JAVA GROUP INC /CN, 10SB12G/A, 1996-11-07

JAVA GROUP INC /CN
10SB12G/A, 1996-11-07
EATING & DRINKING PLACES

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

------------------

AMENDMENT NO. 2 TO
FORM 10-SB

General Form For Registration of Securities
of Small Business Issuers Under Section 12(b) or 12(g) of
the Securities Act of 1934

JAVA GROUP, INC.
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(Name of Small Business Issuer in Its Charter)

DELAWARE 11-2987370
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

404-999 Canada Place
Vancouver, British Columbia, Canada V6C 3E2
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(Address of Principal Executive Offices) (Zip Code)

(604) 641-1362
-------------------------------------
(Issuer's Telephone Number)

Securities to be registered under Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which
To be so Registered Each Class is to be Registered
------------------- ------------------------------

Not applicable Not applicable
- ------------------------------------ -----------------------------------

Securities to be registered under Section 12(g) of the Act:

Common Stock, par value $.0001 per share
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(Title of Class)

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TABLE OF CONTENTS

PAGE

PART I

Item 1. Description of Business . . . . . . . . . . . . . . . . . .1

Item 2. Plan of Operation. . . . . . . . . . . . . . . . . . . . . .9

Item 3. Description of Property . . . . . . . . . . . . . . . . . .11

Item 4. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . .12

Item 5. Directors, Executive Officers, Promoters
and Control Persons. . . . . . . . . . . . . . . . . . . .13

Item 6. Executive Compensation . . . . . . . . . . . . . . . . . . .14

Item 7. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . .14

Item 8. Description of Securities . . . . . . . . . . . . . . . . .14

PART II

Item 1. Market Price of and Dividends on the
Registrant's Common Equity and Other
Stockholder Matters. . . . . . . . . . . . . . . . . . . .15

Item 2. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .16

Item 3. Changes in and Disagreements With
Accountants. . . . . . . . . . . . . . . . . . . . . . . .16

Item 4. Recent Sales of Unregistered Securities. . . . . . . . . . .16

Item 5. Indemnification of Directors and Officers. . . . . . . . . .17

PART F/S Financial Statements and Exhibits. . . . . . . . . . . . . .19

PART III

Item 1. Index to Exhibits. . . . . . . . . . . . . . . . . . . . . .19

Item 2. Description of Exhibits. . . . . . . . . . . . . . . . . . .19

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Item 1. DESCRIPTION OF BUSINESS

GENERAL

Java Group, Inc. (the "Company") was incorporated under the laws of
the State of Delaware on May 25, 1989 under the name Montrose Ventures, Inc.
(which was changed to Java Group, Inc. on August 25, 1993). The Company's
principal executive offices are located at 404-999 Canada Place, Vancouver,
British Columbia, Canada V6C 3E2, and its telephone number is (604) 641-1362.
As used herein, the term "Company" means Java Group, Inc., 464431 B.C. Ltd.,
a wholly-owned Canadian subsidiary of the Company, and Java Group
(Deutschland) Gmbh, a wholly-owned German subsidiary of the Company.

In August 1993, the Company entered the retail coffee house business
following a change of control in the Company's management and ownership effected
by Robert P. Gillingham, currently the President and principal stockholder of
the Company.

In July 1993, prior to becoming associated with the Company, Mr.
Gillingham and John Williams, a former director and stockholder of the Company,
entered into a license and management agreement (the "Management Agreement")
with Java Girl Coffee Ltd. ("J.G. Coffee") to acquire the rights from J.G.
Coffee to develop retail coffee houses worldwide using the Java Girl name and
logo. T.A.B.S. Enterprises Ltd., an unaffiliated third party ("TABS") and an
affiliate of J.G. Coffee, had the right to manage and operate the coffee houses.
Messrs. Gillingham and Williams had no affiliation with J.G. Coffee prior to
July 1993.

At the time they entered into the Management Agreement, Messrs.
Gillingham and Williams intended to develop a limited number of coffee house
locations on their own. However, upon further review of the existing Java Girl
locations and perceived business opportunities, Mr. Gillingham determined that
an expansion of the Java Girl coffee houses on a larger scale was possible and
he developed a business plan for the expansion of the coffee houses. Mr.
Gillingham believed that the implementation of the plan, and the financing
thereof, could be better achieved through an existing public company such as the
Company. As a result, in August 1993, Messrs. Gillingham and Williams
introduced the business plan to the Company for the development of the retail
coffee houses using the Java Girl name and logo pursuant to the Management
Agreement. The Company adopted Mr. Gillingham's plan and agreed to transfer
control of the Company to Mr. Gillingham in connection therewith. As a result,
the then present Board of Directors resigned and Mr. Gillingham caused a change
in control in the management and ownership of the Company. The Company then
further developed and commenced the implementation of the business plan.

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INITIAL JAVA GIRL COFFEE HOUSES

At the time the parties entered into the Management Agreement in July
1993, TABS already owned one profitable Java Girl coffee house located at the
Renaissance Hotel in Vancouver, British Columbia, Canada. The store was closed
in or about December 1993 in connection with a dispute with the landlord. At
approximately the same time, J.G. Coffee opened a Java Girl coffee house at
Lougheed Mall in Vancouver, Canada which operated for approximately eighteen
months. The store was closed due to a lack of consistent profits over the
course of the eighteen-month period of operation and a lower than expected rate
of return on investment. The Company had no ownership or other interest in this
location, other than an option to acquire a 50% interest, which option was not
exercised.

In December 1993, the Company and TABS opened a Java Girl coffee house
in the lobby of the Richmond Inn Hotel in Richmond, British Columbia, Canada.
The Company and TABS each have a 50% joint venture interest in this location.

LICENSE AND DEVELOPMENT AGREEMENT

In May 1994, Messrs. Gillingham and Williams assigned to the Company
all of their rights as owner under the Management Agreement pursuant to a
license and development agreement between the Company and TABS (the "License and
Development Agreement"). The Company paid no consideration to Messrs.
Gillingham and Williams in connection with the assignment. The Management
Agreement is no longer in effect and has been superseded by the License and
Development Agreement. Pursuant to the License and Development Agreement, TABS
granted to the Company an option to license the name "Java Girl" and a system
for the operation of Java Girl coffee houses utilizing certain standards,
specifications, methods and systems in connection with the distribution,
marketing and sale of coffee products (the "System").

Pursuant to the License and Development Agreement, TABS and the
Company jointly approve the location of the Java Girl coffee houses. TABS has
generally undertaken the responsibility for finding new proposed locations. As
a result, the Company does not anticipate investing any material time or effort
to locate sites for coffee houses. The Company leases the coffee house location
and simultaneously therewith, exercises the option to license the Java Girl name
and the System. The term of the license commences on the date of the exercise
of the option granted to the Company and is co-terminus with the term of the
lease of the coffee house location. The Company also has a right of first
refusal with respect to offers to develop coffee house

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locations received by TABS from third parties or locations proposed to be
developed by TABS. TABS, as the Company's agent, is responsible for the
construction and supervision of the development of the location, including any
leasehold improvements. The Company is responsible for the development and
associated costs and licensing fees of TABS. Furthermore, the Company reviews
the budgets, demographic studies and walk-by traffic counts for each location.

TABS is required to expend not less than five percent (5%) and not
more than twenty percent (20%) of the total development costs. The Company is
responsible for the balance of the development costs. The Company and TABS will
be joint venturers in the ownership of each coffee house, with respective
ownership interests equal to the percentage of each venturer's contribution to
the total development costs. TABS is obligated to use its best efforts to limit
the construction costs of each coffee house to US$65,000. The payment of any
development costs above US$65,000 shall be the responsibility of the Company,
unless TABS desires to increase its ownership interest in the coffee house. In
such case, TABS and the Company will be responsible for the percentage of the
excess costs equal to their respective joint venture interest. Under the
License and Development Agreement, the Company is obligated to pay TABS a
monthly licensing fee equal to five percent (5%) of the gross sales of each
coffee house. Furthermore, in lieu of the payment to TABS of a five percent
(5%) management fee under the Management Agreement, the Company granted to TABS
a five-year option to purchase 2,000,000 shares of the Company's capital stock
at a price of US $.10 per share until May 20, 1999. The grant of the option to
TABS under the Management Agreement has no effect on the Company's obligation to
pay the 5% licensing fee.

The Company has the option to renew the term of each license with
respect to a Java Girl coffee house for a renewal term equal to the renewal term
of the lease at the location, without payment of any renewal fee. The Company
must provide TABS with not less than six months' written notice prior to the
expiration of the initial term. If, during the term of the license period,
either the Company or TABS obtains a bona fide offer to sell the whole or any
part of its interest in a coffee house, the party receiving the offer
("Offeror") must give the other party ("Offeree") prompt written notice thereof,
together with a copy of the offer. The Offeree will have 30 working days to
exercise the option upon the same terms and conditions.

At any time during the term of the license period, either party may
offer to purchase the whole or any part of the other party's interest in the
coffee house, including, but not limited to, the leasehold interests.

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The License and Development Agreement does not contain a termination
date nor any requirement that a minimum number of locations must be developed.
As long as locations for coffee houses continue to be leased and developed by
the Company, the License and Development Agreement will remain in effect.

RELIANCE ON KLAUS HENCK

Mr. Klaus Henck, the President and a principal stockholder of TABS,
has extensive experience in the retail operations of the food and beverage
industry. Mr. Henck developed the concept for the Java Girl coffee houses and
he operated the first Java Girl coffee house. The Company relies on the
experience and services of Mr. Henck in the food and beverage industry to a
large degree. Mr. Henck develops most of the Company's operating strategies for
review with the Company's management.

Mr. Henck is 54 years old. In 1983, he formed, and presently owns,
Astor Hospitality Management ("Astor"), a hotel management and development
company. Astor directed the management and development of over 1100 hotel rooms
in St. Louis, Missouri; Washington, DC; Atlanta, Georgia; Florida and Colorado.
In 1990, Astor was restructured and diversified to provide asset management,
hospitality consulting and employee training through affiliated offices in
Washington, DC; Orlando, Florida; Dallas, Texas; and Los Angeles, California.
From 1979 to 1983, Mr. Henck served as Vice President of the Food and Beverage
Division at Ramada Inns, Inc. From 1977 to 1979, he served as Regional Director
of Food and Beverage with Holiday Inns of Canada in Western Canada.

In the event the expertise of Mr. Henck is no longer available to the
Company, the Company would need to retain the services of an experienced
individual from a large food and beverage company. The Company expects that it
would be required to pay a substantial salary to such person, as well as other
performance-based incentives. There is no assurance that the Company would be
able to retain the services of such an individual at a salary affordable to the
Company.

None of the executive officers and directors of the Company have any
significant experience in the food and beverage industry.

PRODUCTS

The Java Girl concept is based on using only 100% Arabica beans grown
at high altitudes and imported from locations in which the finest beans are
grown. Costa Rica, Guinea, Colombia, Kenya and Java are the primary coffee
producing regions

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which grow premium green beans that meet the Company's specifications. There
are approximately 60 Arabica bean types and 60 blends which are fresh roasted to
make up the Company's Supreme Blends and Espresso brands. The use of the
correct grind for each type of coffee and purified water assures superior and
consistent quality. The Company intends to roast and grind its coffee on the
premises at the store location or use small local roasters to maintain a proper
edge on the taste. The Company believes that it is more efficient to roast
coffee in smaller five-pound increments as the demand for some of the estate
blends is presently not at a high level. Traditionally, coffee beans were
roasted in 500 to 1,000 pound increments. The beans roasted in this manner were
allowed to settle in a separate tank for approximately two to three days to
enable gases to escape. As the time for the gas to escape increases, the
freshness of the coffee taste is significantly reduced. In order to maintain
the essential freshness, the ground product is now placed into the modern valve
bag. The one-way valve bag was designed approximately three years ago to permit
a more efficient escape of gases from the coffee bag. The use of large tanks is
no longer necessary for the gas removal process. The brewing process is
performed in state of the art equipment made from stainless steel and vacuum
containers with glass inserts to safeguard the coffee from breaking and losing
its flavor.

To distinguish its coffee products and coffee houses from other coffee
products and coffee houses, the Company exclusively uses Arabica beans. The
Company believes that Arabica beans are the only type of coffee bean to provide
quality, gourmet coffee. The Company intends to maintain a high profile for the
"Java Girl" name and believes that the association of the name with high quality
coffee products will be essential to the Company's success.

RETAIL STORES

Prior to approving a location for a coffee house, the Company conducts
a walk-by traffic count. In order for a location to be considered by the
Company, there must be walk-by traffic on a regular basis of at least 400
potential customers per day. The premises for the establishment of coffee
houses will be leased only if traffic volumes can be confirmed and there are
exclusivity clauses in the leases to prevent direct competition in the immediate
area. The Company believes that in markets that are intensely competitive,
business is not highly price sensitive. In the absence of an adjacent
competitor, customers will not walk any significant distance to take advantage
of a lower-priced product.

The Java Girl outlets that the Company intends to open will be located
in high traffic locations such as suburban malls

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and urban downtown areas. The overall design of the stores is intended to
create an ambiance that has become a part of the Java Girl mystique. The
ambiance emphasizes the aroma of the coffee, comfortable seating and relaxing
decor, which the Company believes creates an atmosphere that increases coffee
sales. The format of the individual store generally will not vary significantly
from location to location. The size of the locations will fluctuate from a
minimum of 500 sq. ft., to a maximum of 1,200 sq. ft. The furniture, fixtures
and equipment are similar at each store, and seating is available at tables and
countertops. The design will generally not change from location to location,
but will be customized to the size of the store. Coffee will be the focal point
of each site with the counter and back bar having a display of glass containers
filled with the top 20 Arabica blends built into the self-contained unit. This
configuration is believed to optimize potential gourmet coffee sales in spite of
the fact that the top six blends will historically account for the majority of
the sales. In addition, fresh baked muffins, sandwiches, cookies and Java Fruit
Coolers are available. The "Fruit Coolers" are iced drinks prepared from Torani
fruit syrups, blended with ice cubes, topped with purified soda water and
garnished with fresh fruit.

The decor of Java Girl coffee houses is modular, which enables the
Company to open quickly with a highly competitive product in areas that may
appear marginal to the competition. The interior finishes are black, oak,
white, orange, gold and racing green. The color selection is designed to
provide a modern setting and a strong, warm appeal to the casual customer. The
atmosphere is one of friendliness - a light and breezy place where one can enjoy
the world of coffee while unwinding from a grueling day, or just breathe in the
aroma while being transported to another place. Management believes that the
coffee shops of many other competitors do not provide such an atmosphere.

The first coffee house of the Company, located in North Vancouver,
Canada, opened in February 1995 and closed in June 1995. The Company owned a
49% limited partnership interest in the location and contributed approximately
$88,000 to the development costs of the location. The Company closed the coffee
house due to losses from operations which the Company believes were attributable
to the lack of sufficient pedestrian traffic in the area. The Company was
partly repaid from the value of removable furniture and equipment from this
store totalling $30,000.

In July 1995, the Company began operations at a new Java Girl coffee
house located at 500 West Broadway, Vancouver, British Columbia, Canada. The
Company owns an 80% joint venture

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interest in an unincorporated joint venture and TABS is the owner of the
remaining 20% interest.

The Company also owns a 50% joint venture interest in the coffee house
located at the Richmond Inn Hotel, with TABS owning the balance of the 50%
interest.

EXPANSION STRATEGY

GERMANY

The Company will seek to open Java Girl coffee houses in high-traffic
locations in suburban malls and downtown areas as well as other suburban
settings. The Company's current strategy is to open Java Girl coffee houses in
Germany. The headquarters for the German operation are in Chemnitz, Germany
where the Company opened its first German coffee house in July 1996. The
Company has entered into preliminary discussions with certain national and
regional breweries in Germany to finance the development costs of new sites
through loans having terms of 3-5 years which are secured by the furniture,
fixtures and equipment at the location. As a condition to the loan and in
accordance with standard practice by German breweries, the Company will be
obligated to sell the breweries' beer in the coffee house on an exclusive basis
and the breweries will have the right to approve each location. The breweries
will only enter into such arrangements on a location by location basis. Based
solely on oral expressions of interest by German breweries, the Company hopes to
operate up to ten new coffee houses in Germany over the next twelve months.
There is no assurance that any arrangements will be entered into between the
Company and one or more of the German breweries. Furthermore, although one
national brewery has orally indicated that it will finance up to 75% of the cost
of the furniture, fixtures and equipment at a certain new location, all of the
material terms have not been finalized and there can be no assurance an
arrangement with such brewery will be reached, or that any such arrangement will
be on terms favorable to the Company. The terms of the financing will vary
based on the brewery and the size and location of the coffee house.

In Germany, the Company believes that the Java Girl coffee houses that
are financed in part by the breweries will occupy approximately 1,200 to 1,800
square feet, depending upon location. The Company will attempt to develop five
stores at the same time, provided that adequate financing is available and the
stores operate on a profitable basis. The Company will target breakfast and
lunch as primary meal periods. Other coffee houses located outside of Germany
are anticipated to be smaller, ranging from 500 to 1,200 square feet. The site
in Chemnitz, Germany consists of approximately 500 square feet with 25 seats and
is

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located in a marketplace setting. Coffee will be the focal point of each site,
with the counter and back-bar having a designer display of glass containers
filled with a variety of Arabica blends built into the self-contained unit. The
configuration is believed to optimize potential gourmet coffee sales despite the
fact that the six most popular blends historically account for the majority of
sales. The ambiance will emphasize the aroma of the coffee, comfortable seating
and relaxing decor.

There is no assurance that the Company's expansion strategy into
Germany will be successful.

UNITED STATES AND CANADA

During the next three years, the Company will seek to develop coffee
house locations in key urban areas in the United States. The initial focus will
be in New York, Massachusetts, Texas, Florida and Atlanta, Georgia. The Company
intends to develop such locations pursuant to the organization of a limited
partnership entity in which the Company will be the general partner of the
limited partnership. The Company will be responsible for the overall management
and the day-to-day operations of the new locations. The urban areas to be
targeted must meet the following criteria: (i) a population above 400,000
persons to support a minimum of five locations with the potential for future
growth; (ii) a population familiar with gourmet coffee products; and (iii) a
market that is not saturated with coffee stores.

COMPETITION

The Company's coffee beverages compete directly against all restaurant
and beverage outlets that serve coffee and a growing number of coffee and
espresso stands, carts and stores. Many competitors have established
reputations and substantially greater resources than the Company. The Company
believes that its customers choose among retailers primarily on the basis of
quality and convenience. In addition, the Company competes for whole bean
coffee sales with franchise operators and locally-owned specialty coffee stores.
Since the gourmet segment of the industry is still in its infancy, the Company
believes there is substantial opportunity to develop the business on an
international basis. However, there is no assurance that the Company will be
successful in expanding its operations or that other companies with greater
financial, marketing, and/or other resources than the Company will not enter the
market in competition with the Company.

Although there is presently no significant competition in the coffee
house business in Germany, there are other important factors that must be
considered. The most significant

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is the lack of affordable locations to lease. In addition, the German consumer
has not yet embraced the gourmet coffee market. In order to reach the potential
consumers in this market, the Company's marketing effort to promote its identity
and product will include an Internet program throughout Europe.

In the United States, coffee houses are a relatively recent
development. Many major cities on the west coast and east coast are already
saturated by development. However, management believes that there are other
areas that are still available for market penetration. The Company will focus
its efforts on the cities with relatively insignificant coffee house
development.

EMPLOYEES

The Company currently employs 2 full-time salespersons at the coffee
houses, the President and 10 support staff. The President of the Company has
not drawn a salary to date and does not intend to do so until the Company is
profitable. None of the Company's employees are represented by a labor union.
The Company has experienced no work stoppages and believes that its employee
relations are good.

PRODUCT SUPPLY

Presently, the Company does not have any commitments, arrangements or
agreements for the purchase of its coffee requirements. The Company, therefore,
is subject to the risks associated with the increases in coffee prices.

Item 2. PLAN OF OPERATION

In February 1996, the Company raised net proceeds of approximately
$465,000 in an offering under Section 504 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). The Company believes
that such proceeds are sufficient to implement its business plan of operating up
to 10 coffee houses in Germany during the next twelve months. Such belief,
however, is based on its ability to receive debt financing of up to 75% of the
cost of the furniture, fixtures and equipment per location from German
breweries. During the next two years the Company would also like to open coffee
houses outside of Germany, particularly in Atlanta, Georgia and in California,
where no such debt financing will be available. The opening of such coffee
houses is subject to the Company obtaining financing in either public offerings,
private placements or limited partnerships.

Currently, the Company's principal use of cash is for expenses related
to raising capital, marketing its program and opening coffee houses in Germany.
Although significant cash

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expenditures will be required for each new coffee house, the Company
anticipates that financing of not less than 75% of the cost of furniture,
fixtures and equipment will be provided by the German breweries. In the
event such financing is not obtained, the Company may be required to change
its business plan and either seek to establish lower cost units in the United
States or Canada and/or seek to raise capital through debt or equity
financing.

During the fiscal years ended June 30, 1994 and 1995, the Company
did not have any revenues. Its 50% ownership interest in the Java Girl
coffee house located in the Richmond Inn and its 49% limited partnership
interest in the North Vancouver location, which was closed, are accounted for
on the equity method because control by the Company does not exist. In order
for the Company to recognize revenues, the ownership of the coffee houses
must be in an entity with the Company in control of more than a 50% interest.
The Company did not have any revenues during the two-year period ended June
30, 1995 from the Java Girl coffee house located at 500 West Broadway,
Vancouver, Canada (80% interest) because operations at the store did not
commence until July 1995. During the fiscal year ended June 30, 1996, the
Company's revenues were approximately $28,000.

The average monthly sales at the operating coffee houses were
approximately $3,500 during the fiscal year ended June 30, 1995 and
approximately $3,000 during the fiscal year ended June 30, 1996.

During the fiscal year ended June 30, 1995, the Company incurred a
loss of approximately $213,000, of which approximately $187,000 was related
to administrative costs in establishing the business. During the fiscal year
ended June 30, 1994, the Company incurred a loss of approximately $104,000,
of which approximately $70,000 related to administrative expenses. The
Company's long-term objective is to develop coffee houses in North America
and Europe. The focus will be on the development of its business through the
opening of new outlets. Furthermore, the Company has in the past and will
continue in the future to pursue investment opportunities through the
acquisition of existing outlets.

During the fiscal year ended June 30, 1996, the Company incurred a
loss of approximately $403,000, of which approximately $317,000 was related
to administrative costs in establishing the business and becoming a reporting
company. Furthermore, approximately $53,000 related to travel and
administrative costs in connection with the German expansion and approximately
$31,000 was due to losses in the Broadway store operation. During such
period, the Company raised approximately $815,000, $315,000 in connection
with the exercise of warrants, and $500,000 pursuant to an offering under
Section 504 of Regulation D promulgated under the Securities Act. The
Company plans to use the proceeds of the offering to open stores in Germany.

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The Company currently plans to organize a limited partnership
entity, with the Company as the general partner. The limited partnership
would acquire the rights to develop between 20 to 50 Java Girl coffee houses
in the United States during the next 12 months. No arrangements have been
made with respect to the capitalization of this limited partnership. The
Company believes that it must raise approximately $5,000,000 to $10,000,000
over the next twelve month period to develop the locations in the United
States. No assurance can be given that the Company will pursue this plan or
that if it does, it will succeed in raising the necessary capital.

In the event the Company develops new stores at a rate of
approximately five stores every six months, the Company believes that additional
financing will not be necessary to fund the expansion into Germany. However, if
the Company increases the number of stores to be opened in Germany over a
shorter period of time and sufficient cash flow is not generated from the new
stores, additional financing may be required by the end of the 1996 calendar
year.

The Company believes that in order to achieve profitable operations
in Germany, average annual sales of approximately $315,000 are required. In
the United States, the average store is projected to break even at
approximately $140,000 per annum.

During the fiscal year ended June 30, 1996, unaffiliated third
parties loaned the Company approximately $421,000. The loan proceeds are
being used for working capital purposes. The loans are unsecured and
non-interest bearing. The Company has received an oral indication of interest
to retire the indebtedness upon the condition that the Company become a
reporting company in accordance with the requirements of the Securities
Exchange Act of 1934, as amended. There have been no discussions regarding
the terms of the retirement of such indebtedness.

The Company expects to increase the number of its employees as new
coffee houses commence operations.

Item 3. DESCRIPTION OF PROPERTY

The Company's executive offices occupy approximately 500 square feet
of office space in Vancouver, British Columbia, Canada, under a month-to-month
lease which provides for rent of approximately $1,600 per month (including
receptionist and secretarial services). These facilities are adequate for the
Company's purposes. In the event additional space is required, the Company
believes it will be readily available.

The Company presently operates two retail coffee houses in Vancouver,
British Columbia, Canada. The Java Girl stores are

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located in leased premises. In December 1993, the Company opened its first
store (in which the Company owns a fifty percent (50%) joint venture
interest) in the lobby at the Richmond Inn Hotel, 7551 Westminster Highway,
Richmond, British Columbia, Canada. The premises contains approximately 200
square feet. The lease term expires December 31, 1996 with an option to
renew by the Company for an additional three years. The rent payable under
the lease agreement is 50% of net sales of the business at the premises, but
not less than a guaranteed minimum of approximately $365 per month.

The second store (in which the Company owns an eighty percent (80%)
joint venture interest), located at 500 West Broadway, was opened in July 1995
and consists of approximately 840 square feet. The rental is approximately
$2,100 per month. The lease expires July 31, 1999, with an option to renew for
an additional five years.

The Company recently completed the negotiations for a lease in
Chemnitz, Germany. The coffee house opened in July 1996 and is located in the
central Chemnitz marketplace. The store consists of approximately 500 square
feet. The lease term is three years with a renewal option for an additional
five-year term, and the rental is approximately $2,100 per month.

Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth information as of September 30, 1996, relating
to the beneficial ownership of the Company's Common Stock by (i) each person
known by the Company to be the beneficial owner of more than five percent of
the Company's outstanding Common Stock, (ii) each of the Company's directors,
(iii) the Company's Chief Executive Officer, and (iv) all officers and
directors of the Company as a group.

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NAME AND ADDRESS OF AMOUNT OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS

Robert P. Gillingham 1,750,000 26.6%
404-999 Canada Place
Vancouver, British Columbia,
Canada V6C 3E2

Ray Suutari 0 0
833 Edistel Crescent
Mississauga, Ontario,
Canada L5H 1P5

Greg Lampert 0 0
King International Group
West 7th St.
Los Angeles, California 90017

TABS Enterprises Ltd. 2,000,000(1) 23.3%
2754 Sylvan Place
Coquitlam, British Columbia
Canada

All directors and officers 1,750,000 26.6%
as a group (3 people)

- -----------------------------------

(1) Comprised of currently exercisable warrants to purchase 2,000,000 shares
for $.10 per share, which shares are deemed to be outstanding for purposes
of calculating the percentage ownership of TABS, but not for purposes of
calculating any other person's percentage ownership.

Item 5. Directors, Executive Officers, Promoters
AND CONTROL PERSONS

NAME AGE POSITION WITH THE COMPANY

Robert P. Gillingham 50 President and Director

Ray Suutari 64 Secretary and Director

Greg Lampert 39 Director

ROBERT P. GILLINGHAM. President of the Company since 1993. From 1990 to
1993, Mr. Gillingham was a self-employed consultant. For five years prior
thereto he served as President of Golden Crown Resources Ltd., a mining
exploration company involved in the development of a garnet deposit. He is a
Chartered Accountant and he articled with Coopers & Lybrand, Vancouver, Canada.

-13-

<PAGE>

RAY SUUTARI. Secretary of the Company. For more than the past five years,
Mr. Suutari has served as a lecturer, consultant, and Assistant Professor,
Wilfrid Laurier University, Waterloo, Ontario School of Business and Economics.

GREG LAMPERT. For more than the past five years, Mr. Lampert has served as
Managing Partner of King International Asset Group, a company involved in the
identification and implementation of new business ventures in the Japanese
market.

Item 6. EXECUTIVE COMPENSATION

None of the executive officers or directors of the Company presently
receives or has received a salary or other compensation from the Company. None
of the executive officers of the Company is employed pursuant to an employment
agreement. Mr. Gillingham, the President and Chief Executive Officer of the
Company, does not intend to request any compensation unless and until the
Company is profitable. In the future, the Company intends to pay fees and grant
stock options to its non-employee directors.

The Company does not currently have any stock option plans or long-
term incentive compensation plans. In addition, the Company does not award
stock appreciation rights, restricted stock awards or long-term incentive plan
pay-outs.

Item 7. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

From time to time, Mr. Gillingham, the controlling shareholder and
President of the Company, has made unsecured, non-interest bearing loans to
the Company as needed for working capital purposes. As of June 30, 1996, Mr.
Gillingham has made loans of approximately $56,500. The repayment of such
amount has been postponed until at least June 30, 1997 or additional working
capital is available. Interest has not been imputed as the loan was for cash
without attached rights or restrictions.

Mr. Klaus Henck is the Managing Director of Java Group (Deutschland)
Gmbh. The Company has loaned Mr. Henck's management company approximately
$32,000 as of June 30, 1996. The loan is unsecured, non-interest bearing and
is payable on demand and/or may be used as a credit against future
development fees earned by Mr. Henck's management company as a result of the
German expansion.

Item 8. DESCRIPTION OF SECURITIES

The Company's authorized capital stock consists of 50,000,000 shares
of Common Stock, par value $.0001 per share, of which 6,390,000 are presently
issued and outstanding (excluding 140,000 treasury shares). Each share of
Common Stock is entitled to one vote on all matters to be voted on by
stockholders, including the election of directors. At each election for
directors, every stockholder entitled to vote at such election shall have the
right to vote, in person or by proxy, the number of shares owned by them for as
many persons as there are directors to be elected and for whose election they
have a right to vote.

-14-

<PAGE>

COMMON STOCK

Subject to preferential rights with respect to any outstanding
Preferred Stock, none of which is presently issued and outstanding, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. In the event
of a liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights and have no rights to
convert their Common Stock into any other securities. All shares of Common
Stock have equal, non-cumulative voting rights, and have no preference,
exchange, preemptive or redemption rights. The outstanding shares of Common
Stock are fully paid and nonassessable.

There are no debt securities presently authorized, issued or
outstanding.

PART II

Item 1. MARKET PRICE OF AND DIVIDENDS
ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

Until April 4, 1994, there was no established trading market for the
Company's Common Stock. On that date, the Company's Common Stock was cleared
for trading under the symbol JVGI, on the electronic bulletin board maintained
by NASDAQ. The high and low bid quotations per share published by The NASDAQ
Stock Market, Inc. for the quarterly periods indicated are set forth below:

FISCAL YEAR HIGH LOW

1995

First Quarter................ No trading activity
Second Quarter............... 1.125 0.4375
Third Quarter................ 0.9375 0.50
Fourth Quarter............... 0.8125 0.1875

-15-

<PAGE>

1996

First Quarter................ 0.6875 0.1875
Second Quarter............... 0.6875 0.3125
Third Quarter................ 1.50 0.34375
Fourth Quarter............... 1.1563 0.65625

1997

First Quarter................ 0.78125 0.4375

The over-the-counter market quotations set forth in the foregoing
table reflect inter-dealer prices, without retail markup, markdown or
commission, and may not necessarily represent actual transactions.

As of September 30, 1996, the Company had approximately 161 holders of
record of its shares of Common Stock.

The Company has not paid any cash dividends and does not anticipate
that it will pay any cash dividends on its Common Stock in the foreseeable
future. Payment of dividends is within the discretion of the Company's Board of
Directors and will depend, among other factors, upon the Company's earnings,
financial condition and capital requirements.

Item 2. LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings which could have a
material adverse effect on its business.

Item 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

Item 4. RECENT SALES OF UNREGISTERED SECURITIES

Effective June 29, 1993, Avon Funding, Incorporated ("Avon"), a
Delaware corporation, merged with and into the Company, with the Company being
the surviving corporation. At the time of the merger, Avon was engaged in
discussions to acquire a direct mail company to sell multi-visional cassette
tapes and had no other business operations. In the merger, the stockholders of
Avon received 400,000 shares of the Company's Common Stock (250,000 shares of
which were issued to Patrick Brooks, the former President of the Company), which
represented approximately 14% of the Company's issued and outstanding Common
Stock, in exchange for all of their shares of Avon. Following consummation of
the merger, the Company contemplated raising funds through a rights offering.
However, due to the change in control of the Company and the adoption of a new
business plan discussed under the caption "Description of Business - General"
above, the Company elected not to commence the offering. The

-16-

<PAGE>

transactions were exempt from the registration requirements of the Securities
Act, by reason of Section 4(2) thereof.

Mr. Williams is no longer a shareholder of the Company.

On August 25, 1993, the Company sold 2,000,000 shares of its Common
Stock to a total of two persons at a price of $0.01 per share for an aggregate
cash consideration of $20,000. Of the 2,000,000 shares, Robert P. Gillingham,
President and principal stockholder of the Company, purchased 1,500,000 shares
for cash consideration of $15,000, and John Williams purchased 500,000 shares
for cash consideration of $5,000. The transactions were exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereof.

On February 28, 1996, the Company sold 1,000,000 units (the "Units")
to a total of twelve non-affiliates, at a price of $0.50 per Unit, each Unit
consisting of one (1) share of the Company's Common Stock and one (1) Common
Stock purchase warrant (the "Warrants"), which entitles the holder to purchase
one (1) share of the Company's Common Stock at a price of $0.50 during the term
commencing on February 28, 1996 and expiring February 28, 1997. The aggregate
consideration to the Company for the securities sold was $500,000. The offering
was consummated pursuant to Section 504 of Regulation D under the Securities
Act.

The Company has not sold any debt securities within the past three
years.

Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, subject to
various exceptions and limitations, the Company may indemnify its directors or
officers if such director or officer is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including an action by
or in the right of the Company by reason of the fact that he is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director or officer of another corporation) against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful, except, in the case of an action by or in the right of the
Company to procure a judgment in its favor, as to any matter which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his

-17-

<PAGE>

duty. The Company shall indemnify its directors or officers to the extent that
they have been successful on the merits or otherwise in defense of any such
action, suit or proceeding, or in the defense of any claim, issue or matter
therein, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith. In addition, Delaware law permits a
corporation to limit or eliminate the liability of a director to the corporation
and its shareholders for negligent breaches of such directors' fiduciary duties
in certain circumstances.

Article Tenth of the Certificate of Incorporation of the Company
provides that the Company shall indemnify its directors and officers to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented, or by any
successor thereto, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section. Such
right to indemnification shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The indemnification
provided for herein shall not be deemed exclusive of any other rights of which
those seeking indemnification may be entitled under any By-Law, agreement, vote
of stockholders or disinterested directors or otherwise.

-18-

<PAGE>

PART F/S

Please see the Consolidated Financial Statements appearing on F-1 to
F-22. The index to the Consolidated Financial Statements appears on page 21.

PART III

Item 1. INDEX TO EXHIBITS

See Index to Exhibits.

Item 2. DESCRIPTION OF EXHIBITS

Exhibit
NO. DESCRIPTION

2.(a) Registrant's Amended and Restated Certificate of
Incorporation
(b) Registrant's By-Laws
3. Specimen Common Stock Certificate
6.(a) Licensing and Development Agreement dated May 30, 1994
between T.A.B.S. Enterprises Ltd. and Java Group, Inc. and
464431 B.C. Ltd.
(b) Lease dated November 1, 1993 between Richmond Inn Hotel Ltd.
and Java Girl Coffee Ltd. and Klaus J. Henck
(c) Lease dated July 8, 1994 between Yorkson Investment Company
Ltd. and Java Group, Inc.
12. Additional Exhibits
(a) Consent of Elliot Tulk Pryce Anderson
21. Subsidiaries of the Registrant

-19-

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment
No. 2 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.

JAVA GROUP, INC.

By: /S/ ROBERT P. GILLINGHAM
------------------------------
Robert P. Gillingham,
President

Dated: November 7, 1996

-20-

<PAGE>

INDEX TO FINANCIAL STATEMENTS

Report of Public Accountants.................................................F-1
Consolidated Balance Sheets at June 30, 1996, 1995 and 1994..................F-2
Consolidated Statements of Operations Accumulated from
May 25, 1989 (Inception) to June 30, 1996 and the years ended June 30,
1996, 1995 and 1994......................................................F-3

Consolidated Statements of Stockholders' Equity Accumulated from
May 25, 1989 (Inception) to June 30, 1996................................F-4

Consolidated Statements of Cash Flows from May 25, 1989 (Inception)
to June 30, 1996 and the years ended June 30, 1996, 1995 and 1994........F-5

Notes to the Consolidated Financial Statements...............................F-6
to
F-10

<PAGE>

INDEX TO FINANCIAL STATEMENTS OF SIGNIFICANT EQUITY INVESTEES

A. Java Girl (Richmond Inn) Joint Venture

Report of Public Accountants...........................................F-11

Balance Sheets at June 30, 1996, 1995 and 1994.........................F-12

Statements of Joint Venturers' Equity for the years ended June 30,
1996, 1995 and the six months ended June 30, 1994.................F-13

Statements of Operations for the years ended June 30, 1996, 1995 and
the six months ended June 30, 1994................................F-14

Statements of Cash Flows for the years ended June 30, 1996, 1995
and the six months ended June 30, 1994............................F-15

Notes to the Financial Statements for the years ended June 30, 1996,
1995 and the six months ended June 30, 1994.......................F-16

B. Java Girl (North Vancouver) Limited Partnership

Report of Public Accountants...........................................F-17

Balance Sheets at June 30, 1996, 1995 and 1994 and unaudited Balance
Sheet at March 31, 1996...........................................F-18

Statements of Partners' Equity for the years ended June 30, 1996,
1995 and the four months ended June 30, 1994......................F-19

Statements of Operations for the years ended June 30, 1996, 1995
and the four months ended June 30, 1994...........................F-20

Statements of Cash Flows for the years ended June 30, 1996, 1995
and the four months ended June 30, 1994...........................F-21

Note to the Financial Statements for the years ended June 30,
1996, 1995 and the four months ended June 30, 1994................F-22

<PAGE>

Independent Auditor's Report

Shareholders and Board of Directors

We have audited the accompanying consolidated balance sheets of Java Group, Inc.
(A Development Stage Company) as of June 30, 1996, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows
accumulated from May 25, 1989 (Inception) to June 30, 1996 and the years ended
June 30, 1996, 1995 and 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Java Group, Inc. (A Development
Stage Company) as of June 30, 1996, 1995 and 1994 and the results of its
operations and its cash flows accumulated from May 25, 1989 (Inception) to June
30, 1996 and for the years ended June 30, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has not generated profitable operations since inception.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plan in regard to these matters are also discussed
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ Elliot Tulk

/s/ Pryce Anderson

CHARTERED ACCOUNTANTS

Vancouver, B.C., Canada
October 8, 1996

F-1

<PAGE>

Java Group, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
June 30, 1996, 1995 and 1994
(Expressed in U.S. Dollars)

1996 1995 1994
$ $ $
ASSETS
Current Assets
Cash 440,887 - 5,318
Accounts receivable 3,261 2,378 22
Loan receivable 32,523 - 5,500
Inventory 16,444 - -
Prepaid expenses 6,033 5,423 7,400
-------- ------- -------

499,148 7,801 18,240
Capital Assets (Note 6) 129,291 67,283 318
Long Term Investments (Note 5)
Joint Venture (50%) 9,266 3,444 9,265
Limited Partnership (49%) - - 4,586
-------- ------- -------

637,705 78,528 32,409
-------- ------- -------
-------- ------- -------

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable 17,182 25,009 9,369
Loans payable - demand (Note 8) 421,321 316,690 42,003
-------- ------- -------

438,503 341,699 51,372
Officer's Loan (Note 5) 56,500 1,412 4,182
-------- ------- -------

495,003 343,111 85,554
-------- ------- -------

Minority Interest 1,558 5,355 3,961
-------- ------- -------

Stockholders' Deficit
Common Stock (Note 10), 50,000,000 common shares
authorized, par value $0.0001 per share,
6,530,000 and 4,900,000 shares issued respectively,
140,000 of which are owned by the treasury and
6,390,000 shares are outstanding 653 490 490
Paid in Capital, subscriptions for stock paid
for in excess of par value 861,637 46,800 46,800
Deficit Accumulated During the Development Stage (721,146) (317,228) (104,396)
-------- ------- -------

141,144 (269,938) (57,106)
-------- ------- -------

637,705 78,528 32,409
-------- ------- -------
-------- ------- -------

Commitments (Note 11)

F-2

(The accompanying notes are an integral part of the financial statements)
<PAGE>

Java Group, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
Accumulated from May 25, 1989 (Inception) to June 30, 1996
and the years ended June 30, 1996, 1995 and 1994
(Expressed in U.S. Dollars)

<TABLE>
<CAPTION>
Accumulated
1996 1996 1995 1994
$ $ $ $
<S> <C> <C> <C> <C>
Coffee House Operations
Revenue 28,581 28,581 - -
-------- -------- -------- --------
Expenses
Amortization 7,844 7,844 - -
Bank charges 167 167 - -
Coffee and supplies 11,912 11,912 - -
Office 1,840 1,840 - -
Rent 27,569 27,569 - -
Royalties 1,429 1,429 - -
Telephone 1,047 1,047 - -
Travel and automobile 2,715 2,715 - -
Wages 15,239 15,239 - -
-------- -------- -------- --------
69,762 69,762 - -
-------- -------- -------- --------
Net loss before adjustment for
minority interest (41,181) (41,181) - -
Less minority interest 8,236 8,236 - -
-------- -------- -------- --------

Net loss (32,945) (32,945) - -
-------- -------- -------- --------
Head Office Expenses
Accounting and legal 127,265 76,479 37,369 13,417
Advertising 21,417 11,061 10,356 -
Amortization 1,126 376 - 120
Bank charges and interest 4,470 847 3,425 198
Consulting 50,851 47,161 - 3,690
Foreign exchange 4,292 3,616 676 -
Investor relations 124,607 53,768 52,318 18,521
Office, rent and telephone 177,412 91,739 58,517 27,156
Transfer agent 12,563 8,217 4,346 -
Travel and promotion 108,340 80,480 20,500 7,360
-------- -------- -------- --------
(632,343) (373,744) (187,507) (70,462)
-------- -------- -------- --------
Other Income and Losses
Interest income 3,945 3,945 - -
Other assets written off (26,540) - - (26,540)
Loss from equity investment (79,870) (1,174) (71,932) (6,764)
-------- -------- -------- --------
(102,465) 2,771 (71,932) (33,304)
-------- -------- -------- --------
Net loss from operations before
extraordinary item (767,753) (403,918) (259,439) (103,766)
Extraordinary item - extinguishment
of debt (Note 8) 46,607 - 46,607 -
-------- -------- -------- --------
Net Loss (721,146) (403,918) (212,832) (103,766)
-------- -------- -------- --------
-------- -------- -------- --------
Net Loss Per Share from operations before
extraordinary item (.07) (.05) (.02)
-------- -------- --------
-------- -------- --------
Net Loss Per Share (.07) (.04) (.02)
-------- -------- --------
-------- -------- --------
Weighted Average Shares Outstanding (Note 10) 5,518,000 4,763,000 4,909,000
-------- -------- --------
-------- -------- --------
</TABLE>
F-3
(The accompanying notes are an integral part of the financial statements)
<PAGE>

Java Group, Inc.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
Accumulated from May 25, 1989 (Inception) to June 30, 1996
(Expressed in U.S. Dollars)

<TABLE>
<CAPTION>
Deficit Accumulated
Issued Common Paid-In During the
Shares Stock Capital Development Stage
# $ $ $
<S> <C> <C> <C> <C>
Issuance of common stock 2,250,000 225 2,025
Net loss for the year
(105)
--------- --- ------- --------
Balance, December 31, 1989 2,250,000 22 52,025 (105)

Issuance of common stock 250,000 252 4,975
Net loss for the year
(150)
--------- --- ------- --------
Balance, December 31, 1990 2,500,000 250 27,000 (255)

Net loss for the year
(150)
--------- --- ------- --------
Balance, December 31, 1991 2,500,000 250 27,000 (405)

Net loss for the year
(150)
--------- --- ------- --------
Balance, December 31, 1992 2,500,000 250 27,000 (555)

Merger with Avon Funding, Inc. 400,000 40
Net loss for the six month period (75)
--------- --- ------- --------
Balance, June 30, 1993 2,900,000 290 7,000 (630)

Issuance of common stock 2,000,000 200 19,800
Net loss for the year (103,766)
--------- --- ------- --------
Balance, June 30, 1994 4,900,000 490 46,800 (104,396)
Net loss for the year (212,832)
--------- --- ------- --------
Balance, June 30, 1995 4,900,000 490 46,800 (317,228)

Regulation "D" financing at $0.50 1,000,000 100 499,900 -

Regulation "D" warrants exercised
at $0.50 630,000 633 14,937 -

Net loss for the year (403,918)
--------- --- ------- --------
*6,530,000 653 861,637 (721,146)
--------- --- ------- --------
--------- --- ------- --------
</TABLE>

* 140,000 shares previously issued are owned by the treasury and are not
outstanding (See Note 9).

F-4

(The accompanying notes are an integral part of the financial statements)
<PAGE>

Java Group, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
Accumulated from May 25, 1989 (Inception) to June 30, 1996
and the years ended June 30, 1996 and 1995 and 1994
(Expressed in U.S. Dollars)

Accumulated
1996 1996 1995 1994
$ $ $ $
<S> <C> <C> <C> <C>
Cash Flows to Operating Activities
Net loss (721,146) (403,918) (212,832) (103,766)
--------- -------- -------- --------
Adjustments to reconcile net loss to cash
Amortization 8,970 8,220 - 120
Development costs written-off 26,540 - - 26,540
Loss from equity investments 79,870 1,174 71,932 6,764
Extinguishment of debt (46,607) - (46,607) -
Cash provided by (used in) changes in
operating assets and liabilities
(Increase) in accounts receivable (3,261) (883) (2,356) (22)
(Increase) in inventory (16,444) (16,444) - -
Decrease (increase) in prepaid expenses (6,033) (610) 1,977 (7,400)
Increase (decrease) in accounts payable 17,182 (7,827) 15,640 9,369
(Increase) decrease in loan receivable (32,523) (32,523) 5500 (5,500)
--------- -------- -------- --------
Net Cash Used by Operating Activities (693,452) (452,811) (166,746) (73,895)
--------- -------- -------- --------
Cash Flows to Investing Activities
Increase in other assets (27,290) - --
Increase in capital assets (137,511) (70,228) (66,965) (318)
Increase in long term investments (89,136) (6,996) (61,525) (20,615)
--------- -------- -------- --------
Net Cash Used by Investing Activities (253,937) (77,224)(128,490) (20,933)
--------- -------- -------- --------
Cash Flows from (to) Financing Activities
Increase (decrease) in minority interest 1,558 (3,797) 1,394 3,961
Increase in shares issued 653 163 - 200
Increase in paid in capital 861,637 814,837 - 19,800
Increase (decrease) in loans from an officer 56,500 55,088 (32,770) 34,182
Increase in loans from others 467,928 104,631 321,294 42,003
--------- -------- -------- --------
Net Cash Provided by Financing Activities 1,388,276 970,922 289,918 100,146
--------- -------- -------- --------
Increase (decrease) in cash 440,887 440,887 (5,318) 5,318

Cash - beginning of year - - 5,318 -
--------- -------- -------- --------
Cash - end of year 440,887 440,887 - 5,318
--------- -------- -------- --------
--------- -------- -------- --------
Non-cash Financing Activity
Extinguishment of Debt for
no Cost (Note 8) - - - -
--------- -------- -------- --------
--------- -------- -------- --------
Cash Disclosures from Operating
Activities
Tax expense - - - -
--------- -------- -------- --------
--------- -------- -------- --------
Interest expense - - - -
--------- -------- -------- --------
--------- -------- -------- --------

</TABLE>

(The accompanying notes are an integral part of the financial statements)

F-5

<PAGE>

Java Group, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the years ended June 30, 1996, 1995 and 1994
(Expressed in U.S. Dollars)

1. Date of Incorporation

The Company is a development stage company which was incorporated under the
Laws of the State of Delaware on May 25, 1989.

2. Nature and Continuance of Business

Until August, 1993 the Company's business purpose was to create a publicly
held corporate vehicle suitable for merging with a privately held
corporation desirous of being publicly traded without affecting a
securities offering of its own. On August 25, 1993, a change of control
occurred in the company and a business plan was introduced to develop
coffee houses. The Company's name was changed to Java Group, Inc.

These consolidated financial statements have been prepared on the basis of
a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
has suffered start-up losses and has not generated profitable operations
since inception. The Company's activities are in the development stage and
additional costs for the development of coffee houses must be incurred.
There is substantial doubt as to the Company's ability to continue as a
going concern, as the continuation of the Company as a going concern is
dependent on its ability to obtain financing for the development of its
coffee houses and/or the attainment of profitable operations. Management
plans to raise capital through private placements and joint venture
partners.

3. Consolidated Financial Statements

These consolidated financial statements include the accounts of the Company
and its wholly owned Canadian subsidiary, 464431 B.C. Ltd. ("BC") and its
wholly owned German subsidiary Java Group (Deutschland) Gmbh ("Gmbh"). BC
has been consolidated with its 80% owned unincorporated joint venture which
commenced operations in July, 1995. Gmbh incurred certain overhead expenses
and capital costs associated with the opening of a coffee house in
Chemnitz, Germany, which opened for business on July 23, 1996. All
significant intercompany accounts have been eliminated.

4. Summary of Significant Accounting Policies

a) Long term investments

Long term investments are in the form of a 50% unincorporated joint
venture and a 49% owned limited partnership and are accounted for
utilizing the equity method.

b) Foreign exchange

Gains or losses arising from transactions denominated in a currency
other than the U.S. are recognized in the statement of operations.

c) Foreign subsidiary translation

Balance sheet items of foreign subsidiaries denominated in foreign
currency are translated using the rate of exchange on the balance
sheet date, statement of operation items are translated using the
average yearly rate of exchange.

F-6

<PAGE>

4. Summary of Significant Accounting Policies (continued)

d) Revenue recognition

Revenue is recognized on substantial completion of a sale.

e) Cash and cash equivalents

The Company considers all highly liquid investments with a maturity of
three months or less at the time of issuance to be cash equivalents.

f) Tax accounting

The Company has adopted SFAS 109 as of its inception. The Company has
incurred net operating losses as scheduled below:

Year of Loss Country Amount Expiration Date
$

1994 US 78,000 2009
Canada 7,000 2001
1995 US 140,000 2010
Canada 80,000 2002
1996 US 214,000 2011
Canada 33,000 2003

Pursuant to SFAS 109 the Company is required to compute tax asset
benefits for net operating loss carryforwards. Potential benefit of
net income losses have not been recognized in the financial statements
because the Company cannot be assured that it is more likely than not
that it will utilize the net operating loss carryforwards in future
years.

The components of the net deferred tax asset at the end of June 30,
1996, 1995 and 1994, the statutory tax rate, the effective tax rate
and the elected amount of the valuation allowance are scheduled below:

1996 1995 1994
$
Net Operating Loss - US 314,000 140,000 78,000
- Canadian 33,000 80,000 7,000
Statutory Tax Rate - US $22,250 + 39% $22,250 + 39% $13,750
+34%
in excess of in excess of in excess of
$100,000 $100,000 $75,000

- Canadian 45% 45% 45%
Effective Tax Rate - US and
Canadian - - -
Deferred Tax Asset - US 141,300 37,850 14,770
- Canadian 14,850 36,000 3,150
Valuation Allowance - US (141,300) (37,850) (14,770)
- Canadian (14,850) (36,000) (3,150)
--------- ---------- ---------
Net Deferred Tax Asset - - -
--------- ---------- ---------
--------- ---------- ---------

F-7

<PAGE>

4. Summary of Significant Accounting Policies (continued)

f) Tax accounting (continued)
The Company has $26,540 in US capital losses to carryover expiration
in 2000.
The Company has $8,000 in Canadian capital losses to carryover with no
expiration date.

5. Long Term Investments

Long term investments represent a 50% owned unincorporated joint venture and
a 49% owned limited partnership in the coffee house business in British
Columbia, Canada (see Note 7 - Licensing Agreement).

1996 1995 1994
$ $ $
Richmond (50% Joint Venture interest)

Contributions 32,003 25,007 16,029
Less accumulated share of loss (50%) (22,737) (21,563) (6,764)
------- ------- ------
9,266 3,444 9,265
------- ------- ------
------- ------- ------
North Vancouver Limited Partnership
(49% interest)
Contributions - 87,829 4,586
Loss from discontinued operations - (46,417) -
Coffee house equipment received
as repayment - (30,696) -
Write-down to net realizable
value - (10,716) -
------- ------- ------

- - 4,586
------- ------- ------
------- ------- ------

6. Capital Assets

1996 1995 1994
Amortization Accumulated Net Book Net Book Net Book
Rate Cost Amortization Value Value Value
(straight line) $ $ $ $ $

<S> <C> <C> <C> <C> <C> <C>
Computer equipment 3 years 12,983 376 12,607 - -
Store equipment 10 years 56,270 2,027 54,243 30,696 -
Start-up costs 10 years 30,962 3,050 27,912 23,719 318
Leaseholds 10 years 37,296 2,767 34,529 12,868 -
------- ------ -------- ------- ----
137,511 8,220 129,291 67,283 318
------- ------ -------- ------- ----
------- ------ -------- ------- ----
</TABLE>

F-8

<PAGE>

6. Capital Assets (continued)

1996 1995 1994
$ $ $
Depreciation per class of asset
Computer equipment 376 - -
Store equipment 2,027 - -
Start-up costs 3,050 - -
Leaseholds 2,767 - -
------ ----- ----
8,220 - -
------ ----- ----
------ ----- ----

7. Licensing Agreement

By licensing and development agreement dated May 10, 1994, the Company, and
its wholly-owned subsidiary 464431 B.C. Ltd., entered into an agreement
with T.A.B.S. (Two) Enterprises Ltd. ("TABS") (pursuant to assignment of
rights under agreement dated July 27, 1993 between the president, a former
director and Java Girl Coffee Ltd.). Under the agreement, the Company has
the option to specify locations that it has secured, by lease or other
arrangement, for coffee houses for which TABS thereby grants a license to
use the Java Girl name and its systems for the operation of each such
coffee house. TABS agrees to supervise the development and operations of
the coffee house, and is required to fund not less than 5% and not more
than 20% of all development costs of such coffee house. Each coffee house
will represent a joint venture in lieu of a 5% gross sales management fee
under the original agreement. TABS received an option to acquire 2,000,000
shares of Java Group, Inc. at $0.10 per share, expiring May 20, 1999 and is
entitled to a licensing fee equal to 5% of gross sales from each such
coffee house.

8. Loans Payable/Extraordinary Item

Non-directors have advanced $421,321 by way of unsecured, non-interest
bearing loans payable on demand. Interest has not been imputed as the loans
were for cash without attached rights or restrictions.
During fiscal 1995 a loan for $46,607 was extinguished at no cost and
included as an extraordinary item, net of taxes, in the determination of
net loss.

A 10% bonus was paid on a $25,000 loan repaid in fiscal 1995.

9. Officer's Loan

The amount due to the controlling shareholder and President of the Company
is unsecured, non-interest bearing and has been postponed until after June
30, 1997, unless a major equity financing has been completed. Interest has
not been imputed as the loan was for cash without attached rights or
restrictions.

10. Common Stock

a)Stock option

A stock option was granted to TABS to acquire 2,000,000 shares exercisable
at $0.10 per share expiring May 20, 1999 (see Note 7). This option, if
fully exercised, would have increased the weighted average shares
outstanding by 2,000,000 shares and decreased loss per share by $0.02 in
each of fiscal 1996, 1995 and 1994.

F-9

<PAGE>

10. Common Stock (continued)

b) Treasury shares

During fiscal 1995, the Company acquired 140,000 of its issued and
outstanding common stock at no cost. These shares are owned by the
treasury and issued, but not outstanding.

11. Commitments

a) The Company is jointly liable for royalty commitments pursuant to a
licensing agreement (See Note 7).

b) The Company is jointly liable for long term premises lease payments
for their 80% owned joint venture, to July 31, 1999. Future minimum
annual lease payments are $25,200 for fiscal 1996, 1997, 1998 and
1999.

c) The Company has entered into three long term premises lease
commitments in Germany totalling $7,000 per month for a five year
term.

d) The Company has entered into an agreement to establish coffee bars on
the premises of American Dream Snack Food Gmbh (A German Company).

F-10

<PAGE>

Independent Auditor's Report

Board of Directors

We have audited the accompanying balance sheet of Java Girl (Richmond Inn) Joint
Venture as of June 30, 1996, 1995 and 1994 and the related statements of
operations, joint venturers' equity and cash flows for the periods ended June
30, 1996, 1995 and 1994. These financial statements are the responsibility of
the Joint Venture's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Java Girl (Richmond Inn) Joint Venture as of
June 30, 1996, 1995 and 1994 and the results of its operations and its cash
flows for the periods ended June 30, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Joint
Venture will continue as a going concern. As discussed in Note 1 to the
financial statements, the Joint Venture has not generated profitable operations
since inception. These factors raise substantial doubt about the Joint Ventures
ability to continue as a going concern. Management's plan in regard to these
matters are also discussed in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ Elliot Tulk

/s/ Pryce Anderson

CHARTERED ACCOUNTANTS

Vancouver, B.C., Canada
September 30, 1996

F-11

<PAGE>

Java Girl (Richmond Inn) Joint Venture
Balance Sheets
June 30, 1996, 1995 and 1994
(Expressed in U.S. Dollars)

1996 1995 1994
$ $ $

ASSETS

Current Assets
Cash 1,130 329 1,642
Inventory 1,555 1,494 3,744
Prepaid expenses - 923 939
------- ------- -------
2,685 2,746 6,325
Capital Assets (Note 2) 14,483 17,161 19,058
------- ------- -------
17,168 19,907 25,383
------- ------- -------
------- ------- -------

LIABILITIES AND JOINT VENTURERS' EQUITY

Current Liabilities
Accounts payable and accrued liabilities
5,702 13,087 4,261
Joint Venturers' Equity 11,466 6,820 21,122
------- ------- -------
17,168 19,907 25,383
------- ------- -------
------- ------- -------

(Commitments - Note 3)

F-12

<PAGE>

Java Girl (Richmond Inn) Joint Venture
Statements of Joint Venturers' Equity
For the years ended June 30, 1996, 1995 and the
six months ended June 30, 1994
(Expressed in U.S. Dollars)

T.A.B.S. (Two)
Enterprises Ltd. 464431 B.C. Ltd. Total
$ $ $

Contributions during 1994 18,621 16,029 34,650
Share of loss for the six months (6,764) (6,764) (13,528)
------- ------- --------
Net equity at June 30, 1994 1,857 9,265 21,122
Contributions during 1995 6,318 8,978 15,296
Share of loss for the year (14,799) (14,799) (29,598)
------- ------- --------

Net equity at June 30, 1995 3,376 3,444 6,820
Contributions during 1996 - 6,996 6,996
Share of loss for the year (1,176) (1,174) (2,350)
------- ------- --------

Net equity at June 30, 1996 2,200 9,266 11,466
------- ------- --------
------- ------- --------

F-13

<PAGE>

Java Girl (Richmond Inn) Joint Venture
Statements of Operations
For the years ended June 30, 1996, 1995 and
the six months ended June 30, 1994
(Expressed in U.S. Dollars)

Six months
ended
June 30,
1996 1995 1994
$ $ $

Sales 38,692 41,356 20,722
------- ------- -------
Expenses
Accounting - 3,477 1,096
Amortization 1,910 1,897 787
Bank charges 19 1,375 456
Office 234 836 318
Purchases 13,969 22,196 6,671
Rent 4,380 4,477 1,805
Royalties 1,934 2,068 1,036
Telephone 352 741 331
Travel and automobile 720 - 94
Wages 17,524 33,887 21,656
------- ------- -------
41,042 70,954 34,250
------- ------- -------

Net Loss 2,350 29,598 13,528
------- ------- -------
------- ------- -------

Allocated as Follows:
T.A.B.S. (Two)
Enterprises Ltd. 1,176 14,799 6,764
464431 B.C. Ltd. 1,174 14,799 6,764
------- ------- -------
2,350 29,598 13,528
------- ------- -------
------- ------- -------

F-14

<PAGE>

Java Girl (Richmond Inn) Joint Venture
Statements of Cash Flows
For the years ended June 30, 1996, 1995 and
the six months ended June 30, 1994
(Expressed in U.S. Dollars)

Six months
ended
June 30,
1996 1995 1994
$ $ $

Cash Flows to Operating Activities
Net Loss (2,350) (29,598) (13,528)
Adjustment to reconcile net
loss to cash
Amortization 1,910 1,897 787

Cash Provided by (Used in) Changes in
Operating Assets and Liabilities
(Increase) decrease in
inventory (61) 2,250 (3,744)
(Increase) decrease in
prepaid expenses 923 16 (939)
(Increase) decrease in
accounts payable (7,385) 8,826 4,261
------- ------- -------

Net Cash Provided By (Used in)
Operating Activities (6,963) (16,609) (13,163)
------- ------- -------

Cash Flows to Investing Activities
(Increase) in capital assets - - (19,845)
------- ------- -------

Net Cash Used by Investing Activities - - (19,845)
------- ------- -------

Cash Flows from Financing Activities
Foreign currency translation 768 - -
Contributions by Joint Venturers 6,996 15,296 34,650
------- ------- -------

Net Cash Provided by Financing
Activities 7,764 15,296 34,650
------- ------- -------

Increase (decrease) in cash 801 (1,313) 1,642
Cash - beginning of period 329 1,642 -
------- ------- -------

Cash - end of period 1,130 329 1,642
------- ------- -------
------- ------- -------

F-15

<PAGE>

Java Girl (Richmond Inn) Joint Venture
Notes to the Financial Statements
For the years ended June 30, 1996, 1995 and
the six months ended June 30, 1994
(Expressed in U.S. Dollars)

1. Nature and Continuance of Business

The joint venture is unincorporated and was formed on January 1, 1994 to
own and operate a coffee house business in The Richmond Inn, Richmond,
B.C., Canada. Business commenced on January 21, 1994. The assets and
liabilities are owned by the joint venture and do not include any assets or
liabilities of the joint venturers. Income taxes are the responsibility of
each joint venturer.

These financial statements have been prepared on the basis of a going
concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Joint Venture has
suffered start-up losses and has not generated profitable operations since
inception. There is substantial doubt as to the Joint Ventures ability to
continue as a going concern, as the continuation of the Joint Venture as a
going concern is dependent on its ability to obtain financial support from
the joint venturers and/or the attainment of profitable operations.

2. Capital Assets

Capital assets are stated at cost less accumulated amortization at the rate
of 10% per annum straight-line.

<TABLE>
<CAPTION>
1996 1995 1994
Accumulated Net Carrying Net Carrying Net Carrying
Cost Amortization Value Value Value
$ $ $ $ $
<S> <C> <C> <C> <C> <C>

Equipment 8,866 2,143 6,723 7,966 8,846
Furniture and
fixtures 10,234 2,474 7,760 9,195 10,212
------ ----- ------ ------ ------
19,100 4,617 14,483 17,161 19,058
------ ----- ------ ------ ------
------ ----- ------ ------ ------

</TABLE>

3. Commitments
a) A royalty of 5% of sales is payable.

b) Rent of premises is on a month to month basis at the greater of 50% of
net sales, defined as sales less cost of sales, labour and benefits,
or $365 per month. As 50% of net sales is less than $365 per month,
the Company has paid only the $365 per month to date.

F-16

<PAGE>

ELLIOT TULK PRYCE ANDERSON
CHARTERED ACCOUNTANTS [ETPA LOGO]

Independent Auditor's Report

Board of Directors

We have audited the accompanying balance sheet of Java Girl (North Vancouver)
Limited Partnership as of June 30, 1996, 1995 and 1994 and the related
statements of operations, partners' equity and cash flows for the periods ended
June 30, 1996, 1995 and 1994. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Java Girl (North Vancouver) Limited
Partnership as of June 30, 1996, 1995 and 1994 and the results of its operations
and its cash flows for the periods ended June 30, 1996, 1995 and 1994 in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Limited
Partnership is a going concern. As discussed in Note 1 to the financial
statements, the Limited Partnership has not generated profitable operations
since inception and has closed down as of June 7, 1995.

/s/ Elliott Tulk
/s/ Pryce Anderson

CHARTERED ACCOUNTANTS

Vancouver, B.C., Canada
September 30, 1996

F-17

<PAGE>

Java Girl (North Vancouver) Limited Partnership
Balance Sheets
June 30, 1996, 1995 and 1994
(Expressed in U.S. Dollars)

1996 1995 1994
$ $ $

ASSETS

Current Assets
Cash - 272 -
Accounts receivable - 3,197 9,842
Inventory - - 840
Prepaid expenses - - 10,161
------- ------- -------
- 3,469 20,843
Capital Assets - - 13,463
------- ------- -------
- 3,469 34,306
------- ------- -------
------- ------- -------

LIABILITIES AND PARTNERS' EQUITY
Current Liabilities
Accounts payable 1,000 7,595 -

Partners' Equity (Deficit) (1,000) (4,126) 34,306
------- ------- -------
- 3,469 34,306
------- ------- -------
------- ------- -------

F-18

<PAGE>

Java Girl (North Vancouver) Limited Partnership
Statement of Partners' Equity (Deficit)
For the year ended June 30, 1995 and the
four months ended June 30, 1994
(Expressed in U.S. Dollars)

Forward Key T.A.B.S. (Two)
General 464431 Investments Enterprises
Partners B.C. Ltd. Inc. Ltd.
(1%) (49%) (45%) (5%) Total
$ $ $ $ $
<S> <C> <C> <C> <C> <C>

Contributions during 1994 - 4,586 29,720 - 34,306

Share of loss for the four
month period - - - - -
------ ------- ------- ------ --------
Net equity at June 30, 1994 - 4,586 29,720 - 34,306

Contributions during 1995 - 83,243 19,906 5,580 108,729

Repayments during 1995 - (30,696) - - (30,696)

Share of loss for
the year (1,165) (57,068) (52,409) (5,823) (116,465)
------ ------- ------- ------ --------

Net equity (deficit) at
June 30, 1995 (1,165) 65 (2,783) (243) (4,126)

Share of income for
the year 165 (65) 2,783 243 3,126
------ ------- ------- ------ --------

Net deficit at
June 30, 1996 (1,000) - - - (1,000)
------ ------- ------- ------ --------
------ ------- ------- ------ --------

</TABLE>

F-19

<PAGE>

Java Girl (North Vancouver) Limited Partnership
Statements of Operations
For the years ended June 30, 1996, 1995 and
the four months ended June 30, 1994
(Expressed in U.S. Dollars)

Four months
ended
June 30,
1996 1995 1994
$ $ $

Sales - 15,535 -
------ ------- ------
Expenses
Accounting - 2,274 -
Advertising - 487 -
Bank charges - 163 -
Office - 393 -
Purchases - 12,297 -
Rent and utilities (3,126) 17,520 -
Royalties - 778 -
Telephone - 620 -
Wages - 15,775 -
------ ------- ------
(3,126) 50,307 -
------ ------- ------

Income (loss) from operations (3,126) (34,772) -

Capital assets and start-up
costs written off - (81,693) -
------ ------- ------

Net Income (Loss) (3,126) (116,465) -
------ ------- ------
------ ------- ------

F-20

<PAGE>

Java Girl (North Vancouver) Limited Partnership
Statements of Cash Flows
For the years ended June 30, 1996, 1995 and
the four months ended June 30, 1994
(Expressed in U.S. Dollars)

Four months
ended
June 30,
1996 1995 1994
$ $ $

Cash Flows to Operating Activities

Net (Income) Loss 3,126 (116,465) -

Adjustment to reconcile net
income (loss) to cash

Capital assets and start-up
costs written off - 81,693 -

Cash Provided by (Used in) Changes in
Operating Assets and Liabilities

(Increase) decrease in
accounts receivable 3,197 6,645 (9,842)
(Increase) decrease in inventory - 840 (840)
(Increase) decrease in
prepaid expenses - 10,161 (10,161)
Increase (decrease) in
accounts payable (6,595) 7,595 -
------ ------- ------

Net Cash Used in Operating Activities (272) (9,531) (20,843)
------ ------- ------

Cash Flows to Investing Activities
(Increase) in capital assets - (98,926) (13,463)
------ ------- ------

Net Cash to Investing Activities - (98,926) (13,463)
------ ------- ------

Cash Flows from Financing Activities
Contributions by Partners - 108,729 34,306
------ ------- ------

Net Cash Provided by Financing Activities - 108,729 34,306
------ ------- ------

Increase (decrease) in cash (272) 272 -
Cash - beginning of period 272 - -
------ ------- ------

Cash - end of period - 272 -
------ ------- ------
------ ------- ------

F-21

<PAGE>

Java Girl (North Vancouver) Limited Partnership
Note to the Financial Statements
For the years ended June 30, 1996, 1995 and
the four months ended June 30, 1994
(Expressed in U.S. Dollars)

Nature and Continuance of Business

The limited partnership was formed on March 7, 1994 to own and operate a coffee
house in North Vancouver, B.C., Canada. Business commenced on February 1, 1995
and closed on June 7, 1995.

F-22

<PAGE>

Elliott Tulk Pryce Anderson [LOGO]
Chartered Accountants

November 5, 1996

Board of Directors
Java Group, Inc.
404-999 Canada Place
Vancouver, B.C. V6C 3E2

Dear Ladies and Gentlemen:

Re: Java Group, Inc.

We consent to the use of our reports dated October 8, 1996 on the financial
statements of Java Group, Inc., Java Girl (Richmond Inn) Joint Venture, and
Java Girl (North Vancouver) Limited Partnership all as of June 30, 1996, 1995
and 1994 in Amendment No. 2 to the Form 10-SB filing.

Yours truly,
ELLIOTT, TULK, PRYCE, ANDERSON

/s/ Don Prest
- ----------------------
Don M. Prest, C.A.
Partner

Encl.

DMP/mvk