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 June 30, 2000.
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
EAST COAST BEVERAGE CORPORATION
Colorado 88-1039267
State or other jurisdiction (I.R.S.) Employer
of incorporation Identification No.
USA Service Systems, Inc.
1750 University Drive
Suite 117
Coral Springs, Florida 33071
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Address of principal executive offices
(954) 796-8060
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Registrant's telephone number, including area code
10770 Wiles Road
Coral Springs, Florida 33076
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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 ________
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As of August 15, 2000 the Company had ________ outstanding shares of
common stock.
<PAGE>
EAST COAST BEVERAGE CORP.
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CONDENSED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
June 30, 2000
ASSETS (Unaudited) December 31, 1999
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CURRENT ASSETS
Cash and equivalents $ -- $ 115,364
Accounts receivable, net 3,173,819 109,689
Inventories 1,489,674 2,018,573
Prepaid mold fee 107,054 118,866
Prepaid expenses and other
current assets 56,100 154,179
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Total current assets
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $228,320 and $122,545,
respectively 747,020 679,321
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TOTAL ASSETS $ 5,573,667 $ 3,195,992
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Accounts payable and accrued expenses $3,909,179 $1,955,248
Notes payable - current portion 450,000 525,000
Due to stockholder - current portion 363,928 765,516
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Total current liabilities
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LONG-TERM DEBT
Notes payable -- 650,000
Due to stockholder -- 1,750,000
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Total long-term debt -- 2,400,000
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STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Common stock, par value $.0001 per
share; 25,000,000 shares authorized;
8,971,592 and 6,348,975 issued and
outstanding 897 635
Additional paid in capital 10,204,404 3,589,870
Accumulated deficit (9,354,741) (6,040,277)
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Total stockholders' equity (deficiency
in assets) 850,560 (2,449,772)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY IN ASSETS) $ 5,573,667 $ 3,195,992
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See accompanying notes - unaudited
<PAGE>
EAST COAST BEVERAGE CORP.
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CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<S> <C> <C> <C> <C>
Six Months Ended Three Months Ended
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June 30, June 30, June 30,
2000 1999 2000 June 30, 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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SALES $5,551,267 $2,915,795 $3,291,073 $1,061,286
COST OF GOODS SOLD 3,841,655 2,101,765 2,246,519 786,799
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GROSS PROFIT 1,709,612 814,030 1,044,554 274,487
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SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Depreciation 104,239 32,566 53,932 26,449
Freight 565,678 277,355 296,523 89,762
General and administrative expense 744,665 436,130 723,565 301,374
Professional fees and consulting 343,181 155,038 182,736 78,772
Promotion and advertising 2,401,584 763,025 1,606,681 51,099
Selling expenses 801,259 573,628 451,993 304,759
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Total selling, general and
administrative expenses 4,960,606 2,237,742 3,064,230 852,215
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LOSS FROM OPERATIONS (3,250,994) (1,423,712) (2,019,676) (577,728)
INTEREST EXPENSE AND FINANCING FEES 63,470 142,399 20,246 104,170
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NET LOSS ($3,314,464) ($1,566,111) ($2,039,922) ($681,898)
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Weighted Average Number of Common
Shares Outstanding 7,484,500 5,908,182 8,522,912 3,271,455
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Net loss per share - basic and
diluted ($0.44) ($0.27) ($0.24) ($0.21)
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</TABLE>
<PAGE>
EAST COAST BEVERAGE CORP.
CONDENSED STATEMENTS OF CASH FLOWS
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FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
June 30, 2000 June 30, 1999
(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net
loss ($ 3,314,464) ($ 1,566,111)
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Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for bad debts 25,000 --
Depreciation 104,239 32,566
Stock options issued for consulting
services 11,250 --
Stock options issued for loan costs 5,850 --
Changes in assets and liabilities:
Accounts receivable (3,089,130) (438,944)
Inventories 528,899 (204,000)
Note receivable -- (5,000)
Prepaid assets and other current
assets 109,891 (67,026)
Accounts payable and accrued expenses 2,086,396 89,331
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Total adjustments (217,605) (593,073)
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Net cash used in operating
activities (3,532,069) (2,159,184)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (171,938) (530,045)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank overdraft 80,147 (55,913)
Net borrowings from stockholder 299,662 866,222
Net borrowings from (repayments to)
related parties (75,000) 1,902,500
Net proceeds from issuance of common
stock 3,283,834 --
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Net cash provided by financing
activities 3,588,643 2,712,809
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NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (115,364) 23,580
CASH AND EQUIVALENTS - BEGINNING 115,364 2,485
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CASH AND EQUIVALENTS - ENDING $ -- $ 26,065
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Supplemental Disclosures:
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Interest paid $ 125,130 $ 88,477
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Non-Cash Financing Activities:
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Conversion of debt to common stock -
related parties $ 650,000 $ --
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Conversion of debt to common stock -
stockholder $2,450,000 $ --
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Conversion of accrued interest payable
to common stock $ 213,862 $ --
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<PAGE>
c:\east coast beverage\2nd quarter fins 8-18-00.doc
EAST COAST BEVERAGE CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1. BASIS OF PRESENTATION
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The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB. 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 and such adjustments are of a normal recurring nature.
Operating results for the three and six months ended June 30, 2000
are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000.
The financial data at December 31, 1999 is derived from audited
financial statements which are included in the Company's Annual
Report on Form 10-KSB and should be read in conjunction with the
audited financial statements and the notes thereto.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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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.
Net Loss Per Share
The Company applies Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (FAS 128). Net loss per share is computed
by dividing net loss by the weighted average number of common shares
outstanding during the reported periods. Outstanding stock
equivalents were not considered in the calculation as their effect
would have been anti-dilutive.
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NOTE 3. GOING CONCERN
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The Company has sustained substantial operating losses and negative
cash flows from operations since inception. In the absence of
achieving profitable operations and positive cash flows from
operations or obtaining additional debt or equity financing, the
Company may have difficulty meeting current obligations.
<PAGE>
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NOTE 3. GOING CONCERN (cont'd)
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In view of these matters, realization of a major portion of the
assets in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the
Company's ability to meet its financial obligations. Management
believes that actions presently being taken provide the opportunity
for the Company to continue as a going concern.
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NOTE 4. CONCENTRATIONS
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As of June 30, 2000, approximately 35% of the Company's accounts
receivable were from a related party. Sales to the related party
for the six months ended June 30, 2000 represented approximately
29% of total sales.
Sales for the six months ended June 30, 2000 to individual
unaffiliated customers in excess of 10% of net sales to
unaffiliated customers are as follows:
Customer A $1,309,504
Customer B 587,120
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$1.896,624
===============
Individual accounts receivable balance at June 30, 2000 in excess of
10% of total accounts receivable are as follows:
Customer A $710,233
Customer B 440,340
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$1,150,573
================
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NOTE 5. STOCK OPTIONS
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The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") in 1997. The Company has elected to
continue using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for
employee stock options. Accordingly, no compensation expense has
been recorded for options granted to employees during the six months
ended June 30, 2000 as the exercise price was not below the market
value of the underlying stock at the date of grant.
<PAGE>
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NOTE 6. PRIVATE PLACEMENT AGREEMENT
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In June 2000, the Company retained Solid ISG Capital Markets, LLC (Solid ISG) to
be its exclusive placement agent in connection with the sale of up to $3,000,000
of the Company's 10% Preferred Stock. As exclusive placement agent, Solid ISG
will provide, on a best efforts basis, services necessary to assist the Company
in privately placing these securities with prospective investors. Solid ISG is
under no obligations to purchase the preferred shares for its account or the
accounts of its customers. Solid ISG's compensation for acting as placement
agent consists of a placement fee equal to 10% of the aggregate principal amount
sold, warrants to purchase shares of the Company's common stock and
reimbursement of all necessary and reasonable out-of-pocket expenses incurred in
connection with the sale of the preferred stock. As of August 15, 2000,
approximately $800,000 of preferred stock had been sold by Solid ISG.
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NOTE 7. SUBSEQUENT EVENTS
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Effective July 17, 2000, the Company's common shares commenced
trading on the OTC Bulletin Board under the ticker symbol "ECBV".
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATIONS
The Months Ended June 30, 2000
Sales of $3,291,073 for the quarter ended June 30, 2000 produced a gross profit
of $1,044,554 for a 31.7% margin. Comparable 1999 sales were $ 1,061,286 with a
margin of 25.9%. The Company's "Coffee House USA" brand of iced coffee is now
national in scope, currently being retailed in 48 states.
The Company is striving to further enhance the profit margin through improved
purchasing and continued production efficiencies.
The higher level of depreciation is attributable to increases in assets
employed, primarily display coolers and related equipment.
Freight expense as a percentage of sales is comparable to the three months ended
March 31, 2000. Improved manufacturing logistics in future quarters are
projected to yield related freight savings.
The higher levels of Promotion and Advertising expenses are attributable to the
growth of sales and expenses related to market penetration of the Company's
products.
Professional fees and consulting expenses reflect the expansion of the Company
and costs associated with listing the Company's common stock on the OTC bulletin
board. The Company's common stock began trading on the OTC bulletin board on
July 17, 2000. The lower 1999 costs are reflective of the initial stages of the
Company's development.
The higher General and Administrative expenses compared to last year are due to
the full staffing during the period and a more mature operation versus a
start-up and growth nature in 1999.
Six Months Ended June 30, 2000
Sales for the six months ended June 30, 2000 increased due to the expansion of
the Company's business. Gross profit margins for the six months ended June 30,
2000 were 30.8%, an improvement over last year's 27.9%. This improvement is
attributable to better expense management and unfavorable start up costs last
year.
The increase in Promotion and Advertising expenses during the six months ended
June 30, 2000 reflects the continued expansion of the Company's business.
General and administrative costs for the six months are higher than last year
levels largely due to the expansion of the Company. Also, costs in 2000
increased due to efforts associated with listing the Company's common stock on
the OTC bulletin board.
<PAGE>
During the six months ended June 30, 2000, the Company's operations used
$3,532,069 of cash. The Company's cash requirements during this period were
funded by loans from a shareholder and the private sale of the Company's common
stock.
Due to the inability of the Company raise sufficient capital to build and ship
inventory, during the three months ending September 30, 2000 the Company
anticipates that it will lose approximately $1.5 million in sales. The Company
believes that these sales lost can largely be recovered during the three months
ending December 31, 2000 when capital is obtained.
During the period between September 1 and December 31, 2000 the Company
anticipates that its capital requirements will be as follows:
Payment of Outstanding $3,000,000
Liabilities
Fund Inventory and Receivables 3,000,000
Marketing and Promotion 1,000,000
Other Operating Expenses 650,000
---------
7,650,000
In the event the Company suffers future losses, the Company may need to obtain
additional capital in order to continue operations.
The Company does not currently have any inventory or receivable financing or any
bank lines of credit but is negotiating to obtain additional funding sources.
Additionally, the Company intends to satisfy its cash requirements through the
collection of receivables and the sale of equity securities.
As of June 30, 2000 the Company had outstanding receivables of $3,173,819.
Extended payment terms, in excess of the company's traditional collection policy
have been offered to some preferred customers in recognition of significant
orders and sales and marketing efforts.
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the quarter ending June 30, 2000, the Company:
A. sold 480,450 shares of its common stock to private investors at a price of
$2.75 per share. The Company paid commissions of $132,000 in connection
with the sale of these shares.
B. issued 255,000 shares of its common stock to John Calebrese, an officer,
director and principal shareholder of the Company, in settlement of
$701,250 owed to Mr. Calebrese by the Company.
The Company relied upon the exemption provided by Section 4 (2) of the
Securities Act of 1933 in connection with the sale of these shares of common
stock. 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
The Company did not file any reports on Form 8-K during the quarter ending
June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
Dated: August 21, 2000 EAST COAST BEVERAGE CORP.
By:
John Calebrese, Chief Executive Officer
By:
Bruce S. Schames, Chief Financial Officer
and Principal Accounting Officer
