10-Q 1 ub10qsb.txt INITIAL FILING UNITED STATES 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 September 30, 2002 Commission file number: 0-13118 UNIVERSAL BEVERAGES HOLDINGS CORPORATION (Exact name of small business issuer as specified in its charter) Florida 65-0805935 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 1548 The Green's Way, Suite 1 Jacksonville Beach, FL 32250 (Address of principal executive offices) (904) 280-7795 (Issuers telephone number) The number of issued and outstanding shares of the issuer's common stock, $0.001 par value, as of November 1, 2002 was 42,753,571. UNIVERSAL BEVERAGES HOLDINGS CORPORATION PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Consolidated Balance Sheet - (Unaudited).................................................. 3 Consolidated Statements of Operations - (Unaudited)....................................... 5 Consolidated Statements of Changes in Stockholders' Equity - (Unaudited) ................ 7 Consolidated Statements of Cash Flows - (Unaudited)....................................... 8 Notes to Consolidated Financial Statements................................................ 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 18 PART II - OTHER INFORMATION PAGE Item 1. Legal Proceedings.......................................................................... 21 Item 2. Changes in Securities...................................................................... 21 Item 3. Defaults Upon Senior Securities............................................................ 21 Item 4. Submission of Matters to a Vote of Security Holders........................................ 21 Item 5. Other Information.......................................................................... 21 Item 6. Exhibits and Reports on Form 8-K........................................................... 21 Signatures......................................................................................... 22

2 UNIVERSAL BEVERAGES HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEET (UNAUDITED) SEPTEMBER 30, 2002 Assets Current assets Cash $ 11,934 Accounts receivable, net 61,523 Inventory 206,115 Prepaid expenses 20,294 ---------- Total current assets 299,866 Property, plant and equipment, net 4,978,080 Intangible asset, net 540,742 Other assets Other receivables 5,000 Other assets 161,415 ---------- 166,415 ---------- $5,985,103 ========== 3 UNIVERSAL BEVERAGES HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEET (UNAUDITED) SEPTEMBER 30, 2002 Liabilities and Stockholders' Deficit Current liabilities Accounts payable $ 2,210,596 Accrued expense 809,689 Accrued interest 160,158 Factoring liability 45,772 Advances from factor 62,632 Current portion of line of credit - related party 73,000 Current portion of line of credit - other 50,000 Current portion of note payable - related party 7,000 Current portion of notes payable - other 268,782 ------------ Total current liabilities 3,687,629 Capitalized lease obligations 171,606 Convertible note payable 947,000 Financing obligation 1,368,000 Deferred gain 50,010 ------------ 2,536,616 Stockholders' deficit 6,224,246 Preferred stock, $0.001 par value, 20 million shares authorized, 563,100 shares issued and outstanding, redeemable at company's option (liquidation preference $ 6,761,000 ) 5,631 Common stock, $0.001 par value, 80 million shares authorized, 42,753,571 shares issued and outstanding 42,755 Additional paid in capital 16,627,642 Accumulated deficit (16,915,169) ------------ (239,141) ------------ $ 5,985,103 ============ 4 UNIVERSAL BEVERAGES HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended Nine months ended September 30, September 30, 2002 2001 2002 2001 ----------- ----------- ----------- ------------ Revenue Sales, net of discounts and returns $ 447,307 $ 466,386 $ 1,116,363 $ 4,424,111 Cost of goods sold 321,017 398,800 863,443 3,739,779 ----------- ----------- ----------- ----------- Gross profit 126,290 67,586 252,920 684,332 ----------- ----------- ----------- ----------- Expenses General and administrative 93,249 159,239 854,224 622,627 Sales expenses 39,549 64,527 94,957 604,987 Marketing expenses 2,052 - 12,217 39,436 Consulting and professional fees 49,612 43,681 763,736 328,087 Rent 8,667 1,840 22,484 27,275 Bad debt - - - 25,000 Depreciation and amortization 140,850 144,648 421,582 435,919 ----------- ----------- ----------- ----------- 333,979 413,935 2,169,200 2,083,331 ----------- ----------- ----------- ----------- Loss from operations (207,689) (1,916,280) (1,398,999) (346,349) Other income/(expenses) Interest expense (113,838) (50,619) (325,926) (170,906) Other income - 312 - 569 Interest income - - - 40 Other expenses (117) (149,412) (117) (193,226) Litigation expenses - (187,263) - (187,263) Litigation settlements 95,276 - 213,370 (0) ----------- ----------- ----------- ----------- (18,679) (386,982) (112,673) (550,787) ----------- ----------- ----------- ----------- Loss from continuing operations $ (226,368) $ (733,331) $(2,028,953) $(1,949,787)

5 UNIVERSAL BEVERAGES HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended Nine months ended September 30, September 30, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Loss from continuing operations $ (226,368) $ (733,331) $(2,028,953) $(1,949,787) Discontinued operations Loss from discontinued operations, net - (77,156) - (133,516) Loss on disposition, net - (18,074) ----------- ----------- ----------- ----------- - (77,156) - (151,590) ----------- ----------- ----------- ----------- Extraordinary items Gain on debt restructure - - 309,598 - ----------- ----------- ----------- ----------- - - 309,598 - ----------- ----------- ----------- ----------- Net loss $ (226,368) $ (810,487) $(1,719,355) $(2,101,376) =========== =========== =========== =========== Earnings (loss) per common share Loss before extraordinary items $ (0.01) $ (0.07) $ (0.06) $ (0.20) Discontinued operations - (0.01) - (0.02) Extraordinary items - - 0.01 - ----------- ----------- ----------- ----------- $ (0.01) $ (0.08) $ (0.05) $ (0.21) ----------- ----------- ----------- -----------

6 UNIVERSAL BEVERAGES HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2002 Additional Common Stock Preferred Stock Paid in Accumulated Shares Amount Shares Amount Capital Deficit TOTAL --------- ------- --------- ---------- ----------- ----------- ----------- Balance December 31, 2000 9,918,683 $ 9,919 589,600 $ 5,896 $15,101,795 (11,808,082) $ 3,309,528 Issuance of shares of common stock for consulting services rendered in connection with private placement 75,000 75 37,425 37,500 Issuance of shares of common stock in exchange for legal services rendered 10,500 11 28,866 28,877 Issuance of common stock in connection with convertible preferred stock 3,124,501 3,125 (26,500) (265) (2,860) - Issuance of shares as legal settlement 100,000 100 1,600 1,700 Additional consideration for loan agreement in exchange of warrants 140,040 140,040 Net loss December 31, 2001 (3,387,732) (3,387,732) ---------- ------ ------- ------- ----------- ------------ ----------- Balance December 31, 2001 13,228,684 13,230 563,100 5,631 15,306,866 (15,195,814) 129,913 Issuance of common stock in connection with the Debt restructure 2,183,325 2,183 106,983 109,166 ---------- ------- ------- ------- ---------- ------------ ----------- sub-total 15,412,009 $15,413 563,100 $ 5,631 $15,413,849 $ 15,195,814) $ 239,079 Additional shares of common stock issued in connection with convertible preferred stock 2,518,867 2,519 (2,519) - Issuance of shares of common stock as consideration for a loan agreement 200,000 200 9,800 10,000 Issuance of shares of common stock in consideration for reorganization services 1,150,000 1,150 56,350 57,500 Issuance of shares of common stock in consideration for exchange of shares 2,000,000 2,000 98,000 100,000 Issuance of shares of common stock to employees as bonus 11,275,000 11,275 552,475 563,750 Issuance of shares of common stock in consideration for finder fees 2,000,000 2,000 98,000 100,000 Issuance of shares of common stock in consideration for forbearance loan agreement 8,197,695 8,198 401,687 409,885 Net loss September 30, 2002 (1,719,355) (1,719,355) ---------- ------- ------- ------- ----------- ------------ ----------- 42,753,571 $42,755 563,100 $ 5,631 $16,627,642 $(16,915,169) $ (239,141) ========== ======= ======= ======= =========== ============ ===========

7 UNIVERSAL BEVERAGES HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30, 2002 2001 ----------- ----------- Cash flows from operating activities: Net loss $(1,719,355) $(2,101,376) ----------- ----------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 421,582 435,919 Compensation in exchange for stock, options and warrants 1,241,135 52,475 Bad Debt - 25,000 Litigation settlements (213,191) - (Gain) loss on debt restructure (309,598) - Loss on disposition - 66,300 (Increase) decrease in accounts receivable 31,524 238,161 (Increase) decrease in inventory 45,563 210,475 (Increase) decrease in prepaid expenses (1,142) (436) (Increase) decrease in other assets 77,445 546,972 Increase (decrease) in accounts payable and accrued expenses 207,040 613,878 ----------- ----------- Total adjustments 1,500,357 2,188,744 ----------- ----------- Net cash provided by (used in) operating activities (218,998) 87,368 ----------- ----------- Cash flows from investing activities: Cash payments for the purchase of property (2,675) (10,878) ----------- ----------- Net cash used in investing activities (2,675) (10,878) ----------- ----------- Cash flows from financing activities: Proceeds from loans 137,000 35,000 Bank overdraft - 31,446 Proceeds from factor 101,538 - Principal payments on notes payable (17,000) (58,298) Principal payment on capital leases - (7,133) ----------- ----------- Net cash provided by financing activities 221,538 1,015 ----------- ----------- Net increase (decrease) in cash and cash equivalents (135) 77,505 Cash and cash equivalents, beginning of period 12,069 (75,802) ----------- ----------- Cash and cash equivalents, end of period $ 11,934 $ 1,703 =========== ===========

8 UNIVERSAL BEVERAGES HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30, 2002 2001 ------- ------- Supplemental disclosures of cash flow information: Cash paid during the period for: ~~Interest expense $29,834 $63,608 ------- -------~~

Stockholders' equity note: On March 25, 2002, in a Debt Restructure agreement, the Company authorized the issuance of 2,183,325 shares of common stock in exchange for notes payable from one creditor totaling $350,000 plus interest of $68,764. The Company recognized an extraordinary gain of $309,598 on the restructuring. On March 25, 2002, the Company authorized the issuance of 200,000 shares of common stock in consideration for a line of credit with a third party. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, interest expense of $10,000 was charged to operations. On March 25, 2002, the Company authorized the issuance of 1,150,000 shares of common stock to a third party in consideration for compensation for reorganization services. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, consulting expense of $57,500 was charged to operations. On March 25, 2002, the Company authorized the issuance of 2,000,000 shares of common stock to a third party in consideration for consulting services. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, consulting expense of $75,000 and interest expense of $25,000 were charged to operations. On March 25, 2002, the Company authorized the issuance of 11,275,000 shares of common stock as a bonus to employees. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, payroll expense of $563,750 was charged to operations. On March 25, 2002, the Company authorized the issuance of 2,000,000 shares of common stock to a third party in consideration for finder fees. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, consulting expense of $100,000 was charged to operations. On March 25, 2002, the Company authorized the issuance of 8,197,695 shares of common stock to a third party in consideration for foreclosure forbearance. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, consulting expense of $409,885 was charged to operations. 9 UNIVERSAL BEVERAGES HOLDINGS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2002 NOTE 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-QSB and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles. It is suggested that these consolidated condensed financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's audited financial statements on Form 10-KSB for the fiscal year ended December 31, 2001. The accounting policies followed for interim financial reporting are the same as those disclosed in Note 1 of the Notes to Financial Statements included in the Company's audited financial statements for the fiscal year ended December 31, 2001, which are included in Form 10-KSB. In the opinion of management, the unaudited consolidated 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 consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The results of operations for the nine-month period ended September 30, 2002 are not necessarily indicative of operating results to be expected for a full year. The Financial Accounting Standards Board has recently issued several new accounting pronouncements, which may apply to the Company. Statement No.133 as amended by Statement No. 137 and 138, Accounting for Derivative Instruments and Hedging Activities established accounting and reporting standards for derivative instruments and related contracts and hedging activities. This statement is effective for all fiscal quarters and fiscal years beginning after June 15, 2000. The adoption of this pronouncement did not have a material effect on the Company's financial position, results of operations or liquidity. Statement No. 141, Business Combinations (SFAS 141) establishes revised standards for accounting for business combinations. Specifically, the statement eliminates the pooling method, provides new guidance for recognizing intangible assets arising in a business combination, and calls for disclosure of considerably more information about a business combination. This statement is effective for business combinations initiated on or after July 1, 2001. The adoption of this pronouncement on July 1, 2001 did not have a material effect on the Company's financial position, results of operations or liquidity. Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142) provides new guidance concerning the accounting for the acquisition of intangibles, except those acquired in a business combination, which is subject to SFAS 141, and the manner in which intangibles and goodwill should be accounting for subsequent to their initial recognition. Generally, intangible assets with indefinite lives, and goodwill, are no longer amortized; they are carried at lower of cost or market and subject to annual impairment evaluation, or interim impairment evaluation if an interim triggering event occurs, using a new fair market value method. Intangible assets with finite lives are amortized over those lives, with no stipulated maximum, and an impairment test is performed only when a triggering event occurs. This statement is effective for all fiscal years beginning after December 15, 2001. 10 The Company believes that the implementation of SFAS 142 on April 1, 2002 will not have a material effect on the Company's financial position, results of operations or liquidity. Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets supercedes Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121). Though it retains the basic requirements of SFAS 121 regarding when and how to measure an impairment loss, SFAS 144 provides additional implementation guidance. SFAS 144 excludes goodwill and intangibles not being amortized among other exclusions. SFAS 144 also supersedes the provisions of APB 30, Reporting the Results of Operations, pertaining to discontinued operations. Separate reporting of a discontinued operation is still required, but SFAS 144 expands the presentation to include a component of an entity, rather than strictly a business segment as defined in SFAS 131, Disclosures about Segments of an Enterprise and Related Information. SFAS 144 also eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. This statement is effective for all fiscal years beginning after December 15, 2001. The Company believes that the implementation of SFAS 144 on April 1, 2002 will not have a material effect on the Company's financial position, results of operations or liquidity. The accompanying consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated. On February 7, 2002, the Company's board of directors resolved to enter into a factoring agreement with a related party for the sale of certain customer accounts receivable at 98% of the purchase price with an 8% reserve, factored with recourse with respect to credit risk. An allowance for losses is provided for known and potential losses arising from claims and for customers not factored, based on a periodic review of these accounts. NOTE 2 CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to credit risk include cash on deposit with two financial institutions amounting to $11,934 at September 30, 2002. Financial institutions insure depositors for up to $100,000 through the U.S. Federal Deposit Insurance Corporation. The Company obtains detailed credit evaluations of customers generally without requiring collateral, and establishes credit limits as required. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit risk losses and maintains an allowance for anticipated losses. NOTE 3 EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is computed by dividing income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share include the effects of common stock equivalents to the extent they are dilutive. Basic weighted and dilutive average number of shares outstanding at September 30, 2002 is as follows: Basic and dilutive weighted average number of shares outstanding 33,668,990 11 NOTE 4 ACCOUNTS RECEIVABLE Accounts receivable at September 30, 2002 consisted of the following: Accounts receivable $ 159,179 Less allowance for doubtful account (97,656) ---------- $ 61,523 ========== There was no bad debt expense for the nine months ended September 30, 2002. On February 7, 2002, the Company's board of directors resolved to enter into a factoring agreement with a related party for the sale of certain customer accounts receivable at 98% of the purchase price with an 8% reserve, factored with recourse with respect to credit risk. At September 30, 2002, factored accounts receivable totaled $45,772. NOTE 5 INVENTORY Inventory at September 30, 2002 consisted of the following: Finished goods $ 69,079 Raw materials 137,036 --------- $ 206,115 ========= NOTE 6 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at September 30, 2002 consisted of the following: Depreciation Period in Years --------------- Land $ 400,000 - Building 1,912,007 39 Plant equipment 3,936,005 7 Plant improvements 124,483 39 Office machines and equipment 113,892 7 Lease equipment 16,296 7 ----------- 6,502,683 Less accumulated depreciation (1,524,603) ----------- $ 4,978,080 =========== Depreciation expense for the nine months ended September 30, 2002 was $385,582. On May 31, 2002 the Company entered into a sale-leaseback agreement for the building, land and plant improvements. For accounting purposes, the transaction has been accounted for under the financing method. The Company recorded a deferred gain of $50,010 (See Note 10). 12 NOTE 7 INTANGIBLE ASSETS Intangible assets are summarized by major classification as follows: Trademark and brand name $ 728,449 Others 2,817 ---------- 731,266 Less accumulated amortization ( 190,524) ---------- $ 540,742 ========== Amortization expense for the nine months ended September 30, 2002 totaled $36,000. NOTE 8 LINES OF CREDIT Line of credit - related party ------------------------------ The Company has a line of credit totaling $100,000 from a shareholder, who is also an officer and director. The credit line has an interest rate of 10% and was due June 1, 2002. As of September 30, 2002, the Company owes $73,000 against this credit line. The line of credit is collateralized by assignment of all assets of the company. The line of credit is in default as of the date of this review. Line of credit - unrelated party -------------------------------- The Company has a line of credit from an unrelated third party totaling $100,000. The credit line has an interest rate of 10% and was due June 1, 2002. As of September 30, 2002, the Company owes $50,000 against this credit line. The line of credit is collateralized by assignment of all assets of the company. The line of credit is in default as of the date of this review. The total interest expense related to these lines of credit was $8,634 at September 30, 2002. NOTE 9 NOTES PAYABLE The Company has outstanding notes payable at September 30, 2002 as follows: Note Payable - Related Parties ------------------------------ Note payable to an employee and director of the Company, at a 10% interest rate per year; due on demand. $ 7,000 ============ Notes Payable - Unrelated Parties Notes payable to individuals with an interest rate of 8% per year, payable in 36 monthly payments; unsecured, due March 31, 2003. The note is in default at September 30, 2002. $ 43,782 ============ Notes payable to a company with a 10% interest rate per year; secured by all assets and due on demand. 30,000 Note payable to an individual with a 10.25% interest rate per year; due on demand; secured by multi-packer equipment of Company. The note is in default at September 30, 2002. 150,000

13 Notes Payable - Unrelated Parties - continued --------------------------------------------- Convertible note payable to a company with an 8% interest rate per year; unsecured, due on May 14, 2005. At the option of the holder, the note may be converted into 6,000,000 shares of common stock at 80% of the trading price of the shares at the date of the conversion. $ 947,000 Notes payable to various individuals with no interest per year; due on demand; secured by receivables of the Company. 45,000 ------------ 1,215,782 Less current portion ( 268,782) ------------ $ 947,000 ============

The total interest expense related to these loans was $ 41,109 at September 30, 2002. NOTE 10 FINANCING OBLIGATION On May 31, 2002, the Company entered into a sale-leaseback transaction for the building, land and plant improvements at its principal manufacturing facility in Leesburg, Florida for a total of $2,429,000. The transaction was accounted for under the financing method, providing a security arrangement for the buyer-lessor's investment. A total of $1,268,000 has been disbursed to satisfy payments as follows: Forbearance agreement $ 660,000 Accrued interest forbearance agreement 106,313 Foreclosure judgment 551,697 ------------ $ 1,318,010 ============ The Company recorded a deferred gain on the transaction of $50,010. The sale-leaseback includes a purchase option that was increased by $100,000 when the Company did not exercise the option by August 31, 2002. At September 30, 2002 the amount due under this obligation was $1,368,000. The interest expense related to this obligation at September 30, 2002 was $78,000. The Company is in default of its obligations under the lease for failure to pay rent as required by the terms of the lease. NOTE 11 INCOME TAXES At September 30, 2002, the Company had useable net operating loss carryforwards of approximately $15,575,289 for income tax purposes, available to offset future taxable income of the U.S. entity expiring through 2021. The valuation allowance was $5,285,000 at September 30, 2002. This allowance was reserved at December 31, 2001, as management estimates that it is more likely than not that the deferred tax assets will not be realized due to uncertainty of the Company's ability to generate future taxable income. Based on estimated use of net operating losses through December 31, 2001, the valuation allowance was adjusted by $1,173,000. 14 NOTE 12 DEBT RESTRUCTURE On March 25, 2002, the Company renegotiated notes payable from one creditor totaling $350,000 plus interest of $68,764 in a debt restructure agreement as follows: Notes payable of $350,000 in exchange for 2,183,325 shares of common stock. On the date of the exchange, the trading price of the common stock was $.05 per share. The Company recognized an extraordinary gain of $309,598 on the restructuring. NOTE 13 STOCKHOLDERS' EQUITY (DEFICIT) On March 21, 2002, with approval of the board of directors, the Company amended its Articles of Incorporation to provide for an increase in the authorized number of shares of common stock to 80,000,000 at $0.001 par value. The authorized number of shares of preferred stock remained at 20,000,000 with a change in par value to $0.001. On March 25, 2002, by resolution of the board of directors, the Company approved the issuance of 2,518,867 shares of common stock to correct preferred stock conversions for Series D, E, and F. On March 25, 2002, in a debt restructure agreement, the Company authorized the issuance of 2,183,325 shares of common stock in exchange for notes payable from one creditor totaling $350,000 plus interest of $68,764. The Company recognized an extraordinary gain of $309,598 on the restructuring. On March 25, 2002, the Company authorized the issuance of 200,000 shares of common stock in consideration for a line of credit with a third party. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, interest expense of $10,000 was charged to operations. On March 25, 2002, the Company authorized the issuance of 1,150,000 shares of common stock to a third party in consideration for compensation for reorganization services. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, consulting expense of $57,500 was charged to operations. On March 25, 2002, the Company authorized the issuance of 2,000,000 shares of common stock to a third party in consideration for consulting services. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, consulting expense of $75,000 and interest expense of $25,000 were charged to operations. On March 25, 2002, the Company authorized the issuance of 11,275,000 shares of common stock as a bonus to employees. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, payroll expense of $563,750 was charged to operations. On March 25, 2002, the Company authorized the issuance of 2,000,000 shares of common stock to a third party in consideration for finder fees. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, consulting expense of $100,000 was charged to operations. On March 25, 2002, the Company authorized the issuance of 8,197,695 shares of common stock to a third party in consideration for foreclosure forbearance. The value of $0.05 per share was the trading price on the date of the grant. Accordingly, consulting expense of $409,885 was charged to operations. 15 NOTE 14 RELATED PARTY At September 30, 2002, the Company was indebted to an officer, who is also a shareholder and director, for a $73,000 line of credit. The accrued interest on the indebtedness at September 30, 2002 was $6,000. No interest was paid during the nine months ended September 30, 2002. At September 30, 2002, the Company continued under a factoring agreement with an officer, who is also a shareholder and director, for the sale of the accounts receivable at 98% of the purchase price with an 8% reserve, with recourse with respect to credit risk. NOTE 15 LEGAL MATTERS The Company is subject to various investigative claims and legal proceedings covering a wide range of matters that arose in the ordinary course of its business activity. The Company currently has three unpaid judgments as follows: 1) Unpaid judgment is for $57,000 in favor of a vendor who filed an action for non-payment of a shipping invoice. 2) Unpaid judgment for $80,000 in favor of an individual who filed an action for rent and costs for legal services. 3) Unpaid judgment for $42,000 in favor of an individual who filed an action for sale of restricted shares of common stock and for legal services. In addition, as part of this settlement, 100,000 shares of common stock were issued on October 5, 2000. Additional unresolved matters include, but are not limited to the following: 1) An action filed by a supplier for non-payment of invoices for ingredients and packing materials and the related shipping costs. The case has not been set for trial. 2) A lien filed by a supplier for non-payment of invoices for ingredients and packing materials and the related shipping costs. The case has not been set for trial. 3) A lien filed by a consulting company for non-payment. With the exception of the three judgments mentioned in paragraph one above, the ultimate outcome is unknown; however, management has accrued an estimated liability in the amount of $827,000 against legal matters that occurred in past years. In the opinion of the Company's management, although the outcome of any legal proceeding cannot be predicted with certainty, ultimate liability resulting from the above matters, even if limited to the liability accrued in the accompanying financial statements, may have a material effect on the results of operations or cash flows of the Company and its ability to continue as a going concern. 16 NOTE 16 GOING CONCERN UNCERTAINTY These financial statements are presented assuming the Company will continue as a going concern. For the years ended December 31, 2001 and 2000, the Company showed operating losses of $3,254,215 and $3,142,235, respectively, and accumulated deficit of $15,195,814 at December 31, 2001. The accompanying financial statements indicate that current liabilities exceed current assets by $3,387,763 at September 30, 2002. The Company is involved in various lawsuits relating to default payments on purchases and loans, among other matters, of which some outcomes are still pending. Liability resulting from pending litigation, even if limited to the liability accrued in the financial statements, may have a materially adverse effect on the Company's ability to continue as a going concern. The Company's negative working capital, recurring losses from operations, pending litigations, and defaults under the Company's contract agreements and short-term loans raise substantial doubt about its ability to continue as a going concern. Management's plan with regard to these matters includes raising working capital to assure the Company's viability. The support of the Company's vendors, customers, lenders, stockholders and employees will continue to be key in the Company's future success. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations is based upon the financial statements contained in this Form 10Q-SB. This discussion contains forward-looking statements that involve risks and uncertainties. At the end of the section there is a description of those forward-looking statements and the risks and uncertainties. Results of Operations Revenue for the three months ended September 30, 2002 was $447,307, in contrast to $466,386 for the same period of 2001. This represents a 4% decline in revenue. We have almost restored sales of our Syfo brand to the levels that existed in the third quarter of 2001. Our Syfo brand revenues were approximately 1% below the sales for the brand during the third quarter of 2001, $464,392 compared to $459,958, respectively. The difference in branded revenue is attributable to the fact that not all Syfo customers have been restored. We expect that most of those customers will be restored during the fourth quarter as well as new customers added who we have been working with during the past year. As we begin to see some results from our extensive efforts to rebuild the sales of our Syfo brand, we anticipate that during the fourth quarter of 2002 our Syfo brand sales should exceed the levels that existed in 2001.We had no non-branded revenue for the third quarter as opposed to $13,116 of non-branded revenue during the third quarter of 2001. Our gross profit margin was $126,290 for the current quarter as compared to $67,586 for the same quarter in 2001, an 87% improvement in operating margin. The gross profit margin for the current quarter is 28% of revenues as compared to 15% of revenue for the same quarter in 2001. Our raw material component in cost of goods sold decreased to 53% of revenue from 64% of revenue in the third quarter of 2001. Cost of goods sold including direct manufacturing costs, declined to 71% of revenue for the current quarter from 85% of revenue the quarter ending September 30, 2001. These improvements in operating results demonstrate the efforts and abilities of current management and their dedication to rebuilding the company. Our general and administrative expense, including shareholders services and taxes, decreased to $93,249 for the current quarter from $159,239 for the third quarter of 2001. The decrease in general and administrative costs for the second quarter of 2002 is primarily attributable to greater efficiency resulting from lower staff levels and increased productivity. We have recorded a negative ($539) for taxes for the current quarter as opposed to taxes of $46,561 for the third quarter of 2001. This decrease reflects an accrual adjustment for taxes previously booked and extensive work expended on reducing the personal property and intangible taxes liabilities of the company. Our sales expense declined to $39,549 for the current period compared to $64,527 for the same quarter in 2001, reflecting more favorable freight charges and other expense reductions. Marketing expense for the quarter just ended increased to $2,052. 18 Consulting and professional fees increased to $49,612 for the current quarter from $43,681 for the same period a year ago. The higher consulting and professional fees in 2002 were primarily attributable to increased legal costs associated with the many creditor problems that existed when control was regained in 2001. Rent expense for the current quarter increased to $8,667 from $1,840 for the third quarter of 2001 reflecting the cost associated with the Jacksonville headquarters. Interest expense increased to $113,838 for the current quarter from $50,619 for the same period a year ago. Primarily, the increased interest costs are associated with the sale and lease back transaction of the Leesburg manufacturing plant, accounted for under the financing method. The interest expense recorded for the Leesburg plant is $71,251, for the current quarter. The company is in default under the lease for the Leesburg plant for failure to pay rent as required under the terms of the lease. The balance of the interest expense is attributable to other notes and obligations of the company. Depreciation and amortization expense is $140,850 for the current quarter as opposed to $144,648 for the third quarter of 2001. These charges represent 31% of revenue that is exceptionally high. We attribute this level of depreciation to an incorrect rate of depreciation and a substantial amount of depreciation on equipment that has never been put into service. We plan to have the audit committee evaluate the depreciation methods the company is using and make recommendations. Possibly, the depreciation charges for the year may be materially different than those currently reported. We have also recorded gains associated with the settlement of various judgments and other liabilities of $95,276. That is in contrast to charges for asset disposal costs, litigation expenses and discontinued operations expenses for the third quarter of 2001 of $413,831. The difference is directly attributable to the continuing, current efforts exerted to rebuild the company versus the attempt to liquidate the company that occurred during the third quarter of 2001. The company is engaged in ongoing efforts to compromise various judgments and liabilities for less than their principal amount and anticipates further gains associated with such settlements. Our net losses declined to $226,368 for the third quarter of the current quarter from a net loss of $810,487 for the third quarter of 2001. The losses experienced by the company in this current period have improved by 72% or $584,119 as compared to the results for the same period of last year. Liquidity and Capital Resources As of September 30, 2002, our current liabilities, including the current portion of long-term debt, were $3,687,629 as compared to $5,254,266 reported for the third quarter of 2001, reflecting a decrease of $1,566,637. Current liabilities exceed our current assets by $3,387,763 for the current quarter as compared to $4,889,169 for the same period last year. Although the company's working capital is a negative $3,387,763 for the third quarter of this year, we have improved our working capital position by $1,501,408 as compared to the same period a year 19 ago and $2,227,698 as compared to the first quarter of this year. We have reduced current liabilities by converting a substantial amount of vendor payables into long-term obligations, settling them for reduced amounts, or converting them into equity. Our goal is to continue reducing our current liabilities, increasing our current assets and achieving a positive working capital. We still have a substantial amount of past due vendor payables, defaults to lenders, vendors, suppliers, judgment holders, and other debts. We are currently seeking short-term financing and accommodations to restructure or extend our indebtedness. Forward-Looking Statements The above management's discussion and analysis contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 relating to adjustments in costs of goods sold expected to occur and our ability to solve our working capital needs and liquidity. In addition to these statements, trend analyses and other information including words such as "seek," "anticipate," "believe," "plan," "estimate," "expect," "intend" and other similar expressions are forward looking statements. Some or all of these forward-looking statements may not occur. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include the following: our ability to harmonize our old accounting system with our new accounting system, our ability to reach an accommodation with our creditors and preferred shareholders and ability to efficiently install and operate our bottle making facility. These statements are based on our beliefs as well as assumptions we made using information currently available to us. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are a party to a number of lawsuits arising out of commercial transactions. Although none of the suits would normally involve a material amount of potential liability, our current liquidity needs result in a different conclusion. Any adverse determination in any of the pending lawsuits would likely have a material adverse effect on our financial condition. ITEM 2. CHANGES IN SECURITIES Effective April 5, 2002, the Articles of Incorporation were amended by written consent of a majority of the Company's common shareholders to increase the number of authorized common shares to 80,000,000 shares. ITEM 3. DEFAULTS UPON SENIOR SECURITIES We are required to make quarterly dividend payments to our Series B and Series C preferred shareholders. We are in arrears on those payments and certain of the Company's preferred shareholders have declared default. 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. 21 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: November 14, 2002 UNIVERSAL BEVERAGES HOLDINGS CORPORATION By /s/ Jonathon Moore ---------------------------- Jonathon Moore President and Chairman 22

UNIVERSAL BEVERAGES HOLDINGS CORP 10-Q