U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SMALL BUSINESS ISSUERS UNDER THE 1934 ACT
UNDER SECTION 12(B) OR 12 (G) OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
PEABODYS COFFEE, INC.
(Name of Small Business Issuer in its Charter)
Nevada 98-0209293
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
3845 Atherton Road, Suite 9
Rocklin, California 95765
(Address of Principal Executive Office (ZipCode)
(916) 632-6090
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 Par Value
(Title of Class)
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TABLE OF CONTENTS
PART I (Alternative 2)
Item 1 Description of Business..............................................3
Item 2 Description of Property.............................................25
Item 3 Directors, Executive Officers and Significant Employees.............26
Item 4 Remuneration of Directors and Officers..............................27
Item 5 Security Ownership of Management and Certain Securityholders........28
Item 6 Interest of Management and Others in Certain Transactions...........29
Item 7 Securities Being Offered............................................29
PART II
Item 1 Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters................................31
Item 2 Legal Proceedings...................................................32
Item 3 Changes in and Disagreements with Accountants.......................32
Item 4 Recent Sales of Unregistered Securities.............................33
Item 5 Indemnification of Directors and Officers...........................34
PART F/S......................................................................36
PART III
Item 1 Index to Exhibits....................................................37
SIGNATURES....................................................................38
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PART I (Alternative 2)
ITEM 1. DESCRIPTION OF BUSINESS
(FORM 1-A MODEL B ITEM 6)
OVERVIEW
Peabodys Coffee, Inc., a Nevada corporation (the "Company" or "Peabodys"),
is in the business of selling specialty coffee drinks. Peabodys sells its coffee
drinks by the use of coffee espresso bars (kiosks), positioned in corporate and
institutional locations. Peabodys believes that the highest level of growth,
stability and return on investment in the specialty coffee market is available
through targeting a "captive" market niche, and by avoiding direct competition
with "retail" companies such as Starbucks, Diedrich Coffee, Seattle's Best and
others located in fixed, store-fronts locations. As described in detail below,
Peabodys' kiosks require comparatively lower levels of capital investment,
overhead and advertising, and are simple to operate.
Peabodys' kiosks, while usually appearing permanent, are portable and often
completely self- contained, with the exception of power. They are generally
located in commercial and educational facilities, including corporate offices,
industrial facilities, office buildings, universities, colleges, hospitals and
entertainment venues. Peabodys' marketing strategy is to enter into subcontracts
with companies having general contracts for food services for the above sites,
which allow Peabodys to locate its coffee kiosks in the sites in exchange for a
percentage of the gross revenue generated by the kiosks. Three of Peabodys'
largest foodservice provider clients, Sodexho-Marriot, The Compass Group and
ARAMARK, control more than 8,500 institutional foodservice sites across the
country (Nations Restaurant News Special Report-Top 100 Contract Chains 1999),
providing the Company with the opportunity for growth, although the Company
recognizes that not all of these sites are suitable locations for the Company's
kiosks.
The Company is currently operating 26 kiosk outlets and has achieved
profitability at the "unit level" at 24 of these locations. The Company
designates a kiosk to be profitable at the "unit level" when the kiosk generates
net income after accounting for all expenses directly related to the specific
unit. These direct expenses consist of: cost of goods sold, occupancy costs,
operating expenses and fully loaded labor costs which include employer
contributions, benefits and workers compensation.
Despite the "unit level" profitability described above, the Company has not
been profitable. As the accompanying financial statements show, in its last
fiscal year which ended on March 31, 1999, the Company had a net loss from
operations of $632,359, indicating that any profits at the unit level are
overshadowed by the company's expenses at the corporate level. These corporate
level expenses consist of: (i) corporate salaries; (ii) professional fees
(primarily legal and accounting); (iii) consultant fees; (iv) lease payments and
related expenses to maintain corporate offices; (v) insurance premiums; (vi)
interest expense on Company debt; and (vii) depreciation expense on the
Company's capital assets, which consist primarily of the kiosks. The Company's
balance sheet for the end of its last fiscal year showed a shareholders' deficit
of $929,526, and current liabilities exceeding current assets by $1,410,877.
Because of the Company's operating losses and financial situation, note 3
of the accompanying financial statements expresses a "going concern opinion:"
These statements are presented on the basis that the Company is an
on-going concern.
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Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a
reasonable length of time. The accompanying financial statements show
a loss from the results of operations of $632,359, that the Company
has a shareholders' deficit of $929,526, and current liabilities
exceed current assets by $1,410,877. Without an infusion of additional
capital, the Company's ability to continue operations is doubtful.
In order to address the issue of the Company's continuation as a going
concern, the Company has taken the following actions:
First, the Company is negotiating for the acquisition of the assets of
Arrosto Coffee Company LLC ("Arrosto"). The Company is currently conducting due
diligence with respect to those assets. The terms set forth in a nonbinding
letter of intent between the companies provide for the assets to be acquired in
exchange for shares of the Company's common stock, with the assets including a
coffee roasting plant, which the Company estimates could lower its roasted
coffee costs by approximately 35%. It appears at this time, however, that the
terms of the acquisition will not be as set forth in the nonbinding letter of
intent, and there is some doubt as to whether the transaction will go forward at
all.
Second, the Company is seeking to eliminate a minimum of $1 million of debt
from its balance sheet by offering to debt holders the opportunity to convert
their debt into common stock. So far this has resulted in debt conversion and/or
debt forgiveness totaling approximately $975,000. The debt conversion/debt
forgiveness transactions have consisted of the following (amounts are
approximate): (i) conversion of notes, which were in default, resulted in
$305,00 of principal converted, and $203,000 of interest forgiven; (ii) $31,000
of trade debt was converted into stock, and $26,000 of trade debt has been
forgiven; (iii) short term notes, with principal values totaling $167,000, were
converted into common stock (used by the noteholders to exercise options held by
the noteholders); and (iv) $240,000 of debt for professional services was
forgiven. These transactions that were effected in the third and fourth quarters
of the Company's fiscal year ending March 31, 2000 ("fiscal 2000"); therefore,
these amounts are not reflected in the quarterly financial statements for the
first six months of fiscal 2000, but are reflected in the financial statements
for the quarter ending December 31, 1999. Although this debt
conversion/forgiveness will improve the appearance of the Company's balance
sheet, and therefore assist the Company in raising investment capital, it will
not directly improve the profitability of the Company's operations.
Third, the Company believes that becoming a "reporting company" will
facilitate its efforts to attract new capital.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
The preparation of this section requires management to make estimates and
assumptions about the past, current and future activities, business practices,
and financial records of the Company. Actual results may differ from these
estimates and assumptions. Foreseeable risks and uncertainties are described
elsewhere in this report and in detail under "Risk Factors Affecting the
Company".
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RESULTS OF OPERATIONS - FOR THE TWELVE MONTHS ENDED MARCH 31, 1999, COMPARED TO
THE TWELVE MONTHS ENDED MARCH 31, 1998
Review of the Statements of Loss and Accumulated Debt for 1999 and 1998
fiscal years shows a substantial one-year decrease at year-end in the Net Loss,
a significant ongoing increase in the Accumulated Deficit at year-end, and only
small increases of Sales and Gross Profits in fiscal 1999.
The problem cited below for the six-month-ended results of operations in
September 30, 1998 and 1999 regarding the insufficient business base of 27
kiosks is present in these fiscal year operating statements also. Although, the
Net Loss is reduced in 1999, it is still very substantial and indicates poor
operating performance. The other critical factor is that Sales and Gross Profits
are stagnant due to the Company's inability to raise sufficient capital for
growth.
REVENUES
Net revenues for the twelve months ended March 31, 1999, increased 5.1% to
$1,794,838 from $1,708,197 for the corresponding period in fiscal 1998. This was
due primarily to an increase in the number of operating kiosks from 21 to 23.
Retail kiosk and cart sales accounted for 100% of revenues for both periods. For
the twelve months ended March 31, 1999, net revenue was generated from 6
different clients and special events, with the largest client being Sodexho
Marriott, representing 42.6% of total net revenue.
COSTS AND EXPENSES
Cost of goods sold for the twelve months ended March 31, 1999 decreased to
$685,176 from $693,770 for the same period in fiscal 1998. As a percentage of
net revenues, cost of goods sold decreased to 38.2% for the twelve months ended
March 31, 1999 from 40.6% for the comparable period in fiscal 1998. The decrease
as a percentage of net revenues was primarily due to increased purchasing power
and an increase in comparable store sales resulting in lower product wastage.
Occupancy costs for the twelve months ended March 31, 1999 increased to
$303,101 from $293,195 for the same period in fiscal 1998. As a percentage of
net revenues, occupancy costs decreased to 16.9% for the twelve months ended
March 31, 1999 from 17.2% for the comparable period in fiscal 1998. The decrease
as a percentage of net revenues was primarily due to lower revenue sharing rates
resulting from new client contracts at lower revenue sharing rates.
Employee compensation and benefits for the twelve months ended March 31,
1999 decreased to $929,879 from $1,075,197 for the same period in fiscal 1998.
As a percentage of net revenues, employee compensation and benefits decreased to
51.8% for the twelve months ended March 31, 1999 from 63.0% for the comparable
period in fiscal 1998. The decrease as a percentage of net revenues was
primarily due to staff reductions at the corporate office and improved
scheduling at the operating unit.
General and administrative expenses for the twelve months ended March 31,
1999 decreased to $257,659 from $276,584 for the same period in fiscal 1998.
General and administrative expenses for the twelve months ended March 31, 1999
remained consistent with the comparable period in fiscal 1998.
Director and professional fees for the twelve months ended March 31, 1999
decreased to $110,325 from $135,188 for the same period in fiscal 1998. As a
percentage of net revenues, director and professional fees
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decreased to 6.1% for the twelve months ended March 31, 1999 from 7.9% for the
comparable period in fiscal 1998. The increase as a percentage of net revenues
was primarily due to cuts in the usage of professional fees.
Depreciation expense for the twelve months ended March 31, 1999 increased
to $101,057 from $86,610 for the same period in fiscal 1998. As a percentage of
net revenues, depreciation expense increased to 5.6% for the twelve months ended
March 31, 1999 from 5.1% for the comparable period in fiscal 1998. The increase
was primarily due to the purchase of additional assets.
Interest expense for the twelve months ended March 31, 1999 increased to
$105,727 from $79,166 for the same period in fiscal 1998. As a percentage of net
revenues, interest expense decreased to 3.9% for the six months ended September
30, 1999 from 4.1% for the comparable period in 1998. The increase was primarily
due to increased interest bearing debt associated with accrued interest on the
Bridge Note.
Net loss decreased 29% from $1,036,871 in 1998 to $738,086 in the 1999
fiscal year. This large decrease was driven primarily by the disproportionate
decrease in operating expenses and the dominant magnitude of operating expenses
relative to gross profit.
RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO
THE SIX MONTHS ENDED SEPTEMBER 30, 1998
Review of the interim Statements of Loss and Accumulated Deficit for the
six months ended September 30, 1999 and 1998 show that there are substantial
increases in the Net Loss and Accumulated Deficit in the second and third
quarters of 1999 in spite of increases in Sales and Gross Profits.
This substantial Net Loss and Accumulated Deficit in 1998 and the further
growth of both factors in 1999 indicate poor operating performance in 1998 and
even poorer performance in 1999. This problem is being driven by an insufficient
business base of only 28 kiosks or less in both of the reporting periods. This
is particularly apparent as Gross Profit increased to $625,184 for the six
months ended September 30, 1999 from $523,916 for the corresponding period in
fiscal 1999, while Total Operating Expenses increased to $1,014,867 for the six
months ended September 30, 1999 from $752,822 for the corresponding period in
fiscal 1999.
REVENUES
Net revenues for the six months ended September 30, 1999 increased 26.9 %
to $1,054,785 from $831,389 for the corresponding period in 1998. This was due
primarily to an increase in the number of operating kiosks from 22 to 27. Retail
kiosk and cart sales accounted for 100% of the revenues for both periods. For
the six months ended September 30, 1999, net revenue was generated from 10
different clients and special events, with the largest client being Compass
Group USA, representing 29.9% of total net revenue.
COSTS AND EXPENSES
Cost of goods sold for the six months ended September 30, 1999 increased to
$429,601 from $307,473 for the same period in 1998. As a percentage of net
revenues, cost of goods sold increased to 40.7% for the six months ended
September 30, 1999 from 37.0% for the comparable period in 1998. The increase as
a
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percentage of net revenues was primarily due to a slow payment history resulting
in a decrease in purchasing power.
Occupancy costs for the six months ended September 30, 1999 increased to
$152,472 from $137,850 for the same period in 1998. As a percentage of net
revenues, occupancy costs decreased to 14.5% for the six months ended September
30, 1999 from 16.6% for the comparable period in 1998. The decrease as a
percentage of net revenues was primarily due to lower revenue sharing rates
resulting from both renegotiated contracts and new client contracts at lower
revenue sharing rates.
Employee compensation and benefits for the six months ended September 30,
1999 increased to $576,420 from $417,991 for the same period in 1998. As a
percentage of net revenues, employee compensation and benefits increased to
54.6% for the six months ended September 30, 1999 from 50.3% for the comparable
period in 1998. The increase as a percentage of net revenues was primarily due
to the additional management costs associated with the Company entering into a
new demographic market with the acquisition of four Northern Lights Coffee
kiosks in San Diego.
General and administrative expenses for the six months ended September 30,
1999 increased to $148,724 from $91,488 for the same period in 1998. As a
percentage of net revenues, general and administrative expenses increased to
14.1% for the six months ended September 30, 1999 from 11.0% for the comparable
period in 1998. The increase as a percentage of net revenues was primarily due
to increased travel expenses and training costs resulting from the Company
entering a new market in San Diego, the integration of the Northern Lights
Coffee acquisition and increased corporate office rent due to the relocation of
the Company's corporate office.
Director and professional fees for the six months ended September 30, 1999
increased to $87,748 from $57,857 for the same period in 1998. As a percentage
of net revenues, director and professional fees increased to 8.3% for the six
months ended September 30, 1999 from 7.0% for the comparable period in 1998. The
increase as a percentage of net revenues was primarily due to the engagement of
an investor relations firm and the development of the Company's web-site.
Depreciation expense for the six months ended September 30, 1999 increased
to $49,503 from $47,636 for the same period in 1998. The increase was primarily
due to the acquisition of fixed assets associated with the Northern Lights
Coffee purchase in April of 1999.
Interest expense for the six months ended September 30, 1999 increased to
$41,279 from $34,268 for the same period in 1998. The increase was primarily due
to interest cost related to an increase in short- term borrowing.
Net loss for the six months ended September 30, 1999 increased to $430,962
from $263,174 for the same period in 1998. As a percentage of net revenues, net
losses increased to 40.9% for the six months ended September 30, 1999 from 31.7%
for the comparable period in 1998. The increase as a percentage of revenues was
primarily due to additional charges incurred to prepare the Company for the
Mine-A-Max merger.
OTHER EVENTS
In April 1999, the Company purchased the assets of a coffee company in San
Diego, California for $120,000 and 2,500 shares of common stock of the Company.
The purchase price has been allocated to the
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acquired assets on the basis of their estimated fair value on the date of
acquisition and are including in the Company's quarterly financial statements
from the date of acquisition.
On June 30, 1999, Mine-A-Max Corporation, a public shell corporation,
acquired 88% of the outstanding stock of Peabodys Coffee, Inc., at which time
Peabodys was merged into Mine-A Max. Twelve percent of Peabodys California
shareholders have dissenter rights, which could be exercised. For accounting
purposes the acquisition will be treated as a recapitalization of Peabodys, with
Peabodys as the acquirer (reverse acquisition). Proforma statements are not
provided given the merger is to be considered a reverse acquisition and not a
business combination. Subsequent to the merger, Peabodys' stockholders own
95.82% of the recapitalized company. The Mine-A-Max balance sheet is including
in the Company's quarterly financial statements as of the date of merger.
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED DECEMBER 31, 1999, COMPARED TO
THE NINE MONTHS ENDED DECEMBER 31, 1998
REVENUES
Net revenues for the nine months ended December 31, 1999, increased 23.3%
to $1,577,233 from $1,279,100 for the corresponding period in 1998. This was due
primarily to an increase in the number of operating kiosks from 22 to 28. Retail
kiosk and cart sales accounted for 100% of the revenues for both periods. For
the nine months ended December 31, 1999, net revenue was generated from 10
different clients and special events, with the largest client being Compass
Group USA, representing 30.0% of total net revenue.
COSTS AND EXPENSES
Cost of goods sold for the nine months ended December 31, 1999 increased to
$632,052 from $485,836 for the same period in 1998. As a percentage of net
revenues, cost of goods sold increased to 40.1% for the nine months ended
December 31, 1999 from 38.0% for the comparable period in 1998. The increase as
a percentage of net revenues was primarily due to a slow payment history
resulting in a decrease in purchasing power.
Occupancy costs for the nine months ended December 31, 1999 increased to
$233,609 from $211,958 for the same period in 1998. As a percentage of net
revenues, occupancy costs decreased to 14.8% for the nine months ended December
31, 1999 from 16.6% for the comparable period in 1998. The decrease as a
percentage of net revenues was primarily due to lower revenue sharing rates
resulting from both renegotiated contracts and new client contracts at lower
revenue sharing rates.
Employee compensation and benefits for the nine months ended December 31,
1999 increased to $851,581 from $668,361 for the same period in 1998. As a
percentage of net revenues, employee compensation and benefits increased to
54.0% for the nine months ended December 31, 1999 from 52.3% for the comparable
period in 1998. The increase as a percentage of net revenues was primarily due
to the additional management costs associated with the Company entering into a
new demographic market with the acquisition of four Northern Lights Coffee
kiosks in San Diego.
General and administrative expenses for the nine months ended December 31,
1999 increased to $207,268 from $203,805 for the same period in 1998. As a
percentage of net revenues, general and
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administrative expenses decreased to 13.1% for the nine months ended December
31, 1999 from 15.9% for the comparable period in 1998.
Director and professional fees for the nine months ended December 31, 1999
increased to $166,168 from $72,820 for the same period in 1998. As a percentage
of net revenues, director and professional fees increased to 10.5% for the nine
months ended December 31, 1999 from 5.7% for the comparable period in 1998. The
increase as a percentage of net revenues was primarily due to the engagement of
an investor relations firm and increased legal and accounting fees associated
with filing the Company's Form 10-SB registration statement.
Depreciation expense for the nine months ended December 31, 1999 increased
to $86,636 from $76,286 for the same period in 1998. The increase was primarily
due to the acquisition of fixed assets associated with the Northern Lights
Coffee purchase in April of 1999.
Interest expense for the nine months ended December 31, 1999 increased to
$64,815 from $64,784 for the same period in 1998. The increase was primarily due
to interest cost related to an increase in short- term borrowing.
Operating losses for the nine months ended December 31, 1999 increased to
$600,081 from $479,966 for the same period in 1998. As a percentage of net
revenues, operating losses increased to 38.0% for the nine months ended December
31, 1999 from 37.5% for the comparable period in 1998. The increase as a
percentage of revenues was primarily due to increased professional fees
associated with filing the Company's Form 10-SB registration statement.
Overall net loss for the nine months ended December 31, 1999 decreased to
$208,545 from $544,750 for the same period in 1998. As a percentage of net
revenues, net losses decreased to 13.2% for the nine months ended December 31,
1999 from 42.6% for the comparable period in 1998. The decrease as a percentage
of revenues was primarily due to debt forgiveness associated with the
restructuring of the Company's balance sheet.
YEAR 2000
As a result of the preparation and series of analysis and tests performed
before, during and after December 31, 1999, the Company did not experience any
significant disruption in information technology or operations as a result of
the date change-over to the year 2000.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company ended the period with a working capital
deficit of $1,072,225. Cash and cash equivalents decreased $80,651 during the
nine months ended December 31, 1999. Cash utilized by operating activities
totaled $314,902 for the first nine months of fiscal 2000, primarily due to a
net loss of $208,546 and a combined decrease in accounts payable and accrued
expenses of $168,615.
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Cash utilized for investing activities for the first nine months of fiscal
2000 included capital additions to property, plant and equipment of $129,870
primarily related to the acquisition of Northern Lights Coffee and the opening
of the South Lake Tahoe retail unit.
The Company had net cash provided from financing activities for the first
nine months of fiscal 2000 totaling $238,458. Cash from financing activities
primarily consists of $88,020 from net short-term borrowing and $156,181 from
the sale of Company stock. These amounts were utilized in the day-to-day
operations of the Company.
Management has instituted a plan to eliminate a minimum of $1 million of
debt from its balance sheet. Currently, this ongoing program has resulted in
debt conversion and/or debt forgiveness totaling approximately $975,000.
Management is confident that it will meet its debt reduction objective. Although
this debt conversion/forgiveness will improve the appearance of the Company's
balance sheet, and therefore assist the Company in raising investment capital,
it will not directly improve the profitability of the Company's operations. In
conjunction with the debt reduction program, the Company has successfully
secured $300,000 of private equity capital in January 2000, from a source that
the Company feels may represent the potential for additional future equity
investments. In addition, the Company believes that it has the means to attract
other sources of equity capital based on the current success of its plan
addressing the "Going Concern" issue.
Management estimates that the number of Company operated units will need to
grow to at least 40 with comparable or slightly improved performance to the
existing units in order to reach break even with operational costs. The Company
estimates that this growth to 40 units will require approximately $500,000 of
additional investment capital (in addition to the investment capital required to
address the current working capital deficit) and approximately six months to
achieve. In anticipation of this growth, and the need for additional capital,
the Company has engaged the services of Elliott Lane & Associates and is
currently negotiating with several alternative sources of capital. Management
believes that one or more of these sources will be in place by the end of the
current fiscal year. However, there can be no assurances that such capital will
be in place.
The Company believes that cash from operations and the aforementioned
financing activities will be sufficient to satisfy the Company's needs through
fiscal year 2000.
INDUSTRY OVERVIEW
According to the National Coffee Association's 1999 study, cited the
Specialty Coffee Association of America's 1999 Coffee Market Survey, 48.5% of
Americans consider themselves to be coffee drinkers. On average they drink 1.4
cups per day. The U.S. coffee market consists of two distinct product
categories: (1) commercial ground roast, mass-merchandised regular brewed coffee
and (2) specialty coffees (premium grade arabica coffees sold in whole bean and
ground form) and other premium coffees.
The National Coffee Association estimates that 47% of Americans - 108
million people - drank specialty coffee beverages in 1998, up from 35% - 80
million people - in 1997. The U. S. specialty coffee industry now purchases over
2.7 million bags of arabica coffees, which represents $396 million, or 5% of the
world's output. U. S. retail coffee bean sales exceed $2.1 billion, and beverage
retail sales exceed $3.1 billion, annually.
Within the specialty coffee category, specialty coffee retail sales have
become the fastest-growing segment. As reported in Specialty Coffee Association
of America's 1999 Coffee Market Survey:
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During the past five years, specialty coffee beverage retailers have become
the fastest growing distribution channel in the specialty coffee industry.
The number of these retail beverage outlets is expected to reach 12,000
locations by the end of 1999. This number will include 3,500 coffee cafes,
2,700 coffee bars and kiosks, 2,100 espresso carts, and 1,200 Roaster-
Retailers. . . . Although current U.S. consumption is flat, consumers are
purchasing more value-added products through the specialty coffee industry,
which is driving up the overall market value. In short, consumers are not
drinking more coffee, but they are just choosing to drink better coffee.
Coffee consumers have been moving away from priced-based purchasing to a
purchasing trend that focuses on product variety and quality. This quality-
conscious purchasing trend has evolved coffee from a beverage of
pseudo-commodity characteristics to one with cultural and sensory ties.
The Company believes that several factors have contributed to the increase
in demand for specialty coffee including:
o Greater consumer awareness of specialty coffee as a result of its
increasing availability;
o Increased quality differentiation over commercial grade coffees by
consumers;
o Increased demand for all premium food products, including specialty
coffee, where the differential in price from the commercial brands is
small compared to the perceived improvement in product quality and
taste; and
o Ease of preparation of specialty coffees resulting from the increased
use of automatic drip coffee makers and home espresso machines.
COMPANY BACKGROUND
PEABODYS CA
The current business of the Company began with the formation of Peabodys
Coffee, Inc., a California corporation ("Peabodys CA"), in 1995. Co-founder Todd
Tkachuk (who is currently an officer and director with the Company) conceived of
a company which would contract with an institutional food service vendor (the
"client"), such as Sodexho Marriott, The Compass Group, or ARAMARK, that held
the food service contract for an institutional setting (the "host
organization"), such as a corporate facility, college, university, or hospital.
As with the Company today, Peabodys CA would enter into a subcontract with the
client (which had a general contract to provide food services to the host
facility) to install coffee kiosks at the host organization. In return, Peabodys
CA paid the client a percentage of the gross revenues generated by each kiosk.
As with the Company today, Peabodys CA would open a new site in
approximately three weeks, at an all-in cost, including initial inventory and
pre-opening expenses, of less than $30,000. Because physical plant consisted of
a self- contained kiosk that required minimal, if any, tenant improvements, the
Company would relocate to a new site, if necessary, without abandoning a large
fixed investment. As mentioned above, in return for its right to provide
turn-key specialty coffee service, Peabodys CA would compensate the food service
vendors through revenue-sharing, typically averaging about 15% of total revenues
generated at the site.
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The Peabodys CA model, which is now the model of the Company today, differs
from traditional specialty coffee retailers in the following significant ways:
o No direct competition with Starbucks and other retail specialty coffee
sellers operating from fixed, "store-front" locations.
o Access to large numbers of sites through food service clients who have
relationships already in place with such sites.
o Captive customer populations at such sites, such as office buildings,
hospitals and schools, resulting in no direct competition at the site
itself, and therefore no need for significant advertising expenses.
o Low initial investment and short time periods required to open new
sites
o No expenses for utilities or common area maintenance charges, since
these are generally provided for in the foodservice provider's general
contract.
o Kiosks can be relocated easily if necessary
THE COMPANY
Concurrent with Peabodys CA's development of its specialty coffee business,
as described above, the Company was existing as a development stage company
formed for the purpose of mineral exploration and mine development. The Company
was incorporated under the laws of the State of Nevada on July 26, 1989 with the
name Kimberly Mines, Inc. Several months later the Company was the surviving
company in a merger with Blue Ute Mining & Exploration, Inc., a Utah
corporation. On August 15, 1997 the Company changed its name to Mine-A-Max
Corporation. The Company continued to exist as a development stage mining
company until its merger with Peabodys CA in 1999.
THE MERGER
On March 12, 1999, Peabodys CA entered into a Plan and Agreement of
Reorganization (the "Agreement") with the Company. The Agreement provided for a
share exchange in which the Company offered shareholders of Peabodys CA one (1)
share of the Company's common stock in exchange for one (1) share of Peabodys CA
common stock. The shares were offered by the Company in reliance on the
exemption from registration provided by Rule 506 of Regulation D. The Agreement
provided further that, after the Company had acquired a majority of the
outstanding stock of Peabodys CA, the Company would: (i) elect a new board of
directors for the Company composed of the former management of Peabodys CA; (ii)
amend the Company's articles of incorporation to change its name to "Peabodys
Coffee, Inc.;" (iii) amend and restate the Company's bylaws; and (iv) effect a
merger of Peabodys CA into the Company.
On March 15, 1999 the Company filed an Amendment to Articles of
Incorporation with the State of Nevada changing its name from Mine-A-Max
Corporation to Peabodys Coffee, Inc. On June 30, 1999, the
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Company effected a merger ("Merger") by filing Articles of Merger in the State
of Nevada, with Peabodys CA as the disappearing corporation and the Company as
the surviving corporation, with the outstanding shares of Peabodys CA converted
into shares of the Company on a one-to-one basis.
In effecting the Merger, the Company did not send a notice of approval of
the Merger and appraisal price of the shares to Peabodys CA shareholders in
accordance with Corp. C. ss. 1301(a) for the exercise of dissenters' rights.
This notice is required to be sent to shareholders within 10 days following the
approval of the reorganization by the outstanding shares. Within 30 days of the
mailing of such notice, any shareholder who wishes to require the corporation to
purchase their shares for cash must make a demand on the corporation and submit
the certificates representing their shares. The demand must contain a statement
as to what the shareholder claims to be the fair market value of the shares as
of the day before the announcement of the proposed merger (Corp. C. ss.
1301(c)). If the corporation agrees with the shareholders claim as to fair
market value, the shareholder is entitled to the agreed price with interest
thereon at the legal rate applied to judgments; if the corporation does not
agree with the shareholder's claim as to fair market value, the shareholder may
file an action in the proper superior court to determine the fair market value
(Corp. C. ss. 1303(a), 1304(a)).
The Company did not send a notice of approval of the Merger and appraisal
price of the shares to Peabodys CA shareholders. Consequently, no Peabodys CA
shareholders delivered a demand to exercise dissenters' rights under Corp. C.
ss. 1301(b) in connection with the Merger, and there were no "dissenting
shares," as defined in Corp. C. ss. 1300(b). Peabodys CA did, however, send a
Confidential Offering Circular and Term Sheet and a subscription agreement to
all of its shareholders to allow each shareholder to participate in the exchange
of shares immediately preceding the Merger. Peabodys CA received executed
subscription agreements from shareholders holding over 90% of the its
outstanding common stock. On June 30, 1999, in effecting the Merger, all shares
of Peabodys CA common stock were converted to shares of the Company's common
stock, including those of shareholders who did not execute the subscription
agreement.
It is possible that former Peabodys CA shareholders who did not execute the
above-mentioned subscription agreement may seek to exercise their dissenters
rights. Although Peabodys CA did not meet the technical notice requirement set
forth in Corp. C. ss. 1301, all Peabodys CA shareholders received notice of the
Merger through the distribution of the above-described disclosure document and
subscription agreement in connection with the share exchange immediately
preceding the Merger. If any former Peabodys CA shareholder wishes to exercise
dissenters rights, the Company, as the successor in interest to Peabodys CA,
would seek to settle the action by allowing the retroactive exercise of
dissenters rights on terms negotiated between the parties. At this time, one
former Peabodys CA shareholder, holding 5,000 shares of common stock, has sent
the Company a letter requesting that he be entitled to exercise dissenters'
rights. The Company is in the process of settling this request.
It is difficult to accurately quantify the potential exposure to the
Company with respect to the Merger. Of the 5,902,736 shares of Peabodys CA
common stock outstanding prior to the Merger, approximately 5,279,871 shares
have given their written approval of the Merger, leaving approximately 550,000
shares which presumably could seek to exercise dissenters' rights. Pursuant to
applicable law, the fair market value for dissenting shares is determined as of
the day before the first announcement of the term of the proposed
reorganization. Corp. C. ss. 1300(a). In the case of the Merger, that date would
be March 12, 1999. On that date, the most recently prepared balance sheet of
Peabodys CA (dated December 31, 1998, approximately 75 days earlier) showed that
Peabodys CA's liabilities exceeded its assets, for a total shareholders' deficit
of $1,043,669, which meant that Peabodys CA's shares had a book value negative $
.18 per share. Peabodys CA's financial condition had not changed substantially
on March 12, 1999 when the reorganization was
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announced. Book value is one method used to determine fair market value. Given
the insolvency of Peabodys CA at the time of the announcement of the Merger, the
Company estimates that the most it would possibly pay to former Peabodys CA
shareholders in settlement would be approximately $ .10 per share. This would
lead to an estimated maximum exposure of approximately $55,000. This is an
estimate only, and in this context such estimate may prove inaccurate.
The Company is in the midst of completing formalities in connection with
the Merger, such as issuing new share certificates to the former holders of
Peabodys CA shares. The Company, as of the date of this filing, has not filed
the proper document to effect the Merger in the State of California, as set
forth in Corp. C. ss. 1108(d). When this document is filed, because more than
six (6) months will have elapsed between the filing of the Articles of Merger in
the State of Nevada and the filing of the proper document in California, the
Merger will be effective in California as of the date of the later filing, all
in accordance with Corp. C. ss. 1108(e). The effect on the Company of this later
effective date is not clear at this time.
BUSINESS STRATEGY AND OPERATION
In order to take advantage of the growing market for specialty coffee as
described in the "Industry Overview," above, the Company has developed a
business strategy based on the following concepts:
Business and Institutional Locations. The Company focuses on locating its
coffee kiosks in business and institutional areas. The Company has experienced
both lower competition and reduced advertising and marketing expenses by
installing kiosks in such areas, since the kiosks have a nearby captive audience
of employees and students at business and institutional sites.
Quality Coffee. Peabodys strives to use coffees of a very high quality. The
product mix offered by each kiosk can be tailored to meet the taste and
preferences of each locale.
Low Cost Operations. The cost of opening and operating each kiosk is less
than the cost of opening and operating the fixed, retail stores operated by many
other specialty coffee retailers. Each kiosk can achieve profitability with
sales as low as $300.00 per day. Currently, Peabodys per-unit revenue averages
approximately $450.00 per operating day.
SITE FORMAT AND OPERATIONS
Each existing Peabodys site consists of a kiosk that measures approximately
six feet long, three feet deep, and four feet high (counter level), with related
equipment and display space. Standard equipment on the kiosk includes a
two-group espresso machine, two espresso grinders, a coffee brewer, blender, and
cash register, and display racks for baked goods and other non-coffee items. All
kiosks are equipped with wheels for unit mobility, although at most sites the
kiosk remains in the same location permanently. Under the terms of its
contracts, Peabodys is usually allotted both dry and cold storage space within
the host's commissary facilities, at no charge to the Company.
Peabodys utilizes a client-host/captive-consumer model. This model has two
distinctive components. The client-host component means that Peabodys
establishes relationships with its "clients" (large institutions and food
service providers) with the intention of multiple kiosk placements within the
client's area of operation. In lieu of rent, Peabodys normally pays the client a
percentage of the revenues generated by each kiosk, thereby
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giving the client incentive to assist Peabodys in a successful kiosk placement.
Clients with widespread operations provide many opportunities for Peabodys to
place its kiosks.
The captive-consumer component refers to the placement of kiosks in heavy
traffic areas where people (potential customers) have already congregated for
other reasons. Examples of typical placements are the lobbies of large
buildings, or school campuses. Unlike a fixed store which relies on attracting
foot traffic to its location, Peabodys already has a customer base at its
location. Peabodys locates its kiosks where the customers are, as opposed to
requiring the customer to come to Peabodys' location.
The typical Peabodys site, which includes the kiosk, related components.
and workspace for employees, occupies a footprint of approximately 100 square
feet. Due to the client-host/captive-consumer model described above, the Company
incurs no rental expense for this real estate. Likewise, there are no common
area maintenance charges, and all utilities, such as electricity, heat, air
conditioning, and water, are furnished by the host or client at no cost to
Peabodys.
Each Peabodys location is staffed with a site manager and from two to eight
baristas (the Italian term for a person skilled in the art of espresso
preparation), depending on the population of the site's captive customer base,
the hours of operation, the mix of hours available from part-time employees, and
similar factors. To assure available staffing at all times, Peabodys is also
building a pool of on-call labor to work on an as-needed basis, much as schools
draw from a pool of substitute teachers to fill in as needs arise. Most baristas
work part-time, typically in four hour intervals. Site managers, all of whom are
full-time employees, serve customers during their shifts in addition to
performing supervisory and administrative duties such as recruiting, hiring, and
supervising staff, assuring compliance with corporate procedures and the
Company's key operating imperatives, taking inventory, and completing daily
performance reports for corporate headquarters. Specific accountabilities for
site managers include quality and service, employee performance, sales, and
profit, and site manager compensation is strongly performance-related, with
execution of the four operating imperatives and over-budget profitability
bringing open-ended gain-share rewards.
Standout site managers, known as "cell leaders," oversee strategic
groupings of sites. Cell leaders remain accountable for their own sites'
performance, but take on additional duties to support the cell, for which they
earn extra compensation. In particular, such duties include: (i) building peer
chemistry within the cell; (ii) participating in training and coaching projects;
(iii) designing and executing local site-specific marketing programs; (iv)
supporting new site openings; and (v) implementing specific initiatives to
support the four key operating imperatives within the cell. Given these
additional responsibilities, cell leaders receive somewhat higher staffing
support at their own sites.
Establishing and maintaining Peabodys' specialty coffee kiosks is
relatively simple. The kiosk is compact, modular in design, and self-contained.
No significant preparation is needed at the host location other than provision
for electrical power. The kiosk, while generally appearing permanent, is usually
portable and can be moved from location to location. The cost of a kiosk,
including internal plumbing, equipment, inventory and signage is approximately
$30,000. Turnaround time for manufacturing a complete kiosk is approximately
four to six weeks. The Company currently utilizes Michaelo Espresso of Seattle,
Washington as its kiosk manufacturer.
SITE EXPENSES
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In lieu of rent or lease payments, Peabodys pays a percentage of the
revenue generated by each kiosk to the foodservice provider or the host at an
average rate of approximately 15%. The Company contracts its services either
directly with the host facility, or subcontracts its services indirectly through
the foodservice provider who is a party to a contract to provide food service to
the host facility. When the Company contracts its services directly with the
host, the Company pays the host facility the percentage of gross revenue that is
agreed to in the contract. When the Company contracts with a foodservice
provider, such as ARAMARK, Compass, or Sodexho Marriott, the Company pays the
percentage of gross revenue to the foodservice provider, and incurs no expenses
directly with the host facility. Other nominal expenses such as water and power
are normally included in this above-described payment.
SITE LOCATIONS
<TABLE>
<CAPTION>
SITE; HOST LOCATION CLIENT DATE OPENED
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IBM Bldg 11; IBM San Jose, CA The Compass Group June 1995
IBM Bldg 55; IBM San Jose, CA The Compass Group October 1997
STL Labs; IBM San Jose, CA The Compass Group April 1996
San Jose City College; SJCC San Jose, CA The Compass Group January 1996
Concord Airport Plaza Concord, CA The Compass Group February 1996
Web TV Mountain View, CA The Compass Group October 1999
EM Building, UCSC Santa Cruz, CA Sodexho-Marriot November 1995
College 10; UCSC Santa Cruz, CA Sodexho-Marriot April 1997
Sisheiner Labs; UCSC Santa Cruz, CA Sodexho-Marriot April 1997
Applied Science, UCSC Santa Cruz, CA Sodexho-Marriot March 1996
Sutter Memorial Hospital Sacramento, CA Sutter Health October 1995
Sutter General Hospital Sacramento, CA Sutter Health October 1995
California State Fair; Cal Expo Sacramento, CA Cal Expo August 1998
College of Education; UNR Reno, NV The Compass Group August 1998
Library; UNR Reno, NV The Compass Group December 1997
Peabodys Lake Tahoe S. Lake Tahoe, CA n/a June 1999
Convention Center-Location 1 Reno, NV ARAMARK April 1997
Convention Center-Location 2 Reno, NV ARAMARK April 1997
Convention Center-Location 3 Reno, NV ARAMARK January 2000
Livestock Center Reno, NV ARAMARK April 1997
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<PAGE>
Center Hall, UCSD San Diego, CA UCSD April 1999
Social Science Bldg.; UCSD San Diego, CA UCSD April 1999
Warren Bldg.; UCSD San Diego, CA UCSD April 1999
Nierenburg Hall; UCSD San Diego, CA UCSD April 1999
SDSU-1; San Diego State University San Diego, CA Aztec Shops August 1999
SDSU-2; San Diego State University San Diego, CA Aztec Shops August 1999
</TABLE>
SUPPLIERS
The Company procures its coffee from Terranova Roasting Co., Inc.
("Terranova") in Sacramento, California. Terranova is a coffee roaster serving
central California, and Peabodys is Terranova's largest specialty coffee
account. The Company has no contract in effect with Terranova other than the
purchase orders it places. The Company believes that Terranova will be able to
meet its needs for the foreseeable future, but if the relationship should
terminate the Company believes that other suppliers could fulfill the Company's
supply requirements. Any risk associated with having only one supplier,
therefore, appears to be minimal.
As described below in "Expansion Plans," the Company is currently engaged
in preliminary negotiations to acquire the assets of another company, Arrosto,
one asset of which is a coffee roasting facility. The Company's motivation in
doing this is the potential for possible cost savings to the Company if the
Company roasts its own coffee. The acquisition is not in response to a risk
perceived by the Company with respect to having one supplier. As stated above,
this risk is minimal since there appear to be many potential suppliers that
could supply the Company with its coffee on terms similar to those existing
between the Company and its current supplier, Terranova.
The Company provides its proprietary specifications for varietals, roast,
and grind and proportions (for brewed coffees) to Terranova, which in turn
purchases green beans, and then roasts, blends, and grinds (for brewed coffees)
to Peabodys' specifications. Finished product is bagged, sealed, and shipped to
the Company as ordered. The Company is currently testing on-site grinding for
its brewed coffee to increase freshness and quality. From its current
facilities, Terranova has sufficient capacity to support Peabodys' growth to
approximately 200 sites.
For both its brewed and espresso beverages, the Company uses only the
"arabica" species of coffee. At present, the Company uses predominantly
Colombian Supremo, which is a type of arabica coffee. This type was selected due
to its apparent popularity and ready availability. The Company is testing an
expanded offering of brewed coffee varietals to provide customers a greater
choice of coffees. Growing regions for such additional varietals include Africa,
Indonesia, and South America. Peabodys' espresso is a blend of Colombian Supremo
and coffees from Sumatra and Ethiopia. The Company generally uses a dark roast,
typical of the Pacific Northwest style.
Because coffee in green bean form is a commodity, and is therefore subject
to commodity price swings caused by weather conditions, political climate, and
similar supply and demand factors, it is sometimes assumed that margins for
specialty coffee companies are vulnerable to the same factors. However, the
price of green coffee represents only a relatively small portion of Peabodys'
cost of goods sold for specialty coffee
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beverages. As a result, if green coffee prices were to double, for example, the
Company's costs would increase by only about 5 cents per drink. Given consumers'
price inelasticity for specialty coffee, an increase of such size can generally
be passed along to the customer.
Among other menu items offered by Peabodys' kiosks, baked goods and fruit
smoothies are the most prominent. Such products are sourced from local vendors
at each site. The Company is analyzing several alternatives to reduce costs,
increase shelf-life, and/or increase revenues, including lunch/afternoon-
oriented products. Juice drinks, sodas, and bottled waters are purchased at
customary wholesale prices from distributors of such products, who deliver
directly to the sites as ordered.
EXPANSION PLANS
To date the Company's expansion has been curtailed primarily by capital
constraints. For a complete discussion of capital constraints, liquidity and
capital resources, see "Overview" and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations," beginning on page 3.
As described in more detail in the "Overview" section of Item 1 above, the
Company is currently operating 26 kiosk units, most of which are profitable at
the unit level. The Company as a whole is not profitable, however, since the
profits at the unit level are overshadowed by the Company's expenses at the
Corporate level. Management estimates that the number of Company operated units
will need to expand to at least 40 with comparable or slightly improved
performance to the existing units in order to reach break-even with operational
costs (although management estimates that such break-even could potentially be
reached with less than 40 units if locations with higher profitability are
opened or acquired). The Company estimates that this growth to 40 units will
require approximately $500,000 of additional investment capital (in addition to
the investment capital required to address the current working capital deficit)
and approximately six months to achieve.
If the Company is able to raise the capital needed for expansion of its
operations, the Company anticipates that expansion will come from the following,
described in detail below: (i) adding additional locations under current
contracts; (ii) developing new relationships with additional foodservice
providers and (iii) developing direct contracts with host company facilities
that control a significant number of locations such as large retailers and
property owners.
The Company believes that its most significant growth will come from
expansion of its current contracts. The Company's three largest clients,
Sodexho-Marriott, The Compass Group and ARAMARK control more than 8,500
institutional foodservice sites across the country (Nations Restaurant News
Special Report-Top 100 Contract Chains 1999). Each of these sites is a potential
location for a Peabodys kiosk. Also, the Company believes that there is
opportunity to acquire existing kiosks located in key locations. To date, the
Company has acquired seven (7) kiosks from other companies. Six of the seven
have resulted in a positive cash flow at the unit level to the Company.
The Company recently entered into a letter of intent with Arrosto Coffee
Company LLC ("Arrosto"), which has not been affiliated with the Company,
Peabodys CA, or Mine-A-Max Corporation, for the purchase of substantially all
the assets of Arrosto. The letter is non-binding and is meant only to set forth
proposed details of the purchase.
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The primary assets of Arrosto include a roasting facility, a specialty
coffee retail store, and certain trademarks and other intellectual property
which Arrosto licenses to independent operators of kiosks and other locations.
In exchange for these assets, the terms set forth in the non-binding letter of
intent call for Peabodys to issue 2,200,000 shares of its common stock, a
warrant for the purchase of an additional 1,000,000 shares at $.80 per share,
and an employment agreement with Joe Konis, the principal of Arrosto. After the
Company's due diligence following the execution of the letter of intent,
however, it appears that the terms of the transaction will deviate substantially
from the terms set forth in the non- binding letter of intent. The Company now
values Arrosto's assets at substantially less than when the Company entered into
the non-binding letter of intent. The two companies are currently attempting to
negotiate new terms, and there is substantial uncertainty as to whether the
transaction will go forward at all.
The Company recently entered into a letter of intent with Grounds for
Enjoyment ("GFE") for the purchase of certain assets GFE. The letter is
non-binding and is meant only to set forth proposed details of the purchase. The
transaction is contingent upon Peabodys' completion of its due diligence, which
is still in the preliminary stages. Grounds for Enjoyment has not been
affiliated with the Company, Peabodys CA, or Mine-A-Max Corporation.
The primary assets proposed to be purchased are four (4) kiosks and site
contracts in the Riverside/San Bernardino, California area. As consideration for
these assets, the Company would: (i) issue 40,000 shares of the Company's common
stock; and (ii) pay $175,000 cash. The Company would not assume any liabilities
in connection with the purchased assets.
MARKETING STRATEGY
Peabodys' marketing strategy is based on its contractual relationships with
foodservice providers and hosts. These foodservice providers, such as
Sodexho-Marriott, The Compass Group, and ARAMARK, have general contracts with
host facilities such as corporate offices, industrial facilities, office
buildings, universities, colleges, hospitals and entertainment venues. Peabodys
contracts with the foodservice providers to allow Peabodys to locate its kiosks
on the sites with which the foodservice provider has a general contract. In
return, Peabodys pays the foodservice provider a percentage of gross revenues,
usually 15%. Additionally, Peabodys contracts directly with certain host
facilities.
The foodservice provider or the host facility receives the following
benefits from entering into a contract with Peabodys:
INCREMENTAL REVENUE STREAM. Peabodys provides on average 15% gross revenue
sharing for the foodservice provider or the host.
NO INVESTMENT REQUIRED. Peabodys provides everything: Plant, equipment,
products, personnel, training, and management.
NO OPERATIONAL INVOLVEMENT. Peabodys takes full responsibility for kiosk
operation.
INCREASED CUSTOMER AND HOST SATISFACTION. Peabodys brings specialty coffee
to captive customers at work, hospital, convention, education, or
entertainment locations providing convenience for the customer at no
cost to the host or foodservice provider.
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On September 30, 1999, the Company entered into a General Agreement with
Elliot, Lane & Associates, Inc. ("Elliot, Lane"), to provide consulting services
to the Company with respect to company expansion, strategic alliances and
investor relations. The Company is currently negotiating a Professional Service
Agreement with Elliot, Lane to provide consulting services with respect to
expansion, strategic alliances and investor relations in European markets.
The Company is currently negotiating a consulting agreement with Sky
Capital, GmbH, a German entity, which will provide consulting services with
respect to capital formation and investor relations.
COMPETITION
The Company competes with a growing number of specialty coffee retailers
including Starbucks, Coffee Beanery, Caribou, Java City, Diedrich, Tully's, New
World Coffee-Manhattan Bagel, Peet's Coffee and many others. The attractiveness
of the specialty coffee market may draw additional competitors with
substantially greater financial, marketing and operating resources than
Peabodys. A number of nationwide coffee manufacturers, such as Kraft General
Foods, Proctor & Gamble, and Nestle, distribute coffee products in supermarkets
and convenience stores, which may serve as substitutes for our coffees and
provide additional competition.
The performance of individual coffeehouses may also be affected by factors
such as traffic patterns and the type, number and proximity of competing
coffeehouses. In addition, factors such as inflation, increased coffee bean,
food, labor and employee benefit costs and the availability of experienced
management and hourly employees may also adversely affect the specialty coffee
retail business in general and our coffeehouses in particular.
The Company is aware of other companies which sell specialty coffee from
kiosks and coffee carts, but these are all very small operations with only a few
kiosk locations each. The Company is not aware of any other company, on either a
regional or national level, which specializes in sales of specialty coffee from
kiosks or coffee carts on the same scale as the Company, or which has a number
of units approaching that of the Company. The Company acknowledges that several
large, well-capitalized multi-unit retailers, such as Starbucks, Diedrich or the
Second Cup, are capable of entering the kiosk and coffee cart market. Currently,
however, to the Company's knowledge none of these retailers are focusing on the
kiosk or coffee cart market.
INTELLECTUAL PROPERTY
The Company has a registered service mark for its rhinoceros logo. The
Company is aware of another entity in North Carolina that is utilizing the name
"Peabodys" in the coffee industry. The North Carolina entity has received a
federal trademark registration of the name "Peabodys." The Company believes that
it has the right to use the name "Peabodys" in the areas in which it is used by
the Company because of first use of the name in those areas. However, if it were
determined that the Company were not able to continue utilizing the name
"Peabodys," it could have a material adverse effect on the Company in that the
Company would have to select a different name under which to do business, and
the Company would have to re-establish any lost
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goodwill and name recognition. Because of its speculative nature, such potential
adverse effect is impossible to quantify at this time.
In order to eliminate the above potential adverse effect, the company has
entered into preliminary negotiations with the North Carolina "Peabodys" for the
purchase of all rights, and the assignment of all trademark and tradename
registration, in the name "Peabodys." Such negotiations, at the date of this
disclosure, have consisted solely of informal oral discussion. The terms which
the parties have discussed are $25,000 cash and 25,000 shares of the Company's
common stock.
EMPLOYEES
The Company currently has 97 employees of which 26 are full-time employees
and 5 of which are administrative.
SEASONALITY
Because the Company serves both hot and cold coffee drinks, the sales of
the Company's products at most Kiosk locations do not appear to be significantly
affected by the seasons. However, those kiosks which are located in educational
facilities are affected by the seasons to the extent that sales are
significantly less when school is not in session.
RISK FACTORS AFFECTING THE COMPANY
COMPLETION OF MERGER. As described above, on June 30, 1999, the Company
effected a merger with Peabodys CA as the disappearing company and the Company
as the surviving company (the "Merger"). The Merger followed a share exchange,
which began on March 12, 1999, through which the Company acquired more than 51%
of the shares of Peabody CA in exchange for its shares, offered to the
shareholders of Peabodys CA on a one-to-one exchange basis. In effecting the
Merger, the Company did not send a notice of approval of the Merger and
appraisal price of the shares to Peabodys CA shareholders in accordance with
Corp. C. ss. 1301(a) for the exercise of dissenters' rights. Consequently, no
Peabodys CA shareholders delivered a demand to exercise dissenters' rights under
Corp. C. ss. 1301(b) in connection with the Merger, and there were no
"dissenting shares," as defined in Corp. C. ss. 1300(b). It is not clear at this
time whether any former Peabodys CA shareholders will seek to enforce their
dissenters' rights, and, if so, what the Company's liability will be.
The Company is in the midst of completing formalities in connection with
the Merger such as issuing new share certificates to the former holders of
Peabodys CA shares. The Company, as of the date of this filing, has not filed
the proper document to effect the Merger in the State of California, as set
forth in Corp. C. ss. 1108(d). When this document is filed, because more than
six (6) months will have elapsed between the filing of the Articles of Merger in
the State of Nevada and the filing of the proper document in California, the
Merger will be effective in California as of the date of the later filing, all
in accordance with Corp. C. ss. 1108(e). The effect on the Company of this later
effective date is not clear at this time.
LATE PAYMENTS RELATING TO DEBT. Pursuant to the Merger, the Company by
operation of law assumed all of the obligations of Peabodys CA. In an earlier
private placement, Peabodys CA offered and sold units, with each unit consisting
of a secured promissory note ("Secured Note") and warrants to purchase common
21
<PAGE>
stock. The Company is now obligated to make quarterly payments on the principal
balance outstanding and to repay such Secured Notes. As of the date hereof, the
Company is in default on the principal balance of the Secured Notes in the
amount of $62,500 and is approximately $32,210 in arrears on such interest
payments relating to the Secured Notes. Under the terms of the Security
Agreement relating to the Secured Notes, a noteholder has the right to (i)
declare all principal and interest immediately due and owing; (ii) exercise its
rights and remedies under the California Commercial Code as a secured creditor
having a security interest in the collateral, which includes, but is not limited
to, equipment, inventory, accounts, trademarks and tradenames and other
intellectual property rights (the "Collateral"), and, in particular, sell any
part of the Collateral and (iii) exercise any other rights or remedies of a
secured party under California law. As of the date hereof, the Company has not
received any notice of default relating to the Secured Notes.
OPERATING LOSSES; LIMITED OPERATING HISTORY; DEVELOPMENT STAGE OF COMPANY.
Prior to the Merger, Peabodys CA had incurred operating losses in each quarter
since its inception and has a significant accumulated deficit. Peabodys CA's
operating loss for the fiscal year ended March 31, 1999 was $632,359, and its
shareholders' deficit was $929,526. It is anticipated that the Company will
continue to incur losses, until it is able to increase revenues sufficient to
support operations. The Company had an operating loss of $389,683 in the first
six months of the fiscal year ending March 31, 2000, and its shareholders'
deficit was $1,233,461 at the end of that period. The Company had an operating
loss of $600,081 in the first nine months of the fiscal year ending March 31,
2000, and its shareholders' deficit was $495,488 at the end of that period. The
Company's possible success is dependent upon the successful development and
marketing of its services and products, as to which there is no assurance. Any
future success that the Company might enjoy will depend upon many factors,
including factors out of its control or which cannot be predicted at this time.
These factors may include changes in or increased levels of competition,
including the entry of additional competitors and increased success by existing
competitors, changes in general economic conditions, increases in operating
costs, including costs of supplies, personnel and equipment, reduced margins
caused by competitive pressures and other factors. These conditions may have a
materially adverse effect upon the Company or may force the Company to reduce or
curtail operations.
HISTORICAL FINANCIAL STATEMENTS PROVIDED FOR PEABODYS CA. Peabodys CA
retained Nicholson & Olson to audit the Company's financial statements for the
fiscal year ended March 31, 1998. This audit was completed in August 1998 and
the independent auditors' report (a going concern opinion) and the accompanying
March 31, 1998 financial statements are included as Exhibits, in addition to the
financial statements of the Company.
The Company recently changed its fiscal year end from September 30 to March
31. The Company engaged Nicholson & Olson to audit the Company's financial
statements for the fiscal year ended March 31, 1999. The auditors have issued a
going concern opinion in connection with these financial statements, which are
attached hereto as exhibits.
NEED FOR ADDITIONAL CAPITAL. Additional capital will be required to
effectively support the operations and to otherwise implement the Company's
overall business strategy, including rapid growth in designated regions.
However, there can be no assurance that financing will be available when needed
on terms that are acceptable to the Company. The inability to obtain additional
capital will restrict the Company's ability to grow and may reduce the Company's
ability to continue to conduct business operations. If the Company is unable to
obtain additional financing, it will likely be required to curtail its marketing
and development plans and possibly cease its operations. Any additional equity
financing may involve substantial dilution to the Company's then-existing
shareholders.
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RELIANCE ON MAJOR CLIENTS. Peabodys CA's two major clients-The Compass
Group and Sodexho Marriot- represented 74.7% of its gross revenue for the fiscal
year ended March 31, 1999. These two clients are now the Company's two major
clients following the Merger with Peabodys CA, and represented 53.7% of the
Company's revenue for the three quarters ending December 31, 1999 (The Compass
Group-30.0% and Sodexho Marriot-23.7%). Although this indicates a trend toward
less reliance on major clients, it is still the case that if the Company were to
lose either of these major clients, the Company would experience a material
decline in revenues.
GENERAL RISKS OF BUSINESS. The Company has formulated its business plans
and strategies based on certain assumptions regarding the size of the specialty
coffee markets, the Company's anticipated share of the market, and the estimated
price and acceptance of the Company's products. Although these assumptions are
based on the best estimates of management, there can be no assurance that the
Company's assessments regarding market size, potential market share of the
Company, the price at which the Company will be able to sell its products,
market acceptance of the Company's products and a variety of other factors will
prove to be correct.
DEPENDENCE ON COFFEE SUPPLIER; FLUCTUATIONS IN AVAILABILITY AND COST OF
GREEN COFFEE. The Company largely depends upon a third-party supplier for whole
bean coffee, although the Company has no contract currently in effect with the
supplier other than purchase orders placed from time to time by the Company. The
Company believes that its relationship with such supplier is good and the
supplier will be able to meet the Company's requirements for coffee during the
foreseeable future. In the event such relationship terminates, the Company
believes that numerous other suppliers can fulfill the Company's supply
requirements. In addition, the Company's supply of coffee may be affected by
fluctuations in the cost and availability of high quality whole coffee beans.
Coffee supply and price are subject to volatility. Coffee of the quality sought
by the Company trades on a negotiated basis at a substantial premium above
commodity coffee pricing, dependent upon supply and demand at the time of
purchase. Supply and price may be affected by multiple factors including
weather, politics, and economics in the producing countries. An increase in the
prices of specialty coffees could have an adverse effect on the Company's
profitability.
COMPETITION. As described above, the Company competes indirectly against
specialty coffee retailers (such as Starbucks, Diedrich Coffee and others),
restaurant and beverage outlets that serve coffee, and directly with a growing
number of espresso stands, carts, and stores in the Company's markets. The
Company's coffee beverages compete directly against all other coffees on the
market, including those sold in supermarkets. The specialty coffee segment is
becoming increasingly competitive. The coffee industry, and particularly the
Company's market of commercial and industrial locations, is dominated by large
companies such as Sodexho-Marriott, The Compass Group, and ARAMARK, each of whom
have significantly greater financial, marketing, distribution and management
resources than the Company. Competitors with significant economic resources in
both existing nonspecialty and specialty coffee businesses and companies in
retail foodservice businesses could at any time enter the Company's proposed
market with competitive coffee products. The Company competes against both other
specialty retailers and restaurants for store sites, and there can be no
assurance that management will be able to continue to secure adequate sites.
ABILITY TO MANAGE RAPID GROWTH. The success of the Company will require
rapid expansion of its business. Any such expansion could place a significant
strain on the Company's resources and would require the Company to hire
additional personnel to implement additional operating and financial controls
and improve coordination between marketing, administration and finance
functions. The Company would be required to install additional reporting and
management information systems for sales monitoring, inventory control and
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financial reporting. There can be no assurance that the Company would be able to
manage any substantial expansion of its business, and a failure to do so could
have a materially adverse effect on the Company's operating results.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon the continued service of Todd Tkachuk. Loss of the services of Mr.
Tkachuk could have a material adverse effect on the Company's growth, revenues,
and prospective business. The Company does not maintain key-man insurance on the
life of Mr. Tkachuk. In addition, in order to successfully implement and manage
its business plan, the Company will be dependent upon, among other things,
successfully recruiting qualified managerial and sales personnel having
experience in business. Competition for qualified individuals is intense. There
can be no assurance that the Company will be able to find, attract and retain
existing employees or that it will be able to find, attract and retain qualified
personnel on acceptable terms.
LACK OF DIVIDENDS. Peabodys CA has not to date paid any dividends with
respect to its shares of Common Stock and does not intend to pay dividends in
the foreseeable future. Instead, the Company intends to apply any earnings to
the expansion and development of its business.
THIN MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. The Company's Common Stock
has been traded on the OTC Bulletin Board since November 1997. The Company
believes that factors such as announcements of developments related to the
Company's business, fluctuations in the Company's quarterly or annual operating
results, failure to meet securities analysts' expectations, general conditions
in the marketplace and the worldwide economy, developments in intellectual
property rights and developments in the Company's relationships with clients and
suppliers could cause the price of the Company's common stock to fluctuate,
perhaps substantially.
OTC ELIGIBILITY RULE. Recent changes to the rules of the NASD require that
companies trading on the OTC Bulletin Board, such as the Company, must be
reporting issuers under Section 12 of the Securities Exchange Act of 1934, as
amended, in order to maintain price quotation privileges on the OTC Bulletin
Board ("OTC Eligibility Rule"). The Company's failure to obtain clearance of
this Form 10-SB on a timely basis has resulted in removal from the OTC Bulletin
Board under the OTC Eligibility Rule, and has adversely affected the
marketability of our securities. Furthermore, under the OTC Eligibility Rule,
the Company will not qualify for trading privileges on the OTC Bulletin Board
until the staff of the Commission notifies the staff of the NASD that there are
no more comments on this Form 10-SB.
The Company anticipates that, when this Form 10-SB is effective with no
further comments from the Securities and Exchange Commission, the Company will
apply for reinstatement on the OTC Bulletin Board. As a result of the effect of
the OTC Eligibility Rule, the market liquidity for the Company's securities
could be severely adversely affected by limiting the ability of broker-dealers
to sell our securities and the ability of shareholders sell their securities in
the secondary market.
ITEM 2. DESCRIPTION OF PROPERTY
(FORM 1-A MODEL B ITEM 7)
The Company's principal executive offices are located at 3845 Atherton
Road, Suite 9, Rocklin, California, 95765, and its telephone number is (916)
632-6090. The facility is utilized in the following manner: a) administrative
offices, b) professional offices, c) storage and warehousing, and d) product
development. The
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<PAGE>
facility consists of approximately three thousand (3,000) square feet of office
and warehouse space, leased for $ 2,480.00 per month. The lease expires in
September, 2001. The Company believes that its existing facilities are adequate
for its current use.
The kiosks which the Company owns and uses for its day-to-day operations on
its sites vary from site to site, but generally measure approximately 6 feet
long, 3 feet deep, and 4 feet high (counter level) with related equipment and
display space. Standard equipment on each kiosk includes a two-group espresso
machine, two espresso grinders, a coffee brewer, blender, and cash register, and
display racks for baked goods and other non-coffee items. All kiosks are
equipped with wheels for unit mobility, although at most sites the kiosk remains
in the same location permanently. The cost of a kiosk, including internal
plumbing, equipment, inventory and signage is approximately $30,000. The Company
currently utilizes Michaelo Espresso of Seattle, Washington as its kiosk
manufacturer. Turnaround time for manufacturing a complete kiosk is
approximately four to six weeks. See, "Site Format and Operations" on page 12
and "Site Locations" on page 14.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
(FORM 1-A MODEL B ITEM 8)
The following table sets forth certain information regarding the officers
and directors of Peabodys:
Name Age Position
- --------------------------------------------------------------------------------
Barry Gibbons 53 Director
Todd N. Tkachuk 39 President, Chief Financial Officer, Secretary and
Chairman of the Board of Directors
Roman Kujath 66 Director
Directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Currently
there are five seats on the Company's board of directors. Two directors have
recently resigned (E. Del Thachuk and William Bossung), creating two vacancies
which the company has not yet filled.
Directors serve without cash compensation and without other fixed
remuneration. Officers are elected by the Board of Directors and serve until
their successors are appointed by the Board of Directors. Biographical resumes
of each officer and director are set forth below.
Barry J. Gibbons became a Director and Chairman of the Board of Peabodys CA
in October 1996, and became a Director and Chairman of the Board of the Company
in connection with the Merger. In January of 2000, Mr. Gibbons stepped down from
being Chairman of the Board, but remains a director to the Company. From January
1989 to December 1993, Mr. Gibbons served as Chief Executive Officer and
Chairman of Burger King Corporation. From 1984 to 1989, Mr. Gibbons was an
employee of Grand Metropolitan, the U.K.-based international food, drink and
retailing group. Mr. Gibbons graduated from Liverpool University in 1969 with a
degree in Economics.
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Todd N. Tkachuk was President, Chief Financial Officer, and Secretary of
Peabodys CA since October 1996, and was a Director of that company since its
inception. In connection with the Merger, Mr. Tkachuk became President, Chief
Financial Officer, and Secretary, and a Director, of the Company. In January of
2000, Mr. Tkachuk became Chairman of the Board. Prior to his involvement with
Peabodys, Mr. Tkachuk served as President of Tony's Coffee Company, a Vancouver,
Canada-based specialty coffee company. From 1987 to 1991, Mr. Tkachuk served as
President and CEO of Skytech Data Supply, a wholesale distributor of computer
consumables and peripherals. Mr. Tkachuk holds a B.A. in Business Management
from Western Washington University (1983).
Roman Kujath has been a director of Peabodys CA since June 1998, and of the
Company since the Merger. Mr. Kujath has been president of Roman M. Kujath
Architects, Ltd. since 1975. Mr. Kujath has been responsible for over $1 billion
worth of construction, including the $100 million Place De Ville in Ottawa for
the Campeau Corporation. Mr. Kujath is a member of the Royal Architectural
Institute of Canada, a past corporate member of the American Institute of
Architects, a member of the Architectural Institute of British Columbia and the
Alberta Association of Architects.
ITEM 4. REMUNERATION OF DIRECTORS AND OFFICERS
(FORM 1-A MODEL B ITEM 9)
(a) The following table sets forth the aggregate annual remuneration of each of
the three highest paid persons who are officers or directors for the fiscal year
ending March 31, 1999.
Name of Capacities in which Aggregate
Individual or Group Remuneration was received Remuneration
- ------------------- ------------------------- ------------
Todd N. Tkachuk Officer and Director $ 57,000.00
Barry Gibbons Consulting Agreement $ 40,000.00
Officers and Directors as $ 97,000.00
a Group (2 persons)
(b) Mr. Tkachuk does not have an employment agreement with the company. He
serves in his capacity as President, Secretary and Chief Financial Officer
pursuant to his election to those positions by the board of directors.
Mr. Gibbons, doing business as Festina, has entered into a consulting
agreement with the Company, the Executive Services Agreement attached hereto as
Exhibit 10.3. The Executive Services Agreement, as amended by the Addendum to
Executive Services Agreement, provides for compensation to be paid to Festina in
a monthly amount of $2,000.00. The Agreement provides that it will remain in
effect until terminated by either party with 90 days prior notice.
The Company adopted its 1995 Stock Option Plan in 1995. The 1995 Plan
provides for the granting of options to purchase up to 500,000 shares of common
stock, and all of these options have been granted. There are no plans to amend
the Plan or to grant any more options under this Plan.
The Company adopted its 1999 Stock Option Plan in 1999. The 1999 Plan
provides for the granting of options to purchase up to 500,000 shares of common
stock, of which 444,000 have been granted. The
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Company anticipates that it may grant the remaining options for the purchase of
56,000 shares to employees hired in the future.
ITEM 5. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
(FORM 1-A MODEL B ITEM 10)
(a) Voting Securities (no other person holds or shares the power to vote the
securities described below.)
NAME AND ADDRESS NUMBER OF PERCENTAGE OF
OF OWNER TITLE OF CLASS SHARES OWNED CLASS(1)
- -------- -------------- ------------ --------
Todd N. Tkachuk Common Stock 403,769 5.0%
1717 Chelsea Way
Roseville, CA 95661
Barry Gibbons Common Stock 680,000 8.4%
6665 S. W. 69th Lane
Miami, FL 33143
Roman Kujath Common Stock 396,368 4.9%
8926 119th Street
Edmonton, Alberta
Canada T5G 1W9
All Officers and Directors Common Stock 1,480,137 18.3%
As a Group(4 persons)
- ---------------------------------
(1) Percentage based on 8,056,804 shares of Common Stock outstanding.
(b) The Company currently has no non-voting securities outstanding.
(c) Options, Warrants and Rights
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<PAGE>
<TABLE>
<CAPTION>
SECURITIES CALLED FOR BY EXERCISE EXERCISE
NAME OF HOLDER OPTIONS, WARRANTS AND RIGHTS PRICE DATE
- -------------- ---------------------------- ----- ----
<S> <C> <C> <C>
Todd N. Tkachuk 208,500 Shares of Common Stock $0.04 (112,500 shares) fully vested
$0.70 (96,000 shares) fully vested
Roman Kujath 150,000 Shares of Common Stock $0.80 (20,000 shares) fully vested
$0.70 (31,429 shares) fully vested
$1.00 (70,000 shares) fully vested
All Officers and Dirs. 418,500 Shares of Common Stock $0.04 (112,500 shares)
As a Group(4 persons) $0.70 (127,429 shares
$0.80 ( 20,000 shares)
$1.00 ( 70,000 shares)
</TABLE>
(d) The Company has no parents.
ITEM 6. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
(FORM 1-A MODEL B ITEM 11)
The Company pays $2,000 per month to Barry J. Gibbons, doing business as
Festina, for consulting services pursuant to an Executive Services Agreement.
The Company has currently outstanding 302,500 options to purchase common
stock under Peabody CA's 1995 Stock Option Plan, which were assumed by the
Company pursuant to the Merger. Todd Tkachuk, President of the Company, has been
issued 112,500 options at an exercise price of $0.04 per share, of which none
have been exercised. Barry Gibbons, Chairman of the Board, has been issued
100,000 options at an exercise price of $0.04 per share, and has exercised all
100,000 options. Roman Kujath, a Director of the Company, has been issued 20,000
options at an exercise price of $0.80 per share, of which none have been
exercised.
The Company has currently outstanding 444,000 options to purchase common
stock under Peabody CA's 1999 Stock Option Plan, which were assumed by the
Company pursuant to the Merger. Todd Tkachuk has been issued 96,000 such options
at an exercise price of $0.70 per share, none of which have been exercised.
Roman Kujath has been issued 60,000 at an exercise price of $0.70 per share,
28,571 of which have been exercised. Roman Kujath holds warrants for 70,000
shares of common stock at an exercise price of $1.00 per share.
ITEM 7. SECURITIES BEING REGISTERED
(FORM 1-A MODEL B ITEM 12)
COMMON STOCK
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The Company is authorized to issue up to 50,000,000 shares of Common Stock,
par value $.001. As of March 1, 2000, there were outstanding 8,056,804 shares of
Common Stock1. Holders of the Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets of the Company which are
legally available for distribution after payment of all debts and other
liabilities and liquidation preference of any outstanding Common Stock. Holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Common Stock are validly issued, fully paid
and nonassessable.
Transfer Agent and Registrar. The Company has engaged Interwest Transfer
Co., Inc., located in Salt Lake City, Utah, as independent transfer agent or
registrar.
PREFERRED STOCK
The Company is not authorized to issue preferred stock.
OPTIONS
In connection with the Plan and Agreement of Reorganization, by and between
the Company and Peabodys CA, dated March 12, 1999 (the "Agreement"), and the
Merger following the Agreement in which the Company was the surviving company
and Peabodys CA was the disappearing company, the Company assumed all rights and
obligations with respect to stock options issued by Peabodys CA. Such options
had been issued under Peabody CA's 1995 Stock Option Plan, and 1999 Stock Option
Plan, as well as non-plan option agreements.
There are currently outstanding options to purchase 1,036,429 shares of the
Company's common stock consisting of the following: (i) 302,500 options granted
under Peabodys CA's 1995 Stock Option Plan; (ii) 355,429 options granted under
Peabodys CA's 1999 Stock Option Plan; (iii) 291,000 options granted by the
Company pursuant to a board resolution dated November 1, 1999; and (iv) 87,500
pursuant to other non-plan option agreements, which were originally entered into
by Peabodys CA, and were assumed by the Company in connection with the Agreement
and the Merger.
WARRANTS
Pursuant to the Agreement and the Merger, the Company assumed all rights
and obligations with respect to outstanding warrants of Peabodys CA. There are
currently outstanding warrants for the purchase of 826,562 shares of the
Company's common stock.
CONVERTIBLE SECURITIES
- -----------------
1 Not including approximately 1,862,991 shares of Common Stock issuable upon
exercise of outstanding Options and Warrants, approximately 62,500 shares of
Common Stock issuable upon conversion of outstanding Promissory Notes.
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<PAGE>
Pursuant to the Agreement and the Merger, the Company assumed all rights
and obligations with respect to outstanding promissory notes, originally issued
by Peabodys CA in connection with an earlier financing, which are convertible
into common stock of the Company. There are currently outstanding convertible
promissory notes which can be converted into 62,500 shares of the Company's
common stock.
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<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
The Common Stock is traded in the over-the-counter market with quotations
carried on the National Association of Securities Dealers, Inc's "OTC Bulletin
Board" under the trading symbol "PBDY." Prior to the Merger of Peabodys CA into
the Company, and the associated amendment of the Articles of Incorporation to
change the Company's name, the Company was called Mine-A-Max Corporation, and
traded under the symbol "MAMX" and, for a brief period, "MAMXD." The transfer
agent and registrar for the Company is Interwest Transfer Company, Inc., located
in Salt Lake City, Utah.
The following table sets forth for the periods indicated the high and low
bid prices for shares of the Company's common stock as reported on the OTC
Bulletin Board. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
Sales Price (1)
---------------
High Low
---- ---
1997
Fourth Quarter(2) 0.5 0.15625
1998
First Quarter 0.1875 0.04
Second Quarter 0.1875 0.03125
Third Quarter 0.125 0.03
Fourth Quarter 0.06 0.02
1999(3)
First Quarter 3.125(4) 0.020
Second Quarter 3.375 1.000
Third Quarter 1.7188 0.531
(1) The source for data used in this chart is and OTC Quote Summary Report
provided by NASDAQ Trading and Marketing Services.
(2) The Company began trading on the OTC Bulletin Board in approximately
November of 1997.
(3) The Company's trading symbol during 1997 and 1998 was MAMX. In the first
quarter of 1999 the Company changed its trading symbol to PBDY.
(4) On February 26, 1999 the Company effected a 100 to 1 reverse stock split of
its outstanding shares.
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<PAGE>
The Company's Common Stock is not listed on an exchange or NASDAQ, but is
currently traded in the over-the-counter market with price quotes listed on the
OTC Bulletin Board of the National Association of Securities Dealers, Inc
("NASD"). Accordingly, an investor may find it more difficult to dispose of, or
obtain accurate quotations as to the market value of the common stock.
Recent changes to the rules of the NASD require that companies trading on
the OTC Bulletin Board, such as the Company, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, in order to
maintain price quotation privileges on the OTC Bulletin Board ("OTC Eligibility
Rule"). The Company's failure to obtain clearance of this Form 10-SB on a timely
basis has resulted in removal from the OTC Bulletin Board under the OTC
Eligibility Rule, and has adversely affected the marketability of our
securities. Furthermore, under the OTC Eligibility Rule, the Company will not
qualify for trading privileges on the OTC Bulletin Board until the staff of the
Commission notifies the staff of the NASD that there are no more comments on
this Form 10-SB.
The Company anticipates that, when this Form 10-SB is effective with no
further comments from the Securities and Exchange Commission, the Company will
apply for reinstatement on the OTC Bulletin Board. As a result of the effect of
the OTC Eligibility Rule, the market liquidity for the Company's securities
could be severely adversely affected by limiting the ability of broker-dealers
to sell our securities and the ability of shareholders sell their securities in
the secondary market.
HOLDERS
There are approximately 477 holders of the Company's common stock, which is
the only class of stock currently outstanding.
DIVIDENDS
The Company has not paid any cash dividends on its common or preferred
stock and we do not anticipate paying any such cash dividends in the foreseeable
future. Earnings, if any, will be retained to finance future growth. We may
issue shares of common stock and preferred stock in private or public offerings
to obtain financing, capital or to acquire other businesses that can improve our
performance and growth. Issuance and or sales of substantial amounts of common
stock could adversely affect prevailing market prices of our common stock
through dilution.
ITEM 2. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is a party or to which
its property is subject, nor to the best of management's knowledge are any
material legal proceedings contemplated.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company's principal accountant is Nicholson & Olson, LLP of Roseville,
California. There have been no disagreements between the Company's management
and the Company's accountant.
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<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In September of 1997 the Company issued 3,000,000 shares of its common
stock, at a price of $0.01 per share, in an offering exempt under Rule 504 of
Regulation D promulgated under Section 3(b) of the Securities Act of 1933, as
amended.
In September of 1997 the Company issued 4,500,000 shares of its common
stock, at a price of $0.001 per share, in an offering exempt under Section 4(2)
of the Securities Act of 1933, as amended.
In July of 1998 the Company issued 2,500,000 shares of its common stock, in
exchange for the retirement of promissory notes with principal amounts totaling
$70,000, in an offering exempt under Section 4(2) of the Securities Act of 1933,
as amended.
In January of 1999 the Company issued 350,000 shares of its common stock,
at a price of $0.20 per share, in an offering exempt under Section 4(2) of the
Securities Act of 1933, as amended.
On March 1, 1999 the Company issued 150,000 shares of its common stock, at
a price of $0.15 per share, in an offering exempt under Rule 504 of Regulation D
promulgated under Section 3(b) of the Securities Act, as amended. Also on March
1, 1999, the Company issued options for the purchase of 50,000 shares of common
stock, at a price of $1.00 per share, in an offering exempt under Section 4(2)
of the Securities Act of 1933, as amended.
Pursuant to the share exchange and the Merger, in accordance with the Plan
and Agreement of Reorganization, by and between the Company and Peabodys CA,
dated March 12, 1999, the Company issued 5,902,736 shares of its common stock,
in exchange for shares of Peabodys CA common stock on a one-for-one basis, in an
offering exempt under Rule 506 of Regulation D promulgated under Section 4(2) of
the Securities Act, as amended.
Between March 15, 1999 and June 24, 1999 the Company issued 131,000 shares
of its common stock, at a price of $1.00 per share, in an offering exempt under
Rule 504 of Regulation D promulgated under Section 3(b) of the Securities Act,
as amended. In connection with this offering, the Company issued warrants for
the purchase of 13,100 shares, with an exercise price of $1.00 per share, as
brokers' commissions, in an offering exempt under Section 4(2) of the Securities
Act, as amended.
On September 17, 1999, the Company issued 350,000 shares of its common
stock, at a price of $0.10 per share, in an offering exempt under Rule 504 of
Regulation D promulgated under Section 3(b) of the Securities Act, as amended.
On November 1, 1999, the Company granted options for the purchase of
500,000 shares of its common stock, with an exercise price of $0.50 per share,
pursuant to a resolution of the board of directors, under Section 4(2) of the
Securities Act, as amended.
On November 3, 1999, the Company issued warrants for the purchase of
240,000 shares of its common stock, with an exercise price of $1.00 per share,
in exchange for the cancellation of outstanding debt for professional services,
in an offering exempt under Section 4(2) of the Securities Act, as amended.
On December 22, 1999, the Company issued 31,891 shares of its common stock,
in a conversion of debt at a price of $1.00 per share, in an offering exempt
under Section 4(2) of the Securities Act, as amended.
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<PAGE>
On December 31, 1999, the Company issued 305,000 shares of its common
stock, in a conversion of debt at a price of $1.00 per share, in an offering
exempt under Section 4(2) of the Securities Act, as amended.
On December 31, 1999, the Company issued 28,571 shares of its common stock,
pursuant to an exercise of stock options, at an exercise price of $0.70 per
share, in an offering exempt under Section 4(2) of the Securities Act, as
amended.
On December 31, 1999, the Company issued 60,000 shares of its common stock,
pursuant to an exercise of stock options, at an exercise price of $0.70 per
share, in an offering exempt under Section 4(2) of the Securities Act, as
amended.
On December 31, 1999, the Company issued 50,000 shares of its common stock,
pursuant to an exercise of stock options, at an exercise price of $0.50 per
share, in an offering exempt under Section 4(2) of the Securities Act, as
amended.
On December 31, 1999, the Company issued 34,000 shares of its common stock,
pursuant to an exercise of stock options, at an exercise price of $0.50 per
share, in an offering exempt under Section 4(2) of the Securities Act, as
amended.
On December 31, 1999, the Company issued 125,000 shares of its common
stock, pursuant to an exercise of stock options, at an exercise price of $0.50
per share, in an offering exempt under Section 4(2) of the Securities Act, as
amended.
On or about January 15, 2000, the Company issued 750,000 shares of its
common stock for a total purchase price of $300,000, in an offering exempt under
Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act,
as amended.
On February 28, 2000, the Company issued 34,000 shares of its common stock
as consideration for past services rendered, in an offering exempt under Section
4(2) of the Securities Act, as amended.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada General Corporation Law allows a corporation
to indemnify any person who was or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of any corporation, partnership, joint
venture, trust, or other enterprise. The Company's bylaws contain no provisions
regarding indemnification of directors.
Nevada law permits the corporation to advance expenses in connection with
defending any such proceedings, provided that the indemnitee undertakes to repay
any such advances if it is later determined that such person was not entitled to
be indemnified by the corporation. The Company's bylaws contain no provisions
regarding the advance of such funds.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions or
34
<PAGE>
otherwise, the Company has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in such act, and is therefore unenforceable.
35
<PAGE>
PART F/S
PEABODYS COFFEE, INC.
(A NEVADA CORPORATION)
------------------------------
INTERIM
FINANCIAL STATEMENTS
UNAUDITED
NINE MONTHS ENDED
DECEMBER 31, 1999 AND 1998
<PAGE>
TABLE OF CONTENTS
FINANCIAL STATEMENTS
Balance Sheets..............................................................1
Statements of Loss and Accumulated Deficit..................................2
Statement of Cash Flows.....................................................3
Notes to Financial Statements.............................................4-5
<PAGE>
PEABODYS COFFEE, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
UNAUDITED
ASSETS
1999 1998
----------- -----------
Current Assets
Cash $ 10,884 $ 107,465
Other receivables 20,663 10,253
Inventories 57,215 40,964
Prepaid expenses 6,156 8,440
----------- -----------
94,918 167,122
Property and equipment (net) 482,623 439,389
Deposits and other assets 94,140 219,803
----------- -----------
Total Assets $ 671,681 $ 826,314
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Cash overdraft $ 110,999 $ 60,774
Accounts payable 687,626 757,656
Accrued expenses 192,593 291,178
Capital lease obligations 1,330 6,983
Short-term borrowings 112,121 94,844
Bridge note financing 62,500 449,000
----------- -----------
Total liabilities 1,167,169 1,660,435
----------- -----------
Shareholders' Deficit
Common stock - 50,000,000 shares
authorized, 7,272,804 shares issued
and outstanding, $.001 par value 3,014,057 2,004,690
Preferred Stock - 15,000,000 shares
authorized, 625,000 issued and
outstanding, $.001 par value -- 250,000
Additional paid-in-capital 319,502 --
Accumulated deficit (3,829,047) (3,088,811)
----------- -----------
Total shareholders' deficit (495,488) (834,121)
----------- -----------
Total Liabilities and Shareholders' Deficit $ 671,681 $ 826,314
=========== ===========
-1-
<PAGE>
PEABODYS COFFEE, INC.
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
UNAUDITED
1999 1998
----------- -----------
Sales $ 1,577,233 $ 1,279,100
Cost of Sales 632,052 485,836
----------- -----------
Gross Profit 945,181 793,264
Operating expenses
Employee compensation and benefits 851,581 668,361
General and administrative expenses 207,268 203,805
Occupancy 233,609 211,958
Director and professional fees 166,168 72,820
Depreciation 86,636 76,286
Settlement costs and other fees -- 40,000
----------- -----------
1,545,262 1,273,230
----------- -----------
Operating Loss (600,081) (479,966)
Other income (expense)
Forgiveness of debt 456,351 --
Interest expense (64,815) (64,784)
----------- -----------
Net Loss (208,546) (544,750)
Accumulated Deficit, beginning of period (3,620,501) (2,544,061)
----------- -----------
Accumulated Deficit, end of period $(3,829,047) $(3,088,811)
=========== ===========
-2-
<PAGE>
PEABODYS COFFEE, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1999
UNAUDITED
1999
----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (208,546)
Adjustments to reconcile net (loss) to net cash
provided by (applied to) operating activities:
Depreciation and amortization 86,636
Cash (used) provided by changes in operating
assets and liabilities:
Increase in receivables (10,410)
Increase in inventories (16,251)
Decrease in prepaid expenses 2,284
Decrease in accounts payable (70,030)
Decrease in accrued expenses (98,585)
----------
Net cash used by operating activities (314,902)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (129,870)
Reductions to deposits and other assets 125,663
----------
Net cash used by investing activities (4,207)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 203,500
Payments on short-term borrowings (115,480)
Net proceeds from sale of stock 156,181
Payments on capital lease obligations (5,653)
----------
Net cash provided by financing activities 238,458
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (80,651)
CASH AND CASH EQUIVALENTS
Beginning of period (19,464)
----------
End of period $ (100,115)
==========
-3-
<PAGE>
PEABODYS COFFEE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements and related notes have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments of a normal and recurring nature
which were considered necessary for a fair presentation of these financial
statements have been included. It is suggested that these statements are read in
conjunction with the financial statements and footnotes thereto included in the
annual report of the Company on Form 10-KSB for the year ended March 31, 1999.
The results of operations for the period ended December 31, 1999, may not
necessarily be indicative of the operating results for the entire fiscal year.
NOTE 2 - GOING CONCERN
The Company has suffered recurring operating losses and, at December 31, 1999,
had a net deficiency in assets. These conditions raise substantial doubt about
the ability of the Company to continue as a going concern. Several steps have
been taken by the Company in attempt to increase working capital and improve
profitability. Management has instituted a program to eliminate a minimum of $1
million of debt from its balance sheet. Currently, this ongoing program has
resulted in debt conversion and/or debt forgiveness totaling more than $975,000.
Management is confident that it will meet its debt reduction objective. In
conjunction with the debt reduction program, the Company has successfully
secured $300,000 of private equity capital in January 2000.
In July of 1999 the Company took steps to reduce inventory levels at its
warehousing facilities. In addition, the Company commenced with a staged plan to
reorganize its operating supervision model that when fully implemented, will
eliminate a layer of field management. The Company continued with its expansion
by relocating two of its under performing kiosks to San Diego State University
in an effort to upgrade overall unit performance and add critical mass to the
San Diego market. Also, the Company is continuing to seek quality expansion
opportunities and investment.
-4-
<PAGE>
PEABODYS COFFEE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
UNAUDITED
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less depreciation and amortization.
Depreciation and amortization are primarily accounted for on the straight-line
method over the estimated useful lives of the assets, generally ranging from
five to seven years. The amortization of site improvements is based on the
shorter of the lease term or the life of the improvement.
The Company has satisfactory title to all items of property and equipment
reflected in the accounts relating hereto.
At December 31, 1999, property and equipment were comprised of the following:
Kiosk carts $ 1,170
Kiosk equipment 503,982
Equipment and furniture 208,129
Signage 41,095
Site improvements 79,540
---------
833,916
Less: accumulated depreciation (351,293)
---------
$ 482,623
=========
-5-
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 Plan and Agreement of Reorganization
2.2 Articles of Merger
3(i).1 Articles of Incorporation of Kimberley Mines, Inc.
3(i).2 Certificate of Amendment of Articles of Incorporation
(Mine-A-Max Corp.)
3(i).3 Certificate of Amendment of Articles of Incorporation
(Peabodys Coffee, Inc.)
3(ii).1 Amended and Restated Bylaws of Peabodys Coffee, Inc.
10.1 Peabodys Coffee, Inc. 1995 Stock Option Plan
10.2 Peabodys Coffee, Inc. 1999 Stock Option Plan
10.3 Letter of Intent with Arrosto Coffee Company LLC
10.4 Letter of Intent with Grounds for Enjoyment
10.5 Executive Services Agreement with Barry J. Gibbons
10.6 General Agreement (letter agreement) with Elliot, Lane &
Associates, Inc.
10.7 Proposed Professional Services Agreement with Elliot, Lane &
Associates, Inc.
37
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PEABODYS COFFEE, INC.,
A Nevada Corporation
By: /s/ Todd Tkachuk
--------------------------------
Todd Tkachuk, President
Date:
--------------------------------
38
