanding 6,837,409 shares
of Common Stock after this Offering.
Not all of the Company's outstanding securities are being registered
hereby. Of the 6,837,409 shares of Common Stock outstanding upon completion of
this Offering (assuming the exercise of all of the Class A Warrants and the
conversion of the Series A and Series B Preferred Stock but excluding the
120,000 shares of Common stock that the Representative may acquire upon exercise
of the Representative's Unit Purchase Option and the Class A Warrants issued
thereunder), 5,012,500 shares of Common Stock are being registered hereby and
1,824,909 shares of Common Stock are not being registered hereby. Of the
4,159,000 Class A Warrants to be outstanding after this Offering (excluding the
40,000 Class A Warrants issuable upon exercise of the Representative's Unit
Purchase Option), 3,575,000 Class A Warrants are being registered hereby and
584,000 Class A Warrants, which are held by certain members of management, are
not being registered.
All of the securities registered under the Registration Statement of
which this Prospectus is a part (excluding the Representative's Unit Purchase
Option and the securities issuable thereunder) will be freely tradeable without
registration under the Securities Act following their offer and sale except for
securities purchased by an affiliate of the Company.
Upon consummation of this Offering, an aggregate of 940,909 outstanding
shares of Common Stock, 584,000 outstanding Class A Warrants (and the 584,000
shares of Common Stock for which such Class A Warrants may be exercised), and
300,000 outstanding shares of Series B Preferred Stock (and the 300,000 shares
of Common Stock into which it may be converted) will not have been registered
under the Securities Act. In addition, the 337,500 shares of Series A Preferred
Stock that were issued in the Company's 1996 Units Financing will also not have
been registered under the Securities Act, although the 337,500 shares of Common
Stock into which such Series A Preferred stock are convertible are being
registered hereby. Such unregistered securities may, however, under certain
circumstances, be available for public sale by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the
Securities Act, subject to certain limitations.
In general, under Rule 144 as currently in effect, a securityholder,
including an affiliate of the Company, may sell securities of the Company
acquired prior to this Offering after at least two years have elapsed since such
securities were acquired from the Company or an affiliate of the Company. The
number of securities which may be sold within any three month period is limited
to the greater of one percent of the then outstanding shares or other units of
the class or the average weekly trading volume in such securities during the
four calendar weeks preceding the date on which notice of such sale was filed
under Rule 144. Certain other requirements of Rule 144 concerning availability
of public information, manner of sale and notice of sale must also be satisfied.
In addition, a securityholder who is not an affiliate of the Company (and who
has not been an affiliate of the Company for 90 days prior to the sale) and who
beneficially owns securities acquired from the Company or an affiliate of the
Company over three years previously may resell his or her securities without
compliance with the foregoing requirements under Rule 144.
In addition, Rule 144A as currently in effect generally permits
unlimited resales of certain restricted securities of any issuer provided that
the purchaser is an institution that owns and invests on a
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<PAGE> 58
discretionary basis at least $100,000,000 in securities or is a registered
broker dealer that owns and invests $10,000,000 in securities. Rule 144A allows
the existing shareholders of the Company to sell their shares of Common Stock to
such institutions and registered broker-dealers without regard to any volume or
other restrictions. Unlike under Rule 144, restricted securities sold under Rule
144A to nonaffiliates do not lose their status as restricted securities.
The Commission has recently proposed reducing the initial Rule 144
holding period to one year and the Rule 144(k) holding period to two years.
There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modification will have a material effect on the time
when shares of the Company's Common Stock and Class A Warrants become eligible
for resale.
Prior to this Offering, there has been no public market for the Shares
or Class A Warrants, and no predictions can be made as to the effect, if any,
that sale of shares of Common Stock or Class A Warrants or the availability of
shares of Common Stock or Class A Warrants for sale will have on the prevailing
market price of the Shares or Class A Warrants . Nevertheless, sales of
substantial amounts of such securities in the public market could have an
adverse effect on prevailing market prices for the Shares and Class A Warrants
offered hereby.
The holders of the Restricted Securities have agreed not to sell such
securities (or any securities that may be issued upon conversion or exercise
thereof) without the consent of the Representative for a period of two (2) years
after the Effective Date.
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement,
the Underwriters named below, for whom Investors Associates, Inc. is acting as
representative, have agreed to purchase from the Company the 800,000 Units
offered hereby. The number of Units that each Underwriter has agreed to purchase
is set forth opposite its name below.
REPRESENTATIVE NUMBER OF UNITS
R.D. White & Co., Inc.
Name
Name
The Underwriting Agreement provides that the several Underwriters will
be obligated to purchase all of the Units offered hereby if any are purchased,
subject to the approval of certain legal matters by their counsel and to certain
other conditions. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the nondefaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Company has been advised by the Representative that the
Underwriters propose to offer the Units to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to certain
selected dealers at such price less a concession of $0.__ per Unit, of which an
amount not exceeding $0.__ per Unit may be reallowed to other dealers. The
public offering price and concessions and discounts to dealers may be changed by
the Representative after the initial public offering.
The Company will pay to the Underwriters the underwriting commission
set forth on the cover page of this Prospectus upon payment for the Units by the
Underwriters.
The Company has agreed to pay the Representative a non-accountable
expense allowance of 3% of the aggregate offering price of the Units offered
hereby. The Company has also agreed to pay all
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<PAGE> 59
expenses in connection with qualifying the Securities for sale under the laws of
such states as the Representative may designate, including expenses of counsel
retained for such purpose. The Representative's expenses in excess of the
non-accountable expense allowance, including its legal expenses (other than the
aforesaid expenses of counsel) will be borne by the Representative. To the
extent that the expenses of the Representative are less than the non-accountable
expense allowance, the excess may be deemed additional underwriting
compensation.
The Company has agreed to sell the Unit Purchase Option to the
Representative and/or its designees upon the closing of this Offering for
$100.00. Such Unit Purchase Option may be exercised to purchase up to that
aggregate number of shares of Common Stock and Class A Warrants as would be
equal to 10% of the total number of Units sold pursuant to this Offering. The
Unit Purchase Option will be exercisable at a price equal to 120% of the Price
to Public of the Units offered hereby commencing one year from the date of this
Prospectus and will remain exercisable for a period of three years after such
date and grants the Representative certain demand and participatory rights to
require registration of the shares of Common Stock and Class A warrants
underlying the Unit Purchase Option under the Securities Act. The Class A
Warrants included in the Unit Purchase Option are subject to redemption during
the term of the Unit Purchase Option subject to the same terms and conditions as
the Class A Warrants sold to the public. During the first year of the Unit
Purchase Option, it is generally not transferable, except to officers and
shareholders of the Representative or to any Underwriters or selected dealers or
their officers or partners. Any profits realized by the Underwriters upon the
sale of the Unit Purchase Option or the securities issuable upon exercise
thereof may be deemed to constitute additional underwriting compensation. During
the term of the Unit Purchase Option, the holder(s) thereof are given, at
nominal cost, the opportunity to profit from a rise in the market price of the
Common Stock.
Upon exercise of the Class A Warrants commencing 12 months from the
date of this Prospectus, the Company will pay the Representative a warrant
solicitation fee of 5% of the aggregate exercise price of Class A Warrants
exercised (a portion of which the Representative may re-allow to another
broker-dealer soliciting the exercise), if (i) the market price of the Common
Stock on the date the Class A Warrant is exercised is greater than the then
exercise price of the Class A Warrant; (ii) the exercise of the Class A Warrant
was solicited by a member of the NASD; (iii) the Class A Warrant is not held in
a discretionary account; (iv) disclosure of the compensation arrangements was
made (by delivery of this Prospectus or otherwise) both at the time of the
Offering and at the time of exercise of the Class A Warrant; and (v) the
solicitation of exercise of the Class A Warrant is not in violation of Rule
10b-6 promulgated under the Exchange Act. No warrant solicitation fee will be
paid to an NASD member unless such member has been designated in writing by the
warrant holder.
In connection with the solicitation of warrant exercises, unless
granted an exemption by the Commission from its Rule 10b-6, the Representative
and any other soliciting broker-dealer will be prohibited from engaging in any
market-making activities with respect to the Company's Securities for the period
commencing either two or nine business days (depending on the market price of
the Common Stock) prior to any solicitation activity for the exercise of Class A
Warrants until the latter of (i) the termination of such solicitation activity,
or (ii) the termination (by waiver or otherwise) of any right which the
Representative or any other soliciting broker-dealer may have to receive a fee
for the exercise of Class A Warrants following such solicitation. As a result,
the Representative or any other soliciting broker-dealer may be unable to
provide a market for the Company's Securities, should they desire to do so,
during certain period while the Class A Warrants are exercisable.
For a period of five years from the date of this Prospectus, the
Company has agreed to recommend and use its best efforts to elect a designee of
the Representative, at the option of the Representative, either as either a
member of or a non-voting advisor to its Board of Directors.
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<PAGE> 60
The Representative has performed investment banking services for the
Company in connection with its Private Placement Financings. As compensation for
such services, the Company paid the Representative aggregate selling commissions
of $135,000, reimbursed the Representative an aggregate of $13,500 for its
expenses, and paid approximately $30,000 to the Representative's counsel for
blue sky fees and expenses. In addition, the Company has paid approximately
$15,000 to the Representative's counsel for blue sky fees and expenses in
connection with this Offering (up to an additional $25,000 will be payable to
such counsel for blue sky fees and expenses upon consummation of this Offering).
Each of the Company's officers, directors and shareholders owning at
least 5% of the outstanding shares of Common Stock prior to this Offering has
agreed that he or she will not directly or indirectly sell, offer to sell, grant
an option for the sale of, or otherwise dispose of, any of the Company's
securities owned by him or her for a period of 24 months following the Effective
Date (or such longer period not to exceed 36 months as may be required under
applicable state blue sky laws) without obtaining the prior written consent of
the Representative.
In the Underwriting Agreement, the Company and the Underwriters have
agreed to indemnify each other against liabilities arising out of or based upon
any untrue statement or alleged untrue statement of any material fact or
omission or alleged omission of a material fact required to be stated or
necessary to make the statements made not misleading, in each case only to the
extent made in reliance upon or in conformity with written information furnished
by the respective party for use herein. If such indemnifications are unavailable
or insufficient, the Company and the Underwriters have agreed to damage
contribution arrangements between them based upon relative benefits received
from this Offering and relative fault resulting in such damages.
The Underwriters do not intend to confirm sales of the Securities
offered hereby to discretionary accounts.
An application has been filed by the Company for quotation of the
Common Stock and the Class A Warrants on the NASDAQ Small Cap Market upon
completion of this Offering. Prior to the Offering, there has been no public
market for the Securities of the Company. The initial public offering price of
the Units and the exercise price of the Class A Warrants have been arbitrarily
determined by negotiation between the Company and the Representative. Among the
factors considered in determining the initial public offering price of the Units
and the exercise price of such Warrants were the earnings and certain other
financial and operating information of the Company in the periods prior to the
Offering, the future prospects of the Company and its industry in general, the
general condition of the securities markets at the time of this Offering, and
the market prices of securities and certain financial and operating information
of companies engaged in activities similar to those of the Company. There can be
no assurance, however, that the prices at which the Common Stock and Class A
Warrants will sell in the public market after this Offering will not be lower
than the prices at which they are sold by the Underwriters.
The foregoing does not purport to be a complete statement of the terms
and conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Company, the Representative and the Commission.
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<PAGE> 61
LEGAL MATTERS
Certain legal matters in connection with this Offering are being passed
upon for the Company by Weber & Weber, 300 Rabro Drive, Hauppauge, New York
11788. Counsel for the Representative in connection with this Offering is the
law office of Sayid and Associates, 411 Hackensack Avenue, Hackensack, New
Jersey 07601.
EXPERTS
The financial statements included in this Registration Statement have
been examined and certified by Feldman Radin & Co., P.C., independent certified
public accountants, as set forth in their report appearing elsewhere herein, and
are included in reliance upon such report and upon the authority of said firm as
experts in accounting and auditing.
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<PAGE> 62
CAPITAL BEVERAGE CORPORATION
FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
Page
Number
-------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT F - 2
FINANCIAL STATEMENTS (The Financial Statements for the nine months
ended September 30, 1996 and 1995 are unaudited)
Balance Sheet - December 31, 1995 and September 30, 1996 F - 3
Statement of Operations - Years ended
December 31, 1995 and 1994 and nine months ended September 30,
1996 and 1995 F - 4
Statement of Stockholders' Equity - Years ended December 31, 1995
and 1994 and nine months ended September 30, 1996 and 1995 F - 5
Statement of Cash Flows - Years ended
December 31, 1995 and 1994 and nine months ended September 30,
1996 and 1995 F - 6
Notes to Financial Statements F - 7
</TABLE>
F - 1
<PAGE> 63
After the Agreement and Plan of Merger discussed in Note 1 to these
financial statements is effected, we expect to be in a position to render the
following audit report
New York, New York Feldman Radin & Co., P.C.
July 26, 1996
INDEPENDENT AUDITORS' REPORT
Capital Beverage Corporation
Bronx, New York
We have audited the accompanying balance sheet of Capital Beverage
Corporation as of December 31, 1995 and 1994 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1995. 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, the financial position of Capital Beverage Corporation as of December
31, 1995 and 1994 and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
F - 2
<PAGE> 64
CAPITAL BEVERAGE CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30
1995 1996
----------- --------------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 30,383 $ 97,855
Accounts receivable - trade - 400,416
Inventories 460,440 432,414
Due from stockholder 5,000 -
Prepaid expenses 7,408 25,210
----------- --------------
TOTAL CURRENT ASSETS 503,231 955,895
PROPERTY AND EQUIPMENT, net 40,750 33,125
OTHER ASSETS
Intangible assets, less accumulated amortization of $40,000 - 1,480,000
Deferred registration costs - 390,705
Deposits 3,290 3,290
----------- --------------
$ 547,271 $ 2,863,015
=========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 73,031 $ 15,950
Accrued expenses and taxes 70,742 73,408
Current portion of long-term debt 38,500 97,704
Note payable - bridge loan - 197,500
Dividends payable - 66,063
----------- --------------
TOTAL CURRENT LIABILITIES 182,273 450,625
----------- --------------
LONG-TERM DEBT - 648,963
STOCKHOLDERS' EQUITY
7% Cumulative Convertible Preferred stock, $ .01 par value; 1,000,000
authorized shares; 337,500 shares Series A Preferred stock issued and outstanding
at September 30, 1996; none issued and outstanding at December 31, 1995 - 1,350,000
300,000 shares of Series B Preferred Stock issued and outstanding
at September 30, 1996 and December 31, 1995 3,000 3,000
Common stock, $ .001 par value;
20,000,000 authorized shares; 1,240,909 outstanding after
deducting 886,364 shares in treasury 1,241 1,241
Additional paid in capital 348,333 348,333
Retained earnings 12,424 60,853
----------- --------------
TOTAL STOCKHOLDERS' EQUITY 364,998 1,763,427
----------- --------------
$ 547,271 $ 2,863,015
=========== ==============
</TABLE>
See notes to financial statements
F-3
<PAGE> 65
CAPITAL BEVERAGE CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, Nine months ended September 30,
------------------------------- ------------------------------
1995 1994 1996 1995
--------- ---------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 6,926,789 $12,135,655 $ 9,709,520 $ 5,550,817
Cost of goods sold 6,422,489 11,456,751 8,737,757 5,153,060
--------- ---------- --------- ---------
GROSS PROFIT 504,300 678,904 971,763 397,757
COSTS AND EXPENSES:
Selling and delivery 56,083 78,175 78,750 30,636
General and administrative 445,689 530,649 680,328 296,531
--------- ---------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 2,528 70,080 212,685 70,590
--------- ---------- --------- ---------
INTEREST EXPENSE 14,476 9,262 51,996 7,588
--------- ---------- --------- ---------
INCOME (LOSS) BEFORE TAXES (11,948) 60,818 160,689 63,002
INCOME TAXES 3,360 2,202 17,000 6,500
--------- ---------- --------- ---------
NET INCOME (LOSS) (15,308) 58,616 143,689 56,502
PRO-FORMA INCOME TAXES (5,358) 20,516 54,300 18,700
--------- ---------- --------- ---------
PRO-FORMA NET INCOME(LOSS) $ (9,950) $ 38,100 $ 89,389 $ 37,802
=========== =========== =========== ===========
PRO-FORMA INCOME AND (LOSS) PER COMMON SHARE $ (0.01) $ 0.03 $ 0.02 $ 0.03
=========== =========== =========== ===========
NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 1,240,909 1,240,909 1,240,909 1,240,909
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE> 66
CAPITAL BEVERAGE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
-------------------- ------------------- Paid-In Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
------- ----------- --------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 -- $ -- 1,240,909 $ 1,241 $ 48,759 $ 7,559 $ 57,559
Net Income -- -- -- -- -- 58,616 58,616
Retroactive effect of VSI Merger -- 3,000 -- -- (3,000) -- --
Distributions -- -- -- -- -- (15,143) (15,143)
------- ----------- --------- -------- ----------- ----------- -----------
Balance December 31, 1994 -- 3,000 1,240,909 1,241 45,759 51,032 101,032
Net income -- -- -- -- -- (15,308) (15,308)
Contribution by principal stockholder -- -- -- -- 302,574 -- 302,574
Distributions -- -- -- -- -- (23,300) (23,300)
------- ----------- --------- -------- ----------- ----------- -----------
Balance December 31, 1995 -- 3,000 1,240,909 1,241 348,333 12,424 364,998
Net Income -- -- -- -- -- 143,689 143,689
Issuance of Preferred Stock,
less related costs 637,500 1,350,000 -- -- -- -- 1,350,000
Dividends payable to preferred
shareholders -- -- -- -- -- (66,063) (66,063)
Distributions to Common Shareholders -- -- -- -- -- (29,197) (29,197)
------- ----------- --------- -------- ----------- ----------- -----------
Balance September 30, 1996 (Unaudited) 637,500 $ 1,353,000 1,240,909 $ 1,241 $ 348,333 $ 60,853 $ 1,763,427
======= =========== ========= ======== =========== =========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE> 67
CAPITAL BEVERAGE CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
Year Ended December 31, September 30,
------------------------- -------------------------
1995 1994 1996 1995
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (15,308) $ 58,616 $ 143,689 $ 56,502
----------- ----------- ----------- -----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 10,167 10,167 145,125 6,375
Changes in assets and liabilities:
(Increase) in accounts receivable -- -- (400,416) (300,381)
(Increase) decrease in inventories 38,272 12,622 28,026
(Increase) decrease in prepaid expenses 3,771 (11,179) (17,802)
(Increase) decrease in other assets 4,728 (4,728) (30,000)
(Decrease) increase in accounts payable and
accrued expenses 47,151 6,257 (61,415) 13,953
----------- ----------- ----------- -----------
104,089 13,139 (306,482) (310,053)
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 88,781 71,755 (162,793) (253,551)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Pabst rights -- -- (800,000) --
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of note payable - bank (42,000) (39,900) (31,500) (31,500)
Payment of note payable - other -- -- (53,333) --
Proceeds from bridge loan -- -- 180,000 --
Deferred registration costs -- -- (390,705) --
Contribution by principal stockholder 302,574
Loan to stockholder (5,000) -- 5,000 --
Issuance of preferred stock -- -- 1,350,000 --
Distributions (23,300) (15,143) (29,197) (20,565)
----------- ----------- ----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (70,300) (55,043) 1,030,265 250,509
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,481 16,712 67,472 (3,042)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 11,902 (4,810) 30,383 11,902
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 30,383 $ 11,902 $ 97,855 $ 8,860
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 14,476 $ 9,262 $ 51,996 $ 7,588
========= ========= ========== ===========
Cash paid for taxes $ 3,360 $ 2,202 $ 12,750 $ 3,360
=========== ============ =========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of distribution rights in exchange
for note payable $ -- $ -- $ 800,000 $ --
========= ========= ========== ===========
</TABLE>
See notes to financial statements
F-6
<PAGE> 68
CAPITAL BEVERAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Information with respect to the interim nine month periods is unaudited)
1. BASIS OF PRESENTATION AND BUSINESS
Capital Beverage Corporation (the "Company") was formed in December
1995 to operate as a wholesaler and retailer of beer and other
beverages from its premises in the Bronx, New York. It is intended that
prior to the effectiveness of the registration statement of which these
financial statements for an integral part, the Company will enter into
an Agreement and Plan of Merger with Vito Santoro, Inc., ("VSI"), a
company related by common ownership interests (the "Merger"). In
connection with the contemplated Merger, all of the issued and
outstanding common shares of VSI will be cancelled, all of its assets
and liabilities will be transferred to Capital and VSI will go out of
existence. In addition, the existing sole stockholder of VSI (who is
also a significant stockholder of the Company), will receive 300,000
shares of the Company's Series B Cumulative Convertible Preferred
Stock. In connection with the Merger, the Company has received an
independent appraisal regarding the valuation of VSI for purposes of
determining the consideration to be paid to Mr. Stella. Based upon that
independent appraisal, the Company determined to issue to Mr. Stella
300,000 shares of the cumulative convertible Series B preferred shares
referred to above.
In accordance with Staff Accounting Bulletin Topic 5G, issued by the
Securities and Exchange Commission, the Merger has been accounted as a
combination of commonly controlled entities and is recorded at the
transferors historical cost basis. Accordingly, the financial
statements presented herein present the financial position and results
of operations and cash flows for VSI and the Company as if they had
been combined for all periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Company considers as cash equivalents
all highly liquid investments with an original maturity of three months
or less.
F - 7
<PAGE> 69
Inventory - Inventory is stated at the lower of cost, determined by the
first-in, first-out method, or market and is comprised of beer and
other beverages.
Property and Equipment - Property and equipment are stated at cost and
are depreciated over the estimated useful lives of the related assets,
ranging from 6 to 15 years. Depreciation is computed on the
straight-line and accelerated methods for both financial reporting and
income tax purposes.
Income Taxes - The Company follows Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes, which requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the differences between
the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Intangibles - Intangible assets (consisting principally of the license
to distribute certain products in a significant portion of the greater
New York City area), are recorded at cost, less amortization, which is
provided on a straight-line basis over the initial term of the
agreement which is ten years.
Revenue Recognition - Wholesale sales are recognized at the time the
order is shipped. Retail sales are net of returns and exclude sales
tax.
New Accounting Pronouncements - In 1995, the Financial Accounting
Standards Board issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" which requires
impairment costs to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
asset's carrying amount. The Company adopted Statement No. 121 in the
first quarter of 1996 and, the effect of adoption was not material.
Deferred Registration Costs - Costs incurred in the preparation of the
registration statement regarding the Company's proposed Initial Public
Offering of its common stock, including legal and professional fees,
have been deferred at September 30, 1996. Such costs will be charged to
Paid In Capital upon the successful completion of the
F - 8
<PAGE> 70
offering and charged to operations if the offering is not consummated.
Earnings per common share - Earnings per common share are computed by
dividing net earnings available to common shareholders (net income less
preferred stock dividends) by the weighted average number of common
shares and, as appropriate, dilutive common stock equivalents
outstanding for the period. Common stock options are considered to be
common stock equivalents.
3. ACQUISITION OF RIGHTS TO DISTRIBUTE CERTAIN PRODUCTS
In January 1996, the Company acquired from Consolidated Beverage
Corporation the exclusive rights to distribute Pabst Products within
the Territory.
In consideration for these rights the Company is to pay Consolidated
Beverage Corporation the sum of $1,600,000 payable in the following
manner: $800,000 prior to or at closing; and the balance of $800,000
through delivery of a series of 120 promissory notes, in the amount of
$10,000 each, inclusive of interest at 9% per annum.
Upon the acquisition of the Pabst Distribution Rights, the Company
simultaneously entered into an agreement with Pabst as part of the
"Distributorship Agreement" to use its best efforts to market and sell
the Pabst products to each prospective account located within the
Territory. As part of the agreement the Company is required to have an
annual sales and marketing plan, maintain an adequate capital and cash
flow to ensure competitive strength, maintain warehouse facilities
which meet Pabst's physical and quality standards, establish stock
rotation procedures for Pabst products, among other general
requirements to promote the sale of Pabst products.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable
and payable and accrued liabilities approximate their fair values due
to the short-term maturities of these assets and liabilities.
The fair value of the preferred stock, which was issued in a private
placement, is estimated at carrying value as such securities are not
traded in the open market and a market price is not readily available.
5. STOCKHOLDERS' EQUITY
General - The authorized capital stock of the Company consists of
20,000,000 shares of common stock, par value $.001 per share, and
1,000,000 shares of 7% Cumulative Convertible Preferred Stock.
F - 9
<PAGE> 71
Treasury Stock - On January 24, 1996, the Company reacquired for
nominal consideration shares of common stock and existing common stock
purchase warrants previously owned by certain shareholders. All such
reacquired common stock will be held as treasury shares, and all
existing warrants acquired from these shareholders have been cancelled.
This transaction has been given retroactive effect for all periods
presented.
Preferred Stock - In 1996 the Company issued 337,500 shares of $ .01
par value 7% Cumulative Convertible Preferred Stock, Series A
("Preferred Stock"). The Preferred Stock is convertible into 1 share of
the Company's common stock, subject to adjustments in certain events
including: (i) subdivisions or combinations of shares of common stock,
and (ii) reclassifications, consolidations, mergers and similar
transactions.
Such conversion may be effected at the option of the holder of shares
of Preferred Stock during the period commencing 180 days and
terminating 360 days after the effective date of a registration
statement filed pursuant to the Securities Act of 1933 offering shares
of the Company's common stock in an initial public offering, unless the
Company's underwriter and the Company consent to the exercise of the
option prior to the 180th day.
The terms of the Series A and B Preferred Stock are substantially
similar except that the Series A ranks senior to the Series B with
respect to payment of dividends and payment upon liquidation of the
Company. Additionally, the series B Preferred Stock is convertible into
common shares at any time during the three year period commencing 180
days after the effective date of the Company's initial public offering.
Common stock warrants - During 1996, in connection with the issuance of
the preferred stock referred to above, the Company issued 675,000
Class A warrants to the holders of the preferred stock. The Class A
warrants entitle the holder thereof to purchase one share of the
Company's common stock at an exercise price of $5.00 per share. Unless
previously redeemed by the Company, the warrants are exercisable at any
time commencing on the date of issuance thereof until the close of
business on the day prior to fourth anniversary of the effective date.
In addition, during December 1995 the Company issued an aggregate of
584,000 Class A warrants to certain officers and directors of the
Company.
6. PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications, as
follows:
F - 10
<PAGE> 72
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
Equipment $ 37,000
Furniture and fixtures 8,000
Leasehold improvements 40,000
---------
85,000
Less: Accumulated depreciation and amortization 44,250
---------
Total $ 40,750
=========
</TABLE>
7. LONG TERM DEBT
<TABLE>
<CAPTION>
Long-term debt as of consists of the following: December 31, September 30,
1995 1996
------------ ------------
<S> <C> <C>
Term loan maturing November 1, 1996 with
Chemical Bank payable in monthly payments of
$3,500 plus interest at 2% above the bank's
prime lending rate. The loan is collateralized by
the Company's assets. $ 38,500 $ 7,000
Note payable obtained in connection with the
acquisition of the exclusive rights to distribute
certain beer and malt liquor products. Payable in
120 monthly installments of principal and interest
of $10,000 at an effective interest rate of 9.04%
collateralized by distribution agreement. - 739,667
------- --------
38,500 746,667
Less current portion 38,500 97,704
--------- ----------
Long-term Debt $ - $ 648,963
========= ==========
</TABLE>
8. BRIDGE FINANCING
In June 1996, the Company completed a private offering of its 12%
Convertible Bridge Notes ("Notes)("Bridge Financing"). The Notes were
purchased for an aggregate of
F - 11
<PAGE> 73
$250,000. Expenses and costs of the offering of $70,000 resulted in net
proceeds to the Company of $180,000. The Notes are due one year after
issuance but will automatically convert into 2,500,000 Class A Warrants
upon the effective date of the Company's initial public offering of its
common shares. Deferred debt costs incurred in connection with this
transaction are being amortized over the anticipated life of the Notes.
9. DUE TO SHAREHOLDER
In March 1996, Mr. Carmine Stella made an interest free loan to the
company in the amount of $185,000 to provide it with cash flow during
the operating deficit that accrued during the quarter ended
March 31, 1996. The Company repaid Mr. Stella during the second and
third fiscal quarters of 1996.
10. COMMITMENTS
In December 1995, the Company entered into a lease with East Tremont
Partners, pursuant to which it agreed to lease approximately 7,000
square feet of retail and warehousing space for a term of five (5)
years commencing on April 1, 1996 and continuing until May 31, 2001.
Total monthly payments under such lease are $5,000, subject to
adjustment during subsequent years of the lease term. East Tremont
Partners is a New York partnership in which Mr. Stella holds a
one-sixth interest. Management of the Company believes that the rent
paid by it under this lease is less than the fair market value of
similar premises within the area in which such premises are located.
In January 1996, the Company entered into a lease with East Tremont
Partners under which it agreed to lease 15,000 square feet of
administrative office and warehousing space for a term of five (5)
years commencing on April 1, 1996 and continuing until May 31, 2001.
The initial monthly rent under such lease is $5,000, subject to
adjustment during the term of the lease. East Tremont Partners is a New
York partnership in which Mr. Stella holds a son-sixth interest.
Management of the Company believes that the rent paid by the Company
under this lease is less than what it would be required to pay for
similar premises within the area in which the Company's administrative
offices are located.
The following minimum rental payments are due with respect to the
aforementioned leases:
Year ending December 31,
1996 $ 120,000
1997 125,250
1998 126,000
1999 127,750
2000 55,000
----------
Total minimum rental payments $ 554,000
==========
F - 12
<PAGE> 74
The Company entered into an employment agreement with its Chief
Executive Officer, effective August 1, 1996, pursuant to which the
officer receives an annual salary of $300,000. This officer received no
compensation from either the Company or Vito Santoro, Inc. for the year
ended December 31, 1995. For the nine months ended September 30, 1996,
the officer received compensation of $50,000 pursuant to the agreement.
11. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------------- ------------------
1996 1995 1995 1994
------ ------ ----- ----
<S> <C> <C> <C> <C>
Federal: Current $ - $ - $ - $ -
Deferred - - - -
------ ------ ----- -------
- - - -
------ ------ ----- -------
State: Current 17,000 6,500 3,360 2,202
Deferred - - - -
------ ------ ----- -------
17,000 6,500 3,360 2,202
------ ------ ----- -------
Total Tax Provision $ 17,000 $ 6,500 $ 3,360 $ 2,202
====== ====== ===== =======
</TABLE>
The tax provision for 1995 and 1994 differs from the amount computed
using the statutory federal income tax rate since the Company operated
as an 'S' corporation for income tax purposes in those years. Pursuant
to subchapter 'S' of the Internal Revenue Code, shareholders rather
than the corporation are taxed directly on their allocable share of the
Company's taxable income. Taxes provided in the accompanying financial
statements consists of New York City income taxes (benefit) as New York
City does
F - 13
<PAGE> 75
not recognize the federal 'S' corporation status.
Pro forma income taxes have been provided to reflect the taxes that
would have been provided as if the Company had not operated as an 'S'
Corporation.
12. CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables and
short-term cash investments. Credit risk with respect to trade
receivables is minimized because of a large customer base. Short-term
cash investments are placed with high credit quality financial
institutions, whereby limiting the amount of credit exposure.
The Company's operations, and therefore its revenues are concentrated
in the New York City Metropolitan area. Additionally, the majority of
the Company's revenues are derived from the sale of alcoholic
beverages. Downturns in New York City's economic activities and/or
negative changes in the publics perception of the consumption of
alcoholic beverages may adversely affect the Company's operations.
F - 14
<PAGE> 76
No dealer, salesperson or other person has been authorized to give any
information or to make any representations either than those contained in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
-----------------------
TABLE OF CONTENTS
Page
Additional Information...............................................
Prospectus Summary...................................................
Summary Financial Information........................................
Risk Factors.........................................................
Use of Proceeds......................................................
Dividend Policy......................................................
Capitalization.......................................................
Dilution.............................................................
Selected Financial Information.......................................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.......................................................
Business.............................................................
Management...........................................................
Principal Shareholders...............................................
Selling Securityholders..............................................
Certain Transactions.................................................
Description of Securities............................................
Underwriting.........................................................
Securities Eligible for Future Sale..................................
Legal Matters........................................................
Experts..............................................................
Index to Financial Statements........................................
-----------------------
Until ___________, 1997 (90 days after the date of this Prospectus),
all broker-dealers effecting transactions in the registered securities, whether
or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
CAPITAL BEVERAGE CORPORATION
800,000 UNITS
EACH UNIT CONSISTING
OF
ONE SHARE OF COMMON STOCK
AND
ONE-HALF (1/2) CLASS A COMMON STOCK
PURCHASE WARRANT
---------------------
R.D. White & Co., Inc.
______________, 1997
<PAGE> 77
SUBJECT TO COMPLETION, DATED ________, 1997 ALTERNATE PROSPECTUS
CAPITAL BEVERAGE CORPORATION
3,175,000 Class A Warrants
3,812,500 Shares of Common Stock, $.001 par value
This Prospectus relates to the offer and sale of 3,175,000 Class A
Common Stock Purchase Warrants ("Class A Warrants") of Capital Beverage
Corporation (the "Company") held by certain holders of such Warrants
(hereinafter collectively referred to as the "Selling Securityholders"). Sales
of such Class A Warrants (and the 3,175,000 shares of Common Stock underlying
such Class A Warrants (the "Warrant Shares")) may be made by the Selling
Securityholders commencing 120 days after the effective date ("Effective Date")
of the Registration Statement covering the underwritten public offering
("Offering") by the Company of 800,000 Units ("Units") of Common Stock and Class
A Warrants unless Investors Associates, Inc. (the "Representative") consents to
the sale of such securities prior to such date. Six Hundred Seventy-Five
Thousand (675,000) of the Class A Warrants offered hereby were acquired by
twenty-six (26) "accredited investors" (as such term is defined in the
Securities Act of 1933, as amended (the "Securities Act")), that purchased Units
of Series A Preferred Stock and Class A Warrants in the Company's 1996 Units
Financing. The remaining Two Million Five Hundred Thousand (2,500,000) of such
Class A Warrants were acquired on the Effective Date upon the automatic
conversion of two (2) of the Company's Convertible Bridge Notes, in the
aggregate principal amount of $250,000, that were issued to two "accredited
investors" in a Bridge Financing that occurred in April 1996. The Bridge Notes
were converted at a rate of One Class A Warrant for each Ten Cents ($.10) in
principal amount of such Bridge Notes.
Each Class A Warrant entitles the holder to purchase one (1) share of
Common Stock at a price of $5.00 per share during the period commencing on the
date such warrant was issued and terminating on the day prior to the fourth
anniversary of the Effective Date. The Class A Warrants are redeemable by the
Company at any time after the Effective Date, but with the consent of the
Representative if such redemption should occur during the first year after such
Effective Date, for $.001 per Warrant, provided (i) notice of not less than
forty-five (45) days is given; (ii) the closing bid quotation of the Common
Stock of the Company has been at least One Hundred Sixty Percent (160%) of the
then exercise price of the Class A Warrants on all twenty (20) of the trading
days ending on the date prior to the day notice is given; and (iii) holders of
the Class A Warrants shall have had exercise rights until the close of business
on the date fixed for redemption. The exercise price of the Class A Warrants is
subject to adjustment under certain circumstances. See "Description of
Securities - Class A Warrants".
This Prospectus also relates to the offer and sale of 3,812,500 shares
of Common Stock. Of such shares, (i) an aggregate of 3,175,000 may be offered
and sold by the Selling Securityholders upon their exercise of their Class A
Warrants or, alternatively, such 3,175,000 Warrant Shares may be issued by the
Company upon exercise by individuals or entities that purchase Class A Warrants
from the Selling Securityholders; (ii) an aggregate of 337,500 may be offered
and sold by the Selling Securityholders upon conversion of the 337,500 of Series
A Preferred Stock acquired by such Selling Securityholders in the Company's 1996
Units Financing; and (iii) 300,000 may be offered from time to time by Mr.
Carmine Stella, who is the Chairman of the Board, President and Chief Executive
Officer of the Company, subject to his agreement not to offer or sell such
shares prior to the expiration of two (2) years after the Effective Date without
the consent of the Representative. Sales of the 337,500 shares of Common Stock
that may be acquired by the Selling Securityholders upon conversion of an equal
number of shares of Series A Preferred Stock may be made commencing 180 days
after the Effective Date unless the Representative consents to the sale of such
securities prior to such date. The Selling Securityholders have agreed that they
will not offer or sell the Class A Warrants or the Warrant Shares offered hereby
for a period of 120 days after the Effective Date without the consent of the
Representative.
Alt-1
<PAGE> 78
The Company will not receive any proceeds of sales of the Class A
Warrants or the Warrant Shares sold by the Selling Securityholders. The Company
will receive proceeds of the issuances of shares of Common Stock upon exercise
of the Class A Warrants offered hereby that have been purchased from the Selling
Shareholders. All costs incurred in the registration of the Securities being
offered by the Selling Securityholders are being borne by the Company.
Resales of the securities offered hereby are subject to Prospectus
delivery and other requirements of the Securities Act. Sales of such securities,
or the potential of such sales at any time, may have an adverse effect on the
market prices of the securities offered by the Company in the Offering. See
"Selling Securityholders."
The Company has applied for inclusion of its Class A Warrants and
Common Stock on the Nasdaq Small Cap Market. There can be no assurance that an
active trading market will develop even if such securities are accepted for
quotation. Additionally, even if such securities are accepted for quotation and
active trading develops, the Company is still required to maintain certain
minimum criteria established by The National Association of Securities Dealers,
which there can be no assurances the Company will be able to do. See Risk
Factors - "Absence of Prior Public Market; Volatility of Market in General" and
"Effects of Delisting from NASDAQ Small Cap Market."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS."
The date of this Prospectus is ____________, 1997.
Alt-2
<PAGE> 79
COMPANY OFFERING
On the date of this Prospectus, a Registration Statement under the
Securities Act with respect to the underwritten Offering of the Units by the
Company was declared effective by the Securities and Exchange Commission, and
the Company commenced the sale of the Units offered thereby. Each Unit consists
of one (1) share of Common Stock and one-half (1/2) Class A Warrant to purchase
Common Stock. Each one-half (1/2) Class A Warrant may be exercised only in
combination with another one-half (1/2) Class A Warrant to purchase a whole
share of Common Stock at a exercise price of $5.00 per share. Sales of the
securities offered by the Selling Securityholders hereby, or even the potential
of such sales, may have an adverse effect on the market prices of the Company's
securities.
SELLING SECURITYHOLDERS
CLASS A WARRANTS
As of the date of this Prospectus, there were 4,159,000 Class A Warrants
outstanding. The following table sets forth the names of the Selling
Securityholders, the number of Class A Warrants owned by each Selling
Securityholder before this offering, the number of Class A Warrants being
offered pursuant to this Prospectus, and the number and percentage of Class A
Warrants to be owned by each Selling Securityholder after this offering. Except
for Mr. Carmine Stella, Mr. Eugene Fernandez and Ms. Carol Macchiarulo, none of
the Selling Shareholders has had a material relationship or has held any
position or office with the Company or any of its affiliates within the last
three (3) years.
<TABLE>
<CAPTION>
Number of Class A Number of Number of Percent of
Warrants Class A Warrants Class A Warrants Class A Warrants
Name Owned Prior to Offered for Account Owned After Owned After
of Securityholder Offering Of Securityholder Offering Offering
- ----------------- ----------------- ------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Boro Recycling, Inc. 75,000 75,000 0 0
Sandra A. Calabrese 25,000 25,000 0 0
Maureen Cohen 12,500 12,500 0 0
Carolyn Faulk 25,000 25,000 0 0
Eugene Fernandez(1) 192,000 25,000 167,000 4.0
Harvey Glicker 25,000 25,000 0 0
June Guiffrida 25,000 25,000 0 0
Carol A. Macchiarulo 12,500 12,500 0 0
Sheila Margiotta 25,000 25,000 0 0
</TABLE>
Alt-3
<PAGE> 80
<TABLE>
<CAPTION>
Number of Class A Number of Number of Percent of
Warrants Class A Warrants Class A Warrants Class A Warrants
Name Owned Prior to Offered for Account Owned After Owned After
of Securityholder Offering Of Securityholder Offering Offering
- ----------------- ----------------- ------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Alfredo Nasti 25,000 25,000 0 0
Stanley Parlante 25,000 25,000 0 0
M. Frank Powell 25,000 25,000 0 0
Louis Ragosta 25,000 25,000 0 0
John James Schauder 25,000 25,000 0 0
Thomas J. Simone 25,000 25,000 0 0
Software Marketing Corp. 50,000 50,000 0 0
Carmine N. Stella(2) 383,600 50,000 333,600 8.0
Marie Jackson 12,500 12,500 0 0
William Lutz 12,500 12,500 0 0
Pacesetter Personnel 25,000 25,000 0 0
Services, Inc
Carol Rodopoulus 25,000 25,000 0 0
Ira M. Hariton 25,000 25,000 0 0
Worldwide Temporary 25,000 25,000 0 0
Services, Inc
Cornelius Murphy 12,500 12,500 0 0
Stephen Pechenik 25,000 25,000 0 0
Anna Ferrante and Rocco 12,500 12,500 0 0
Ferrante, as joint tenants
Vincent J. Apicella 162,500 162,500 0 0
Rose Nastasia 250,000 250,000 0 0
TAZ Group 250,000 250,000 0 0
C.P. Holding Group 412,500 412,500 0 0
</TABLE>
Alt-4
<PAGE> 81
<TABLE>
<S> <C> <C> <C> <C>
Millyridge Corporation, N.V. 100,000 100,000 0 0
Big Bass Holding Corp. 162,500 162,500 0 0
Roy M. Schoer 162,500 162,500 0 0
Loeb Holding Corp. 800,000 800,000 0 0
Warren Bagatel 200,000 200,000 0 0
</TABLE>
- ------
(1) In addition to the 25,000 Class A Warrants being offered hereby, Mr.
Fernandez is the beneficial holder of 167,000 other Class A Warrants.
Such 167,000 Class A Warrants, and the Common Stock underlying such
warrants, are subject to a lock-up agreement which prevents the
transfer of such securities for a minimum of two years after the
Effective Date without the consent of the Representative.
(2) In addition to the 50,000 Class A Warrants being offered hereby, Mr.
Stella owns 333,600 other Class A Warrants. Such 333,600 Class A
Warrants, and the Common Stock underlying such warrants, are subject to
a lock-up agreement which prevents the transfer of such securities for
a minimum of two years after the Effective Date without the consent of
the Representative.
COMMON STOCK
The following table sets forth the number of shares of Common Stock
owned by each of the Selling Securityholders prior to the offering being made by
them hereby, the number of such shares being offered by each of them hereby, and
the number and percentage of shares of Common Stock that will be owned by each
of them after this offering. The information contained in such table assumes
that (i) the 3,175,000 Class A Warrants offered hereby have been exercised by
the Selling Securityholders, (ii) the 337,500 shares of Series A Preferred Stock
owned by the Selling Securityholders have been converted by them into 337,500
shares of Common Stock, and (iii) neither any other outstanding Class A Warrants
nor the 300,000 shares of Series B Preferred Stock issued upon consummation of
the Merger have been exercised for or converted into Common Stock.
<TABLE>
<CAPTION>
Percentage of
Number of Common
Number of Common Number of Common Common Shares Shares
Name Shares Owned Shares Offered for Owned After Owned After
of Securityholder Prior to Offering Securityholder Offering Offering
- ----------------- ----------------- ------------------ ------------- -----------
<S> <C> <C> <C> <C>
Boro Recycling, Inc. 112,500 112,500 0 0
Sandra A. Calabrese 37,500 37,500 0 0
Maureen Cohen 18,750 18,750 0 0
Carolyn Faulk 37,500 37,500 0 0
Eugene Fernandez 392,045 37,500 354,545 6.0
Harvey Glicker 37,500 37,500 0 0
</TABLE>
Alt-5
<PAGE> 82
<TABLE>
<S> <C> <C> <C> <C>
June Guiffrida 37,500 37,500 0 0
Carol A. Macchiarulo 18,750 18,750 0 0
Sheila Margiotta 37,500 37,500 0 0
Alfredo Nasti 37,500 37,500 0 0
Stanley Parlante 37,500 37,500 0 0
M. Frank Powell 37,500 37,500 0 0
Louis Ragosta 37,500 37,500 0 0
John James Schauder 37,500 37,500 0 0
Thomas J. Simone 37,500 37,500 0 0
Software Marketing Corp. 75,000 75,000 0 0
Carmine N. Stella 784,091 375,000 409,091 6.9
Marie Jackson 18,750 18,750 0 0
William Lutz 18,750 18,750 0 0
Pacesetter Personnel 37,500 37,500 0 0
Services, Inc
Carol Rodopoulus 37,500 37,500 0 0
Ira M. Hariton 37,500 37,500 0 0
Worldwide Temporary 37,500 37,500 0 0
Services, Inc
Cornelius Murphy 18,750 18,750 0 0
Stephen Pechenik 37,500 37,500 0 0
Anna Ferrante and Rocco 18,750 18,750 0 0
Ferrante, as joint tenants
Vincent J. Apicella 162,500 162,500 0 0
Rose Nastasia 250,000 250,000 0 0
TAZ Group 250,000 250,000 0 0
C.P. Holding Group 412,500 412,500 0 0
Millyridge Corporation, N.V. 100,000 100,000 0 0
</TABLE>
Alt-6
<PAGE> 83
<TABLE>
<S> <C> <C> <C> <C>
Big Bass Holdings Corp. 162,500 162,500 0 0
Roy M. Schoer 162,500 162,500 0 0
Loeb Holding Corp. 800,000 800,000 0 0
Warren Bagatel 200,000 200,000 0 0
</TABLE>
Alt-7
<PAGE> 84
PLAN OF DISTRIBUTION
The securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the securities as agent but may purchase
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary broker
transactions and transactions in which the broker solicits purchasers, and (d)
face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. The
Selling Securityholders and intermediaries through whom such securities are sold
may be deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of
a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for securities
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
The shares of Common Stock underlying the Class A Warrants are offered
by the Company hereunder only for purchase upon exercise of Class A Warrants by
a holder who has purchased such Class A Warrants from a Selling Securityholder
and shall be issued by the Company to such holders from time to time pursuant to
exercise of such Class A Warrants in accordance with the terms thereof. Sales of
securities by the Selling Securityholder or even the potential of such sales
would likely have an adverse effect on the market prices of the securities
offered hereby.
The Company has agreed to pay substantially all the expenses incurred
by the Selling Securityholders incident to the offering and sale of the
securities offered by the Selling Securityholders to the public, but excluding
any underwriting discounts, commissions or transfer taxes.
The Company has agreed to indemnify certain Selling Securityholders
against certain liabilities, including liabilities under the Securities Act.
Alt-8
<PAGE> 85
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
Additional Information...............................
Prospectus Summary...................................
Summary Financial Information........................
Risk Factors.........................................
Use of Proceeds......................................
Dividend Policy......................................
Capitalization.......................................
Dilution.............................................
Selected Financial Data..............................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.......................................
Business.............................................
Management...........................................
Principal Shareholders...............................
Selling Securityholders..............................
Certain Transactions.................................
Description of Securities............................
Securities Eligible for Future Sale..................
Plan of Distribution.................................
Legal Matters........................................
Experts..............................................
Index to Financial Statements........................
ALTERNATE
CAPITAL BEVERAGE CORPORATION
3,175,000
CLASS A WARRANTS
3,812,500
SHARES OF COMMON STOCK
PROSPECTUS
______________, 1996
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law provides, in general,
that a corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director or officer of the
corporation. Such indemnity may be against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding, if the indemnitee acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal action or
proceeding, the indemnitee must not have had reasonable cause to believe his
conduct was unlawful.
Section 145(b) of the General Corporation Law provides, in general,
that a corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interest of the corporation.
Section 145(g) of the General Corporation Law provides in general that
a corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation against any
liability asserted against him or incurred by him in any capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify him against such liability under the provisions of the law.
The Company's By-Laws and Certificate of Incorporation provide that the
Company will indemnify its officers, directors, employees and agents to the
fullest extent permitted by the General Corporation Law.
Section 102(b) of the General Corporation Law permits a Delaware
corporation, by so providing in its Certificate of Incorporation, to eliminate
or limit the personal liability of a director to the corporation for damages
arising out of certain alleged breaches of the director's duties to the
corporation. The General Corporation Law, however, provides that no such
limitation of liability may affect a director's liability with respect to any of
the following: (i) for breach of the director's duty of loyalty to the
corporation of its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payment of dividends or unlawful purchase or redemption of its capital
stock, or (iv) for any transaction from which the director derived an improper
personal benefit.
The Company's Certificate of Incorporation eliminates the personal
liability of the directors to the fullest extent permitted by Section 102(b) of
the General Corporation Law.
<PAGE> 87
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated expenses to be
incurred by the Registrant in connection with this Offering (excluding the
Representative's non-accountable expense allowance):
<TABLE>
<S> <C>
SEC Registration fee............................. $ 8,892
NASD filing fee.................................. 3,098
NASDAQ listing fee............................... 10,000
Blue Sky fees and expenses....................... 30,000*
Printing and engraving expenses.................. 75,000*
Legal fees and expenses of issuance 100,000*
Accounting fees and expenses..................... 60,000*
Transfer agent fees and expenses................. 5,000*
Miscellaneous.................................... 53,010*
--------
TOTAL ............................... $345,000*
</TABLE>
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Registrant sold the following securities.
Private Placement of Units
Between December 1995 and March 1996, the Company conducted a private
offering under Section 4(2) of the Securities Act and Regulation D promulgated
thereunder, of units ("Units") of its Series A Preferred Stock and Class A
Warrants (the "Units Financing"). Each Unit consisted of 12,500 shares of Series
A Preferred Stock and 25,000 Class A Warrants. A total of 27 Units, consisting
of an aggregate of 337,500 shares of Series A Preferred Stock and 675,000 Class
A Warrants, were sold to 26 "accredited investors" (as such term is defined in
the Securities Act) for gross offering proceeds of $1,350,000. Pursuant to an
Agency Agreement, dated December 6, 1995, the Company retained the
Representative as its exclusive agent in connection with the Units Financing and
paid the Representative a selling commission equal to 10% of the gross proceeds
from the sale of the Units ($135,000) and a non-accountable expense allowance
equal to 1% of such gross proceeds ($13,500). Approximately $800,000 of the net
proceeds of the Units Financing were used to acquire the Pabst Distribution
Rights. The balance of such net proceeds were used for purchase of inventory of
Pabst Products, for legal fees related to such financing and general corporate
purposes.
Private Placement of Bridge Notes
In April 1996, the Company conducted a private offering under Section 4(2)
of the Securities Act and Regulation D promulgated thereunder, of its 12%
Convertible Bridge Notes ("Bridge Financing"). The Convertible Bridge Notes were
purchased by two (2) accredited investors for aggregate gross offering proceeds
of $250,000. The Convertible Bridge Notes, including accrued interest thereon,
are due one (1) year after issuance but will automatically be converted into an
aggregate of 2,500,000 Class A Warrants upon the Effective Date of this
Prospectus. The Company retained the Representative as its exclusive placement
agent (the "Placement Agent") in connection with such private placement. As
compensation for the Representative's services as Placement Agent, the Company
paid the Representative a selling commission equal to 10% of the gross proceeds
of the Bridge Financing in ($25,000) and a non-accountable expense allowance of
1% of such gross proceeds ($2,500). The proceeds of the Bridge Financing were
used principally for purchase of inventory of Pabst Products, for legal fees
related to such financing and general corporate purposes.
In connection with all the transactions described above, no general
advertisement or solicitation of offerees was made, and all purchasers signed
and delivered to the Registrant agreements wherein they represented, among other
things, that the securities would be held for their own account, for investment
only and not with a view to the distribution thereof. The certificates
representing such securities bear
II-2
<PAGE> 88
legends restricting transferability in transactions not registered under the
Act, and the Registrant's records bear stop transfer restrictions with respect
thereto.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description of Exhibit Pages
- ----------- ---------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.**
1.2 Form of Agreement Among Underwriters.**
1.3 Form of Selected Dealer Agreement.**
3.1 Certificate of Incorporation.**
3.2 Certificate of Designations, As Amended, Relating to Series A Preferred
Stock.**
3.3 Form of Certificate of Designations Relating to Series B Preferred
Stock.**
3.4 ByLaws.**
4.1 Specimen Common Stock Certificate.**
4.2 Specimen Series A Preferred Stock Certificate.**
4.3 Specimen Series B Preferred Stock Certificate.**
4.4 Specimen Class A Warrant Certificate.*
4.5 Form of Convertible Bridge Note.**
4.6 Form of Class A Warrants Issued to Certain Members of Management.**
4.7 Form of Class A Warrants Issued in 1996 Private Placement Financing.**
4.8 Form of Representative's Unit Purchase Option Agreement.**
4.9 Form of Warrant Agreement.*
5.1 Opinion of Law Offices of Weber & Weber, Counsel for the Registrant, as
to the legality of the Securities being registered.*
10.1 Agreement with Consolidated Beverage Corp. relating to Pabst
Distribution Rights **
10.2 Form of Series of Promissory Notes to Consolidated Beverage Corporation
**
10.3 Bill of Sale from Consolidated Beverage Corp. to Registrant.**
10.4 Distributorship Agreement with Pabst Brewing Company **
10.5 Agency Agreement with Vito Santoro, Inc.**
10.6 Employment Agreement between Registrant and Carmine N. Stella.*
10.7 1996 Incentive Stock Option Plan.**
10.8 Agreement with Carmine N. Stella relating to Option to acquire Vito
Santoro, Inc.**
10.9 Merger Agreement relating to Vito Santoro, Inc.**
11 Computation of Earnings Per Share
23.1 Consent of Feldman, Radin & Co., P.C., Certified Public Accountants.
23.2 Consent of Weber & Weber (included in their opinion filed as Exhibit
5.1).*
24.1 Power of Attorney (contained on signature page hereof).**
</TABLE>
- ----------------------------
* To be filed by amendment.
** Previously filed.
ITEM 28. UNDERTAKINGS
The undersigned small business issuer undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereto) which, individually or together, represent a
fundamental change in the information in the Registration Statement; and
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<PAGE> 89
(iii) include any material information relating the plan of
distribution not previously disclosed in the Registration Statement or any
material change in such information.
(2) For the purpose of determining liability under the Securities Act,
treat each such post-effective amendment as a new registration statement of the
securities offered, and the offering of such securities at that time to be the
initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
The small business issuer hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions or otherwise, the small
business issuer has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer, 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 whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1) or (4) or 497
(h) under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
For purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement for the securities offered in the Registration
Statement, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of those securities.
II-4
<PAGE> 90
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, at Hauppauge, State of New York, on January __, 1997.
CAPITAL BEVERAGE CORPORATION
By: /S/ CARMINE N. STELLA
-------------------------------------------------
Name: Carmine N. Stella
Title: Chairman of the Board, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Carmine N. Stella and Eugene Fernandez, each or
either of them, his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on December __, 1996, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/S/ CARMINE N. STELLA Chairman of the Board, President and
- ---------------------------------- Chief Executive Officer (Principal Executive Officer)
Carmine N. Stella
/S/ CAROL MACCHIARULO Secretary and Treasurer (Principal Financial
- ---------------------------------- and Accounting Officer)
Carol Macchiarulo
/S/ EUGENE FERNANDEZ Director
- ----------------------------------
Eugene Fernandez
</TABLE>
II-5
<PAGE> 91
EXHIBIT INDEX
-------------
Exhibit Description of Exhibit
No.
- ------- ----------------------
1.1 Form of Underwriting Agreement.**
1.2 Form of Agreement Among Underwriters.**
1.3 Form of Selected Dealer Agreement.**
3.1 Certificate of Incorporation.**
3.2 Certificate of Designations, As Amended, Relating to Series A
Preferred Stock.**
3.3 Form of Certificate of Designations Relating to Series B
Preferred Stock.**
3.4 ByLaws.**
4.1 Specimen Common Stock Certificate.**
4.2 Specimen Series A Preferred Stock Certificate.**
4.3 Specimen Series B Preferred Stock Certificate.**
4.4 Specimen Class A Warrant Certificate.*
4.5 Form of Convertible Bridge Note.**
4.6 Form of Class A Warrants Issued to Certain Members of
Management.**
4.7 Form of Class A Warrants Issued in 1996 Private Placement
Financing.**
4.8 Form of Representative's Unit Purchase Option Agreement.**
4.9 Form of Warrant Agreement.*
5.1 Opinion of Law Offices of Weber & Weber, Counsel for the
Registrant, as to the legality of the Securities being
registered.*
10.1 Agreement with Consolidated Beverage Corp. relating to Pabst
Distribution Rights **
10.2 Form of Series of Promissory Notes to Consolidated Beverage
Corporation**
10.3 Bill of Sale from Consolidated Beverage Corp. to Registrant.**
10.4 Distributorship Agreement with Pabst Brewing Company **
10.5 Agency Agreement with Vito Santoro, Inc.**
10.6 Employment Agreement between Registrant and Carmine N. Stella.*
10.7 1996 Incentive Stock Option Plan.**
10.8 Agreement with Carmine N. Stella relating to Option to acquire
Vito Santoro, Inc.**
10.9 Merger Agreement relating to Vito Santoro, Inc.**
11 Computation of Earnings Per Share
23.1 Consent of Feldman, Radin & Co., P.C., Certified Public
Accountants.
23.2 Consent of Weber & Weber (included in their opinion filed as
Exhibit 5.1).*
24.1 Power of Attorney (contained on signature page hereof).**
- ----------------------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 11
CAPITAL BEVERAGE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30,
----------------------- -----------------------
1995 1994 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ (15,308) $ 58,616 $ 143,689 $ 56,502
Pro-forma income taxes (5,358) 20,516 54,300 18,700
========== ========== ========== ==========
Pro-forma net income
(loss) (9,950) 38,100 89,389 37,802
Preferred stock
dividends -- -- 66,063 --
---------- ---------- ---------- ----------
Pro-forma net income
(loss) available to
common stockholders $ (9,950) $ 38,100 $ 23,326 $ 37,802
========== ========== ========== ==========
Weighted number of
common shares
outstanding 1,240,909 1,240,909 1,240,909 1,240,909
========== ========== ========== ==========
Earnings (loss) per
common share $ (.01) $ .03 $ .02 $ .03
========== ========== ========== ==========
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 of
our report dated July 26, 1996 relating to the financial statements of Capital
Beverage Corporation as of December 31, 1995 and for the two years then ended
and the reference to our firm under the captions "Selected Financial Data" and
"Experts" in the accompanying Prospectus.
Feldman Radin & Co., P.C.
January 27, 1997 Certified Public Accountants
New York, New York
