SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-13181
CAPITAL BEVERAGE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3878747
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1111 East Tremont Avenue, Bronx, New York 10460
(Address of Principal Executive Office) (Zip Code)
(718) 409-2337
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of shares of registrant's Common Stock, $.001 par value,
outstanding as of August 12, 1998 was 2,378,409 shares.
<PAGE>
CAPITAL BEVERAGE CORPORATION
FORM 10-QSB
September 30, 1998
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited) NUMBER
Balance sheets as of September 30, 1998 and December 31, 1997 3
Statements of Operations for the three-month periods
ended September 30, 1998 and 1997 and the nine month
periods ended September 30, 1998 and 1997 4
Statements of Cash Flows for the nine-month periods
ended September 30, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
2
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<TABLE>
<CAPTION>
CAPITAL BEVERAGE CORPORATION
BALANCE SHEETS
September 30, December 31,
1998 1997
------------------- -------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,452,494 $ 2,843,870
Accounts receivable - trade, net of allowance for doubtful
accounts of $30,000 and $65,000, respectively 357,004 855,472
Inventories 640,674 426,290
Prepaid expenses and other 145,147 9,548
------------------- -------------------
TOTAL CURRENT ASSETS 3,595,319 4,135,180
PROPERTY AND EQUIPMENT, less accumulated depreciation
of $20,300 and $61,965, respectively 51,454 50,058
OTHER ASSETS:
Intangible assets, less accumulated amortization of
$440,000 and $320,000, respectively 1,160,000 1,280,000
Deposits 3,290 3,290
------------------- -------------------
$ 4,810,063 $ 5,468,528
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 153,135 $ 67,135
Accrued expenses and taxes 96,453 112,601
Current portion of long-term debt 66,672 62,480
Accrued dividends on preferred stock 249,113 186,113
------------------- -------------------
TOTAL CURRENT LIABILITIES 565,373 428,329
------------------- -------------------
LONG-TERM DEBT 577,134 627,676
------------------- -------------------
STOCKHOLDERS' EQUITY:
7% Cumulative Series B Preferred Stock, par value $.01;
issued and outstanding 300,000 shares (Liquidation value $1,200,000) 3,000 3,000
Common stock, $ .001 par value; authorized 20,000,000 shares;
issued and outstanding 2,378,409 shares 2,379 2,379
Additional paid-in capital 5,365,573 5,365,573
Accumulated deficit (1,703,396) (958,429)
------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 3,667,556 4,412,523
------------------- -------------------
$ 4,810,063 $ 5,468,528
=================== ===================
See notes to financial statements
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BEVERAGE CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------------------------------------------------------
1998 1997 1998 1997
------------------- ------------------- ------------------- --------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SALES $ 2,255,136 $ 5,021,824 $ 6,967,264 $ 10,657,661
COST OF GOODS SOLD 2,067,401 4,676,265 6,396,070 9,591,376
------------------- ------------------- ------------------- --------------------
GROSS PROFIT 187,735 345,559 571,194 1,066,285
------------------- ------------------- ------------------- --------------------
OPERATING EXPENSES
Selling and delivery 121,025 54,408 225,677 202,357
General and administrative 306,558 464,006 1,065,819 1,057,077
------------------- ------------------- ------------------- --------------------
427,583 518,414 1,291,496 1,259,434
------------------- ------------------- ------------------- --------------------
LOSS FROM OPERATIONS (239,848) (172,855) (720,302) (193,149)
INTEREST EXPENSE (14,217) (28,078) (43,653) (82,038)
INTEREST INCOME 29,232 27,425 91,608 27,425
------------------- ------------------- ------------------- --------------------
LOSS BEFORE INCOME TAXES (224,833) (173,508) (672,347) (247,762)
INCOME TAXES 4,417 4,100 9,620 1,000
------------------- ------------------- ------------------- --------------------
NET INCOME (LOSS) (229,250) (177,608) (681,967) (248,762)
CUMULATIVE PREFERRED STOCK DIVIDENDS 21,000 - 63,000 -
------------------- ------------------- ------------------- --------------------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS $ (250,250) $ (177,608) $ (744,967) $ (248,762)
=================== =================== =================== ====================
LOSS PER COMMON SHARE - BASIC $ (0.11) $ (0.08) $ (0.30) $ (0.16)
=================== =================== =================== ====================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 2,378,409 2,188,825 2,378,409 1,556,881
=================== =================== =================== ====================
See notes to financial statements
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<TABLE>
<CAPTION>
CAPITAL BEVERAGE CORPORATION
STATEMENT OF CASH FLOWS
Nine Months Ended September 30,
------------------------------------------
1998 1997
-------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (681,967) $ (248,762)
-------------------- -------------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 123,335 165,197
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 498,468 (315,197)
Increase in inventories (214,384) (143,449)
Increase in prepaid expenses and other (135,599) (337)
Increase in accounts payable and accrued expenses 69,852 (87,907)
-------------------- -------------------
341,672 (381,693)
-------------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES (340,295) (630,455)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,731) (2,999)
-------------------- -------------------
CASH USED IN INVESTING ACTIVITIES (4,731) (2,999)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliate - 57,837
Payments of note payable (46,350) (297,061)
Deferred registration cost - 130,783
Increase in additional paid in capital - 3,803,378
-------------------- -------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (46,350) 3,694,937
-------------------- -------------------
NET (DECREASE) INCREASE IN CASH (391,376) 3,061,483
CASH - BEGINNING OF PERIOD 2,843,870 126,927
-------------------- -------------------
CASH - END OF PERIOD $ 2,452,494 $ 3,188,410
==================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 43,653 $ 82,038
==================== ===================
Cash paid for taxes $ 9,620 $ 1,000
==================== ===================
See notes to financial statements
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<PAGE>
CAPITAL BEVERAGE CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair
presentation of the financial position and the results of operations
for the interim periods presented.
Certain financial information which is normally included in
financial statements is prepared in accordance with generally accepted
accounting principles, but which is not required for interim reporting
purposes has been condensed or omitted. The accompanying financial
statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form
10-KSB.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information
which management believes is relevant to an assessment and
understanding of the Company's results of operations and financial
condition. This discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.
a. Results of Operations
Sales for the nine months ended September 30, 1998 were
$6,967,264 as compared to sales of $10,657,661 for the nine months
ended September 30, 1997. Sales for the quarter ended September 30,
1998 were $2,255,136 as compared to sales of $5,021,824 for the quarter
ended September 30, 1997. The cost of goods sold as a percentage of
sales for the nine month period in 1998 period was 92% as compared to
90% for the comparable 1997 period. The increase in cost of goods sold,
as a percentage of sales for the nine months ended September 30, 1998,
is due primarily to the vast amount of transhipping of our core
products in our marketing area. The Company's response was to maintain
discounting to key accounts in order to remain somewhat competitive and
not lose all market share. Management has initiated numerous complaints
to its suppliers regarding the transhipping problem which the Company
believes is a violation of the suppliers' contractual obligations and
the Company has been advised that its suppliers have commenced a full
investigation of all metro New York wholesalers.
Selling, general and administrative expenses for the nine
month period ended September 30, 1998 were $1,291,496 as compared to
$1,259,434 for the respective 1997 period. The increase in the nine
month period ended September 30, 1998 is due primarily to the increased
fees associated with being a public company.
Interest expense for the nine month period ended September 30,
1998 was $43,653 as compared to $82,038 for the respective 1997 period.
The decrease in the nine month period ended September 30, 1998 is due
to the reduction of debt. Interest income for the nine month period
ended September 30, 1998 was $91,608 as compared to $27,425 for the
respective 1997 period. The increase in the nine month period resulted
from interest earned on cash proceeds received from the public offering
of the Company's stock.
b. Liquidity and Capital Resources
Cash used in operations for the nine months ended September
30, 1998 was $340,295. The increase in prepaid expenses of $135,599 and
inventories of $214,384 was offset by a $498,468 decrease in accounts
receivable and a $69,851 increase in accounts payable and accrued
expenses.
Working capital decreased from $3,706,851 at December 31, 1997
to $3,029,946 at September 30, 1998 as a result of the cash required in
operating activities.
-7-
<PAGE>
At September 30, 1998, the Company's primary sources of
liquidity were $2,452,494 in cash, $357,004 in accounts receivable,
$640,674 in inventories, and $145,147 in prepaid and other expenses.
Management believes it has sufficient sources of working
capital to adequately meet the Company's needs through the end of 1998.
c. Year 2000
The Company recognizes that a challenging problem exists in
that many computer systems worldwide do not have the capability of recognizing
the year 2000 or the years thereafter. No easy technological "quick fix" has yet
been developed for this problem. While the issue is not of significance for the
Company because of its minimal reliance on computers, this "Year 2000 Computer
Problem" creates risk for the Company from unforeseen problems in its own
computer systems and from third parties with whom the Company deals. Such
failures of third parties' computer systems could have a material adverse effect
on the Company and its ability to conduct its business in the future.
-8-
<PAGE>
PART II - OTHER INFORMATION
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1998.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL BEVERAGE CORPORATION
Date: November 12, 1998 /S/Carmine N. Stella
Carmine N. Stella, President and
Chief Executive Officer,
as Registrant's duly authorized officer
/S/Carol Russell
Carol Russell,
Secretary and Treasurer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001020186
<NAME> Capital Beverage
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,452,494
<SECURITIES> 0
<RECEIVABLES> 357,004
<ALLOWANCES> 30,000
<INVENTORY> 640,674
<CURRENT-ASSETS> 3,595,319
<PP&E> 71,754
<DEPRECIATION> 20,300
<TOTAL-ASSETS> 4,810,063
<CURRENT-LIABILITIES> 565,373
<BONDS> 0
0
3,000
<COMMON> 2,379
<OTHER-SE> 3,662,177
<TOTAL-LIABILITY-AND-EQUITY> 4,810,063
<SALES> 6,967,264
<TOTAL-REVENUES> 6,967,264
<CGS> 6,396,070
<TOTAL-COSTS> 6,396,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,653
<INCOME-PRETAX> (672,347)
<INCOME-TAX> 9,620
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (681,967)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> 0
</TABLE>
