THIS DOCUMENT IS A COPY OF THE FORM 10-QSB FILED ON NOVEMBER 22, 1999 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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 0-22095
USA SERVICE SYSTEMS, INC.
Colorado 88-1039267
State or other jurisdiction of incorporation (I.R.S. Employer
Identification No.
USA Service Systems, Inc.
1750 University Drive
Suite 117
Coral Springs, Florida 33071
Address of principal executive offices
(954) 796-8060
Registrant's telephone number, including area code
10770 Wiles Road
Coral Springs, Florida 33076
Former address of principal executive offices
Indicate by check mark whether the Registrant (1) has files 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) had been subject to such filing
requirements for the past 90 days.
Yes X No ________
------------------
As of November 19, 1999 the Company had 50,833,470 outstanding shares of
common stock.
<PAGE>
USA SERVICE SYSTEMS, INC.
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CONDENSED BALANCE SHEET
Unaudited
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September 30, December 31,
ASSETS 1999 1998
- ------
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CURRENT ASSETS
Cash and equivalents $ 89,697 $ 2,485
Accounts receivable 1,523,928 337,138
Loans and exchange 29,800 10,000
Prepaid expenses 232,362 141,882
Subscriptions receivable 195,000 -
Inventories 1,316,552 1,211,086
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Total current assets 3,387,339 1,560,709
Property and equipment, net of accumulated
depreciation of $24,357 and $1,001 1,007,120 23,618
Other assets 23,789 25,713
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TOTAL ASSETS $ 4,418,248 $ 1,751,922
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LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY IN ASSETS)
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CURRENT LIABILITIES
Bank Overdraft $ - $ 55,913
Accounts payable and accrued expenses 700,289 1,202,950
Loan payable, current portion 1,500,000 -
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Total current liabilities 2,200,289 1,258,863
Due to stockholder 1,567,426 1,230,876
TOTAL LIABILIIES 3,767,715 2,489,739
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STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) 650,533 ( 737,817)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,418,248 $1,751,817
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<PAGE>
USA SERVICE SYSTEMS, INC.
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CONDENSED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Unaudited
- --------------------------------------------------------------------------------
Nine months ended September 30,
1999 1998
- -------------------------------------------------------------------------------
SALES $5,179,189 $ -
COST OF GOODS SOLD 3,681,520 -
- --------------------------------------------------------------------------------
GROSS PROFIT 1,497,669 -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,427,926 334,551
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 69,743 (334,551)
STOCK BASED COMPENSATION AND FINANCING COSTS (NOTE 7)
421,166 -
OTHER INCOME 625 1,483
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NET INCOME (LOSS) $ (350,798) $ (333,068)
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<PAGE>
USA SERVICE SYSTEMS, INC.
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CONDENSED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Unaudited
- --------------------------------------------------------------------------------
Three months ended September 30,
1999 1998
- -------------------------------------------------------------------------------
SALES $886,837 $ -
COST OF GOODS SOLD 471,379 -
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GROSS PROFIT 415,458 -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 454,172 205,089
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (38,714) (205,089)
STOCK BASED COMPENSATION AND FINANCING
COSTS (NOTE 7) 421,166 -
OTHER INCOME 253 1,104
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NET (LOSS) $(459,627) $(203,985)
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<PAGE>
USA SERVICE SYSTEMS, INC.
STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
Unaudited
- -------------------------------------------------------------------------------
Nine months ended September
30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 350,798) ($ 333,068)
- ------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 23,356 -
Stock based compensation and financing costs 421,166
Stock issued for services 148,581 -
Changes in operating assets and liabilities:
Accounts receivable ( 1,186,790) -
Inventories ( 105,466) ( 44,534)
Prepaid assets ( 90,480) ( 150,000)
Subscriptions receivable ( 195,000) -
Other assets 1,924 3,102)
Accounts payable and accrued expenses ( 502,662) 88,486
- -----------------------------------------------------------------------------
Total adjustments ( 1,485,370) ( 109,150)
Net cash used in operating
activities ( 1,836,168) ( 442,218)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to employee ( 19,800) ( 10,000)
Purchases of property and equipment ( 1,006,858) ( 1,575)
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Net cash used in investing activities ( 1,026,658) ( 11,575)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,169,401 500
Net borrowings from stockholder 336,550 499,000
Net borrowings, other 1,500,000 -
Payments ( 55,913) -
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Net cash provided by financing activities 2,950,038 499,500
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NET INCREASE IN CASH AND EQUIVALENTS 87,212 45,707
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CASH AND EQUIVALENTS - BEGINNING 2,485 -
CASH AND EQUIVALENTS - ENDING 89,697 $ 45,707
Supplemental Disclosures:
Interest paid to stockholder $ 6,856 -
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<PAGE>
USA SERVICE SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
1. INTERIM REPORTING
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles and Form
10-QSB requirements. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
nine months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. For further
information, refer to the financial statements and related footnotes for the
year ended December 31, 1998 included in the Company's annual report on Form
8-K/A filed with the Securities and Exchange Commission on November 15, 1999.
2. Acquisition of East Coast Beverage Corp.
Effective August 31, 1999 the Company acquired all of the issued and
outstanding shares of East Coast Beverage Corp. ("ECBC") in exchange for
41,300,758 shares of the Company's common stock. Immediately prior to this
transaction, certain officers and directors of the Company surrendered 2,734,202
shares of the Company's common stock. Following this transaction the Company had
44,354,058 issued and outstanding shares of common stock. The former
shareholders of ECBC now own approximately 93% of the Company's common stock. In
connection with this transaction the management of the Company resigned and was
replaced by the management of ECBC. The acquisition of ECBC was treated for
accounting purposes as a capital transaction and as a result the historical
financial statements of ECBC are those of the Company.
The business of the Company, which is conducted through ECBC, now involves
the development, production and distribution of Coffee House USA(TM), a
proprietary line of all natural, ready to drink ("RTD") bottled coffee drinks.
3. PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, East Coast Beverage Corp. All
significant inter company accounts and transactions have been eliminated.
4. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
5. Revenue Recognition
Revenue from product sales is recognized by the Company when title and
risk of loss passes to the distributor, which generally occurs upon shipment
from the manufacturing facility.
6. LOAN FROM STOCKHOLDER
At September 30, 1999, the Company had an unsecured loan payable to an
officer, director and principal shareholder in the amount of $1,567,426. The
loan bears interest payable monthly at 10% per annum, and is due on demand.
7. STOCK BASED COMPENSATION AND FINANCING COSTS
In August 1999 ECBC issued 546,300 shares of its common stock (as adjusted
for the share-for-share exchange between the Company and ECBC) to a principal
shareholder and consultant for services provided to ECBC. The value of these
shares ($88,666) has been expensed as Stock Based Compensation during the
quarter ended September 30, 1999.
Between May and August 1999 ECBC borrowed $1,000,000 from the consultant.
In exchange for 2,048,648 shares of common stock (as adjusted for the
share-for-share exchange between the Company and ECBC), ECBC and the consultant
agreed to significant modifications to the terms of the Notes. The value of
these shares ($332,500) has been expensed as Financing Costs during the quarter
ended September 30, 1999.
8. Stock Split
On March 24, 1999, the Company's shareholders approved a 25,000 for 1
forward split of the Company's common stock.
9. Private SALES OF SECURITIES
During March and April 1999, ECBC sold 1,000 shares of convertible
preferred stock to certain private investors for $1,000 per share. On August 25,
1999 the shares of preferred stock were converted into 6,161,334 shares of the
Company's common stock (as adjusted for the share-for-share exchange between the
Company and ECBC).
During the three months ending September 30, 1999 the Company sold
3,485,541 shares of its common stock to private investors at a price of $0.34
per share. Subsequent to September 30, 1999 the Company sold an additional
2,993,871 shares of its common stock to private investors at the same price.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The Company did not begin shipping product until December 1998. As a
result, comparisons cannot be made between operations for the nine months ending
September 30, 1999 and the nine months ending September 30, 1998.
During the nine months ended September 30, 1999 the Company had income
from operations of $69,743. However, expenses of $421,166 (which did not require
the use of cash) associated with stock-based compensation and common stock
issued in consideration for the modification of loan terms resulted in a net
loss for the period of $350,798. The Company believes that the expenses
associated with the issuance of the common stock for services and for the
modification of loan terms will not occur in future periods, or at least will
not impact the Company's operating results to the same extent as during the
period ending September 30, 1999. During the current nine-month period the
Company's operations used approximately $2,950,000 in cash and the Company spent
approximately $1,006,000 on the purchase of property and equipment.. Cash
required during the nine month period was generated through sales of the
Company's common stock and borrowings from the Company's Chief Executive Officer
and third parties.
The Company believes that additional capital will be needed to expand the
Company's operations and to finance the Company's growth. The Company expects to
obtain additional capital through the private sale of the Company's common stock
or from borrowings from private lenders and/or financial institutions. There can
be no assurance that the Company will be successful in obtaining any additional
capital which may be needed.
Impact of the "Year 2000" Computer Issue
Because computers frequently use only two digits to recognize years, on January
1, 2000, many computer systems, as well as equipment that uses embedded computer
chips, may be unable to distinguish between the years 1900 and 2000. If not
remediated, this problem could create system errors and failures resulting in
the disruption of normal business operations. In the event the Company fails to
identify or correct a material Year 2000 problem, there could be disruptions in
normal business operations, which could have a material adverse effect on the
Company's results of operations, liquidity or financial condition. Further,
there may be some third parties, such as governmental agencies, utilities,
telecommunication companies, vendors, suppliers and customers who may not be
able to continue business with the Company due to their own Year 2000 problems.
Also, risks associated with some foreign third parties may be greater since
there is general concern that some entities operating outside the United States
are not addressing Year 2000 issues on a timely basis. There can be no assurance
that any efforts made will fully mitigate the effect of Year 2000 issues.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Changes in Securities and Use of Proceeds
Effective August 31, 1999 the Company acquired all of the issued and
outstanding shares of East Coast Beverage Corp. ("ECBC") in exchange for
41,300,758 shares of the Company's common stock.
During the three months ending September 30, 1999 the Company sold
3,485,541 shares of its common stock to private investors at a price of $0.34
per share. Subsequent to September 30, 1999 the Company sold an additional
2,993,871 shares of its common stock to private investors at the same price. The
Company paid commissions of $217,400 in connection with the sale of the shares.
Proceeds from the sale of these shares were used to fund the Company's
operations.
The Company relied upon the exemption provided by Section 4 (2) of the
Securities Act of 1933 in connection with the issuance of the common stock
described above. The shares described above are "Restricted Securities" and that
term is defined in Rule 144 of the Securities and Exchange Commission.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No exhibits are filed with this report
(b) Reports on Form 8-K
During the quarter ended September 30, 1999 the Company filed the
following reports on Form 8-K:
o Report filed on September 14, 1999 pertaining to the acquisition of East
Coast Beverage Corp.
o Report filed on November 15, 1999 containing the financial statements of East
Coast Beverage Corp. and pro forma financial statements.
<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.
usa Service systems, inc.
Date: November 19, 1999 By /s/ John Calabrese
------------------------------------
John Calabrese
Chief Executive Officer
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 89,697
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<PP&E> 1,031,477
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