UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
[ ] 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: 0-13118
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
Florida 65-0805935
------------------------- -----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7563 Philips Highway, Suite 110
Jacksonville, FL 33256
(Address of principal executive offices, including zip code)
(904) 296-7500
(Registrant's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such requirements for the past
90 days.
YES [X] NO [ ]
The number of issued and outstanding shares of the Registrant's Common Stock,
$0.001 par value, as of June 30, 2000 was 7,776,204.
<PAGE>
<TABLE>
<CAPTION>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
PART I - FINANCIAL INFORMATION
PAGE
--------
<S> <C>
Item 1. Financial Statements:
Balance Sheets as of June 30, 2000 (Unaudited) and
December 31, 1999 (Audited)..............................................................................3-4
Statements of Operations for the Three Months and the Six Months
Ended June 30, 2000 and 1999 (Unaudited).................................................................5-6
Statements of Cash Flows for the Six Months Ended June 30,
2000 and1999 (Unaudited) ................................................................................7-8
Statement of Changes in Stockholder's Equity for the Six Months
Ended June 30, 2000 (Unaudited)..........................................................................9-11
Notes to Financial Statements............................................................................12-18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................................19-26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.........................................................................................27
Item 2. Changes in Securities.....................................................................................27
Item 3. Defaults Upon Senior Securities...........................................................................27
Item 4. Submission of Matters to a Vote of Security Holders.......................................................27
Item 5. Other Information.........................................................................................27
Item 6. Exhibits and Reports on Form 8-K..........................................................................27
Signatures........................................................................................................28
</TABLE>
2
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
BALANCE SHEETS
JUNE 30, 2000 (Unaudited) AND DECEMBER 31, 1999 (Audited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash $ 1,312,911 $ (37,885)
Accounts receivable (net of allowance for
uncollectibles of $15,178) 157,996 169,097
Inventory 503,473 358,159
Advance receivable - McLean 50,000
Prepaid expenses 118,924 14,839
----------- -----------
Total Current Assets 2,143,304 504,210
Property and equipment
Less accumulated depreciation 5,536,671 1,849,825
(326,032) (250,938)
----------- -----------
5,210,639 1,598,887
Intangible assets net of amortization of $ 142,637
and $ 61,502 684,407 765,119
Other assets
Deferred loan fees 51,500
Deposits
6,721 6,000
----------- -----------
58,221 6,000
----------- -----------
$ 8,096,571 $ 2,874,216
=========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
BALANCE SHEETS
JUNE 30, 2000 (Unaudited) AND DECEMBER 31, 1999 (Audited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 1,202,909 $ 988,094
Accrued expense 106,540 145,949
Accrued interest 15,528 436,964
Deferred compensation 30,500
Current portion of notes payable 863,098 2,276,500
----------- -----------
Total current liabilities 2,188,075 3,878,007
Long Term Note payable 34,439 1,306,000
Shareholders' equity
Preferred stock, $0.01 par value, 20 million shares
authorized, 687,100 and 8,500 shares issued and
outstanding respectively, redeemable at company's
option (liquidation preference $ 4,976,000 and $ 0) 6,871 85
Common stock, $0.001 par value 30 million shares
authorized, 7,776,204 and 4,363,454 shares issued
and outstanding respectively 7,776 4,363
Additional paid in capital 9,539,281 1,052,557
Retained deficit (3,679,871) (3,366,796)
----------- -----------
5,874,057 (2,309,791)
----------- -----------
$ 8,096,571 $ 2,874,216
=========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
<TABLE>
<CAPTION>
For the period ended March 31,
Three months ended Six months ended
2000 1999 2000 1999
---------------------------- ----------------------------
Revenue
<S> <C> <C> <C> <C>
Sales, net of discounts and returns $ 663,303 $ 585,425 $ 1,177,062 $ 1,104,117
Cost of Goods Sold (524,611) (450,913) (970,070) (969,838)
----------- ----------- ----------- -----------
Gross Profit 138,692 134,512 206,992 134,279
Expenses
General and administrative 100,020 104,520 271,711 241,889
Sales expenses 111,023 72,151 183,093 140,331
Marketing expenses 111,038 33,936 111,038 33,936
Consulting and Professional fees 72,070 15,566 429,163 24,241
Rent 65,497 56,934 141,566 119,015
Bad Debt 15,178 -- 15,178 --
Depreciation and amortization 60,188 57,500 105,282 67,500
----------- ----------- ----------- -----------
535,014 340,607 1,257,031 626,912
Other income/expenses
Interest expense (20,896) (127,376) (160,428) (259,611)
Other income 308,049 -- 443,201 --
Interest income 11,383 -- 11,383 --
Litigation expenses -- (108,729) (10,680) (237,992)
----------- ----------- ----------- -----------
298,536 (236,105) 283,476 (497,603)
----------- ----------- ----------- -----------
Loss from continuing operations $ (97,786) $ (442,200) $ (766,563) $ (990,236)
</TABLE>
See notes to financial statements.
5
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
<TABLE>
<CAPTION>
For the period ended March 31,
Three months ended Six months ended
2000 1999 2000 1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss from continuing operations $ (97,786) $ (442,200) $(766,563) $ (990,236)
Extraordinary items
Forgivness of Debt 43,204
Extraordinary litigation 215,669 215,669
Gain on Debt restructure 194,615
----------- ----------- --------- -----------
Net Income (Loss) $ 117,883 $ (442,200) $(313,075) $ (990,236)
=========== =========== ========= ===========
Earnings per share
Loss from continuing operations $ (0.01) $ (0.16) $ (0.12) $ (0.36)
Extraordinary items 0.03 0.07
----------- ----------- --------- -----------
Net Income (Loss) $ 0.02 $ (0.16) $ (0.05) $ (0.36)
=========== =========== ========= ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
2000 1999
---------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (313,075) $ (990,236)
----------- -----------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 105,282 67,500
Bad Debt 15,178
Gain on Debt restructure (194,615)
Gain on Litigation debts (215,669)
(Increase) decrease in prepaid expenses (104,085) 48,546
(Increase) decrease in inventories (145,314) (54,096)
(Increase) decrease in receivables (4,077) (20,423)
(Increase) decrease in other assets (50,721) (51,193)
Increase (decrease) in accounts payable and accrued expenses (78,851) 146,339
----------- -----------
Total adjustments (672,872) 136,673
----------- -----------
Net cash used by operating activities (985,947) (853,563)
----------- -----------
Cash flows from investing activities:
Cash payments for the purchase of property (3,101,360) (393,907)
----------- -----------
Net cash used by investing activities (3,101,360) (393,907)
----------- -----------
Cash flows from financing activities:
Proceeds from loan 600,000 1,185,893
Payments on Notes payable (252,463)
Forgivness of Debt (43,204)
Proceeds from issuance of common and preferred stock 5,058,000
----------- -----------
Net cash provided by financing activities 5,362,333 1,185,893
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,275,026 (61,577)
Cash and cash equivalents, beginning of period 37,885 83,866
----------- -----------
Cash and cash equivalents, end of period $ 1,312,911 $ 22,289
=========== ===========
</TABLE>
See notes to financial statements.
7
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
<TABLE>
<CAPTION>
For the six months ended March 31,
2000 1999
---------------------------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense $ 96,697 $ --
----------- -----------
</TABLE>
Shareholders' equity note:
Approximately 1,721,000 shares of the Company's common stock were awarded to
various service providers in lieu of cash consideration of $ 322,688.
See notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Unaudited)
Common Stock Preferred Stock Paid in
Shares Amount Shares Amount Capital
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1998 2,608,454 $ 2,608 8,500 $ 85 $ 1,052,557
Issuance of shares of common stock for consulting
services based on Board of Directors assessment
of value of services rendered during the year, dated
December 3, 1999 ($ 0.001 per share) 35,000 35 -- -- --
Issuance of shares of common stock to employees
based on Board of Directors assessments for
compensation, in lieu of cash payment dated
December 3, 1999 ($0.001 per share) 770,000 770 -- -- --
Issuance of shares of common stock to Robert
Dolan, based on Board of Directors assessment
as part of loan agreement with Mr. Dolan
December 3, 1999 ($ 0.001 per share) 200,000 200 -- -- --
Issuance of common stock to shareholders based on
Board of Directors dated December 3, 1999
(Adjustment merger agreement with Universal
Beverages, Inc. $ 0.001 per share) 750,000 750 -- -- --
Net loss December 31, 1999 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 (Audited) 4,363,454 $ 4,363 8,500 $ 85 $ 1,052,557
[re-stubbed table]
Retained
Deficit TOTAL
-----------------------------
<S> <C> <C>
Balance December 31, 1998 $(1,184,452) $ (129,202)
Issuance of shares of common stock for consulting
services based on Board of Directors assessment
of value of services rendered during the year, dated
December 3, 1999 ($ 0.001 per share) -- 35
Issuance of shares of common stock to employees
based on Board of Directors assessments for
compensation, in lieu of cash payment dated
December 3, 1999 ($0.001 per share) -- 770
Issuance of shares of common stock to Robert
Dolan, based on Board of Directors assessment
as part of loan agreement with Mr. Dolan
December 3, 1999 ($ 0.001 per share) -- 220
Issuance of common stock to shareholders based on
Board of Directors dated December 3, 1999
(Adjustment merger agreement with Universal
Beverages, Inc. $ 0.001 per share) -- 750
Net loss December 31, 1999 (2,182,344) (2,182,344)
----------- -----------
Balance December 31, 1999 (Audited) $(3,366,796) $(2,309,791)
</TABLE>
See notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Unaudited)
Common Stock Preferred Stock Paid in
Shares Amount Shares Amount Capital
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
sub-total 4,363,454 $ 4,363 8,500 $ 85 $ 1,052,557
Issuance of shares of common stock for consulting
services based on Board of Directors assessment
of value of services rendered during the year,
dated January 21, 2000 1,621,000 1,621 -- -- 302,317
Issuance of shares of common stock to Robert Dolan,
based on Board of Directors assessment as part
of loan agreement with Mr. Dolan on
January 21, 2000 100,000 100 -- -- 18,650
Conversion of Preferred stock to Common stock on
January 31, 2000 46,750 47 (8,500) (85) 38
Issuance of common stock in connection with warrants
exercised at $ 1.00 per share 933,000 933 -- -- 932,067
Issuance of Preferred stock - Series B in connection
with private placement through June 30, 2000 -- -- 432,500 4,325 4,120,675
Issuance of common stock in connection with the
Debt restructure, on March 30, 2000 712,000 712 254,600 2,546 3,112,977
----------- ----------- ----------- ----------- -----------
sub-total 7,776,204 $ 7,776 687,100 $ 6,871 $ 9,539,281
[re-stubbed table]
Retained
Deficit TOTAL
--------------------------
<S> <C> <C>
sub-total $(3,366,796) $(2,309,791)
ssuance of shares of common stock for consulting
services based on Board of Directors assessment
of value of services rendered during the year,
dated January 21, 2000 -- 303,938
ssuance of shares of common stock to Robert Dolan,
based on Board of Directors assessment as part
of loan agreement with Mr. Dolan on
January 21, 2000 -- 18,750
onversion of Preferred stock to Common stock on
January 31, 2000 -- --
ssuance of common stock in connection with warrants
exercised at $ 1.00 per share -- 933,000
ssuance of Preferred stock - Series B in connection
with private placement through June 30, 2000 -- 4,125,000
ssuance of common stock in connection with the
Debt restructure, on March 30, 2000 -- 3,116,235
----------- -----------
sub-total $(3,366,796) $ 6,187,132
</TABLE>
See notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Unaudited)
Common Stock Preferred Stock Paid in
Shares Amount Shares Amount Capital
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
sub-total 7,776,204 $ 7,776 687,100 $ 6,871 $ 9,539,281
Net Loss for the six months ended June 30, 2000 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance June 30, 2000 (Unaudited) 7,776,204 $ 7,776 687,100 $ 6,871 $ 9,539,281
=========== =========== =========== =========== ===========
[re-stubbed table]
Retained
Deficit TOTAL
---------------------------
<S> <C> <C>
sub-total $(3,366,796) $ 6,187,132
Net Loss for the six months ended June 30, 2000 (313,075) (313,075)
----------- -----------
Balance June 30, 2000 (Unaudited) $(3,679,871) $ 5,874,057
=========== ===========
</TABLE>
See notes to financial statements.
11
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2000
NOTE 1 UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 310(b) of Regulation SB.
Accordingly, they do not include all of the information and
footnote disclosures normally included in complete financial
statements prepared in accordance with generally accepted
accounting principles. For further information, such as
significant accounting policies followed by the Company, refer
to the notes to the Company's audited financial statements.
In the opinion of management, the unaudited financial
statements include all necessary adjustments (consisting of
normal, recurring accruals) for a fair presentation of the
financial position, results of operations and cash flow for
the interim periods presented. Preparing financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue
and expenses. Actual results may differ from these estimates.
Interim results are not necessarily indicative of results for
a full year.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Universal Beverages Holdings Corporation and its wholly owned
subsidiary, Universal Beverages, Inc., are in the business of
manufacturing and distributing the SYFO(R) brand of bottled
water as well as other beverage products under contract. The
Company was incorporated in the State of Florida on July 18,
1989 under the name International Bon Voyage, Inc. On March 6,
1998 the Company acquired 100% of Universal Beverages, Inc., a
Florida corporation, and changed its name to Universal
Beverages Holdings Corporation.
Accounting 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.
12
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation of
depreciable assets is computed using the Modified Accelerated
Recovery System (MACRS) for federal and state tax purposes.
Major expenditures for property acquisitions and those
expenditures, which substantially increase the estimated
useful lives of the property, are capitalized. Expenditures
for maintenance, repairs, and minor replacements are charged
to expense as incurred. Significant expenditures were made for
improvements to the leased building. These amounts are being
amortized over the life of the lease agreement that expires in
August 2004.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents.
Inventories
-----------
Inventories consisting of raw materials, work in process,
pallets and furnished goods are valued at the lower of cost or
market. Cost is determined by the first-in, first-out method
(FIFO).
Revenue Recognition
-------------------
Revenues are recognized when the products are shipped. Revenue
is reduced for estimated customer returns and allowances.
Accounts Receivable
-------------------
Accounts receivable are stated at the face amount net of
allowance for doubtful accounts. Generally accepted accounting
principles require that the allowance method be used to
reflect bad debts. A provision for doubtful accounts has been
established to reflect an allowance for uncollectible amounts.
Income Taxes
------------
The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, which requires companies to use
the asset and liability method of accounting for income taxes.
Concentration of Risk
---------------------
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of balances at
financial institutions.
13
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Concentration of Risk
---------------------
The Company had deposits with four financial institutions
amounting to $1,312,911 and ($37,885) at June 30, 2000 and
December 31, 1999, respectively, which was insured for up to
$100,000 per financial institution by the U.S. Federal Deposit
Insurance Corporation. The Company believes that risks
relating to cash balances are minimized as a result of the
size and stature of the financial institutions in which the
Company maintains its account.
Advertising
-----------
Advertising costs are charged to operations when first took
place. The Company had capitalized $63,193 on June 30, 2000,
related to the final version of the infomercial that has yet
to be aired. Advertising expense totaled $56,208 for the six
months ended June 30, 2000.
Amortization
------------
Amortization of trademarks, brand names, copyrights and
goodwill is determined utilizing the straight line method
based generally on the estimated useful lives of the
intangibles as follows:
Organization expense 5 years
Trademark and brand name 15 years
Accounting Pronouncements
-------------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS No.
131) which established presentation of financial data based on
the "management approach". SFAS No. 131 is applicable for
years beginning after December 15, 1997. For the current
fiscal year we are not going to present segment reporting
because it is immaterial.
Basic Loss per Share and Diluted Loss per Share
-----------------------------------------------
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share (SFAS No. 128), which specifies the
computation, presentation and disclosure requirements for
earnings per share. SFAS No. 128 supercedes Accounting
Principle Board Opinion No. 15 entitled Earnings Per Share.
Basic earnings per share are computed by dividing income
available to common stockholders (the numerator) by the
weighted-average number of common shares (the denominator) for
the period. The computation of diluted earnings per share is
similar to basic earnings per share, except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if the
potentially dilutive common shares had been issued.
14
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Basic Loss per Share and Diluted Loss per Share
-----------------------------------------------
The numerator in calculating basic earnings per share is
reported net loss. The denominator is based on the following
weighted-average number of common shares:
Basic 6,612,996
The 2,430,000 shares of common stock reserved for the exercise
of warrants are not included in the diluted earnings per share
because the exercise price is above the average market price
per share.
Principles of Consolidation
---------------------------
The consolidated financial statements of the Company include
those accounts of Universal Beverages, Inc. All significant
intercompany transactions and balances have been eliminated in
the consolidation.
NOTE 3 CAPITAL STOCK TRANSACTIONS
The Articles of Incorporation provide for the authorization of
30,000,000 shares of common stock at $0.001 par value; and
20,000,000 shares of preferred stock at $0.01.
Common Stock
------------
On January 21, 2000, the Company issued 1,621,000 shares of
common stock in lieu of cash consideration to various service
providers, at $0.1875 per share.
On January 21, 2000, the Company issued 100,000 shares of
common stock as part of a loan agreement with Mr. Dolan, at
$0.1875 per share.
On January 31, 2000, the Company converted the 8,500 shares of
Preferred Stock - Series A to 46,750 shares of common stock.
On March 31, 2000, in a Debt Restructure agreement (see Note
6), the Company issued 712,000 shares of common stock in
exchange for $749,975 notes payable as follows:
With Bridge Bank, 700,000 shares of common stock in
exchange for $720,500 notes payable.
With Alan Moore, 12,000 shares of common stock in
exchange for $29,475 notes payable.
During the period between January 1 and June 30, 2000, 933,000
warrants were exercised at $1.00 per share for 933,000 shares
of common stock.
15
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2000
NOTE 3 CAPITAL STOCK TRANSACTIONS - continued
Preferred Stock
---------------
On March 31, 2000, in a Debt Restructure agreement (see Note
6), the Company issued 254,600 shares of Preferred Stock
(Series C, D, E and F) in exchange for $2,610,875 notes
payable.
At June 30, 2000, a total of 432,500 shares of Preferred Stock
were issued in exchange for $4,125,000 in cash, net of
$200,000 offering expense.
Warrants
--------
At June 30, 2000, warrants were as follows:
Warrants - 12/31/99 1,250,000
Warrants issued 01/01/00 - 06/30/00 2,113,000
Exercised - 6/30/00 (933,000)
---------
Total Warrants 2,430,000
=========
The remaining warrants will expire on various dates through
August 2003.
NOTE 4 INCOME TAXES
The Company has a federal net operating loss carryforward for
the year ended December 31, 1999 of $3,366,796 through various
years to 2019.
NOTE 5 NOTES PAYABLE
The Company has outstanding notes payable at June 30, 2000 and
December 31, 1999 as follows:
June 30, December 31,
2000 1999
-------- ------------
Note payable to Bridge Bank with an
interest rate of 15% per year;
unsecured, due on demand. $ 0 $ 541,500
Note payable to American Access with
an interest rate of 15% per year;
unsecured, due on demand. 0 500,000
16
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2000
NOTE 8 NOTES PAYABLE - continued
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Note payable to FNB Bank with an interest rate
of 10.5% per year; secured, due 10/01/00. $ 500,000 $ 0
Note payable to Rial/Moe with an interest
rate of 8% per annum payable in 36
monthly payments; secured by production
equipment; due 3/31/00. 47,537 500,000
Note payable to various shareholders at a 15%
interest rate per year; due on demand; secured
by all assets of Company. 0 185,000
Note payable to Altamonte Capital with a 15%
interest rate; due on demand; secured. 0 300,000
Note payable to Telcoa with a 15% interest rate
per year; due on 8/31/00. 250,000 250,000
Note payable to Telcoa with a 10% interest rate
per year; due on 7/11/00, renewable up to two
more times. 100,000 0
14% note payable to an investment company;
secured by a blanket lien on assets; payable
interest only through 11/4/03, and 36 equal
payments of principal plus interest beginning
11/5/03. The note also includes a prepayment
penalty clause. 0 1,306,000
----------- -----------
897,537 3,582,500
Less current portion 863,098 (2,276,500)
----------- -----------
$ 34,439 $ 1,306,000
=========== ===========
</TABLE>
17
<PAGE>
UNIVERSAL BEVERAGES HOLDINGS CORPORATION
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2000
NOTE 5 NOTES PAYABLE - continued
The amount of interest accrued but unpaid as of June 30, 2000
was $9,014. The total interest expense related to this loan
was $151,814 at June 30, 2000.
NOTE 6 DEBT RESTRUCTURE
On June 30, 2000, the Company renegotiated a total of
$3,610,850 in notes payable from various creditors in a Debt
Restructure agreement as follows:
Note payable of $720,500 to Bridge Bank in exchange
for 700,000 shares of common stock. On the date of the
exchange, the fair market value of the common stock was
approximately $0.78 per share. The Company recognizes an
extraordinary gain of $174,500 on the restructuring.
Note payable of $29,475 to Alan Moore in exchange for 12,000
shares of common stock. On the date of the exchange, the fair
market value of the common stock was approximately $0.78 per
share. The Company recognizes an extraordinary gain of $20,115
on the restructuring.
Note payable of $1,306,000 to Capital International SBIC, LP
in exchange for 130,600 shares of preferred stock, series C.
There was no market price available for the preferred stock on
the date of the exchange.
Note payable of $622,860 to Eva and Lasse Moe, and Roberto and
Barbara Rial. The term of restructure included a new note
payable in the amount of $50,000, payable over a three-year
period, a $250,000 payment in cash, and a transfer of an
equity interest consisting of 31,500 shares of preferred stock
- series D. There was no market price available for the
preferred stock on the date of the exchange.
Note payable of $593,750 to McLean Ventura in exchange for
57,500 shares of preferred stock, series E. There was no
market price available for the preferred stock on the date of
the exchange.
Note payable of $338,265 to Altamonte Capital in exchange for
35,000 shares of preferred stock, series F. There was no
market price available for the preferred stock on the date of
the exchange.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. This
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves so long as they
identify these statements as forward-looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results. All statements other than statements of
historical fact we make in this Form 10-QSB are forward- looking. In particular,
the statements herein regarding industry prospects, our plans to expand the
manufacturing capability of our plant in Leesburg, Florida, and our expected or
future results of operations or financial position are forward-looking
statements. Forward-looking statements reflect our current expectations and are
inherently uncertain. Important factors that could cause the Company's actual
performance and operating results to differ materially from the forward-looking
statements, include but are not limited to (1) restatements of the Company's
financial statements, including but not limited for readjustments of accounts
payable, (2) changes in the general level of economic activity in the markets
served by the Company, (3) competition in the beverage and private label
manufacturing industry and the introduction of new products by competitors in
those industries, (4) delays in completing the Company's manufacturing
operations and perfecting its operations, (5) availability of capital sufficient
to support the Company's level of activity and (6) the ability of the Company to
implement its business strategy. Our actual results may differ significantly
from our expectations. The section entitled "Additional Factors That May Affect
Future Results" describes some, but not all, of the factors that could cause
these differences.
Overview
Universal Beverages Holdings Corporation (the "Company," "we" or "us")
is in the business of developing, manufacturing and marketing various beverage
products, particularly bottled water under our proprietary Syfo brand and
manufacturing "private label" products for others. We conduct business through
our wholly owned subsidiary, Universal Beverages, Inc. We sell our products
directly to major retail grocery chain stores, which purchase trailer load
quantities, which are delivered directly to their warehouses where they
distribute the products to their local stores. We have significant sales to
major chain stores located in the Southern U.S., such as Publix Super Markets,
Winn-Dixie Stores and Albertson's Food Stores. We manufacture Syfo products and
other products in our manufacturing facility located in Leesburg, Florida.
Results of Operations
REVENUES
Sales, net of discounts and returns, were $663,303 and $585,425 for the
three-month periods ended June 30, 2000 and 1999, a 13.3% increase in revenue.
Sales, net of discounts and returns, were, $1,177,062 and $1,104,117 for the
six-month periods ended June 30, 2000 and 1999, a 6.6% increase in revenues.
These revenues consisted of sales of Syfo brand products and revenues derived
from manufacturing products for other customers under private label contracts.
GROSS PROFIT
Our gross profit consists of net sales less the costs of sales. Cost of
sales includes the material costs to manufacture the Syfo brand products and the
manufacturing overhead costs associated with operating our manufacturing
facility in Leesburg, Florida. Our gross profit decreased slightly to
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20.1% of total revenues during the three-month period ended June 30, 2000
compared to 23% of total revenues during the three month period ended June 30,
1999. Our manufacturing overhead expenses increased during the second quarter of
2000 due to our manufacturing capability upgrade and additional man-power which
will be required to manufacture the Sam's Club products. During the six-month
period ended June 30, 2000, our gross profit increased to 17.6% of total revenue
compared to12.2% of total revenue during the six-month period ended June 30,
1999.
OPERATING EXPENSES
General and Administrative Expenses
General and administrative expenses include rent for the Jacksonville
office and executive, administrative and other costs associated with managing
and operating the Company. General and administrative expenses were $100,020, or
15.1% of total revenues, and $104,520, or 17.9% of total revenues, for the
three-month periods ended June 30, 2000 and 1999. General and administrative
expenses were $271,711, or 23.1% of total revenues, and $241,889, or 22% of
total revenues, for the six-month periods ended June 30, 2000 and 1999.
Marketing Costs
Marketing costs were $111,038, or 16.7% of total revenues, and and
$14,989, or 5.8% of total revenues, for the three months ended June 30, 2000 and
1999. Marketing costs were $111,038, or 10.6% of total revenues, and $33,936, or
approximately 3.1% of total revenues, for the six months ended June 30, 2000 and
1999. The period-to-period increases in marketing costs is due to the
commencement of our aggressive effort to market and sell our Syfo brand during
the second quarter of 2000. We expect that our marketing costs will continue to
rise as costs associated with the television commercial production and
subsequent advertising expenses are incurred. During our third quarter, the
first of these commercials was aired during the local pre-season game of the
Jacksonville Jaguars. We believe that our expenditures on marketing will pay off
in brand development and increased sales.
Sales Expenses
Sales expenses consist primarily of commissions, freight costs, direct
salaries and other costs related to selling, delivering, and distributing our
Syfo brand and other products. We also booked our sales expenses the costs to
implement the service contract with the National Football League Jacksonville
Jaguars. Sales expenses were $111,023, or 16.7% of total revenues, and $72,151,
or 12.3% of total revenues, for the three months ended June 30, 2000 and 1999.
Sales expenses were $183,093, or 15.6% of total revenues, and $140,331, or 12.7%
of total revenues, for the six months ended June 30, 2000 and 1999. These
period-to-period increases in sales expenses are primarily attributable to the
launch of our adverting and marketing program in the second quarter of 2000. We
stepped up our sales activities during the second quarter of 2000, by increasing
our merchandising programs and by establishing direct distribution operations in
our local markets. We expected that the commissions and outbound freight charges
would fluctuate proportionally with sales, but these charges averaged
approximately 2.06% and 6.4% of net sales, respectively.
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Consulting and Professional Fees
Consulting and professional fees were $72,070, or 10.9% of total
revenues, and $15,566, or 2.7% of total revenues, for the three months ended
June 30, 2000 and 1999. Consulting and professional fees were $429,163, or 36.5%
of total revenues, and $24,241, or 2.2% of total revenues, for the six months
ended June 30, 2000 and 1999. These period-to-period increases are primarily
attributable to the increased costs and expenses that associated with our new
responsibilities as a reporting company under the Exchange Act. Additionally, we
paid fees to certain consultants that assisted us in completing our $3.6 million
debt restructuring.
Rent
Rent consists of payments to lease the manufacturing facility in
Leesburg, Florida. Rent expenses were $65,497, or 9.9% of total revenues, and
$56,934, or 9.7% of total revenues, for the three months ended June 30, 2000 and
1999. Rent expenses were $141,566, or 12% of total revenues, and $119,015, or
10.8% of total revenues, for the six months ended June 30, 2000 and 1999. These
rent payments will not continue in future quarters, because we purchased the
Leesburg manufacturing facility on June 30, 2000.
Bad Debt
We created a bad debt expense (reserve) in the amount of $15,178,
approximately 2.3% of total revenues, during the three month period ended June
30, 2000. We did not have a bad debt expense in the three month period ended
June 30, 2000.
Depreciation and Amortization
Depreciation and amortization expenses were $60,188, or 9.1% of total
revenues, and $57,500, or 9.8% of total revenues, for the three months ended
June 30, 2000 and 1999.. Depreciation and amortization expenses were $105,282,
or 8.9% of total revenues, and $67,500, or 6.1% of total revenues, for the six
months ended June 30, 2000 and 1999.
OTHER INCOME/EXPENSES
Interest expenses were $20,896, or 9.1% of total revenues, and
$127,376, or 21.8 % of total revenues, for the three months ended June 30, 2000
and 1999. Interest expenses were $160,428, or 13.6% of total revenues, and
$259,611, or 23.5% of total revenues for the six months ended June 30, 2000 and
1999. The decrease in interest expense is due to the Company's ability to
convert $3.6 million of outstanding debt into equity pursuant to a restructuring
plan with six of its major creditors in the first quarter of 2000.
Other income was $308,049 for the three months ended June 30, 2000,
which represents income recognized from the purchase option on the Leesburg
facility. During fiscal 1999, we paid approximately $300,000 for a purchase
option on the Leesburg facility. We did not have the funds to complete the
purchase of the property and the option expired on December 31, 1999. The entire
option payments were subsequently written off in our December 31, 1999 year-end
numbers. We do not have other income during the three month period ended June
30, 1999.
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Interest income was $11,383 during the first quarter of 2000, which
represents interest earned on funds received from our private placement funds
that were held in escrow during that period. We did not have any interest income
during the first quarter of 1999.
Litigation expenses were $0 and $108,729, or 18.6% of total revenues,
for the three months ended June 30, 2000 and 1999. Litigation expenses were
$10,680, or .1% of total revenues and $237,9921, or 21.6 % of total revenues,
for the six months ended June 30, 2000 and 1999. Most of these litigation
expenses were related to our lawsuit with Triac Corporation, which we settled in
November 1999.
LOSS FROM CONTINUING OPERATIONS
As a result of the forgoing, our net loss from continuing operations
was $97,786 and $442,200 during the three months ended June 30, 2000 and 1999.
Our net loss was $766,.563 and $990,236 during the six months ended June 30,
2000 and 1999.
EXTRAORDINARY ITEMS
In the three months ended June 30, 2000, we had a gain of $215,669 for
extraordinary litigation. During the first quarter of 2000, we recognized income
of $43,204 relating to the forgiveness of debt and $194,615 from the debt
restructuring. We did not have any interest income during the first quarter of
1999.
NET INCOME
As a result of the forgoing, we had net income of $117,833 during the
three months ended June 30, 2000 compared with a net loss of $442,200 for the
three months ended June 30, 1999. For the six months ended June 30, 2000 and
1999, we had net losses of $313,075 and $990,236.
Plant and Equipment
On June 30, 2000, we completed the purchase of the Leesburg
manufacturing facility. The Leesburg facility consists of an 89,900 sq. ft.
building located on 7.5 acres of land. Forty thousand square feet of the
building is a modern bottling facility capable of producing over 15 million
cases per year of finished beverage products. We also purchased equipment which
will allow us to blow- mold our bottles from pre-forms. We expect that we will
have to expand the facility by over 200,000 square feet within the next 12
months to meet the current demand for our products and services. In the next
year, we expect to spend up to another $3 million to complete the production
facility and increase its efficiency with additional production capacity and
automation.
Liquidity and Capital Resources
As of June 30, 2000, the Company had current assets of $2,143,304
compared to current assets of $504,210 as of December 31, 1999. This increase
reflects an increase in cash from raising $5,109,000 in a private offering and
increased raw material inventories. Cash and cash equivalents increased to
$1,312,911 as of June 30, 2000 from negative cash of $37,885 as of December 31,
1999. Current liabilities were $2,188,075 as of June 30, 2000 compared to
current liabilities of $3,878,007 of December 31, 1999. This decrease in current
liabilities is due to the reduction of our short term debt that took place in
the restructuring agreement. Accounts payable increased to $1,202,909 as of June
30, 2000 from $988,094 as of December 31, 1999, primarily as a consequence of
open items in
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the amount of $585,000, on equipment purchases for the Leesburg manufacturing
center upgrades.
Net fixed assets increased from $1,598,887 as of December 31, 2000 to
$5,210,639 as of June 30, 2000, reflecting the acquisition of the Leesburg plant
and equipment. Our shareholders equity increased from negative $2,309,791 as of
December 31, 1999 to positive $5,874,057 as of June 30, 2000, an increase of
over $8 million. This has occurred as a result of the conversion of our high
rate debt into equity and the successful completion of a private placement of
our Series B Convertible Preferred Stock and warrants. We raised $5,109,000 in
the private placement.
Cash flows used in operating activities was $985,947 during the six
month period ended June 30, 2000. Cash used in investing activities during the
six month period ended June 30, 2000 was $3,101,360 to purchase the Leesburg
manufacturing facility. Cash flows from financing activities were $5,362,333
during the six month period ended June 30, 2000. We made payments in the amount
of $252,463 on certain outstanding notes payable and recognized income in the
amount of $43,204 from the forgiveness of debt. We also raised $5,058,000 from
the issuance of common and preferred stock and received a $500,000 loan to
purchase the manufacturing facility in Leesburg, Florida. We also received a
$100,000 loan from a shareholder to increase working capital.
Our capital requirements from our continuing operations consist of
general working capital needs, capital to complete and improve the Leesburg
manufacturing facility and scheduled payments on our debt obligations and
dividend payments. See Part II - Item 3. The Company's operating activities and
continued expansion will require additional cash during the remainder of this
year and 2001. We expect that our cash on hand as of June 30, 2000 will allow us
to meet our current operating expenses for the next three months. If we do not
raise additional capital in September 2000, we may not be able to continue our
operations.
Additional Factors that May Affect Operating Results
In evaluating the Company, the following risk factors should be
considered:
Factors That May Affect Our Future Results and Market Price of Stock
We operate in a rapidly changing environment that involves numerous
risks, some of which are beyond the Company's control. The following discussion
highlights some of these risks.
Limited Operating History. We have been in the beverage business since
March 7, 1996 and we have a limited operating history. Our operations consist of
manufacturing and distributing the Syfo brand of bottled water as well as other
products. We have lost money in all periods since 1996. Although the Syfo brand
has 50 years of history and is distributed throughout the South, there is no
assurance that we will be able to sell enough of the products to ensure a
profit. Our business is subject to all the risks inherent in any newly formed
business including the absence of a profitable operating history, lack of market
recognition and limited banking and financial relationships.
History of Operating Losses and Previous Going Concern Qualification.
We have incurred operating losses since inception of our operations in 1996, and
may continue to incur substantial losses in the future. In particular, the
Company incurred losses of $2,182,334 for fiscal 1999 and $1,101,442 for fiscal
1998. The footnotes to our financial statements for fiscal 1999 and fiscal 1998,
include an explanatory paragraph relating to the uncertainty of the Company's
ability to continue as a going concern. However, we completed a restructuring
plan with six of our creditors in the first quarter of 2000 and converted
approximately $3.6 million of debt and accrued interest into
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equity and our net worth is positive as of June 30, 2000. We have developed a
business strategy, which we hope will enable us to be profitable. However, there
can be no assurances that the Company will ever have profitable operations Even
if we do have profitable operations, there can be no assurances that we can
achieve profitable operations on a consistent basis. It is possible that our
Company may experience further net losses.
Quarterly Dividend Payments and Failure to Make First Scheduled
Dividend Payment on July 10, 2000. As of August 1, 2000, we have issued and
outstanding 432,500 shares of Series B Preferred Stock, 130,600 shares of Series
C Preferred Stock, 31,500 shares of Series D Preferred Stock, 57,500 shares of
Series E Preferred Stock and 35,000 shares of Series F Preferred Stock. We are
required to make quarterly dividend payments to these shareholders in the amount
of $167,500 and our annual dividend payments to these preferred shareholders
equals $668,600. We failed to make our first scheduled dividend payments on
these preferred shares on July 10, 2000. If we fail to make three dividend
payments, the preferred shareholders can send us a notice stating that we are in
default under the terms of the preferred stock. If we are in default, each share
of preferred stock will have 10 votes per share toward the election of directors
of the Company. Accordingly, if we are in default under the terms of the
preferred stock, the preferred shareholders will probably be in a position to
control our board of directors. If we issue more shares of preferred stock, our
annual and quarterly dividend payments will increase. Our obligation to make
these dividend payments will decrease our operating cash flow and our ability to
make expenditures to benefit our business.
$500,000 Debt to Finance Purchase of Leesburg Manufacturing Facility
and Security Interest in all of Universal's Business Assets. In order to finance
the purchase of the Leesburg manufacturing plant and facility, we obtained a
short-term $500,000 loan from the First National Bank of Blue Island on June 30,
2000. In order to secure this loan, we gave Blue Island a mortgage on the
Leesburg manufacturing facility and a security interest in all of Universal's
business assets, including but not limited to, the Syfo trademark, inventory and
equipment. If we fail to pay this loan in full by October 1, 2000, Blue Island
could foreclose on the Leesburg manufacturing plant and Universal's other
business assets, including but not limited to the Syfo trademarks and all of
Universal's inventory and equipment.
If Blue Island forecloses on the Leesburg manufacturing facility and
Universal's other business assets, it would have a material adverse effect on
Universal's business operations. During fiscal 1999, most of Universal's
revenues were obtained from the sale and distribution of Syfo products. If
Universal does not own the Syfo trademarks, it would probably lose revenues from
operations. It is not clear if Blue Island or any other purchaser of the Syfo
trademark would want to enter into a licensing agreement with Universal to
manufacture and distribute Syfo products. If Blue Island foreclosed on the
Leesburg manufacturing facility, Universal would need to out-source the
production of its Syfo bottled water and private label contracts to other
manufacturers. There would probably be delays in setting up such out-sourced
production, which would result in decreased revenues and potential loss of
clients. Such out-sourced manufacturing would probably result in higher
manufacturing costs to Universal and consequently, lower revenues.
Additional Financing Required; Lack of Traditional Financing Sources.
We are pursuing an aggressive growth strategy that will require substantially
more funding than we have on hand. We may seek additional financing through the
sale of additional debt or equity securities (or a combination thereof) in
future public or private offerings. Additionally, we may seek to obtain debt
financing from a bank or other lending institution, where we may be required to
pledge our business assets as collateral for the loan. However, there can be no
assurance that any such financing will in
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fact be available to us when needed or upon terms acceptable to us.
Consequently, should we be unable to secure needed additional financing in the
future on a reasonable basis, it is possible that our business plan won't be
executable and profitable operations will not be obtainable. There can be no
assurances that any such additional financing will be available on terms
satisfactory to us, if at all, since conventional financing may not be available
to us.
Dominant Customers. We have three customers which represented a
significant portion of our sales in fiscal 1999. Publix Super Markets
represented 48.1% of our sales, Albertson's represented 10.1% of our sales and
Winn-Dixie Food Stores represented 7.5% of our total sales. Loss of any of these
customers would seriously affect our business. We are constantly seeking new
customers to lower the dependence of our Company on Publix Super Markets,
Albertson's and Winn- Dixie Food Stores and are in discussions with several new
customers, which could dramatically reduce such dependence. In the second
quarter of 2000, we reached a verbal supply agreement with Sam's Club to
privately label approximately 3 million cases of water on an annual basis.
However, there can be no assurances that this agreement will be operational and
will be profitable to the Company. Supplying Sam's Club may reduce our
dependence on any our dominant customers, however there can be no assurance any
new customer or customers will reduce this dominance or will continue ordering
our products. Further, there are no assurances that our relationships with Sam's
Club will be profitable, or will be long-term supply agreements.
Uncertain Ability to Manage Growth. As part of our business strategy,
we intend to pursue rapid growth. Our ability to achieve our planned growth
depends upon a number of factors, including our ability to hire and train
management and other employees, the adequacy of our financial resources, our
ability to identify new markets in which we can successfully compete and our
ability to adapt our purchasing and other systems to accommodate our expanded
operations. In addition, there can be no assurance that we will be able to
achieve our planned expansion or that we will be able to manage successfully the
expanded operations. Failure to manage growth effectively could adversely affect
our financial condition, results of operations and prospects.
Competition. Our products, including the Syfo products and the private
label business, are subject to intense competition from companies that have
significantly greater market share, shelf space, financial resources and
distribution. Our principal competitors in the sparkling water segment are
Canada Dry, private label store brands, Ritz, Seagram's, Perrier, Clearly
Canadian, Crystal Bay, New York Seltzer, San Pelligrino, and LaCroix. Our
principal competitors in the non-carbonated bottle water market are Zephyrhills,
Deer Park, Crystal Springs and private label store brands. These companies have
the resources to either lower the price of their products in a predatory manner
or secure the prime space in the outlets in which these products are sold. If
these companies are successful in their efforts to obtain greater market share,
shelf space and/or distribution, this could affect our Company's ability to sell
its Syfo products and could result in lower total revenues.
Dependence on Senior Management. Our future performance depends
substantially upon the continued services of our senior management, particularly
Mr. Moore and Ms. Mendius, and other key personnel. We have entered into
employment agreements with Mr. Moore and Ms. Mendius. See "Management -
Employment Agreements." The loss of services of Mr. Moore or Ms. Mendius could
have a material adverse effect on the Company's marketing strategy, business
operations, financial condition and results of operations. If our operations
expand, we will also be dependent upon our ability to attract and retain
additional qualified employees and consultants. There is significant competition
for qualified personnel, and there can be no assurance that the Company will be
successful in recruiting, retaining or training the management personnel it
requires.
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Government Regulations. The Federal Food and Drug Administration
("FDA") regulates our products as a "food." Accordingly, our products must meet
FDA requirements of safety for human consumption, of processing and distribution
under sanitary conditions and of production in accordance with the FDA "good
manufacturing practices." In the event that we do not continue to meet these
required standards, our manufacturing facilities may be shut down and our
business will be seriously affected.
Penny Stock Trading Rules. The Securities Exchange Act of 1934 as
amended and regulations promulgated thereunder place restrictions on trading
activities in "penny stocks." Penny stocks are defined as equity securities
priced under $5.00 which are not listed for trading on a national exchange or
NASDAQ, subject to certain exceptions. Under this definition, the Company's
common stock is a penny stock. Brokers dealing in penny stocks are subject to
special disclosure rules, are required to determine the suitability of penny
stock transactions for their clients, and are required to obtain and maintain
written consents of their clients to such transactions. These regulatory burdens
discourage a number of brokers from becoming involved in a security until it is
no longer a penny stock, which may adversely affect the depth and liquidity of
any market in the Company's common stock.
Lack of Liquidity for the Company's Common Stock. The Company's common
stock currently trades on the Over-the- Counter Bulletin Board ("OTC") under the
symbol, "UVBV." . Stocks trading on the Bulletin Board generally attract a
smaller number of market makers and a less active public market and may be
subject to significant volatility. Sales of substantial amounts of shares of the
Company's common stock in the public market (pursuant to exercise of warrants
and additional capital financing transactions which may be undertaken by the
Company in the future) could adversely affect the market price of the Company's
common stock and the Company's ability to raise equity capital in the future and
may make it more difficult for an investor to liquidate his investment in the
Company. The trading market for the Company's common stock is currently limited
to relatively low volume. There can be no assurance that a trading market will
be sustained in the future.
Issuance of Additional Shares. Our Articles of Incorporation authorize
the issuance of 30 million shares of common stock and 20 million shares of
preferred stock. As of June 30, 2000, we had 7,776,204 shares of common stock
issued and outstanding and an aggregate of 454,600 shares of preferred stock of
various classes. Our Board of Directors has the power, without shareholder
approval, to issue up to 22,223,796 shares of common stock and 19,545,400 shares
of preferred stock, with preferences designated by the Board of Directors. Any
such issuance might result in a reduction of the book value or market price of
the outstanding common stock and preferred shares. Issuance of additional shares
will reduce the proportionate ownership and voting power of our then existing
shareholders.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
(C) On March 31, 2000 and June 30, 2000, we issued an aggregate of
432,500 shares of our Series B Convertible Preferred Stock to accredited
investors in a private offering. Each share of Series B Convertible Preferred
Stock can be converted into 2.5 shares of the Company's common stock. The
offering price was $10.00 per share. Each investor in the private offering was
also given the opportunity to purchase a warrant package equal to 1/5 of his/her
investment in the private offering. Each warrant package consisted of Class A
Warrants, Class B Warrants and Class C Warrants. Each warrant gave each investor
the right to purchase one share of our common stock at various exercise prices.
The exercise price for the Class A, Class B and Class C Warrants is $1.00 per
share, $3.00 per share and $5.00 per share, respectively. One condition to
purchase the warrant package was that the investor must exercise all of the
Class A Warrants at the time of purchase. The investors purchased 784,500
Warrant Packages. Accordingly, the investors acquired 784,500 shares of our
common stock. The offering and sale of the Series B Preferred Shares and the
warrant package and the exercise of the warrant packages was made in reliance
upon the exemption from registration contained in Rule 506 of Regulation D, as
promulgated under the Securities Act of 1933, as amended. The Series B Preferred
Shares and warrant package were offered only and sold to accredited investors
who had access to comprehensive information about us. We placed legends on the
stock certificates and the warrant certificates stating that the securities were
not registered under the Securities Act and set forth the restrictions on their
transferability and sale
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We are required to make quarterly dividend payments to our Series B,
Series C, Series D, Series E and Series F preferred shareholders in the amount
of $167,500 and our annual dividend payments to these preferred shareholders
equals $668,600. The scheduled dividend payment dates are January 10, April 10,
July 10 and October 10. We failed to make our first scheduled dividend payment
on July 10, 2000. If we fail to make three dividend payments, the preferred
shareholders can send us a notice stating that we are in default under the terms
of the preferred stock. If we are in default, each share of preferred stock will
have 10 votes per share toward the election of directors of the Company.
Accordingly, if we are in default under the terms of the preferred stock, the
preferred shareholders will probably be in a position to control our board of
directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits
27.1 Financial Data Schedule
B. Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 21, 2000 UNIVERSAL BEVERAGES HOLDINGS
CORPORATION
By /s/ Jonathon Moore
---------------------------
Jonathon Moore
Chief Executive Officer and Chairman
/s/ Jay D. Marsh
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Jay D. Marsh
Treasurer
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