SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
X Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999.
Transition Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from ___________________ to ___________________.
Commission File No. 0-13181
CAPITAL BEVERAGE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3878747
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1111 East Tremont Avenue, Bronx, New York 10460
- ------------------------------------------ -----
(Address of Principal Executive Officers) (Zip Code)
Registrant's telephone number, including area code: (718) 409-2337
Securities registered pursuant to Section 12(b) of the Act: None.
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Units consisting of one (1) share of Common Stock, par value $.001 per share
and one-half (1/2) Class A Redeemable Common Stock Purchase Warrant
(Title of Class)
Class A Redeemable Common Stock Purchase Warrant
(Title of Class)
<PAGE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of the Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $12,903,154.
The aggregate market value of the voting stock held by non- affiliates
of the Registrant, computed by reference to the closing price of such stock as
of March 23, 2000, was approximately $5,439,000.
Number of shares outstanding of the issuer's Common Stock as of March
24, 2000 was 2,378,409.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
PART I
Item 1. BUSINESS.
Statements in this Form 10-K 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.
General
Capital Beverage Corporation ("Capital" and the "Company") 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 "Consolidated
Notes"). The Consolidated 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 Consolidated Notes, such default may result in a re-conveyance of the
Pabst Distribution Rights to Consolidated Beverage Corporation.
On April 30, 1999 Miller Brewing Company acquired certain brands of
alcoholic beverage from the Pabst Brewing Company resulting in a new
distribution agreement for certain brands held by Capital Beverage. The brands
of Olde English and Hamm's are the two brands which Capital now contracts to
purchase from the Miller Brewing Company on an exclusive basis.
On July 18, 1998 and July 30, 1998 Capital Beverage signed two
distributor agreements with Pittsburgh Brewing Company ("Pittsburgh") to
distribute on an exclusive basis in the entire state of New York, the following
brands:
Brigade, Brigade Light, Brigade Ice, Brigade N/A,
Prime Time Lager, Prime Time Malt Liquor, Iron City,
Iron City Light, Light Twist Acapulco Lime, Iron City
<PAGE>
Twist, Rio Cherry, Old German, Augustiner, Evil Eye Ale,
Evil Eye Black Jack, Evil Eye Amber Lager, Evil Eye
Honey Brown
All of the distributor agreements are subject to termination on short
notice by the brewers.
Strategy
Management of the Company believes it has developed a strategy to
effectively market, sell and distribute beer products throughout its marketing
territory. This strategy includes plans to expand the Company's customer base
and increase sales and marketing efforts. The Company will continue to utilize
both "pre-sell" and "driver-sell" sales people to drive distribution. In late
1999 and early 2000 the Company added two additional brands from Pittsburgh. One
of those brands, "Night Flight" is owned and brewed by the Company. The Company
applied for and received a brewer's permit in mid 1999. As a brewer, the Company
has broadened and strengthened its strategic approach to a position as a
dominant distribution company. Owning and distributing its own product line
allows the Company to somewhat control its own destiny as it seeks to expand its
product portfolio.
In early 2000 the Company has continued to pursue its strategy of
building a quality non-alcoholic brand portfolio. The agreement reached with
Hansen's Beverage company of California to distribute its product line in the
metropolitan New York area is the first major move in this direction.
The Company will continue to seek other additions to its product lines
that compliment the brand portfolio.
Expanding Customer Base
In 1999 the Company turned the Pittsburgh brand beer "Prime Time" into
a well known brand with a substantial customer base in the metropolitan New York
area. By mid-year the Company, after obtaining its brewery license, introduced
its own brand, "Night Flight" and this brand is steadily growing. In 1999 these
brands accounted for over 900,000 case sales (12oz. equivalents)
The Company has tripled its customer base in the past year and has
become an effective alternative for brands seeking distribution in the difficult
New York market. The Company will continue to look at products that will
compliment its existing brand portfolio and allow for continued growth in its
active customer base. To further this growth the Company has initiated a plan to
extend its direct distribution operation into the Long Island, New York market.
Sales and Marketing
The Company employs sales people to obtain new accounts for beer
distribution and to increase sales of beverages to existing accounts for such
products in their marketing territory. In addition to employing a sales staff,
the Company employs sales supervisors who oversee this effort. These supervisors
2
<PAGE>
work on execution of the sales and marketing programs of the Company and
directly handle key accounts.
The Company creates promotional materials to assist the distribution
and sales effort. In late 1999 the Company added a full time merchandising
department to its sales team.
The Company's sales personnel will continue to receive formal training
both at Company and brewery initiated seminars. The Company will continue to
utilize the efforts of a training coordinator to conduct seminars on such topics
as brewing processes, sales call role playing and time management.
The supervisors are also 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 V.P. of Sales and Marketing to assure that space
allocations and placement comply with retailer policies, distribution,
philosophies and recommendations from suppliers.
The Company offers bonuses to sales personnel who market and sell
additional product to existing customers and maintain established goals on
reorders of 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
management's plans and budgets for 2000.
Distribution
The Company has implemented a strategy to achieve effective
distribution of their products in their territory. Under this strategy, the
Company acts as an exclusive distributor for its products subject to policies
and procedures determined by the brewers so that all orders for products come
through the Company. The products are sold into the marketplace in a variety of
ways.
The Company maintains its pre-sell sales force and continues to expand
its driver-sell sales force added in 1999 to increase its direct distribution in
the entire metropolitan market. Beyond that and because of the size of its
territory the Company also relies on independent licensed beverage wholesalers
that are responsible for hiring and maintaining their own staffs and trucking
fleets to distribute their 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 efforts.
3
<PAGE>
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 budget will be used primarily to
participate in various advertising programs established by the breweries. A
proposed budget of $.05 per case based upon monthly estimated sales during
Fiscal 2000 of 100,000 cases will enable the Company to allocate $5000 per month
toward this advertising.
Employees
As of December 31, 1999, the Company employed a staff of 54, including
2 sales supervisors, 2 sales manager, 30 sales people, and 20
managerial/administrative and distribution 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.
Competition
The business conducted by the Company is highly competitive. As of
December 31, 1999, the Company competed with approximately 7 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 products directly from Pabst, Miller and
Pittsburgh Brewing, the Company intends to purchase products from a number of
nationally known beer and beverage companies. Since there are other
manufacturers of alcoholic and nonalcoholic 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 Miller and Pittsburgh, the loss of any supplier
will not adversely affect the Company's business. Termination of the Company's
Distributorship Agreement with Miller and/or Pittsburgh 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.
4
<PAGE>
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 received from the
BATF and SLA its required licenses. 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. 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. 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 business. 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.
Item 2. PROPERTIES.
The Company leases two locations in the Bronx. The main office and
picking location for products are at 1111 E. Tremont Avenue. There is
approximately 10,000 sq. ft. of usage at this location at a cost of $4,000 per
month. The lease on this location is with East Tremont Partners. 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.
The Company also leases space for additional storage at 425 Devoe
Avenue. The premise has approximately 15,000 sq. ft. which cost the Company
$7,000 per month. Management 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.
5
<PAGE>
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.
Item 3. LEGAL PROCEEDINGS.
Management is not aware of any material legal proceedings pending
against the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
(a) On November 22, 1999, the Company held its annual meeting of
Shareholders.
(b) At said meeting, the following five individuals were elected by the
following vote to serve as directors until the next annual meeting of
stockholders and until their successors are elected and qualified:
FOR AGAINST
Carmine Stella 2,322,559 51,400
Carol Russell 2,324,159 49,800
Robert A. Vessa 2,324,159 49,800
Dawn A. Collins 2,320,059 53,900
Joseph M. Luzzi 2,322,559 51,400
(c) At said meeting 2,357,009 shares of Common Stock were voted in
favor of, 9,550 shares of Common Stock were voted against and 7,400 shares of
Common Stock abstained to a proposal to ratify the appointment of Feldman Sherb
Horowitz & Co. to serve as the independent certified public accountants for the
2000 fiscal year.
6
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Units, Common Stock and Class A Warrants commenced
trading on the Nasdaq SmallCap Market on the effectiveness of the Company's
Initial Public Offering on July 17, 1997 under the symbols "CBEVU," "CBEV" and
"CBEVW," respectively. The Common Stock and Warrants are regularly quoted and
traded on the Nasdaq SmallCap Market. The Company's Units were de-listed from
trading on August 29, 1997
The following table indicates the high and low prices for the Company's
Units, Common Stock and Class A Warrants for the period from July 17, 1997 to
December 31, 1999 based upon information supplied by the NASDAQ system. Prices
represent quotations between dealers without adjustments for retail markups,
markdowns or commissions, and may not represent actual transactions.
Common Stock
1997 Fiscal Year Quoted Price
- ---------------- ------------
High Low
---- ---
First Quarter DID NOT TRADE
Second Quarter DID NOT TRADE
Third Quarter 8 3/8 4 3/8
Fourth Quarter 6 1/2 5
1998 Fiscal Year Quoted Price
- ---------------- ------------
High Low
---- ---
First Quarter 7 4.5
Second Quarter 7.47 6.37
Third Quarter 7.5 4.87
Fourth Quarter 6 4.5
1999 Fiscal Year Quoted Price
- ---------------- ------------
High Low
---- ---
First Quarter 6.688 4.813
Second Quarter 8.563 3.00
Third Quarter 3.750 2.063
Fourth Quarter 5.00 2.50
7
<PAGE>
Class A Warrants
1997 Fiscal Year Quoted Price
- ---------------- ------------
High Low
---- ---
First Quarter DID NOT TRADE
Second Quarter DID NOT TRADE
Third Quarter 3 3/8 3/4
Fourth Quarter 1 7/8 7/8
1998 Fiscal Year Quoted Price
- ---------------- ------------
High Low
---- ---
First Quarter 1.62 .62
Second Quarter 2.94 1.12
Third Quarter 3 1
Fourth Quarter 2 .75
1999 Fiscal Year Quoted Price
- ---------------- ------------
High Low
---- ---
First Quarter 2.125 1.00
Second Quarter 2.750 .750
Third Quarter .938 .500
Fourth Quarter 1.125 .375
On March 23, 2000 the closing price of the Common Stock as reported on
NASDAQ SmallCap Market was $2.875. On March 23, 2000 the closing price for the
Class A Warrant reported on NASDAQ SmallCap was $.50. On March 23, 2000 there
were 15 holders of record of Common Stock.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 operations and financial
conditions. This discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere herein.
Results of Operations
Year ended December 31, 1999 ("Fiscal 1999") as compared to year ended December
31, 1998 ("Fiscal 1998")
Net sales for the year ended December 3 1, 1999 were $12,903,154,
reflecting an increase of $4,330,169 or 50% from the $8,572,985 of net sales for
the year ended December 31, 1998.
8
<PAGE>
Net sales for 1999 were favorably impacted primarily for the following
two (2) reasons:
1. The impact of the distribution of new products from the Pittsburgh
Brewing Company as well as management decisions to directly brew its
own brand of beer (Night Flight), and
2. The added territory associated with the distribution of these new
products give Capital a larger customer base.
Cost of sales was $10,428,057 or 81 % of net sales for fiscal 1999, as
compared to $7,984,408 or 93% of net sales for fiscal 1998. The increase in
dollar terms, of $2,443,649 in cost of sales from 1998 to fiscal 1999 reflects
the significantly higher net sales in fiscal 1999 as compared to fiscal 1998.
The company's gross margin was $2,475,097 or 19% of net sales, in 1999
as compared to $588,577 or 7% of net sales in fiscal 1998. The increase in gross
margin is due to the new product lines associated with distribution agreements
with the Pittsburgh Brewing Company, Capital's exclusive control of distribution
over the labels from Pittsburgh as well as its new and present ability to brew
its own brand called "Night Flight."
Selling and delivery expenses were $1,025,068 in fiscal 1999 as
compared to $310,410 for fiscal 1998 reflecting an increase of $714,658. This
increase is primarily due to the implementation of a driver sales force in the
first quarter of 1999 which significantly expanded our distribution territory.
General and administrative expenses were $2,140,674 for fiscal 1999 as
compared to $1,518,959 for fiscal 1998. This represents an increase of $621,715
or 41% from fiscal 1998. This increase is due primarily to the following
factors: (1) additions to both labor and space which were required in our
warehousing department to handle the incremental sales volume recorded in fiscal
1999, and (2) the additional professional fees and travel expenses that were
incurred by the due diligence process conducted in association with the
potential acquisition of the Pittsburgh Brewing Company.
CAP Communications Ltd. ("CAPCOM") was formed in November 1998 to
explore, as an ancillary to beverage sales, the rapidly expanding prepaid phone
card market. Working in conjunction with Orion Telecommunications Corporation
("OTC"), with offices in New York, Capital Beverage began an investigation of
this new potential market. OTC provided funding to Capital Beverage to determine
the parameters required to make OTC phone cards a success here in New York.
9
<PAGE>
CAPCOM generated over $645,000 in phone card revenues during this
one-year study. It became obvious that CAPCOM's success was predicted on
shifting from direct retail sale marketing to wholesale distribution. This
distribution program would be aimed at major phone card distributors with an
established sales network and to major companies with a strong retail base.
CAPCOM also determined that three components were necessary for OTC to
be successful. OTC had to operate their own switches, control their own customer
service and provide a line of credit to major wholesale phone card distributors
with whom CAPCOM would be doing business. OTC immediately implemented each of
these programs.
As a result of the study and modifications in OTC's operation, CAPCOM
has entered into an agreement with OTC to open a wholesale distribution center
in Bayside, New York for distribution of OTC cards to CAPCOM wholesale
distributors. Management has estimated that sales will increase dramatically for
the year 2000 due to these new changes implemented.
Material Change in Financial Condition, Liquidity and Capital Resources
The Company's working capital decreased from $2,457,022 at December 31,
1998 to $1,812,050 at December 31, 1999. The decrease of $644,972 was due to
direct result of the 1999 losses incurred in operations.
At December 31, 1999, the Company's primary resources of liquidity were
$897,934 in cash, $703,597 in accounts receivable and $956,654 in inventories.
Item 7. FINANCIAL STATEMENTS.
See financial statements following Item 13 of this Annual Report on
Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
10
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
The names and ages of the directors, executive officers and significant
employees, and promoters of the Company are set forth below.
Name Age Position Held
Carmine N. Stella 48 President, Chief Executive Officer,
Chairman of the Board of Directors
Robert A. Vessa 49 Director
Anthony Stella 49 Vice President of Sales and Marketing,
Director
Carol Russell 44 Secretary, Treasurer and Director
Dawn A. Collins 31 Director
Joseph M. Luzzi 52 Director
- -----------------------
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 been a Director of the Company since
October 29, 1997. 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.
11
<PAGE>
Anthony Stella. - Mr. Stella has served as Vice President - Sales and
Marketing and an employee of the Company since inception. Mr. Stella has acted
as executive sales manager for Vito Santoro, Inc., Gotham Wholesale Beer, Inc.,
Miller Home Service, Inc. and College Point Beer Distributors over the past 15
years . Anthony Stella is the brother of Carmine Stella.
Carol Russell - Mrs. Russell has served as Secretary, Treasurer and a
Director of the Company since February 1996. From 1991 Mrs. Russell has also
served as Controller and Operations Manager of VSI from 1991 to the present.
Mrs. Russell graduated from Central Commercial High School in New York City in
1973.
Dawn A. Collins - Ms. Collins has been a Director of the Company since
October 29, 1997. Ms. Collins has also served as an accountant for Restaurant
Systems International, Inc. since 1995. From 1993 to 1995, Ms. Collins served as
an accountant for Ocean View Management. From 1991 to 1993, Ms. Collins was an
accountant with Barr Beatty Devlin & Co., Inc. Ms. Collins received a B.B.A. in
accounting from Baruch College in 1992.
Joseph M. Luzzi - Mr. Luzzi has been a Director of the Company since
October 29, 1997. Mr. Luzzi has also served as President, Chief Executive
Officer and Chairman of the Board of Directors of Boro Recycling, Inc. since its
inception in December 1980. From 1973 to 1980, Mr. Luzzi was the New York City
sales manager for the Sunshine Biscuit Company, a subsidiary of American Brands,
Inc. Mr. Luzzi attended New York City Community College from 1967 to 1969.
Compliance with Section 16(a) of The Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Except as provided below, to the Company's knowledge, based solely on
its review of the copies of such reports furnished to the Company during the
year ended December 31, 1999, all Section 16(a) filing requirements applicable
to its officers, directors and greater than ten percent beneficial owners were
satisfied.
12
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
----------------------
The following table sets forth the compensation paid to the Named
Executive Officers for the fiscal year ending December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Awards Long-Term Compensation
- ------------------------------------------------------------------- ----------------------
(a) (b) (c) (d) (e) (f)
Other Annual Restricted Stock Option
Name and Principal Position Year Salary Compensation Award Grants
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Carmine N. Stella 1999 $302,642.96 -0- -0- -0-
President, Chief Executive Officer, 1998 $307,799.19 -0- -0- -0-
Chairman of the Board 1997 $291,763.68 -0- -0- -0-
Anthony Stella 1999 $171,528.96 -0- -0- -0-
Vice President of Sales 1998 $175,579.19 -0- -0- -0-
and Managing Director 1997 $161,648.68 -0- -0- -0-
Carol Russell 1999 $ 88,000.44 -0- -0- -0-
1998 $112,115.67 -0- -0- -0-
1997 $105,846.24 -0- -0- -0-
</TABLE>
The following table sets forth certain information with respect to
options granted during the last fiscal year to the Company's Chief Executive
Officer and the other executive officers named in the above Summary Compensation
Table.
Option/SAR Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Name Number of Securities Percent of Total Exercise or
- ---- Underlying Options/SARS Granted to Base Price
Options/SARS Granted Employees in Fiscal Year ($/Sh) Expiration Date
(#)
-------------------- ------------------------ ------------ ---------------
<S> <C> <C> <C> <C>
Carmine Stella 25,000 14.2% $3.50/sh 12/31/04
Anthony Stella 25,000 14.2% $3.50/sh 12/31/04
Carol Russell 25,000 14.2% $3.50/sh 12/31/04
</TABLE>
- ----------------------------------
(1) Options are exercisable for shares of Common Stock.
The following table sets forth certain information with respect to
options exercised during the last fiscal year by the Company's Chief Executive
Officer and the executive officers named in the Summary Compensation Table, and
with respect to unexercised options held by such persons at the end of the last
fiscal year:
Aggregate Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised in the Money
Acquired on Value Realized Underlying Unexercised Options/SARs at
Name Exercise (#)(1) $ Options/SARS at FY-End (#) FY-End ($) (2)
---- --------------- -------------- -------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
-0- -0- -0- -0- -0- -0-
</TABLE>
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<PAGE>
Each director of the Company is entitled to receive reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
of the Company. The members of the Board of Directors meet at least quarterly
during the Company's fiscal year, and at such other times duly called.
Employment Agreements
The Company entered into an employment agreement with Mr. Stella on
October 1, 1996 which provides for a three-year term and includes annual
compensation of $300,000, plus certain fringe benefits including health and life
insurance. The contract was renewed for another three years and will expire
October, 2003. There were no changes made to the original contract.
Stock Option Plans and Agreements
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. 175,000 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
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 23, 2000, certain information
with respect to the beneficial ownership of Common Stock and Preferred Stock by
each person or entity known by the Company to be the beneficial owner of 5% or
more of such shares, each officer and director of the Company, and all officers
and directors of the Company as a group:
Name and Address of Shares of Common Percentage (%) of
Beneficial Owner(1) Stock Owned Common Stock
- ------------------- ---------------- -----------------
Carmine Stella(2) 409,091 17.2%
Anthony Stella(3) 77,273 3.3%
Carol Russell 0 0
Dawn Collins 0 0
Joseph Luzzi 0 0
Robert Vessa 0 0
All officers and
directors as a group
six (6) persons) 486,364 20.5%
- ------------------
(1) The address of each Stockholder shown above except as otherwise indicated
is c/o Capital Beverage Corporation, 1111 East Tremont Avenue, Bronx, New
York 10460.
(2) Does not include (i) 300,000 shares of Common Stock that may be acquired by
Mr. Stella upon conversion of the 300,000 shares of Series B Preferred
Stock that were issued to Mr. Stella upon consummation of the Merger; or
(ii) 333,600 shares of Common stock that may be acquired by Mr. Stella
beginning July 17, 1998 upon exercise of 333,600 additional Class A
Warrants held by Mr. Stella.
(3) Does not include 83,400 shares of Common Stock that may be acquired by Mr.
Anthony Stella beginning July 17, 1998 upon exercise of 83,400 Class A
Warrants held by him.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
The Company leases two locations in the Bronx. The main office and
picking location for products are at 1111 E. Tremont Avenue. There is
approximately 10,000 sq. ft. of usage at this location at a cost of $4,000 per
month. The lease on this location is with East Tremont Partners. 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 1999 the Company's recycling services were provided by an entity
whose principal shareholder, Joseph Luzzi, is also a director of the Company.
Such services amounted to $63,814.
15
<PAGE>
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.
16
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
ITEM A. EXHIBITS AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS.
CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY
FINANCIAL STATEMENTS
INDEX
Page
Number
------------
INDEPENDENT AUDITORS' REPORT F - 2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet F - 3
Statements of Operations F - 4
Statements of Stockholders' Equity F - 5
Statements of Cash Flows F - 6
Notes to Financial Statements F - 7 - F - 12
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Capital Beverage Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of Capital
Beverage Corporation and Subsidiary as of December 31, 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, the consolidated financial position of Capital Beverage Corporation and
Subsidiary as of December 31, 1999 and the consolidated results of its
operations and its cash flows for the years ended December 31, 1999 and 1998 in
conformity with generally accepted accounting principles.
/s/Feldman Sherb Horowitz & Co, P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
March 8, 2000
F - 2
<PAGE>
CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS:
Cash $ 897,934
Accounts receivable - net of allowance for doubtful
accounts of $60,000 703,597
Inventories 956,654
Prepaid expenses and other current assets 135,098
--------------
TOTAL CURRENT ASSETS 2,693,283
PROPERTY AND EQUIPMENT 91,558
DISTRIBUTION LICENSE 960,000
OTHER ASSETS 39,857
--------------
$ 3,784,698
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 284,034
Accrued expenses and taxes 162,438
Current portion of long-term debt 74,292
Current portion of capital lease obligations 6,356
Accrued dividends on preferred stock 354,113
--------------
TOTAL CURRENT LIABILITIES 881,233
CAPITAL LEASE OBLIGATIONS 27,278
LONG-TERM DEBT 485,252
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 (2,980,017)
--------------
TOTAL STOCKHOLDERS' EQUITY 2,390,935
--------------
$ 3,784,698
==============
See notes to consolidated financial statements.
F-3
<PAGE>
CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
-----------------------------
1999 1998
------------ ------------
NET SALES $ 12,903,154 $ 8,572,985
COST OF SALES 10,428,057 7,984,408
------------ ------------
GROSS PROFIT 2,475,097 588,577
------------ ------------
COSTS AND EXPENSES:
Selling and delivery 1,025,068 310,410
General and administrative 2,140,674 1,518,959
------------ ------------
3,165,742 1,829,369
------------ ------------
LOSS FROM CONTINUING OPERATIONS (690,645) (1,240,792)
INTEREST EXPENSE (53,385) (57,522)
INTEREST INCOME 71,966 116,790
------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (672,064) (1,181,524)
LOSS FROM DISCONTINUED OPERATIONS -- --
------------ ------------
NET LOSS (672,064) (1,181,524)
PREFERRED STOCK DIVIDENDS (84,000) (84,000)
------------ ------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (756,064) $ (1,265,524)
============ ============
LOSS PER SHARE - BASIC AND DILUTED $ (0.32) $ (0.53)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN CALCULATION OF BASIC AND
DILUTED LOSS PER SHARE 2,378,409 2,378,409
============ ============
See notes to consolidated financial statements.
F-4
<PAGE>
CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
--------------- ------------------ Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------- ------- ---------- ------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 300,000 $ 3,000 2,378,409 $ 2,379 $ 5,365,573 $ (958,429) $ 4,412,523
Net loss - restated - - - - - (1,181,524) (1,181,524)
Dividends payable to preferred
shareholders - - - - - (84,000) (84,000)
------- ------- ---------- ------- ----------- -------------- ---------------
Balance December 31, 1998 - restated 300,000 3,000 2,378,409 2,379 5,365,573 (2,223,953) 3,146,999
Net loss - - - - - (672,064) (672,064)
Dividends payable to preferred
shareholders - - - - - (84,000) (84,000)
------- ------- ---------- ------- ----------- -------------- ---------------
Balance December 31, 1999 300,000 $ 3,000 2,378,409 $ 2,379 $ 5,365,573 $ (2,980,017) $ 2,390,935
======= ======= ========== ======= =========== ============== ===============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------
1999 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (672,064) $ (1,181,524)
----------- -----------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 171,032 164,925
Increase in net assets - discontinued operations -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (361,828) 441,331
Increase in inventories (377,555) (152,809)
(Increase) decrease in prepaid expenses 21,501 (147,051)
Decrease in other assets 35,805 --
(Decrease) increase in accounts payable and
accrued expenses 75,530 275,206
----------- -----------
(435,515) 581,602
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,107,579) (599,922)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (10,203) (8,726)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of capital lease
obligations (4,894) --
Distributions to stockholders -- (84,000)
Payments of long-term debt (68,131) (62,481)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (73,025) (146,481)
----------- -----------
DECREASE IN CASH (1,190,807) (755,129)
CASH - BEGINNING OF YEAR 2,088,741 2,843,870
----------- -----------
CASH - END OF YEAR $ 897,934 $ 2,088,741
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 53,299 $ 57,522
=========== ===========
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Capital lease obligations $ 38,388 $ --
=========== ===========
See notes to consolidated financial statements.
F-6
<PAGE>
CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. DESCRIPTION OF BUSINESS
Capital Beverage Corporation (the "Company") was formed in December
1995 to operate as a wholesale distributor of beer and other beverages
in New York City. In December 1998, CAP Communications, Ltd. ("Cap
Comm"), a wholly-owned subsidiary, was organized to market domestic and
long distance prepaid telephone calling cards to distributors and to
the general public. Cap Comm was in the development stage at December
31, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The financial statements include the
accounts of the Company and Cap Comm, its wholly-owned subsidiary. All
significant intercompany balances and transactions have been eliminated
in consolidation.
INVENTORIES - Inventories of beer, other beverage products and prepaid
calling cards are stated at the lower of cost, determined by the
first-in, first-out method, or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
are depreciated over the estimated useful lives of the related assets,
ranging from 5 to 39 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 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.
F - 7
<PAGE>
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company considers its
financial instruments, which are carried at cost, to approximate fair
value due to their near-term maturities.
DISTRIBUTION LICENSE - The Company's license to distribute certain
beverage products in New York City, is recorded at cost. Amortization
is provided on a straight-line basis over ten years.
REVENUE RECOGNITION - Wholesale sales are recognized at the time goods
are shipped. Revenue on prepaid phone cards is recognized when the end
user utilizes calling time and upon expiration of such card.
LOSS PER COMMON SHARE - Net loss per common share is based on the
weighted average number of shares outstanding. Potential common shares
includable in the computation of fully diluted per share results are
not presented in the financial statements as their effect would be
anti-dilutive.
NEW ACCOUNTING PRONOUNCEMENTS - The Company will adopt Statement of
Financial Accounting Standard No. 133 ("SFAS No. 133"), " Accounting
for Derivative Instruments and Hedging Activities" for the year ended
December 31, 1999. SFAS No. 133 establishes a new model for accounting
for derivatives and hedging activities and supersedes and amends a
number of existing standards. The application of the new pronouncement
is not expected to have a material impact on the Company's financial
statements.
3. DISTRIBUTION LICENSE
The Company has acquired an exclusive license to distribute Pabst
Products within the "territory", as defined in the licensing agreement.
The Company paid $1,600,000, of which $800,000 was paid at the closing
and the balance in a note payable in 120 monthly installments of
$10,000 each, inclusive of interest at 9% per annum.
Maturities of the notes over the next five years are: 2000 - $74,292;
2001 - $81,011; 2002 - $88,338; 2003 - $96,327; 2004 - $105,038.
F - 8
<PAGE>
4. WARRANTS
In July 1997, the Company sold 800,000 units for $3,803,000 after
expenses. The units consisted of one share of Common Stock and one half
Class A Redeemable Common Stock Purchase Warrant. Two Class A warrants
entitle the holder to purchase one share of Common Stock at $6.25 per
share. The warrants are exercisable commencing July 17, 1998 and expire
on July 16, 2002. The warrants are redeemable by the Company at $.001
per warrant under terms as defined in the warrant agreement. At
December 31, 1999, 1,659,000 Class A warrants were issued and
outstanding.
The Company issued a unit purchase warrant to the underwriter for $100,
enabling the underwriter to purchase up to 80,000 units at an exercise
price of at least 120 percent of the initial offering price of the
units. The Company has reserved 120,000 shares of Common Stock to cover
the exercise of such warrant.
5. INCOME TAXES
At December 31, 1999, the Company had a net operating loss carryover of
$2,500,000 available as offsets against future taxable income, if any,
which expire at various dates through 2014.The Company has a deferred
tax asset of $1,000,000 arising from such net operating loss deductions
and has recorded a valuation allowance for the full amount of such
deferred tax asset.
The difference between the recorded income tax benefits and the
computed tax benefits using a 40 percent effective rate are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Computed expected income tax (benefit) $ (270,000) $ (473,000)
Non-deductible items 20,000 17,000
Temporary differences (2,000) (2,000)
Benefits not recorded 252,000 458,000
------------------ ------------------
$ - $ -
================== ==================
</TABLE>
F - 9
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following as of
December 31, 1999:
Leasehold improvements $ 60,000
Computer equipment 16,418
Machinery and equipment 48,654
--------------------
125,072
Less accumulated depreciation (33,514)
--------------------
$ 91,558
====================
The Company has machinery and equipment under capital leases of
$38,388.
7. CAPITAL LEASE OBLIGATIONS
The Company has various capital lease obligations which are
collateralized by equipment. Interest rates under the agreements are
7.6%, with monthly principal and interest payments of $700.
Future minimum lease payments and the present value of the minimum
lease payments under the noncancellable capital lease obligations as of
December 31, 1999 are as follows:
2000 $ 9,098
2001 9.098
2002 9,098
2003 8,881
2004 2,802
------------------
Total future minimum lease payments 38,977
Less amounts representing interest 5,343
------------------
Present value of minimum lease payments 33,634
Less current maturities 6,356
------------------
Total long - term obligations $ 27,278
==================
F - 10
<PAGE>
At December 31, 1999 property and equipment includes equipment under
capital lease obligations with a total cost of $38,388 and accumulated
amortization of $4,478.
8. LEASE COMMITMENTS
The Company renegotiated the lease of its warehouse and administrative
facilities in April 1998 thereby reducing its monthly rental payments
from $10,000 to $4,000 for the remainder of its lease term, which
expires in 2001. A principal shareholder in the company has a one-sixth
interest in the lessor. Additional warehouse space was acquired from a
customer on a month-to-month basis commencing October 1998. Rental
payments of $7,000 per month are offsettable against amounts due from
the customer until the balance is liquidated. In November 1999 the
Company agreed to pay $4,000 per month, and the remaining $3,000 will
be offsettable against amounts due from the customer. Rent expense for
1999 and 1998 was $107,258 and $83,000, respectively.
9. 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 mitigated to a degree because of management's knowledge
of the local marketplace and the relative creditworthiness of the
customers to which it extends credit. Short-term cash investments are
placed with high credit quality financial institutions, thereby
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.
10. MAJOR CUSTOMER AND SUPPLIER INFORMATION
Sales to a single customer in 1999 and 1998 were 14% and 13% of net
sales, respectively. Purchases of Pabst products were approximately
$3,000,000 and $3,200,000 in 1999 and 1998, respectively.
11. RELATED PARTY TRANSACTION
The Company's carting and recycling services are provided by an entity
whose principle shareholder is also a director of the Company. Such
services approximated $63,000 in 1999 and $200,000 in 1998.
F - 11
<PAGE>
12. EMPLOYMENT AGREEMENT
The Company has an agreement for the services of an officer of the
Company as President and Chief Executive Officer ("CEO"). The agreement
expires on October 2003 and provides for base compensation of $300,000
per year payable in equal weekly payments. The agreement also provides
for participation in whatever executive stock option plan is agreed
upon by the board of directors, the use of a luxury car, health and
welfare coverage for the officer and his family, coverage and benefit
of pension plan in the event that a plan is approved by the board of
directors, reimbursement of all expenses reasonably incurred in the
performance of duties under the agreement, four weeks paid vacation
annually, six paid personal days and sick days in keeping with the
Company's policy regarding executives, four weeks paid leave of absence
and if the Company ceases employment for any reason, the officer will
receive four weeks pay for each year of service with the Company. Such
payment will be pro-rated for the portion of the final year of service.
13. STOCK OPTIONS
The Company's 1996 Incentive Stock Option Plan (the "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,
subject to adjustment to reflect changes in the Company's
capitalization in the case of a stock split, stock dividend or similar
event. The Plan will be administered by the Compensation Committee,
which has the sole authority 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 provided that, (i) the exercise price of each
option granted under the 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.
On December 30, 1999, 175,000 options were granted. In 1999, had
compensation cost for the Plan been determined based on the fair value
at the grant dates for awards under the Plan, the Company's net loss
and net loss per share would have increased to the pro forma amounts
indicated below:
As Pro
Reported Forma
---------- ----------
Net loss ($672,064) ($993,662)
Basic and diluted net loss per share ($0.32) ($0.42)
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing method with the following weighted average
assumptions used for grants in 1999; dividend yield 0%, expected volatility
50%, risk-free interest rate 7.00%, expected lives in years 5.
The weighted average fair value of stock options granted during the year ended
December 31, 1999 was $3.50. No employee stock options were granted in 1998.
F - 12
<PAGE>
(A) (2) EXHIBITS
A list and description of exhibits filed as part of this Form 10-KSB is
provided in the attached Exhibit Index.
ITEM 27. EXHIBITS.
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.*
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 *
<PAGE>
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.*
* Incorporated by reference to Registrant's Registration Statement on
Form SB-2, and amendments thereto, Registration No. 333-9995 declared effective
on July 17, 1997.
(B) REPORTS ON FORM 8-K.
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly executed on this ___ day of March, 2000.
CAPITAL BEVERAGE CORPORATION
BY:/S/ CARMINE STELLA
Carmine Stella
President, Chief Executive Officer
and Chairman of the Board of Directors
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates
indicated
SIGNATURE TITLE Date
/S/ CARMINE STELLA Chief Executive Officer, March 29, 2000
- -------------------------- President and Chairman of
the Board of Directors
/S/ ROBERT VESSA Director March 29, 2000
- --------------------------
Robert Vessa
/S/CAROL RUSSELL Secretary and Treasurer March 29, 2000
- ----------------------------- and Director
Carol Russell
/S/ DAWN COLLINS Director March 29, 2000
- -----------------------------
Dawn Collins
/S/ JOSEPH LUZZI Director March 29, 2000
- -----------------------------
Joseph Luzzi
/S/ ANTHONY STELLA Vice President of Sales March 29, 2000
- ----------------------------- and Marketing Director
Anthony Stella
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001020186
<NAME> CAPITAL BEVERAGE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 897,934
<SECURITIES> 0
<RECEIVABLES> 763,597
<ALLOWANCES> 60,000
<INVENTORY> 956,654
<CURRENT-ASSETS> 2,693,283
<PP&E> 125,071
<DEPRECIATION> 33,513
<TOTAL-ASSETS> 3,784,698
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0
3,000
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<TOTAL-REVENUES> 12,903,154
<CGS> 10,428,057
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<OTHER-EXPENSES> 3,165,742
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<INTEREST-EXPENSE> (53,385)
<INCOME-PRETAX> (672,064)
<INCOME-TAX> 0
<INCOME-CONTINUING> (672,064)
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<EXTRAORDINARY> 0
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<NET-INCOME> (672,064)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>