FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(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.
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
(Exact name of registrant as specified in its charter)
COLORADO 84-1039267
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1750 University Drive
Suite 117
Coral Springs, Florida 33071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 796-8060
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 31, 2000, was approximately $6,460,000. Shares of common
stock held by each officer, director and principal shareholder have been
excluded in that such persons may be deemed to be affiliates of the Registrant.
Documents Incorporated by Reference: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]
The Registrant's revenues during the year ended December 31, 1999 were
$4,403,499.
As of March 31, 2000, the Registrant had 7,872,654 issued and outstanding
shares of common stock.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
East Coast Beverage Corp. ("ECBC") is a Colorado corporation which prior
to September 1999 did business under the name USA Service Systems, Inc. ("USA").
Between November 1998 and July 1999 USA provided retail stores and manufacturers
with product assembly, product demonstrations, point - of - sale product
displays, and inventory counts and audits.
As of July 1999 USA had entered into letters of intent for the acquisition
of four companies engaged in the same business as that conducted by USA.
However, USA was unable to obtain approximately $4,000,000 in additional equity
capital which was needed to finance these acquisitions. In July 1999 USA
essentially discontinued its business and made plans to distribute its remaining
assets (having a minimal value) to certain officers and directors of USA.
Effective August 31, 1999 USA acquired all of the issued and outstanding
shares of East Coast Beverage Corp. in exchange for 5,040,000 shares of USA's
common stock. In connection with this transaction the name of the Company was
changed to "East Coast Beverage Corp." and the management of USA resigned and
was replaced by the management of ECBC. ECBC's business 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.
All historical share data in this report has been adjusted to reflect a
8.194595-for-one reverse split of ECBC's common stock which was approved by
ECBC's shareholders on February 22, 2000.
Coffee is the number one drink in the world, with Americans alone
consuming over $5.8 billion in 1997. According to the National Coffee
Association in 1998 over 108 million Americans drank an espresso, cappuccino,
latte or iced coffee, a 35% increase over the previous year. Three years ago,
frozen coffee drinks came into the market and the consumption of frozen coffee
has doubled every year. However, the drawback with frozen coffees is they must
be consumed immediately and could not be sold to the mass market. From this
evolved the RTD (ready to drink) Iced Coffee category, which in a few years has
become the fastest growing segment in the New Age category with an increase of
153% in 1997 and 83% in 1998. The New Age category refers to premium-priced
beverages that were created to respond to emerging consumer trends and interest.
Sales by category of New Age Beverages are summarized below:
Year Ending 1998
NEW AGE BEVERAGES (in millions)
RTD SS Fruit beverages (Tropicana, Very Fine) $2,125 27.5%
RTD PET bottled waters (Perrier Group, Geyser) 1,500 19.4%
Sports Beverages (Gatorade, Powerade, All Sport) 1,510 19.5%
RTD Teas (Snapple, Arizona, Mystic, Lipton) 1,340 17.4%
<PAGE>
Sparkling flavored waters (Talking Rain) 450 5.8%
Premium Soda 360 4.6%
RTD Coffee (Starbucks, regional brands) 200 2.6%
----- ----
SUBTOTAL NEW AGE $7,485
Nutrient Enhanced Drinks 100 1.3%
Fresh Packed Juices 55 .7%
Smoothies 45 .6%
Vegetable/Fruit Juice Blends 20 .3%
All Other 25 .3%
---- -----
TOTAL $7,730
Product
ECBC's product is more than just a cold coffee, tasting like a milkshake,
and is marketed as such. It can be substituted at any occasion where a milkshake
might be used with a hamburger at lunch, as a stand-alone snack, etc. ECBC's
iced coffee is naturally flavored and enhanced with whole milk and rich coffee
bean extract. ECBC's products are all natural, low in fat, visually exciting and
have a broad spectrum of flavors.
ECBC's products can be differentiated with those of competitors by its
taste, advanced technological Fuji wrap and ECBC's proprietary glass container.
Each of the flavors used by ECBC has gone through extensive consumer tasting and
approval. ECBC's iced coffee comes in the following flavors:
Cinnamon, Mocha, Vanilla Mousse, Regular, Hazelnut, Toasted Almond,
German Chocolate, and Banana's Foster
ECBC's proprietary formulas for its products are trade secrets and ECBC
requires its manufacturers, employees, brokers and consultants to sign
confidentiality agreements.
ECBC's glass container is also proprietary and design protected.
Production
ECBC does not own or operate any manufacturing facilities, but rather
outsources manufacturing and bottling to third party copackers. Outsourcing
provides ECBC production flexibility and capacity and allows management to focus
its energy and resources on marketing and sales while avoiding the costs and
risks associated with production .
ECBC's products are manufactured using ECBC's proprietary formulas.
Copackers may not produce products for any other customer using these formulas.
ECBC purchases flavor, nutrient, and packaging raw materials for delivery to the
copacker.
ECBC's copackers have the capacity to produce 70,000 cases a day and are
able to fulfill ECBC's planned production needs for at least the next three
years. If ECBC's growth exceeds the production capacity of its copackers, or
they were unable or unwilling to continue production, ECBC believes it could
locate other copackers to meet its production needs without any serious
disruption to ECBC's operations.
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The copackers produce and package ECBC's products in accordance with
Standard Operating Procedures for Good Manufacturing Practice specified by the
Food and Drug Administration.
ECBC does not have any credit line with any bank. Should ECBC's growth
exceed what is anticipated, a line of credit may be required to cover working
capital needs.
Distribution and Marketing
ECBC uses a network of distributors to market its iced coffee beverage. Certain
distributing companies used by ECBC have long term relationships with major
grocery chains and as a result, are capable of rapidly gaining access into chain
shelves at reduced rates.
Other distributors are dominant in the convenience/deli/single serve
business that is essential in building a brand from the ground up. The
distributors in each territory have been selected based on their impact in the
territory, financial strength, commitment to building the brand and expertise in
specific distribution venues. In many cases, ECBC will employ two distributors
to launch the product in a specific region, allowing each to focus on their
respective area of distribution expertise.
ECBC has recently engaged Super Value (Emerald and Portland Bottling) to
bring its products to Asia, South America and Europe.
During the year ended December 31, 1999 mass and super markets accounted
for approximately 70% of total revenues, sales to convenience stores represented
28% of revenues and foreign sales represented the remainder. It is expected that
foreign sales will account for 35% of total sales once ECBC's international
network is established.
ECBC sells its products through distributors and wholesalers to
supermarkets, convenience stores, drug store chains and oil company convenience
stores. As of December 31, 1999 ECBC was shipping product to customers in 44
states.
ECBC believes that there may be an opportunity to distribute its products
to a number of national food and beverage chains under private labeling
agreements.
ECBC plans to use a combination of print billboards and radio advertising,
with emphasis on regional and special interest publications, such as those
targeted towards mainstream consumers, to increase consumer awareness and demand
for its products. The advertising selected will coincide with the established
channels and points of distribution.
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Free samples will be distributed to consumers, store managers, store
employees and caterers to generate product awareness.
Paper point of sale items will be made available to enhance product
visibility and exposure. Other promotional items, such as drink coolers will be
made available on a co-op basis to enhance product visibility and exposure.
ECBC also plans to participate as an exhibitor at all major retail trade
and distributor shows.
Competition
ECBC's products compete with the following brands:
National Brands
Starbucks "Frappuccino" - Distributed exclusively by Pepsi-Cola. Three flavors
available in glass bottles. Sold in supermarkets in four packs only. Shelf life
is 3 months.
Regional Brands
"Ghirardelli Iced Coffees" - Limited nationwide - Only two flavors
available in cans.
"Havana Iced Cappuccino" - Scattered distribution in New England and
Mid-Atlantic- 3 flavors available in cans.
"Main Street Cafe' Iced Lattes" - Manufactured by GehI's Guernsey Farms -
5 flavors available in cans -scattered distribution.
"The Coffee" - by Pokka Beverages, Inc. California - Scattered
distribution -3 flavors available in cans.
"America's Best" - Available in Northeast only - 5 flavors available
in both glass and cans.
"Jamaica Gold" - Distributed in Northwest -3 flavors available in cans
New Entries
Procter and Gamble is testing a new product called "Jakada" in
California. The results so far are extremely positive; rollout
information is not available.
Coca-Cola is attempting to trademark the name "Javalait", identified as a
frozen coffee drink. No other information is known at this time.
Research and Development
A number of new products are undergoing laboratory tests and nearing
completion. These products include a dietary line and new flavors, as well as a
coffee based nutraceutical line. ECBC is also considering the development of a
Decaf product.
<PAGE>
Employees and Offices
As of March 31, 2000, ECBC employed twenty-one persons on a full-time
basis. Seven employees serve in management or administrative capacities, and the
remainder are hourly workers in ECBC's operations. None of ECBC's employees are
covered by a collective bargaining agreement. ECBC has never experienced an
organized work stoppage, strike or labor dispute. Management considers ECBC's
relations with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
ECBC leases a 1,200 square foot production and office facility in Coral
Springs, Florida at an annual rent of $14,000. The lease on this facility
expires in May 2000.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 31, 2000 there were approximately 400 owners of ECBC's
common stock. At the present time, there is no public market for ECBC's common
stock.
Holders of common stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available and, in the
event of liquidation, to share pro rata in any distribution of ECBC's assets
after payment of liabilities. The Board of Directors is not obligated to declare
a dividend. ECBC has not paid any dividends on its common stock and ECBC does
not have any current plans to pay any common stock dividends.
The provisions in ECBC's Articles of Incorporation relating to ECBC's
preferred stock would allow ECBC's directors to issue preferred stock with
rights to multiple votes per share and dividends rights which would have
priority over any dividends paid with respect to ECBC's common stock. The
issuance of preferred stock with such rights may make more difficult the removal
of management even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if such
transactions are not favored by incumbent management.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following selected financial data should be read in conjunction
with the more detailed financial statements and related notes included as a part
of this report.
Statement of Operations Data:
Period from Inception (March 25, 1998 Year Ended
to December 31, 1998 December 31, 1999
--------------------------------------------------------
Revenues $478,066 $4,403,499
Cost of Sales (344,493) (3,218,516)
Selling, General and
Administrative Expenses (831,631) (5,624,943)
Interest Expense and Financing
Fees (40,259) (820,333)
Net (Loss) $(738,317) $(5,260,293)
========== ============
Balance Sheet Data:
December 31, December 31, December 31, 1999
1998 1999 (Pro Forma)
Current Assets $1,560,709 $ 2,516,671 $ 4,828,075
Total Assets 1,751,922 3,195,992 5,507,396
Current Liabilities 2,489,739 3,245,764 633,152
Total Liabilities 2,489,739 5,646,764 3,034,152
Working Capital (Deficit) (929,030) ( 729,093) 4,194,923
Shareholders' Equity
(Deficit) (737,817) (2,449,772) 2,474,244
Subsequent to December 31, 1999 ECBC sold 933,901 shares of its common
stock to private investors at a price of $2.75 per share. ECBC paid commissions
of $256,823 in connection with the sale of these shares.
In January 2000 ECBC issued 694,973 shares of its common stock to John
Calebrese, an officer, director and principal shareholder of ECBC, in settlement
of $1,750,000, plus accrued interest of $160,000, owed to Mr. Calebrese by ECBC.
Also in January 2000 ECBC issued 316,192 shares of its common stock to
other creditors in settlement of $650,000, plus accrued interest of $52,612,
owed to these creditors by ECBC.
The pro forma balance sheet as of December 31, 1999 reflects these
transactions as if they had occurred on December 31, 1999.
<PAGE>
Period From Inception (March 25, 1998) to December 31, 1998
ECBC first began shipping product in December 1998. During this period,
ECBC's gross profit ratio was 28%.
The primary components of selling, general and administrative expenses
during this period were:
Salaries and Contract Labo $432,997
Travel and Marketing $ 42,991
Organization Expenses $146,683
Year Ending December 31, 1999
ECBC did not begin shipping product until December 1998. As a result,
comparisons cannot be made between operations for fiscal 1999 and the prior
period.
During the year ended December 31, 1999 ECBC had losses of $(5,260,293).
During the year ECBC's gross profit margin of 26.9% was significantly below
anticipated levels due to costs associated with start up expenses and initial
inefficiencies in production, product mixing and purchasing.
Promotion and advertising costs during the year were unfavorably impacted
by product introduction costs, slotting fees for product placement in retail
stores and higher (relative to sales volumes) first year marketing programs. The
high level of professional and consulting expenses during the year is the result
of business development and ECBC's first full year of operations.
During the latter part of 1999 ECBC began to bring its expenses under
control and management is continuing its efforts to lower product costs and
operating expenses.
Liquidity and Sources of Capital
ECBC's operations used $1,250,185 in cash during the period ended December
31, 1998. ECBC funded its operating losses during this period with loans from
John Calebrese, ECBC's Chief Executive Officer.
During the year ended December 31, 1999 ECBC's operations used
approximately $4,500,000 in cash and ECBC spent approximately $777,000 on the
purchase of equipment. Cash required during the year was generated through sales
of ECBC's common and preferred stock and borrowings from ECBC's Chief Executive
Officer and third parties.
ECBC believes that additional capital will be needed to expand ECBC's
operations and to finance ECBC's growth. ECBC expects to obtain additional
capital through the private sale of ECBC's common stock or from borrowings from
private lenders and/or financial institutions.
<PAGE>
There can be no assurance that ECBC will be successful in obtaining any
additional capital which may be needed.
ECBC may suffer future losses, in which case ECBC will need to obtain
additional sources of capital in order to continue operations. There can be no
assurance, however, that ECBC will be successful in obtaining additional
funding.
ITEM 7. FINANCIAL STATEMENTS
See the Financial Statements included with this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AN
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE REGISTRANT
The directors of the Company serve in such capacity until the next
annual meeting of the Company's shareholders and until their successors have
been duly elected and qualified. The officers of the Company serve at the
discretion of the Company's directors.
The following sets forth certain information concerning the management of
ECBC:
Name Age Position with Company
John Calebrese 47 Chief Executive Officer and a Director
Alex Garabedian 46 President
Edward Shanahan 47 Vice President - Eastern Division
John Daumeyer 59 Vice President - Central Division
William Perry Maxwell 59 Vice President - Western Division
Robert Gardener 52 Chief Financial Officer
Drew Carver 53 Vice President -Business Development
Edith G. Osman 50 Director
John Calebrese has been an officer and director of ECBC since March 1998.
From 1993 to 1995 Mr. Calebrese was a broker for Arizona Beverage Company
(Arizona Iced Tea) in the Florida market. From 1980 to 1992 Mr. Calebrese was an
<PAGE>
officer of A & C Italian Bakery, a large Italian wholesale bakery which was sold
to Ferrara's of New York in 1990. From 1981 to 1984 Mr. Calebrese opened a
number of deli/restaurants which were purchased by Subway in 1984. During this
period of time Mr. Calebrese also developed the concept for ECBC's
ready-to-drink iced coffee beverages. From 1990 to 1993 Mr. Calebrese developed
and marketed an iced coffee beverage which was acquired in 1993 by Lewis and
Clark Snake River.
Alex Garabedian has been the President of ECBC since October 1998. From
1968 to 1997 Mr. Garabedian was President and Chief Executive Officer of Fine
Distributing, a subsidiary of Hagameyer, a large multi-national food
distributor.
Edward Shanahan has been an officer and director of ECBC since October
1998. From 1993 to 1994 Mr. Shanahan served as Vice President of Sales and
Marketing for Westmark, Inc./Clearly Canadian where he was responsible for
product distribution in seven states. While at Westmark, Mr. Shanahan was
responsible for sales, pricing, packaging, distribution, brand management, media
advertising and key account development. From 1976 to 1993 Mr. Shanahan worked
for Coca-Cola Enterprises, Inc. in various capacities.
John Daumeyer has been an officer of ECBC since October 1998. From 1995 to
1997 Mr. Dauymeyer was Vice President of Geyser Bottled Water Company. From 1993
to 1995 Mr. Dauymeyer was Vice President of Sales, Western Division for Arizona
Iced Tea. In the late 1960's Mr. Dauymeyer was a co-founder of Wendy's Old
Fashioned Hamburger Restaurants and served as President and General Manager of
Wendy's.
William Perry Maxwell has been an officer of ECBC since 1998. From 1991 to
1993 Mr. Maxwell was Vice President of Sales for the William Hoelskin company, a
food broker. From 1993 to 1998 Mr. Maxwell was Vice President for the Arizona
Beverage Company where he was responsible for developing Arizona's distributor
network.
Drew Carver has been an officer of ECBC since October 1998. From 1990 to
1993 Mr. Carver was National Sales Manager for Arizona Iced Tea. From 1993 to
1998 Mr. Carver was employed by the Geyser Bottled Water Company as Vice
President of Sales.
Robert Gardener has been an officer of ECBC since January 2000. From
1984 to 1999 Mr. Gardner operated his own Certified Public Accounting practice
which concentrated on food distributors servicing major chain stores,
restaurants and airlines. From 1976 to 1984 Mr. Gardner worked as a controller
for Kenyon and Eckhardt, a large advertising firm, and as a Vice President for
SFWPRI, and international magazine distribution company.
Edith G. Osman has been a director of ECBC since January 2000. Ms. Osman
has been a practicing attorney since 1984. Ms. Osman is presently a shareholder
of the law firm of Carlton Fields in Miami, Florida. Ms. Osman is also the
current president of the Florida Bar Association (president-elect 1998-1999) and
was a member of the Florida Bar Association's Board of Governors during 1998.
All of ECBC's officers devote substantially all of their time on ECBC's
business. Ms. Osman, as a director, devotes only a minimal amount of time to
ECBC.
<PAGE>
Change in Management
In September 1999, and in connection with the acquisition of East Coast
Beverage Corp., George Pursglove, Chet Howard, Douglas Maclellan and William
Solfisburg resigned as officers and directors and were replaced with the present
management of ECBC.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation
received by (i) the Chief Executive Officer of ECBC and (ii) by each other
executive officer of ECBC who received in excess of $100,000 during the fiscal
year ended December 31, 1999.
Other Re-
Annual stricted
Compen- Stock Options
Name and Fiscal Salary Bonus sation Awards Granted
Principal Position Year (1) (2) (3) (4) (5)
John Calebrese, 1999 $250,000 -- -- -- --
Chief Executive 1998 $125,000 -- -- -- --
Officer
Alex Garabedian, 1999 $125,000 -- -- -- --
President 1998 $62,500 -- -- $325 --
Edward Shanahan 1999 $125,000 $13,000 $6,000 -- --
Vice President 1998 $ 25,000 -- -- $195 --
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
Amounts in the table represent car allowances.
(4) During the year ending December 31, 1999, the value of the shares of ECBC's
common stock issued as compensation for services.
(5) The shares of common stock to be received upon the exercise of all stock
options granted during the year ending December 31, 1999.
The table below shows the number of shares of ECBC's common stock owned by
the officers listed above, and the value of such shares as of December 31, 1999.
Since there is presently no market for ECBC's common stock, the shares owned by
such persons at December 31, 1999 were valued at $2.75 per share, which is equal
to the price at which ECBC was selling shares of its common stock to private
investors during December 1999.
<PAGE>
Name Shares Value
John Calebrese 1,503,831 $4,135,535
Alex Garabedian 325,000 893,750
Edward Shanahan 195,000 536,250
(1) Subsequent to December 31, 1999 Mr. Calebrese acquired additional
shares of the Company's common stock and transferred shares of common stock to
various persons. See Item 12 of this report.
Long Term Incentive Plans - Awards in Last Fiscal Year
None
Employee Pension, Profit Sharing or Other Retirement Plans
Except as provided in ECBC's employment agreements with its executive
officers, ECBC does not have a defined benefit, pension plan, profit sharing or
other retirement plan, although ECBC may adopt one or more of such plans in the
future.
Compensation of Directors
Standard Arrangements. At present ECBC does not pay its directors for
attending meetings of the Board of Directors, although ECBC expects to adopt a
director compensation policy in the future. ECBC has no standard arrangement
pursuant to which directors of ECBC are compensated for any services provided as
a director or for committee participation or special assignments.
Except as disclosed elsewhere in this prospectus no director of ECBC
received any form of compensation from ECBC during the year ended December 31,
1999.
Employment Contracts ECBC has employment agreements with the following officers:
Expiration of
Employment
Name Agreement Compensation
John Calebrese .. 1-27-02 Annual salary of $200,000, monthly car allowance
of $600, monthly medical insurance reimbursement
of $1,200, and options to purchase 500,000 shares
of ECBC's common stock at a price of $2.75 per
share at any time prior to January 2005. Mr. ...
Calebrese will be entitled to a bonus equal to
35% of his annual salary in the event ECBC has
sales (net of returns and allowances) of at
least $30,000,000 during 2000, $65,000,000
during 2001, and $125,000,000 during 2002
<PAGE>
Alex Garabedian . 1-27-02 Annual salary of $155,000 monthly car allowance
of $1,150, monthly medical insurance reimbursement
of $1,200 and 325,000 shares of ECBC's common
stock. Mr. Garabedin will be entitled to a bonus
equal to 35% of his annual salary in the event
ECBC has sales (net of returns and allowances) of
at least $30,000,000 during 2000, $65,000,000
during 2001, and $125,000,000 during 2002
Edward Shanahan 10-26-00 Annual salary of $125,000,
a monthly car allowance of $500, a one time
signing bonus of $10,000, and 195,000 shares
of ECBC's common stock.
John Daumeyer 10-19-00 Annual salary of $95,000,
a monthly car allowance of $500, a one time
signing bonus of $7,500, and 130,000 shares
of ECBC's common stock.
William Perry
Maxwel 10-31-00 Annual salary of
$85,000, a monthly car allowance of $500, a
one time signing bonus of $7,500, and
130,000 shares of ECBC's common stock.
Drew Carver 10-10-00 Annual salary of $95,000, a
monthly car allowance of $500, a one time
signing bonus of $10,000, and 130,000 shares
of ECBC's common stock.
Stock Options
The following tables set forth information concerning the options granted
during the fiscal year ended December, 1999, to the persons named below, and the
fiscal year-end value of all unexercised options (regardless of when granted)
held by these persons.
Options Granted
ECBC did not grant any options to any officer or director during the year ended
December 31, 1999. Subsequent to December 31, 1999 ECBC granted John Calebrese
options to purchase 500,000 shares of common stock. These options were granted
pursuant to ECBC's Non-Qualified Stock Option Plan and are exercisable at a
price of $2.75 per share at any time prior to January 2005.
<PAGE>
Stock Option and Bonus Plans
ECBC has an Incentive Stock Option Plan, a Non-Qualified Stock Option Plan
and a Stock Bonus Plan. A summary description of each Plan follows. In some
cases these three Plans are collectively referred to as the "Plans".
Incentive Stock Option Plan.
The Incentive Stock Option Plan authorizes the issuance of options to
purchase up to 500,000 shares of ECBC's common stock. The Incentive Stock Option
Plan will remain in effect until January 10, 2010 unless terminated earlier by
action of the Board. Only officers, directors and key employees of ECBC may be
granted options pursuant to the Incentive Stock Option Plan.
In order to qualify for incentive stock option treatment under the
Internal Revenue Code, the following requirements must be complied with:
1. Options granted pursuant to the Plan must be exercised no later than:
(a) The expiration of thirty (30) days after the date on which an
option holder's employment by ECBC is terminated.
(b) The expiration of one year after the date on which an option
holder's employment by ECBC is terminated, if such termination is due to the
Employee's disability or death.
2. In the event of an option holder's death while in the employ of ECBC,
his legatees or distributees may exercise (prior to the option's expiration) the
option as to any of the shares not previously exercised.
3. The total fair market value of the shares of common stock (determined
at the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$100,000.
4. Options may not be exercised until one year following the date of
grant. Options granted to an employee then owning more than 10% of the of ECBC's
common stock may not be exercisable by its terms after five years from the date
of grant.
5. The purchase price per share of common stock purchasable under an
option is determined by the Committee but cannot be less than the fair market
value of ECBC's common stock on the date of the grant of the option (or 110% of
the fair market value in the case of a person owning ECBC's stock which
represents more than 10% of the total combined voting power of all classes of
stock).
<PAGE>
Non-Qualified Stock Option Plan.
The Non-Qualified Stock Option Plan authorizes the issuance of options to
purchase up to 1,500,000 shares of ECBC's common stock. The Non-Qualified Stock
Option Plan became effective on January 10, 2000. ECBC's employees, directors,
officers, consultants and advisors are eligible to be granted options pursuant
to the Plan, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by the Committee but cannot be less than the market
price of ECBC's common stock on the date the option is granted.
Options granted pursuant to the Plan not previously exercised terminate
upon the first to occur of the following dates:
(a) The expiration of one year after the date on which an option
holder's employment by ECBC is terminated (whether termination is by ECBC,
disability or death); or
(b) The expiration of the option which occurs five (5) years from
the date the option was granted.
In the event of an option holder's death while in the employ of ECBC, his
legatees or distributees may exercise the option as to any of the shares not
previously exercised prior to the option's expiration.
Stock Bonus Plan.
Up to 250,000 shares of common stock may be granted under the Stock Bonus
Plan. Such shares may consist, in whole or in part, of authorized but unissued
shares, or treasury shares. Under the Stock Bonus Plan, ECBC's employees,
directors, officers, consultants and advisors are eligible to receive a grant of
ECBC's shares; provided, however, that bona fide services must be rendered by
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Other Information Regarding the Plans.
The Plans are administered by ECBC's Board of Directors. The Board of
Directors has the authority to interpret the provisions of the Plans and
supervise the administration of the Plans. In addition, the Board of Directors
is empowered to select those persons to whom shares or options are to be
granted, to determine the number of shares subject to each grant of a stock
bonus or an option and to determine when, and upon what conditions, shares or
options granted under the Plans will vest or otherwise be subject to forfeiture
and cancellation.
In the discretion of the Board of Directors, any option granted pursuant
to the Plans may include installment exercise terms such that the option becomes
fully exercisable in a series of cumulating portions. The Board of Directors may
also accelerate the date upon which any option (or any part of any options) is
first exercisable. Any shares issued pursuant to the Stock Bonus Plan and any
options granted pursuant to the Incentive Stock Option Plan or the Non-Qualified
Stock Option Plan will be forfeited if the "vesting" schedule established by the
<PAGE>
Board of Directors at the time of the grant is not met. For this purpose,
vesting means the period during which the employee must remain an employee of
ECBC or the period of time a non-employee must provide services to ECBC. At the
time an employee ceases working for ECBC (or at the time a non-employee ceases
to perform services for ECBC), any shares or options not fully vested will be
forfeited and cancelled. In the discretion of the Board of Directors payment for
the shares of underlying options may be paid through the delivery of shares of
ECBC's common stock having an aggregate fair market value equal to the option
price, provided such shares have been owned by the option holder for at least
one year prior to such exercise. A combination of cash and shares of common
stock may also be permitted at the discretion of the Board of Directors.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
The Board of Directors of ECBC may at any time, and from time to time,
amend, terminate, or suspend one or more of the Plans in any manner it deems
appropriate, provided that such amendment, termination or suspension cannot
adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
common stock which may be issued pursuant to the Plans except in the case of a
reclassification of ECBC's capital stock or a consolidation or merger of ECBC;
reduce the minimum option price per share; extend the period for granting
options; or materially increase in any other way the benefits accruing to
employees who are eligible to participate in the Plans.
The Plans are not qualified under Section 401(a) of the Internal Revenue
Code, nor are they subject to any provisions of the Employee Retirement Income
Security Act of 1974.
Summary.
The following sets forth certain information as of March 31, 2000,
concerning the stock options and stock bonuses granted by ECBC. Each option
represents the right to purchase one share of ECBC's common stock.
Total Shares Remaining
Shares Reserved for Shares Options/
Reserved Outstanding Issued As Shares
Name of Plan Under Plan Options Stock Bonus Under Plan
Incentive Stock
Option Plan 500,000 -- N/A 500,000
Non-Qualified Stock
Option Plan 1,500,000 500,000 N/A 1,000,000
Stock Bonus Plan 250,000 N/A -- 250,000
<PAGE>
Other Options
ECBC has granted options to purchase shares of ECBC's common stock to the
persons below. These options were not granted pursuant to ECBC's Incentive or
Non-Qualified stock option plans.
Shares Issuable Option
Upon Exercise Exercise Expiration
Name of Options Price of Option
Arnold Rosen 100,000 $2.00 10/30/2000
Arnold Rosen 12,500 $3.50 1/03/2002
Other third parties 40,000 $3.50 1/03/2002
Mr. Rosen received these options for extending loans of $200,000 to ECBC
and for converting a $250,000 loan into shares of ECBC's common stock. Mr. Rosen
and persons affiliated with Mr. Rosen presently own approximately 11% of ECBC's
common stock. See Item 12 of this report.
In the near future ECBC plans to grant other options for the purchase of not
less than 500,000 shares of common stock to certain executive officers, with the
exception of John Calebrese.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2000, information with
respect to the only persons owning beneficially 5% or more of the outstanding
common stock and the number and percentage of outstanding shares owned by each
director and officer and by the officers and directors as a group. Unless
otherwise indicated, each owner has sole voting and investment powers over his
shares of common stock.
Name and Address Share Ownership Percent of Class
John Calebrese 1,832,972 (1) 23.9%
1750 University Drive
Suite 117
Coral Springs, Florida 33071
Alex Garabedian 325,000 4.2%
1750 University Drive
Suite 117
Coral Springs, FL 33071
Edward Shanahan 195,000 2.5%
78 Harrington Ridge Road
Sherborn, MA 01770
<PAGE>
Shares of
Name and Address Common Stock Percent of Class
John Daumeyer 130,000 1.7%
8621 Brookridge Dr.
West Chester, OH 45069
William Perry Maxwell 130,000 1.7%
2679 Corey Place
San Ramon, CA 94583
Drew Carver 130,000 1.7%
3852 E. Keresan
Phoenix, AZ 85044
Robert Gardener -- --
1750 University Drive
Suite 117
Coral Springs, FL 33071
Edith G Osman 22,556 --
808 Brickle Key Blvd., #2301
Miami, FL 33131
Arnold Rosen 1,080,940 (2) 14.1%
7138 Ayrshire Lane
Boca Raton, FL 33496
FPI, Inc. 816,941 10.7%
Mizner Park Corporate Center
433 Plaza Real, Suite 275
Boca Raton, FL 33445
Genco Overseas Ventures Limited 428,812 (3) 5.6%
1500 Northwest 65th Ave.
Plantation, FL 33313
Acion Investments, Limited 428,812 (3) 5.6%
1500 Northwest 65th Ave.
Plantation, FL 33313
All Officers and Directors 2,765,528 35.8%
as a Group (8 persons)
(1) Excludes 500,000 shares issuable upon the exercise of options held by Mr.
Calebrese. The options are exercisable at a price of $2.75 per share at any
time prior to January 2005.
<PAGE>
(2) Includes shares held by Mr. Rosen, Mr. Rosen's wife, and their respective
IRA accounts.
(3) Jack Namer is the controlling person of this shareholder and is therefore
the beneficial owner of the shares held of record by this shareholder.
The percentage ownership for each shareholder in the foregoing table has
been computed without including any shares issuable upon the exercise of any
options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ECBC has issued shares of its to the persons, in the amounts, and for the
consideration set forth in the following table. The amounts have been adjusted
to reflect the shares issued to the former shareholders of East Coast Beverage
Corp. in connection with the August 1999 acquisition of East Coast Beverage
Corp. and the 8.194595 for - one reverse split approved by the shareholders of
ECBC on February 22, 2000:
Number Note
Name Date of Shares Consideration Reference
John Calebrese 3/01/98 2,411,454 Services rendered A
Alex Garabedian 9/10/98 325,000 Services rendered B
Edward Shanahan 10/26/98 195,000 Services rendered B
John Daumeyer 10/19/98 130,000 Services rendered B
William Perry
Maxwell 11/02/98 130,000 Services rendered B
Drew Carver 10/10/98 130,000 Services rendered B
FPI, Inc 1/29/99 700,000 Services rendered
Arnold Rosen 8/01/99 66,666 Services rendered C
Arnold Rosen 08/31/99 250,000 Modification of
loan terms C
Arnold Rosen 09/01/99 34,000 Consulting services C
Arnold Rosen 10/20/99 15,000 Extension of maturity
of loan C
John Calebrese 1/10/00 694,973 Payment of loan D
Raygard Enterprises 1/10/00 190,000 Conversion of loan E
Arnold Rosen 1/11/00 126,192 Conversion of loan C
A. Subsequent to March 1, 1998 Mr. Calebrese sold 428,812 shares to Genco
Overseas Ventures Limited and 428,812 shares to Aicon Investments, Limited.
Subsequent to March 1, 1998 Mr. Calebrese also assigned shares of ECBC's common
stock to FPI, Inc., Arnold Rosen and other third parties. See "Principal
Shareholders".
B. Shares were issued as part of the compensation provided in the employment
agreement with this person.
C. Between March and May 1999 East Coast Beverage Corp. sold 1,000 shares of
its Series A preferred stock to a group of private investors for $1,000,000. All
Series A preferred shares were subsequently converted into shares of the common
stock of East Coast Beverage Corp. In connection with the acquisition of East
<PAGE>
Coast Beverage Corp. the former Series A preferred shareholders received 751,879
shares of ECBC's common stock. Arnold Rosen, a principal shareholder and a
consultant to ECBC, together with his wife and their respective IRA accounts,
purchased 520 of the Series A preferred shares.
Between May and August 1999 ECBC borrowed $1,000,000 from Mr. Rosen. The
loan from Mr. Rosen enabled ECBC to fund a level of operations associated with
increased orders. The loans are represented by a series of convertible notes
(the "Notes") which bear interest at 12% per annum and are due and payable in
April 2000. The Notes originally provided Mr. Rosen with certain rights (i) with
respect to payment if ECBC was sold, (ii) conversion of the notes into ECBC
stock, and (iii) under certain circumstances, to a percentage of ECBC's net
income.
In exchange for 250,000 shares of ECBC's common stock, ECBC and Mr. Rosen
agreed to the following modifications to the terms of the Notes:
o ECBC would repay Mr. Rosen $400,000, plus accrued interest, prior to
September 30, 1999.
o An additional $300,000 plus accrued interest would be repaid to Mr. Rosen
prior to October 15, 1999.
o The remaining $300,000, plus accrued interest would be payable on or before
April 1, 2000.
o The rights (i) to receive, under certain circumstances, a percentage interest
in ECBC's net income; and (ii) to receive 150% of the unpaid principal if
ECBC was sold, were terminated.
o The right to convert up to $300,000 of the amount owed to Mr. Rosen into such
number of shares of ECBC's common stock as may be determined by dividing the
amount to be converted by $2.75. On January 11, 2000 Mr. Rosen converted
$250,000 owed to him by ECBC, plus $2,383 in accrued interest, into 126,192
shares of ECBC's common stock.
On October 20, 1999 ECBC paid Mr. Rosen $50,000 toward a $300,000 loan
which was due to be paid by October 15, 1999 and issued Mr. Rosen 15,000 shares
of ECBC's common stock for extending the maturity of the remaining amount of
this loan until January 15, 2000.
In September 1999 ECBC issued Mr. Rosen 34,000 shares of common stock in
consideration for consulting services provided to ECBC.
D. On January 10, 2000 John Calebrese converted $1,750,000 of advances to
ECBC, plus accrued interest of approximately $160,000 into 694,973 shares of
ECBC's common stock. The advances were made between March 1998 and October 1999,
were unsecured and bore interest at 10% per year.
E. On January 10, 2000 ECBC issued 190,000 shares of common stock to
Raygard Enterprises of South Florida, Inc. in settlement of $400,000 loaned to
ECBC by Raygard. The amount owed to Raygard was due on July 1, 2000, was
unsecured and bore interest at 15% per year.
<PAGE>
As of March 31, 2000 ECBC owed approximately $765,000 to John Calebrese. The
funds borrowed from Mr. Calebrese were used by ECBC for working capital
purposes. The loan from Mr. Calebrese bears interest at 10% per annum, is due on
demand and is unsecured.
In December 1999 ECBC entered into a distributorship agreement with
Raygard Enterprises of South Florida, Inc. Raygard is the owner of 190,000
shares of ECBC's common stock. Robert Gardener, ECBC's principal financial
officer, together with members of Mr. Gardener's family, are the beneficial
owners of 50% of Raygard's capital stock. The agreement grants Raygard the right
to distribute the Company's products in Florida, Europe and South America. ECBC
may not terminate the Distribution Agreement except for "cause". In the event of
the sale of ECBC or the termination of the Distribution Agreement, ECBC has
agreed to pay Raygard $4.00 for each case of product purchased by Raygard from
ECBC. At December 31, 1999, ECBC would owe $540,000 to Raygard in the event of
the sale of ECBC or the termination of the Distribution Agreement.
On January 25, 1999, ECBC entered into a consulting agreement with F.P.I.,
Inc., a principal shareholder. Pursuant to the terms of this agreement FPI
provides ECBC with consulting services and assistance with financial growth
strategies. During the year ended December 31, 1999 ECBC issued 700,000 shares
of common stock to FPI and paid FPI approximately $438,000 in cash for
consulting services. During the three month period ending March 31, 2000 ECBC
has paid FPI approximately $68,000 in cash for assisting the Company in raising
capital.
Between September 1999 and April 7, 2000 ECBC sold 1,881,277 shares of its
common stock to a group of private investors at a price of $2.75 per share. ECBC
plans to file a registration statement with the Securities and Exchange
Commission so as to permit the public sale of these shares.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Number Exhibit Page Number
2. Share Exchange Agreement between
USA Service Systems, Inc. and East
Coast Beverage Corp. (1)
3.1 Articles of Incorporation, (1)
----------------------
as restated and amended
3.2 Bylaws (1)
----------------------
4.1 Incentive Stock Option Plan (1)
----------------------
4.2 Non-Qualified Stock Option Plan (1)
----------------------
4.3 Stock Bonus Plan (1)
----------------------
<PAGE>
10 Employment Agreements (1)
----------------------
27. Financial Data Schedule ______________________
(1) Incorporated by reference, and as same exhibit number, from the Company's
registration statement on Form SB-2 (Commission File No. 333-31188).
Reports on Form 8-K
On November 15, 1999 ECBC filed an amended report on Form 8-K disclosing
the acquisition of East Coast Beverage Corp. Included as part of this amended
report were the audited financial statements of East Coast Beverage Corp. and
pro forma financial statements reflecting the acquisition of East Coast Beverage
Corp.
On December 28, 1999 ECBC filed an amended report on Form 8-K. The amended
report on Form 8-K reflected certain changes to the "Principal Shareholders"
section of the 8-K report.
<PAGE>
EAST COAST BEVERAGE CORP.
FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statement of Changes in Deficiency in Assets 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 19
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
East Coast Beverage Corp.
Coral Springs, Florida
We have audited the accompanying balance sheet of East Coast Beverage Corp. as
of December 31, 1999, and the related statements of operations, changes in
deficiency in assets, and cash flows for the year ended December 31, 1999 and
for the period from inception (March 25, 1998) to December 31, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of East Coast Beverage Corp. as of
December 31, 1999, and the results of its operations and its cash flows for the
year ended December 31, 1999 and for the period from inception (March 25, 1998)
to December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, 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. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
KAUFMAN, ROSSIN & CO.
Miami, Florida
March 24, 2000 (Except for Note 2, as to which the date is April 7, 2000)
<PAGE>
EAST COAST BEVERAGE CORP.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
- -------------------------------------------------------------------------------
CURRENT ASSETS
Cash and equivalents $ 115,364
Accounts receivable (Note 4) 109,689
Inventories (Note 5) 2,018,573
Prepaid mold fee (Note 8) 118,866
Prepaid expenses and other current assets (Note 6) 154,179
- -------------------------------------------------------------------------------
Total current assets
PROPERTY AND EQUIPMENT (NOTE 7) 679,321
- -------------------------------------------------------------------------------
TOTAL ASSETS $ 3,195,992
- -------------------------------------------------------------------------------
LIABILITIES AND DEFICIENCY IN ASSETS
- -------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,790,668
Accrued interest payable 164,580
Notes payable - current portion (Note 12) 525,000
Due to stockholder - current portion (Note 9) 765,516
- -------------------------------------------------------------------------------
Total current liabilities
- ------------------------------------------------------------------------------
LONG-TERM DEBT
Notes payable (Note 12) 650,000
Due to stockholders (Note 9) 1,750,000
- -------------------------------------------------------------------------------
Total long-term debt
- -------------------------------------------------------------------------------
DEFICIENCY IN ASSETS (NOTE 11) ( 2,449,772)
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 3,195,992
- ------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
EAST COAST BEVERAGE CORP.
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE PERIOD FROM INCEPTION (MARCH 25, 1998) TO DECEMBER 31, 1998
1999 1998
- --------------------------------------------------------------------------------
SALES $ 4,403,499 $ 478,066
COST OF GOODS SOLD 3,218,516 344,493
- -------------------------------------------------------------------------------
GROSS PROFIT 1,184,983 133,573
- -------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation 121,544 1,001
Freight 441,854 24,050
General and administrative expense 1,703,525 758,210
Professional fees and consulting 505,105 46,250
Promotion and advertising 2,334,228 2,120
Selling expenses 518,687 -
- -----------------------------------------------------------------------------
Total selling, general and administrative 5,624,943 831,631
- -------------------------------------------------------------------------------
LOSS FROM OPERATIONS ( 4,439,960) ( 698,058)
INTEREST EXPENSE AND FINANCING FEES 820,333 40,259
- -----------------------------------------------------------------------------
NET LOSS ($ 5,260,293) ($ 738,317)
- ------------------------------------------------------------------------------
Weighted Average Number of Common Shares
Outstanding 4,385,993 2,361,455
- -------------------------------------------------------------------------------
Net loss per share ($ 1.21) ($ 0.31)
- -------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
EAST COAST BEVERAGE CORP.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN DEFICIENCY IN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM INCEPTION
(MARCH 25, 1998) TODECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock, Common Stock,
$0.0001 Par Value; $0.0001 Par Value;
5,000,000 Shares 25,000,000
Description Authorized Shares Authorized Additional
------------------------------------------ Paid-In
Shares Amount Shares Par Value Capital Deficit Total
- ------------------------------------------------------------------------------------------------------------------------
Issuance of stock, net of stock
returned - $ - 2,361,455 $ 236 $ 264 $ - $ 500
Net loss - period ended December 31,
1998 - - - - - (738,317) ( 738,317)
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 - - 2,361,455 236 264 (738,317) ( 737,817)
Issuance of common stock related to
employment agreements, net of
stock returned - - 910,000 91 49 - 140
Issuance of common stock for
consulting services, net of
stock returned - - 800,666 80 197,086 - 197,166
Issuance of preferred stock for cash 1,000 0.10 - - 1,000,000 - 1,000,000
Preferred stock offering costs - - - - ( 100,000) - ( 100,000)
Issuance of common stock for loan
agreement modification - - 265,000 27 408,584 - 408,611
Issuance of options for loan
agreement modification - - - - 88,192 - 88,192
Conversion of preferred stock into
common stock ( 1,000) (0.10) 751,879 75 ( 75) - -
Acquisition of net assets of USA
Services Systems, Inc. - - 372,599 37 ( 200,037) - (200,000)
Issuance of common stock under
Private Placement - - 887,376 89 2,440,195 - 2,440,284
Private placement offering costs - - - - ( 244,388) - ( 244,388)
Dividends on preferred stock - - - - ( 41,667) ( 41,667)
Net loss - year ended December 31,
1999 - - - - - (5,260,293) (5,260,293)
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 - $ - 6,348,975 $ 635 $3,589,870 ($6,040,277)($2,449,772)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
EAST COAST BEVERAGE CORP.
- ------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE PERIOD FROM INCEPTION (MARCH 25, 1998) TO DECEMBER 31, 1998
1999 1998
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net
loss ($ 5,260,293) ($ 738,317)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 121,544 1,001
Provision for bad debts 12,187 -
Stock issued for modification of loans 496,803 -
Stock issued for professional services 197,306 -
Changes in assets and liabilities:
Accounts receivable 215,262 ( 337,138)
Inventory ( 807,487) (1,211,086)
Prepaid assets ( 85,261) ( 141,882)
Other assets 23,111 ( 25,713)
Accounts payable and accrued expenses 552,298 1,202,950
- -------------------------------------------------------------------------------
Total adjustments 725,763 ( 511,868)
- -------------------------------------------------------------------------------
Net cash used in operating activities (4,534,530) (1,250,185)
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to employee ( 33,300) ( 10,000)
Purchases of property and equipment ( 777,247) ( 24,619)
- -------------------------------------------------------------------------------
Net cash used in investing activities ( 810,547) ( 34,619)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank overdraft ( 55,913) 55,913
Net borrowings from stockholders 1,284,640 1,230,876
Net borrowings from related parties 1,260,000 -
Net proceeds from issuance of preferred stock 900,000 -
Net proceeds from issuance of common stock 2,195,896 500
Dividends paid ( 41,667)
Loan acquisition costs ( 85,000)
- ------------------------------------------------------------------------------
Net cash provided by financing activities 5,457,956 1,287,289
- -------------------------------------------------------------------------------
NET INCREASE IN CASH AND EQUIVALENTS 112,879 2,485
CASH AND EQUIVALENTS - BEGINNING 2,485 -
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ 115,364 $ 2,485
- ------------------------------------------------------------------------------
Supplemental Disclosures:
- -------------------------------------------------------------------------------
Interest paid $ 125,079 $ 18,416
- ------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
EAST COAST BEVERAGE CORP.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Business Description and Activity
East Coast Beverage Corp. (the Company) was incorporated on March
25, 1998, under the laws of the State of Florida and effective
August 31, 1999, became a public reporting Colorado Corporation
through a reverse acquisition of a public shell corporation. The
Company's business activity includes developing, producing and
distributing Coffee House USA(TM), a proprietary line of all
natural, ready to drink, bottled coffee drinks. In late 1998 the
Company began production and distribution of its products throughout
the continental United States, Hawaii and Guam.
The Company uses third-party manufacturers to produce its products
and for the year ended December 31, 1999, two manufacturers
accounted for 100% of the Company's production of finished goods.
All historical common stock data in the financial statements and
notes to financial statements has been adjusted to give effect for
i) a March 24, 1999, 25,000 for 1 forward stock split, ii) an
exchange allocation of 8.194595 for 1 upon the reverse acquisition
discussed below, and iii) a February 22, 2000 1 for 8.194595 reverse
stock split.
Reverse Acquisition
Effective August 31, 1999, the Company entered into an Agreement to
Exchange Common Stock with USA Service Systems, Inc. (USA), a
non-operating public company. The Agreement provided for the
exchange of 5,040,000 restricted shares of common stock of USA for
all of the issued and outstanding shares of the Company. This
transaction was treated for accounting purposes as a capital
transaction. As the Company is the accounting acquirer in this
"Reserve Acquisition," the financial statements of USA are
considered to be a continuation of the Company. Concurrent with this
merger, USA changed its name to East Coast Beverage Corp.
Cash and Equivalents
For purposes of the statement of cash flows, the Company considers
cash and highly liquid securities (consisting primarily of
money-market investments) with an original maturity or redemption
option of three months or less to be cash and equivalents.
During 1999 the Company maintained cash and equivalents with a
brokerage firm and with a bank. Brokerage amounts are insured up to
$500,000 (with a limit of $100,000 for cash) by the Securities
Investor Protection Corporation while bank deposits are insured by
the FDIC up to $100,000. The Company may, from time to time,
maintain balances in excess of these insured limits.
<PAGE>
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- -------------------------------------------------------------------------------
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit
risk consist principally of trade receivables. Trade receivables
terms are generally 30 days. The Company performs services and
extends credit based on an evaluation of the customers' financial
condition without requiring collateral. Exposure to losses on
receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit
losses and maintains allowances for anticipated losses considered
necessary under the circumstances.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major
betterments and additions are charged to the asset accounts while
replacements, maintenance and repairs which do not improve or extend
the lives of the respective assets are charged to expense currently.
Depreciation
Depreciation of property and equipment is determined utilizing
straight-line and accelerated methods at various rates based
generally on the estimated useful lives of the assets. The range of
estimated useful lives is as follows:
Office furniture and equipment 5 to 7 years
Machinery and equipment 5 to 7 years
Coolers and display equipment 3 to 5 years
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market (replacement cost). All inventories on hand at
December 31, 1999 were held by third party storage facilities
located in Batavia, New York, Sanger, California and Richwood, New
Jersey.
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.
The Company has recorded a deferred tax asset of approximately
$1,964,000 at December 31, 1999, which is completely offset by a
valuation allowance. Realization of the deferred tax asset is
dependent on generating sufficient taxable income in the future. The
amount of the deferred tax asset considered realizable could change
in the near term if estimates of future taxable income are modified.
<PAGE>
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- -------------------------------------------------------------------------------
Income Taxes
The Company accounts for income taxes under the liability method
according to Statement of Financial Accounting Standards No. 109.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled.
Through December 31, 1998, the Company had elected, with the consent
of the stockholders, to be taxed under S Corporation provisions of
the Internal Revenue Code. Under these provisions, the taxable
income of the Company is reflected by the stockholders on their
personal income tax returns. Effective January 1, 1999, in
contemplation of issuing preferred stock, the Company terminated its
S Corporation status.
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 facilities or third party
storage facilities.
Advertising
Advertising is expensed as incurred and is included in selling,
general and administrative expenses.
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 and preferred stock dividends of $41,667 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.
Segment Reporting
During 1998, the Company adopted Financial Accounting Standards
Board ("FASB") statement No. 131, "Disclosure about Segments of an
Enterprise and Related Information". The Company has considered its
operations and has determined that it operates in a single operating
segment for purposes of presenting financial information and
evaluating performance. As such, the accompanying financial
statements present information in a format that is consistent with
the financial information used by management for internal use.
<PAGE>
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ------------------------------------------------------------------------------
Fair Value of Financial Instruments
The carrying values of cash and equivalents, accounts receivable and
notes receivable approximate their fair values due to the short
maturity of these instruments.
The fair value of the notes payable and due to stockholder is
determined by calculating the present value of the note by a current
market rate of interest as compared to the stated rate of interest.
The difference between fair value and the carrying values is not
deemed to be significant.
Comprehensive Income
The items affecting comprehensive income are not material to the
financial statements and, accordingly, are not presented herein.
Reclassifications
Certain amounts in the 1998 financial statements have been
reclassified to conform with 1999 presentation.
Year 2000 Uncertainties
Although the Company has not identified or incurred any computer
system or program problems, there is still a possibility that at
some time during the Year 2000 their computer systems and programs,
as well as equipment that uses embedded computer chips, may be
unable to distinguish between the years 1900 and 2000. This may
create system errors and failures resulting in the disruption of
normal business operations. Although it is unlikely, there may be
some third parties, such as governmental agencies, utilities,
telecommunication companies, vendors and customers that at times may
not be able to continue business with the Company due to their own
Year 2000 problems.
- -------------------------------------------------------------------------------
NOTE 2. GOING CONCERN
- -------------------------------------------------------------------------------
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. 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.
Subsequent to December 31, 1999, approximately $2,400,000 due under
notes payable and due to stockholder, plus accrued interest thereon
of approximately $213,000 were converted into 1,011,165 shares of
the Company's common stock. The Company continues to pursue the sale
of its common stock through private placement offerings and
subsequent to December 31, 1999 through April 7, 2000, the Company
issued 933,901 shares of common stock for $2,568,230 less costs
associated with these issuances of approximately $256,823.
<PAGE>
- -------------------------------------------------------------------------------
NOTE 2. GOING CONCERN (Continued)
- -------------------------------------------------------------------------------
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, as described in the
preceding paragraph, provide the opportunity for the Company to
continue as a going concern.
- -------------------------------------------------------------------------------
NOTE 3. MAJOR CUSTOMERS
- -------------------------------------------------------------------------------
Sales to individual unaffiliated customers in excess of 10% of net
sales were as follows:
1999 1998
-------------------------------------------------------
Amount % of Sales Amount % of Sales
-------------------------------------------------------------------
Customer A $ 552,983 13% $ - -%
Customer B $ 548,578 12% $ - -%
Customer C $ 206,950 5% $ 49,412 10%
Customer D $ 24,706 1% $ 49,104 10%
Individual accounts receivable balances at December 31, 1999, in
excess of 10% of total accounts receivable were as follows:
% of Accounts
Receivable,
Amount Net
------------------------------------------------------------------
Customer E $ 24,980 20%
Customer F $ 18,651 15%
Customer G $ 15,325 13%
- ------------------------------------------------------------------------------
NOTE 4. ACCOUNTS RECEIVABLE
- -----------------------------------------------------------------------------
Accounts receivable at December 31, 1999 consisted of the following:
Trade accounts receivable $ 121,876
Less allowance for doubtful accounts 12,187
------------------------------------------------------------------
$ 109,689
------------------------------------------------------------------
During 1999, the Company established an allowance for doubtful
accounts through a charge to earnings of $12,187.
<PAGE>
- ------------------------------------------------------------------------------
NOTE 4. ACCOUNTS RECEIVABLE (Continued)
- ------------------------------------------------------------------------------
The activity in the allowance for doubtful accounts during the year
ended December 31, 1999 was as follows:
Allowance for
Doubtful
Accounts
-------------------------------------------------------------------
Balance - December 31, 1998 $ -
1999 provision for doubtful accounts 12,187
1999 charge-offs -
-------------------------------------------------------------------
Balance - December 31, 1999 $
-------------------------------------------------------------------
On December 2, 1999, the Company entered into a perpetual
distribution agreement with an entity that is both a shareholder of
the Company and is 50% owned by the CFO of the Company (Related
Distributor). The Related Distributor was appointed as the exclusive
distributor to certain significant territories and the Company does
not have the right to unilaterally terminate this agreement absent
"cause". Pursuant to this agreement, an "initial order" for
approximately $1,328,000 of product was conveyed and invoiced to the
Related Distributor in 1999, with the following payment terms:
February 28, 2000 $ 50,000
March 31, 2000 150,000
April 30, 2000 150,000
May 31, 2000 300,000
June 30, 2000 300,000
July 31, 2000 378,000
Although, according to the distribution agreement all product
conveyed to the Related Distributor is deemed to be property of the
Related Distributor upon such conveyance, as the sales terms do not
comply with the Company's normal polices, the Company does not
record sales until such products are shipped from the manufacturer
or warehouse to a third-party customer.
The Related Distributor distribution agreement has additional
provisions requiring, among other things, in the event of the sale
of the Company or termination of the Related Distributor, the
Related Distributor will be reimbursed at a price of $4.00 per case,
since inception. At December 31, 1999, approximately $540,000 in
reimbursements would be due to the Related Distributor in the event
of the sale of the Company or termination of the Related
Distributor.
As of December 31, 1999, conveyances of $0 to the Related
Distributor were recorded as sales and approximately $994,000 (cost)
of product conveyed and invoiced is included in inventory as it
remained in the custody of the manufacturer or third-party
warehouses.
In addition, in connection with this agreement the Company paid
approximately $28,000 in commissions and consulting fees to the
Related Distributor.
<PAGE>
- ----------------------------------------------------------------------------
NOTE 5. INVENTORIES
- ----------------------------------------------------------------------------
Inventories at December 31, 1999 consisted of the following:
Finished goods (invoiced to, and held
on behalf of the Related Distributor) $ 994,187
Raw materials 1,024,386
-------------------------------------------------------------------
$
------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
- -------------------------------------------------------------------------------
Prepaid expenses and other current assets consisted of the following
at December 31, 1999:
Employee advances $ 43,300
Deposits 2,602
Prepaid consulting fees 108,277
-------------------------------------------------------------------
$
-------------------------------------------------------------------
- -----------------------------------------------------------------------------
NOTE 7. PROPERTY AND EQUIPMENT
- -----------------------------------------------------------------------------
Property and equipment at December 31, 1999 consisted of the
following:
Office furniture and equipment $ 11,462
Machinery and equipment 18,700
Coolers and display equipment 771,704
-------------------------------------------------------------------
801,866
Less: accumulated depreciation ( 122,545)
-------------------------------------------------------------------
$
-------------------------------------------------------------------
Depreciation expense amounted to $121,544 and $1,001 in 1999 and 1998,
respectively.
- -----------------------------------------------------------------------------
NOTE 8. PREPAID MOLD FEE
- -----------------------------------------------------------------------------
The Company entered into an agreement with a manufacturer, whereby a
$150,000 mold fee was required in order to set up for the
manufacture of bottles. The manufacturer will credit up to the full
amount of the fee at a rate of $0.40 per gross (144) on all bottles
manufactured for and accepted by the Company within a three year
period. The Company received credits of $23,016 and $8,118 related
to this agreement during 1999 and 1998, respectively. The Company
believes that its production in 2000 will be sufficient to earn
credit for the remaining prepaid mold fee amount.
<PAGE>
- -----------------------------------------------------------------------------
NOTE 9. DUE TO STOCKHOLDER
- -----------------------------------------------------------------------------
At December 31, 1999, the Company had an unsecured loan payable to
the Chief Executive Officer (CEO) in the amount of $2,515,516. The
loan bears interest at 10% per annum, with principal and all accrued
interest due on demand. Interest expense in connection with this
note amounted to $181,007 during 1999. On January 10, 2000,
$1,750,000 of this amount, plus accrued interest of approximately
$160,000 was converted into 694,973 shares of common stock of the
Company.
- -----------------------------------------------------------------------------
NOTE 10. RISKS AND UNCERTAINTIES
- -----------------------------------------------------------------------------
The Company is currently substantially dependent on two unrelated
parties as manufacturers of their products. The Company is pursuing
alternative production sources. Management believes that the loss of
these current manufacturers would not significantly disrupt
operations and that relationships with alternate manufacturers at
similar costs could be established within a few weeks.
- -----------------------------------------------------------------------------
NOTE 11. DEFICIENCY IN ASSETS
- -----------------------------------------------------------------------------
Private Placements
During March and April 1999, pursuant to a Private Placement
Memorandum, the Company issued 1,000 shares of convertible preferred
stock for $1,000 per share. On August 25, 1999 these shares of
preferred stock were converted into 751,879 shares of common stock.
Costs associated with this offering amounted to approximately
$100,000. Dividends paid in connection with the preferred shares
were $41,667 for the year ended December 31, 1999.
During the period from September 1999 through December 31, 1999,
pursuant to a second private placement memorandum seeking up to
$4,000,000 (Second Private Placement), the Company issued 887,376
shares of common stock for $2,440,284, or $2.75 per share. Costs
associated with the second private placement amounted to
approximately $244,000.
Common Stock
During August 1999, 12,778,545 shares of the Company's common stock
were returned to the Company by certain shareholders in anticipation
of the Reverse Acquisition.
As of December 31, 1999, the Company had not issued certain stock
certificates issuable in connection with employment agreements,
consulting agreements, stock sales and founding stockholder shares
due. However, as the Company is obligated to issue these shares, for
financial reporting purposes, all are deemed to be issued and
outstanding.
<PAGE>
- ------------------------------------------------------------------------------
NOTE 12. RELATED PARTY TRANSACTIONS
- ------------------------------------------------------------------------------
Consulting Agreement
On January 25, 1999, the Company entered into an agreement
(Consulting Agreement) with an entity (Consultant) who is also a
shareholder of the Company, to act as its agent and to perform
consulting services and provide assistance with financial growth
strategies. Under the terms of the Consulting Agreement, as amended
on January 29, 1999, and April 4, 1999, the Company agreed to
compensate the Consultant based upon various formulas, including the
following:
a) $20,000 paid on January 25, 1999;
b) $2,500 per month for 12 months;
c) 704,576 shares (after giving effect for a return of shares by the
consultant in anticipation of the Reverse Acquisition) of the Company's
common stock;
d) Fees for debt moneys raised due to the efforts of Consultant shall be set
at two percent (2%);
e) Finder's fees computed at a rate to be agreed by both parties;
Also under the Consulting Agreement, and in connection with the
Second Private Placement, the Company agreed to pay the Consultant
approximately $100,000 for each one million dollars raised, or part
thereof, through parties introduced directly or indirectly by the
Consultant.
For the year ended December 31, 1999 compensation in the form of the
Company's common stock and cash paid to the Consultant aggregated
700,000 shares and approximately $438,000, respectively.
Second Consulting Agreement
On August 1, 1999, in connection with the restructuring of the note
payable discussed below, the Company entered into a second
consulting agreement (Second Consulting Agreement) with an
individual (Individual Consultant) who is also a shareholder of the
Company. This agreement required the Individual Consultant to
provide services including product market studies, customer
relations and public relations assistance for six months from the
date of the agreement. Under the terms of this agreement, the
Company agreed to compensate the Individual Consultant based upon
various formulas, as follows:
a) 25,000 shares of the Company's common stock, issuable 10 days after the
signing of this agreement.
b) 20,833 shares of the Company's common stock, per month for a two month
period, commencing 30 days after the signing of this agreement.
For the year ended December 31, 1999, compensation in the form of
the Company's common stock paid to the Individual Consultant
aggregated 66,666 shares. On October 29, 1999 the Company amended
the Second Consulting Agreement, to extend the terms for an
additional six months, expiring on July 31, 2000 and agreed to
compensate the Individual Consultant with 17,000 shares of the
Company's common stock per month for a two month period, commencing
15 days after signing the agreement.
Compensation related to this amendment is included in prepaid
expenses and other current assets.
<PAGE>
- ---------------------------------------------------------------------------
NOTE 12. RELATED PARTY TRANSACTIONS (Continued)
- ---------------------------------------------------------------------------
Third Consulting Agreement
In May 1999, the Company entered into a consulting agreement with an
entity who is also a shareholder of the Company, which provides for,
among other things, payment of $100,000 per year for as long as the
present majority shareholder maintains a controlling interest in the
Company. Approximately $56,000 was paid in connection with this
agreement for the year ended December 31, 1999.
Notes Payable
Between May and August 1999, the Company borrowed funds under notes
payable aggregating $1,200,000 from the Individual Consultant, with
interest at 10% to 12%; principal and accrued interest due at
varying dates through April 2000. As consideration to restructure a
certain note, and in connection with the Second Consulting Agreement
discussed above, the Company agreed to issue the Individual
Consultant 250,000 shares of the Company's common stock. Interest
expense for the year ended December 31, 1999 related to this note
amounted to $50,016. At December 31, 1999, $750,000 in notes payable
and accrued interest of approximately $15,000 was due to the
Individual Consultant. Subsequent to December 31, 1999, $250,000 in
notes payable plus accrued interest of $2,383 was converted into
126,192 shares of the Company's common stock.
During 1999 the Company borrowed funds under notes payable
aggregating $475,000 from the Related Distributor, with interest at
15%; $75,000 principal and accrued interest due in July 2000 and
$400,000 principal and accrued interest due in November 2000.
Interest expense related to this note amounted to approximately
$50,000 for the year ended December 31, 1999. Subsequent to December
31, 1999, $400,000 of these notes payable plus accrued interest of
$50,229 was converted into 190,000 shares of the Company's common
stock.
- -----------------------------------------------------------------------------
NOTE 13. INCOME TAXES
- --------------------------------------------------------------------------
The components of the income tax benefit for the year ended December
31, 1999 were as follows:
Current Benefit
Federal $ -
State -
Deferred Benefit
Federal 1,686,000
State 278,000
Increase in Valuation Allowance ( 1,964,000)
-------------------------------------------------------------------
Income Tax Benefit $ -
-------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
NOTE 13. INCOME TAXES (Continued)
- -----------------------------------------------------------------------------
The major elements contributing to the difference between the income
tax benefit and the amount computed by applying the federal
statutory tax rate of 34% to loss before income taxes are as follows
for 1999:
Tax benefit at U.S. Statutory rates $1,686,000
State income tax benefit 278,000
Change in valuation allowance ( 1,964,000)
-------------------------------------------------------------------
Income tax benefit $ -
------------------------------------------------------------------
At December 31, 1999 the Company had deferred tax assets of
$1,964,000, principally comprised of net operating losses. The
deferred tax assets were offset by a valuation allowance in the same
amount. Deferred tax assets, net of a valuation allowance, are
recorded when management believes it is more likely than not that
tax benefits will be realized.
The Company has net operating loss carryforwards totaling
approximately $5,260,000, expiring in 2019.
- -----------------------------------------------------------------------------
NOTE 14. STOCK OPTION PLANS
- ------------------------------------------------------------------------------
In February 2000, the Company established a Non-Qualified Stock
Option Plan under which employees and non-employee directors and
advisors may be granted options to purchase shares of the Company's
common stock, at a price to be determined by a two or more director
committee, which can not be less than the common stock fair market
value at the date of grant. The Plan authorizes the issuance of up
to 1,500,000 shares of the Company's common stock. At December 31,
1999, no options had been granted under this Plan. Subsequent to
December 31, 1999, options to purchase 500,000 shares were granted
to the CEO, in connection with his employment agreement.
During 1999, the Company established an Incentive Stock Option plan,
authorizing the issuance of options to purchase up to 1,500,000
shares of the Company's common stock to employees and non-employee
directors and advisors. As of December 31, 1999 no options had been
granted in connection with this plan.
The Company has a Stock Bonus Plan, under which the Company's
employees, directors, officer and consultants or advisors are
eligible to receive a grant of the Company's common stock shares. At
December 31, 1999, 250,000 shares of common stock were authorized in
connection with this Plan and none had been granted.
During 1999, the Company granted options to purchase 100,000 shares
of common stock in connection with modification of debt.
<PAGE>
- ------------------------------------------------------------------------------
NOTE 14. STOCK OPTION PLANS (Continued)
- ------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-based Compensation," ("SFAS No. 123") requires the Company to
record stock options granted to non-employees at fair value on the
date of grant. The Company estimated the fair value of each stock
option by using the Black Scholes pricing model with the following
assumptions: expected life of the options of 13 months; volatility
of 20%; no dividends; and a risk free interest rate of 6.00%.
A summary of the Company's stock option activity, and related
information for the year ended December 31, 1999 is as follows:
Weighted
# of Average
Options Exercise Price
------------------------------------------------------------------
Outstanding January 1, 1999 - $ -
Granted 100,000 2.00
Exercised - -
Forfeited - -
-------------------------------------------------------------------
Outstanding and exercisable
December 31, 1999 100,000 $ 2.00
-------------------------------------------------------------------
The weighted-average fair value of options granted during 1999,
using the Black Scholes pricing model calculation was $.88 per
option.
The exercise price for options outstanding as of December 31, 1999
was $2.00. The remaining contractual life of these options at
December 31, 1999 was 10 months.
- -----------------------------------------------------------------------------
NOTE 15. COMMITMENTS AND CONTINGENCIES
- -----------------------------------------------------------------------------
Employment Agreements
The Company entered into employment agreements with certain key
employees, effective October 1998 and February 2000.
The agreements provide for, among other things, minimum annual
salaries, performance bonuses based on meeting projected sales and
issuance of common stock to certain employees. In addition, the CEO
received stock options.
Future annual minimum payments under these employment agreements are
as follows:
2000 $ 688,344
2001 351,750
2002 351,750
-----------------------------------------------------------
$1,391,844
-----------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
NOTE 15. COMMITMENTS AND CONTINGENCIES (Continued)
- ------------------------------------------------------------------------------
Leases
The Company leases its office facilities under a non-cancellable
operating lease agreement expiring in 2000. The minimum rental
commitment under this lease for year 2000 is $10,989.
Total rent expense amounted to $15,141 and $11,199 in 199 and
1998, respectively.
Commitments
Under a purchase agreement with a certain manufacturer, the Company
is committed to minimum annual purchases of approximately $940,000.
This amount would represent approximately 400,000 cases of coffee
product per year. Management expects production to surpass this
minimum, however, there can be no assurance this minimum will be
met.
Contingencies
The Company is involved in various claims and legal proceedings of a
nature considered normal to its business. The Company believes that
the results of these claims will not have a material adverse effect
on the Company's financial condition.
In connection with the Second Private Placement, the Company agreed
to file a registration statement covering the shares of common stock
sold under the Private Placement. The Company has not filed such
registration statement. The extent of the Company's liability, if
any, can not be determined at this time.
- -----------------------------------------------------------------------------
NOTE 16. SUBSEQUENT EVENTS
- -----------------------------------------------------------------------------
On January 11, 2000, the Company granted options to purchase common
stock to certain consultants as follows:
Shares Option Expiration
Issuable Exercise Price Date
-------------------------------------------------------------------
Individual Consultant 12,500 $ 3.50 1-3-02
Third Consultant 20,000 3.50 1-3-02
Fourth Consultant 20,000 3.50 1-3-02
Effective February 2, 2000 the Company entered into an agreement
with a public relations firm (PR Consultant) whereby the PR
Consultant will establish a financial public relations methodology
to promote awareness of the Company in the investment community,
assist the Company in the implementation of their business plan,
conduct tele-marketing, assist with press releases and perform other
public relations services. The term of the agreement is 12 months
and provides for payments of $15,000 per month and options to
purchase 200,000 shares of common stock at exercise prices from
$7.00 to $10.00 per share.
<PAGE>
- ---------------------------------------------------------------------------
NOTE 17. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
- ---------------------------------------------------------------------------
During the fourth quarter the Company made certain adjustments
deemed to be material to the results of the quarter, including the
following:
* The Company charged approximately $1,470,000 to operations relating to
promotional and advertising expenses.
* The Company charged approximately $152,000 to operations relating to
professional and consulting fees.
* The Company charged approximately $611,000 to operations relating to
interest expense and financing fees.
* The Company reversed sales of approximately $1,000,000 which were recorded
in the third quarter.
<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.
EAST COAST BEVERAGE CORP.
By: /s/ John Calebrese
John Calebrese, Chief Executive Officer
By: /s/ Robert Gardener
Robert Gardener, Principal Financial
Officer and Chief Accounting Officer
Pursuant to the requirements of the Securities Act of l933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ John Calebrese
John Calebrese Director April 11, 2000
/s/ Edith G. Osman
Edith G. Osman Director April 1, 2000
<PAGE>
EAST COAST BEVERAGE CORP.
FORM 10-KSB
FISCAL YEAR ENDING DECEMBER 31, 1999
EXHIBITS
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001031425
<NAME> East Coast Beverage Corporation
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 115,364
<SECURITIES> 0
<RECEIVABLES> 109,689
<ALLOWANCES> 0
<INVENTORY> 2,018,573
<CURRENT-ASSETS> 2,516,671
<PP&E> 801,866
<DEPRECIATION> 122,545
<TOTAL-ASSETS> 3,195,992
<CURRENT-LIABILITIES> 3,245,764
<BONDS> 0
0
0
<COMMON> 635
<OTHER-SE> (2,450,407)
<TOTAL-LIABILITY-AND-EQUITY> 3,195,992
<SALES> 4,403,499
<TOTAL-REVENUES> 4,403,499
<CGS> 3,218,516
<TOTAL-COSTS> 5,624,943
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 820,333
<INCOME-PRETAX> (5,260,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,260,293)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,260,293)
<EPS-BASIC> (1.21)
<EPS-DILUTED> (1.21)
</TABLE>
