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 June 30, 1999
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 5, 1999 was 2,378,409 shares.
<PAGE>
CAPITAL BEVERAGE CORPORATION
FORM 10-QSB
June 30, 1999
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Consolidated Financial Statements (Unaudited) NUMBER
Balance Sheet as of June 30, 1999 3
Statements of Operations for the three-months
ended June 30, 1999 and 1998 and the six months
ended June 30, 1999 and 1998 4
Statements of Cash Flows for the six-months
ended June 30, 1999 and 1998 5
Note to Financial Statements 6
Item 2. Management's Discussion and Analysis 7 - 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
2
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<TABLE>
<CAPTION>
CAPITAL BEVERAGE CORPORATION
CONSOLIDATED BALANCE SHEET
June 30,
1999
-------------------
ASSETS (Unaudited)
<S> <C>
CURENT ASSETS:
Cash $ 1,838,621
Accounts receivable - trade, net of allowance for doubtful accounts of $60,000 435,607
Inventories 910,414
Prepaid expenses and other 131,908
-------------------
TOTAL CURRENT ASSETS 3,316,550
PROPERTY AND EQUIPMENT, less accumulated depreciation of $25,967 97,697
OTHER ASSETS:
Intangible assets, less accumulated amortization of $520,000 1,040,000
Deposits 3,290
-------------------
$ 4,457,537
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 429,769
Accrued expenses and taxes 268,509
Current portion of long-term debt 71,145
Accrued dividends on preferred stock 312,113
-------------------
TOTAL CURRENT LIABILITIES 1,081,536
-------------------
LONG-TERM DEBT 523,202
-------------------
STOCKHOLDERS' EQUITY:
7% Cumulative Series B Preferred Stock, par value $.01;
issued and outstanding 300,000 shares (Liquidation value $1,200,000) 3,000
Common stock, $ .001 par value; authorized 20,000,000 shares;
issued and outstanding 2,378,409 shares 2,379
Additional paid-in capital 5,365,573
Accumulated deficit (2,518,153)
-------------------
TOTAL STOCKHOLDERS' EQUITY 2,852,799
-------------------
$ 4,457,537
===================
The accompanying note is an integral part of the financial statements.
3
</TABLE>
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<TABLE>
<CAPTION>
CAPITAL BEVERAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------- ----------------------------------
1999 1998 1999 1998
-------------------- -------------------- ---------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SALES $ 3,366,881 $ 2,488,413 $ 5,361,103 $ 4,712,128
COST OF GOODS SOLD 2,589,138 2,238,127 4,218,041 4,328,669
-------------------- -------------------- ---------------- ---------------
GROSS PROFIT 777,743 250,286 1,143,062 383,459
-------------------- -------------------- ---------------- ---------------
OPERATING EXPENSES
Selling and delivery 203,235 50,737 361,448 104,652
General and administrative 567,093 354,944 1,045,784 764,464
-------------------- -------------------- ---------------- ---------------
770,328 405,681 1,407,232 869,116
-------------------- -------------------- ---------------- ---------------
INCOME (LOSS) FROM OPERATIONS 7,415 (155,395) (264,170) (485,657)
INTEREST EXPENSE (13,321) (14,553) (26,837) (29,436)
INTEREST INCOME 18,560 30,540 38,807 62,376
-------------------- -------------------- ---------------- ---------------
NET INCOME (LOSS) 12,654 (139,408) (252,200) (452,717)
PREFERRED STOCK DIVIDENDS (21,000) (21,000) (42,000) (42,000)
-------------------- -------------------- ---------------- ---------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (8,346) $ (160,408) $ (294,200) $ (494,717)
==================== ==================== ================ ===============
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.00)$ (0.07) $ (0.12) $ (0.21)
==================== ==================== ================ ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 2,378,409 2,378,409 2,378,409 2,378,409
==================== ==================== ================ ===============
The accompanying note is an integral part of the financial statements.
4
</TABLE>
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<TABLE>
<CAPTION>
CAPITAL BEVERAGE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30,
------------------------------------------
1999 1998
-------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (252,200) $ (452,717)
-------------------- -------------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 84,077 82,120
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (93,838) 358,740
(Increase) in inventories (331,315) (266,729)
(Increase) decrease in prepaid expenses 24,691 (170,906)
Decrease in deposits 72,372 -
Increase in accounts payable and accrued expenses 327,336 74,684
-------------------- -------------------
83,323 77,909
-------------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES (168,877) (374,808)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (47,915) (2,437)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in note payable (33,328) (30,565)
-------------------- -------------------
NET DECREASE IN CASH (250,120) (407,810)
CASH - BEGINNING OF PERIOD 2,088,741 2,843,870
-------------------- -------------------
CASH - END OF PERIOD $ 1,838,621 $ 2,436,060
==================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 26,837 $ 29,436
==================== ===================
Cash paid for income taxes $ - $ -
==================== ===================
The accompanying note is an integral part of the financial statements.
5
</TABLE>
<PAGE>
CAPITAL BEVERAGE CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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.
-6-
<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.
Statements in this Form 1O-QSB that are not statements of historical
or current fact constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other unknown
factors that could cause the actual results of the Company to be materially
different from the historical results or from any future results expressed or
implied by such forward-looking statements. In addition to statements that
explicitly describe such risks and uncertainties, readers are urged to
consider statements labeled with the terms "believes," "belief," "expects,"
"intends," "anticipates" or "plans" to be uncertain and forward-looking. The
forward- looking statements contained herein are also subject generally to
other risks and uncertainties that are described from time to time in the
Company's reports and registration statements filed with the Securities and
Exchange Commission.
a. Results of Operations
Sales for the six months ended June 30, 1999 were $5,361,103 as
compared to sales of $4,712,128 for the six months ended June 30, 1998. Sales
for the quarter ended June 30, 1999 were $3,366,881 as compared to sales of
$2,488,413 for the quarter ended June 30, 1998. The cost of goods sold as a
percentage of sales for the six month period in 1999 period was 79% as
compared to 92% for the comparable 1998 period. The decrease in cost of goods
sold as a percentage of sales for the six months ended June 30, 1999, is due
primarily to the additional sales of products from the Pittsburgh Brewery Co.,
which affords the Company a significantly greater gross margin percentage.
Selling, general and administrative expenses for the six month period
ended June 30, 1999 were $1,407,232 as compared to $869,116 for the respective
1998 period. The increase in the six months ended June 30, 1999 results from
expansion into new products provided by the Pittsburgh Brewery Co.,certain
expenses increased as a result of added warehousing and salespeople salaries,
automobile expenses, legal fees, office expenses, repairs and maintenance
expenses.
Interest expense for the six month period ended June 30, 1999 was
$26,837 as compared to $29,436 for the respective 1998 period. The decrease in
the six month period ended June 30, 1999 is due to the reduction of debt.
Interest income for the six month period ended June 30, 1999 was S38,807 as
compared to $62,376 for the respective 1998 period. The decrease in the six
month period resulted from the decrease in average cash balance invested in
the Vista account.
-7-
<PAGE>
b. Liquidity and Capital Resources
Cash used in operations for the six months ended June 30, 1999
was $168,887. The increase in inventories of $331,315was offset by an
increase in accounts payable and accrued expenses of $327,336.
Working capital decreased from $2,457,022 at December 31, 1998 to
$2,235,014 at June 30, 1999 as a result of the cash required in operating
activities.
At June 30, 1999, the Company's primary sources of liquidity were
$1,838,621 in cash, $435,607 in accounts receivable and $910,414.
Management believes it has sufficient sources of working capital
to adequately meet the Company's needs through the end of 1999,
CAP Communications Ltd. was formed in November 1998 to explore,
as an ancillary to beverage sales, the rapidly expanding prepaid phone
card market. Within New York City, the bulk of phone cards sales occur
within ethnic neighborhoods, with major sales occurring within the
Hispanic based communities. Given Capital Beverage's well established
position in local Hispanic retail markets and its' connection with the
business owners, phone cards may serve as a significant source of new
revenues to Capital's expanding beverage sales. The synergism of the two,
beer sales and phone cards, may prove to be the catalyst, which sparks
continued revenue growth for Capital Beverage. Working in conjunction with
Orion Telecommunications Corporation, with offices in New York, Capital
Beverage has begun an infrastructure development to explore this new
potential market Orion has agreed to provide funding to Capital Beverage
which will allow Capital Beverage to determine what course of action to
take to make their card a success here in New York.
c. Year 2000
The Company recognizes that a challenging problem exists in that
many 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 June 30, 1999.
-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: August 13, 1999
/s/Carmine N. Stella, President and
Chief Executive Officer,
as Registrant's duly authorized officer
/s/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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,838,621
<SECURITIES> 0
<RECEIVABLES> 495,607
<ALLOWANCES> 60,000
<INVENTORY> 910,414
<CURRENT-ASSETS> 3,316,550
<PP&E> 123,664
<DEPRECIATION> 25,967
<TOTAL-ASSETS> 4,457,537
<CURRENT-LIABILITIES> 1,081,536
<BONDS> 0
0
3,000
<COMMON> 2,379
<OTHER-SE> 2,847,420
<TOTAL-LIABILITY-AND-EQUITY> 4,457,537
<SALES> 5,361,103
<TOTAL-REVENUES> 5,399,910
<CGS> 4,218,041
<TOTAL-COSTS> 4,218,041
<OTHER-EXPENSES> 1,407,232
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,837
<INCOME-PRETAX> (252,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (252,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252,200)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
